[Federal Register Volume 61, Number 168 (Wednesday, August 28, 1996)]
[Rules and Regulations]
[Pages 44396-44618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: X96-10828]



[[Page 44395]]


_______________________________________________________________________

Part II





Department of Health and Human Services





_______________________________________________________________________



Food and Drug Administration



_______________________________________________________________________



21 CFR Part 801, et al.



Regulations Restricting the Sale and Distribution of Cigarettes and 
Smokeless Tobacco to Protect Children and Adolescents; Final Rule

  Federal Register / Vol. 61, No. 168 / Wednesday, August 28, 1996 / 
Rules and Regulations  

[[Page 44396]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Parts 801, 803, 804, 807, 820, and 897

[Docket No. 95N-0253]
RIN 0910-AA48


Regulations Restricting the Sale and Distribution of Cigarettes 
and Smokeless Tobacco to Protect Children and Adolescents

AGENCY: Food and Drug Administration, HHS.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Food and Drug Administration (FDA) is issuing regulations 
governing access to and promotion of nicotine-containing cigarettes and 
smokeless tobacco to children and adolescents.
    The regulations prohibit the sale of nicotine-containing cigarettes 
and smokeless tobacco to individuals under the age of 18; require 
manufacturers, distributors, and retailers to comply with certain 
conditions regarding the sale and distribution of these products; 
require retailers to verify a purchaser's age by photographic 
identification; prohibit all free samples and prohibit the sale of 
these products through vending machines and self-service displays 
except in facilities where individuals under the age of 18 are not 
present or permitted at any time; limit the advertising and labeling to 
which children and adolescents are exposed to a black-and-white, text-
only format; prohibit the sale or distribution of brand-identified 
promotional nontobacco items such as hats and tee shirts; prohibit 
sponsorship of sporting and other events, teams, and entries in a brand 
name of a tobacco product, but permit such sponsorship in a corporate 
name; and require manufacturers to provide intended use information on 
all cigarette and smokeless tobacco product labels and in cigarette 
advertising.
    These regulations will address the serious public health problems 
caused by cigarettes and smokeless tobacco products. They will reduce 
children's and adolescents' easy access to cigarettes and smokeless 
tobacco and will significantly decrease the amount of positive imagery 
that makes these products so appealing to that age group.

    The regulations are predicated on the agency's assertion of 
jurisdiction under the Federal Food, Drug, and Cosmetic Act over 
cigarettes and smokeless tobacco as delivery devices for nicotine, 
incorporated as part of the regulations for purposes of, and to 
facilitate, congressional review under the Small Business Regulatory 
Enforcement Fairness Act of 1996.

DATES: Effective date. The regulation is effective August 28, 1997, 
except that Sec. 897.14(a) and (b) are effective February 28, 1997 and 
Sec. 897.34(c) is effective February 28, 1998.
    Compliance dates. Manufacturers and distributors are required to 
comply with the requirements of 21 CFR parts 803 and 804 August 28, 
1997; manufacturers are required to comply with the requirements of 21 
CFR parts 807 and 820 February 28, 1998.

ADDRESSES: References listed in the footnotes of this document have 
been placed on public display at the Dockets Management Branch (HFA-
305), Food and Drug Administration, 12420 Parklawn Dr., rm. 1-23, 
Rockville, MD 20857, and may be seen by interested persons between 9 
a.m. and 4 p.m., Monday through Friday.

FOR FURTHER INFORMATION CONTACT: Nancy Yeates, Office of Policy (HF-
26), Food and Drug Administration, 5600 Fishers Lane, Rockville, MD 
20857, 301-827-0867.

SUPPLEMENTARY INFORMATION:
Preamble Outline
I. Introduction
    A. Purpose and Overview of the Rule
    B. Background
    C. Provisions of the Rule
II. Legal Authority
    A. Legal Principles Applicable to Combination Drug/Device 
Products
      1. The SMDA Recognized Combination Products for the First Time
      2. The SMDA Leaves to FDA's Discretion the Determination of 
Which Regulatory Authorities to Apply to Particular Combination 
Products
      3. Interpreting the SMDA to Allow the Agency to Determine 
Which Regulatory Scheme Best Serves the Public Health is Consistent 
With 50 Years of Case Law
      4. The Implementing Regulations and the Delegations of 
Authority Reflect FDA's Interpretation That Section 503(g) of the 
Act Authorizes the Agency to Determine the Appropriate Regulatory 
Authorities
      5. The Intercenter Agreements and Administrative Precedent 
Recognize That FDA May Determine Which Regulatory Authority to Apply 
to a Particular Product
    B. Cigarettes and Smokeless Tobacco Have Both a Drug and a 
Device Component and Are Therefore Combination Products
    C. FDA's Choice of Legal Authorities
      1. FDA Will Regulate Cigarettes and Smokeless Tobacco Under 
the Act's Device Authorities
      2. Cigarettes and Smokeless Tobacco Will be Subject to the 
Full Range of Device Authorities
      3. The Restricted Device Provision Authorizes FDA to Establish 
Access and Advertising Restrictions
      4. Application of Other Device Authorities
      5. FDA Will Classify Cigarettes and Smokeless Tobacco Under 
Section 513 of the Act
    D. The Fact That the Act's Drug Authorities Authorize the 
Imposition of Similar Restrictions Supports the Reasonableness of 
the Restrictions That the Agency Has Imposed
    E. Constitutional Issues Regarding Authority
      1. Separation of Powers
      2. Nondelegation Doctrine
III. Overview of Comments, Smoking Prevalence Rates Among Minors, 
Scope, Purpose, and Definitions
    A. Overview of Comments
    B. Smoking Prevalence Rates Among Minors
    C. Scope
    D. Purpose (Sec. 897.2)
    E. Definitions (Sec. 897.3)
IV. Access
    A. General Comments
    B. General Responsibilities of Manufacturers, Distributors, and 
Retailers (Sec. 897.10)
    C. Additional Responsibilities of Manufacturers (Sec. 897.12)
      1. Removal of Manufacturer-Supplied or Manufacturer-Owned 
Items That Do Not Comply With the Regulations
      2. Visual Inspections by a Manufacturer's Representative at 
Each Point of Sale
    D. Additional Responsibilities of Retailers (Sec. 897.14)
      1. Use of Photographic Identification to Verify Age
      2. Minimum Age
      3. Restrictions Against ``Impersonal'' Modes of Sale
      4. Restrictions Against the Sale of Individual Cigarettes
      5. Additional Comments
    E. Conditions of Manufacture, Sale, and Distribution 
(Sec. 897.16)
      1. Restrictions on Nontobacco Trade Names on Tobacco Products
      2. Minimum Package Size
      3. Maximum Package Size
      4. Impersonal Modes of Sale
V. Label
    A. Established Name (Sec. 897.24)
    B. Package Design
    C. Ingredient Labeling
    D. Labeling for Intended Use
    E. Adequate Directions for Use and Warnings Against Use (Section 
502(f) of the act)
    F. Package Inserts
VI. Advertising
    A. Subpart D--Restrictions on Advertising and Labeling of 
Tobacco Products
    B. The Need for Advertising Restrictions
      1. Advertising and Young People
      2. Advertising and Adults
    C. The Regulations Under the First Amendment
      1. Introduction

[[Page 44397]]

      2. The Central Hudson Test
      3. Is Cigarette and Smokeless Tobacco Advertising Misleading, 
or Does It Relate to Unlawful Activity?
      4. Is the Asserted Government Interest Substantial?
    D. Evidence Supporting FDA's Advertising Restrictions
      1. Introduction
      2. Do the Regulations Directly Advance the Governmental 
Interest Asserted?
      3. Is There Harm? Does Advertising Affect the Decision by 
Young People to Use Tobacco Products?
      4. Why Young People Use Tobacco and the Role of Advertising in 
That Process
      5. Has The Agency Met Its Burden?
      6. The Efficacy of the Restrictions; Empirical Evidence 
Concerning Advertising Restrictions
    E. Provisions of the Final Rule
      1. Are FDA's Regulations Narrowly Drawn?
      2. Section 897.30(a)--Permissible Forms of Labeling and 
Advertising
      3. Section 897.30(b)--Billboards
      4. Section 897.32(a)--Text-Only Format
      5. Section 897.32(a)--Definition of ``Adult Publication''
      6. Advertising--Sec. 897.32 Requirements for Disclosure of 
Important Information
      7. Section 897.34(a) and (b)--Promotions, Nontobacco Items, 
and Contests and Games of Chance
      8. Section 897.34(c)--Sponsorship of Events
      9. Proposed Sec. 897.36--False or Misleading Statements
    F. Additional First Amendment Issues
VII. Education Campaign
VIII. Additional Regulatory Requirements
IX. Implementation Dates
X. Relationship Between the Rule and Other Federal and State Laws
    A. The Federal Cigarette Labeling and Advertising Act
    B. The Comprehensive Smokeless Tobacco Health Education Act
    C. Conflict with Congressional Purpose Behind Current Regulatory 
Scheme for Tobacco Products
      1. The Cigarette Act and the Smokeless Act
      2. The PHS Act
    D. Occupation of the Field
    E. Preemption of State and Local Requirements Under Section 
521(a) of the Act
    F. Preemption of State Product Liability Claims Under Section 
521(a) of the Act
XI. Miscellaneous Constitutional Issues
    A. Takings Under the Fifth Amendment
      1. The Interests at Issue
      2. The Takings Analysis
      3. The Character of the Governmental Action
      4. The Economic Impact of the Governmental Action
      5. Interference with Reasonable Investment-backed Expectations
      6. Summary
    B. Substantive Due Process, Equal Protection, and Restrictions 
on Use of Trade Names
    C. Procedural Due Process Under the Fifth Amendment
XII. Procedural Issues
    A. Introduction
    B. Adequacy of the Record
      1. The Administrative Record
      2. The Agency's Use of Confidential Documents
      3. The Claim that FDA Relied on ``Unknown'' Undisclosed Data
      4. The Claim that FDA Failed to Include in the Record New Drug 
Application (NDA) Data on Which it Relied
      5. The Agency's Reliance in the Final Rulemaking on New 
Materials
    C. Adequacy of the Notice
      1. The Agency Provided Adequate Notice of the Key Legal and 
Factual Issues
      2. The Agency Provided a ``Reasoned Explanation'' for its 
Current Position
    D. Adequacy of the Comment Period
    E. Conclusion
XIII. Executive Orders
    A. Executive Order 12606: The Family
    B. Executive Order 12612: Federalism
    C. Executive Order 12630: Governmental Actions and Interference 
with Constitutionally Protected Property Rights
XIV. Environmental Impact
XV. Analysis of Impacts
    A. Introduction and Summary
    B. Statement of Need for Action
    C. Regulatory Benefits
      1. Prevalence-Based Studies
      2. FDA's Methodology
      3. Reduced Incidence of New Young Smokers
      4. Reduced Number of Adult Smokers
      5. Lives Saved
      6. Life-Years Saved
      7. Monetized Benefits of Reduced Tobacco Use
      8. Reduced Medical Costs
      9. Reduced Morbidity Costs
      10. Benefits of Reduced Mortality Rates
      11. Reduced Fire Costs
      12. Smokeless Tobacco
      13. Summary of Benefits
    D. Regulatory Costs
      1. Number of Affected Retail Establishments
      2. Removing Self-Service and Other Prohibited Retail Displays
      3. Label Changes
      4. Educational Program
      5. Restricted Advertising and Promotional Activities
      6. Training
      7. Access Restrictions
      8. I.D. Checks
      9. Vending Machines
      10. Readership Surveys
      11. Records and Reports
      12. Government Enforcement
      13. Comparison of Benefits to Cost
    E. Distributional Effects
      1. Tobacco Manufacturers and Distributors
      2. Tobacco Growers
      3. Vending Machine Operators
      4. Advertising Sector
      5. Retail Sector
      6. Other Private Sectors
      7. Excise Tax Revenues
    F. Small Business Impacts
    G. Other Alternatives
    H. Unfunded Mandates Reform Act of 1995
XVI. Paperwork Reduction Act of 1995
    A. Comments on the Paperwork Reduction Act Statement
    B. Information Collection Provisions in the Final Rule
XVII. Congressional Review
Codified Language

I. Introduction

A. Purpose and Overview of the Rule

    This rule establishes regulations restricting the sale and 
distribution of cigarettes and smokeless tobacco to children and 
adolescents, implementing FDA's determination that it has jurisdiction 
over these products under the Federal Food, Drug, and Cosmetic Act (the 
act). As described in ``Nicotine in Cigarettes and Smokeless Tobacco Is 
a Drug and These Products Are Nicotine Delivery Devices Under the 
Federal Food, Drug, and Cosmetic Act: Jurisdictional Determination'' 
(the 1996 Jurisdictional Determination), annexed hereto, FDA has 
determined that cigarettes and smokeless tobacco are intended to affect 
the structure or function of the body, within the meaning of the act's 
definitions of ``drug'' and ``device.'' The nicotine in cigarettes and 
smokeless tobacco is a ``drug,'' which produces significant 
pharmacological effects in consumers, including satisfaction of 
addiction, stimulation, sedation, and weight control. Cigarettes and 
smokeless tobacco are combination products consisting of the drug 
nicotine and device components intended to deliver nicotine to the 
body.
    FDA has chosen to regulate cigarettes and smokeless tobacco under 
the act's device authorities. This rule allows the continued marketing 
of these products, while employing measures to prevent future 
generations of Americans from becoming addicted to them. As discussed 
in section I.B. of this document, most people who use cigarettes and 
smokeless tobacco begin their use before the age of 18 and, therefore, 
before they fully understand the addictive nature and serious health 
risks of these products. Even though the sale of tobacco products to 
minors is illegal in 50 States, the tobacco industry has adopted 
extensive marketing campaigns which appeal to children and adolescents. 
Therefore, the rule effects measures that would both complement the 
existing State restrictions on access and prevent

[[Page 44398]]

tobacco companies from marketing their products to children and 
adolescents.
    In determining the best course of action, the agency considered the 
highly addictive nature of cigarettes and smokeless tobacco and the 
fact that these products have previously been lawfully marketed to 
millions of adult Americans. The agency has determined that the 
approach outlined in this document--restrictions to reduce the use of 
cigarettes and smokeless tobacco by individuals under the age of 18 
while leaving these products on the market for adults--is the available 
option that is the most consistent with both the act and the agency's 
mission to protect the public health.
    The agency intends to assist affected entities, including 
retailers, distributors, and manufacturers, in complying with the rule. 
The agency also will issue a small entities guide in easy to understand 
language. In addition, the agency will conduct workshops throughout the 
country to assist affected entities in complying with the rule.

B. Background

    Approximately 50 million Americans currently smoke cigarettes and 
another 6 million use smokeless tobacco. \1\ In the Federal Register of 
August 11, 1995 (60 FR 41314), FDA published a proposed rule entitled 
``Regulations Restricting the Sale and Distribution of Cigarettes and 
Smokeless Tobacco Products to Protect Children and Adolescents'' (the 
1995 proposed rule). As stated in the preamble to the 1995 proposed 
rule, tobacco use is the single leading cause of preventable death in 
the United States. \2\ More than 400,000 people die each year from 
tobacco-related illnesses, such as cancer, respiratory illnesses, and 
heart disease, often suffering long and painful deaths. \3\ Tobacco 
alone kills more people each year in the United States than acquired 
immunodeficiency syndrome (AIDS), car accidents, alcohol, homicides, 
illegal drugs, suicides, and fires, combined. \4\
---------------------------------------------------------------------------

    \1\ ``National Household Survey on Drug Abuse: Population 
Estimate 1993, Department of Health and Human Services (DHHS), 
Public Health Service (PHS), Substance and Mental Health Services 
Administration (SAMHSA), Office of Applied Studies, Rockville, MD, 
Pub. No. (SMA) 94-3017, pp. 89 and 95, 1994.
    \2\ ``Cigarette Smoking--Attributable Mortality and Years of 
Potential Life Lost--United States, 1990,'' Mortality and Morbidity 
Weekly Report, (MMWR) CDC, DHHS, vol. 42, No. 33, pp. 645-649, 1993; 
Lynch, B. S., and R. J. Bonnie, editors, Growing Up Tobacco Free--
Preventing Nicotine Addiction in Children and Youths, Committee on 
Preventing Nicotine Addiction in Children and Youths, Division of 
Biobehavioral Sciences and Mental Disorders, Institute of Medicine, 
National Academy Press, Washington, DC, p.3, 1994, (hereinafter 
cited as ``IOM Report'').
    \3\ ``Cigarette Smoking--Attributable Mortality and Years of 
Potential Life Lost--United States, 1990,'' MMWR, CDC, DHHS, vol. 
42, No. 33, pp. 645-649, 1993.
    \4\ IOM Report, pp. 3-4.
---------------------------------------------------------------------------

    Tobacco products have historically been legal and widely available 
in this country. It was only after millions of people became addicted 
to the nicotine in cigarettes and smokeless tobacco that health experts 
became fully aware of the extraordinary health risks involved in the 
consumption of these products. Consequently, tobacco use has become one 
of the most serious public health problems facing the United States 
today. Because of the grave health consequences of the use of tobacco 
products, some have argued that they should be removed from the market.
    However, a ban would have adverse health consequences and would not 
be likely to prevent individuals from gaining access to these products. 
Of the 50 million people who use cigarettes, 77 to 92 percent are 
addicted. \5\ Data suggest that almost as many smokeless tobacco users 
may be addicted. \6\ Adverse health consequences could result if these 
people were suddenly deprived of the nicotine these products deliver. 
As stated in the preamble to the 1995 proposed rule:
---------------------------------------------------------------------------

    \5\ See authorities cited at 1996 Jurisdictional Determination, 
Section II(B)(2)(a).
    \6\ Id.
---------------------------------------------------------------------------

    Because of the high addiction rates and the difficulties smokers 
experience when they attempt to quit, there may be adverse health 
consequences for many individuals if the products were to be 
withdrawn suddenly from the marketplace. Our current health care 
system and available pharmaceuticals may not be able to provide 
adequate or sufficiently safe treatment for such a precipitous 
withdrawal.
(60 FR 41314 at 41348)
A similar situation would exist for addicted smokeless tobacco users.
    It is probable also that a black market and smuggling would develop 
to supply addicted users with these products. As stated in the preamble 
to the 1995 proposed rule, and discussed further in section II.C.5. of 
this document, ``[t]he products that would be available through a black 
market could very well be more dangerous (e.g., cigarettes containing 
more tar or nicotine, or more toxic additives) than products currently 
on the market'' (60 FR 41314 at 41349). Thus, the agency has concluded 
that, while taking cigarettes and smokeless tobacco off the market 
could prevent some people from becoming addicted and reduce death and 
disease for others, the record does not establish that such a ban is 
the appropriate public health response under the act.
    To effectively address the death and disease caused by tobacco 
products, addiction to cigarettes and smokeless tobacco must be 
eliminated or substantially reduced. The evidence demonstrates that 
this can be achieved only by preventing children and adolescents from 
starting to use tobacco. Most people who suffer the adverse health 
consequences of using cigarettes and smokeless tobacco begin their use 
before they reach the age of 18, an age when they are not prepared for, 
or equipped to, make a decision that, for many, will have lifelong 
consequences. These young people do not fully understand the serious 
health risks of these products or do not believe that those risks apply 
to them. They are also very impressionable and therefore vulnerable to 
the sophisticated marketing techniques employed by the tobacco 
industry, techniques that associate the use of tobacco products with 
excitement, glamour, and independence. When cigarette and smokeless 
tobacco use by children and adolescents results in addiction, as it so 
often does, these youths lose their freedom to choose whether or not to 
use the products as adults.
    The facts on underage use confirm this pattern. As stated in the 
preamble to the 1995 proposed rule, approximately 3 million American 
adolescents currently smoke and an additional 1 million adolescent 
males use smokeless tobacco. \7\ Eighty-two percent of adults who ever 
smoked had their first cigarette before the age of 18, and more than 
half of them had already become regular smokers by that age. \8\ Among 
smokers ages 12 to 17 years, 70 percent already regret their decision 
to smoke and 66 percent say that they want to quit. \9\
---------------------------------------------------------------------------

    \7\ ``Preventing Tobacco Use Among Young People: A Report of the 
Surgeon General,'' DHHS, PHS, CDC, National Center for Chronic 
Disease Prevention and Health Promotion, the Office on Smoking and 
Health (OSH), Atlanta, GA, p. 5, 1994, (hereinafter cited as ``1994 
SGR'').
    \8\ 1994 SGR, p. 65.
    \9\ ``Teen-Age Attitudes and Behavior Concerning Tobacco,'' The 
George H. Gallup International Institute, p. 54, September 1992.
---------------------------------------------------------------------------

    Moreover, children and adolescents are beginning to smoke at 
younger ages than ever before. Despite a decline in smoking rates in 
most segments of the American adult population, the rates among 
children and adolescents have recently begun to rise. \10\ Data 
reported

[[Page 44399]]

in December 1995, after publication of the 1995 proposed rule, showed 
increases in 30-day prevalence rates of cigarette smoking for 4 
consecutive years for 8th- and 10th-graders, and 3 consecutive years 
for high school seniors. \11\ Daily use of cigarettes by 8th-, 10th-, 
and 12th-graders has also increased in each of the last 3 years. \12\ 
The percentage of 8th- and 10th-graders who reported smoking in the 30 
days before the survey had risen by one-third since 1991 to about 19 
percent and 28 percent, respectively. \13\ Similarly, the percentage of 
high school seniors saying that they had smoked in the 30 days before 
the survey had increased by more than one-fifth since 1991, to about 
33.5 percent or one in three. \14\
---------------------------------------------------------------------------

    \10\ ``Cigarette Smoking Among Adults--United States, 1991,'' 
MMWR, DHHS, CDC, vol. 42, No. 12, pp. 230-233, 1993; Johnston, L. 
D., P. M. O'Malley, and J. G. Bachman, ``National Survey Results on 
Drug Use from the Monitoring the Future Study 1975-1993, vol. I: 
Secondary School Students,'' Rockville, MD, DHHS, PHS, National 
Institutes of Health (NIH), National Institute on Drug Abuse (NIDA), 
NIH Pub. No. 94-3809, pp. 9 and 19, 79, 80, and 101, 1994; ``Smoking 
Rates Climb Among American Teen-agers, Who Find Smoking Increasingly 
Acceptable and Seriously Underestimate the Risks,'' The University 
of Michigan News and Information Service, Table 1., July 17, 1995.
    \11\ ``Results from the 1995 Monitoring the Future Survey,'' 
National Institute on Drug Abuse Briefing for Donna E. Shalala, 
Ph.D., Secretary of Health and Human Services, December 13, 1995.
    \12\ Id.
    \13\ Id.
    \14\ Id.
---------------------------------------------------------------------------

    An adolescent whose cigarette use continues into adulthood 
increases his or her risk of dying from cancer, cardiovascular disease, 
or lung disease. \15\ Moreover, the earlier a young person's smoking 
habit begins, the more likely he or she will become a heavy smoker and 
therefore suffer a greater risk of diseases caused by smoking. \16\ 
Approximately one out of every three young people who become regular 
smokers each day will die prematurely as a result. \17\
---------------------------------------------------------------------------

    \15\ McGinnis, J. M., and W. H. Foege, ``Actual Causes of Death 
in the United States,'' Journal of the American Medical Association 
(JAMA), vol. 270, No. 18, pp. 2207-2212, 1993; ``Reducing Health 
Consequences of Smoking: 25 Years of Progress, A Report of the 
Surgeon General,'' DHHS, PHS, CDC, National Center for Chronic 
Disease Prevention and Health Promotion (NCCDPHP), OSH, DHHS Pub. 
No. 89-8411, p. 5, 1989, (hereinafter cited as ``1989 SGR''); See 
generally ``The Health Consequences of Smoking: Chronic Obstructive 
Lung Disease: A Report of the Surgeon General,'' DHHS, PHS, OSH, 
1984, (hereinafter cited as ``1984 SGR''); ``The Health Consequences 
of Smoking: Cardiovascular Disease--A Report of the Surgeon 
General,'' DHHS, PHS, OSH, 1983 (hereinafter cited as ``1983 SGR''); 
``The Health Consequences of Smoking: Cancer--A Report of the 
Surgeon General,'' DHHS, PHS, OSH, 1982, (hereinafter cited as 
``1982 SGR'').
    \16\ Taioli, E., and E. L. Wynder, ``Effect of the Age at Which 
Smoking Begins on Frequency of Smoking in Adulthood,'' The New 
England Journal of Medicine, vol. 325, No. 13, pp. 968-969, 1991; 
Escobedo, L. G., et al. ``Sports Participation, Age at Smoking 
Initiation, and the Risk of Smoking Among U.S. High School 
Students,'' JAMA, vol. 269, No. 11, pp. 1391-1395, 1993; see also 
1994 SGR, p. 65.
    \17\ Memorandum from Michael P. Eriksen (CDC) to Catherine 
Lorraine (FDA) August 7, 1995 and CDC Fact Sheet (based on J. P. 
Pierce, M. C. Fiore, T. E. Novotny, E. J. Hatziandreu, and R. M. 
Davis, ``Trends in Cigarette Smoking in the United States: 
Projections to the Year 2000,'' JAMA, vol. 261, pp. 61-65, 1989; 
Unpublished data from the 1986 National Mortality Followback Survey, 
CDC, OSH; Peto, R., A. D. Lopez, J. Boreham, M. Thun, and C. Heath, 
Jr., ``Mortality from Smoking in Developed Countries, 1950-2000: 
Indirect Estimates from National Vital Statistics,'' Oxford 
University Press, Oxford, 1994).
---------------------------------------------------------------------------

    Similar problems exist with underage use of smokeless tobacco. As 
stated in the 1995 proposed rule, the market for smokeless tobacco has 
shifted dramatically toward young people since 1970 (60 FR 41314 at 
41317). School-based surveys in 1991 estimated that 19.2 percent of 9th 
to 12th-grade boys use smokeless tobacco. \18\ Among high school 
seniors who had ever tried smokeless tobacco, 73 percent did so by the 
9th grade. \19\
---------------------------------------------------------------------------

    \18\ Kann, L., W. Warren, J. L. Collins, J. Ross, B. Collins, 
and L. J. Kolbe, ``Results from the National School-Based 1991 Youth 
Risk Behavior Survey and Progress Toward Achieving Related Health 
Objectives for the Nation,'' Public Health Reports, vol. 108, (Supp. 
1), pp. 47-54, 1993.
    \19\ 1994 SGR, p. 101.
---------------------------------------------------------------------------

    As long as children and adolescents become addicted to cigarette 
and smokeless tobacco use in these numbers, there is little chance that 
society will be able reduce the toll of tobacco-related illnesses. If, 
however, the number of children and adolescents who begin tobacco use 
can be substantially diminished, tobacco-related illness can be 
correspondingly reduced because data suggest that anyone who does not 
begin smoking in childhood or adolescence is unlikely to ever begin. 
\20\
---------------------------------------------------------------------------

    \20\ Id., pp. 5, 58, and 65-67.
---------------------------------------------------------------------------

    On the basis of this evidence, the agency has determined that 
establishing restrictions to substantially reduce the number of 
children and adolescents who become addicted to cigarettes and 
smokeless tobacco best serves its public health obligations. Because 
such a small percentage of the U.S. population begins tobacco use after 
the age of 18, limiting the use of these products to the adult 
population would substantially reduce the principal source of new 
users. Thus, the appropriate emphasis is on reducing the use of tobacco 
products by children and adolescents.
    Evidence in the administrative record demonstrates that the most 
effective way to achieve such a reduction is by limiting the access to, 
and attractiveness of, cigarettes and smokeless tobacco to young 
people. FDA concludes that the act provides sufficient authority to 
issue regulations that, while leaving these products on the market for 
adult use, restrict access to and promotion of cigarettes and smokeless 
tobacco to those under 18 years of age.

C. Provisions of the Rule

    After considering numerous comments submitted in response to the 
1995 proposed rule, the agency is adopting the rule in modified form. 
New part 897 is being added to Title 21 of the Code of Federal 
Regulations and contains the regulations governing the labeling, 
advertising, sale, and distribution of cigarettes and smokeless tobacco 
to children and adolescents.
    FDA is regulating nicotine-containing cigarettes and smokeless 
tobacco as restricted devices within the meaning of the section 520(e) 
of the act (21 U.S.C. 360j(e)). While leaving these products on the 
market for adults, the final rule prohibits the sale of nicotine-
containing cigarettes and smokeless tobacco to individuals under the 
age of 18 and requires manufacturers, distributors, and retailers to 
comply with certain conditions regarding access to, and promotion of, 
these products. Among other things, the final rule requires retailers 
to verify a purchaser's age by photographic identification. It also 
prohibits all free samples and prohibits the sale of these products 
through vending machines and self-service displays except in facilities 
where individuals under the age of 18 are not present or permitted at 
any time. The rule also limits the advertising and labeling to which 
children and adolescents are exposed. The rule accomplishes this by 
generally restricting advertising to which children and adolescents are 
exposed to a black-and-white, text-only format. In addition, billboards 
and other outdoor advertising are prohibited within 1,000 feet of 
schools and public playgrounds. The rule also prohibits the sale or 
distribution of brand-identified promotional, nontobacco items such as 
hats and tee shirts. Furthermore, the rule prohibits sponsorship of 
sporting and other events, teams, and entries in a brand name of a 
tobacco product, but permits such sponsorship in a corporate name. This 
rule is intended to complement the regulations issued by SAMHSA 
implementing section 1926 of the Public Health Service Act (42 U.S.C. 
300x-26) regarding the sale and

[[Page 44400]]

distribution of tobacco products to individuals under the age of 18 
(the SAMHSA rule).
    In this document, FDA: (1) Presents its analysis of its authority 
to issue regulations that impose the enumerated restrictions on the 
sale and promotion of cigarettes and smokeless tobacco to those under 
the age of 18, while leaving cigarettes and smokeless tobacco on the 
market for adults; and (2) responds to comments on the proposed rule.

II. Legal Authority

    In the 1996 Jurisdictional Determination, annexed hereto, the Food 
and Drug Administration (FDA) \21\ has determined that cigarettes and 
smokeless tobacco are combination products consisting of a drug 
(nicotine) and device components intended to deliver nicotine to the 
body. The agency may regulate a drug/device combination product using 
the Federal Food, Drug, and Cosmetic Act's (the act's) drug 
authorities, device authorities, or both. The agency exercises its 
discretion to determine which authorities to apply in the regulation of 
combination products to provide the most effective protection to the 
public health. FDA has determined that tobacco products are most 
appropriately regulated under the device provisions of the act, 
including the restricted device authority in section 520(e) of the act 
(21 U.S.C. 360j(e)).
---------------------------------------------------------------------------

    \21\ The Secretary of the Department of Health and Human 
Services (DHHS) (the Secretary) has the authority to carry out 
functions under the act through the Commissioner of Food and Drugs 
(the Commissioner). (See section 903 of the act (21 U.S.C. 393); 21 
CFR 5.10 and 5.11.) Throughout this document, references to FDA 
include the Secretary and the Commissioner.
---------------------------------------------------------------------------

A. Legal Principles Applicable to Combination Drug/Device Products

    The agency's discretion to choose the appropriate regulatory tools 
under the act is based, in part, on the authority provided under the 
Safe Medical Devices Act of 1990 (the SMDA). FDA's interpretation, 
supported by the language of the statute and its legislative history, 
is embodied in the agency's implementing regulations codified at part 3 
(21 CFR part 3), the delegations of premarket approval authority to 
FDA's Center for Drug Evaluation and Research (CDER), Center for 
Devices and Radiological Health (CDRH), and Center for Biologics 
Evaluation and Research (CBER) that enable all three Centers to 
administer statutory authority for drugs, devices, and biologics (56 FR 
58758, November 21, 1991), and the ``intercenter agreements'' that 
guide the agency in allocating Center responsibility for various 
categories of combination products (56 FR 58760, November 21, 1991). In 
addition to the authority provided by the SMDA, the agency's discretion 
is also based on the principles recognized by the Supreme Court in 
cases such as United States v. An Article of Drug * * * Bacto-Unidisk, 
394 U.S. 784 (1969). In Bacto-Unidisk, for example, the Supreme Court 
upheld the agency's decision to regulate a diagnostic test kit under 
its drug authorities on the grounds that ``[i]t is enough for us that 
the expert agency charged with the enforcement of remedial legislation 
has determined that such regulation is desirable for the public health 
* * *.'' (Bacto-Unidisk 394 U.S. at 791-792.)
    The discussion that follows describes in more detail FDA's 
interpretation of the combination product provisions of the SMDA, the 
agency's understanding of combination products, and the way in which 
the agency has exercised its discretion in determining the most 
appropriate authorities to apply to regulate combination products.
1. The SMDA Recognized Combination Products for the First Time
    Congress enacted the SMDA's combination product provisions to 
recognize combination products as distinct entities subject to 
regulation under the act and to alleviate the difficulty the agency had 
experienced in regulating such products, especially those consisting of 
components of both a drug and a device. First, the SMDA explicitly 
recognized the existence of products that ``constitute a combination of 
a drug, device, or biological product'' (section 503(g)(1) of the act 
(21 U.S.C. 353(g)(1))). Second, the statute provided a mechanism for 
determining which agency component would be assigned the administrative 
responsibility of regulating a particular combination product (Id.).
    In accordance with its recognition of combination products, the 
SMDA changed the statutory definitions of ``drug'' and ``device'' at 
section 201(g) and (h) of the act (21 U.S.C. 321(g) and (h)). Before 
the enactment of the SMDA, section 201(g) of the act provided that a 
drug ``does not include devices or their components, parts, or 
accessories.'' The SMDA removed this language from the definition of 
``drug'' so that the terms ``drug'' and ``device'' were no longer 
mutually exclusive, thereby making it possible for a combination 
product consisting of both a drug and device to be regarded as an 
independent entity subject to regulation. The legislative history 
indicates that this definitional change was made ``to accommodate the 
principle of [combination products in] section 20'' (S. Rept. 101-513, 
101st Cong. 2d sess., at 30 (1990)). For the first time it was 
possible, as a legal matter, for a single product to have both drug and 
device components.
    The SMDA also permitted a wider range of products to meet the 
definition of a device. Prior to its amendment by the SMDA, section 
201(h) of the act defined a ``device'' as an instrument or other item 
that, among other things, ``does not achieve any of its principal 
intended purposes through chemical action within or on the body of man 
or other animals and which is not dependent upon being metabolized for 
the achievement of any of its principal intended purposes.'' The SMDA 
changed the phrase ``any of its principal intended purposes'' in the 
definition to read, ``its primary intended purposes.'' This change 
broadened the definition of device and allowed more products to be 
categorized as devices.
2. The SMDA Leaves to FDA's Discretion the Determination of Which 
Regulatory Authorities to Apply to Particular Combination Products
    Having recognized combination products, the SMDA also provided a 
clear mechanism for determining which agency component a particular 
combination product should be directed to for review. Under the SMDA, 
the agency must:
    [d]etermine the primary mode of action of the combination 
product. If the [agency] determines that the primary mode of action 
is that of--
    (A) a drug (other than a biological product), the persons 
charged with premarket review of drugs shall have primary 
jurisdiction,
    (B) a device, the persons charged with premarket review of 
devices shall have primary jurisdiction, or
    (C) a biological product, the persons charged with premarket 
review of biological products shall have primary jurisdiction.

(Section 503(g)(1) of the act)
    This section of the SMDA ``provide[d] the [agency] with firm ground 
rules to direct products promptly to that part of FDA responsible for 
reviewing the article that provides the primary mode of action of the 
combination product'' (S. Rept. 101-513, 101st Cong., 2d sess., 30 
(1990)).
    Although the SMDA provided a mechanism for determining which agency 
component, i.e., a Center, should review a particular combination 
product, the legislation left to FDA the discretion to decide which 
statutory authorities it would use in regulating a particular 
combination product. The

[[Page 44401]]

language of the SMDA makes this clear, as does the legislative history 
of the statute. Indeed, an earlier version of the bill, S. 3006, would 
arguably have removed this discretion by requiring the agency to 
regulate a product based only on its Center assignment. Thus, for 
example, if the primary mode of action were that of a drug, the product 
would be subject to regulation by CDER under the act's drug 
authorities. The earlier version's language, which Congress chose to 
strike from the final enactment, provided in relevant part:
    The [agency] shall require only one market clearance route for 
an article that constitutes a combination of a device, drug, or 
biological product. If the [agency] determines that the primary mode 
of action of the combination article is that of--
    (A) a drug (other than a biological product), neither the 
combination article nor any part of the article shall be treated as 
a device or as a biological product for market clearance purposes;
    (B) a device, neither the combination article nor any part of 
the article shall be treated as a drug or a biological product for 
market clearance purposes; or
    (C) a biological product, neither the combination article nor 
any part of the article shall be treated as a drug or a device for 
market clearance purposes.

(136 Congressional Record, S.12493, 101st Cong., 2d sess., August 4, 
1990)
    The omission of this language from the statute indicates that while 
Congress considered dictating which regulatory authority must be 
applied to particular combination products, and knew how to craft 
language to accomplish such a result, Congress ultimately chose to rely 
on FDA's expertise in determining the most appropriate regulatory tools 
needed to ensure the safety and effectiveness of the combination 
products that it regulates.
    Moreover, Congress enacted language that recognizes that the agency 
may choose the appropriate regulatory authority for a particular 
combination product. Section 503(g)(2) of the act provides that nothing 
``shall prevent the [Agency] from using any agency resources of the 
Food and Drug Administration necessary to ensure adequate review of the 
safety, effectiveness, or substantial equivalence of an article.'' 
Since the enactment of the SMDA, the agency has interpreted the phrase 
``any agency resources'' to include administrative resources and all 
applicable statutory authorities. See Drug/Device Intercenter 
Agreement, p. 2, contemporaneous interpretation that:
    [u]nder the provisions of the Safe Medical Devices Act of 1990 
and regulations promulgated to implement the combination product 
provisions of the Act, [the Center for Drug Evaluation and Research] 
and [the Center for Devices and Radiological Health] each may use 
both the drug and device provisions of the Federal Food, Drug, and 
Cosmetic Act as appropriate to regulate a combination product.

(See 21 CFR Part 3).
    (See also 56 FR 58754 at 58759, November 21, 1991 (FDA amending its 
procedural regulations at part 5 by adding delegations of authority 
relating to the premarket review of combination products to state that 
those specified officials in CBER, CDRH, or CDER ``who currently hold 
delegated premarket approval authority for biologics, devices, or 
drugs, respectively, are hereby delegated all the authorities necessary 
for premarket approval of any product that is a biologic, a device, or 
a drug, or any combination of two or more of these products: * * *'' 
(21 CFR 5.33).) Thus, when a combination product, a single entity, 
consists of a component that may be regulated as a drug, the act's drug 
provisions and device provisions are ``resources'' available to the 
agency for regulating the product.

    (1) One comment disputed the agency's interpretation of section 
503(g)(2) of the act, stating that the language of section 503(g)(2) 
can be construed to mean only ``people, laboratories, and other agency 
support. The term `Agency resources' does not mean `legal authorities' 
as FDA would like to believe.''
    FDA disagrees with this comment. The agency notes that there is 
nothing in the statute itself or the legislative history that suggests 
any reason that the expansive phrase ``any FDA resources'' should be 
narrowly interpreted given the important public health benefit 
(``ensuring an adequate premarket review'') that is the goal of this 
section of the SMDA. The agency's interpretation of this language is 
supported by the SMDA's legislative history, which is discussed more 
fully in section II.A.2. of this document. More importantly, as 
discussed previously, the agency has the discretion under the statute 
as enacted to choose the regulatory authorities most appropriate to the 
specific product at issue.
3. Interpreting the SMDA to Allow the Agency to Determine Which 
Regulatory Scheme Best Serves the Public Health is Consistent With 50 
Years of Case Law
    Construing the act as allowing the agency discretion to choose the 
most appropriate regulatory tools for a particular combination product 
is consistent with over 50 years of judicial precedent. The importance 
of interpreting the act in a manner that is consistent with the public 
health purposes of the act was recognized by the Supreme Court in 
United States v. Dotterweich, 320 U.S. 277 (1943). This case, decided 
shortly after substantial changes were made to expand the agency's 
authority by the 1938 act, addressed the breadth of the term ``person'' 
in determining who was subject to prosecution for violations of the 
act. The Court described the spirit in which the statute should be 
interpreted:
    By the Act of 1938, Congress extended the range of its control 
over illicit and noxious articles and stiffened the penalties for 
disobedience. The purposes of this legislation thus touch phases of 
the lives and health of people which, in the circumstances of modern 
industrialism, are largely beyond self-protection. Regard for these 
purposes should infuse construction of the legislation if it is to 
be treated as a working instrument of government and not merely as a 
collection of English words.

(Id. at 280)
    The approach in Dotterweich was followed by a number of cases in 
which FDA's interpretation of the statute, especially in the area of 
selecting how to regulate a product to achieve a public health purpose, 
has been granted deference and has been upheld. In United States v. An 
Article of Drug * * * Bacto-Unidisk, 394 U.S. 784 (1969), FDA's 
interpretation of the definition of the term ``drug'' and the 
applicability of the premarket review requirements were at issue. The 
Court upheld the agency's expansive interpretation of the definition of 
``drug'' to include a laboratory screening product, in large part 
because this interpretation resulted in greater protection of the 
public health by virtue of the premarket review that the product would 
be subject to as a drug. As the Court reasoned:
    It is enough for us that the expert agency charged with the 
enforcement of remedial legislation has determined that such 
regulation is desirable for the public health, for we are hardly 
qualified to second-guess the Secretary's medical judgment.

(Bacto-Unidisk, 394 U.S. at 791-792)
    The Court further stated:
    The historical expansion of the definition of drug, and the 
creation of a parallel concept of devices, clearly show, we think, 
that Congress fully intended that the Act's coverage be as broad as 
its literal language indicates--and equally clearly, broader than 
any strict medical definition might otherwise allow * * *. But we 
are all the more convinced that we must give effect to congressional 
intent in view of the well-accepted principle that remedial 
legislation such as the Food, Drug, and Cosmetic Act is

[[Page 44402]]

to be given a liberal construction consistent with the Act's 
overriding purpose to protect the public health, and specifically, 
Sec. 507's purpose to ensure that antibiotic products marketed serve 
the public with `efficacy' and `safety.'

(Id. at 798); (See also U.S. v. 25 Cases, More or Less, of An Article 
of a Device, * * * Sensor Pads, 942 F.2d 1179 (7th Cir. 1991) 
(upholding FDA's determination that a latex bag filled with a layer of 
silicone lubricant that was intended to aid women in self-examinations 
for early detection of breast cancer was a device, because, among other 
reasons, the court deferred to the agency's discretion to interpret its 
own statute based on the legislative history of the act and on the 
principles announced in Chevron U.S.A., Inc. v. Natural Resources 
Defense Council, Inc., 467 U.S. 837 (1984)); AMP, Inc. v. Gardner, 389 
F.2d 825, 830 (2d Cir.), cert. denied, sub nom. AMP, Inc. v. Cohen, 393 
U.S. 825 (1968) (upholding FDA's classification of appellant's product 
for tying off severed blood vessels as a drug because, in part, the 
court was reluctant to give a narrow construction to the act, 
``touching the public health as it does'').)
    These cases stand for two principles: (1) FDA's interpretations of 
its own statute should be given deference, and (2) the act should be 
interpreted expansively to achieve its primary purpose, protecting the 
public health. These principles support the agency's determinations, 
carefully made after applying its considerable scientific expertise to 
the evaluation of the evidence before it, that cigarettes and smokeless 
tobacco are drug delivery devices and that these combination products 
are most appropriately regulated using the device authorities of the 
act. The agency's decision regarding tobacco products is consistent 
with other determinations that the agency has made, which have been 
upheld and endorsed by the courts, to regulate products in the most 
reasonable manner that will result in the best protection of the public 
health.
4. The Implementing Regulations and the Delegations of Authority 
Reflect FDA's Interpretation That Section 503(g) of the Act Authorizes 
the Agency to Determine the Appropriate Regulatory Authorities
    FDA's implementing regulations and delegations of authority, 
adopted shortly after passage of the SMDA, reflect the agency's 
contemporaneous interpretation of section 503(g) of the act as 
authorizing the agency to apply the most appropriate regulatory 
authorities to any given combination product. In Sec. 3.2(e)(1), FDA 
defined a combination product to include, in relevant part:
    A product comprised of two or more regulated components, i.e., 
drug/device, biologic/device, drug/biologic, or drug/device/
biologic, that are physically, chemically, or otherwise combined or 
mixed and produced as a single entity[.]

    In a final rule that published in the Federal Register of November 
21, 1991 (56 FR 58754), the agency explained that ``the term 
combination product means a product comprised of two or more different 
regulated entities, e.g., drug, device, or biologic * * *'' or that are 
produced together as a single entity, packaged together, or used 
together to achieve the intended effect. Thus, the fact that a single 
product contains elements of two or more regulated entities does not 
change the regulatory status of the individual elements. Each 
``different regulated entit[y]'' of the combination continues to 
satisfy the criteria of its relevant statutory definition; that is, a 
drug component must satisfy the definition in section 201(g) of the 
act, and a device component must comply with the definition in section 
201(h) of the act. Because the elements of a combination product meet 
more than one jurisdictional definition, the agency may apply one or 
more sets of regulatory provisions to the product.
    In the same issue of the Federal Register in which the agency 
published the final regulations governing combination products, the 
agency published delegations of authority that allow the officials in 
CDER, CDRH, and CBER to utilize the premarket approval authorities for 
any product that is a drug, device, biologic, or any combination of two 
or more of these (56 FR 58758, November 21, 1991 (21 CFR 5.32)). These 
delegations allow the officials of one Center to conduct a premarket 
review of a product under another Center's regulatory authority, 
thereby making it possible, for example, for CDER to review a drug/
device combination product under the device authorities. While the 
combination product regulations created the procedure for making the 
proper Center assignment, the delegations were necessary in order for 
FDA to exercise its discretion to determine which regulatory authority 
is most appropriate and to make it possible to apply that authority to 
review a particular product. If the primary mode of action of a 
combination product having drug and device components resulted in the 
assignment of the product to CDER, for example, but the agency 
determined that the device component of the product presented the most 
important regulatory and scientific questions, the delegations make it 
possible for CDER officials to conduct the premarket review of the 
product under the device provisions of the act.
    The regulations and the delegations of authority constitute the 
agency's contemporaneous interpretation of section 503(g) of the act as 
granting the agency discretion to choose the premarket approval 
authority that provides the best public health protection. Such 
contemporaneous interpretations by an agency are entitled to 
considerable deference by the courts. (See Young v. Community Nutrition 
Institute, 476 U.S. 974 (1986).)
5. The Intercenter Agreements and Administrative Precedent Recognize 
That FDA May Determine Which Regulatory Authority to Apply to a 
Particular Product
    In addition to the regulations and delegations of authority 
implementing section 503(g) of the act, FDA has also adopted and made 
public three guidance documents, entitled ``Intercenter Agreements,'' 
that describe the agreements reached among the Centers about regulatory 
pathways for specified products or classes of products as of October 
31, 1991. (See Intercenter Agreement Between the Center for Biologics 
Evaluation and Research and the Center for Devices and Radiological 
Health; Intercenter Agreement Between the Center for Drug Evaluation 
and Research and the Center for Devices and Radiological Health (the 
Drug/Device Agreement); and Intercenter Agreement Between the Center 
for Drug Evaluation and Research and the Center for Biologics 
Evaluation and Research.)
    These documents detail which Center generally will have the lead 
responsibility for regulating particular types of products. The 
Intercenter Agreements also state which regulatory authority usually 
will be applied to specific products. For example, the Drug/Device 
Agreement provides that a device with the primary purpose of delivering 
or aiding in the delivery of a drug and distributed containing a drug 
(i.e., ``prefilled delivery system'') will be regulated by ``CDER using 
drug authorities and device authorities, as necessary'' (Drug/Device 
Agreement, p. 6). Examples given of such combination products include a 
nebulizer, prefilled syringe, and transdermal patch (Drug/Device 
Agreement, p. 6). The Drug/Device Agreement specifically provides that 
such combination products may be regulated under either the drug or

[[Page 44403]]

device authorities, whichever is more appropriate for a particular 
product. \22\
---------------------------------------------------------------------------

    \22\ A later section of the Drug/Device Agreement states that a 
``device containing a drug substance as a component with the primary 
purpose of the combination product being to fulfill a drug purpose 
is a combination product and will be regulated as a drug by CDER.'' 
While this is the approach that FDA will usually take with such 
products, the earlier language of the Drug/Device Agreement 
expressly recognizes that FDA may use its device authorities where 
appropriate, and as discussed in the text, there are several 
examples of this type of prefilled delivery system being regulated 
using the device authorities.
---------------------------------------------------------------------------

    FDA's implementation of the Intercenter Agreement reflects these 
understandings. For example, one drug delivery product that has been 
regulated under the device authorities under the Drug/Device Agreement 
is the prefilled, intravenous infusion pump, manufactured by two 
companies. These are pumps designed to be sold prefilled with a 
diluent, either a sodium chloride solution or a dextrose solution. FDA 
regulates the diluents in the pumps as drugs under section 201(g)(1)(B) 
of the act because they are intended for use in the treatment of 
disease. The pumps are combination products consisting of a device 
component, the pump, and a drug component, the diluent; and the 
product's purpose is to deliver the diluent to be mixed by the doctor 
or other health care provider attending the patient with another drug 
substance for infusion into the patient. These pumps prefilled with 
diluents are clearly ``a device containing a drug substance as a 
component with the primary purpose of the combination product being to 
fulfill a drug purpose'' that would be regulated as a drug according to 
the general principle stated in the Drug/Device Agreement (Drug/Device 
Agreement, p. 14). However, the agency exercised its discretion and 
determined that these drug delivery products should be regulated under 
the device authorities.
    The agency based its determination on the fact that the drugs that 
were delivered by the products, saline and dextrose, are two 
ingredients very commonly used in intravenous infusions about which the 
agency had a wealth of scientific information and thorough regulatory 
experience. The pumps, the device component of this combination, 
however, operated on novel design principles. Because the device 
components of these combination products were new and raised 
significant regulatory questions, the agency determined that the 
products would receive the most appropriate premarket review if the 
device authorities were applied.
    Another example of the agency's use of its discretion and its 
ability under the guidance in the Intercenter Agreements to make a 
sensible decision about product assignment is its decision regarding 
regulation of a catheter flush solution containing a blood-thinning 
drug and an antibiotic. The solution is intended as a flush solution to 
prevent the catheter (or tube) inserted into a patient's body from 
becoming clogged with blood and to prevent dangerous bacteria from 
growing in the catheter. Under the Drug/Device Agreement, this product 
would appear to fit into the category of a ``liquid * * * or other 
similar formulation intended only to serve as a component * * * to a 
device with a primary mode of action that is physical in nature [and] 
will be regulated as a device by CDRH'' (see Drug/Device Agreement, p. 
13). The agency did determine that the product's premarket review would 
be conducted under the device authorities, but it assigned the review 
responsibility to CDER. The decision to follow an approach different 
from the one generally suggested in the Drug/Device Agreement was based 
on the fact that the inclusion of the blood-thinning and anti-infective 
drugs in the flush solution represented an innovation in such solutions 
and raised important scientific and regulatory questions that were most 
properly reviewed by the scientists in CDER. Because CDER was assigned 
the lead, the sponsor of this product was informed that the clinical 
investigations of this product should proceed under the investigational 
drug provisions of the act (section 505(i) of the act (21 U.S.C. 
355(i)). This determination tailored the act's premarket review 
provisions, incorporating the most appropriate sections of both the 
drug and device authorities without being redundant, to the special 
features of this original product.
    The agency has thus in the past made its jurisdiction decisions by 
determining the most reasonable course of action to protect public 
health given the scientific questions presented by each product. FDA 
considers essential its ability to continue to assess the individual 
circumstances of particular products. This will allow the agency to 
respond to technological developments, expanded scientific 
understanding, or additional factual information concerning a specific 
product or class of products.

B. Cigarettes and Smokeless Tobacco Have Both a Drug and a Device 
Component and Are Therefore Combination Products

    As discussed in detail in the 1996 Jurisdictional Determination, 
the agency has concluded that the nicotine in cigarettes and smokeless 
tobacco is a drug within the meaning of section 201(g)(1)(C) of the 
act. The agency has also concluded that cigarettes and smokeless 
tobacco contain, in addition to the drug nicotine, delivery device 
components that deliver a controlled amount of nicotine to the body. 
Thus, cigarettes and smokeless tobacco are combination products that 
contain both a ``drug'' and a ``device.''
    The agency further concluded that processed loose cigarette 
tobacco, which is used by smokers who roll their own cigarettes, is a 
combination product.

C. FDA's Choice of Legal Authorities

1. FDA Will Regulate Cigarettes and Smokeless Tobacco Under the Act's 
Device Authorities
    Having established that cigarettes and smokeless tobacco are 
combination products consisting of both a drug component and device 
components, the agency has the discretion to choose whether it will 
regulate these products under the act's drug authorities, device 
authorities, or both if appropriate. Making this determination requires 
FDA to consider how the public health goals of the act can be best 
accomplished.
    The act's drug and device provisions have a common objective: To 
ensure the safety and effectiveness of regulated products. They also 
provide the agency with similar authorities to regulate drugs and 
devices. In certain ways, however, the device provisions offer FDA more 
flexibility. The Medical Device Amendments of 1976 (the Medical Device 
Amendments) were enacted nearly 40 years after the act itself. During 
that period of time, Congress observed FDA's efforts to regulate 
devices under the authority of the act, noting that the agency's 
authority over devices became increasingly inadequate as the nature of 
the devices on the market changed (H. Rept. 94-853, 94th Cong., 2d 
sess., 6-10 (1976)).
    In 1938 most of the devices in use were ``relatively simple items 
which applied basic scientific concepts * * *'' (H. Rept. 94-853, 6). 
However, by the time the Medical Device Amendments were enacted, the 
universe of device products had evolved from primarily simple products, 
such as tongue depressors and bandages, to include a

[[Page 44404]]

variety of scientifically and technologically sophisticated products, 
such as cardiac pacemakers, lasers, and magnetic resonance imaging 
equipment. This wide range of technology posed many more varied 
regulatory concerns than those posed by drugs, which as a group of 
products are less diverse in nature.
    Congress recognized the need for specific authority for devices 
that would take into account ``the great diversity among the various 
medical devices and their varying potentials for harm as well as their 
potential benefit to improved health'' (S. Rept. 94-33, 94th Cong., 1st 
sess., 10 (1975)). Thus, with the Medical Device Amendments, Congress 
enhanced FDA's authority to tailor regulatory controls, from an array 
of statutory tools, to fit the particular safety and effectiveness 
issues presented by individual devices.
    Because of this additional flexibility, the agency has determined 
that the device authorities provide the most appropriate basis for 
regulating cigarettes and smokeless tobacco. Because millions of 
Americans are addicted to cigarettes and smokeless tobacco, regulation 
of these products presents unique safety problems that require careful, 
tailored solutions. The Medical Device Amendments provide the agency 
with regulatory options that are well suited to the unique problems 
presented by cigarettes and smokeless tobacco.
    Although the agency has determined that the device authorities are 
the most appropriate authorities for regulating cigarettes and 
smokeless tobacco, the agency disagrees with the comments that suggest 
that the agency could not regulate cigarettes and smokeless tobacco as 
drugs. To the contrary, as discussed in section II.D. of this document, 
the agency could have used its drug authorities to implement similar 
types of controls on cigarettes and smokeless tobacco as it is imposing 
under the somewhat more flexible device authorities.
2. Cigarettes and Smokeless Tobacco Will be Subject to the Full Range 
of Device Authorities
    In regulating cigarettes and smokeless tobacco, FDA will follow the 
regulatory scheme created by Congress for devices. Because the universe 
of devices is extremely diverse, presenting a broad spectrum of safety 
and effectiveness issues, the Medical Device Amendments include a wide 
range of regulatory controls. Some of these controls, such as the 
adulteration and misbranding requirements, are applicable to all 
devices, while others, such as premarket approval and restrictions on 
sale, distribution, and use, are to be applied only where FDA concludes 
that they are necessary to provide reasonable assurance of safety and 
effectiveness for particular devices. The Medical Device Amendments are 
thus designed to allow the agency to regulate individual devices with 
controls that are tailored to address the safety and effectiveness 
problems raised by those devices.
    As devices, cigarettes and smokeless tobacco will be subject to all 
mandatory provisions of the act, except where exemption is permitted by 
statute and is appropriate for these products. In addition, cigarettes 
and smokeless tobacco will be subject to other discretionary provisions 
of the act that the agency has concluded are necessary to address the 
special safety issues posed by these products.
    The basic requirements of the act applicable to all devices 
include: Adulteration and misbranding provisions (sections 501 and 502 
of the act (21 U.S.C. 351 and 352)), labeling requirements (section 
502), establishment registration, device listing, and premarket 
notification (section 510 (21 U.S.C. 360)), recordkeeping and reporting 
requirements (section 519 (21 U.S.C. 360i)), and good manufacturing 
practice (GMP) requirements (section 520(f)). As described in more 
detail in section II.C.4. of this document, FDA intends to apply these 
requirements, where appropriate, to cigarettes and smokeless tobacco at 
a future time. In addition, the act requires the agency to classify 
devices into one of three classes. Depending on the class into which a 
product is classified, additional regulatory requirements may apply: 
Class I (general controls), class II (special controls), and class III 
(premarket approval). As described in more detail in section II.C.5. of 
this document, as the act contemplates, FDA intends to classify 
cigarettes and smokeless tobacco at a future time, and will impose any 
additional requirements that apply as a result of their classification.
    The agency has determined that the safety of cigarettes and 
smokeless tobacco cannot be assured without restrictions on the sale, 
distribution, and use of these products to children and adolescents. 
Accordingly, FDA is imposing restrictions under the authority granted 
in section 520(e) of the act.
    (2) Several comments argued that the regulatory requirements 
proposed by FDA for cigarettes and smokeless tobacco distort the 
regulatory scheme for devices established by Congress. These comments 
contended that FDA has: (1) Selectively applied the provisions of the 
Medical Device Amendments; (2) inappropriately relied on section 520(e) 
of the act (restrictions on sale, distribution, or use) while ignoring 
other mandatory provisions of the act, such as classification; and (3) 
determined that cigarettes and smokeless tobacco are unsafe and yet 
failed to invoke provisions of the act that, according to the comments, 
require the agency to remove them from the market.
    FDA disagrees with these comments. As already described, FDA 
intends to apply to cigarettes and smokeless tobacco all of the 
mandatory provisions of the Medical Device Amendments. Thus, FDA is 
neither selectively applying the provisions of the act nor ignoring 
mandatory provisions.
    Although FDA intends to impose on cigarettes and smokeless tobacco 
all requirements applicable to devices, the act does not provide that 
these requirements should all be imposed immediately. Classification 
serves the purpose of identifying which devices need to be subject to 
special controls (class II) or premarket approval (class III) in 
addition to the general controls applicable to all devices. 
Classification requires FDA to institute a separate rulemaking 
proceeding. The act does not require the agency to classify a device 
before general controls become applicable to it. Rather, the general 
controls provisions of the act apply to all devices both before and 
after classification and irrespective of the class into which a device 
is ultimately classified. Because the classification process involves 
many steps and can take years to complete, FDA does not ordinarily 
complete the classification process before regulating the device under 
its general controls.
    Moreover, the statute contains no requirement that the agency 
complete a classification rulemaking before invoking the general 
controls that apply to all devices. For example, each of the literally 
thousands of medical devices that have been classified by rulemaking 
under section 513 of the act (21 U.S.C. 360c) were subject to the 
general controls of the statute--such as the provisions on 
adulteration, misbranding, registration, investigational device 
controls, and GMP--in advance of the completion of the classification 
rulemaking proceedings. (See, e.g., Contact Lens

[[Page 44405]]

Mfrs. Association v. FDA, 766 F.2d 592, 603 (D.C. Cir. 1985), cert. 
denied 474 U.S. 1062 (1986).) Indeed, in some cases, the general 
controls provisions were applicable to marketed devices for many years 
before completion of classification.
    Consistent with the agency's practice, FDA has made a decision to 
apply the general controls provisions of the act to cigarettes and 
smokeless tobacco, including restrictions on their distribution, sale, 
and use under section 520(e) of the act, before classifying cigarettes 
and smokeless tobacco. As described in section II.C.5. of this 
document, FDA will, in a future rulemaking, classify cigarettes and 
smokeless tobacco in accordance with the procedures in section 513 of 
the act. In the meantime, the general controls will apply.
    FDA also disagrees that the act requires the agency to remove 
cigarettes and smokeless tobacco from the market. As described in the 
preamble to the 1995 proposed rule (60 FR 41314), although cigarettes 
and smokeless tobacco pose very grave risks, the agency cannot conclude 
that removing them from the market would most effectively meet the 
statutory goal of providing reasonable assurance of safety and 
effectiveness. Because millions of Americans are addicted to cigarettes 
and smokeless tobacco, the consequences of their removal from the 
market, as discussed in greater detail in section II.C.5. of this 
document, would include adverse health effects from sudden withdrawal, 
the likely development of a black market, and the possibility that the 
products that would be available through a black market would pose 
greater risks than those currently on the market. None of the statutory 
sections cited by the comments require the agency to remove products 
from the market where the agency concludes that such action would be 
contrary to the public health. Here, FDA has determined that the unique 
safety issues presented by highly addictive and long-marketed products 
like cigarettes and smokeless tobacco can most effectively be addressed 
by actions to prevent new users from becoming addicted to these 
devices.
    In section II.C.3. of this document, FDA discusses its authority to 
impose restrictions on sale, distribution, and use to prevent children 
and adolescents from becoming addicted to cigarettes and smokeless 
tobacco. In section II.C.4 of this document, FDA discusses imposition 
of other general controls, and, in section II.C.5 of this document, FDA 
discusses classification of cigarettes and smokeless tobacco.
3. The Restricted Device Provision Authorizes FDA to Establish Access 
and Advertising Restrictions
    Congress provided FDA with authority to prevent the use of a device 
by those not competent to use it safely in the restricted device 
provision (section 520(e) of the act). Specifically, section 520(e) of 
the act states in part:
    (1) The [agency] may by regulation require that a device be 
restricted to sale, distribution, or use--
    (A) only upon the written or oral authorization of a 
practitioner licensed by law to administer or use such device, or
    (B) upon such other conditions as the [agency] may prescribe in 
such regulation, if, because of its potentiality for harmful effect 
or the collateral measures necessary to its use, the [agency] 
determines that there cannot otherwise be reasonable assurance of 
its safety and effectiveness.
    Section 520(e) is one of the act's ``general controls'' (see 
section 513(a)(1)(A) of the act). As a general control, section 520(e) 
of the act can be used by FDA to regulate any class of device (section 
513(a) of the act). Because its applicability does not depend upon the 
outcome of the classification process, 520(e) of the act--like the 
other general controls--can be used by FDA to regulate a device prior 
to the classification of the device.
    In applying section 520(e) of the act to restrict the sale, 
distribution, or use of a device, FDA must find that without the 
restriction ``there cannot otherwise be reasonable assurance of its 
safety and effectiveness.'' This provision requires FDA to find that 
the restrictions in section 520(e) of the act are necessary to assure 
the safety and effectiveness of the device, but FDA does not have to 
find that the restrictions are sufficient to assure safety and 
effectiveness. During the classification process, FDA determines 
whether additional controls beyond section 520(e) of the act and the 
other general controls applicable to all devices are needed to assure 
the safety and effectiveness of the device.
    The restricted device provision in section 520(e) of the act 
authorizes FDA to adopt regulations that ensure that children and 
adolescents, who by State law are not competent to use cigarettes and 
smokeless tobacco, will not be able to obtain them. In particular, FDA 
has determined that section 520(e) of the act authorizes the access and 
advertising restrictions in the final rule because without these 
restrictions ``there cannot otherwise be reasonable assurance of * * * 
safety * * *.''
    As described more fully later in this section of this document, the 
agency's use of section 520(e) of the act in this rule is consistent 
with the plain language of section 520(e), the legislative history, and 
the agency's prior use of section 520(e) in, for example, restricting 
the sale, distribution, and use of hearing aids (42 FR 9285, February 
15, 1977, as amended at 47 FR 9397 through 9398, March 5, 1982).
    As discussed in section II.C.5. of this document, the agency 
intends to classify cigarettes and smokeless tobacco under the 
procedures contained in section 513 of the act. The classification 
process is the time at which the agency determines what degree of 
regulation is necessary to provide a ``reasonable assurance of safety 
and effectiveness'' for a particular product, such as tobacco products. 
However, the act does not specify the timing of the application of 
device authorities, and the agency is therefore able to issue 
restrictions under section 520(e) of the act prior to initiating the 
classification process. The agency also did so in its regulation of 
hearing aids. In 1977, FDA adopted regulations under section 520(e) of 
the act containing restrictions on the sale, distribution, and use of 
hearing aids (42 FR 9285, February 15, 1977, as amended at 47 FR 9397 
and 9398, March 5, 1982), but did not classify these products until 
1986 (51 FR 40378 at 40389, November 6, 1986).
    FDA is following a similar course here. The agency has determined 
that unless measures are taken now to prohibit the sale and promotion 
of these products to young people under the age of 18, there cannot 
otherwise be reasonable assurance of safety. Therefore, FDA is acting 
under section 520(e) of the act to restrict the sale, distribution, and 
use of cigarettes and smokeless tobacco.
    a. The restricted device provision authorizes FDA to prevent access 
to persons who cannot use a device safely or effectively. Section 
520(e) of the act is in part the device counterpart to section 503(b), 
the act's prescription drug provision. Section 503(b)(1) of the act, 
for instance, authorizes FDA to restrict access to potentially 
dangerous drugs by requiring that they be dispensed ``only upon a * * * 
prescription of a practitioner licensed by law to administer such a 
drug * * *.'' Similarly, section 520(e)(1)(A) of the act authorizes FDA 
to restrict access to potentially dangerous medical devices ``only upon 
the * * * authorization of a practitioner licensed

[[Page 44406]]

by law to administer or use such device * * *.''
    The restricted device provision, however, is significantly broader 
than the prescription drug provision. Not only may FDA restrict sale, 
distribution and use by prescription, but it may do so upon ``such 
other conditions as [it] may prescribe in such regulation'' (section 
520(e)(1)(B) of the act (emphasis added)). There is no counterpart to 
this ``other conditions'' authority in the prescription drug 
provisions.
    Section 520(e) of the act was designed to deal with the risks that 
are created by improper use of a device. The legislative history of the 
Medical Device Amendments specifically states that section 520(e) of 
the act was intended to ``supersede[ ]'' and ``add[ ]'' to the 
prescription authority derived from section 503(b) of the act (H. Rept. 
94-853, 94th Cong. 2d sess., 24-25 (1976)). This confirms that Congress 
intended to give FDA broad authority to restrict access to potentially 
dangerous devices. (See also ``Medical Device Regulation: The FDA's 
Neglected Child,'' Report of the Subcommittee on Oversight and 
Investigations, House Committee on Energy and Commerce, 98th Cong., 1st 
sess., 31 (1985).)
    Congress' use of the phrase ``could include'' indicates that this 
discussion was intended to be illustrative rather than exhaustive. The 
examples of possible restrictions described in the legislative history 
demonstrate that Congress intended to give the agency authority to 
restrict access to devices in a variety of ways, depending upon the 
type of risk posed by the device and the measures needed to ensure that 
the device is not used inappropriately. In short, the legislative 
history supports the statutory language and establishes that Congress 
intended FDA's authority to restrict the sale, distribution, and use of 
devices ``upon such other conditions as the [agency] may prescribe'' to 
be a flexible authority that allows FDA to tailor restrictions on sale, 
distribution, and use according to the circumstances posed by the 
device being regulated.
    b. The restricted device provision also authorizes FDA to restrict 
promotional activities that encourage uses that are inconsistent with 
the regulatory scheme. Section 520(e) of the act is a broad grant of 
authority. The Secretary, and by delegation FDA, is authorized to 
restrict the sale, distribution, or use of a device ``upon such other 
conditions as the [agency] may prescribe in such regulation.'' This 
broad grant of authority covers all aspects of the sale of a device, 
including the offer of sale.
    How a device is sold involves many elements. It involves not only 
the circumstances surrounding the exchange of money for the device, but 
also whether the device must be sold only on the authorization of a 
practitioner, whether age limits on users are appropriately 
established, and how the device is represented to potential users. It 
is in the latter regard that advertising plays a role and may be 
restricted under section 520(e) of the act.
    The Supreme Court cases on commercial speech recognize that a 
State's interest in regulating sales extends to advertising promoting 
the sale. In Edenfield v. Fane, 507 U.S. 761, 767 (1993), the Supreme 
Court said that commercial transactions are ``linked inextricably'' 
with the commercial speech that proposes the transaction, and that the 
State's interest in regulating the underlying transaction may give it a 
concomitant interest in the expression itself. Likewise, under section 
520(e) of the act, the sale of a device is ``linked inextricably'' to 
the advertising that promotes the sale, giving FDA concomitant 
authority to impose necessary restrictions on the advertising.
    FDA's regulation of hearing aids exemplifies this aspect of section 
520(e) of the act. One of the most important purposes of the 
restrictions on sale, distribution, and use imposed on hearing aids was 
to respond to widespread inappropriate promotion of hearing aids to 
consumers for whom the devices are not effective (see 41 FR 16756 at 
16757 (April 21, 1976)). In that regulation, in addition to restricting 
sales to persons who had been medically evaluated for hearing aids, FDA 
relied upon section 520(e) of the act to require that an instructional 
brochure be distributed to each prospective hearing aid user. These 
brochures described the adverse reactions and side effects associated 
with hearing aids and encouraged prospective users to seek medical 
evaluations. The distribution of the brochure was required as a means 
of ensuring that advertising for hearing aids did not inappropriately 
induce persons who had not been medically evaluated to purchase the 
hearing aids.
    The agency's authority to use section 520(e) of the act to restrict 
advertising is especially strong when limits on advertising are 
necessary to ensure that advertising does not undermine the conditions 
on sale, distribution, or use that the agency adopts under section 
520(e). The agency should not be--and under section 520(e) of the act 
is not--powerless to prevent advertising that encourages sales that the 
agency has barred under section 520(e). Rather, the agency may use its 
authority to impose ``such other conditions as the [agency] may 
prescribe'' to restrict advertising that directly undercuts the 
agency's restrictions on sale, distribution, and use.
    c. The restricted device provision authorizes FDA's restrictions on 
youth access and on advertising designed to make cigarettes and 
smokeless tobacco appealing to youth. The restricted device provision 
authorizes the restrictions on youth access and on advertising in this 
final rule. Section 520(e) of the act contemplates these types of 
restrictions on sale and distribution. Moreover, they are necessary if 
FDA ever were to be able to find that there is a reasonable assurance 
of the safety of cigarettes and smokeless tobacco under the act. As 
section 520(e) of the act provides, without these restrictions ``there 
cannot otherwise be reasonable assurance of safety and effectiveness.''
    The provisions in the final rule that restrict the access of minors 
to cigarettes and smokeless tobacco are clearly restrictions on ``sale, 
distribution, or use'' of a device within the meaning of section 520(e) 
of the act. FDA's access restrictions are designed to ensure that 
children and adolescents are unable to have access to cigarettes and 
smokeless tobacco. These restrictions directly limit the sale of 
cigarettes and smokeless tobacco by, for instance, banning the sale of 
these products to persons under 18. They also directly limit the 
distribution of cigarettes and smokeless tobacco by, for instance, 
banning the distribution of free samples. Hence, these access 
restrictions are within the plain language of section 520(e) of the 
act.
    The advertising restrictions in the final rule are also among the 
types of restriction that section 520(e) of the act authorizes. As in 
the case of the restrictions imposed on hearing aids, the advertising 
restrictions are designed to address inappropriate promotion of 
cigarettes and smokeless tobacco to individuals for whom the 
potentiality for harm is particularly great. The advertising 
restrictions are necessary to prevent advertising by the manufacturers 
of cigarettes and smokeless tobacco from undercutting the access 
restrictions. The effectiveness of the restrictions on youth access

[[Page 44407]]

would be substantially diminished if the manufacturers were free to 
entice children and adolescents to circumvent the access restrictions. 
In this circumstance, restrictions on advertising are properly treated 
as restrictions on ``sale, distribution, or use'' within the meaning of 
section 520(e) of the act.
    The final requirement of section 520(e) of the act is that the 
agency establish that without the restrictions on the device ``there 
cannot otherwise be reasonable assurance of its safety and 
effectiveness.'' This requirement is plainly met in the case of the 
access and advertising restrictions for cigarettes and smokeless 
tobacco. Without effective restrictions on sale and distribution of 
cigarettes and smokeless tobacco to children and adolescents under 18, 
young people will continue to become addicted to these products and, 
once addicted, will as adults continue to use them in spite of their 
potential for harmful effects. As stated in section I.B. of this 
document, the earlier tobacco use begins, the greater the risk of 
disease caused by, or associated with, the use of these products. Thus, 
there can be no doubt that without the access and advertising 
restrictions imposed in this final rule, no finding that there is a 
reasonable assurance of safety for cigarettes and smokeless tobacco 
would be possible.
    Although FDA finds that the restrictions under section 520(e) of 
the act are necessary for providing a reasonable assurance of safety, 
FDA is not required under section 520(e) of the act to show that the 
restrictions are sufficient by themselves to provide a reasonable 
assurance of safety or effectiveness. Under section 520(e) of the act, 
all that FDA must establish is that without the section 520(e) 
restrictions, the device could not be found to be safe.
    It is in the classification process--not in the application of 
section 520(e) of the act--that FDA must determine what controls are 
necessary if the agency is to find that there is a reasonable assurance 
that a device is safe and effective for its intended use. As discussed 
in section II.C.5. of this document, FDA intends to classify cigarettes 
and smokeless tobacco in a future rulemaking.
    d. Response to other comments. FDA received several comments on 
whether section 520(e) of the act authorizes restrictions on youth 
access and advertising. Most of the comments were from tobacco trade 
associations, tobacco companies, and advertisers, arguing that section 
520(e) of the act does not provide authority for either the access or 
advertising restrictions. A comment from a public interest group, 
however, fully supported FDA's reliance on section 520(e). FDA also 
received a large number of comments from a broad cross-section of the 
public that expressed support for, or opposition to, the proposed 
restrictions without delving into the legal issues analyzed in the 1995 
proposed rule.
    (3) One comment said that FDA uses the term ``conditions'' in 
section 520(e)(1)(B) of the act to mean any regulatory imposition that 
the agency believes would bring about an improvement in safety in some 
way related to the device in question. The comment argued that FDA has 
used this term in such an overinclusive way that it would authorize FDA 
to impose many of the requirements that Congress imposed in other 
provisions of the act. For example, the comment argued that under FDA's 
interpretation it could require premarket approval of a device with a 
potentiality for harmful effect as a ``condition'' on the ``sale, 
distribution, or use'' of the device, on the theory that without 
premarket approval it would be impossible for there to be ``reasonable 
assurance of its safety.''
    FDA disagrees with this comment. FDA's interpretation of section 
520(e) of the act does not create any redundancy with the other 
provisions of the Medical Device Amendments. Most of the general 
controls authorized under the act, and the major thrust of the 
provisions on performance standards and premarket approval, are geared 
toward ensuring that finished devices, when ready for use, will be free 
from defects and will provide a reasonable assurance of safety and 
effectiveness for their labeled use. Restrictions under section 520(e) 
of the act, on the other hand, are imposed because the device's 
``potentiality for harmful effect or the collateral measures necessary 
to its use,'' and the determination that, without such restrictions, 
there cannot otherwise be a reasonable assurance of safety and 
effectiveness. The restrictions under section 520(e) of the act on 
cigarettes and smokeless tobacco focus on those who may not purchase 
and use these products rather than on those who will be using the 
products. Without successful restrictions on sale, distribution, and 
use of cigarettes and smokeless tobacco to children and adolescents 
under 18, there will never be reasonable assurance of the safety of 
these products because they would continue to be available to these 
young people, who, by State law, are not competent to use them.
    (4) With regard to access, industry comments contended that FDA's 
authority under the provisions of the act relating to restricted 
devices was intended to be no broader than its prescription drug 
authority and, accordingly, could not extend to restrictions such as 
those in the 1995 proposed rule.
    FDA disagrees with this view and believes that it is unsupported by 
the clear language of the act and the legislative history (see H. Rept. 
94-853, 94th Cong., 2d. sess., 24-25 (1976)). Had Congress meant for 
the authority granted FDA under section 520(e) of the act to be no 
broader than the authority granted in section 503(b)(1) of the act to 
limit drugs to prescription use, it could simply have amended section 
503(b)(1) of the act to add ``or device'' after ``drug'' each time the 
term is used. Indeed, as discussed in Becton, Dickinson and Company v. 
Food and Drug Administration, 589 F.2d 1175 (2d Cir. 1978) that 
approach was the one used in early versions of the legislation that 
became the 1976 amendments but was abandoned in favor of the broader 
``restricted device'' approach that has been a part of the law for 20 
years. The plain language of the enacted provision contains no 
limitation on the types of restrictions that can be imposed and 
certainly is not limited by its terms to restriction to prescription 
use. Moreover, as previously discussed, the legislative history 
specifically states that the agency's authority under section 520(e) of 
the act is broader than its authority under the prescription drug 
provisions (H. Rept. 94-853, 94th Cong., 2d sess., 24-25, 1976).
    (5) An industry comment contended that ``FDA uses what is merely 
the medical device version of prescription drug status as the sole 
legal justification for an elaborate system of controls far broader and 
more intrusive than is authorized even for true medical devices.''
    As discussed in section II.C.3. of this document, FDA's restricted 
device authority is significantly broader than suggested by this 
comment. Given the potentiality for harm from cigarettes and smokeless 
tobacco, FDA has ample authority to impose the conditions on their 
sale, distribution, and use that it is adopting.
    As is the case with other medical devices, cigarettes and smokeless 
tobacco are subject to those regulatory controls that are appropriate 
for medical devices generally (e.g., registration, labeling, and 
inspection), along with those tailored to the product in question

[[Page 44408]]

and the risks that it presents (access restrictions and advertising 
controls). Thus, FDA is treating cigarettes and smokeless tobacco in a 
manner that is consistent with how it treats other medical devices.
    (6) Turning to the advertising restrictions, several comments 
argued that section 520(e) of the act authorizes only restrictions on 
``sale, distribution, or use,'' and that it does not include the words 
``offer for sale.'' These comments pointed out that Congress used the 
words ``offer for sale'' elsewhere in the act (sections 301(m) and (o) 
(21 U.S.C. 331(m) and (o)) and 503(c)), and they therefore drew the 
inference that if Congress had intended section 520(e) of the act to 
authorize restrictions on how medical devices are offered for sale, it 
would have made this fact explicit.
    FDA is not persuaded by this argument. In each of the instances 
cited in the comments where Congress has included the phrase ``offer 
for sale'' in the act, it was defining a prohibited act, that is, an 
act whose commission would violate the statute, in which the 
prohibition focused, at least in part, on the sale of a food, drug, or 
device. By including the phrase ``offered for sale'' in these 
provisions, Congress sought to ensure that the statutory objective of 
preventing the actual sale of products where advertising or labeling 
does not meet the statutory requirement would be met by including 
products merely ``offered for sale'' within the statute's coverage. The 
agency notes that, similarly, the words ``offered for sale'' appear in 
section 502(q) of the act, the provision that the agency would use to 
enforce section 520(e) of the act. Thus, Congress did in fact include 
``offer for sale'' in the scope of conduct regulated under section 
520(e) of the act and its enforcement clause, section 502(q). The 
comment's argument, however, misses the significance of section 520(e) 
of the act.
    As discussed in section II.C.3. of this document, the authority to 
restrict the ``sale, distribution, or use'' of a device includes the 
authority to restrict the circumstances surrounding the sale and 
distribution of the device, including the device's advertising. The use 
of section 520(e) of the act to restrict advertising is particularly 
appropriate when the advertising restrictions are necessary to ensure 
that access restrictions issued under section 520(e) of the act are not 
undermined by a manufacturer's advertising. Here, FDA is restricting 
the sale of cigarettes and smokeless tobacco because of their potential 
harmful effects on individuals who start using them before the age of 
18 and who lack the competency to decide to do so. FDA has determined, 
as explained in sections VI.B. and D. of this document, that how 
cigarettes and smokeless tobacco are advertised plays a material role 
in the decision of children and adolescents under 18 to purchase and 
use these products. Thus, if the restrictions on how cigarettes are 
sold, distributed, and used that FDA is adopting under section 520(e) 
of the act are to be effective, they must include restrictions on how 
cigarettes and smokeless tobacco are advertised.
    (7) The comments also argued that section 520(e) of the act on its 
face says nothing about advertising. Thus, according to these comments, 
FDA's authority to regulate the advertising of restricted devices is 
limited by section 502(q)(1) of the act, which prohibits false or 
misleading advertising, and section 502(r) of the act, which prescribes 
certain statements in the advertising for these devices. One comment 
implied that FDA's interpretation of section 520(e)(1) of the act had 
rendered section 502(q)(1) and (r) of the act superfluous.
    FDA is not persuaded by these comments. The interpretation of 
section 520(e) of the act that FDA has adopted in this proceeding would 
not render either section 502(q)(1) or (r) of the act inoperative or 
superfluous. These sections impose requirements on advertising of the 
permissible sale, distribution, and use of restricted devices. They set 
out conditions on advertising to which manufacturers must adhere in 
offering these devices for sale. Section 520(e) of the act, on the 
other hand, is the means by which FDA demarcates permissible and 
nonpermissible conditions of sale, distribution, and use of these 
devices. In so doing, as has been explained in response to the previous 
comments, FDA may by regulation impose limits on advertising that it 
finds are necessary to ensure that advertising is not used to undermine 
the conditions on sale, distribution, or use that the agency adopts. 
This is what Secs. 897.30, 897.32(a), and 897.34, the regulations that 
set out the restrictions on advertising, are designed to accomplish. In 
fact, section 502(q)(1) of the act reinforces this authority because 
any advertisement that promotes the sale of a device for a use that is 
inconsistent with a restriction established by FDA would be false and 
misleading because it would represent that the device is appropriate 
for that use, which would not be the case.
    Thus, Congress clearly intended section 502(q)(1) and (r) of the 
act and any restrictions that FDA adopts under section 520(e) of the 
act to be complementary. This intent is further evidenced by the fact 
that section 502(q)(2) of the act provides that a restricted device is 
misbranded if it is sold, distributed, or used in violation of 
regulations prescribed under section 520(e) of the act. Section 
502(q)(2) of the act thus complements sections 502(q)(1) and (r) of the 
act, which, as previously explained, address different aspects of the 
regulation of restricted devices than does section 520(e) of the act.
    FDA's interpretation of section 520(e) of the act accordingly does 
not render either section 502(q)(1) or (r) of the act superfluous. 
Rather, the three provisions support and reinforce each other.
    (8) An additional argument advanced by two tobacco trade 
associations was that the interpretation of section 520(e)(1)(B) of the 
act, which authorizes FDA to restrict the sale of a device upon such 
``other conditions'' as it deems necessary, is governed and limited by 
the rule of ejusdem generis. This rule of statutory construction 
provides that, where general words follow an enumeration of persons or 
things of a particular and specific meaning, such general words are not 
to be construed in their widest extent but are to be held as applying 
to only persons or things of the same general kind or class as those 
specifically mentioned. Thus, the comment argued that here, ejusdem 
generis limits the scope of ``other conditions'' in section 
520(e)(1)(B) of the act to restrictions similar in nature to the 
restriction to prescription use in section 520(e)(1)(A) of the act. The 
comment argued that it would be totally inconsistent with the rule of 
ejusdem generis to expand the scope of ``other conditions'' to include 
a provision as dissimilar to a prescription requirement as a 
restriction on advertising. FDA does not agree that ejusdem generis is 
controlling, or that it has any application here. In Norfolk & Western 
v. American Train Dispatchers Ass'n, the Supreme Court held that this 
canon does not control ``when the whole context dictates a different 
conclusion'' (499 U.S. 117, 129 (1991)). The context involving section 
520(e) of the act does not support the application of ejusdem generis 
to it. There is no indication that Congress thought that it was 
providing a list of similar measures in section 520(e)(1)(A) and 
(e)(1)(B) of the act. In fact, the face of the act is to the contrary. 
After specifying one means of restricting

[[Page 44409]]

the sale, distribution, and use of a device, Congress granted the 
Secretary broad authority to impose ``such other conditions as [she] 
may prescribe in such regulation.'' Congress, rather than limiting the 
Secretary's options, left it to the Secretary to decide what conditions 
are necessary for a particular device. Nor does the legislative history 
support the comments. As stated in section II.C.3.a. of this document, 
Congress intended section 520(e) of the act to add to the agency's 
authority beyond providing for use by prescription only (H. Rept. 94-
853, 94th Cong., 2d sess., 24-25 (1976)).
    Moreover, the ``or'' connecting section 520(e)(1)(A) of the act 
with section 520(e)(1)(B) is properly read here as disjunctive rather 
than conjunctive. (See Garcia v. United States, 469 U.S. 70, 73 
(1984).) Section 520(e) of the act is intended to authorize such 
conditions on the sale, distribution, or use of a device as are 
necessary to ensure that the device is not improperly used and without 
which a reasonable assurance of its safety and effectiveness cannot be 
provided. There is no basis on the face of the act or in the 
legislative history to conclude that Congress was trying to limit the 
conditions that FDA could impose to achieve that end (other than the 
admonition not to base a physician restriction on board certification).
    (9) One comment argued that the interpretation of section 520(e) of 
the act that FDA is advancing in this proceeding is contrary to the 
interpretation that the agency offered in imposing restrictions on 
hearing aids in 1977. The comment pointed out that FDA stated at that 
time: ``The Commissioner notes, however, that the [Act] regulates the 
safety * * * of the [device] itself'' (42 FR 9286 at 9287, February 15, 
1977). The comment asserted that, for this reason, FDA concluded that 
it could not prescribe competency standards for hearing health 
professionals, fix the price of hearing aids, or control the 
promotional practices of hearing aid dispensers, all matters that were 
being handled by the Federal Trade Commission (FTC) (42 FR 9286 at 
9287). The comment argued that, for the same reasons, FDA may not, 
under section 520(e) of the act, regulate attire, contests, or athletic 
or cultural events.
    FDA does not agree that the hearing aid proceeding provides any 
support for the view that the agency has been inconsistent in its 
interpretation of section 520(e) of the act. In that proceeding, FDA 
was aware that FTC had developed a proposed trade regulation rule that 
included a prohibition of certain selling techniques (42 FR 9286 at 
9287). FDA said that it was avoiding any duplication of effort with 
FTC. Thus, it was not necessary for FDA to consider the extent of its 
authority to specifically regulate selling techniques of hearing aid 
dispensers.
    Contrary to the comment's assertion, this proceeding is consistent 
with the hearing aid proceeding. Although FDA did not duplicate FTC's 
effort and directly regulate selling techniques, FDA imposed various 
restrictions that were tailored to restrict inappropriate promotion of 
hearing aids including requiring a medical evaluation before purchase 
and distribution of a user instructional brochure. In the case of 
cigarettes and smokeless tobacco, FDA is imposing restrictions that are 
tailored to promotion of tobacco products to ensure that advertising 
does not induce the use of cigarettes and smokeless tobacco by children 
and adolescents under 18.
    (10) Finally, several comments argued that FDA lacks statutory 
authority for the advertising restrictions that it is imposing. Some of 
these comments sought to analogize this rulemaking to American 
Pharmaceutical Ass'n v. Weinberger, 377 F. Supp. 824, 831 (D.D.C. 
1974), aff'd sub nom. American Pharmaceutical Ass'n v. Mathews, 530 
F.2d 1054 (D.C. Cir. 1976) (per curiam). That case involved an attempt 
by FDA to limit the distribution of methadone to certain designated 
facilities under the drug authorities of the act. The court held that 
the statutory drug authority did not authorize the agency to impose 
these limitations on the distribution of methadone, even though 
methadone posed unique problems of medical judgement, law enforcement, 
and public policy.
    FDA regards the American Pharmaceutical Ass'n case as a 
questionable precedent. The case predates both the Supreme Court's 
decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council, 
467 U.S. 837 (1984), and the Medical Device Amendments. In Chevron, the 
Court stated that ``considerable weight should be accorded to an 
executive department's construction of a statutory scheme it is 
entrusted to administer * * *'' (467 U.S. at 844). Moreover, when 
Congress enacted section 520(e) of the act, one of its objectives was 
to provide FDA with precisely the kind of authority over medical 
devices that the court found that the agency did not have over drugs in 
American Pharmaceutical Ass'n. Thus, FDA now has explicit authority 
under section 520(e) of the act to impose conditions on the sale, 
distribution, and use of a medical device to prevent its misuse, 
including the access and advertising restrictions in the final rule. 
FDA is imposing controls on the sale of cigarettes and smokeless 
tobacco to ensure that individuals under 18 will not be able to 
purchase them. Further, to ensure that these controls on sale, 
distribution, and use are not undermined, FDA has found that they must 
include restrictions on how these products are advertised, so that 
individuals under 18 are not encouraged to purchase or use them. These 
actions are consistent with the language and purpose of section 520(e) 
of the act.
4. Application of Other Device Authorities
    As described in section II.C.2. of this document, FDA intends to 
follow its normal course and apply the ``general controls'' provisions 
of the Medical Device Amendments to cigarettes and smokeless tobacco 
pending classification of these products. The general controls 
authorized by the Medical Device Amendments include adulteration and 
misbranding (sections 501 and 502 of the act), establishment 
registration, device listing, and premarket notification (section 510), 
labeling requirements (section 502), recordkeeping and reporting 
requirements (section 519), and GMP (sections 501 and 520(f)).
    (11) Tobacco industry comments claimed that FDA had ignored a 
number of mandatory provisions of the act applicable to devices, 
``presumably because they again recognize that those provisions would 
mean the prohibition of tobacco sales.'' The comments also asserted 
that FDA had picked and chosen among statutory provisions and had 
misinterpreted Heckler v. Chaney, 470 U.S. 821 (1985), as authorizing 
this selective regulatory approach. These comments also argued that FDA 
had ignored section 520(a) of the act, which provides that the 
adulteration, misbranding, and records and reports requirements are 
applicable to devices until the applicability of these requirements is 
changed by an action under the classification, premarket approval, 
standard-setting, or investigational device provisions of the act.
    The agency disagrees with these comments. FDA is applying to 
cigarettes and smokeless tobacco the general controls applicable to all 
devices.
    In the following discussion, the agency elaborates on the 
applicability of the general controls provisions to

[[Page 44410]]

cigarettes and smokeless tobacco, and on matters the agency has 
reconsidered in response to comments (the applicability of labeling 
requirements to cigarettes and smokeless tobacco is discussed in 
sections V. and VI. of this document). Overall, FDA believes that it 
has developed a regulatory system for cigarettes and smokeless tobacco 
that is consistent with the statutory scheme and the record of this 
rulemaking.
    a. Adulteration and misbranding. Cigarettes and smokeless tobacco 
will be subject to the adulteration and misbranding provisions in 
sections 501 and 502 of the act, and the implementing regulations, with 
one exception that is permitted by statute. Section 502(f) of the act 
authorizes the agency to grant exemptions from section 502(f)(1) of the 
act under certain circumstances. As described in section V.E. of this 
document, FDA has determined that an exemption from section 502(f)(1) 
of the act is appropriate for cigarettes and smokeless tobacco. In 
addition, section VI.E.6. of this document also contains a more 
detailed description of the applicability of specific labeling 
requirements to cigarettes and smokeless tobacco.
    The adulteration and misbranding provisions are largely self-
executing and do not require the agency to impose requirements by 
regulation.
    b. Device registration and listing. Section 510 of the act and part 
807 (21 CFR part 807) of the regulations require that device 
manufacturers and importers register their establishments with the 
agency. Every year an annual registration form is sent to all 
registered establishments to be completed and returned to the agency 
(Sec. 807.22(a)). Any significant changes of information to the 
original must be reported to FDA within 30 days of the change 
(Sec. 807.26).
    Manufacturers are also required to list their devices that are in 
commercial distribution in the United States (part 807). Foreign 
manufacturers may, but are not required to, register (Sec. 807.40). 
However, they are required to list their devices (Sec. 807.40(b)). 
Manufacturers are required to update their listing if there are 
significant changes to listing information.
    Manufacturers of cigarettes and smokeless tobacco will be subject 
to the establishment registration and device listing requirements in 
section 510 of the act and part 807 of FDA's regulations. The 
application of these provisions to cigarettes and smokeless tobacco 
derives from their status under the device provisions of the act and 
does not require rulemaking by the agency.
    Section 510(k) of the act requires submission of a premarket 
notification to the agency whenever a manufacturer markets a device for 
the first time, whenever there is a major change in the intended use of 
an already marketed device, or whenever an already marketed device is 
to be modified in a way that could significantly alter its safety or 
effectiveness (Sec. 807.81). The device may not be commercially 
distributed unless the agency issues an order finding the device 
substantially equivalent to one or more predicate devices already 
legally marketed in the United States for which premarket approval is 
not required (section 513(i) of the act (Sec. 807.100), or unless the 
agency approves a premarket approval application for a device subject 
to an approval requirement under section 515 of the act (21 U.S.C. 
360(e)). Substantial equivalence means that a device has the same 
intended use and the same technological characteristics as the 
predicate device; or has the same technological characteristics, but it 
can be demonstrated that the device is as safe and effective as the 
predicate device and does not raise different questions regarding 
safety and effectiveness (section 513(i) of the act). The premarket 
notification submission must include either a summary of the safety and 
effectiveness information upon which a substantial equivalence 
determination may be based, or state that safety and effectiveness data 
will be made available to anyone upon request (section 513(i)(3)(A) of 
the act (21 U.S.C. 360c(i)(3)(A)), and Secs. 807.87(h) and 807.92).
    c. Records and reports. Section 519 of the act contains several 
requirements relating to the keeping of records and making of reports 
on devices. In addition to implementing the specific requirements of 
the act, the agency has used its authority under section 519 of the act 
to issue several regulations. As nicotine delivery devices, which are 
drug-device combination products that FDA is regulating under its 
device authorities, cigarettes and smokeless tobacco are subject to the 
requirements of section 519 of the act and the implementing regulations 
unless otherwise exempted.
    Section 519(a) of the act requires manufacturers, importers, and 
distributors of devices to establish and maintain records, and make 
reports and other information available to the agency, to ensure that a 
device is not adulterated or misbranded and to otherwise ensure its 
safety and effectiveness. Similarly, section 519(b) of the act requires 
medical device user facilities to make reports to device manufacturers 
and the agency when they become aware of information suggesting that a 
device has caused or contributed to a death, serious injury, or serious 
illness. Under this authority, the agency has issued part 803 (21 CFR 
part 803), on medical device reporting, and part 804 (21 CFR part 804), 
on medical device distributor reporting (the MDR requirements). These 
regulations were recently amended by a final rule published in the 
Federal Register of December 11, 1995 (60 FR 63578) (the 1995 reporting 
requirements final rule), reflecting changes in the reporting 
requirements of section 519 of the act that were mandated by the SMDA 
and the Medical Device Amendments of 1992.
    The 1995 proposed rule would have amended parts 803 and 804 to 
exempt cigarettes and smokeless tobacco from the MDR requirements. 
These proposed exemptions were based on the fact that ``the adverse 
health effects attributable to cigarettes and smokeless tobacco 
products are extensive and well-documented'' (60 FR 41314 at 41342). 
The agency stated that it did not anticipate any real benefit in 
requiring manufacturers and distributors of these products to report 
such information (Id.).
    (12) The agency received several comments criticizing this proposed 
exemption. One comment from a trade association stated that, although 
it disagreed with the agency's classification of cigarettes as medical 
devices, the agency had no authority to exempt manufacturers from this 
reporting requirement. This trade association also stated that, because 
the agency has concluded that cigarettes are not safe for individual 
users, this exemption cannot be reconciled with the standard under 
section 519(c) of the act for exempting this product. (Section 
519(c)(3) of the act provides for exemptions upon a finding that 
compliance with recordkeeping and reporting is not necessary to ensure 
that a device is not adulterated or misbranded or to otherwise ensure 
its safety and effectiveness.) Another trade association claimed that 
the agency did not follow the proper exemption procedures under the 
act. A trade association also noted that the agency did not propose to 
require such user facility reports for cigarettes and also noted that 
such reports are not ``suitable'' for cigarettes.

[[Page 44411]]

    In view of these comments, the agency has reconsidered its 
tentative position regarding the application of the MDR requirements in 
parts 803 and 804. The adverse health effects attributable to these 
products are extensive and well-documented. As a result, the cost of 
processing the enormously high volume of MDR reports related to the use 
of cigarettes and smokeless tobacco would likely be prohibitive in 
light of the small benefit to be gained from reports documenting 
adverse health effects already known to the agency.
    Nevertheless, there would be a benefit to receiving information 
regarding adverse events that are not well-documented and thus, not 
well-known or anticipated. Therefore, the agency has determined that it 
will require MDR reporting in certain limited circumstances, and is 
amending Secs. 803.19 and 804.25 of its regulations to make this clear.
    In the preamble to the 1995 reporting requirements final rule, the 
agency clarified that it may grant a written exemption, variance, or 
alternative to some or all of the MDR requirements ``when it determines 
compliance with all MDR requirements is not necessary to protect the 
public health'' (60 FR 63578 at 63592). The agency cited, as an example 
for an appropriate exemption, devices for which ``adverse events that 
are known and well documented, are occurring at a normal rate, and do 
not justify the initiation of remedial action * * *'' (Id.).
    To limit the volume of reports that could otherwise be required, 
the agency is modifying the MDR requirements for adverse events 
relating to tobacco. The agency has added Sec. 803.19(f) to the 
regulation's ``Exemption, variances, and alternative reporting 
requirements'' section in order to limit the medical device reports 
concerning cigarettes and smokeless tobacco; specifically, new 
paragraph (f) requires reports from manufacturers only for those 
adverse events related to contamination, a change in any ingredient or 
any manufacturing process, or any serious adverse event that is not 
well-known or well-documented by the scientific community.
    The agency notes that user facilities are not likely to have direct 
knowledge of even these limited adverse events required to be reported 
by manufacturers. Therefore, the agency is adding Sec. 897.19(g) to 
exempt user facilities from the MDR requirements relating to cigarettes 
and smokeless tobacco.
    For similar reasons, FDA is also modifying the MDR requirements for 
distributors of cigarettes and smokeless tobacco. Because distributors 
handle these products, break open cartons, and even affix the tax 
stamp, the agency believes that distributors could be responsible for, 
or aware of, contamination of these products. The agency does not 
believe, however, that distributors are likely to have direct knowledge 
of any change in ingredient or manufacturing process or any serious 
adverse event that is not well-known or well-documented by the 
scientific community. Therefore, the agency is limiting the MDR 
requirements for distributors to require reports concerning cigarettes 
and smokeless tobacco only for adverse events relating to 
contamination.
    The agency notes that it has granted similar variances in the past 
for circumstances that justify modifications to the MDR requirements 
and has issued guidance that establishes criteria for modified 
reporting. Examples where reporting has been modified include events 
involving health care professionals being stuck by needles and certain 
events involving defibrillators. These modifications were made in order 
to clarify which events would provide valuable information to the 
agency given the inherently risky circumstances surrounding the use of 
these devices. A variance from the MDR requirements has also been 
granted to the manufacturers of breast implants in order to limit the 
frequency of reports for events already known to the agency.
    (13) Industry comments also questioned why FDA had not proposed to 
apply device tracking and premarket surveillance provisions to 
cigarettes and smokeless tobacco. Section 519(e) of the act, governing 
device tracking, applies only to products that are permanently 
implantable, life-sustaining or life-supporting, or have been 
designated by the agency to be tracked. Cigarettes and smokeless 
tobacco do not fall within the first two categories, and the agency has 
not designated them for tracking.
    For the reasons cited in the previous discussion of 519(e) of the 
act, postmarket surveillance will not be required unless, at a future 
date, the agency specifically designates these products under section 
522 of the act (21 U.S.C. 360l).
    Section 519(f) of the act, which requires FDA to issue regulations 
to require reports on device removals and corrections, will apply to 
manufacturers, importers, and distributors of cigarettes and smokeless 
tobacco. To implement section 519(f) of the act, FDA issued a proposed 
rule in the Federal Register of March 23, 1994 (59 FR 13828), that 
would require manufacturers, importers, and distributors of devices to 
report promptly to FDA any corrections or removals of a device 
undertaken to reduce a risk to health posed by the device or to remedy 
a violation of the act caused by the device which may present a risk to 
health. The agency expects that the final rule will publish in 1996. 
This rule will apply to removals and corrections of medical devices 
including cigarettes and smokeless tobacco.
    d. GMP. In the preamble to the 1995 proposed rule, FDA specifically 
recognized that the GMP regulations may be appropriate for tobacco 
products (60 FR 41314 at 41352). In this final rule, FDA is requiring 
that the manufacturers of cigarettes and smokeless tobacco comply with 
GMP regulations in part 820 (21 CFR part 820), which the agency is 
currently revising. (See 58 FR 61952, November 11, 1993.) Application 
of GMP's to cigarettes and smokeless tobacco will assist the tobacco 
industry in avoiding such situations as the recall of Marlboros in 1995 
because of a contamination mishap in processing and, in such cases, may 
advance public health by reducing to some degree the overall risk 
associated with these products.
    (14) A comment from a tobacco trade association urged that FDA 
provide ample time for compliance with GMP and requested a 2-year 
period for compliance.
    FDA recognizes that manufacturers will need an adequate amount of 
time to comply with GMP requirements and is accepting the suggestion in 
the comment by adopting a 2-year period for compliance. The tobacco 
industry already has a sophisticated approach to quality control with 
the production of their products. Thus, much of what is required to 
meet the requirements of part 820 appears to be in place already, and 
therefore, 2 years should be a sufficient time for compliance.
    (15) In response to comments from tobacco distributors expressing 
concern about present or future applicability of the GMP regulations, 
FDA advises that it is exempting distributors from part 820. The agency 
has decided to amend part 820 by adding a new Sec. 820.1(f) to exempt 
distributors from the requirement of complying with GMP regulations 
because it has concluded that compliance with GMP requirements

[[Page 44412]]

by distributors is not necessary to assure that these devices will be 
safe and effective or otherwise in compliance with the act.
5. FDA Will Classify Cigarettes and Smokeless Tobacco Under Section 513 
of the Act
    In addition to applying the general device authorities previously 
described to cigarettes and smokeless tobacco, the agency will classify 
cigarettes and smokeless tobacco under section 513 of the act. The 
agency relies on classification to determine what level of control of 
the device is required to provide a reasonable assurance of safety and 
effectiveness. For devices classified into class I, general controls 
(sections 501, 502, 510, 516, 518, 519, and 520 of the act (21 U.S.C. 
351, 352, 360, 360f, 360h, 360i, and 360j, respectively)) are 
sufficient to provide a reasonable assurance of safety and 
effectiveness. For devices classified into class II, special controls 
(such as performance standards under section 514 of the act (21 U.S.C. 
360d)) are needed in addition to the general controls to provide a 
reasonable assurance of safety and effectiveness. For devices 
classified into class III (premarket approval), neither general nor 
special controls are sufficient to provide a reasonable assurance of 
safety and effectiveness, without the added safeguard of premarket 
approval. Therefore, these devices are subject to ``premarket 
approval'' under section 515 of the act.
    The process of classification is an important component of device 
regulation, but it includes numerous procedural steps and thus cannot 
be part of this final rule. Under section 513 of the act, FDA is 
required to convene or use a classification panel, which should consist 
of experts who ``possess skill in the use of, or experience in the 
development, manufacture, or utilization of,'' the device and who 
provide ``adequately diversified expertise in such fields as clinical 
and administrative medicine, engineering, biological and physical 
sciences, and other related professions'' (section 513(b)(2) of the 
act). The classification panel is required to ``provide an opportunity 
for interested persons to submit data and views on the classification'' 
and, after consideration of these data and views, to submit to FDA its 
``recommendation for the classification of the device'' (section 
513(c)(1) and (c)(2) of the act). Upon receipt of the panel 
recommendation, FDA must publish in the Federal Register ``the panel's 
recommendation and a proposed regulation classifying such device'' and 
provide interested persons ``an opportunity to submit comments on such 
recommendation and the proposed regulation'' (section 513(d) of the 
act). After reviewing the comments, FDA must classify the device ``by 
regulation'' (Id.).
    As required by section 513 of the act, FDA will, in a future 
rulemaking, classify cigarettes and smokeless tobacco in accordance 
with the procedures in section 513 of the act. Without prejudging that 
proceeding, the agency recognizes that it will involve consideration of 
both the known risks of tobacco products and the public health concerns 
that could be raised by withdrawal from the market of cigarettes and 
smokeless tobacco to which many adults are addicted. Moreover, the 
agency's restrictions on access and advertising in this final rule, 
which are carefully designed to help prevent young people from becoming 
addicted, will need to be factored in as well.
    Consistent with the statute and the agency's normal practice, 
however, FDA is not postponing regulation of cigarettes and smokeless 
tobacco under its general authorities pending classification. Such a 
postponement would serve no useful purpose, because the general 
authorities will be applicable to cigarettes and smokeless tobacco 
regardless of the outcome of the classification proceeding. To the 
contrary, postponing application of FDA's general authorities would 
have adverse consequences for public health because, during the several 
years that it may require to complete classification, the applicability 
of the controls put in place by this final rule, as well as the 
registration, GMP, and other general controls discussed in this 
document, would be delayed with respect to cigarettes and smokeless 
tobacco. During this period, millions of children and adolescents would 
be likely to use cigarettes and smokeless tobacco for the first time 
and, in the absence of FDA regulation under its general authorities, 
become addicted to these dangerous products.
    The tobacco industry argues that FDA cannot classify cigarettes and 
smokeless tobacco because, given ``FDA's view of the health effects'' 
of cigarettes and smokeless tobacco, classification would inevitably 
lead to a ban of the products. According to the industry, FDA cannot 
classify cigarettes under class I or class II because neither the 
general nor the special controls will provide what FDA will regard as a 
reasonable assurance of safety, leaving FDA with only one option: To 
classify cigarettes and smokeless tobacco under class III. According to 
the industry, classifying cigarettes and smokeless tobacco under class 
III would lead to a ban of cigarettes and smokeless tobacco because FDA 
cannot grant premarket approval of a class III device until it is 
satisfied that there is reasonable assurance that the device is safe. 
The tobacco industry argues that the inability of FDA to classify 
cigarettes and smokeless tobacco without triggering a ban of the 
products demonstrates that the act was never intended to apply to 
cigarettes and smokeless tobacco.
    It would not be appropriate for FDA to make a final determination 
at this time as to whether the application of all appropriate 
regulatory controls identified in a classification proceeding would 
result in a reasonable assurance of safety and effectiveness for 
cigarettes and smokeless tobacco for any users. This determination must 
await completion of the classification process and of any regulatory 
steps identified in the classification process (section 513 of the 
act). Nonetheless, it seems clear that the best public health result is 
one that prevents access to tobacco products by children and 
adolescents while allowing their continued availability for adults. 
Moreover, the agency disagrees with industry comments that argue that 
it does not have the authority to permit the sale of tobacco products 
to adults because the agency has found that tobacco products are 
unsafe.
    In considering this issue, the agency reiterates that tobacco 
products are dangerous. As discussed more fully in section I. of this 
document and in the preamble to the 1995 proposed rule, cigarettes and 
smokeless tobacco cause great pain and suffering from illness, such as 
cancer, respiratory illnesses, and heart disease. More than 400,000 
people die each year as a result of tobacco use. \23\
---------------------------------------------------------------------------

    \23\ ``Cigarette Smoking-Attributable Mortality and Years of 
Potential Life Lost--United States, 1990,'' MMWR, CDC, vol. 42, No. 
33, pp. 645-649, 1993.
---------------------------------------------------------------------------

    If the act required that the agency limit its consideration to the 
risks of tobacco products, then it could not find that there is a 
reasonable assurance of safety. To the contrary, tobacco products are 
unsafe, as that term is conventionally understood. However, as 
reflected in the act and in judicial decisions, the determination as to 
whether there is a ``reasonable assurance of safety'' involves 
consideration of not only the risks presented by a product but also any 
of the countervailing effects of use of that product, including the 
consequences of

[[Page 44413]]

not permitting the product to be marketed. Thus, section 513(a)(2)(C) 
of the act declares that, with respect to safety and effectiveness, the 
agency must ``weigh[] any probable benefit to health from the use of 
the device against any probable risk of injury or illness from such use 
(see also 21 CFR 860.7(d)(1)). According to the legislative history of 
the Medical Device Amendments, ``[the reasonable assurance of safety 
standard] is predicated upon the recognition that no regulatory 
mechanism can guarantee that a product will never cause injury'' 
because ``[r]egulation cannot eliminate all risks but rather must 
eliminate those risks which are unreasonable in relation to the 
benefits derived'' (H. Rept. 94-853, 94th Cong., 2d sess., 16, 17 
(1976); see also United States v. Rutherford, 442 U.S. 544, 555 
(1979)).
    An example of the balancing of risks of using a product against the 
risks of not using a product can be found in the agency's approval of a 
number of drugs used in the treatment of various cancers. These drugs 
are highly toxic to patients who receive them, and in approving these 
drugs for chemotherapy, FDA balances the seriousness of the diseases 
these drugs were intended to treat against the drugs' toxicity. In 
cases where the risks of not treating the cancer outweighed the risks 
of the drugs, FDA has approved these products.
    Similarly, in the case of tobacco products, the agency must weigh 
the risks of leaving cigarettes and smokeless tobacco on the market 
against the risks of removing these products from the market. For 
children and adolescents, the serious health consequences of using 
tobacco products support an approach designed to reduce their use, as 
all 50 States and many of the tobacco companies themselves recognize. 
It is also relevant that many children who use tobacco products are in 
the period of initiation and are not addicted, and thus a prohibition 
of the sale and promotion to this segment of the population will 
effectively reduce their use of tobacco products. Although some 
children and adolescents are addicted to tobacco products, the agency 
has concluded that the approach that most effectively takes into 
account the health of young people is one that prohibits the sale and 
promotion of tobacco products to children and adolescents under 18 
years of age.
    The issue is more difficult with respect to adults, particularly 
adults who are addicted to cigarettes and other tobacco products. There 
are approximately 50 million Americans who currently smoke and another 
6 million who use smokeless tobacco. \24\ It is particularly relevant 
that 77 to 92 percent of all smokers are addicted \25\ and that a 
substantial number of all users of smokeless tobacco are addicted. \26\
---------------------------------------------------------------------------

    \24\ ``National Household Survey on Drug Abuse: Population 
Estimate 1993,'' DHHS, PHS, SAMHSA, Office of Applied Studies, 
Rockville, MD, Pub. No. (SMA) 94-3017, pp. 89 and 95, 1994.
    \25\ 1996 Jurisdictional Determination, section II(B)(2)(a).
    \26\ Id.
---------------------------------------------------------------------------

    The agency believes that these factors must be considered when 
developing a regulatory scheme that achieves the best public health 
result for these products. The sudden withdrawal from the market of 
products to which so many millions of people are addicted would be 
dangerous. First, there could be significant health risks to many of 
these individuals. Second, it is possible that our health care system 
would be overwhelmed by the treatment demands that these people would 
create, and it is unlikely that the pharmaceuticals available could 
successfully treat the withdrawal symptoms of many tobacco users. 
Third, the agency also believes that, given the strength of the 
addiction and the resulting difficulty of quitting tobacco use, a black 
market and smuggling would develop to supply smokers with these 
products. \27\ It also seems likely that any black market products 
would be even more dangerous than those currently marketed, in that 
they could contain even higher levels of tar, nicotine, and toxic 
additives. \28\
---------------------------------------------------------------------------

    \27\ That a black market and smuggling will occur can be 
predicted by examining the current situation with illegal drugs in 
the United States and past experience with prohibition of respect to 
alcoholic beverages. In both situations, individuals continued using 
the products. Moreover, in the case of cigarettes, even increased 
cost due to tax disparities can lead to smuggling and black markets. 
S. Rept. 95-962, 95th Cong., 2d Sess., (June 28, 1978); Joossens, 
L., and M. Raw, ``Smuggling and Cross Border Shopping of Tobacco in 
Europe,'' British Medical Journal, vol. 310, May 27, 1995.
    \28\ Such has been the case with illegally produced alcohol. See 
``Elevated Blood Lead Levels Associated with Illicitly Distilled 
Alcohol--Alabama, 1990-1991,'' MMWR, CDC, DHHS, vol. 41, No. 17, pp. 
294-295, 1992; Pegues, D. A., B. J. Hughes, C. H., Woernle, 
``Elevated Blood Lead Levels Associated with Illegally Distilled 
Alcohol,'' Archives of Internal Medicine, vol. 153, pp. 1501-1504, 
1993.
---------------------------------------------------------------------------

    Whether individuals who use these products have an opportunity to 
make an informed choice is also relevant. Most individuals who use 
these products begin as children and adolescents, at an age when they 
are not prepared for or equipped to make a decision that for many will 
have lifelong consequences.
    In contrast, adults generally have the capacity to make informed 
decisions. In the case of cigarette and smokeless tobacco, very few 
adults who have not used tobacco as children and adolescents choose to 
use these products as adults. \29\ Unfortunately, for the many 
individuals who have become addicted, their capacity to choose whether 
to use cigarettes or smokeless tobacco in large measure no longer 
exists. Thus, the agency must take their addiction into consideration 
when developing its regulatory scheme.
---------------------------------------------------------------------------

    \29\ 1994 SGR, pp. 5, 58, and 65-67.
---------------------------------------------------------------------------

    Serious health consequences follow both from the option of leaving 
tobacco products on the market and from the option of banning tobacco 
products. However, on balance, an approach that prohibits the sale and 
promotion of cigarettes and smokeless tobacco to children and 
adolescents, while permitting the sale to adults seems most 
appropriate. It is consistent with the statutory standard of reasonable 
assurance of safety and is more effective in achieving public health 
goals than a ban on all tobacco products. Therefore, FDA is adopting 
this approach in this final rule.
    There is also a basis for finding that these products are 
``effective'' for adults who are addicted to tobacco products because 
such products sustain with great efficacy the individual's continued 
need for the active ingredient nicotine. Tobacco products are effective 
for preventing withdrawal symptoms in individuals addicted to nicotine 
in much the same way that methadone is effective in preventing 
withdrawal.
    Section 516 of the act supports this analysis. Section 516 of the 
act is the provision that gives the agency the authority to ban medical 
devices. Under that provision, the agency ``may'' ban a device if it 
finds that the device presents ``an unreasonable and substantial risk 
of illness or injury.'' There are two elements of discretion which 
plainly allow the agency to leave these products on the market--the 
word ``may'' which applies to the entire banned device authority; and 
the standard of ``unreasonable * * * risk of illness or injury,'' which 
gives the agency ample discretion to balance the unique circumstances 
surrounding this product.

[[Page 44414]]

D. The Fact That the Act's Drug Authorities Authorize the Imposition of 
Similar Restrictions Supports the Reasonableness of the Restrictions 
That the Agency Has Imposed

    (16) At least one tobacco industry comment argued that the agency's 
proposed access and advertising restrictions were an affront to 
``common sense''--i.e., that the types of restrictions the agency had 
proposed, under the device provisions of the act, went well beyond what 
the plain language of the act could be read to support. The agency, 
however, could have chosen to impose similar restrictions using the 
act's drug authorities. As this section demonstrates, the agency has 
restricted the marketing of a number of drug products, using the 
adulteration, misbranding, and marketing provisions governing drug 
products. That similar restrictions can be invoked under either the 
act's device authorities or under the act's drug authorities supports 
the reasonableness of restrictions adopted in the final rule.
    As discussed in the 1995 proposed rule and in sections II.A. and B. 
of this document, cigarettes and smokeless tobacco are drug delivery 
systems--i.e., they combine a drug component and a device component in 
a single combination product (60 FR 41314 at 41347 through 41349). As 
such, cigarettes and smokeless tobacco are subject to regulation under 
the device provisions of the act, the drug provisions of the act, or a 
combination of the two. The agency has determined that it should use 
the act's device authority to regulate these products because the 
device provisions of the act offer the agency greater regulatory 
flexibility than do the drug provisions of the act (see section II.B. 
of this document and the 1995 proposed rule at 60 FR 41314 at 41347 
through 41349). However, if there were no device component to 
cigarettes and smokeless tobacco, or if the agency had chosen to 
regulate these combination products under the act's drug authorities, 
the agency nevertheless could have limited the access to and 
advertising of these products in order to protect children and 
adolescents.
    Although the agency's authority to impose access restrictions on a 
drug product is not as explicit as it is under the device provisions of 
the act (see section 520(e) of the act authorizing controls over the 
``sale, distribution, or use'' of a device to protect against a 
potentially harmful or unsafe use), the agency has in fact drawn from 
several statutory sources to achieve some of the same regulatory 
results for a drug. The agency routinely imposes restrictions to 
protect against unsafe uses of drug products--even where those uses are 
otherwise unlawful, wholly irrational, or in contravention of express 
warnings. From the time of the product's development and manufacture 
through its retail sale, the agency is authorized to ensure that drug 
products are neither unsafe, misbranded, nor adulterated. (See sections 
201(n), 301, 501, 502, 503 and 505 of the act; United States v. 
Sullivan, 332 U.S. 689, 696 (1948) (Congress intended ``to safeguard 
the consumer by applying the Act to articles from the moment of their 
introduction into interstate commerce all the way to the moment of 
their delivery to the ultimate consumer'').)
    Consistent with this broad grant of authority, Congress also 
authorized the agency to issue regulations for the ``efficient 
enforcement'' of the act, such as regulations that set forth the 
conditions under which a drug must be marketed to ensure that it will 
not be deemed violative of the act (see section 701(a) of the act (21 
U.S.C. 371); United States v. Nova Scotia Food Products Corp., 568 F.2d 
240, 246 (2d Cir. 1977); and Pharmaceutical Manufacturers Association 
v. FDA, 484 F. Supp. 1179, 1183 (D. Del. 1980) (FDA has broad authority 
to issue drug regulations reasonably related to the public health 
purposes of the act, so long as the regulations further congressional 
objectives evidenced elsewhere in the act)).
    With this authority, the agency has imposed restrictions on the 
advertising, labeling, and packaging of drug products, as well as 
restrictions on access to drug products, without which the products 
could not be lawfully marketed. For example, the agency has used its 
authority to ensure that drug products are not adulterated to require 
special packaging requirements for over-the-counter (OTC) drugs, to 
protect against product tampering (see 47 FR 50442 at 50447, November 
5, 1982); Sec. 211.132 (21 CFR 211.132)). Thus, the agency has imposed 
industry-wide packaging requirements to protect against product 
contamination as well as unintended, unsafe uses of drug products. 
(Compare Sec. 897.14(d) (prohibiting retailers from breaking open 
cigarette and smokeless tobacco packages to sell loose cigarettes or 
smokeless tobacco).)
    Similarly, the agency has authority to control carefully the 
package size of drug products to protect persons who fail to follow the 
directions from taking a lethal dose of the product (see 60 FR 52474 at 
52491, 52502, and 52503, October 6, 1995, and Sec. 355.20 (21 CFR 
355.20) (final monograph setting package size limitations on OTC 
anticaries drugs to prevent individuals from ingesting an acutely toxic 
dose)). (Compare Sec. 897.16(b) (setting minimum package size for 
cigarettes).)
    Along the same lines, the agency has used its authority to ensure 
that drugs are not misbranded to restrict the marketing of certain drug 
products where consumers simply were unable or unwilling to heed the 
warnings on these products. In some instances, the agency has banned 
altogether the marketing of persistently misused drug products. (See, 
e.g., 47 FR 41716 at 41719, September 21, 1982 (camphorated oil 
products deemed misbranded because, despite label warnings, consumers 
continued to misuse the product); 47 FR 34636, August 10, 1982 
(proposing withdrawal of all drugs containing phenacetin because of 
persistent abuse, and associated health risks, despite label warnings 
contained on those products).) In other instances, the agency has 
restricted the product to prescription use. (See, e.g., Sec. 250.12 (21 
CFR 250.12) (requiring prescription dispensing of OTC stramonium 
preparations because, despite package warnings, young people continued 
to abuse and misuse them); Sec. 250.100 (21 CFR 250.100) (switching 
amyl nitrite inhalant from OTC to prescription dispensing because of 
persistent off-label use and abuse); see also 60 FR 38643, July 27, 
1995 (proposing to restrict ephedrine drug products to prescription 
marketing because of the illicit use of OTC ephedrine in the 
manufacture of certain controlled substances).)
    Finally, the agency has approved drug products with strict limits 
on distribution, to ensure that the drug will be safe for use under the 
conditions, prescribed, recommended, or suggested in the product's 
labeling. For example, the drug Clozaril (clozapine), used in 
the treatment of schizophrenia, can cause the onset of a potentially 
fatal blood condition, agranulocytosis. However, early detection of 
agranulocytosis through routine blood testing can substantially reduce 
the risk of death. FDA, therefore, approved the drug with labeling that 
provides that the drug is available ``only through a distribution 
system that ensures weekly [white blood cell] testing prior to delivery 
of the next week's supply of

[[Page 44415]]

medication.'' \30\ This labeling was intended to ensure that 
Clozaril would not continue to be administered to those for 
whom it presents an unreasonable risk of harm. The marketing of 
Clozaril in contravention of the labeling would result in the 
product being deemed misbranded and subject to regulatory action. More 
recently, the agency issued regulations authorizing generally 
restrictions on the distribution of drug products in instances where 
``a drug product shown to be effective can be safely used only if 
distribution or use is restricted * * *'' (see Sec. 314.520 (21 CFR 
314.520)). (Compare Sec. 897.16 (setting conditions on the manufacture, 
sale, and distribution of cigarettes and smokeless tobacco); 
Sec. 897.14(b)(1) (requiring retailers to verify the consumer's age to 
ensure that the product will not be used by minors) Sec. 897.16(c)(1) 
(prohibiting use of self-service displays at retail establishments).) 
\31\
---------------------------------------------------------------------------

    \30\ Clozaril (clozapine tablets) product labeling, 
Sandoz Pharmaceuticals, March 1994, in Physician's Desk Reference, 
50th edition, p. 2252, 1996.
    \31\ ``The Federal Food, Drug, and Cosmetic Act provides 
authority for FDA to restrict the conditions for use, including the 
channels of distribution and use, of any drug, or withdraw approval 
of an NDA, if a drug cannot otherwise safely be used'' (H. Rept. No. 
93-884, 93d Cong., 2d Sess., p.4, 1974, reprinted in U.S. Cong. & 
Admin. News, pp. 3029-3032). But see American Pharmaceutical Ass'n 
v. Weinberger, 377 F.Supp. 824, 829 (D.D.C. 1974) (striking down an 
FDA regulation restricting the distribution of methadone), aff'd per 
curiam sub nom. American Pharmaceutical Ass'n v. Mathews, 530 F.2d 
1054 (D.C. Cir. 1976). The American Pharmaceutical Ass'n case, 
however, was decided before the emergence of cases such as Chevron 
U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 
(1984), in which the Court signaled the importance of deferring to 
an agency's interpretation of its own statute, provided the 
interpretation is sufficiently rational. The case also involved some 
unique circumstances: the agency had withdrawn approval of the NDA 
for the drug (methadone), but nevertheless permitted the drug to be 
marketed under a regulation to certain treatment programs and 
pharmacies. Also, because methadone is a controlled substance within 
the provisions of the Controlled Substances Act, the district court 
concluded that issues regarding restrictions on the distribution of 
the drug were more properly within the jurisdiction of the 
Department of Justice than FDA. In most other instances, however, 
where a drug is not subject to the Controlled Substances Act, and 
where certain marketing restrictions are necessary to ensure that 
the drug will be used safely and effectively, under the conditions 
contemplated in a new drug application, the American Pharmaceutical 
Ass'n case is distinguishable.
---------------------------------------------------------------------------

    These examples illustrate how the agency has interpreted sections 
501, 502, 503, and 505 of the act (in conjunction with sections 201(n), 
301, and 701(a) of the act) as authorizing an array of controls to 
prevent unsafe uses of drug products. The minimum age requirement for 
cigarettes and smokeless tobacco (see Sec. 897.14(a)), and the controls 
on packaging (see Secs. 897.14(d) and 897.16(b) and (d)), vending 
machine sales (see Secs. 897.14(b) and 897.16(c)), and self-service 
displays (see Secs. 897.14(c) and 897.16(c)), follow this same path. 
Without these restrictions, cigarettes and smokeless tobacco as drug 
products could be deemed misbranded or adulterated drug products and 
could present too great a safety risk to be marketed at all.
    The final rule also regulates the advertising used to promote 
cigarettes and smokeless tobacco (see Secs. 897.30, 897.32, and 
897.34). While the act's device provisions provide the most direct and 
extensive basis for regulating the advertising of these products (see 
section VI. of this document), the drug provisions of the act also 
would have allowed the agency to regulate the advertising of these 
products.
    Whether a drug is marketed on a prescription basis or OTC, the 
agency has authority to prohibit advertising that promotes the product 
for a use for which it would be unapproved or misbranded (see sections 
201(n), 301, 502, and 505 of the act; see also Sec. 201.128 (21 CFR 
201.128) (advertising of a drug product may be used to establish that 
the product is being marketed for a use for which it is neither labeled 
nor approved)). Though the agency generally will defer to FTC with 
respect to the advertising of OTC drugs (see Food and Drug 
Administration and Federal Trade Commission Memorandum of Understanding 
(36 FR 18539, September 16, 1971)), the agency retains authority to 
take action against an OTC drug that is promoted for an unapproved use. 
(See Sec. 330.1(d) (21 CFR 330.1(d)) (for an OTC drug to be generally 
recognized as safe and effective, and not misbranded, the advertising 
for the drug must not prescribe, recommend, or suggest its use under 
conditions not stated in the labeling); see, e.g., Sec. 310.519 (21CFR 
310.519) (prohibiting the marketing of any OTC drug that is ``labeled, 
represented, or promoted as an OTC daytime sedative (or any similar or 
related indication)''.)
    The agency also has authority to require that a drug product not be 
advertised in a manner that would undercut or counteract the product's 
labeling, including label-based warnings. (See McNeilab, Inc. v. 
Heckler, Food Drug Cosm. L. Rep. (CCH 1985) (Transfer Binder) 
para.38,317, p. 39, 787 (D.D.C. 1985) (while FDA ``cannot rely on 
advertising to make safe [an OTC] drug which is deemed too dangerous to 
be sold with label warnings alone,'' it would be ``proper for the 
agency * * * to ensure that ads do not undercut otherwise sufficient 
labeling''); see also 57 FR 13234 at 13237, April 15, 1992 (preamble to 
Accelerated Approval Regulations discussing requirement of submission 
of promotional materials to ensure that the drugs approved under this 
section will not be put to inappropriate or unsafe uses).) And, 
irrespective of whether a drug is marketed OTC or by prescription, the 
agency has authority to prohibit the distribution of ``false or 
misleading'' product ``labeling'' (see section 502(a) of the act).
    Last, had the agency chosen to use the act's drug authorities to 
regulate these products, one possible means of limiting their access 
would have been to require some form of prescription dispensing. In 
that case, the agency's authority to regulate the advertising of 
cigarettes and smokeless tobacco would be extensive (see section 502(n) 
of the act; Sec. 202.1 (21 CFR 202.1); Sec. 314.81(b)(3)(i) (21 CFR 
314.81(b)(3)(i))). The agency, for example, has discretion under the 
act to regulate both the presentation and format of prescription drug 
advertising. According to the House Conference Report on section 502(n) 
of the act, Congress contemplated that:
    [I]n administering the requirement contained in the conference 
substitute that advertisements contain brief summaries of side 
effects, etc., the Secretary under the conference substitute has 
sufficient discretion to exercise due regard to the size of the 
advertisement, the need for protecting the public health, and the 
conditions for which the drug is offered in the advertisement.
(Report of the Committee of Conference, H. Conf. Rept. 2526, 87th Cong. 
2d sess., (Oct. 3, 1962) reprinted in 1962 U.S. Code Cong. and Admin. 
News 2927, 2934 (emphasis added).)
Further, the agency may take action against a prescription drug 
advertisement to the extent it lacks ``fair balance'' or is otherwise 
``false or misleading'' (see sections 201(n), 502(a), and (n) of the 
act; Sec. 202.1 (21 CFR 202.1)). Thus, had the agency chosen to 
regulate these products as prescription drugs, the agency's existing 
prescription drug advertising regulations themselves would require 
significant changes to the content and format of the tobacco industry's 
advertising campaigns.
    The final concern--had the agency regulated these products as 
drugs--is whether cigarettes and smokeless tobacco could continue to be 
marketed to adults. As discussed in greater detail

[[Page 44416]]

in section II.C.5. of this document, there are compelling public health 
reasons for permitting the continued marketing of these products to 
adults. The same rationale would apply had these products been 
regulated as drugs. As is the case with respect to devices, there is a 
basis for concluding that an approach that prohibits the sale and 
promotion of cigarettes and smokeless tobacco to children and 
adolescents, yet allows these products to continue to be marketed to 
adults who are addicted to these products, could be found to be 
consistent with the statutory standard of ``safe'' and ``effective'' 
under section 505 of the act for these products.
    It is, of course, essential to this analysis that the agency's 
youth access restrictions in new part 897 be implemented. These 
restrictions are necessary to help ensure that the most alarming safety 
issue associated with these products will have been contained. Absent 
these restrictions, the risks associated with the continued marketing 
of these products, even to adults, may be overwhelming. The close issue 
of whether the public health is better served by allowing adults to 
continue to use these products, such that the agency could find that 
cigarettes and smokeless tobacco are ``safe'' and ``effective,'' 
depends heavily on the agency's ability to prevent the most alarming 
use of these products, namely, use by substantial numbers of children.
    Moreover, the approach of allowing the continued marketing of these 
products to adults, so long as youth access is carefully controlled, 
would be consistent with the agency's inherent discretion to take 
enforcement action against some uses of a drug product, but not others. 
Such an exercise of discretion would be unreviewable (Heckler v. 
Chaney, 470 U.S. 821 (1985)). \32\
---------------------------------------------------------------------------

    \32\ See Cutler v. Hayes, 818 F.2d 879, 893 (D.C. Cir. 1987) 
(``The FDC act imposes no clear duty upon FDA to bring enforcement 
proceedings to effectuate either the safety or the efficacy 
requirements of the Act''); Schering Corp. v. Heckler, 779 F.2d 683, 
686 (D.C. Cir. 1985) (FDA's agreement not to take enforcement action 
against an unapproved product for a period of 18 months was 
unreviewable); see also Cutler v. Kennedy, 475 F.Supp. 838, 856 
(D.D.C. 1979) (while FDA may not formally authorize the sale of 
drugs that it has found do not comply with the safety and 
effectiveness provisions of the act, the agency may use its 
enforcement discretion not to move against these unapproved drug 
products).
---------------------------------------------------------------------------

    In resolving that there is a presumption against judicial review of 
agency determinations not to take enforcement action, the Chaney Court 
reasoned that an agency's nonenforcement policy generally involves a 
complex weighing of factors ``peculiarly'' within the agency's 
expertise. (Id. at 831). These factors include, ``whether agency 
resources are best spent on this violation or another,'' ``whether the 
agency has enough resources to undertake the action at all,'' and 
``whether the particular enforcement action requested best fits the 
agency's overall policies.'' (Id. at 831-832).
    A decision by the agency to focus its resources on youth access to 
cigarettes and smokeless tobacco involves the same ``ordering of 
priorities''--i.e., the same balancing of agency-specific factors--on 
which the rule crafted in Chaney rests. Thus, were the agency to 
enforce the act only with respect to the promotion and sale of these 
products to children and adolescents, such a decision would enjoy the 
full force of the Chaney Court's presumption of nonreviewability. \33\
---------------------------------------------------------------------------

    \33\ In a number of other contexts, the agency has declined to 
take enforcement action against particular uses of unapproved drug 
products. Indeed, the agency has on occasion set forth detailed 
guidelines outlining the conditions under which it will, as a 
general matter, refrain from taking regulatory action. (See, e.g., 
FDA Compliance Policy Guide, (CPG) 7132b.15 (stating that pending 
completion of the OTC Drug Review, FDA generally will not take 
regulatory action against unapproved or misbranded OTC drugs prior 
to completion of a final monograph); CPG 7125.06 (setting conditions 
exempting extra-label use of new animal drugs from regulatory 
action); Regulatory Procedures Manual 9-71 (setting conditions under 
which FDA generally will permit the import of small quantities of 
unapproved drugs for personal use which are not available 
domestically).)
---------------------------------------------------------------------------

    Thus, while the agency finds that cigarettes and smokeless tobacco 
are more appropriately regulated as restricted devices, as the 
discussion in section II.C. of this document demonstrates, the agency 
could have crafted a serviceable regulatory scheme for these products 
under the drug provisions of the act. Contrary to the comments that 
have argued that the act is inherently unfit for regulation of these 
products, or that the agency's proposed restrictions exceeded the 
common sense boundaries of the act, both the device provisions and the 
drug provisions of the act provide sound authority for controlling the 
access to and promotion of these drug delivery devices.

E. Constitutional Issues Regarding Authority

1. Separation of Powers
    The doctrine of Separation of Powers refers to the distribution 
under the Constitution of the Federal Government's powers among the 
legislative, executive, and judicial branches. In particular, under 
this scheme only Congress has the constitutional authority to make law.
    (17) Numerous comments by industry, media, and retailer trade 
associations and by State legislators and individuals argued that FDA's 
assertion of jurisdiction over tobacco products supersedes Congress' 
legislative judgment, and, some argued, therefore violates the doctrine 
of Separation of Powers. The comments contended that Congress has 
provided statutory authority over tobacco products to the Executive 
Branch only under the statutes that it has enacted that expressly apply 
to tobacco products, such as the Comprehensive Smokeless Tobacco Health 
and Education Act (the Smokeless Act) (15 U.S.C. 4401 et seq.) and the 
Federal Cigarette Labeling and Advertising Act (the Cigarette Act) (15 
U.S.C. 1331 et seq.) and not at all under the act. The comments cited 
the history of proposals in Congress further to regulate tobacco 
products, none of which came to fruition, as evidence that Congress has 
exercised its legislative will not to act further on tobacco 
regulation.
    The agency does not agree that the rule violates the Separation of 
Powers Doctrine. The relevant legal standards are set out in Youngstown 
Sheet and Tube Co. v. Sawyer, 343 U.S. 579 (1952), and Chrysler Corp. 
v. Brown, 441 U.S. 281 (1979), which are cited in the comments. Justice 
Black's opinion for the Court in Youngstown stands for the proposition 
that the Executive Branch may not act unless authorized by the 
Constitution or by statute to do so. In particular, lacking 
Constitutional authority, the Executive Branch may act only under the 
aegis of a statute passed by Congress under its ``law making power'' 
(see Youngstown, 343 U.S. at 585-586, 589).
    Executive Branch agencies frequently act by rulemaking. In 
Chrysler, the Supreme Court considered the prerequisite for an agency's 
``legislative'' or ``substantive'' rules to have the ``force and effect 
of law'' (see Chrysler, 441 U.S. at 301-302). ``The legislative power 
of the United States is vested in the Congress, and the exercise of 
quasi-legislative authority by governmental departments and agencies 
must be rooted in a grant of such power by the Congress and subject to 
limitations which that body imposes'' (Id. at 302). Therefore, for 
legislative rules to have the ``force and effect of law,'' they must be 
``reasonably within the contemplation of [the statutory] grant of 
authority'' (Id. at 306). The ``thread''

[[Page 44417]]

between the regulations and the statute relied upon may not be ``so 
strained that it would do violence to established principles of 
separation of powers to denominate the[] particular regulations 
`legislative' and credit them with the `binding effect of law''' (Id. 
at 307-308).
    This is not to say that any grant of legislative authority to a 
Federal agency by Congress must be specific before regulations 
promulgated pursuant to it can be binding on courts in a manner akin 
to statutes. What is important is that the reviewing court 
reasonably be able to conclude that the grant of authority 
contemplates the regulations issued.
(Id. at 308.)
Youngstown therefore requires that FDA act under a statutory grant by 
Congress, while Chrysler demands a ``nexus between [FDA's] regulations 
and some delegation of the requisite legislative authority by 
Congress'' (see Chrysler, 441 U.S. at 304).
    As discussed elsewhere in this document, Congress exercised its 
lawmaking power to provide FDA with the authority to regulate any 
product that is a drug or device as defined in section 201 of the act. 
The evidence cited in both the 1995 Jurisdictional Analysis and the 
1996 Jurisdictional Determination annexed hereto demonstrates that 
cigarettes and smokeless tobacco meet the statutory definitions of drug 
and device. FDA may therefore act to regulate tobacco products, and in 
doing so, it is acting ``pursuant to an express or implied 
authorization of Congress,'' and the executive branch's ``authority is 
at its maximum * * *'' (see Youngstown, 343 U.S. at 635 (Jackson, J., 
concurring)). Moreover, Chrysler does not require that the act 
specifically refer to tobacco products, as the comments suggested (see 
Chrysler, 441 U.S. at 308). In fact, most products regulated by FDA are 
not specifically referred to in the act. In addition, as discussed in 
sections X.A. and X.B. of this document, neither the Smokeless Act nor 
the Cigarette Act precludes regulation under the act of cigarettes and 
smokeless tobacco as drug delivery devices. FDA's assertion of 
jurisdiction over cigarettes and smokeless tobacco is therefore 
reasonably contemplated by the laws as enacted by Congress. 
Consequently, in regulating tobacco products under the act, FDA is not 
asserting the lawmaking power reserved by the Constitution to Congress.
2. Nondelegation Doctrine
    The Nondelegation Doctrine, broadly speaking, imposes constraints 
on Congress' authority to delegate to others the legislative power 
vested in it by the Constitution.
    (18) While maintaining that Congress has not granted FDA the 
authority to regulate tobacco products, an industry comment argued that 
FDA seeks to assume authority that, under the Nondelegation Doctrine, 
Congress could not have delegated to the Executive Branch. In 
particular, the comment argued that the act requires FDA to approve a 
new drug as safe and effective, or to ban it, and to classify a device 
into one of three categories in which it will be required to meet 
conditions that ensure that it is safe and effective. Because FDA 
proposed to do neither with respect to nicotine and cigarettes and 
smokeless tobacco, the comment contended, the agency is free to choose 
any course it wishes; and had Congress delegated to FDA such unlimited 
authority, it would have violated the Nondelegation Doctrine. The 
comment can also be read to suggest that, if FDA has the flexibility to 
regulate medical devices, and in particular tobacco products, as it 
proposed, then Congress provided the agency without a standard, that 
is, with too much discretion.
    The agency disagrees with this comment. The act, while vesting FDA 
with broad discretion to regulate foods, drugs, and devices, does so by 
precisely defining the agency's jurisdictional ambit in section 201 of 
the act and by establishing a range of requirements and enforcement 
provisions--for example, in sections 301, 302, 303, 304, 501, 502, 505, 
510, 513, 514, 515, 516, 517, 518, 519, 520, and 701 of the act (21 
U.S.C. 331, 332, 333, 334, 351, 352, 355, 360, 360c, 360d, 360e, 360f, 
360g, 360h, 360i, 360j, and 371 respectively)--for it to pursue when, 
in its discretion, Heckler v. Chaney, 470 U.S. 821 (1985), it has found 
the operative facts established by Congress. The act therefore involves 
no delegation of Congress' legislative power that violates the 
Nondelegation Doctrine, as the courts have repeatedly held. (See, e.g., 
United States v. Shreveport Grain and Elevator Co., 287 U.S. 77, 85 
(1932); United States v. Garfinkel, 29 F.3d 451, 457-59 (8th Cir. 
1994); White v. United States, 395 F.2d 5, 9-10 (1st Cir.), cert. 
denied, 393 U.S. 928 (1968)); United States v. 62 Packages, More or 
Less, of Marmola Prescription Tablets, 48 F. Supp. 878, 884 (W.D. Wis. 
1943), aff'd, 142 F.2d 107 (7th Cir.), cert. denied, 323 U.S. 731 
(1944).)
    The Supreme Court has only infrequently invalidated a congressional 
delegation to the Executive Branch. (See, e.g., Panama Refining Co. v. 
Ryan, 293 U.S. 388, 418 (1935) (holding statute authorizing the 
President to prohibit interstate shipment of ``hot oil'' determined by 
State law or regulation to be ``excess'' to be unconstitutional 
delegation because ``Congress left the matter to the President without 
standard or rule, to be dealt with as he pleased''); Schechter Poultry 
Corp. v. United States, 295 U.S. 495, 541-542 (1935) (reversing 
convictions for violations of code of conduct for poultry suppliers 
because ``the discretion of the President in approving or prescribing 
[such] codes, and thus enacting laws for the government of trade and 
industry throughout the country, is virtually unfettered'').)
    More recently, the courts have applied the Nondelegation Doctrine 
to reach, or require from an agency, a narrow interpretation of a 
statutory provision that would otherwise be too broad a delegation. 
(See, e.g., Industrial Union Dep't., AFL-CIO v. American Petroleum 
Inst., 448 U.S. 607, 646 (1980); International Union, UAW v. OSHA, 37 
F.3d 665, 668-69 (D.C. Cir. 1994); International Union, UAW v. OSHA, 
938 F.2d 1310, 1316-17 (D.C. Cir. 1991).)
    Unlike the statutes under review in Panama Refining and Schechter, 
the act sets standards for FDA to follow. The agency need not narrowly 
interpret the act to avoid an otherwise over-broad delegation, and 
courts have repeatedly directed that the act be construed liberally in 
light of its public health purpose (see sections I.B. and II.A. of this 
document). The agency's rulemaking with respect to tobacco products is 
a legitimate application of those standards to the facts before the 
agency. The agency therefore concludes that neither the act nor this 
rulemaking violates the Nondelegation Doctrine.

III. Overview of Comments, Smoking Prevalence Rates Among Minors, 
Scope, Purpose, and Definitions

A. Overview of Comments

    From the time the 1995 proposed rule was published on August 11, 
1995 (60 FR 41314), until January 2, 1996, the Food and Drug 
Administration (FDA) accepted public comments. This comment period was 
the opportunity for the public to speak to FDA about the matter of 
regulating nicotine-containing tobacco products. On March 18, 1996, the 
agency reopened the comment period for 30 days to make additional 
information relevant to this rulemaking available for public comment.

[[Page 44418]]

    The 1995 proposed rule generated more responses than the agency had 
received at any other time in its history on any other subject. 
Altogether, the agency received more than 700,000 pieces of mail, 
representing the views of nearly 1 million individuals. Most of the 
submissions were form letters or post cards. The agency identified more 
than 500 different types of form letters. \34\ Others were petitions 
with sometimes hundreds of signatures. More than 95,000 submissions 
expressed individual comments on the 1995 proposed rule, including more 
than 35,000 from children who were overwhelmingly supportive. The 
individual comments included one from an industry trade association 
which delivered a single submission of some 45,000 pages on the last 
day of the announced comment period.
---------------------------------------------------------------------------

    \34\ Opponents and proponents of the rule organized letter-
writing campaigns. One, a massive tobacco company-orchestrated 
campaign, generated some 300,000 pieces of mail--nearly half of all 
of the mail received by the agency on this topic.
---------------------------------------------------------------------------

    As may be expected, comments differed sharply on the overarching 
issues of whether FDA should regulate cigarettes and smokeless tobacco, 
and whether the 1995 proposed rule would have the desired effect of 
reducing the availability and attractiveness of these products to 
children and adolescents.
    Several Government officials commented, including U.S. Senators and 
Congressmen, other Federal agencies, State governors and legislators, 
and law enforcement officials. Comments came from every corner of the 
country. FDA heard from smokers who could not understand why the 
Government was meddling in their lives, and from smokers who 
desperately wanted to quit, but could not. It heard from employers and 
employees in the affected industries, including tobacco farmers, 
wholesalers, cigarette manufacturers, and even laborers with the lowest 
paying jobs who feared that they might lose the only jobs they know. 
The agency even heard from school children who wanted to be protected 
from tobacco. ``It is not fair,'' wrote one 13-year-old, ``that the 
tobacco companies try to get kids to use tobacco.''
    Although many of the comments were addressed to specific portions 
of the tobacco regulation proposal, tens of thousands of letters 
commented in general. Thousands of general comments supported the rule. 
Some, like this one, came from surprising sources: ``I support 
regulations restricting the sale, advertising, promotion and 
distribution of cigarettes and chewing tobacco. I grow tobacco, but I 
know it is wrong to sell death. I really feel sorry for people who are 
'hooked' on nicotine.'' Other supporting comments came from more 
traditional sources, especially the medical and public health 
communities. One letter from a coalition of medical associations that 
was addressed to President Clinton said: ``We, the undersigned 125 
organizations, representing more than 18 million members and 
volunteers, urge your strong support for Food and Drug Administration 
actions to protect children and teenagers from tobacco.''
    Many expressed strong overall opposition to the rule. One comment 
said: ``I am taking the time to write this letter to express my 
overwhelming dissatisfaction with the action of the FDA in trying to 
rewrite the Constitution and take control of the Tobacco Industry.''
    Although many comments opposed FDA's regulation of tobacco 
products, there was nearly unanimous agreement--even from the tobacco 
companies and smokers--that children under the age of 18 should not be 
using nicotine-containing products, either cigarettes or smokeless 
tobacco. A few children, however, did write that, even if tobacco use 
is unhealthy, it should still be their choice, even if they are younger 
than 18. The agency received thousands of general comments about the 
addictive and harmful consequences of tobacco use, and they called on 
the agency to act.
    A summary of the general issues reflected in the thousands of 
comments, and the agency's responses, follows:
    (1) The agency received several thousand comments stating that FDA 
should focus on the products it already regulates. In addition, many 
comments said that FDA should not expand its responsibilities because 
the agency's resources already are inadequate. Others stated that the 
regulation of tobacco is a responsibility that Congress has reserved 
for itself.
    In contrast, many supporters of the 1995 proposed rule argued that 
it was appropriate for FDA to take action on this issue. One woman 
wrote: ``As the Federal agency designed to protect consumers from 
harmful consumer products, FDA clearly has both the right and the 
responsibility to take these actions against the most serious health 
threat to our young people.''
    The regulation of drugs and medical devices sold through interstate 
commerce is central to FDA's established role. Based on recently 
available information, as stated in section II. and in the 1996 
Jurisdictional Determination annexed hereto, FDA has determined that 
nicotine is an addictive drug, and that cigarettes and smokeless 
tobacco are drug delivery devices, which are combination products under 
section 503(g) of the Federal Food, Drug, and Cosmetic Act (the act) 
(21 U.S.C. 353(g)). As such, these products fall within the traditional 
scope of FDA's jurisdiction. Therefore, by regulating these products, 
FDA is carrying out its traditional role.
    (2) FDA received thousands of comments about how smoking was an 
issue of free choice for adults. Most of the comments focused either on 
the ideological issue of freedom to choose anything, even something 
dangerous, or on related economic issues, such as the freedom to 
receive discount or specialty tobacco products by mail. Many comments 
said the Government must not attempt to regulate human behavior, 
especially for adults, even when there are health consequences. Letters 
like this were typical: ``As individuals we too have been promised the 
freedom of choice and this should continue to be. I don't want the 
government regulating my personal freedoms.''
    Supporters of the rule countered that because nicotine addiction is 
a pediatric disease, the choice to start smoking is not being made by 
adults, but by adolescents who constitute a most vulnerable population. 
Because they are not yet mature individuals, they are not really 
expressing a free choice, the comments said. In addition, supporters of 
the rule stated that adolescents, who are so impressionable, are being 
manipulated by the tobacco companies, especially through advertising, 
and therefore, are actually being denied a free choice. Instead, the 
comments urged that adolescents not be allowed to choose something 
addictive that may damage their health or shorten their lives.
    FDA believes that adults should continue to have the freedom to 
choose whether or not they will use tobacco products. However, because 
nicotine is addictive, the choice of continuing to smoke, or use 
smokeless tobacco, may not be truly voluntary. Because abundant 
evidence shows that nicotine is addictive and that children are not 
equipped to make a mature choice about using tobacco products, the 
agency believes children under age 18 must be protected from this 
addictive substance.
    (3) Numerous comments, many from adult smokers, expressed the fear 
that FDA's true goal is a total ban of all

[[Page 44419]]

tobacco products. Some asserted that the 1995 proposed rule is a 
prelude to prohibition. One woman wrote: ``The most insidious insight 
into this proposed regulatory act is the Federal Government's thinly 
veiled motive of the eventual prohibition of tobacco sales in the 
United States to appease a small minority of fanatical anti-smoking 
zealots.''
    FDA strongly disagrees with these comments and reiterates that it 
has no intention of banning cigarettes and smokeless tobacco. FDA is 
aware that at least one tobacco manufacturer, in letters sent to its 
customers encouraging them to submit comments opposing the rule, 
claimed that the ``real agenda is Backdoor Prohibition of all tobacco 
products.'' These allegations are baseless and ignore statements made 
by the President and FDA to the contrary. For example, when the 
President announced the proposed FDA regulations on August 10, 1995, 
one reporter asked whether an outright ban would be more logical than a 
``regulatory partial step.'' The President replied:
    I think it would be wrong to ban cigarettes outright because, 
number one, it's not illegal for adults to use them * * * tens of 
millions of adults do use them. And I think it would be as 
ineffective as prohibition was. But I do think to focus on our 
children is the right thing to do.

(Transcript, ``Press Conference by the President,'' dated August 10, 
1995)
The preamble to the 1995 proposed rule expressed a similar view that 
removing cigarettes and smokeless tobacco from the market would not be 
in the best interest of public health (60 FR 41314 at 41348 and 41349).
    Rather than instituting prohibition, the agency's rule will inhibit 
the spread of smoking behavior from one generation to the next. As a 
result, fewer and fewer adolescents will become addicted to nicotine-
containing products. As current smokers either quit or die, the total 
number of smokers will gradually decline as they are replaced by fewer 
and fewer new smokers. The agency wants to reassure those who fear that 
FDA is taking the first steps that would lead inexorably to a ban on 
the sale of these products to those 18 and over that FDA will not ban 
these products for adults. Thus, any claim that the rule is a prelude 
to or would lead to prohibition is totally without merit.
    (4) FDA received many comments from politicians, industry 
representatives, and private citizens who argued that the agency does 
not need to regulate tobacco because the product is already highly 
regulated. Many comments observed that all 50 States have passed their 
own laws prohibiting the sale of tobacco products to minors younger 
than 18. Comments on existing State enforcement programs primarily came 
from those opposed to FDA's proposed regulation, including legislators 
from more than a dozen States. These comments claimed that this should 
remain a State matter, that State laws are either sufficient or 
superior to the 1995 proposed rule, that State officials, unlike FDA, 
are responsive to the concerns of State citizens, and that States and 
private groups are more responsible and effective than a Federal 
agency. Comments like this were common: ``Many states have strict 
restrictions on tobacco sales to minors already and in my State 
(Maryland) these regulations are being enforced with great success.''
    Many supporters of the 1995 proposed rule, however, pointed out 
that State rules generally have failed to stop minors from purchasing 
tobacco products. One individual wrote: ``I currently live in a State 
where there is absolutely no enforcement of the laws banning sales of 
tobacco to minors,'' and numerous other comments referred to specific 
instances in which they said State laws were not observed. A joint 
letter sent by attorney generals from 25 States, as well as Guam and 
Puerto Rico, welcomed the 1995 proposed rule, saying:
    Although every State bans the sale of tobacco to minors, studies 
show that children have easy access to tobacco. * * * We believe the 
proposed rule, which emphasizes reducing access and limiting the 
appeal of tobacco products to children, should be a crucial 
component of a national effort by Federal, State and local officials 
to help our youngest generation of Americans avoid suffering 
preventable disease and premature death from the use of tobacco 
products.
    Many comments stated that the tobacco industry has in place 
guidelines to prevent the sale of tobacco products to minors. Said one 
comment: ``I fail to see why the government is so quick to dismiss 
voluntary action on the part of the industry.'' Other comments 
recommended that voluntary education programs aimed at retailers, or, 
more specifically, at retail sales clerks, would be sufficient. These 
educational programs would either be based on voluntary efforts by the 
affected industries or in-house, employee training programs.
    Supporters of the rule, however, expressed widespread distrust of 
the industry and of its promise to use voluntary programs to prevent 
minors from smoking. One woman wrote: ``Thirty years of experience in 
compromising with the tobacco industry has proven that the industry can 
not be trusted. After the release of the Surgeon General's report in 
1964, the tobacco industry promised to abide by a voluntary advertising 
code, but the code was quickly ignored after the threat of government 
regulation had passed.'' Another comment said: ``When tobacco companies 
fear government regulation, they often adopt voluntarily the 
restrictions the government is considering. However, there is no 
penalty for violating a voluntary guideline. The tobacco industry has a 
track record that speaks for itself. Please don't play the tobacco 
industry's game!''
    The agency believes that the comments opposing the rule on the 
basis that the States already have restrictions have misinterpreted its 
scope and application. FDA, under the act, regulates human and animal 
drug products, certain foods, and devices that are, or have been in 
interstate commerce. The fact that these products move across State 
lines makes their regulation a Federal matter.
    Other statutes and regulations provide further evidence that 
tobacco regulation is not reserved to States. The Federal Cigarette 
Labeling and Advertising Act (15 U.S.C. 1331 et seq.) (Cigarette Act) 
and the Comprehensive Smokeless Tobacco Health Education Act (15 U.S.C. 
4401 et seq.) (Smokeless Act), among other things, place federally-
required statements and warnings on cigarettes and smokeless tobacco 
and require manufacturers to submit reports to the Federal Government. 
These products are also subject to Federal taxes (see, e.g., 26 U.S.C. 
5701) and Federal, rather than State, laws and regulations intended to 
guard against contraband cigarettes (see 18 U.S.C. 2341 et seq.; 27 CFR 
part 296, subpart F). Thus, tobacco regulation is clearly both a 
Federal and State matter.
    FDA also disagrees with those comments suggesting that States and 
private groups may be more responsible or efficient than FDA or that 
FDA may not be as responsive to citizens' concerns. Federal regulation 
of these products has several significant advantages over State or 
private group oversight alone; for example, the rule establishes 
minimum, national standards for the sale and distribution of these 
products whereas State or private group efforts may be limited to a 
specific locality or to group members. FDA's regulations also create 
enforceable obligations whereas private

[[Page 44420]]

group efforts, voluntary codes, and industry policies do not.
    FDA notes that this regulation does not necessarily preclude States 
from enforcing their own laws. In fact, under section 1926 of the 
Public Health Service Act (the PHS Act) (42 U.S.C. 300x-26), States are 
expected to enact and to enforce laws to prohibit any manufacturer, 
retailer, or distributor of tobacco products from selling or 
distributing such products to any individual under age 18.
    Moreover, States may choose to regulate areas that are not 
addressed in this rule and not authorized by the act, such as requiring 
licenses for retailers. FDA agrees with the comments from State 
attorneys general that effective regulation of cigarettes and smokeless 
tobacco, in order to protect children and adolescents, will involve 
cooperation and joint efforts by Federal and State officials and FDA's 
rule will enhance, rather than hinder, State tobacco control efforts.
    Moreover, States are not precluded from taking action in areas that 
are addressed in this rule. Although some of these requirements may be 
preempted, the State may petition the agency for an exemption from the 
act's preemptive effect under section 521(b) of the act (21 U.S.C. 
360k(b)). A more detailed discussion of preemption can be found in 
section X. of this document.
    Finally, regarding the comments questioning FDA's response to State 
or citizen concerns, mechanisms do exist for States and individual 
citizens to seek regulatory action or changes by FDA. FDA regulations 
permit any person to petition the agency to request an action (such as 
issuance, amendment, or revocation of a rule), to reconsider an action, 
or to stay an administrative action (see Secs. 10.30, 10.33, and 10.35 
(21 CFR 10.30, 10.33, and 10.35)). Less formal mechanisms for 
communicating with FDA, such as letters or meetings, exist as well.
    (5) Many comments opposing this rule argued that the tobacco 
industry already is intensely regulated, and that more regulation is 
unneeded and unjustified. One person wrote: ``As you know the tobacco 
industry is already one of the most heavily regulated industries in the 
United States. Current laws would accomplish the stated objective of 
the proposed FDA regulations.'' Others disagreed: ``I believe that the 
tobacco industry has a long, sorry, and cynical record * * *. It is an 
industry that greatly deserves to be regulated further.''
    While it is true that production of tobacco products is regulated, 
and the industry is heavily taxed, virtually none of these measures is 
aimed at the product's impact on the health of the individuals using 
them or on public health. FDA regulation of tobacco products is 
intended to have a completely different effect than any of the rules 
that currently applies to the tobacco industry. The agency's regulatory 
effort will attempt to reduce the number of young people who smoke or 
use tobacco products, consistent with FDA's mission to protect public 
health by existing laws.
    (6) Many comments objected to the 1995 proposed rule, stating that 
cigarettes and smokeless tobacco are legal products and should be 
treated like any other legal consumer product.
    FDA believes that the comments misunderstand the regulatory basis 
for the rulemaking. FDA has determined that these products contain both 
a drug and device component as defined in section 201(g) and (h) of the 
act (21 U.S.C. 321(g) and (h)), respectively, because the products, and 
the nicotine in the products, are intended to affect the structure and 
function of the body. The agency has further determined that these 
products should be regulated as devices. Thus, the issue is not merely 
whether the products themselves have been legally marketed, but how 
they may be most appropriately regulated to protect the public health, 
given their status under the act and potential to do harm.
    (7) Some comments suggested that if the Government begins 
regulating tobacco, it will soon regulate many other consumer products 
that are now legal, but judged to be harmful to health, including 
alcohol and caffeine. They expressed fear that, once FDA begins to 
regulate one consumer product, it will be obligated to regulate others. 
Said one man: ``The FDA thinks it is being sly by defining cigarettes 
as `nicotine delivery devices.' A shot glass must then be described as 
a device for alcohol consumption. A coffee mug must be a device for 
caffeine consumption. Will the FDA be regulating my morning coffee by 
restricting the size of my cup?'' Some supporters of the proposed rule 
said that FDA should regulate some of the other consumer products 
associated with medical disorders. Wrote one: ``Bud frogs are no 
different than Joe Camel.''
    FDA strongly disagrees with these comments and believes that the 
concerns they express are misplaced. In no way does the agency's 
regulation of cigarettes and smokeless tobacco as nicotine delivery 
devices justify or require the regulation of coffee cups and shot 
glasses.
    First, the agency notes that currently it regulates both caffeine 
and alcohol under the authority of the act. Caffeine naturally occurs 
in coffee, tea, and other foods. It is also used as an ingredient in 
soft drinks. The act defines ``food'' as ``articles used for food or 
drink for man or other animals'' (section 201(f)(1) of the act (21 
U.S.C. 321(f)(1))). When caffeine naturally occurs in products that are 
foods, such as coffee, or when caffeine is used in soft drink products 
in accordance with section 402 of the act (21 U.S.C. 342), the product 
is a ``food'' under section 201(f)(1) of the act and thus explicitly 
excepted from the definition of ``drug'' in section 201(g)(1)(C) (21 
U.S.C. 321(g)(1)(C)). Caffeine used in soft drinks in accordance with 
section 402 of the act is appropriately regulated as a food under 
201(f)(1) of the act. Caffeine is also used as an active ingredient in 
several products regulated as drugs by the agency, including over-the-
counter stimulants, internal analgesics and menstrual discomfort relief 
products.
    Likewise, alcohol is used as an ingredient in products regulated as 
drugs under the act, including over-the-counter cough and cold 
preparations. There is no evidence to suggest that the agency's current 
regulation of these substances is inappropriate or inadequate to 
protect the public health. Therefore, there is no factual or scientific 
basis for the agency to change the manner in which these substances are 
now being regulated.
    FDA's attention was drawn to tobacco rather than caffeine and 
alcohol because of certain fundamental differences among the 
substances. Nicotine is a highly addictive drug. As discussed in 
section I.B. of this document, studies estimate that as many as 92 
percent of all smokers are addicted to the nicotine in cigarettes. 
There is no evidence that either caffeine or alcohol pose this kind of 
health problem. Moreover, cigarettes and smokeless tobacco are 
dangerous products that are associated with lung cancer, heart disease, 
and many other serious illnesses and conditions.
    Yet these factors only served to draw FDA's attention to the 
tobacco problem. What ultimately separates caffeine and alcohol from 
nicotine and tobacco products is that caffeine and alcohol are 
currently being appropriately regulated as foods or drugs based on 
their intended use. Nicotine and tobacco products, on the other hand, 
are drugs

[[Page 44421]]

and medical devices, respectively, that, in large measure, are not 
being appropriately regulated. FDA is moving to correct this situation, 
and the public health will undoubtedly benefit as a result.
    (8) Several comments argued that it is the responsibility of 
parents and teachers, not the Federal government, to educate young 
people about cigarette and smokeless tobacco use. Some comments feared 
that FDA's effort to reduce the use of nicotine-containing cigarettes 
and smokeless tobacco by youth might interfere with the relationship 
between parents and their children. Many comments voiced the argument 
that this rule is a sign of big Government getting in the way of 
parents educating their children. One comment stated, ``This is 
obviously a case of misplaced priorities * * *. The battle will really 
be won on the home front. Parental guidance will go a long way in 
curbing underage smoking.''
    Other parents, however, were grateful for any assistance they could 
get to help protect their children from nicotine addiction. One person 
said: ``The parents cannot do it all alone.'' Furthermore, most parents 
who submitted comments stated that a strong national approach to 
reducing these products' accessibility and appeal would reinforce 
messages that their children get at home. One comment stated, ``While I 
am in no way an advocate of government in my life, this to me is a 
totally different circumstance * * * children should not be expected to 
make these choices.'' One comment from a middle school student said, 
``Giving school age children the opportunity to purchase things that 
will endanger them is inexcusable.''
    The agency recognizes the unique role that parents and teachers 
have in educating young people and has no intention of intervening in 
that relationship. Rather, FDA expects the rule to complement parental 
and educational efforts by reducing the availability and appeal of 
tobacco products. The preamble to the 1995 proposed rule contained 
ample evidence as to how these products are easily accessible to and 
appeal to young people and how a comprehensive approach, aimed at 
reducing both access and appeal, will be more effective than an 
educational approach alone. Educating young people about health risks 
may deter some young people from trying cigarettes and smokeless 
tobacco, but educating them and simultaneously reducing their ability 
to acquire the products, as well as reducing the appeal of the products 
themselves, will prevent more young people from using the products.
    FDA also emphasizes that cigarettes and smokeless tobacco are 
combination drug-device products that are subject to regulation under 
the act. Consequently, the rule properly addresses issues relating to 
the sale, distribution, and use of these products by children and 
adolescents. The rule does not adversely affect a parent's or teacher's 
ability to discuss cigarette and smokeless tobacco use with young 
people.
    (9) Comments suggested that, for some, illegal drugs and crime 
evoke stronger emotions than tobacco use. Many comments stated that the 
Government, although not FDA specifically, should spend more of its 
resources on fighting crime instead of trying to regulate a legal 
product such as tobacco. One of the form letters stated it this way: 
``Federal dollars would be much better spent addressing inner-city 
violence, illegal drug sales, and this country's deteriorating 
education system.''
    FDA's authority is defined by the act. FDA lacks the authority to 
help with other social ills such as crime and illicit drug sales.
    (10) One comment urged FDA to institute policies that would 
facilitate ``whistleblowing.'' The comment said that FDA should 
encourage tobacco company employees to disclose allegedly illegal or 
dishonest practices.
    Any person, regardless of the industry that employs that person, 
can provide records and information to FDA for law enforcement purposes 
with the assurance that his or her identity, and the information and 
records that he or she provides, will not be publicly disclosed. 
Current Federal statutes and FDA regulations already protect records or 
information compiled for law enforcement purposes from public 
disclosure. For example, the Freedom of Information Act exempts law 
enforcement records and information from public disclosure. FDA's 
regulations governing public disclosure elaborate on this exemption, 
stating, among other things, that the agency may withhold from public 
disclosure records or information compiled for law enforcement purposes 
to the extent that disclosure of such records or information could 
reasonably be expected to disclose the identity of a confidential 
source and information furnished by a confidential source in the case 
of a record compiled by FDA or any other criminal law enforcement 
authority in the course of a criminal investigation (Sec. 20.64 (21 CFR 
20.64(a))).

B. Smoking Prevalence Rates Among Minors

    The agency received some comments stressing the importance of 
accurately measuring youth consumption of tobacco products, reiterating 
the problem of growing use among young people, and stressing the need 
to curb such growth to improve health and to reduce the tremendous 
health care costs attributable to tobacco-related illnesses. However, 
several disputed the statistics FDA cited on the number of youth 
smokers and challenged the data sources used. These comments are 
discussed below.
    (11) One comment objected to FDA's description of smoking as a 
``pediatric problem,'' arguing that ``TAPS II [Teenage Attitude and 
Practice Survey II] demonstrates that smoking in any meaningful sense 
is a phenomenon that occurs in the later teenage years, not in the pre-
teen or early teen years.'' It further charged that the agency's use of 
the term ``pediatric'' is intended to serve ``emotive and/or political 
purposes, not to describe the problem of underage smoking in scientific 
or medical terms.''
    A comment from a public health association, however, cited the TAPS 
II survey as showing that ``the average teen smoker initiates smoking 
at age 13, and becomes a regular smoker by age 14.5.'' It also referred 
to the Center for Disease Control and Prevention (CDC's) 1992 Youth 
Risk Behavior Survey, which showed ``similar patterns of early 
initiation rates, with smoking initiation rates rising rapidly between 
10 and 14 years of age.''
    The agency maintains its position that smoking is a pediatric 
disease. It agrees with the comment citing TAPS II and Youth Risk 
Behavior Survey data showing that the average teen smoker begins 
smoking in the early teens or even preteens, rather than later years.
    Furthermore, the American Academy of Pediatrics' Council on Child 
and Adolescent Health states that the purview of pediatrics includes 
the physical and psychosocial growth, development, and health of the 
individual beginning before birth through early adulthood, and that 
``[t]he responsibility of pediatrics may therefore begin with the fetus 
and continue through 21 years of age.'' This definition of pediatrics 
obviously includes the age group FDA has targeted to reduce smoking.
    (12) One comment from the tobacco industry charged that FDA's 
assertion

[[Page 44422]]

that smoking has increased among 8th- and 10th-grade students ignored 
CDC's TAPS II data showing that the incidence of underage smoking 
declined between 1989 and 1993. TAPS II, the comment maintained, showed 
that ``[a]lthough total smoking in the interview sample [1993] has 
increased as minors have aged since 1989, comparing the results for 
minors of a given age indicates that the incidence of underage smoking 
declined between the two surveys'' and that ``between the two surveys 
both daily smoking and any smoking in the past 30 days declined among 
minors.''
    The introduction to TAPS II stated that its prevalence findings 
were comparable to or lower than those of other national surveys. It 
explained that the survey method used in TAPS II, computer-assisted 
telephone interviews, had several limitations that may have led to the 
lower estimates. For example, young people may be fearful of disclosing 
smoking behavior if a parent is present in the room during the 
telephone interview. Further, telephone interviews do not afford the 
same opportunity for building a rapport between the interviewer and the 
respondent as do in-person interviews. As a result, young people being 
interviewed in this manner may be less likely to disclose their real 
smoking behavior. For these reasons, the introduction stated, 
``prevalence estimates from TAPS II may be lower than they would have 
been had the entire TAPS I cohort been successfully reinterviewed and 
therefore, should be interpreted with caution.'' \35\
---------------------------------------------------------------------------

    \35\ ``1993 Teenage Attitudes and Practices Survey, Public Use 
DataTape,'' CDC, OSH, p. 3, 1993 (unpublished data).
---------------------------------------------------------------------------

    (13) One comment challenged FDA's claim that 3,000 young people 
become new smokers every day. The comment maintained that ``the study 
from which the `3,000 per day' number was derived did not refer to 
children at all,'' but to smokers ``aged 20 years old'' (Pierce et al., 
1989) (emphasis from original). \36\
---------------------------------------------------------------------------

    \36\ Pierce, J. P., M. C. Fiore, T. E. Novotny, E. J. 
Hatziandreu, and R. M. Davis, ``Trends in Cigarette Smoking in 
United States: Projections to the Year 2000,'' JAMA, vol. 261, pp. 
61-65, January 6, 1989.
---------------------------------------------------------------------------

    The agency agrees that the study surveyed individuals who were 20-
years-old, although the agency referred to these individuals in 
essentially the same terms used by the authors of the study--``young 
persons.''
    Any potential confusion is mitigated by the fact that subsequent 
surveys indicate that the vast majority of 20-year-olds begin smoking 
at a younger age. For example, according to the Combined National 
Health Interview Surveys for 1987 to 1988, 92 percent of 20-year-old 
smokers started smoking by age 18. Taking into account the comment and 
these data, the agency believes that it is accurate to state that 
approximately 3,000 young people begin to smoke each day, regardless of 
whether young people is defined as under 18, or 20 years and under, 
although the agency would note that of the 3,000 young people who begin 
smoking each day, 2,722 are under age 18.

C. Scope

    Proposed Sec. 897.1(a) would have stated that ``[t]his part is 
intended to establish the conditions under which cigarettes and 
smokeless tobacco products that contain or deliver nicotine, because of 
their potential for harmful effect, shall be sold, distributed, or used 
under the restricted devices provisions of the Federal Food, Drug, and 
Cosmetic Act.'' Proposed Sec. 897.1(b) would have stated that 
``[r]eferences in this part to regulatory sections to the Code of 
Federal Regulations are to chapter I of Title 21, unless otherwise 
noted.'' The final rule is being amended to explicitly state that 
failure to comply with any applicable provision would render the 
product misbranded.
    The preamble to the 1995 proposed rule stated that ``[t]he proposed 
rule would not apply to pipe tobacco or to cigars because the agency 
does not currently have sufficient evidence that these products are 
drug delivery devices under the act'' (60 FR 41314 at 41322). The 
preamble stated that ``FDA has focused its investigation of its 
authority over tobacco products on cigarettes and smokeless tobacco 
products, and not on pipe tobacco or cigars, because young people 
predominantly use cigarettes and smokeless tobacco products'' (Id.).
    (14) A comment opposing this provision stated that FDA does not 
have authority to regulate cigarettes under the restricted device (or 
any other) provision of the act.
    The agency disagrees. A full discussion of the agency's authority 
can be found in section II. of this document.
    (15) Several comments supported the provision. Some comments 
recommended that the scope of the rule should also apply to adult 
smokers. One comment stated that:
    [I]t is evident from the FDCA [the Federal Food, Drug, and 
Cosmetic Act] that the FDA has clear and unambiguous authority to 
regulate and restrict the sale of the subject products not only to 
minors but also to adults, who suffer equally from the mortality and 
morbidity effects of the toxic components of cigarette smoke and 
tobacco.
    As discussed in section I.B. of this document, the agency believes 
that, on balance, it is better for cigarettes and smokeless tobacco to 
remain available for use by adults.
    (16) Several comments urged that the scope should be expanded to 
include all nicotine containing products, including cigars and pipes. 
Another comment expressed concern that the sale and use of big cigars 
and pipe tobacco by youth may be increasing, and therefore recommended 
that FDA expand the scope ``to include all presently marketed nicotine 
delivery devices,'' or to ``include regular monitoring of youth's use 
of these products, and should that use increase, provide a means to 
extend the FDA's rulings to include those products.''
    Another comment stated that since ``federal regulations often take 
seven to ten years to enact and enforce, it is essential that the 
regulation be written pro-actively to adequately address the problem at 
the outset.'' The comment stated that ``[i]t is therefore, important to 
write regulations to protect the public from all `nicotine delivery 
devices' that in the future, might be placed in something other than 
tobacco'' because ``[a]ny product containing the addictive substance of 
nicotine has a future market because of its addictive nature.''
    Finally, this comment asserted that FDA should broaden the scope of 
the rule to include all products that deliver nicotine, because the 
comment stated that smoking mothers are at greatest risk for 
reproductive hazards, such as low birth weight babies. The comment 
stated that ``[c]onsidering that over 50% of births are unplanned, and 
that people believe they can always quit smoking, it is too late to 
avoid damage by smoking mothers by the time they realize they are 
pregnant.''
    The preamble to the 1995 proposed rule stated that ``[t]he proposed 
rule would not apply to pipe tobacco or to cigars because the agency 
does not currently have sufficient evidence that these products are 
drug delivery devices under the act'' (60 FR 41314 at 41322). The 
preamble stated that ``FDA has focused its investigation of its 
authority over tobacco products on cigarettes and smokeless tobacco, 
and not on pipe tobacco or cigars, because young people predominantly 
use cigarettes and smokeless tobacco products'' (60 FR 41314 at 41322).
    The agency advises that, at this time, there is insufficient 
evidence of cigar or pipe tobacco use by children and

[[Page 44423]]

adolescents to support the inclusion of cigar, pipe tobacco, or ``all 
presently marketed nicotine delivery devices'' within the scope of the 
final rule (section III.E. of this document).
    In response to the comment stating that the agency should monitor 
youths' use of products such as cigars or pipe tobacco, and that the 
agency should provide a means to ``extend FDA's rulings to include 
these products,'' the agency advises that, as stated in the 1995 
proposed rule, the objective of the final rule is to meet the goal of 
the report ``Healthy People 2000,'' by reducing roughly by half 
children's and adolescents' use of tobacco products. The agency is not 
asserting jurisdiction over pipes and cigars at this time because it 
does not have sufficient evidence that these products satisfy the 
definitions of drug and device in the act. However, the agency will 
consider any additional evidence that becomes available, including any 
new evidence that these products meet the statutory definitions as well 
as evidence that indicates that cigars and pipe tobacco are used 
significantly by young people.
    FDA also disagrees with the comment claiming that Federal 
regulations take 7 to 10 years to enact and enforce. While it may be 
true that rulemaking, in general, can be a time-consuming task, the 
agency can and has taken prompt action to issue rules with significant 
public health implications. For example, the proposed rule for this 
final rule appeared in the Federal Register of August 11, 1995 (60 FR 
41314). (See also 56 FR 60366 et al., November 27, 1991, and 58 FR 2066 
et al., January 6, 1993 (15 months to issue Nutrition Labeling and 
Education Act regulations); 60 FR 5530, January 27, 1995, and 60 FR 
63372, December 8, 1995 (11 months to issue regulations to facilitate 
communications between FDA and State and foreign governments in order 
to enhance regulatory cooperation).) If it is necessary to amend this 
regulation, the agency will also be able to do so expeditiously.
    The agency agrees with the comment stating that smoking mothers are 
at risk for certain reproductive hazards. FDA has chosen to tailor its 
regulation to address only children and adolescents. However, other 
agencies within the Department of Health and Human Services (DHHS) have 
programs that currently address tobacco use by persons of all ages.
    FDA, on its own initiative, has revised Sec. 897.1 to simplify and 
to clarify the scope of the rule. As revised, Sec. 897.1(a) states that 
part 897 ``sets out the restrictions under the Federal Food, Drug, and 
Cosmetic Act (the act) on the sale, distribution, and use of cigarettes 
and smokeless tobacco that contain nicotine.'' This sentence is 
comparable to proposed Sec. 897.1(a), but more accurate because the 
1995 proposed rule only referred to FDA's restricted device authority. 
FDA has also added a new Sec. 891.1(b) stating that ``[t]he failure to 
comply with any applicable provision in this part in the sale, 
distribution, and use of cigarettes and smokeless tobacco renders the 
product misbranded under the act.'' This sentence is intended to remind 
parties that violations of a regulation for a restricted device and 
other actions relating to the sale of a device may cause a device to be 
``misbranded'' under the act. Proposed Sec. 897.1(b), which would have 
stated that regulatory references are to title 21 of the Code of 
Federal Regulations, has been renumbered as Sec. 891.1(c) in the final 
rule and has not been changed.

D. Purpose (Sec. 897.2)

    Proposed Sec. 897.2(a) would have stated that:
    [t]he purpose of this part is to establish conditions for the 
sale, distribution, and use of cigarettes and smokeless tobacco 
products in order to: * * * [r]educe the number of people under 18 
years of age who become addicted to nicotine, thus avoiding the 
life-threatening consequences associated with tobacco use and to 
provide important information regarding the use of these products to 
users * * *.
The agency has modified the final rule to provide information regarding 
the use of these products only to users; it has deleted potential users 
because the final rule no longer includes an education program for 
young people. Proposed Sec. 897.2(b) stated that this part of the 
provision is intended to ``[p]rovide important information regarding 
the use of these products to users and potential users.'' The agency's 
response to more specific comments follows.
    The preamble to the 1995 proposed rule stated that the proposed 
rule would reduce ``the appeal of and access to cigarettes and 
smokeless tobacco products by persons under 18 years of age,'' but 
``would preserve access to cigarettes and smokeless tobacco products by 
persons 18 years of age and older'' (60 FR 41314 at 41322).
    This rule is designed to complement the regulations (sometimes 
referred to as ``the Synar regulations'') issued by the Substance Abuse 
and Mental Health Services Administration (SAMHSA) (the SAMHSA rule) 
implementing section 1926 of the PHS Act regarding the sale and 
distribution of tobacco products to individuals under the age of 18. 
The SAMHSA rule contains standards for determining State compliance 
with section 1926 relating to the enactment and enforcement of State 
laws prohibiting the sale and distribution of tobacco products to 
individuals under the age of 18. Both sets of regulations are designed 
to help address the serious public health problem caused by young 
people's use of nicotine-containing tobacco products. By approaching 
this pediatric disease from different perspectives, these regulations 
together will help achieve the Administration's goal of reducing the 
number of young people who use tobacco products by 50 percent.
    (17) One comment opposing this provision stated that ``it will have 
little effect on tobacco use by young people, is beyond FDA'S statutory 
authority, is unjustified as a matter of policy, and would violate the 
Constitution.''
    The agency believes that the comment opposing this provision 
misinterprets Sec. 897.2. This particular provision merely states the 
purpose of the entire rule and is not intended, in and of itself, to 
impose any new restrictions. The agency disagrees that the entire rule 
will have little effect on tobacco use by young people; that it is 
beyond the agency's statutory authority; that it is unjustified as a 
matter of policy; and that it violates the Constitution. All of these 
issues are discussed in detail elsewhere in this document.
    (18) Several comments supported the provision, stating that a 
national policy is essential because State laws are ineffective and 
inconsistent.
    The agency agrees with these comments and advises that the final 
rule complements the existing efforts by States to enforce restrictions 
on young people's access to cigarettes and smokeless tobacco. As stated 
in the comments, all States currently have laws prohibiting the sale of 
tobacco products to minors. Section 1926 of the PHS Act creates an 
incentive for the States to reduce the unlawful sales of tobacco 
products to young people by ``requiring States to have in effect laws 
which prohibit the sale of tobacco products to minors as a condition of 
receipt of substance abuse grants.'' This rule would only preempt 
individual State requirements that are different from or in addition to 
these regulations (see section 521(a) of the act (21 U.S.C. 360k(a))). 
Thus, a State restriction on the sale of cigarettes and smokeless 
tobacco to individuals under the age of 18 will continue to be enforced 
by the State. (See preemption discussion,

[[Page 44424]]

section X. of this document.) While the agency expects the State laws 
to reduce smoking among young people, those laws unlike FDA's rule, 
only reduce access and not the appeal of smoking to young people. Thus, 
the agency believes that the rule will help States achieve their goals 
under the substance abuse programs.
    (19) One comment supporting the provision stated that although the 
focus of the rule should be on children, ``the needs of adult smokers 
should not be abandoned.'' Another comment stated that:
    Cigarettes and smokeless tobacco products are nicotine delivery 
devices and they regularly cause addiction in their users. Because 
addiction often leads to serious illness and death, it is important 
to reduce the number of people under 18 years of age who become 
addicted to nicotine. Similarly, it is important to provide accurate 
information about the use of these products to users and to 
potential users.
    The agency appreciates the comment's suggestion, but advises that, 
for reasons explained in section I.B. of this document, the final rule 
focuses principally on children and adolescents.
    FDA, on its own initiative, has revised Sec. 897.2 to state that 
the purpose of part 897 is ``to establish restrictions on the sale, 
distribution, and use of cigarettes and smokeless tobacco in order to 
reduce the number of children and adolescents who use these products, 
and to reduce the life-threatening consequences associated with tobacco 
use.'' FDA believes this revision is a simpler and more accurate 
statement of the rule's purpose.

E. Definitions (Sec. 897.3)

    Proposed Sec. 897.3 would have contained definitions for the terms 
``cigarette,'' ``cigarette tobacco,'' ``distributor,'' 
``manufacturer,'' ``nicotine,'' ``package,'' ``point of sale,'' 
``retailer,'' and ``smokeless tobacco.'' The agency received several 
comments on the definition section of the proposal, regarding either 
the specific definitions provided or requesting definitions for 
additional terms. In response to the comments, the agency has clarified 
several terms, including ``distributor'' and ``retailer,'' and has 
modified the term ``cigarette'' to exclude little cigars.
    Proposed Sec. 897.3(a)(3) would have provided a definition of 
``cigarette'' which included the following language, modeled after the 
definition of ``little cigar'' contained in the Cigarette act:
    (a) Cigarette means * * *
    (3) [a]ny roll of tobacco wrapped in leaf tobacco or any 
substance containing tobacco * * * and as to which 1,000 units weigh 
not more that 3 pounds.
    (20) Several comments supported the inclusion of ``little cigars'' 
in the definition of ``cigarette'' and suggested that the definition be 
broadened to include other tobacco products as well. These comments 
argued that all tobacco, including ``snuff,'' chewing tobacco, cigars, 
and pipes, should be regulated in the same manner as cigarettes, as 
these products are also nicotine delivery systems. These comments 
further stated that there is evidence to show that cigar smoking is 
becoming increasingly popular among young adults and adolescents.
    In contrast, several comments from industry indicated that little 
cigars are unique products which should not be regulated as cigarettes. 
One comment stated that the agency has no studies to support the 
inclusion of little cigars in the rule. Moreover, the U.S. Treasury 
Department's Bureau of Alcohol, Tobacco and Firearms (BATF) submitted a 
comment opposing the inclusion of little cigars in the ``cigarette'' 
definition, as this would require little cigars to be labeled and 
advertised as a cigarette under the FDA regulations, but taxed and 
labeled as a ``cigar,'' under the Internal Revenue regulations enforced 
by BATF.
    The agency has decided, based upon the comments and the record of 
this proceeding, not to include little cigars in the definition of 
``cigarettes'' for the purposes of the regulation. The differences 
between little cigars and cigarettes are significant--the products are 
easily distinguishable, taxed at different levels, and marketed to 
different consumers. Moreover, little cigars are neither advertised 
extensively nor sold in vending machines. Most importantly, the agency 
is not currently aware of sufficient evidence of use of little cigars 
by children or adolescents to support inclusion of such products in the 
rule. Therefore, FDA has deleted little cigars from the definition of 
``cigarette'' in Sec. 897.3(a). Moreover, FDA will continue to 
coordinate definitions with BATF as appropriate.
    Additionally, FDA has deleted ``components, accessories, or parts'' 
from Sec. 897.3(a). The reference to ``components, accessories, or 
parts'' was unnecessary because the statutory definition of ``device'' 
includes ``any component, part, or accessory.''
    Proposed Sec. 897.3(b) would have defined ``cigarette tobacco'' as 
``any loose tobacco that contains or delivers nicotine and is intended 
for use by consumers in a cigarette.'' The proposed definition also 
would have stated that ``[u]nless otherwise stated, the requirements 
pertaining to cigarettes shall also apply to cigarette tobacco.''
    (21) One comment by manufacturers of ``roll-your-own'' (RYO) 
cigarette tobacco argued that the inclusion of RYO cigarette tobacco 
under the 1995 proposed rule was arbitrary and capricious, as the 
agency had no factual information about RYO's composition, marketing, 
and usage. This comment also asserted that there is no evidence of RYO 
tobacco usage by minors.
    The agency disagrees that the inclusion of cigarette tobacco in the 
rule is arbitrary and capricious. RYO tobacco is nothing less than 
cigarettes that have not yet been assembled. Unquestionably, RYO 
cigarettes contain tobacco and are smoked. The comment did not 
challenge the agency's proposed finding that the smoke from RYO 
cigarettes is inhaled, that the RYO tobacco is processed, and that RYO 
cigarettes deliver nicotine. Unlike ``little cigars,'' discussed in 
paragraph 1 of this section of the document, the agency believes that 
there is no significant difference in the composition of RYO tobacco or 
in the reason consumers use it (to deliver nicotine) from cigarettes. 
The agency believes that, because a RYO cigarette is fundamentally the 
same product as a commercially manufactured cigarette posing the same 
risks, it should be subject to the restrictions in this rule in order 
to protect the public health.
    Furthermore, it is important to include RYO tobacco because to 
exclude it would provide a simple and obvious way to avoid the 
restrictions in this regulation. If such an exception existed, 
cigarettes could be packaged and sold in such a way as to be considered 
RYO products. Tobacco companies would then be free to sell these 
products using all the marketing and promotion techniques currently 
used for cigarettes, techniques that are particularly successful with 
young people. An exception so broad would quickly undermine the entire 
purpose of the rule. Additionally, FDA has made a minor change to 
Sec. 897.3(b) to have ``cigarette tobacco'' mean ``any product that 
consists of loose tobacco * * *.'' The addition of the words ``any 
product'' is intended to make Sec. 897.3(b) conform with the format 
used for other definitions.
    (22) In proposed Sec. 897.3(c), ``distributor'' would have been 
defined as ``any person who furthers the marketing of cigarettes or 
smokeless tobacco products * * * from the

[[Page 44425]]

original place of manufacture to the person who makes final delivery or 
sale to the ultimate user, but who does not repackage or otherwise 
change the container, wrapper, or labeling of the * * * products.''
    Several comments stated that the definition of ``distributor'' is 
vague and over broad, because:
    [P]ersons `who further the marketing of cigarettes or smokeless 
tobacco' [may include] literally everyone involved in the 
production, shipping, advertising, or promotion of cigarettes. Such 
`distributors' could thus include, for example, cigarette 
manufacturers and their employees; truckers and shipping clerks 
involved in the physical movement of the product; advertising 
agencies; people involved in promotional activities and the 
manufacture of promotional materials; retailers and their employees; 
and conceivably even individuals who `deliver' cigarettes to social 
acquaintances or family members as `ultimate users.' Including such 
persons and entities within the definition of `distributor' would, 
in turn, render them `responsible,' * * * for ensuring that the 
cigarettes the `marketing' of which they `further' comply with `all 
applicable requirements' of part 897.
    (23) One comment suggested that an individual advocating a 
particular brand of cigarette would fall within the definition of 
``distributor.''
    The agency recognizes the concerns expressed about the proposed 
definition of ``distributor.'' Therefore, based upon the comments 
received, the agency has determined that the definition should be 
modified to clarify the term. The definition of ``distributor'' has 
been modified to mean ``any person who furthers the distribution of 
cigarettes or smokeless tobacco, whether domestic or imported, at any 
point from the original place of manufacture to the person who sells or 
distributes the product to individuals for personal consumption.'' The 
term does not include persons who do not manufacture, fabricate, 
assemble, process, or label a finished cigarette or smokeless tobacco 
product, and does not repackage or otherwise change the container, 
wrapper, or labeling of the cigarette or smokeless tobacco product, 
because such persons would be ``manufacturers'' under Sec. 897.3(d).
    Under this modified definition, one who manufactures cigarettes or 
smokeless tobacco is not considered a distributor, but is subject to 
the requirements applicable to manufacturers (see Sec. 897.3(d), 
definition of ``manufacturer''). Similarly, one who ``sells or 
distributes the product to individuals for personal consumption'' is 
not a distributor, but is subject to the requirements applicable to 
retailers (see Sec. 897.3(h), definition of ``retailer''). Furthermore, 
the modified definition clearly does not apply to advertising agencies. 
Although advertising agencies may be said to further the ``marketing'' 
of a product they advertise, they do not further the ``distribution'' 
of that product. As for truckers and other carriers, section 703 of the 
act only requires ``carriers engaged in interstate commerce'' and 
persons receiving or holding devices in interstate commerce to provide 
access to records showing the devices' movement or holding in 
interstate commerce. Thus, such carriers would not be subject to the 
requirements applicable to distributors under this part.
    (24) Proposed Sec. 897.3(d) would have defined ``manufacturer,'' in 
part, ``as any person, including any repacker and/or relabeler, who 
manufactures, fabricates, assembles, processes, or labels a finished 
cigarette or smokeless tobacco product.'' One comment suggested that 
this definition be modified to exclude foreign manufacturers and 
manufacturers of products that make up less than 1 percent of the total 
U.S. cigarette market.
    The agency disagrees that foreign manufacturers and ``small'' 
manufacturers should be excluded from the definition. A company that 
manufactures a small amount of a product is, nevertheless, a 
manufacturer. Thus, small manufacturers and foreign manufacturers of 
products marketed in the United States are included in the definition 
of ``manufacturer'' and are subject to the provisions of this rule. 
Furthermore, as discussed in more detail later, FDA regulates devices 
as a class without making exceptions for small market share.
    Additionally, FDA, on its own initiative, has deleted the part of 
the definition which would have stated that a ``manufacturer'' ``does 
not include any person who only distributes finished cigarettes or 
smokeless tobacco products.'' FDA believes this text was unnecessary 
given the definition of ``distributor'' in Sec. 897.3(c).
    Proposed Sec. 897.3(e) would have defined ``nicotine'' by its 
chemical formula, 3-(1-Methyl-2-pyrolidinyl) pyridine, and would have 
included any salt or complex of nicotine. FDA did not receive any 
comments that would warrant a change to Sec. 897.3(e), and has 
finalized this definition without change.
    Proposed Sec. 897.3(f) would have defined ``package'' as a pack, 
box, carton, or container of any kind in which cigarettes or smokeless 
tobacco are offered for sale, sold, or otherwise distributed to 
consumers.
    FDA did not receive any comments that would warrant a change to 
Sec. 897.3(f) but has, on its own initiative, deleted the word 
``products'' from ``smokeless tobacco products'' to correspond to 
similar changes throughout the rule.
    (25) Proposed Sec. 897.3(g) would have defined ``point of sale'' to 
mean ``any location at which a consumer can purchase or otherwise 
obtain cigarettes or smokeless tobacco products for personal 
consumption.'' One comment stated that this definition is 
unconstitutionally vague and over broad, because ``a person can 
`obtain' cigarettes from a social acquaintance or family member * * * 
in any number of * * * settings.'' The comment suggested that ``point 
of sale'' be limited to ``commercial establishments where tobacco 
products are sold in arm's-length commercial transactions.''
    The agency agrees that obtaining a cigarette from a social 
acquaintance or family member should not render the venue of this 
``transaction'' a ``point of sale.'' However, the agency does not 
believe that the definition of ``point of sale'' is vague or overly 
broad, or that it needs to be modified. The definition, as proposed, 
makes it clear that ``point of sale'' does not contemplate venues where 
cigarettes are lent or offered to social acquaintances or family 
members. The definition in Sec. 897.3(d) refers to the ``location at 
which a consumer can purchase or otherwise obtain'' the product 
(emphasis added). The term ``consumer,'' means ``a person who buys 
goods or services for personal needs and not for resale or to use in 
the production of other goods for resale.'' \37\ Thus, in its normal 
use, the term ``consumer'' implies a commercial relationship and 
precludes the possibility that, for example, the act of providing a 
cigarette to a travel partner would render the vehicle in which both 
are traveling the ``point of sale'' for that product.
---------------------------------------------------------------------------

    \37\ Webster's New World Dictionary, edited by V. Neufeldt, 
Third College Edition, Prentice Hall, New York, p. 299, 1991.
---------------------------------------------------------------------------

    (26) Proposed Sec. 897.3(h) would have defined ``retailer'' to mean 
``any person who sells or distributes cigarettes or smokeless tobacco 
products to individuals for personal consumption.'' One comment stated 
that this definition is unconstitutionally vague and over broad, 
because a ``manufacturer or wholesaler that `distributes' complimentary 
cigarettes to its employees, or to guests at a private function, would 
be a `retailer,' as would

[[Page 44426]]

be any individual who gives any other individual a cigarette.''
    The agency agrees that, although the intended meaning of the term 
is clear, a ``person who * * * distributes * * * [a product] to 
individuals for personal consumption'' may include transactions that 
the agency does not intend to regulate (i.e., noncommercial 
transactions). Therefore, the definition is modified to mean ``any 
person who sells cigarettes or smokeless tobacco to individuals for 
personal consumption.''
    Additionally, under Sec. 897.3(h) as revised, a retailer can be any 
person ``who operates a facility where vending machines and self-
service displays are permitted under this part.'' This change 
complements a change to Sec. 897.16(c) which permits vending machines 
and self-service displays in facilities where no person under age 18 is 
present, or permitted to enter, at any time. The agency addresses 
Sec. 897.16(c) in greater detail below.
    Proposed Sec. 897.3(i) would have defined smokeless tobacco as 
``any cut, ground, powdered, or leaf tobacco that contains or delivers 
nicotine and that is intended to be placed in the oral cavity.''
    FDA did not receive any comments that would warrant a change to 
Sec. 897.3(i). However, FDA has revised the definition to refer to 
``any product that consists of cut, ground, powdered, or leaf tobacco * 
* *.'' The agency made this change because the words ``smokeless 
tobacco'' are often understood as meaning a ``smokeless tobacco 
product'' or products. Additionally, elsewhere in this rule, FDA has 
replaced ``smokeless tobacco product'' with ``smokeless tobacco.''
    (27) Several comments requested definitions for additional terms. 
Specifically, one comment requested that ``advertising'' be defined to 
distinguish between trade and consumer advertising; several comments 
requested that ``vending machine'' be defined to exempt machines which 
dispense cigarettes to cashiers, machines that dispense individual 
cigarettes, or machines that scan a driver's license or age of majority 
card before dispensing cigarettes; and several comments requested that 
``playground'' be defined for clarity.
    The agency disagrees that additional definitions are necessary for 
the terms ``advertising'' and ``vending machine.'' However, the agency 
has clarified the use of those terms in the relevant sections of the 
preamble. The agency has determined that a definition for the term 
``playground'' is necessary, and has added some examples to 
Sec. 897.30. A discussion of the comments regarding the definition of 
``playground'' can be found in section VI. of this document.

IV. Access

    Subpart B of part 897 (now retitled as ``Prohibition of Sale and 
Distribution to Persons Younger than 18 Years of Age'') contains the 
restrictions on access to cigarettes and smokeless tobacco by 
individuals under the age of 18. This subpart, by imposing restrictions 
on manufacturers, distributors, and retailers, is intended to ensure 
that children and adolescents cannot purchase these products.
    In support of proposed subpart B, the preamble to the 1995 proposed 
rule cited studies showing that the majority of junior high and high 
school students--from 67 percent of 9th grade students in a 1990 survey 
to 94 percent of junior high and high school students in a 1986 
survey--believed that purchasing cigarettes and smokeless tobacco was 
easy (60 FR 41314 at 41322, August 11, 1995). Other studies supported 
that belief. As noted in the preamble to the 1995 proposed rule, the 
1994 Surgeon General's Report entitled ``Preventing Use Among Young 
People: A Report of the Surgeon General'' (the 1994 SGR) examined 13 
studies of over-the-counter (OTC) sales and determined that 
approximately 67 percent of minors are able to purchase cigarettes 
illegally. The 1994 SGR examined nine studies and found that the 
weighted average rate of illegal sales to children and adolescents from 
vending machines was 88 percent. \38\
---------------------------------------------------------------------------

    \38\ 1994 SGR, p. 249.
---------------------------------------------------------------------------

    Significant numbers of children and adolescents successfully 
purchased smokeless tobacco as well, with the success rate ranging from 
30 percent for junior high school students to 62 percent for senior 
high school students (60 FR 41314 at 41322). Ninety percent of 
smokeless tobacco users in junior high and high school in a 1986 survey 
said they bought their own smokeless tobacco (60 FR 41314 at 41322).
    Studies indicate that a comprehensive approach to reducing young 
people's access to cigarettes and smokeless tobacco would be more 
effective than relying primarily on retailer education programs about 
the need to prevent sales to underage persons. For example, the 
preamble to the 1995 proposed rule cited a comprehensive community 
intervention in Woodridge, IL, involving retailer licensing, regular 
compliance checks, and penalties for merchant violations. The Woodridge 
program reduced illegal sales from 70 percent to less than 5 percent 
almost 2 years later (60 FR 41314 at 41322). Rates of both 
experimentation and regular smoking decreased more than 50 percent 
among seventh and eighth grade students (60 FR 41314 at 41322).
    In contrast, another study cited in the 1995 proposed rule 
indicated that retailer education programs, alone, may have limited 
utility. In the study, retailers received informational packages on 
preventing illegal sales to young people, yet despite these 
informational packages, young people were able to buy cigarettes in 73 
percent of the stores that received these informational packages, and, 
after a comprehensive retailer educational program was conducted, 
illegal sales were still found to occur in 68 percent of the stores (60 
FR 41314 at 41322). When the program began issuing citations to 
violative establishments, the illegal sales rate dropped to 31 percent 
(Id.). This study, as well as other studies reviewed by the agency in 
the 1995 proposed rule and made available for public comment and 
review, led the Food and Drug Administration (FDA) to draft a 
comprehensive proposal to reduce young people's access to cigarettes 
and smokeless tobacco and to make explicit the responsibility of 
manufacturers, distributors, and retailers to prevent cigarette and 
smokeless tobacco product sales to persons under 18 years of age.
    Subpart B to part 897 consists of four provisions. Section 897.10 
establishes the general responsibilities of manufacturers, 
distributors, and retailers to ensure that the cigarettes and smokeless 
tobacco that they manufacture, label, advertise, package, distribute, 
sell, or otherwise hold for sale comply with the requirements in this 
subpart. The agency made one minor change to this provision, to change 
``smokeless tobacco products'' to ``smokeless tobacco.''
    Section 897.12 sets forth additional responsibilities of 
manufacturers. Proposed Sec. 897.12(a) would have required 
manufacturers to remove from point of sale all violative self-service 
displays, advertising, labeling, and other manufacturer-supplied or 
manufacturer-owned items. In response to comments from manufacturers 
and sales representatives objecting to their responsibility for items 
not owned by them, the agency has amended this provision to require 
manufacturers only to remove from point of sale all violative self-
service displays, advertising,

[[Page 44427]]

labeling, and other items owned by the manufacturer.
    Proposed Sec. 897.12(b) would have required manufacturers' 
representatives who visit a point of sale in the normal course of 
business to visually inspect and ensure that products are labeled, 
advertised, and distributed in accordance with this subpart. In 
response to comments questioning the need for and operation of this 
requirement, FDA has deleted this provision.
    Section 897.14 sets forth additional responsibilities of retailers. 
Many of the comments supported the requirements to verify age and to 
ban the sale of single cigarettes. Comments were divided on the 
requirement for a direct transaction. The comments opposing the 1995 
proposed rule were taken into account in the modifications to the final 
rule.
    The final rule contains a new Sec. 897.14(a), which states that no 
retailer may sell cigarettes or smokeless tobacco to any person younger 
than 18 years of age. This new paragraph codifies a concept that was 
implicit in the 1995 proposed rule.
    Proposed Sec. 897.14(a) (now renumbered as Sec. 897.14(b)) would 
have required that the retailer or an employee of the retailer verify 
by means of photographic identification showing the bearer's date of 
birth that no purchaser is younger than 18 years of age. In response to 
changes made to Sec. 897.16 regarding mail-order and vending machine 
sales and self-service displays in facilities inaccessible to children 
and adolescents, the final rule excepts the requirements for proof of 
age under these limited circumstances. New Sec. 897.14(b)(2) eliminates 
the verification requirement for consumers 26 years of age or older.
    Proposed Sec. 897.14(b) (now numbered as Sec. 897.14(c)) would have 
required that cigarettes or smokeless tobacco be provided to the 
purchaser by the retailer or an employee of the retailer, without the 
assistance of an electronic or mechanical device, such as a vending 
machine. The final provision has been modified to reflect changes made 
to Sec. 897.16 permitting vending machines and self-service displays in 
certain limited circumstances and to correspond more closely to the 
requirements in Sec. 897.16(c)(1).
    Proposed Sec. 897.14(c) (now renumbered as Sec. 897.14(d)) would 
have prohibited the retailer or an employee from opening any cigarette 
or smokeless tobacco package to sell or distribute individual 
cigarettes or any quantity of the product that is smaller than the 
quantity in the unopened products. In order to clarify the intent of 
this provision, the final rule prohibits retailers from breaking or 
otherwise opening ``any cigarette or smokeless tobacco product package 
to sell or distribute individual cigarettes or a number of unpackaged 
cigarettes that is smaller than the quantity in the minimum cigarette 
package size defined in Sec. 897.16(b), or any quantity of cigarette 
tobacco or smokeless tobacco that is smaller than the smallest package 
distributed by the manufacturer for individual consumer use.''
    The final rule also adds Sec. 897.14(e) to clarify that each 
retailer is responsible for removing all violative self-service 
displays, advertising, labeling, and other items located in the 
retailer's establishment or for bringing those items into compliance 
with the requirements in this rule. This provision complements 
Sec. 897.12 which requires manufacturers to remove manufacturer-owned, 
violative items from retail establishments.
    Section 897.16 establishes the conditions of manufacture, sale, and 
distribution. Proposed Sec. 897.16(a) would have prohibited the use of 
a trade or brand name for a nontobacco product as the trade or brand 
name for a tobacco product ``except for tobacco products on which a 
trade or brand name of nontobacco product was in use on January 1, 
1995.'' The only change to Sec. 897.16(a) has been to clarify the 
agency's intent by amending the language to restrict manufacturers to 
those product names ``whose trade or brand name was on both a tobacco 
product and a nontobacco product that were sold in the United States on 
January 1, 1995.''
    Section 897.16(b) would have established a minimum package size of 
20 for cigarettes. The final rule was amended only to provide a very 
limited exception consistent with the changes made to 
Sec. 897.16(c)(2)(ii), discussed below.
    Proposed Sec. 897.16(c) would have prohibited vending machines, 
self-service displays, mail-order sales, and other ``impersonal'' modes 
of sale and required direct, face-to-face exchanges between retailers 
and consumers. In response to comments criticizing the restrictions as 
inconveniencing adults, the agency has amended this section. The final 
rule allows mail-order sales (except for mail-order redemption of 
coupons and the distribution of free samples through the mail). The 
final rule also allows vending machines (even those selling packaged, 
single cigarettes), and self-service displays (merchandisers) in 
facilities that are inaccessible to persons under the age of 18.
    Proposed Sec. 897.16(d) would have prohibited manufacturers, 
distributors, and retailers from distributing any free samples of 
cigarettes or smokeless tobacco. FDA made one minor change to this 
provision, changing the words ``manufacturers, distributors, and 
retailers may not distribute'' to ``no manufacturer, distributor, or 
retailer may distribute'' free samples.
    The final rule adds a new Sec. 897.16(e) to prohibit manufacturers, 
distributors, and retailers from selling, distributing, or causing to 
be sold or distributed cigarettes or smokeless tobacco with advertising 
or labeling that does not comply with the rule's advertising and 
labeling requirements. This provision is intended to clarify that the 
rule's advertising and labeling requirements are conditions on the 
sale, distribution, and use of these products.

A. General Comments

    The agency received many general comments both in support of and in 
opposition to proposed subpart B of part 897. Comments supporting the 
1995 proposed rule often stated that the rule, if finalized, would help 
prevent young people from obtaining or using cigarettes and smokeless 
tobacco and would eventually lead to a healthier population and lower 
health care costs. The agency also received comments from attorneys 
general of more than 25 States concluding that, overall, the 1995 
proposed rule ``should be a crucial component of a national effort by 
Federal, State, and local officials to help our youngest generation of 
Americans avoid suffering preventable disease and premature death from 
the use of tobacco products.''
    Comments opposing the 1995 proposed rule, in general, asserted that 
FDA regulation was unnecessary or unauthorized or that the proposed 
requirements would be ineffective. The following is an analysis of and 
response to these general comments.
    (1) Several comments stated that the 1995 proposed rule violates 
the Commerce Clause of the Constitution. The comments argued that there 
is no equivalent to a congressional finding that the regulated activity 
at issue--the sale of tobacco products to children and adolescents--
affects interstate commerce, nor is the regulation reasonably adapted 
to an end permitted by the Constitution. They argued that the 
regulation of tobacco products by

[[Page 44428]]

the Federal Government is impermissible based on United States v. 
Lopez, 115 S.Ct. 1624 (1995) (Congress lacked power under Commerce 
Clause to criminalize possession of a gun within 1,000 feet of a 
school).
    The agency disagrees with these comments. The Constitution gives 
Congress the power ``[t]o regulate Commerce with foreign Nations, and 
among the several States, and with the Indian Tribes.'' Under the 
Commerce Clause, Congress may ``regulate those activities having a 
substantial relationship to interstate commerce, i.e., those activities 
that substantially affect interstate commerce'' (Lopez, 115 S.Ct. at 
1629-30 (citation omitted)). The Supreme Court has consistently held 
that Congress acted within its powers under the Commerce Clause when it 
enacted and subsequently amended the Federal Food, Drug, and Cosmetic 
Act (the act). (See United States v. Sullivan, 332 U.S. 689, 697-98 
(1948); United States v. Walsh, 331 U.S. 432, 437-38 (1947); Weeks v. 
United States, 245 U.S. 618, 622 (1918); Seven Cases of Eckman's 
Alternative v. United States, 239 U.S. 510, 514-15 (1916); McDermott v. 
Wisconsin, 228 U.S. 115, 128 (1913); Hipolite Egg Co. v. United States, 
220 U.S. 45, 58 (1911).) Regulation of tobacco products is a legitimate 
exercise of FDA's authority under the act to regulate drugs and devices 
and is therefore within the scope of Congress' power under the Commerce 
Clause.
    The Supreme Court's recent opinion in Lopez does not affect this 
analysis. As the Court noted, ``[t]he possession of a gun in a local 
school zone is in no sense an economic activity that might, through 
repetition elsewhere, substantially affect any sort of interstate 
commerce.'' (See Lopez, 115 S.Ct. at 1634; see also Id. at 1640 
(Kennedy, J., concurring) (``[H]ere neither the actors nor their 
conduct have a commercial character, and neither the purposes nor the 
design of the statute have an evident commercial nexus.'').)
    By contrast, this tobacco regulation affects conduct that is 
distinctly commercial in character. In particular, the access 
restrictions--the national minimum age for purchase of tobacco products 
and the restrictions on hand-to-hand sales, sales from opened packages, 
package size, vending machine sales, and self-service displays--all 
involve actors (manufacturers, vendors, and consumers) and conduct (the 
marketing, sale, and purchase of products that are themselves in 
interstate commerce) that are quintessentially commercial (see, e.g., 
Katzenbach v. McClung, 379 U.S. 294, 298-304 (1964) (under the Commerce 
Clause, Congress may regulate activities of restaurants that serve 
food, a substantial portion of which has moved in interstate 
commerce)). In addition, the purpose and design of the regulation--to 
deter this commercial activity directed at persons under the age of 18 
in order to reduce addiction to the nicotine in these products--has the 
requisite commercial nexus. (See, e.g., Heart of Atlanta Hotel, Inc. v. 
United States, 379 U.S. 241 (1964); Perez v. United States, 402 U.S. 
146 (1971).) Moreover, because youths alone purchase an estimated $1.26 
billion of tobacco products annually, the regulated activity--sales of 
tobacco products--substantially affects interstate commerce. \39\
---------------------------------------------------------------------------

    \39\ DiFranza, J. R., and J. B. Tye, ``Who Profits from Tobacco 
Sales to Children?'' JAMA, vol. 263, No. 20, pp. 2784-2787, 1990.
---------------------------------------------------------------------------

    As noted, tobacco products are in interstate commerce as defined in 
section 201(b) of the act (21 U.S.C. 321(b)). Cigarettes manufactured 
in the United States include myriad components that are in interstate 
commerce. For example, American-type blended cigarettes contain 
oriental tobacco imported from Greece, Turkey, Russia, Yugoslavia, or 
Bulgaria, and they may also contain imported flue-cured tobacco from, 
for example, Zimbabwe or Brazil. In addition, they contain other 
tobacco and tobacco products, filters, paper, ammonia, sugars, 
humectant, licorice, and cocoa, among nearly 600 other possible 
ingredients. (See generally Brown, C. L., The Design of Cigarettes, 
Hoechst Celanese Corp., Charlotte, NC (3d ed. 1990); ``Ingredients 
Added to Tobacco in the Manufacture of Cigarettes by the Six Major 
American Cigarette Companies,'' (April 12, 1994)). Similarly, smokeless 
tobacco is made from tobacco grown in Pennsylvania and Wisconsin or in 
Kentucky and Tennessee and contains other ingredients from a list of 
over 560, such as sugar, molasses, and licorice, which are in 
interstate commerce. (See The Health Consequences of Using Smokeless 
Tobacco: A Report of the Advisory Committee to the Surgeon General, 
DHHS, PHS, p. 5, 1986; ``Smokeless Tobacco Ingredient List as of April 
4, 1994, attached to letter of May 3, 1994, from Stuart M. Pape to the 
Hon. Henry A. Waxman and the Hon. Thomas J. Bliley, Jr.)
    (2) The comments also suggested that Congress' Commerce Clause 
powers do not allow imposition of a national minimum age for the 
purchase of tobacco products.
    The agency disagrees. The cases cited in these comments, South 
Dakota v. Dole, 483 U.S. 203 (1987) and Oregon v. Mitchell, 400 U.S. 
112 (1970), do not address the Commerce Clause, and there is no case 
law suggesting that an agency may not impose regulations on commerce 
based on the age of people involved, under a statute passed pursuant to 
Congress' Commerce Clause power, and in particular that an agency may 
not set a national minimum age for sales of cigarettes and smokeless 
tobacco in order to reduce the risks of addiction and to health 
associated with their use by individuals under age 18. In fact, under 
its authority to regulate commerce, Congress may exclude from 
interstate commerce goods produced by children workers, United States 
v. Darby, 312 U.S. 100, 115-17 (1941) (overruling Hammer v. Dagenhart, 
247 U.S. 251 (1918), which held that Congress lacked power to exclude 
products of child labor from interstate commerce), and criminalize, for 
example, the transportation in interstate commerce of pornography 
involving children (18 U.S.C. 2251 through 2259), or the sale of 
firearms and ammunition to individuals under the age of 18 (18 U.S.C. 
922(b)(l)).
    Moreover, ```[t]he authority of the Federal government over 
interstate commerce does not differ' * * * `in extent or character from 
that retained by the states over intrastate commerce.''' (See Heart of 
Atlanta Hotel, 379 U.S. at 260 (quoting United States v. Rock Royal Co-
op., Inc., 307 U.S. 533, 569-70 (1939)).) States may set a minimum age 
for sales of cigarettes and smokeless tobacco, and these products are 
in interstate commerce (and as devices, are presumed under section 709 
of the act to be in interstate commerce for the purpose of jurisdiction 
under the act). Thus, it follows that the Federal Government may 
establish a national minimum age for sales of tobacco products.
    In summary, the imposition of a national minimum age for purchase 
of tobacco products and restrictions on hand-to-hand sales, sales from 
opened packages, package size, vending machine sales, and self-service 
displays is within Congress' authority under the Commerce Clause.
    (3) Several comments argued that the regulation's imposition of a 
national minimum age for purchase of tobacco products and its 
restrictions on impersonal sales, sales from opened packages, package 
size, vending

[[Page 44429]]

machine sales, and self-service displays violate the Tenth Amendment to 
the Constitution. In particular, the comments argued that the 
regulation of tobacco products and decisions about eligibility and 
maturity are traditionally State functions, and that this fact required 
Congress to have made it unmistakably clear by statute that it intended 
FDA to regulate tobacco products.
    The agency believes that this regulation does not violate the Tenth 
Amendment. The Tenth Amendment provides that ``[t]he powers not 
delegated to the United States by the Constitution, nor prohibited by 
it to the States, are reserved to the States respectively, or to the 
people.'' It follows that, ``[i]f a power is delegated to Congress in 
the Constitution, the Tenth Amendment expressly disclaims any 
reservation of that power to the States.'' (See New York v. United 
States, 505 U.S. 144, 156.) Because FDA is acting under the act, which 
Congress enacted under its Commerce Clause authority, there is no Tenth 
Amendment violation.
    FDA disagrees that regulation of tobacco sales or decisions about 
eligibility and maturity are traditional State functions. Even if they 
were, however, that fact would not implicate the Tenth Amendment. ``As 
long as it is acting within the powers granted it under the 
Constitution, * * * Congress may legislate in areas traditionally 
regulated by the States'' (Gregory v. Ashcroft, 501 U.S. 452, 460 
(1991)). Because the agency is acting to regulate cigarette and 
smokeless tobacco sales in order to eliminate the health risks of those 
products, and is doing so under a statute passed under Congress' 
Commerce Clause power, these provisions do not violate the Tenth 
Amendment.
    Further, Congress need not make its intention to regulate in such 
areas ``unmistakably clear in the language of [a] statute,'' Will v. 
Michigan Dept. of State Police, 491 U.S. 58, 65 (1989) (quotations 
omitted), as suggested in the comments. This requirement only applies 
to Federal statutes that ``go[] beyond an area traditionally regulated 
by the States'' to affect ``decision[s] of the most fundamental sort 
for a sovereign entity,'' Gregory, 501 U.S. 460, because such statutes 
``alter the usual constitutional balance between the States and the 
Federal Government,'' Will, 491 U.S. 65 (quotations omitted); see also 
Seminole Tribe of Florida v. Florida, 116 S.Ct. 1114, 1123-1132 (1996) 
(holding that, even if Congress, acting under the Commerce Clause, 
makes its intention to subject unconsenting States to Federal suits by 
private parties absolutely clear, the Eleventh Amendment bars such 
suits). Regulation of the sale of cigarettes and smokeless tobacco does 
not fundamentally affect the States' prerogatives under the 
Constitution (such as abrogating the States' sovereign immunity), and 
so Congress need not have made it unmistakably clear by statute that it 
intended FDA to regulate their sale.
    In summary, the agency is imposing a national minimum age for 
purchase of tobacco products and restrictions on impersonal sales, 
sales from opened packages, package size, vending machine sales, and 
self-service displays in order to eliminate the health risks to young 
people associated with products in interstate commerce. These 
provisions therefore do not violate the Tenth Amendment.
    (4) A comment from an industry trade association stated that the 
Ninth Amendment to the Constitution is a ``barrier to federal laws that 
would restrict freedom of adults as well as others to use tobacco 
products.'' Several comments from adults expressed similar arguments 
regarding an adult's ``freedom'' to purchase or use tobacco products.
    The agency disagrees that its imposition of a national minimum age 
for purchase of tobacco products and its restrictions on hand-to-hand 
sales, sales from opened packages, package size, vending machine sales, 
and self-service displays impinge on unenumerated rights protected by 
the Ninth Amendment.
    The Ninth Amendment provides that ``[t]he enumeration in the 
Constitution, of certain rights, shall not be construed to deny or 
disparage others retained by the people.'' Although not a source of 
rights itself, the Ninth Amendment nevertheless ``show[s] the existence 
of other fundamental personal rights'' and that `liberty' protected by 
the Fifth * * * Amendment[] from infringement by the Federal Government 
* * * is not restricted to rights specifically mentioned in the first 
eight amendments.'' Griswold v. Connecticut, 381 U.S. 479, 493 (1965) 
(Goldberg, J. concurring).
    The final rule regulates commercial transactions involving tobacco 
products to limit young people's access to them. Young people do not 
have an unenumerated, fundamental right protected by the Constitution 
to have commercial access to tobacco products. (See Bowers v. Hardwick, 
478 U.S. 186, 190 (1986).) Nor does the agency believe that it is 
merely a specific manifestation of a broader right, Id. at 199 
(Blackmun, J., dissenting), whether styled as the right to privacy, 
Griswold, 381 U.S. at 484-485, or to be let alone, Olmstead v. United 
States, 277 U.S. 438, 478 (1928) (Brandeis, J., dissenting), or to 
individual autonomy, Carey v. Population Services Int'l, 431 U.S. 678, 
687 (1977).
    In particular, the right to privacy does not protect commercial 
access to tobacco products for young people, because restricting sales 
of addicting tobacco products to young people ``is within the area of 
governmental interest in protecting public health.'' (See Rutherford v. 
United States, 616 F.2d 455, 457 (10th Cir.), (right to privacy does 
not include access to laetrile) cert. denied, 449 U.S. 937 (1980); see 
also Carnohan v. United States, 616 F.2d 1120, 1122 (9th Cir. 1980) 
(``Constitutional rights of privacy and personal liberty do not give 
individuals the right to obtain laetrile free of the lawful exercise of 
government police power''); United States v. Horsley, 519 F.2d 1264, 
1265 (5th Cir. 1975), (holding that right of privacy does not protect 
possession of marijuana with intent to distribute) cert. denied, 424 
U.S. 944 (1976); United States v. Kiffer, 477 F.2d 349, 352 (2d Cir.) 
(same), cert. denied, 414 U.S. 831 (1973).) The agency therefore 
concludes that this rule does not abridge an unenumerated, fundamental 
right reserved to the people by the Ninth Amendment to the 
Constitution.
    (5) Several comments suggested that comprehensive regulations were 
unnecessary. Instead, these comments advocated training programs for 
retailers and, more specifically, for retail sales clerks. These 
training programs would be based either on voluntary efforts by the 
affected industries or on in-house, employee training programs. A few 
comments argued that any regulations to restrict access to cigarettes 
and smokeless tobacco would be futile because young people ``would get 
the products anyway.''
    The agency disagrees with these comments. The preamble to the 1995 
proposed rule indicated that informational or training programs, alone 
or without any enforcement mechanisms, have limited success (60 FR 
41314 at 41322). Given the health risks caused by or associated with 
these products and the evidence that current, voluntary restrictions on 
youth access are ineffective, FDA believes that it

[[Page 44430]]

needs to develop an effective, mandatory program under the act to 
restrict young people's access to cigarettes and smokeless tobacco. The 
agency cannot and should not abdicate its public health 
responsibilities in deference to voluntary efforts to inform employees 
or other parties on the sale and distribution of these products, given 
the evidence cited in the preamble to the 1995 proposed rule that such 
programs must be bolstered by government sanctions and measures like 
those in subpart B of part 897 in order to be effective.
    (6) Other comments, particularly those submitted by a few State 
legislators, claimed that States should be free to allocate their 
resources as they wished so that, if a State decided not to address a 
particular issue, such as access to tobacco products, that decision 
would be within the State's purview.
    In contrast, comments submitted by State and local public health 
officials were unanimous in recommending strong Federal leadership in 
reducing young people's access to cigarettes and smokeless tobacco.
    The agency believes that the comments opposing the rule 
misinterpret the rule's scope and application. The rule does not 
require States to enforce any provision, nor does it require States to 
allocate resources in any manner. FDA will enforce the rule as it does 
any other rule, by using FDA's own resources or, where appropriate and 
with cooperation from State officials, by ``commissioning'' State 
officials to perform specific functions on the agency's behalf. FDA is 
authorized, under section 702(a) of the act (21 U.S.C. 372), to conduct 
examinations and investigations through any health, food, or drug 
officer or employee of any State, territory, or political subdivision 
commissioned as an officer of DHHS. In most cases, a commissioned State 
or local government official is authorized to perform one or more of 
the following functions: (1) Conduct examinations, inspections, and 
investigations under the act; (2) collect and obtain samples; (3) copy 
and verify records; and (4) receive and review official FDA documents. 
\40\ The scope of the official's authority depends on his or her 
qualifications, and the commissioning process involves active and 
voluntary participation by States in identifying suitable candidates 
for commissioning and establishing the scope of the commissioned 
official's duties.
---------------------------------------------------------------------------

    \40\ FDA Regulatory Procedures Manual, DHHS, PHS, Office of 
Regulatory Affairs, Office of Enforcement, Division of Compliance 
Policy, Chapter 3, p. 45, August 1995.
---------------------------------------------------------------------------

    (7) A few comments claimed that the rule would create friction 
between States and the Federal Government because, according to these 
comments, FDA would be interfering in State affairs. Some comments also 
claimed that the rule would make State efforts less effective because 
State regulatory or police agencies would defer to FDA.
    In contrast, as noted above, several State attorneys general 
expressed a different view, stating that the rule would strengthen 
State efforts to reduce cigarette and smokeless tobacco use among young 
people.
    The agency respectfully disagrees with those comments that claim 
FDA will be interfering in State affairs or that the rule will create 
friction or undermine the effectiveness of State officials. The agency 
has a history of cooperative relations with State regulatory officials. 
For example, as mentioned earlier, section 702(a) of the act authorizes 
FDA to commission State officials to perform specific functions on 
FDA's behalf. FDA also works with State officials in implementing 
statutes such as the Prescription Drug Marketing Act of 1987, the 
Nutrition Labeling and Education Act of 1990, and the Mammography 
Quality Standards Act of 1992. Given this history of cooperation 
between FDA and State regulatory agencies, FDA does not agree that the 
rule will create friction between FDA and State authorities or 
undermine the effectiveness of State officials.
    (8) Many comments argued that the 1995 proposed rule would restrict 
an adult's ability to purchase or select cigarettes and smokeless 
tobacco. Several asserted that regulations would be ineffective because 
young people would obtain cigarettes and smokeless tobacco anyway. 
Hence, these comments would eliminate all provisions intended to reduce 
a young person's access to these products.
    In contrast, many comments supported the rule, stating that it 
would reduce a young person's easy access to and opportunity for early 
experimentation with cigarettes and smokeless tobacco, help reduce the 
use of those products by young people, and prevent young people from 
suffering adverse health effects associated with using these products.
    The agency agrees that the rule may have an incidental effect on an 
adult's ability to purchase cigarettes or smokeless tobacco, but FDA 
emphasizes that the rule's benefits far outweigh any inconvenience to 
adults. FDA has narrowly focused the rule to address those activities 
and practices that are especially appealing to, or used by, young 
people and to preserve, to the fullest extent practicable, an adult's 
ability to purchase these products. Any inconvenience to adults should 
be slight. For example, although the final rule eliminates self-service 
displays for cigarette packages in facilities that are accessible to 
young people, the limited amount of time spent in requesting and 
receiving a cigarette pack from a retail clerk should not result in 
hardship on adults. The agency has also amended the rule, as discussed 
in section IV.E. of this document to retain specific modes of sale that 
are restricted to--or used almost exclusively by--adults. These 
amendments respond to comments from adult consumers and retailers that 
young people cannot or do not use certain modes of sale and so those 
modes of sale should remain available to adults.
    (9) Several comments argued that the 1995 proposed rule 
``intruded'' on private life or ``discriminated'' against adult 
cigarette and smokeless tobacco users.
    In contrast, other comments agreed that FDA has jurisdiction over 
cigarettes and smokeless tobacco and that the rule was an appropriate 
exercise of FDA's authority and properly focused on curtailing access 
by young people. Several comments suggested amending the rule to add 
restrictions for adults, to ban smoking, or to provide information to 
help all smokers to stop smoking.
    As stated earlier, the agency has drafted the rule as narrowly as 
possible to restrict the sale and distribution of these products to 
children and adolescents, while preserving adults' ability to purchase 
the products.
    As for extending the rule to include adults or to ban smoking, FDA 
declines to adopt the comments' suggestion. As discussed in section 
III.A. of this document, the President, and the agency in its preamble 
to the 1995 proposed rule, have stated that removing cigarettes and 
smokeless tobacco from the market would not be in the best interests of 
the public health. The agency adheres to this position.
    (10) Many comments urged FDA to refrain from rulemaking and instead 
rely on voluntary, manufacturer-developed or retailer-developed 
programs, such as ``Action Against Access,'' ``It's the Law,'' and ``We 
Card,'' to prevent sales to young people. Some would require retailers 
and their employees to be trained to comply with existing State and 
local laws. Several large retail

[[Page 44431]]

chains described the programs they already have in place.
    Other comments expressed skepticism about such programs and, 
therefore, strongly supported FDA's rulemaking activities.
    The agency declines to rely solely on voluntary, manufacturer- or 
retailer-developed programs to prevent sales to young people. The 
agency is regulating cigarettes and smokeless tobacco as devices under 
the act. Voluntary programs cannot serve as a substitute for such 
regulation and do not provide many of the safeguards that the act 
provides.
    As for retailer programs to train employees not to sell cigarette 
and smokeless tobacco to young people, FDA believes that such training 
efforts will help retailers comply with their obligations under 
Sec. 897.14. However, retailer training programs, alone, will not be as 
effective as the rule's comprehensive approach because such training 
would not affect certain activities (such as free samples and 
advertising) that are used by or appeal to young people.
    Similarly, voluntary, manufacturer-developed programs are not 
sufficient to prevent sales to young people. Such programs purport to 
deter young people from using cigarettes or smokeless tobacco until 
they reach legal age, but often omit retail activities or impose no 
sanctions if a voluntary code or provision is violated. For example, 
one comment supported the rule, in part, because a retailer gave the 
author, when he was 15 years old, and other children free cigarettes. A 
manufacturer-developed program might not be effective at curtailing 
such practices by retailers, whereas the rule bars distribution of free 
samples by manufacturers, distributors, and retailers.
    (11) One comment suggested amending the rule to include 
advertisers.
    FDA declines to amend the rule as suggested by the comment. The 
agency's authority attaches to the product and those responsible for 
its manufacture, distribution, or sale in interstate commerce. 
Advertisers do not have control over the products and presumably act at 
the direction of manufacturers, distributors, and retailers. If an 
advertisement violated the requirements of this part, the agency would 
hold the appropriate manufacturer, distributor, or retailer responsible 
for the violative advertisement.
    (12) One comment argued that cigarettes should be sold by 
prescription only. Other comments opposing the rule predicted that the 
agency would require prescriptions.
    The agency declines to amend the rule to require prescriptions. 
Such a requirement would unduly affect adults and retailers and, FDA 
expects that the more narrowly tailored provisions in subpart B of part 
897 will adequately restrict young people's access to these products.
    (13) One comment criticized the 1995 proposed rule for not 
restricting where cigarettes and smokeless tobacco may be sold. The 
comment said that pharmacies and health care facilities often sell 
these products and that such sales undermine the credibility of health 
warnings related to these products. The comment suggested that FDA 
prohibit ``inappropriate places'' from selling these products.
    FDA declines to amend the rule as suggested by the comment. The 
agency has no information or criteria that would permit it to determine 
whether certain places or types of establishments are not 
``appropriate'' for selling cigarettes and smokeless tobacco.

B. General Responsibilities of Manufacturers, Distributors, and 
Retailers (Sec. 897.10)

    Proposed Sec. 897.10 would have required each manufacturer, 
distributor, and retailer to be responsible for ensuring that the 
cigarettes or smokeless tobacco that it ``manufactures, labels, 
advertises, packages, distributes, sells, or otherwise holds for sale'' 
comply with the requirements in part 897. FDA proposed this provision 
setting forth these general responsibilities as part of the agency's 
comprehensive program to reduce young people's access to cigarettes and 
smokeless tobacco. Through this provision FDA intended to ensure that 
these products, from the time of their manufacture to the time of their 
purchase, comply with part 897 and that manufacturers, distributors, 
and retailers appreciate their roles, and carry out their legal 
responsibilities to reduce the accessibility and appeal of these 
products to young people. The final rule retains Sec. 897.10 without 
any significant changes.
    (14) Many comments interpreted proposed Sec. 897.10 as imposing 
strict liability on manufacturers, distributors, and retailers. 
Generally, these comments interpreted the 1995 proposed rule as making 
a party responsible for violations committed by another party, even if 
the former was unaware that the violation had been committed by the 
latter. Some comments asserted that the agency cannot impose such 
vicarious liability, under these comments' interpretation of United 
States v. Dotterweich, 320 U.S. 277 (1943), and United States v. Park, 
421 U.S. 658 (1975). One comment acknowledged that proposed 
Sec. 897.10, when read literally, would not hold parties responsible 
for acts committed by other parties, but nevertheless claimed that, 
despite such language, FDA would hold manufacturers, distributors, and 
retailers liable for any action committed by any party.
    The agency believes that the comments have misinterpreted 
Sec. 897.10. Section 897.10 holds manufacturers, distributors, and 
retailers responsible for their own actions; it does not require any 
party to ensure that another party complied with the regulations, nor 
does it hold a party responsible criminally or civilly for actions that 
it did not commit or about which it had no responsibility under the act 
and no knowledge. This is the most logical and straightforward 
interpretation of Sec. 897.10, and, as stated earlier, the provision 
states that ``each manufacturer, distributor, and retailer is 
responsible for ensuring that the cigarettes and smokeless tobacco it 
manufactures, labels, advertises, packages * * * comply with all 
applicable requirements under this part'' (emphasis added). The word 
``it'' refers to the individual manufacturer, distributor, or retailer, 
while the word ``applicable'' signifies that a party, depending on the 
circumstances, is subject only to those requirements for which that 
party is responsible. This issue is discussed in greater detail later 
in this section of the document.
    In determining which party may be responsible for a regulatory 
violation, FDA will examine where and when the violation occurred. For 
example, Sec. 897.14(d), among other things, prohibits retailers from 
opening any cigarette package and selling individual cigarettes. If a 
retailer, on its own initiative, opened a package and sold single 
cigarettes, without the knowledge of a manufacturer or distributor, 
only the retailer would be responsible because only the retailer 
engaged in actions that violated the requirements in this part. 
However, if the manufacturer or distributor supplied single cigarettes 
to the retailer--contrary to Sec. 897.16(b) which establishes a minimum 
package size for cigarettes--and the retailer sold the single 
cigarettes, or if the manufacturer or distributor knew or had reason to 
know that the retailer sold

[[Page 44432]]

single cigarettes and continued to provide cigarettes to the retailer, 
the manufacturer or distributor, as well as the retailer, would be 
subject to regulatory action. The manufacturer or distributor would 
have violated Sec. 897.16(b) and assisted in violating Sec. 897.14(d), 
while the retailer would be in violation of Sec. 897.14(d). In sum, 
each manufacturer, distributor, and retailer is responsible for 
ensuring that its products (whether it manufactures, labels, 
advertises, packages, distributes, sells, or otherwise holds them for 
sale) comply with all requirements applicable to it and its products. 
As such, Sec. 897.10 does not create the problems that the comments 
suggested it does.
    (15) Several comments objected to proposed Sec. 897.10 because it 
would have each manufacturer, distributor, and retailer responsible for 
ensuring compliance with the regulatory requirements in part 897. These 
comments interpreted the provision as having the affected industries, 
rather than Federal or State Governments, determine compliance. One 
comment also asserted that the imposition of such responsibility on 
private persons is a violation of the Due Process Clause of the Fifth 
Amendment, which prevents unreasonable delegations of governmental 
authority. Several comments added that manufacturers, distributors, and 
retailers should not ``spy'' on each other to ensure compliance. One 
comment said that the rule would create a ``hidden enforcement tax.''
    FDA believes that the comments objecting to Sec. 897.10 have 
misinterpreted its application. Section 897.10 does not make 
manufacturers, distributors, or retailers solely responsible for 
ensuring compliance with the regulations nor does it alter or affect 
any Federal or State enforcement mechanism. Section 897.10 is intended 
to remind manufacturers, distributors, and retailers that they are 
responsible for complying with the regulations that are applicable to 
them. FDA remains primarily responsible, as it does for most FDA 
regulations, for determining whether parties comply with the 
regulations. States, of course, remain free to enforce applicable State 
laws relating to these products.
    (16) One comment asserted that proposed Sec. 897.10 would impose 
vicarious liability in violation of the Eighth Amendment's Excessive 
Fines Clause.
    As previously discussed, Sec. 897.10 does not impose the sort of 
vicarious liability on manufacturers or distributors that the comments 
suggested it does. The Excessive Fines Clause of the Eighth Amendment 
states that ``excessive fines [shall not be] imposed.'' Here, neither 
Sec. 897.10 nor any other provision of the final rule imposes an 
excessive fine or any fine at all. Moreover, whether a fine is 
excessive in a particular case requires a close analysis of the facts 
of that case. (See, e.g., United States v. One Parcel Property Located 
at 427 and 429 Hall Street, Montgomery, Montgomery County, Alabama, 74 
F.3d 1165, 1170-73 (11th Cir. 1996) (adopting and applying 
proportionality test to in rem civil forfeiture); United States v. 
Chandler, 36 F.3d 358, 365-66 (4th Cir. 1994) (adopting and applying 
three-part instrumentality test to in rem civil forfeiture) cert. 
denied, 115 S.Ct. 1792 (1995).)
    (17) A few comments implied that manufacturers should be excluded 
from Sec. 897.10, stating that retailers, rather than manufacturers, 
should be responsible for preventing sales to young people.
    The agency declines to amend the rule to exclude manufacturers. The 
preamble to the 1995 proposed rule demonstrated how certain practices 
by manufacturers, such as the distribution of free samples, offer young 
people easy and inexpensive access to cigarettes and smokeless tobacco. 
(See 60 FR 41314 at 41326 (free samples).) FDA received several 
comments that reinforced these views, such as comments from a 12-year 
old recounting how his classmate acquired free cigarettes from a 
manufacturer, and a mother whose 14-year old daughter and friends 
attributed their cigarette use to free samples obtained from 
manufacturers. Thus, manufacturers play a critical role in making 
cigarettes and smokeless tobacco accessible and appealing to young 
people.
    In addition, because cigarettes and smokeless tobacco are products 
subject to the act, regulation of these products properly follows them 
from the time of their manufacture to their sale to the consumer. 
Focusing solely on the sale of these products to consumers would 
deprive the agency of any ability to address problems that may exist at 
the manufacturer or distributor level. For example, if products were 
incorrectly packaged or labeled, a rule that concentrated solely on 
retail sales might permit FDA to restrict sales of those products, but 
might not permit FDA to require the manufacturer to package or label 
those products correctly.
    (18) Two comments would amend the rule to exempt manufacturers that 
had 1 or 2 percent of the cigarette or smokeless tobacco product 
market. One comment came from an association of specialty tobacco 
companies that either manufacture or import specialty cigarettes and 
other tobacco products. The comment claimed that specialty cigarettes 
account for a very small fraction (approximately 400 million 
cigarettes) of the total cigarettes market, are sold at higher retail 
prices compared to domestic cigarettes (from $1.75 for 10 Indonesian 
cigarettes to $4.00 for 20 German cigarettes), and are sold in shops 
that young people normally do not frequent. The comment also stated 
that the rule would have an adverse effect on foreign products 
(particularly products in packages containing less than 20 cigarettes), 
that the companies had little control over foreign manufacturers, and 
that companies would go out of business or be adversely affected by the 
rule. The comment sought an exemption either for firms or brands that 
have 1 percent or less of the total cigarette market in the United 
States. The comment explained that an exemption would be equitable 
because, the comment asserted, there is no evidence that speciality 
cigarettes contribute to underage smoking, and would also be consistent 
with an exemption granted by the Federal Trade Commission (FTC) for 
rotating cigarette label warnings and regulations by the U.S. 
Department of Agriculture (USDA) defining a ``domestic manufacturer of 
cigarettes'' for assessing payments under the Agricultural Adjustment 
Act of 1938.
    The other comment came from a firm whose sales focused primarily on 
smokeless tobacco, with the remainder devoted to cigars and ``smoking 
tobaccos.'' The company said that it had approximately 1 percent of the 
smokeless tobacco market and is the sixth largest smokeless tobacco 
product manufacturer. The comment sought an exemption for companies 
with market shares under 2 percent because it claimed the rule would 
``sound the death knell'' for small, family-owned businesses.
    Both comments indicated that 80 to 90 percent of their sales 
occurred through the mail.
    The agency declines to accept the comments' suggestions to create 
an exemption based solely on market share. The agency believes that 
subjecting similar or identical products to the same statutory and 
regulatory standards is both practical and fair to manufacturers

[[Page 44433]]

and consumers. A consumer should be able to expect that similar or 
identical products made by different manufacturers will be regulated in 
the same fashion. Similarly, manufacturers will not be unfairly 
advantaged or disadvantaged if they are all subject to the same 
statutory and regulatory requirements. For example, the final rule 
prohibits the distribution of free samples. This restriction applies 
regardless of a manufacturer's market share and, aside from eliminating 
a free source of cigarettes and smokeless tobacco that people use, also 
treats manufacturers equally.
    FDA is not persuaded by one comment's suggestion that an exemption 
would be consistent with actions taken by other agencies. FTC's 
exemption is based on statutory language at 15 U.S.C. 1333(c)(2)(A)(i) 
and is limited to changes in the label rotation sequence; in other 
words, the exemption does not relieve the manufacturer from placing 
warning statements on its packages. USDA's regulation pertaining to 
``domestic'' manufacturers is based on statutory language at 7 U.S.C. 
1301(b)(17) as part of the Agricultural Adjustment Act of 1938 that was 
designed, among other things, to create an incentive for domestic 
manufacturers to use domestic tobacco leaf. Thus, neither the FTC nor 
USDA statutes or regulations were intended to relieve foreign products 
from substantive requirements or to regulate foreign manufacturers.
    As for the comments' assertions that their products are either not 
used by or accessible to young people, the agency has amended the rule 
to permit specific modes of sale, including mail order sales, that 
young people cannot or do not use. The agency did not amend the rule, 
however, to exclude cigarettes and smokeless tobacco or brands that 
young people do not appear to use or purchase. It would be 
inappropriate to exempt a particular brand or specialty product simply 
because a manufacturer claims young people do not purchase that 
product. (The agency also notes that the $1.75 price charged for 10 
Indonesian cigarettes is lower than the price charged for some domestic 
brands and creating an exemption for a low cost cigarette product in a 
``kiddie pack'' size would be contrary to the rule's purpose.)
    Additionally, FDA traditionally classifies, as a group, device 
products that are sufficiently similar so that they can be considered 
the same type of device for purposes of applying the regulatory 
controls in the act (see Sec. 860.3(i) (21 CFR 860.3(i)) (definition of 
``generic type of device''), using the cumulative evidence from several 
manufacturers. Reclassification of one product of a particular type 
results in the reclassification of the entire group. (See 42 FR 46028, 
September 13, 1977; and 43 FR 32988 July 28, 1978.) The alternative 
would require FDA to classify individually each manufacturer's device, 
and to undertake the classification process whenever a new manufacturer 
marketed a product within an already identified device type. Thus, FDA 
applies the same regulatory requirements to all devices within an 
identified device type that are substantially equivalent to one 
another. This approach is necessary to provide similar regulatory 
treatment for essentially identical products of different manufacturers 
and distributors (42 FR 46028 at 46031; and 43 FR 32988 at 32989).
    Additionally, assuming that the rule effectively restricts a young 
person's access to cigarettes and smokeless tobacco, it is reasonable 
to assume that a young person would turn to alternative products, such 
as foreign cigarettes that the comment would exempt. Consequently, the 
agency declines to exempt products with small market shares from the 
rule.
    (19) FDA received several comments from wholesalers or distributors 
arguing that they should be exempt from the 1995 proposed rule, 
particularly proposed Sec. 897.10, because they are unable to affect 
the actions of manufacturers and retailers. Several comments asserted 
that wholesalers and distributors are ``merely a conduit'' for 
transferring products from manufacturers to retailers and have small 
staffs that would be unable to comply with all requirements in part 
897. According to these comments, a wholesaler or distributor would 
either have to hire additional staff to ensure that products complied 
with all applicable requirements or be without sufficient staff to 
ensure that all products supplied to all retailers complied with the 
regulations. Several comments added that requiring wholesalers and 
distributors to maintain records, submit reports to FDA, and be subject 
to inspection by FDA would waste the wholesaler's or distributor's 
resources and provide FDA with little or no useful information. A 
minority expressed confusion as to their obligations if they relabel 
cigarettes or smokeless tobacco.
    The agency believes that the comments misinterpret Sec. 897.10. The 
provision states that a distributor would be responsible for ensuring 
that the cigarettes or smokeless tobacco that it manufactures, labels, 
advertises, packages, distributes, sells, or otherwise holds for sale 
complies with all applicable requirements. For example, the reporting 
requirement in proposed Sec. 897.40 was directed at manufacturers. 
Consequently, distributors would not have been required to submit 
reports to FDA under Sec. 897.40. (Moreover, as discussed in section 
VIII. of this document, FDA has deleted Sec. 897.40 and exempted 
distributors from the registration and listing requirements in part 
807. Distributors are, however, subject to other reporting 
requirements, such as medical device distributor reports under part 
804.) However, if a distributor acts in a manner that is outside the 
definition of distributor in Sec. 897.3, it may alter its regulatory 
status and become subject to other provisions in this part. For 
example, a distributor who relabels cigarettes would, for those 
relabeled products, become a ``manufacturer'' under this rule and be 
subject to those provisions pertaining to manufacturers. Section 897.3 
defines a manufacturer, in part, as any person, including any repacker 
and/or relabeler, who manufactures, fabricates, assembles, processes, 
or labels finished cigarettes or smokeless tobacco.
    (20) Several comments would exempt distributors from the rule 
because, the comments claimed, the 1995 proposed rule set forth little 
or no evidence to justify regulating distributors.
    FDA declines to exempt distributors from the rule. The agency 
reiterates that it is regulating cigarettes and smokeless tobacco under 
its drug and device authority, and that, as it does for other FDA 
regulated products, FDA's rule follows the products from the time of 
their manufacture to the time of their sale. Wholesale or distribution 
operations must be included in any effective regulatory system because 
products can be contaminated, diverted into illegal channels, or 
otherwise adulterated or misbranded at the wholesale or distribution 
level just as they can at the manufacturing and retail levels.
    (21) Many comments asserted that, rather than impose 
responsibilities on manufacturers and distributors, FDA should limit 
the rule to requiring that retailers verify the age of persons 
purchasing cigarettes and smokeless tobacco. These comments claimed 
that no other regulatory provisions would be necessary if retailers, or 
their sales clerks, verified the purchaser's age.

[[Page 44434]]

    FDA declines to exclude manufacturers and distributors from the 
rule. As stated earlier in section IV.B. of this document, cigarettes 
and smokeless tobacco are products subject to regulation under the act, 
and, as a result, the rule follows the products from the time of their 
manufacture, through storage and distribution, to product sale at the 
consumer level. Excluding manufacturers and distributors would 
compromise FDA's ability to ensure that these products are not 
accessible or appealing to young people. Manufacturers engage in 
activities, such as advertising, labeling, and distributing samples, 
that make cigarettes and smokeless tobacco accessible and/or appealing 
to young people. Distributors channel products from manufacturers to 
retailers, and so the rule includes distributors to ensure, among other 
things, that the products do not become adulterated or misbranded while 
held by distributors.
    (22) FDA received many comments from retailers stating that FDA 
regulation was unnecessary because retailers train their staffs to 
request proof of age or have taken other steps to prevent sales to 
young people.
    The preamble to the 1995 proposed rule provided reasons for not 
relying on retailer training programs alone. The preamble to the 1995 
proposed rule cited a report by 26 State attorneys general stating that 
industry training films and retailers' programs have not, on their own, 
prevented illegal sales to young people and that, in some retail 
sectors, high employee turnover rates complicated training efforts (60 
FR 41314 at 41323). The preamble to the 1995 proposed rule also cited 
studies showing that significant numbers of young people are not asked 
to verify their age when purchasing cigarettes or smokeless tobacco and 
that, in some cases, retail clerks even encouraged the young person's 
purchase by suggesting cheaper brands or offering to make up the 
difference in the purchase price if the young person lacked sufficient 
funds (60 FR 41314 at 41323). FDA received some comments that further 
illustrated the ease with which young people can purchase these 
products; for example, one comment reflected on the author's own 
practice, at age 11, of purchasing cigarettes by saying ``They are for 
my Mom.'' Thus, while training retail clerks to request proof of age 
should help curtail a young person's access to cigarettes and smokeless 
tobacco, the reports and studies cited in the 1995 proposed rule, as 
well as the personal experiences reflected in some comments, suggest 
that additional measures are necessary to reduce a young person's 
access to these products.
    (23) Several comments from retailers claimed that the 1995 proposed 
rule violated their ``right'' to sell products or arrange their stores 
in any manner they wished. Many comments added that, if retailers are 
subject to the rule, many retailers will lose sales and fees associated 
with cigarettes and smokeless tobacco and could be forced to fire 
staff. One comment further stated that this would actually harm young 
people because the retailer would fire its newest staff, and such staff 
employees are usually young people. Conversely, some comments claimed 
that, in order to comply with the rule, retailers would be obliged to 
hire additional staff.
    In contrast, FDA received two comments denying that retailers would 
lose slotting or promotional fees. (Some manufacturers pay retailers to 
display their products (often referred to as ``slotting fees'') in a 
specific fashion or to display signs or other materials provided by the 
manufacturer.) One comment, based on experience in an area in northern 
California where self-service displays were prohibited, stated that 
retailers did not suffer significant economic losses after the displays 
were banned. Another comment opined that manufacturers would still have 
an incentive to offer slotting fees or allowances to retailers to 
ensure advantageous placement of their products behind the counter.
    FDA disagrees with the comments asserting an unrestricted ``right'' 
to sell products. Section 520(e) of the act (21 U.S.C. 360j(e)) states, 
in part, that the agency may require that a device be restricted to 
sale, distribution, or use upon such conditions as the agency may 
prescribe by regulation. Because FDA has determined that these products 
should be regulated as restricted devices, the act authorizes FDA to 
impose controls on their sale and distribution. The agency further 
notes that, in addition to restrictions authorized under the act, other 
consumer products are sold subject to various restrictions. For 
example, under 23 U.S.C. 158(a)(1), the ``national minimum drinking 
age'' is 21 years, and the Secretary of Transportation is authorized to 
withhold certain highway funds from States that have a lower minimum 
age. Federal law expressly prevents licensed importers, manufacturers, 
dealers, and collectors from selling firearms and ammunition to any 
individual that the licensee knows or has reasonable cause to believe 
to be under 18 years old (except in specific, limited cases), or, if 
the firearm is not a shotgun or rifle, prohibits sales to individuals 
under 21 years of age (18 U.S.C. 922(b)).
    Thus, there is no unfettered or unrestricted ``right'' to sell 
consumer products. Instead, products are often sold subject to 
conditions or restrictions, including those based on age, that are 
designed to protect the integrity of the product, to protect users or 
other members of the public, or to prevent the product from reaching 
certain groups of people.
    FDA also disagrees with those comments predicting that the rule 
will result in lower sales and fees and compel retailers to lay off 
staff. Insofar as retailers are concerned, the rule does not affect 
sales to adults. It is intended to eliminate illegal sales to young 
people. Thus, for a retailer to assert that the rule will reduce its 
sales revenue so much as to require staff reductions, illegal sales 
would necessarily have to play a significant role in funding staff 
positions.
    With respect to fees, the agency cannot determine whether 
manufacturers will discontinue paying slotting fees or other allowances 
to retailers as a result of the rule. The preamble to the 1995 proposed 
rule did estimate that industry promotional allowances totaled 
approximately $1.6 billion in 1993, or $2,600 per retailer if the sum 
is evenly distributed among the estimated 600,000 retail outlets (60 FR 
41314 at 41369). FDA does note, however, that some comments supported 
the agency's position that retailers will not suffer significant 
economic losses. One study cited in the preamble to the 1995 proposed 
rule stated that, ``in the absence of advertising and promotion outlets 
* * * the cigarette industry may be expected to provide greater 
incentives to retailers to provide more and better shelf space for 
their brands in order to provide availability to the buyer in the 
store'' (60 FR 41314 at 41369). Thus, while some manufacturers might 
stop paying slotting fees, others might continue paying those fees or 
even increase the fees to obtain favorable placement of their products 
behind the counter.
    Furthermore, as described in greater detail in section IV.E.4.b. of 
this document, FDA has amended the rule to permit self-service displays 
(or, more specifically, merchandisers) in facilities that are 
inaccessible to young people.
    As for those comments stating that retailers would have to hire 
additional staff, it is possible that some retailers

[[Page 44435]]

who have relied on modes of sale that the rule will now prohibit or 
restrict may need to hire additional staff. For example, if a retailer 
derived a substantial portion of its revenue from vending machines and 
those machines would not be available under the rule, the retailer 
might decide to hire staff in order to continue selling cigarettes or 
smokeless tobacco. However, the comments did not provide sufficient 
information to enable FDA to determine the number of retailers who 
might be affected or the extent to which they might be affected.
    (24) A few comments challenged the validity of the 1995 proposed 
rule because it did not impose responsibilities on young people who 
purchase cigarettes and smokeless tobacco. These comments claimed that 
omitting young people from the rule, while requiring retailers to 
comply, was unfair, arbitrary, and capricious. One comment stated, 
``any effective public policy to restrict sales of tobacco products to 
minors must go beyond the discouragement of promotion, advertising and 
merchandising to minors. It must be accompanied by realistic penalties 
for minors who purchase and possess cigarettes and for adults who 
purchase for them.''
    It would be inappropriate for FDA to amend the rule to impose 
penalties or sanctions on young people who purchase or possess 
cigarettes or smokeless tobacco or adults who purchase such products 
for young people. The main focus of the act is on the introduction, 
shipment, holding, and sale of goods in interstate commerce. Thus, the 
actions of minors who purchase cigarettes and smokeless tobacco are 
appropriately a matter for State or local law.
    (25) One comment stated that FDA should prohibit young people under 
18 years of age from selling tobacco products.
    The agency declines to amend the rule to place age restrictions on 
those who sell these products. FDA has little evidence to suggest that 
manufacturers', distributors', or retailers' young employees play a 
significant role in making cigarettes and smokeless tobacco accessible 
or appealing to young people. Although some evidence indicates that, in 
certain settings, a young employee might be less likely to check age or 
to challenge his or her peers (as in situations where the young 
employee distributed free samples (60 FR 41314 at 41326)), other 
provisions in this subpart, such as the elimination of free samples, 
should reduce the need to place age restrictions on employees.
    The agency does note, however, that in response to comments 
requesting that vending machines and self-service displays be permitted 
in ``adult-only'' facilities, FDA has amended the final rule to allow 
vending machines and self-service displays in facilities that are 
totally inaccessible to people under 18 and employ no persons below age 
18. This is to ensure that an ``adults-only'' facility is truly 
restricted to adults rather than to create an age restriction on 
sellers. These changes to the rule are described in greater detail 
elsewhere in this document.
    The agency is aware that several local governments have statutes or 
regulations that establish minimum age requirements for persons who 
sell tobacco products. Because this rule does not contain a minimum age 
requirement for persons who sell these products, those statutes or 
regulations are not preempted. The rule's preemptive effect on other 
State or local statutes or regulations and federalism issues are 
discussed elsewhere in this document.
    (26) Several comments suggested that, instead of issuing 
regulations, the Federal Government should transfer funds to States for 
use in preventing cigarette and smokeless tobacco sales to young 
people.
    FDA must decline to accept the comments' suggestion. Federal 
funding of State prevention efforts is beyond the scope of the rule. 
The agency does intend to work with State officials and cooperate in 
enforcement activities where appropriate and to the extent that its 
resources permit.
    (27) Several comments suggested that FDA amend the rule so that the 
restrictions on the sale and distribution of cigarettes and smokeless 
tobacco do not apply to locations where young people do not enter or 
where entry is restricted, such as bars, liquor stores, factories, and 
prisons.
    After consideration of these comments, the agency has amended the 
rule to allow certain retail practices to continue because those 
practices are not used by young people or are inaccessible to them. For 
example, the final rule permits mail-order sales to occur because the 
evidence does not establish that young people use mail-order sales to 
acquire these products. The final rule also permits vending machines 
and self-service displays (merchandisers only) to be used in locations 
where young people cannot enter, such as locations where proof of age 
is required in order to enter the premises or facilities that employ 
only adults. These changes are described in detail in the discussion of 
Sec. 897.16 and elsewhere in this document.

C. Additional Responsibilities of Manufacturers (Sec. 897.12)

1. Removal of Manufacturer-Supplied or Manufacturer-Owned Items That Do 
Not Comply With the Regulations
    Proposed Sec. 897.12(a) would have required manufacturers, in 
addition to their other obligations under part 897, to remove, from 
each point of sale, ``all self-service displays, advertising, labeling, 
and other manufacturer-supplied or manufacturer-owned items'' that do 
not comply with the requirements in part 897. In response to comments, 
the agency has amended the final rule to require the manufacturer to 
remove only those violative items that the manufacturer owns.
    (28) Many comments, including comments from manufacturers' sales 
representatives and retailers, strongly objected to this provision, 
particularly as it would apply to self-service displays. In general, 
the comments claimed that retailers, rather than manufacturers, own the 
self-service displays. The comments also expressed concern that 
manufacturers' representatives or retailers' employees might be 
physically harmed if a manufacturer's representative attempted to 
remove a self-service display from a retailer. Several comments also 
interpreted proposed Sec. 897.12(a) as requiring a manufacturer's sales 
representative to remove self-service displays supplied by another 
manufacturer; these comments said removing a competitor's self-service 
display would be unethical and could result in the sales representative 
being barred from reentering the retail establishment in the future.
    In contrast, a few comments supported proposed Sec. 897.12(a) 
because manufacturers provide the displays to retailers and visit 
retailers often. One comment added that the burden of removing displays 
should not rest on retailers alone, but added that retailers should 
remain ultimately responsible for displays they use or have on site. 
This comment suggested that retailers be responsible for removing 
displays if the manufacturer fails to do so.
    The agency agrees, in part, with the comments critical of the 
proposed provision and has amended Sec. 897.12 to clarify that a 
manufacturer is responsible for removing all self-service displays 
(which the final rule also clarifies as referring to merchandisers),

[[Page 44436]]

advertising, labeling, and other items that it owns that do not comply 
with the requirements in part 897. FDA has also amended Sec. 897.14 to 
clarify the obligation of retailers with respect to all other violative 
items in the retailer's establishment. These changes should eliminate 
potential conflicts between manufacturers' sales representatives and 
retailers.
    Additionally, Sec. 897.12 requires a manufacturer to be responsible 
only for the removal of the items it owns. The agency does not expect 
manufacturers to remove items owned by another manufacturer, but 
encourages manufacturers to inform another manufacturer and FDA if 
another manufacturer's items violate the requirements in part 897. 
However, the agency advises manufacturers who know or have reason to 
know that a distributor or retailer is misbranding that manufacturer's 
products, or causing its products to violate these regulations or the 
act, to take action, such as discontinuing sales, incentives, and 
supplies, to halt the violation. Manufacturers might be held liable for 
subsequent violations by the distributor or retailer, if the 
manufacturer knew or should have known about the violation and 
continued to supply its product to such parties.
    Liability, both criminal and civil, under the act is very broad. 
Section 301 of the act (21 U.S.C. 331) prohibits certain acts ``and the 
causing thereof.'' United States v. Dotterweich, 320 U.S. 277 (1943), 
and United States v. Park, 421 U.S. 658 (1975) elaborate on the meaning 
of ``causing'' in section 301 of the act (see Park, 421 U.S. at 673). 
These cases stand for the proposition that a corporate official can be 
held criminally liable as having caused the corporation's violations of 
the act of which he had no knowledge, so long as he stood in a 
``responsible relationship'' to the violations (Id. at 672).
    Under the act, ``all who * * * have * * * a responsible share in 
the furtherance of the transaction which the statute outlaws'' have 
caused the violation and are subject to civil and criminal liability 
(Dotterweich, 320 U.S. at 284). Indeed, a corporate employee and the 
corporation itself can have a responsible share in the furtherance of a 
violation of the act committed by another corporation or a person who 
is not an employee of the corporation. (See, e.g., United States v. 
Parfait Powder Puff Co., 163 F.2d 1008, 1009-10 (7th Cir. 1947) 
(holding defendant corporation criminally liable for violations 
committed without its knowledge by second corporation that defendant 
had contracted with to manufacture, package, and distribute its 
cosmetic product), cert. denied, 332 U.S. 851 (1948); United States v. 
Articles of Drug, 601 F. Supp. 392 (D. Neb. 1984) (enjoining drug 
distributor that induced its customers to pass off its drugs as 
controlled substances), aff'd in part, rev'd in part on other grounds, 
825 F.2d 1238 (8th Cir. 1987); cf. Inwood Lab., Inc. v. Ives Lab., 
Inc., 456 U.S. 844, 853-54 (1982) (manufacturer or distributor who 
``intentionally induces another'' to violate trademark law or who 
``continues to supply its product to one whom it knows or has reason to 
know'' will violate trademark law is itself responsible for 
violation).) And it is a ``settled doctrine[] of criminal law'' (Park, 
421 U.S. at 669) that a person who knows or has reason to know that 
goods that he sells will be used unlawfully may be criminally liable as 
aider and abettor under 18 U.S.C. 2; Bacon v. United States, 127 F.2d 
985, 987 (10th Cir. 1942) (discussing former 18 U.S.C. 550, precursor 
to 18 U.S.C. 2(a))).
    For example, a manufacturer or distributor that continues to supply 
its product to a retailer whom it knows or has reason to know sells 
cigarettes or smokeless tobacco to young people (or who breaks open 
packages and sells single cigarettes) might be liable for subsequent 
violations by that retailer. Likewise, a manufacturer who paid a 
retailer a fee for the retailer to use an illegal self-service display 
in a store might be liable for the retailer's violation.
    These examples are, however, only by way of illustration because, 
as the Supreme Court stated in Dotterweich, ``[t]o attempt a formula 
embracing the variety of conduct whereby persons may responsibly 
contribute in furthering a transaction forbidden by an Act of Congress 
* * * would be mischievous futility'' (320 U.S. at 285). It added that, 
``[i]n such matters the good sense of prosecutors, the wise guidance of 
trial judges, and the ultimate judgment of juries must be trusted'' 
(Id.).
    (29) One comment challenged FDA's authority to require 
manufacturers to remove items that fail to comply with the regulations. 
The comment explained that FDA, rather than manufacturers, is 
responsible for compliance activities and a manufacturer's 
representative is not deputized or authorized to act on the agency's 
behalf. The comment added that sales representatives are not trained to 
perform investigative or law enforcement functions and, unlike 
Government employees, would not enjoy the same legal protections 
accorded to the agency's inspectors. The comment also argued that FDA 
lacks authority to require manufacturers, or any other party, to remove 
any materials that would violate the regulations. The comment asserted 
that the agency has no general recall authority and that the recall 
authority in the act for devices requires the agency to find that a 
reasonable probability of serious adverse health consequences or death 
exists and, when exercising that recall authority, to provide an 
opportunity for a hearing. Thus, according to the comment, the 1995 
proposed rule is deficient because it makes no findings and fails to 
provide for a hearing.
    The agency believes that the comment misinterprets the provision. 
Section 897.12 would not ``deputize'' manufacturers' representatives 
nor confer any official responsibility on them. FDA intends to enforce 
the act and regulations itself and, where appropriate, will consider 
commissioning State officials, under its authority in section 702(a) of 
the act, to perform specific functions on FDA's behalf. Section 702(a) 
of the act does not extend to commissioning private parties, and the 
agency has no intention of commissioning manufacturers' 
representatives.
    FDA also disagrees with the comment's claim that FDA has no 
authority to require manufacturers to remove materials that violate FDA 
regulations. FDA is issuing this provision, as well as part 897 
generally, under its authority under section 520(e) of the act, which 
expressly declares, in part, that the agency may, by regulation, 
require that a device be restricted to sale, distribution, or use 
``upon such other conditions as the Secretary may prescribe in such 
regulation.'' Section 897.12, as amended, is a logical and necessary 
complement to the restrictions on the devices' sale, distribution, and 
use because it requires the manufacturer to assume responsibility for 
removing items that it owns that do not comply with the restrictions. 
Furthermore, as the Supreme Court stated in United States v. Park, 421 
U.S. 658, 672 (1975), ``the act imposes not only a positive duty to 
seek out and remedy violations when they occur but also, and primarily, 
a duty to implement measures that will insure that violations will not 
occur.''
    The comment's argument with respect to the agency's recall 
authority is also misplaced. Section 897.12 applies in situations where 
a manufacturer knows,

[[Page 44437]]

either acting on its own or on the basis of information supplied to it, 
that one of its items does not comply with the regulations. Knowing 
that the item does not comply with the requirements in part 897, the 
manufacturer is then obligated to remove the violative item. Notice of 
an opportunity for a hearing or other due process considerations 
associated with recalls under section 518 of the act (21 U.S.C. 360h) 
are inapplicable because the manufacturer, rather than the government, 
would be the principal party during this process, using information it 
has to act on its own items. In any case, section 518 of the act 
applies to the recall of a device, not its advertising.
    FDA fully expects manufacturers to comply with Sec. 897.12. For 
example, if the manufacturer provided advertising that used colors and 
photographs, contrary to Sec. 897.32, which requires black and white 
text only, the manufacturer is deemed to know that the advertising does 
not comply with Sec. 897.32 and should remove that advertising. In this 
situation, where the manufacturer's advertising clearly does not comply 
with the regulations, requiring FDA to provide notice and an 
opportunity for a hearing (as the comment would apparently require) 
would simply waste FDA's and the manufacturer's resources.
    FDA will take regulatory action against manufacturers who fail to 
comply with this provision or any other applicable provision. The 
nature of the regulatory action will depend, in large part, on the 
violation, but could range from issuance of a warning letter, to an 
injunction under section 302 of the act (21 U.S.C. 332), the imposition 
of civil penalties, criminal fines, and/or imprisonment under section 
303 of the act (21 U.S.C. 333), and seizures under section 304 of the 
act (21 U.S.C. 334).
2. Visual Inspections by a Manufacturer's Representative at Each Point 
of Sale
    Proposed Sec. 897.12(b) would have required a manufacturer's 
representatives to visually inspect each point of sale that they visit 
during the normal course of business to ensure that cigarettes and 
smokeless tobacco are ``labeled, advertised, and distributed in 
accordance with this part.'' The preamble to the 1995 proposed rule 
indicated that manufacturers keep extremely detailed records about each 
retailer and that some records noted whether the retailer should be 
visited weekly, biweekly, etc. and noted the types of displays in the 
retailer's establishment (60 FR 41314 at 41323). The preamble to the 
1995 proposed rule also stated that this provision would not impose a 
new responsibility or burden on companies that did not visit retailers 
as part of their ordinary business practice and, for those 
manufacturers that would be expected to comply, estimated that these 
visual inspections would take no more than 2 to 3 minutes per visit (60 
FR 41314 at 41323 and 41365). Based on the comments received in 
response to this proposal, the agency has deleted Sec. 897.12(b) from 
the final rule.
    (30) Several comments opposed proposed Sec. 897.12(b). One comment 
argued that proposed Sec. 897.12(b) is unconstitutional because it 
would hold manufacturers vicariously liable for the acts of others in 
violation of the Due Process Clause, and would violate Article I, 
Section 8 of the Constitution, which implicitly reserves to States the 
authority to raise militias. One comment asserted that the number of 
manufacturers' representatives varies among manufacturers and that 
there are too many retail establishments for those representatives to 
inspect. The comment added that any inspection would require more than 
3 minutes to be effective, so that conducting inspections at each 
retailer would be labor intensive and costly. Another comment, 
notwithstanding the statement in the preamble to the 1995 proposed rule 
that the provision applied only to those firms that visit retailers in 
the ordinary course of business, asserted that its entire staff would 
be too small to visit all the retailers that it services. A small 
number of comments added that such responsibilities would, in effect, 
constitute a hidden ``tax'' on manufacturers.
    Other comments, many submitted by sales representatives, objected 
to proposed Sec. 897.12(b), stating that the representatives have no 
power over a retailer's actions and cannot take any adverse action, 
such as discontinuing supplies, to retailers who sell cigarettes and 
smokeless tobacco to young people. Some comments explained that, even 
if a sales representative could ask a distributor to stop supplying 
certain retailers, the retailer could simply switch distributors and 
continue to obtain products. Other comments argued that the 
responsibility to prevent sales to young people rests solely with the 
retailer.
    In contrast, several comments supported proposed Sec. 897.12(b) 
because sales representatives frequently visit retailers or because 
manufacturers deliver materials, such as self-service displays and 
promotional materials, to retailers. One comment even suggested 
amending the rule to require manufacturers to enter into contracts with 
retailers and distributors to comply with FDA regulations and to state 
that failure to comply would result in termination of the retailer's or 
distributor's ability to obtain the manufacturer's cigarettes or 
smokeless tobacco.
    After consideration of the comments, the agency has removed 
Sec. 897.12(b). FDA intends to examine this matter further and to 
develop a guidance describing how manufacturers may be able to assist 
retailers to comply with this subpart. Possible options might include 
methods suggested by the comments, such as contractual agreements 
between retailers and manufacturers including provisions on compliance 
and the consequences of noncompliance.

D. Additional Responsibilities of Retailers (Sec. 897.14)

    Proposed Sec. 897.14 would have established additional 
responsibilities for retailers, stating that ``[i]n addition to the 
other requirements under this part, each retailer is responsible for 
ensuring that all sales of cigarettes and smokeless tobacco to any 
person (other than a distributor or retailer)'' comply with specific, 
listed requirements.
    FDA, on its own initiative, has amended Sec. 897.14 to delete the 
parenthetical text referring to a distributor or retailer because the 
evidence does not establish that retailers sell these products to such 
parties, and if a retailer did sell these products to a distributor or 
retailer, the retailer would be acting as a ``distributor'' as defined 
in Sec. 897.3(c).
    FDA, also on its own initiative, has amended Sec. 897.14 to add a 
new paragraph (a) stating that, as one of the listed requirements, 
``[n]o retailer may sell cigarettes or smokeless tobacco to any person 
younger than 18 years of age'' and has renumbered proposed 
Sec. 897.14(a) through (c) accordingly. The new paragraph codifies a 
concept that was present throughout the 1995 proposed rule, namely that 
retailers are not to sell cigarettes or smokeless tobacco to young 
people under 18 years of age.
1. Use of Photographic Identification to Verify Age
    Under proposed Sec. 897.14(a) (now renumbered as Sec. 897.14(b)), 
each retailer, or an employee of the retailer,

[[Page 44438]]

would have been required to verify, by means of photographic 
identification containing the bearer's date of birth, that no person 
purchasing or intending to purchase cigarettes or smokeless tobacco is 
younger than 18 years of age.
     The preamble to the 1995 proposed rule explained that studies 
indicate that young people who purchase cigarettes and smokeless 
tobacco from stores are often not asked to verify their age. For 
example, one study found that 67 percent of young people, whose mean 
age was 15 years, were asked no questions when they attempted to 
purchase cigarettes. In some cases, retail clerks even encouraged 
purchases by young people, suggesting less expensive brands or offering 
to make up the difference if he or she lacked sufficient funds (60 FR 
41314 at 41323). The preamble to the 1995 proposed rule also noted that 
requiring proof of age to purchase cigarettes and smokeless tobacco 
could reduce cigarette and smokeless tobacco use among young people (60 
FR 41314 at 41323). Consequently, the 1995 proposed rule would have 
required retailers to verify that persons who intend to purchase 
cigarettes or smokeless tobacco are legally entitled to do so.
    The preamble to the 1995 proposed rule also indicated that a 
driver's license or college identification card would be acceptable 
forms of photographic identification, but the agency invited comment on 
whether the final rule should contain more specific requirements on the 
types of identification (60 FR 41314 at 41323).
    FDA received many comments supporting a proof of age requirement. 
These comments came from law enforcement entities, drug abuse 
prevention groups, health care professionals, medical societies, public 
health organizations, and even some adult smokers who agreed that a 
proof of age requirement will reduce young people's access to 
cigarettes and smokeless tobacco. One comment from a coalition of State 
attorneys general said there ``are many teenagers who look much older 
than they are, who can obtain tobacco products quite easily. When they 
are required to show age verification, they will not be mistaken for an 
older age. Therefore, they will not be permitted to acquire tobacco 
products.'' Another comment from a State public health department 
reported that, based on data analyzed from the State's own experience, 
illegal tobacco purchases occur less than 5 percent of the time when 
the retailer checks a photographic identification card to verify age, 
as opposed to a 95 percent illegal sales rate when no photographic 
identification card is checked.
    In response to comments and changes to Sec. 897.16 regarding mail 
order and vending machine sales and self-service displays in facilities 
that are inaccessible to children and adolescents, the final rule 
excepts the proof of age requirement under these limited circumstances.
    (31) Several comments objected to making retailers responsible for 
their employees' actions. These comments asserted that an employee's 
failure to verify a potential purchaser's age or an employee's error 
should not subject the retailer to any regulatory action. A few 
comments faulted the 1995 proposed rule for not holding sales clerks 
responsible or argued that the rule would be ineffective because it 
would not alter a sales clerk's behavior.
    In contrast, many comments supported the requirements that hold 
retailers responsible for preventing illegal sales. Indeed, one comment 
suggested that there should be ``significant penalt[ies] for sales to 
persons under 18, including the loss of the opportunity to sell tobacco 
* * *.'' Another comment stated that the rule should contain penalties 
for illegal tobacco sales.
    The agency declines to amend the rule to relieve retailers from 
responsibility. Retailers, in general, are responsible for the acts of 
their employees. (See United States v. Park, 421 U.S. 658, 672 (1975).) 
Relieving retailers from responsibility for their employees' actions 
would only invite abuse because retailers could continue to sell 
products to young people and, if caught making such sales, could blame 
their employees without suffering any adverse consequences themselves. 
To reflect its position that retailers are generally responsible for 
their employees' actions, FDA has amended Sec. 897.14 to remove all 
references to ``an employee of the retailer.'' Thus, Sec. 897.14 now 
refers to a ``retailer'' and makes no distinction for the retailer's 
employees.
    As for the comment claiming the rule contains no penalties for 
illegal tobacco sales, the agency believes that the comment 
misunderstands how the rule will operate. In general, FDA regulations 
implement and interpret the agency's statutory obligations under the 
act, including various criminal and civil penalties. Thus, a regulation 
need not specify what penalties are attached to a violation because the 
act provides this information.
    FDA has, however, amended proposed Sec. 897.14(a) (now renumbered 
as Sec. 897.14(b)) to state that, ``[e]xcept as otherwise provided in 
Sec. 897.16(c)(2)(i) and in paragraph (a)(2) of this section,'' a 
retailer shall ensure compliance with the prohibition against sales to 
persons under 18 by verifying the purchaser's age. FDA made this 
amendment to correspond with the prohibition, in Sec. 897.14(a), 
against sales to persons under 18 and because, as discussed in greater 
detail below, the final rule permits sales from vending machines and 
self-service merchandisers that are inaccessible to young people and 
permits mail-order sales. These modes of sale are either secure from 
access by young people (by requiring age verification upon entrance to 
the facility) or not used by them. The exception for paragraph (a)(2) 
complements another change to Sec. 897.14 (discussed in greater detail 
below) to not require proof of age from persons over the age of 26.
    FDA has also amended Sec. 897.14(b) to delete the words ``intending 
to purchase.'' The requirement that retailers verify the age of persons 
``purchasing the product'' sufficiently accomplishes the provision's 
goal of reducing illegal sales.
    (32) Several comments supported the use of identification cards to 
verify the purchaser's age. Some comments, responding to a question in 
the preamble to the 1995 proposed rule asking whether the rule should 
specify the types of identification that would comply with a proof-of-
age requirement, advocated using identification cards, passports, or 
other official documents establishing the bearer's age issued by 
States, the Federal Government, or foreign governments. One comment 
recommended that States develop a uniform coding system for 
identification cards to permit retailers to read or to scan 
identification cards quickly to verify a purchaser's age. Other 
comments advised against the use of college or school identification 
cards; the comments noted that colleges and schools have little 
incentive to design their identification cards to be sufficiently 
tamper-proof.
    In contrast, one comment stated that the agency should not ask for 
comment on the type of identification card to require, arguing that the 
``degree of micromanagement implied by the Agency's invitation for such 
comment underscores the inappropriateness of federal action in this 
area.''
    FDA recognizes the comments' concern. However, the final rule does

[[Page 44439]]

not require a uniform coding system or a Federal, State, or local 
government identification card.
    (33) FDA received several comments that addressed when a retailer 
should inspect a purchaser's photographic identification card. One 
comment interpreted the provision as requiring retailers to inspect 
visually the photographic identification card of every purchaser, and 
said that this would be unreasonable. The same comment contended that 
retailers and their employees should be required to demand proof of age 
only from prospective purchasers who do not appear to be over 18; this 
was the standard employed in Everett, WA, which was cited in the 
preamble to the 1995 proposed rule.
    In contrast, other comments supported age verification for all 
tobacco sales. Some comments from retailers indicated that some 
retailers check identification cards for all tobacco sales, while many 
comments submitted by retailers stated that they check identification 
cards to verify the age of purchasers who appear to be ``underage.'' 
Other comments suggested that the regulation require visual inspection 
of photographic identification cards for purchasers who appear to be 
younger than 21, 25, 26, or 30 years of age. Such a requirement 
appeared to be independently selected to ensure that the purchaser met 
the age requirement in the particular jurisdiction.
    Contrary to the comment that interpreted the rule as requiring 
proof of age in all transactions, the 1995 proposed rule would have 
given retailers some flexibility in deciding when to demand proof of 
age. The preamble to the 1995 proposed rule cited studies and reports 
demonstrating that few retailers request proof of age from young people 
attempting to purchase cigarettes or smokeless tobacco (60 FR 41314 at 
41323). Consequently, proposed Sec. 897.14(a) (now renumbered as 
Sec. 897.14(b)) would have required retailers to verify that 
prospective purchasers are of legal age, and the preamble to the 1995 
proposed rule suggested that retailers request proof of age from anyone 
who does not appear to be at least 26 years old (60 FR 41314 at 41323). 
This suggestion was similar to a recommendation made in a report by 26 
State attorneys general. The agency anticipated, for example, that 
requiring proof of age from a senior citizen would be unnecessary, but 
strongly recommended requiring proof of age from an individual who 
appears youthful.
    However, due to concerns that, despite the language in the preamble 
to the 1995 proposed rule, the rule would require age verification in 
all cases, the agency has amended the rule to except from the age 
verification requirement individuals who are over 26 years old. The 
agency declines to amend the rule to require age verification if the 
purchaser appears to be 21, 25, 26, or 30 years old. Determining a 
person's age by his or her physical appearance alone is a subjective 
determination, and so requiring age verification if a person ``looked'' 
like he or she was a particular age would be difficult to administer 
and to enforce. By requiring age verification if a purchaser is 26 
years old or younger, regardless of his or her appearance, the retailer 
foregoes age verification at its own risk.
    The agency notes that using the higher age of 26 as the threshold 
for requiring proof of age should increase the likelihood that illegal 
sales to young people will not occur. Using a lower age, such as 18 
(which is used in some States) or 21, as the threshold for requiring 
proof of age may enable some young people to purchase cigarettes and 
smokeless tobacco, and, as a result, cause a retailer to be in 
violation of this subpart.
    (34) Many comments, particularly comments from retailers, supported 
the requirement for age verification but added that the requirement 
should be voluntary. Others said that State law or regulations 
requiring age verification are adequate, and that, as a result, FDA 
regulation is unnecessary. Other comments claimed FDA regulation would 
add ``red tape and paperwork'' that would not reduce young people's 
access to cigarettes and smokeless tobacco and would instead ``come at 
great cost to taxpayers.''
    On the other hand, State attorneys general and other State and 
local enforcement authorities commented that the Federal regulations 
requiring age verification by inspection of photographic identification 
card will complement and enhance their enforcement abilities.
    FDA declines to delete an age verification requirement from the 
rule. The preamble to the 1995 proposed rule cited studies and reports 
to show that young people are often able to purchase cigarettes and 
smokeless tobacco without showing proof of age (60 FR 41314 at 41323). 
In one case, the young people were able to purchase cigarettes even 
when they admitted that they were under the legal age (60 FR 41314 at 
41323). These studies and reports suggest that the final rule must 
require retailers to demand proof of age because voluntary efforts are 
ineffective.
    As for deferring to State laws and regulations, FDA believes that 
State efforts to require proof of age, and retailer compliance with 
such efforts, should increase and become more effective due to section 
1926 of the PHS Act. This provision requires States to enact and to 
enforce laws prohibiting manufacturers, retailers, or distributors of 
tobacco products from selling or distributing such products to persons 
under age 18 in order to receive substance abuse prevention and 
treatment block grants. However, State laws may differ, and so the 
final rule requires retailers to verify the age of purchasers. This 
will establish a uniform, national requirement regarding proof of age 
and is consistent with the assertion of Federal authority over these 
products under the act.
    (35) Many comments pointed out that there is no penalty for parents 
who allow underage children to smoke.
    FDA believes that the vast majority of adults and parents do not 
purchase tobacco products for young people. Parental actions are also 
beyond the scope of FDA's authority. However, it should be noted that 
parental consent to a young person's purchase of cigarettes and 
smokeless tobacco cannot override the requirements in Sec. 897.14(a) 
prohibiting sales to anyone under 18 and in Sec. 897.14(b) that each 
purchase is subject to age verification. Thus, under this rule, a 
retailer must refuse to sell cigarettes or smokeless tobacco to any 
young person who claims that he or she has ``permission'' to purchase 
such products for himself or herself or for an adult.
    (36) One comment contended that the photographic identification 
card requirement is invalid because it exceeds FDA's authority under 
section 520(e) of the act because it does not purport to provide 
reasonable assurance of the safety and effectiveness of cigarettes.
    FDA disagrees with the comment. Section 520(e) of the act 
authorizes the agency to establish, by regulation, conditions 
restricting the sale, distribution, or use of a device if, because of 
the device's potentiality for harmful effect or the collateral measures 
necessary to its use, the agency determines that there cannot be a 
reasonable assurance of the device's safety or effectiveness. A 
photographic identification card requirement is a

[[Page 44440]]

condition of sale for these products and a collateral measure that is 
necessary to the requirement that the products are not sold to anyone 
under the age of 18.
    (37) One comment contended that proposed Sec. 897.14(a) (now 
renumbered as Sec. 897.14(b)) is precluded by section 1926 of the PHS 
Act. The comment stated that this law established Congress' intent to 
allow States to enact necessary programs to keep tobacco products out 
of the hands of young people as a condition for receiving block grant 
funding. According to the comment, there is no single best approach, 
and the FDA proposal prevents States from emulating the successful 
approach used in Woodridge, IL. The comment stated that FDA may not 
preempt State laws without making a showing of clear and manifest 
congressional intent to authorize its preemption of those State laws.
    The agency disagrees with the comment. The preemption issues 
related to this rule (as well as the rule's relationship to the 
regulations issued by the Substance Abuse and Mental Health Services 
Administration (SAMHSA) implementing section 1926 of the PHS Act 
regarding the sale and distribution of tobacco products to individuals 
under the age of 18 (the SAMHSA rule) are discussed in great detail in 
section X. of this document.
2. Minimum Age
    Proposed Sec. 897.14(a)(now renumbered as Sec. 897.14(b)), would 
have required retailers to verify that persons buying cigarettes or 
smokeless tobacco were not younger than 18 years of age. FDA received 
many comments supporting a Federal minimum age to purchase cigarettes 
and smokeless tobacco. Some comments suggested that enforcement of this 
provision would be as effective as advertising limitations in 
controlling underage smoking. In supporting the proposal, comments 
noted that while most teenage smokers do not plan to be smokers 5 years 
after they begin smoking, less than 10 percent of teenagers are able to 
quit within 5 years of starting. Moreover, like their adult 
counterparts, 70 percent of high school seniors who smoke would like to 
stop smoking completely. Some comments noted that the average age at 
which teenage smokers first tried their first cigarette is 13 or 14 
years, and by age 18, many teens are smoking daily and smoking at a 
rate very near the adult rate. Health-care professionals (nurses, 
physicians, dentists, public health officials, etc.) as a group were 
very supportive of a Federal minimum age limit of at least 18.
    (38) A major American medical association suggested amending 
Sec. 897.14(a) (now renumbered as Sec. 897.14(b)) to raise the minimum 
age of sale to 21. It noted that one State, Pennsylvania, has set 21 as 
the minimum age for the purchase of cigarettes, and argued that prior 
to enactment of the national standard of age 21 for alcohol purchase, 
many States had laws that allowed purchase at age 18, but subsequently 
changed to 21 without hardship.
    Other comments advocated raising the minimum age to 19 years. 
Several comments explained that many high school students are 18 years 
old; thus, if FDA increased the minimum age to 19 years, it would be 
less likely that an underage high school student would be able to 
purchase or obtain cigarettes or smokeless tobacco, because raising the 
age to 19 would eliminate from the high school environment peers who 
are legally able to obtain nicotine-containing tobacco products. In 
addition, the agency received a considerable number of comments from 
students, teachers, and even adult smokers, urging the agency to raise 
the legal age to purchase cigarettes to 21, to be consistent with the 
legal age to purchase alcohol. Indeed, many comments assumed that the 
legal age was already 21 and urged the agency to retain this age limit.
    In contrast, other comments supporting 18 as the minimum age for 
purchasing cigarettes and smokeless tobacco argued that, because most 
States already established 18 as the minimum age, FDA regulations did 
not need to establish a minimum age. A few comments, mostly from young 
people, asked FDA to lower the legal age for purchasing cigarettes to 
below 18 years of age.
    In order to make its decision on the appropriate minimum age, the 
agency weighed a variety of factors including evidence on the onset of 
nicotine addiction and the history underlying the age of majority. 
FDA's goal is to prevent underage use of tobacco in order to preclude 
as many new cases of nicotine addiction as possible. The agency 
considered minimum ages from 18 to 21, because individuals are 
generally viewed as reaching adulthood in this age range. The agency 
faced the question: At which age in this range are most individuals 
able to make an informed decision to begin using a product that the 
overwhelming majority of individuals will not be able to stop using, 
even though using the product is likely to lead to severe disability 
and premature death?
    The agency began by reviewing key data sources on the onset and 
course of nicotine addiction. The National Household Surveys on Drug 
Abuse sought to determine the age when individuals first tried a 
cigarette and the age when individuals first started smoking daily--an 
important measure of the progression toward addiction. The survey asked 
questions of 30 to 39 year olds who had ever smoked daily. The average 
age of first trying a cigarette was 14.5 years. \41\ Eighty-two percent 
had tried a cigarette before 18, 89 percent before 19, 91 percent 
before 20, and 98 percent before 25. \42\ Daily smoking began slightly 
later. Fifty-three percent began smoking daily before 18, 71 percent 
before 19, 77 percent before 20, and 95 percent before 25. \43\
---------------------------------------------------------------------------

    \41\ 1994 SGR, p. 67.
    \42\ Id., p. 65.
    \43\ Id.
---------------------------------------------------------------------------

    The agency reviewed the history underlying the theory of majority 
and the concept of adults making informed choices. Majority is defined 
in Black's Law Dictionary as ``the age at which, by law, a person is 
capable of being legally responsible for all his or her acts * * *, and 
is entitled to the management of his or her own affairs and to the 
enjoyment of civic rights. * * *'' \44\ The 26th Amendment to the 
United States Constitution provides those 18 years and above with the 
right to vote. Prior to the adoption of the 26th Amendment in 1971, the 
age of majority in almost every State was 21. Each State has the power 
to set its own age of majority and since enactment of the 26th 
Amendment most States have lowered the age of majority from 21 to 18.
---------------------------------------------------------------------------

    \44\ Black's Law Dictionary, edited by M. A. Black, West 
Publishing Co., St. Paul, MN, p. 955, 1990.
---------------------------------------------------------------------------

    The agency reviewed the reasons why Congress chose 18 as the 
appropriate age to vote. According to a Senate report on lowering the 
voter age, the 21 year age was believed to be derived by historical 
accident. Eighteen-year olds bore many adult citizens' responsibilities 
such as the ability to marry and raise a family, and serve in the 
military. A lower voting age was seen as benefiting society by bringing 
into the American political system the idealism, concern, and energy of 
young people. (See ``Lowering the Voting Age to 18,'' S. Rept. 92-96, 
92d Cong., 1st sess., p. 5, March 8, 1971.)
    While the justifications do not necessarily support establishing a 
minimum age of 18 for tobacco

[[Page 44441]]

products, the agency declines to raise the minimum age for several 
reasons. First, as stated in the preamble to the 1995 proposed rule, 
all States prohibit the sale of tobacco products to persons under the 
age of 18; currently only four States prohibit cigarette sales to 
persons over 18 (60 FR 41314 at 41315). Consequently, setting a 
national minimum age of 18 is consistent with most States. Second, 
selecting 18 as the minimum age is consistent with the age Congress 
established under section 1926 of the PHS Act, which conditions a 
State's receipt of substance abuse grants on State laws to prohibit any 
manufacturer, retailer, or distributor of tobacco products from selling 
or distributing such products to any individual under the age of 18.
    FDA also declines to amend the rule to eliminate a Federal minimum 
age and instead rely on existing State laws. Establishing 18 as the 
national minimum age will strengthen State and local enforcement, as 
discussed earlier.
    FDA also declines to amend the rule to reduce the minimum age. 
Reducing the minimum age would undermine existing State laws and the 
rule's effectiveness because it would, in essence, circumvent statutory 
and regulatory protections by letting more young people purchase these 
products. Reducing the minimum age would also be contrary to the 
evidence cited in the preamble to the 1995 proposed rule, which shows 
that half of adults start smoking daily before age 18.
    FDA does plan to monitor closely the incidence of new cases of 
nicotine addiction. If the evidence indicates that the number of new 
cases of nicotine addiction does not significantly decline, consistent 
with the agency's stated goal of a 50 percent reduction, but rather are 
merely delayed a year or two, FDA will consider whether increasing the 
minimum age for purchase of nicotine-containing tobacco products would 
further the goal of the rule.
3. Restrictions Against ``Impersonal'' Modes of Sale
    Proposed Sec. 897.14(b) (now renumbered as Sec. 897.14(c)) would 
have required the retailer or an employee of the retailer to provide 
cigarettes or smokeless tobacco to a purchaser ``without the assistance 
of any electronic or mechanical device (such as a vending machine or 
remote-operated machine).'' The preamble to the 1995 proposed rule 
stated that this provision would have the practical effect of making 
access to cigarettes and smokeless tobacco more difficult for young 
people (60 FR 41314 at 41324). In response to comments, the agency has 
amended Sec. 897.14(c) to allow for the use of certain impersonal modes 
of sale, such as vending machines and self service displays 
(merchandisers only), in facilities which are inaccessible to 
individuals under the age of 18 at any time. Additionally, as stated in 
section IV.D.1. of this document, FDA has deleted the reference to ``an 
employee of the retailer'' because retailers are generally responsible 
for their employees' actions and has revised the text to correspond 
more closely with Sec. 897.16(c).
    (39) Several comments objected to proposed Sec. 897.14(b). One 
comment asserted that proposed Sec. 897.14(b) (now renumbered as 
Sec. 897.14(c)) was unjustified, and arbitrary and capricious because 
it would apply to locations where young people are not permitted to 
enter and, in places where they can enter, would be unnecessary if 
retailers required proof of age from prospective cigarette and 
smokeless tobacco purchasers. The comment stated that less restrictive 
alternatives, such as increased supervision over self-service displays, 
exist. The comment further argued that FDA lacked support for this 
provision, stating that, regardless of how tobacco products are sold 
over-the-counter, the key party in the transaction is the cashier. 
According to the comment, requiring retail clerks to comply with 
applicable minimum age laws should be sufficient to prevent illegal 
sales to young people, thereby making the proposed provision 
unnecessary. The comment, therefore, stated that the evidence did not 
support a rule that would preclude State and local governments from 
relying on ``less drastic controls.''
    In contrast, many comments agreed that this provision would reduce 
a young person's access to cigarettes and smokeless tobacco because it 
would require potential purchasers to interact with retailers or would 
discourage young people from purchasing these products because they 
would have to interact with a retailer and provide proof of age. One 
comment stated that the regulations establish a code of conduct for 
merchants, ensuring that they take practical steps to prevent illegal 
sales of tobacco products to young people. One comment stated that 
face-to-face transactions are the only way to assure that 
identification of under-age customers is checked.
    FDA disagrees, in part, with the comments that oppose this 
provision. FDA declines to amend the rule to rely on alternative 
measures such as increased supervision of displays or proof of age 
alone. The preamble to the 1995 proposed rule cited reports and studies 
showing that young people can easily use impersonal modes of sale 
despite restrictions on their placement or the installation of devices 
to prevent illegal sales. For example, for self-service displays, the 
Institute of Medicine (IOM) Report Growing Up Tobacco Free, Preventing 
Nicotine Addiction in Children and Youths (1994) referred to surveys in 
two communities that found over 40 percent of daily smokers in grade 
school shoplifted cigarettes (60 FR 41314 at 41325). For vending 
machines, the preamble to the 1995 proposed rule cited several studies 
and reports showing that young people were able to purchase 
cigarettes--despite laws restricting the placement of those machines, 
or requiring the machines to have a locking device to prevent sales to 
young people (60 FR 41314 at 41324 through 41325).
    FDA also found that relying solely on retailers to verify the 
purchaser's age had limited effect on reducing young people's access to 
cigarettes and smokeless tobacco; retail clerks rarely asked young 
people to verify their age or even assisted in completing a purchase. 
Some retail sectors also suffered from high employee turnover rates 
that undermined the effectiveness of retailer programs to prevent 
illegal sales (60 FR 41314 at 41323). Consequently, the agency believes 
that the most effective approach towards reducing young people's access 
to cigarettes and smokeless tobacco is a sufficiently comprehensive set 
of access restrictions to prohibit most impersonal modes of sale, 
require retailers to verify the consumer's age, and make young people's 
access to these products more difficult.
    The agency also reminds parties that these products are restricted 
devices because of their potentiality for harmful effect. The final 
rule contains restrictions that the agency believes are necessary in 
order to reduce the number of children and adolescents who use and 
become addicted to these products. Relying solely on retail clerks to 
verify age, increasing supervision over displays, or deferring to other 
less restrictive alternatives would not, in comparison to the rule's 
comprehensive approach, be sufficient to achieve that goal.
    With respect to locations that are entirely inaccessible to young 
people, however, the agency has amended

[[Page 44442]]

Sec. 897.16 to permit certain modes of sale, such as vending machines 
and self-service displays (merchandisers only), in facilities where 
young people are not present, or permitted to enter, at any time. These 
modes of sale do not involve hand-to-hand transactions between the 
retailer and the purchaser. Consequently, FDA has made a corresponding 
amendment to Sec. 897.14(c) to require retailers to personally provide 
cigarettes or smokeless tobacco to purchasers ``[e]xcept as otherwise 
provided in Sec. 897.16(c)(2)(ii) and revised the text to correspond 
more closely with the language in Sec. 897.16(c)(1).'' The amendments 
to Sec. 897.16 are discussed in greater detail below.
    (40) A few comments questioned the need for proposed Sec. 897.14(b) 
(now renumbered as Sec. 897.14(c)). These comments said that the rule 
would not prompt retailers to verify a prospective purchaser's age 
because retailers who sell cigarettes and smokeless tobacco to minors 
are already in violation of State laws.
    FDA disagrees with the comments' assertion. FDA's enforcement 
authority and the range of sanctions under the act should give 
retailers additional incentives to verify proof of age. Hence, FDA 
believes that the weight of Federal law and these regulations will 
prompt retailers to pay more attention to the consumer's age. By way of 
analogy, the United States enjoys a very high rate of compliance with 
prescription drug restrictions in part because a violation of the 
prescription requirement is actionable under Federal law. Similarly, 
section 1926 of the PHS Act gives States, as a condition for receiving 
a block grant for the prevention and treatment of substance abuse, 
further incentive to ensure that illegal tobacco sales to young people 
do not occur and that the illegal sales rate steadily decreases from 50 
percent in fiscal year 1994 (or fiscal year 1995 for some States) to 20 
percent 4 years later. States must also conduct annually a reasonable 
number of random, unannounced inspections to ensure compliance with 
State law (see 61 FR 1492 at 1508, January 19, 1996). Section 1926 of 
the PHS Act and its implementing regulations should also prompt States 
to devote more attention to compliance efforts to prevent illegal sales 
to young people and, through the requirement for random, unannounced 
inspections, make retailers more aware of the need to verify the 
consumer's age.
4. Restrictions Against the Sale of Individual Cigarettes
    Proposed Sec. 897.14(c) (now renumbered as Sec. 897.14(d)) would 
have prohibited the retailer or an employee of the retailer from 
breaking or otherwise opening any cigarette package or smokeless 
tobacco product to sell or distribute individual cigarettes or any 
quantity of cigarette tobacco or of a smokeless tobacco that is smaller 
than the quantity in the unopened product. In response to comments and 
for other reasons discussed below, the agency has amended 
Sec. 897.14(d) to prohibit retailers from breaking or otherwise opening 
``any cigarette or smokeless tobacco package to sell or distribute 
individual cigarettes or a number of unpackaged cigarettes that is 
smaller than the quantity in the minimum cigarette package size defined 
in Sec. 897.16(b), or any quantity of cigarette tobacco or smokeless 
tobacco that is smaller than the smallest package distributed by the 
manufacturer for individual consumer use.'' Additionally, as stated in 
section IV.D.1. of this document, FDA has deleted the reference to ``an 
employee of the retailer'' because the retailer is generally 
responsible for its employee's actions.
    (41) Several comments opposed proposed Sec. 897.14(c) (now 
renumbered as Sec. 897.14(d)) in conjunction with proposed Sec. 897.10 
(which would establish general responsibilities for manufacturers, 
distributors, and retailers). The comments said it would be 
unreasonable to expect retailers to inspect all packages to assure 
compliance with minimum package requirement, as well as other 
requirements, and yet retailers would face significant penalties if 
they failed to comply. Other comments asked whether retailers would be 
held liable for opening shipping packages consisting of individual 
cigarette packages or cartons and selling the individual packages or 
cartons.
    The comments misinterpreted the proposed provision. Section 
897.14(d) does not require retailers to police minimum package 
requirements, but rather expressly states that the retailer shall not 
break or otherwise open any cigarette or smokeless tobacco package to 
sell or distribute individual cigarettes or number of cigarettes or any 
quantity of cigarettes or smokeless tobacco that is smaller than the 
quantity in the unopened package. The confusion may have stemmed from 
the definition of ``package.'' Section 897.3(f) defines ``package'' as 
a ``pack, box, carton, or other container * * * in which cigarettes or 
smokeless tobacco are offered for sale, sold, or otherwise distributed 
to consumers.'' The provision, therefore, focuses on two distinct 
actions: (1) The retailer breaks or opens a cigarette package or 
smokeless tobacco product; and (2) the retailer sells or distributes a 
portion of the cigarette package or smokeless tobacco product to a 
consumer.
    A literal reading of proposed Secs. 897.3(f) and 897.14(d) together 
would prohibit a retailer from opening a carton of cigarettes to sell a 
single package of 20 cigarettes. The agency did not intend to prohibit 
retailers from opening shipped quantities or bundles of cigarette 
packages or cartons or smokeless tobacco in order to break that 
shipment down into ordinary packages, cartons, or other standard 
product units. The agency has amended Sec. 897.14(d), to eliminate this 
unintended effect. The new language clarifies that retailers may open 
shipping boxes or cigarette cartons to sell a pack of cigarettes or a 
smokeless tobacco package. Additionally, FDA has modified the 
introduction to Sec. 897.14(d), changing ``the retailer shall not'' 
break or open any cigarette or smokeless tobacco package to ``no 
retailer may'' break or open any package. This change is intended to 
simplify the text and does not alter a retailer's obligations under 
Sec. 897.14(d).
    (42) One comment from a company opposed a restriction on the sale 
of single cigarettes because it had made a substantial investment 
developing a vending machine that would sell single cigarettes that 
complied with applicable labeling and tax laws. The comment added that 
its machines are located in areas that are frequented by or limited to 
adults and that there is a market for adults who wish to smoke only 
occasionally.
    The restriction against the sale of single cigarettes pertained to 
single cigarettes that are removed from cigarette packages or cartons 
and sold on an individual basis. Thus, the product described by the 
comment, a prepackaged single cigarette that complies with all 
applicable labeling and tax laws, does not appear to correspond to what 
is commonly known as a ``loosie.'' As for selling a packaged single 
cigarette in a vending machine, the final rule permits vending machines 
to be used in certain locations that are entirely inaccessible to young 
people. This comment, and corresponding amendments to the rule, are 
discussed in greater detail in section IV.E.4.a. of this document.

[[Page 44443]]

    (43) A small number of comments opposed any restriction on the sale 
of single cigarettes, stating that such a restriction would make 
purchases by adults more difficult or could actually work to the 
detriment of adults who are trying to reduce their cigarette 
consumption by purchasing single cigarettes.
    Most comments, however, supported a prohibition against the sale of 
single cigarettes. In general, they agreed that eliminating single 
cigarettes would make cigarette purchases more expensive for young 
people and, as a result, less likely. A number of State attorneys 
general stated that this provision, in conjunction with others, would 
assist States in enforcing compliance with State laws. A few comments 
noted reports of single cigarette sales occurring within their State or 
jurisdiction; one stated that ``the problem of loosies is a very old 
story within the inner city,'' while another even claimed seeing young 
people wait in line for free samples of single cigarettes.
    The agency declines to amend the rule to exclude single cigarettes. 
The preamble to the 1995 proposed rule cited evidence that a 
significant number of retailers are willing to sell single cigarettes 
to young people and are sometimes more inclined to sell single 
cigarettes to young people than to adults (60 FR 41314 at 41324). The 
comments supporting the rule reinforce the notion that single 
cigarettes appeal to young people.
    While FDA is sensitive to the fact that adults who wish to quit 
smoking may wish to purchase single cigarettes to reduce smoking, on 
balance, the agency believes that the benefits of eliminating single 
cigarette sales to young people outweighs any possible detriment to 
adults.
5. Additional Comments
    (44) Several comments suggested that FDA license retailers and 
impose fines or other sanctions on retailers who sell cigarettes and 
smokeless tobacco to young people.
    The agency declines to amend the rule to create a licensing system. 
FDA notes that SAMHSA confronted similar comments when it proposed 
rules to implement section 1926 of the PHS Act and elected not to 
require a licensing system (61 FR 1492 at 1495). The preamble to the 
SAMHSA rule indicated that States could use a licensing system to 
identify retail outlets and enforce State laws, with licensure fees and 
civil penalties funding the States' random, unannounced inspections and 
covering administrative and enforcement costs (61 FR 1492 at 1495). FDA 
concurs with the SAMHSA analysis and, because licensure would be a 
State matter, will refrain from establishing a licensing system for 
retailers.
    As for fines and other sanctions, no amendment to the rule is 
necessary. The act already establishes fines and other sanctions for 
parties who violate the act. For example, any restricted device that is 
sold, distributed, or used in violation of regulations for that 
restricted device is misbranded under section 502(q) of the act (21 
U.S.C. 352(q)), and section 301(a) of the act prohibits the 
introduction or delivery for introduction into interstate commerce of a 
misbranded device. (Section 709 of the act creates a presumption that 
all devices are in interstate commerce and section 304 allows seizure 
of adulterated or misbranded devices even in the absence of interstate 
commerce.) Among other things, section 301(b) of the act prohibits the 
misbranding of a device in interstate commerce, while section 301(c) of 
the act prohibits the receipt in interstate commerce of any misbranded 
device. Additionally, any person who violates section 301 of the act is 
subject to injunctions under section 302 of the act and civil 
penalties, fines and imprisonment under section 303 of the act, while 
section 304 of the act authorizes seizure actions against misbranded 
devices themselves without any need for proof of interstate commerce.
    (45) One comment argued that retailers should be required to keep 
cigarette products from public view.
    FDA declines to amend the rule as suggested by the comment. The 
agency believes that concealing these products from view would not 
significantly enhance the restrictions against access by young people 
and would instead unduly impair an adult's ability to determine what 
products and brands a retailer is selling as well as the retailer's 
ability to sell those products.
    (46) One comment stated that Sec. 897.14 can only be enforced by 
routine compliance checks using underage agents. The comment suggested 
that FDA negotiate with States to receive information on violations of 
State laws and to use that information against retailers who fail to 
comply with Sec. 897.14.
    FDA intends to cooperate with State governments to curtail illegal 
sales of cigarettes and smokeless tobacco to young people. 
Additionally, as stated earlier in this document, FDA is authorized to 
commission State officials to perform certain functions on behalf of 
the agency. FDA may consider commissioning State officials, where 
appropriate, if commissioned State officials would help ensure 
compliance with these regulations.
    (47) One comment would amend Sec. 897.14 to refer to ``purchasing'' 
and ``obtaining'' cigarettes or smokeless tobacco. The comment said 
this would prevent young people from attempting to obtain cigarettes or 
smokeless tobacco from retailers by claiming to act with a parent's 
permission or on behalf of a parent or adult.
    The agency declines to amend the rule as suggested by the comment. 
As written, Sec. 897.14 prohibits retailers from selling cigarettes or 
smokeless tobacco to anyone under 18 and also requires retailers to 
verify the purchaser's age. These provisions do not make any 
distinction or exception as to whether the person purchasing the 
products claims to be purchasing the products for an adult. In other 
words, even if a young person claimed to have a parent's permission or 
to be purchasing these products for an adult, Sec. 897.14(a) still 
prohibits retailers from selling cigarettes or smokeless tobacco to 
that young person, and Sec. 897.14(b) requires the retailer to verify 
the purchaser's age.
    (48) As mentioned earlier in the discussion for Sec. 897.10, FDA 
has amended the final rule to create a new Sec. 897.14(e) to require 
each retailer to remove or bring into compliance all self-service 
displays, advertising, labeling, and other items at the retailer's 
establishment if those items do not comply with the requirements under 
this part. This amendment became necessary because comments from 
manufacturers and retailers claimed that retailers owned the self-
service displays or that, once the manufacturer's representative gives 
an item to a retailer, the item becomes the retailer's property. 
Consequently, Sec. 897.14(e) requires retailers to remove or otherwise 
bring into compliance items at the retailer's establishment if those 
items do not comply with this subpart. This provision essentially gives 
retailers three options with respect to an item that violates the 
requirements in this rule: (1) If the item belongs to a manufacturer, 
the retailer could ask the manufacturer to remove the item, consistent 
with the manufacturer's obligations under Sec. 897.12; (2) the retailer 
could convert the item to another use or alter the item to make it 
comply with the regulations; or (3) the retailer could remove the item.

[[Page 44444]]

E. Conditions of Manufacture, Sale, and Distribution (Sec. 897.16)

1. Restrictions on Nontobacco Trade Names on Tobacco Products
    Proposed Sec. 897.16 would have established several important 
restrictions or conditions on the sale of cigarettes and smokeless 
tobacco. Proposed Sec. 897.16(a) would have prohibited the use of a 
trade or brand name for a nontobacco product as the trade or brand name 
for a tobacco product ``except for tobacco products on which a trade or 
brand name of nontobacco product was in use on January 1, 1995.'' For 
example, Harley Davidson cigarettes would be ``grandfathered'' under 
this provision. The preamble to the 1995 proposed rule stated that the 
provision would be necessary to prevent the industry from circumventing 
the purpose behind the rule (60 FR 41314 at 41324) by benefitting from 
the promotion of the nontobacco items in ways that appeal to young 
people. FDA noted, however, that several cigarette brands already used 
trade names that are normally associated with nontobacco products and 
would exempt those brands from Sec. 897.16. The final regulation 
remains essentially the same, but clarifies the agency's intent by 
amending the language to limit the exception to those product names 
``whose trade or brand name was on both a tobacco product and a 
nontobacco product that were sold in the United States on January 1, 
1995.''
    (49) FDA received few comments on this provision. The comments 
asserted that the 1995 proposed rule would effect takings compensable 
under the Fifth Amendment.
    The agency disagrees with these comments. The final rule does not 
violate the Fifth Amendment. This issue is discussed in greater detail 
in section XI. of this document.
    (50) Several comments on the use of nontobacco trade names on 
tobacco products would delete proposed Sec. 897.16(a), arguing that the 
provision will have no effect on cigarette or smokeless tobacco use by 
young people, and that businesses should be free to decide how to 
advertise or sell their products. One comment challenged the agency's 
authority to regulate nontobacco trade names, stating that the act only 
permits the agency to take action against names that are false and 
misleading. According to this comment, a nontobacco trade name that 
appeals to young people does not become subject to the act. The comment 
further charged that FDA has no evidence to support a conclusion that a 
tobacco product bearing a nontobacco trade name would be especially 
appealing to young people; the comment explained that the brands 
mentioned by FDA in the preamble to the 1995 proposed rule--Harley-
Davidson, Cartier, and Yves St. Laurent's Ritz cigarettes--either have 
very small market shares or are not sold in the United States.
    In contrast, one comment said Sec. 897.16(a) is ``essential to 
avoid the same problems that occur with `image' advertising.'' The 
comment explained that tobacco manufacturers have used nontobacco trade 
names on tobacco products to give the tobacco products an ``instant 
image.''
    The point of this provision, like the restrictions on advertising, 
is to ensure that the restrictions on sale and distribution to children 
and adolescents are not undermined by how the product is presented to 
the public. As detailed in subpart D of part 897, FDA is restricting 
the way cigarette and smokeless tobacco are advertised in order to 
eliminate those elements that resonate most strongly with the needs of 
those under 18 to establish an appropriate image and to create a sense 
of acceptance and belonging. The use of nontobacco trade names has 
particular appeal in the former regard. If a firm could use a popular 
nontobacco product trade name and put it on a tobacco product, the firm 
could attempt to exploit the imagery or consumer identification 
attached to the nontobacco product to make the tobacco appeal to young 
people.
    For example, young people might purchase a particular nontobacco 
product that they perceive as symbolizing the adult sophistication or 
sex appeal of its users; they might also be inclined to purchase 
cigarettes bearing the same trade name if they perceive that the 
cigarettes will enhance their lifestyles in the same manner. Section 
897.16(a), therefore, eliminates a potential loophole in the 
advertising and labeling provisions.
    FDA also disagrees with the comment challenging FDA's authority. 
Section 897.16(a) is authorized under section 520(e) of the act which 
permits FDA to restrict, by regulation, the sale, distribution, or use 
of certain devices. Prohibiting firms from adopting nontobacco product 
names that appeal to young people is a restriction on the product's 
``sale.'' The comment's suggestion that FDA cannot rely on section 
502(a) of the act reveals a misunderstanding of FDA's position. FDA 
predicated its action on section 520(e) of the act and therefore it is 
not necessary to address the relevance of section 502(a).
    FDA is not persuaded that small market shares for cigarette 
products bearing nontobacco trade names undermines the need for 
Sec. 897.16(a). The preamble to the 1995 proposed rule demonstrated 
that young people use the most heavily advertised brands and that they 
can purchase cigarettes and smokeless tobacco easily (60 FR 41314 at 
41323 through 41326, and 41332). The brands cited in the preamble, 
Harley-Davidson, Cartier, and Yves St. Laurent's Ritz, are not among 
the most heavily advertised brands, and, according to the comment, two 
(Cartier and Ritz) are not sold in the United States. Thus, there is no 
reason to expect these brands to be especially appealing to or 
purchased by young people in the United States today. However, if the 
other provisions in this rule are effective, some manufacturers might 
try altering their advertising or marketing strategy in order to 
generate product appeal; Sec. 897.16(a) thus eliminates this 
potentially significant avenue for making a product appeal to young 
people.
    (51) A few comments noted that the provision did not elaborate on 
what constitutes a ``trade or brand name for a nontobacco product.'' 
One comment interpreted the terms as including any nontobacco product 
trade name used anywhere in the world and, as a result, argued that the 
provision would impose an impossible burden on manufacturers to conduct 
trademark searches. The comment added that manufacturers would not be 
able to conduct trade or brand names searches with certainty (because 
the 1995 proposed rule did not confine itself to registered trademarks) 
and manufacturers would be subject to regulatory action even if they 
unknowingly used a trade or brand name for a nontobacco product.
    In contrast, another comment noted that a brand name directory 
published by the Tobacco Merchants Association of the United States 
lists numerous brand names for both nontobacco and tobacco products. 
The comment suggested that there are a greater number of cigarette 
products whose brand names were the same as brand names for nontobacco 
products than the three brands that FDA identified in the preamble to 
the 1995 proposed rule. The comment suggested that FDA amend the rule 
to limit eligible brand name ``tie-ins'' to those relating to both 
tobacco products and to nontobacco products

[[Page 44445]]

sold in the United States as of January 1, 1995.
    FDA agrees, in part, with the comments. It would be unreasonable 
for the regulation to encompass all possible nontobacco product trade 
names, regardless of their nationality or whether the trade name was a 
registered trademark. Neither FDA nor manufacturers would be able to 
ensure that a name was not used elsewhere. FDA intended that proposed 
Sec. 897.16(a) would apply to trade names in use in the United States, 
and that the exception for nontobacco product trade names would apply 
only to product trade names that were in use on both tobacco and 
nontobacco products as of January 1, 1995. Consequently, to clarify the 
rule, FDA has amended Sec. 897.16(a) to restrict manufacturers to use 
of those product names that were used on both nontobacco and tobacco 
products in the United States as of January 1, 1995.
    (52) One comment would amend Sec. 897.16(a) to state that, in 
addition to being on the market as of January 1, 1995, the cigarette 
brand had to have generated sales of at least 500 million cigarettes or 
500 million grams of cigarette or smokeless tobacco in 1994. The 
comment explained that this amendment would eliminate a ``loophole'' 
because a product with ``nominal sales volume could open up large 
marketing holes for all sorts of product names.''
    FDA declines to amend the provision as suggested by the comment. 
The final rule, as amended, prohibits manufacturers from using a 
nontobacco product trade or brand name as the trade or brand name for a 
cigarette or smokeless tobacco product. The sole exception is for 
tobacco products whose trade or brand name was on both nontobacco and 
tobacco products sold in the United States as of January 1, 1995. FDA 
will construe this exception narrowly such that the trade or brand name 
on the nontobacco product must be the same. For example, if the trade 
name for a nontobacco product was ``Old Time Country Store,'' a 
cigarette product called ``Old Time'' would not qualify for the 
exception because the name is not identical to that for the nontobacco 
product.
    (53) FDA, on its own initiative, has amended Sec. 897.16(a) to 
replace the word ``may'' with ``shall.'' This amendment is intended to 
reinforce the notion that, except as otherwise provided in 
Sec. 897.16(a), manufacturers are prohibited from using a trade or 
brand name of a nontobacco product as the trade or brand name for a 
cigarette or smokeless tobacco product.
2. Minimum Package Size
    Proposed Sec. 897.16(b) would have made 20 cigarettes the minimum 
package size for cigarettes. The preamble to the 1995 proposed rule 
explained that FDA selected 20 as the minimum number of cigarettes 
because most cigarette packs in the United States contain 20 cigarettes 
and that establishing a minimum package size would preclude firms from 
manufacturing so-called ``kiddie packs.'' The preamble to the 1995 
proposed rule explained that ``kiddie packs'' usually contain a small 
number of cigarettes, are easier to conceal, and are less expensive 
than full-sized packs. The preamble to the 1995 proposed rule also 
noted that, based on studies or reports in other countries, significant 
numbers of children purchase ``kiddie packs'' (60 FR 41314 at 41324). 
Thus, by establishing a minimum package size, the 1995 proposed rule 
would have essentially eliminated the manufacture, distribution, and 
sale of ``kiddie packs.'' The final rule provides a narrow exception to 
the minimum package size in response to a comment on vending machines 
that sell certain packaged, single cigarettes.
    (54) Several comments opposed creating any minimum package size. A 
minority disputed that the rule would be effective, stating that young 
people will get cigarettes anyway or will simply begin purchasing full-
sized packs. One comment, submitted on behalf of specialty tobacco 
companies, suggested exempting specialty tobacco products from the 
rule. The comment explained that many specialty tobacco products are 
produced in package sizes smaller than 20 cigarettes, ranging from 8 to 
18 cigarettes, but that young people do not purchase specialty tobacco 
products. Consequently, the comment sought an exemption for specialty 
tobacco products or for products with a very small market share. One 
comment asserted that small package sizes reduce smoking by adults 
while another comment would amend the rule to lower the minimum size to 
10 cigarettes; neither comment offered any evidence to support their 
assertions.
    In contrast, many comments supported proposed Sec. 897.16(b). The 
comments indicated that eliminating ``kiddie packs'' is ``essential to 
protect youth'' and described ``kiddie packs'' as an ``obvious come-on 
that would appeal to kids.'' Other comments said the provision would 
reduce underage purchases because children would not be able to afford 
full-sized packs as easily or as quickly as they might afford ``kiddie 
packs.''
    The final rule retains 20 cigarettes as the minimum package size. 
The agency disagrees that this provision will be ineffective. The 
provisions in this subpart are designed to: (1) Make young people's 
access to cigarettes and smokeless tobacco more difficult by 
restricting specific modes of access to these products that young 
people use, and (2) make purchases by young people more difficult (by 
requiring proof of age, and other methods) and more expensive (by 
eliminating free samples and ``kiddie packs'').
    Additionally, while some tobacco products, specifically the 
specialty tobacco products, may have been sold in smaller sizes, the 
benefits of eliminating ``kiddie packs,'' namely eliminating a product 
size that is relatively inexpensive and appealing to young people, 
outweigh any inconvenience to adults.
    FDA also declines to create an exemption based on market share or 
claims that young people do not use a particular type of cigarette; 
such exemptions would not treat manufacturers equally, would depart 
from FDA's traditional approach of regulating devices as a class (see 
section IV.B. of this document), and would be impractical because a 
firm's compliance with the rule could vary depending on fluctuations in 
market share and use by young people. Moreover, even a small percentage 
of a market, such as 1 or 2 percent, could translate into a large 
number of Americans; for example, 2 percent of the approximately 50 
million Americans who smoke would represent 1 million people. Two 
percent of the approximately 3 million children under age 18 who are 
regular smokers would represent 60,000 young people.
    Furthermore, FDA declines to make 10 cigarettes the minimum package 
size. The comment did not offer any justification for the lower figure, 
and the agency believes that a smaller package size would be 
counterproductive because a 10-cigarette minimum size would be 
tantamount to making a ``kiddie pack'' the minimum package size for 
cigarettes.
    (55) One comment supported the provision, but suggested that FDA 
amend the rule to prevent the development of ``mini'' cigarettes or 
``short smokes.'' The comment said such products contain less tobacco 
so that they can be sold at a lower price.

[[Page 44446]]

    The agency declines to amend the rule as suggested by the comment. 
Section 897.3(a) define a cigarette, in part, as any product that 
consists of any roll of tobacco; it does not establish a minimum 
quantity of tobacco. Thus, while manufacturers can develop such a 
product, it would still be a cigarette under this rule and subject to 
all restrictions for cigarettes.
    (56) Two comments would amend the minimum package size by 
increasing it to 200 cigarettes or a carton of cigarettes. The comments 
explained that making cartons the minimum package size would further 
reduce access to cigarettes by young people because cartons would be 
more expensive than single packs and would be harder to shoplift. The 
comment said that adults would not be adversely affected by such a 
change because adults generally buy cartons.
    The agency declines to make 200 cigarettes or one carton the 
minimum ``package'' size. Eliminating cigarette packages would unduly 
affect those adults who prefer to purchase cigarette packs rather than 
cartons due to limited funds or other reasons, and would unduly affect 
manufacturers, distributors, and retailers because, at the very least, 
they would need to revise manufacturing practices or machines and/or 
revise or reconfigure product storage practices and units to 
accommodate only cartons. It is even possible that some adults might 
consume more cigarettes if the minimum package size were increased to 
200 cigarettes.
    (57) One comment challenged the agency's authority for proposed 
Sec. 897.16(b). The comment argued that requiring a minimum package 
size exceeds FDA's authority under the act because it does not purport 
to provide reasonable assurance of the product's safety and 
effectiveness to potential users.
    FDA disagrees with the comment. Section 520(e) of the act 
authorizes the agency to impose restrictions on the sale, distribution, 
and use of a device. Establishing a minimum package size is a 
restriction on the sale and distribution of these devices and is 
reasonably related to assuring the product's safety for those persons, 
namely young people, whom this rule protects. Cigarettes and smokeless 
tobacco either cause or are associated with serious adverse health 
effects, and the evidence suggests that ``kiddie packs'' appeal to 
young people. Hence, establishing a minimum package size that is larger 
than a ``kiddie pack'' should help reduce young people's access to 
these products and, as a result, protect them from those potential 
adverse health effects.
    (58) One comment stated that the agency lacks factual support for a 
minimum package size, claiming that there is no evidence that young 
people buy such products or that ``kiddie packs'' are especially 
popular with young people. The comment claimed that the studies cited 
by FDA in the preamble to the 1995 proposed rule are flawed due to 
small sample size. The comment disputed the results of those studies, 
arguing that the studies did not show whether young people favored 
small package sizes because they are easily concealed--a reason 
identified by FDA in the preamble to the 1995 proposed rule--or because 
they are less expensive. The comment added that FDA's rationale is 
further undermined by the fact that FDA has claimed both that young 
people are price sensitive and that they do not purchase inexpensive 
brands. According to the comment, it is not possible to have it both 
ways.
    Specifically, the comment questioned the validity of the 1987 
Australian study by Wilson. \45\ The comment argued that the authors 
could not assure that the subject population of 14- and 15-year olds 
was representative and, because selection criteria for the adult 
subjects differed, the results from the adult population could not be 
compared to the results from the 14- to 15-year old subjects. The 
comment disputed the study's finding that young Australians favored 
smaller cigarette packages because the small packs were more 
``concealable,'' stating that the study did not explain whether a pack 
containing 15 cigarettes was significantly smaller than a pack 
containing 20 cigarettes. The comment also criticized the study for 
being unclear as to whether the researchers surveyed youth smokers 
alone or young smokers and other youths to determine why young people 
purchased the 15-cigarette package, and it criticized FDA for not 
mentioning that the third most popular reason for purchasing 15-
cigarette packs was ``reducing smoking.''
---------------------------------------------------------------------------

    \45\ Wilson, D. H., et al., ``15's: They Fit in Everywhere--
Especially the School Bag: A Survey of Purchases of Packets of 15 
Cigarettes by 14 and 15 Year Olds in South Australia,'' Supplement 
to Community Health Studies XI (1), pp. 16s-20s, 1987.
---------------------------------------------------------------------------

    FDA is not persuaded that the studies are unreliable. The comment's 
criticisms of the Wilson study do not acknowledge that the study's 
authors compensated for the lack of a population-based probability 
sample by using a sample size that exceeded the required size for a 
simple random sample. The authors used a cross-sectional sample of 649 
young people between the ages of 14 and 15. This number exceeded the 
363 persons required for a simple random sample, based on an estimate 
that 40 percent of the 25,000 South Australian children aged 14 to 15 
years old would be smokers and using 95 percent confidence intervals of 
35 to 45 percent, and exceeded the 567 person sample size that would be 
obtained when the random sample size is multiplied by a factor of 1.3 
to allow for a clustered design and increased 20 percent to allow for 
persons dropping out of the survey.
    Additionally, while the study did say that the sample of 14- and 
15-year old children was a ``sample of convenience,'' that, alone, does 
not make the study unreliable. Many studies use a sample of convenience 
rather than a representative sample, and the application of a study's 
results or findings to a broader population depends on the study's 
methodology.
    The comment's criticism of the different selection methods lacks 
merit because it neglects to consider the context for the selection 
method. The authors selected schools in order to obtain underage 
subjects; this selection method precluded getting a representative 
sample of adults (because they would not be in schools). For the adult 
subjects, selection was based on a probability-based method of 
selection instead of school affiliation. Both selection methods were 
scientifically valid.
    Moreover, two well-conducted studies provide a reasonable basis for 
comparison, even between different populations. This is especially true 
for the Wilson study because both the adolescent and adult studies were 
performed under the auspices of the South Australian Health Commission 
and were drawn from the same geographical area within 2 weeks of each 
other. Thus, one can reasonably assume that the studies were well 
conducted and that comparisons between the adolescent and adult groups 
were appropriate.
    Finally, the comment's criticism of Wilson's findings is also 
misplaced. Contrary to the comment's assertion, the issue is not 
whether 15-cigarette packs are smaller or more easily concealed than 
full-sized packs. Nor is the issue whether underage smokers, as opposed 
to underage smokers and other young

[[Page 44447]]

people, prefer 15-cigarette packs. Instead, the issue is whether young 
people, for whatever reason, favor and purchase smaller packs. The 
study indicated that over 90 percent of the young people surveyed 
preferred 15-cigarette packs because they considered them to be less 
expensive, easier to conceal, or helpful to reduce smoking. This led 
the authors to state that, ``if adolescents did not have available to 
them these cheaper brands, or the price was raised considerably, or 
packaging in a way that is more appealing to adolescent budgets was 
prohibited then the current popularity of 15's would be reduced 
considerably.'' \46\
---------------------------------------------------------------------------

    \46\ Id., p. 19s.
---------------------------------------------------------------------------

    (59) The same comment challenged a study by Hill. \47\ The preamble 
to the 1995 proposed rule cited this study to show that younger 
children (12-year olds in the study) preferred 15-cigarette packages 
more than older children (17-year olds) and that older children 
preferred packages containing 25 cigarettes. However, the comment 
interpreted the Hill study in a much different manner, noting that, 
according to the study, the youngest age group experienced the greatest 
decline in smoking prevalence in the period following the introduction 
of the 15-cigarette package. Thus, the comment asserted that, ``[t]his 
fact suggests that smaller packages are associated with less youth 
smoking, rather than more.'' The comment further stated that the 
researchers' opinion that price and ``concealability'' make smaller 
packages appealing to young people is contradicted by the findings that 
children in all age groups preferred 25- and 30-cigarette packages.
---------------------------------------------------------------------------

    \47\ Hill, D. J., et al., ``Tobacco and Alcohol Use Among 
Australian Secondary Schoolchildren in 1987,'' Medical Journal of 
Australia, vol. 152, pp. 124-130, 1990.
---------------------------------------------------------------------------

    FDA believes that the comment misinterprets the study. While the 
study did indicate that the proportion of Australian students, aged 12 
to 17 years, who smoked weekly declined from 1984 to 1987 (with the 
greatest declines in the youngest age groups), the study did not 
attribute the decline to the introduction of a smaller cigarette 
package. Instead, the study attributed the decline to ``the health 
education and promotional campaigns that were established in Australia 
during the period between the surveys.'' \48\
---------------------------------------------------------------------------

    \48\ Id., p. 128.
---------------------------------------------------------------------------

    Similarly, a closer examination of the study does not support the 
comment's assertion that the popularity of larger cigarette packages 
among Australian schoolchildren refutes FDA's statement that the price 
and ``concealability'' of smaller packages appeal to young people. The 
study found that 42 percent of the children surveyed smoked cigarettes 
from 25-cigarette packages, with the next most popular size being 30-
cigarette packages. Nearly 20 percent smoked cigarettes from 15-
cigarette packages, and ``preference for packets of this size showed a 
marked inverse relationship with age, decreasing from 30% of 12-year-
old school children to 11% of 17-year-old school children.'' \49\ The 
study did not attribute the popularity of the smaller package size to 
lower price or concealability but merely cited the Wilson study to say 
that young people ``presumably'' prefer the smaller packages for those 
reasons. Yet, regardless of the reason, the Hill study illustrates that 
a significant percentage of young people prefer smaller package sizes 
and that the percentage increases in the younger age groups.
---------------------------------------------------------------------------

    \49\ Id., p. 126.
---------------------------------------------------------------------------

    (60) The same comment also criticized the Nova Scotia study. \50\ 
FDA cited this study to show that 49 percent of tobacco users in the 
sixth grade purchased 15-cigarette packages. The comment criticized the 
Nova Scotia study for the ``absurdly small size of this population 
sample (37 students).'' The comment also criticized the Nova Scotia 
study's assertion that price and concealability motivate young people 
to purchase small cigarette packages. The Nova Scotia study indicated 
that only 3 percent of the sixth grade students surveyed (or one out of 
the 37 students) purchased single cigarettes compared to 11 percent of 
the twelfth grade students (or 12 students out of the 123 surveyed). 
The comment argued that the Nova Scotia study showed that twelfth grade 
students ``were four times as likely as the sixth-graders to purchase 
single cigarettes'' and that, ``[i]f price and `concealability' were 
the key factors for young people, those in the youngest age group would 
surely be purchasing single cigarettes, not 15's''.
---------------------------------------------------------------------------

    \50\ ``Students and Tobacco,'' The Nova Scotia Council on 
Smoking and Health Survey, Final Report, March 1991.
---------------------------------------------------------------------------

    The comment misconstrues the importance of the study. FDA cited 
this study to show that 49 percent of tobacco users in the sixth grade 
purchased 15-cigarette packages, but the agency did not rely solely on 
the Nova Scotia study as evidence that young people prefer small 
cigarette packages. Instead, the agency cited the Nova Scotia study and 
the Hill study that surveyed 19,166 Australian schoolchildren to show 
that the youngest children prefer smaller cigarette packages. So, even 
if the Nova Scotia study used a small sample size, the study's findings 
are consistent with the Australian study that surveyed 19,166 children.
    The agency also disagrees with the comment's claim that the Nova 
Scotia study contradicts FDA's view that young people purchase ``kiddie 
packs'' due to their low price and small size. The study did not 
examine specific reasons for purchasing single cigarettes as opposed to
15-, 20-, or 25-cigarette packages, and so it would be inappropriate to 
draw any conclusions based on different purchase rates alone. In other 
words, the percentage of students who purchase a particular package 
size may offer little or no insight as to the reasons why a student 
selected a particular package size.
    Other factors might also explain the low rate of single cigarette 
sales relative to cigarette packages. Low price and concealability 
might be important factors in purchasing behavior, but they may not be 
the controlling or sole factors behind a purchase. For example, the 
preamble to the 1995 proposed rule stated, among other things, that 
single cigarettes make children more willing to experiment with tobacco 
products (60 FR 41314 at 41324), and stated that young people see or 
use tobacco products as a badge or method of conveying or creating a 
certain image for themselves (60 FR 41314 at 41329). A single 
cigarette, sold without a package, is an ineffective ``badge'' compared 
to the more conspicuous cigarette pack. Additionally, very young 
children may not opt for single cigarettes because such products are 
typically purchased from retailers that may question the children's 
age. (See 60 FR 41314 at 41325 (very young children rely on vending 
machines more often than older children).) The Nova Scotia study, 
however, did not examine reasons for purchasing single cigarettes as 
opposed to purchasing 15-cigarette packages, and so the agency declines 
to draw any conclusions solely from different sales rates for single 
cigarettes compared to those for cigarette packages.
    (61) One comment suggested amending Sec. 897.16(b) to prohibit 
manufacturers, distributors, and retailers from selling or causing to 
be sold, distributing or causing to be distributed, ``cigarettes unless 
contained in packages of at least 20 cigarettes.'' The comment said 
that the rule did not prevent anyone other than retailers from selling 
individual cigarettes.

[[Page 44448]]

    FDA believes the comment misinterpreted the rule. Section 897.3 
defines a ``retailer'' as any person who sells cigarettes or smokeless 
tobacco to individuals for personal consumption. Thus, a manufacturer 
or distributor who attempted to sell single cigarettes to a consumer 
would, under the final rule, be considered a ``retailer'' for purposes 
of that transaction and would be in violation of the individual 
cigarette restriction in Sec. 897.14.
    (62) One comment suggested amending the rule to create a minimum 
package size for smokeless tobacco. The comment would make the minimum 
package size for smokeless tobacco equivalent to 20 doses of nicotine, 
but it did not state what a dose would be.
    The agency agrees that a minimum package size for smokeless tobacco 
may be helpful, but lacks sufficient information to determine what that 
size should be for the various forms of smokeless tobacco on the 
market. Unlike cigarettes, which are generally sold in packages of 20, 
smokeless tobacco comes in various forms and sizes, and, with the 
possible exception of prepackaged forms, can be used in quantities 
determined by the user. One individual, for example, might place more 
chewing tobacco in his or her mouth than another individual. 
Consequently, absent more information, the agency is unable to 
establish a minimum package size for smokeless tobacco.
    (63) The agency, on its own initiative, has amended Sec. 897.16(b) 
(minimum cigarette package size) to add the introductory phrase, 
``Except as otherwise provided under this section.'' This amendment 
became necessary because, as discussed in greater detail in section 
IV.E.4.a. of this document, the agency has concluded that vending 
machine sales should be permitted in facilities that are inaccessible 
to young people, and FDA is aware of at least one type of vending 
machine that sells packaged, single cigarettes. The agency is aware of 
vending machines that dispense cartons, packages, and now packaged, 
single cigarettes and has made an exception for packaged, single 
cigarettes due to their unique nature (relatively high price compared 
to ``loosies,'' packaging in compliance with labeling and tax 
requirements, and sale only in adult locations). Additionally, FDA, on 
its own initiative, has revised the rule to state that no manufacturer, 
distributor, or retailer ``may'' sell (rather than ``shall'' sell) 
cigarette packages containing less than 20 cigarettes.
3. Maximum Package Size
    The preamble to the 1995 proposed rule also invited comment as to 
whether a maximum package size should be established. The preamble to 
the 1995 proposed rule cited one study that found that older Australian 
children favored cigarette packs containing 25 cigarettes (60 FR 41314 
at 41324).
    (64) Several comments offered suggestions regarding a maximum 
package size. One comment noted that packages containing 10 and 25 
cigarettes have been sold in the United States and suggested that, when 
considering a maximum package size, FDA should consider the 
attractiveness of the pack and whether a larger pack would encourage 
increased consumption. The comment added that one option would be to 
limit sales to 200 units (or one carton). Another comment would make 20 
cigarettes the maximum package size, but conceded that there is 
insufficient evidence to make a strong recommendation.
    In contrast, one comment stated that the agency has no authority or 
evidence to justify creating a minimum package size and so it lacks 
authority and evidence to create a maximum package size.
    Based on the comments, there is insufficient evidence to establish 
a maximum package size for cigarettes. There is little experience in 
the United States with package sizes greater than 20 cigarettes. As a 
result, the final rule does not establish a maximum package size for 
cigarettes.
4. Impersonal Modes of Sale
    Proposed Sec. 897.16(c) would have permitted cigarettes and 
smokeless tobacco to be sold only in a direct, face-to-face exchange 
between the retailer, or the retailer's employees, and the consumer. 
Thus, the proposal would have prohibited the use of vending machines, 
self-service displays, mail-order sales, and mail-order redemption of 
coupons. Implicit in this provision, and in subpart B of part 897, is 
the notion that transactions involving restricted devices should 
involve a sense of ``formality'' or gravity that conveys to both the 
seller and the buyer the seriousness of the transaction and of the 
products themselves. FDA has amended this provision in response to 
comments. As discussed in section IV.E.4.c. of this document, certain 
mail-order sales are now exempted from this requirement, as are vending 
machines and self-service merchandisers in facilities not admitting 
individuals under the age of 18.
    a. Vending machines. The preamble to the 1995 proposed rule cited 
numerous studies and surveys showing that significant percentages of 
young people are able to purchase cigarettes from vending machines, 
even in jurisdictions that have laws restricting the placement of those 
machines or requiring the use of locking devices. In some cases, young 
people successfully bought cigarettes from vending machines 100 percent 
of the time (60 FR 41314 at 41324 through 41325). Consequently, the 
agency elected to prohibit the use of vending machines rather than 
restrict their placement or require locking devices.
    FDA's proposal to eliminate the use of vending machines 
(Sec. 897.16(c)) generated more comments than any other provision aimed 
at reducing children's and adolescents' access to tobacco products; the 
agency received thousands of comments on this provision. While agreeing 
that children and adolescents should not use tobacco products, comments 
submitted by adult smokers, the tobacco industry, and vending machine 
owners and operators, strenuously objected to the provision. Nearly all 
of the comments in opposition stated that the provision would be 
unnecessary if State and local jurisdictions enforced existing laws 
prohibiting the sale of tobacco products to children and adolescents 
under the age of 18.
    By contrast, concerned adults, parents, educators, State and local 
public health agencies, and medical professionals overwhelmingly 
supported the provision. In addition, tens of thousands of school 
children wrote letters asking that vending machines be eliminated. 
Nearly all comments in favor of the provision pointed to the serious 
health risks that a lifetime of nicotine addiction poses to children 
and adolescents who begin to smoke, arguing that vending machines offer 
children and adolescents who choose to begin to smoke easy access to 
cigarettes.
    (65) Several comments asserted that the proposed restriction 
pertaining to vending machines would effect takings compensable under 
the Fifth Amendment.
    The agency disagrees with the comments. As discussed in greater 
detail in the paragraph below, FDA has amended the final rule to permit 
vending machines in facilities that are inaccessible to young people at 
all times. Additionally, given the character of this regulation and the 
lack of reasonable investment-backed expectations in personal property, 
its

[[Page 44449]]

economic impact, while potentially significant for some persons, is not 
such as to effect a taking. The agency addresses Fifth Amendment issues 
in greater detail in section XI. of this document.
    (66) Most comments submitted by adult smokers and nearly all of the 
comments submitted by the cigarette and vending machine industries 
stated that the provision would not effectively reduce children's and 
adolescents' access to cigarettes. The comments argued that the 
proposed elimination of vending machines is not supported by the 
evidence in the record, either because the studies cited by FDA do not 
measure children's and adolescents' actual purchasing habits, or 
because the percentage of children and adolescents who reportedly buy 
cigarettes from vending machines is not significant. Finally, many 
adult smokers and some parents argued that determined teenagers will 
find a way to obtain cigarettes whether or not vending machines are 
eliminated.
    On the other hand, almost all of the children, parents, adults who 
do not smoke, medical professionals, and public interest groups 
commented that the provision would effectively reduce children's access 
to cigarettes. These comments generally cited personal experience in 
concluding that vending machines provide an easy source of cigarettes 
for many children who smoke. For example, the executive director of a 
public health education program wrote: ``It is outrageous that we allow 
tobacco, a most addictive drug, to be sold through vending machines 
where anyone can purchase it!'' Comments overwhelmingly concluded that 
the elimination of vending machines, coupled with the other proposed 
access and advertising restrictions and the proposed education 
campaign, would effectively reduce the availability of cigarettes to 
children.
    Several comments analyzed currently available studies and concluded 
that ``easy access to vending machines * * * enable[s] young people to 
obtain cigarettes, and that high proportions of vending machine users 
are people under 18.'' Moreover, several comments in support of the 
provision cited their own studies indicating the ease with which 
children and adolescents obtain cigarettes from vending machines. For 
example, a coalition dedicated to preventing and reducing tobacco use 
submitted its 1994 annual report, which included an article describing 
an undercover buying survey, the largest of its kind, conducted in 
Spring, 1994. One hundred and seven teenagers participated in the 12-
county survey by entering stores under the supervision of an adult and 
attempting to purchase cigarettes, and:
    [k]ids were more successful attempting to buy cigarettes through 
vending machines [than through retail outlets], without any adults 
trying to stop them. Teens made 21 of 24 successful attempts to 
purchase cigarettes through vending machines, an 88 percent success 
rate.
    Similarly, the manager of a youth tobacco prevention program in 
Washington State's Department of Health commented that ``[a] recent 
survey in one Washington county found that youth can still purchase 
tobacco from vending machines at a 75 percent success rate.'' The 
comment recommended that all tobacco vending machines be eliminated.
    Finally, comments submitted by children, parents, and nonsmoking 
adults indicate that these groups believe tobacco vending machines are 
easily accessible to children and adolescents. One comment, typical of 
those submitted by children, stated: ``I especially agree with getting 
rid of vending machines. That, I think, is probably the most common way 
that children get their cigarettes.'' The director of a public health 
center in California submitted the results of a poll indicating that 75 
percent of Californians support banning cigarette vending machines.
    Vending machines certainly represent one of the major ways that 
children currently obtain cigarettes. In addition to studies depicting 
how easily children and adolescents could purchase cigarettes from 
vending machines, the 1995 proposed rule cited surveys of children's 
actual purchasing behavior (60 FR 41314 at 41324 through 41325). 
Relying on both types of evidence, the agency concluded that the 
provision would eliminate one of the primary sources of cigarettes for 
at least 2 percent of 17-year-old smokers and 22 percent of 13- to 17-
year-old smokers. Moreover, the agency finds that the number of 
children and adolescents in these two groups is substantial.
    While the agency agrees that some children and adolescents who are 
determined to smoke may find or create new ways of obtaining 
cigarettes, the removal of vending machines from sites accessible to 
young people will eliminate what is currently a popular and easy means 
of access to tobacco, especially for younger children. In addition, if 
other access restrictions are imposed, such as requiring customers to 
provide proof of age, without also eliminating vending machines, use of 
vending machines among children between the ages of 13 and 17 years 
would likely increase (60 FR 41314 at 41325). Therefore, the agency has 
concluded that the provision is an important part of the overall scheme 
to reduce children's and adolescents' access to cigarettes.
    (67) The agency received many comments regarding the location of 
vending machines. A trade association representing the cigarette 
industry stated that most vending machines are currently inaccessible 
to children and adolescents because they are located either in areas 
that are off-limits to young people, such as nightclubs or casinos, or 
in areas that young people rarely frequent, such as industrial plants 
and private offices. Thus, the comment concluded, eliminating vending 
machines will not discourage youth smoking.
    The vending machine industry and establishments that currently have 
vending machines unanimously opposed the provision. Some comments 
suggested that the agency specifically allow vending machines in 
locations where young people are not present. One vending machine 
operator commented, ``[m]any cigarette machine vendors are small 
businessmen like myself; 95 percent of our locations are in taverns and 
lounges, where no one under 21 years old is allowed in.'' Other 
comments argued that, even if retail purchases become increasingly 
difficult, vending machines in establishments that are not open to the 
public should not be eliminated because children and adolescents cannot 
enter these places.
    Both the cigarette and vending machine industries argued that FDA's 
conclusion, that children and adolescents can easily purchase 
cigarettes from vending machines even in ``adult'' locations, was based 
on flawed studies. Comments argued that the sting operations, on which 
these studies were based, do not demonstrate where teenagers actually 
or usually go. One comment, submitted by an association representing 
1,700 vending machine companies, argued that: ``it is highly 
questionable if minors might have alone and without encouragement 
entered taverns or bars in restaurants just to purchase cigarettes 
without exemption from the district attorney's office.'' Moreover, 
these comments argued, local sting operations do not establish the 
national cigarette purchasing habits of children and adolescents.

[[Page 44450]]

    In contrast, a national public health organization concluded that 
available studies indicate that restricting the location of vending 
machines is an ineffective method of controlling sales of tobacco to 
young people. Another comment opposed to weakening the provision 
characterized as unreliable the number of machines currently in 
``adult'' locations. The comment attacked as statistically unsound a 
vending machine industry survey that concluded that 77 percent of all 
vending machines are in ``adult locations.''
    FDA has determined that cigarettes should not be dispensed to 
consumers from vending machines that are accessible to children and 
adolescents. While young people's actual current purchasing habits 
provide irrefutable evidence of accessibility, available evidence 
demonstrates that cigarette vending machines also are accessible to 
children and adolescents even in locations that are not often or 
currently frequented by young people. FDA has determined that cigarette 
vending machines should be eliminated from locations that are 
accessible to children and adolescents, whether or not children and 
adolescents currently use them.
    While the IOM recommended that vending machines be eliminated 
altogether, it cautioned that, if partial bans were to be enacted, the 
definition of ``adult'' location must be narrowly drawn.
    Youths do not now report ``adult'' locations as major sources of 
tobacco, but there is evidence that minors can often easily enter 
``adult'' locations, and once inside, can easily buy tobacco 
products * * *. If partial vending machine bans are to be effective, 
the statutes must define ``adult'' locations carefully and narrowly. 
For example, the bar area of a restaurant is not sufficiently 
inaccessible to minors to deter their purchases. * * * Many bars 
only restrict access to alcohol; they do not restrict entrance by 
age. Accordingly, if vending machine are permitted at all, they 
should be permitted only in locations to which minors may not be 
admitted. \51\
---------------------------------------------------------------------------

    \51\ IOM Report, p. 214.
---------------------------------------------------------------------------

    Based on comments, FDA has determined that some ``adult'' locations 
can be made sufficiently secure to prevent young people's access and 
that vending machines should remain available to adults in these 
locations. For example, some establishments, such as nightclubs or 
casinos, require that patrons present proof of age before they are 
permitted to enter or post a guard at the door to prohibit underage 
access. In 1994, CDC analyzed 15 recent studies of children's access to 
tobacco and noted that ``[s]ome inspections of private clubs and bars 
were not carried out because access to the outlet was blocked by a 
doorman or security guard.'' \52\ FDA finds that those establishments 
where people under the age of 18 are legally prohibited from entering 
and where a system exists to ensure that children are prevented from 
entering, can, in fact, be sufficiently inaccessible to children that 
the goals of the rule would not be significantly advanced by 
prohibiting vending machines in those limited locations.
---------------------------------------------------------------------------

    \52\ ``Design of Inspection Surveys for Vendor Compliance with 
Restrictions on Tobacco Sales to Minors,'' Battelle, prepared for 
the CDC, OSH, p. 17, April 1994.
---------------------------------------------------------------------------

    Other ``adult'' establishments prohibit children and adolescents 
from entering, as a matter of establishment policy. For example, some 
private clubs do not grant membership to persons under the age of 18 
and require that members provide proof of membership before entering 
the club. Similarly, for example, some industrial or manufacturing 
facilities not open to the public may, for safety reasons, prohibit the 
hiring of persons under the age of 18, and require that employees 
present proof of employment upon entering the facility. FDA finds that 
these establishments, like some nightclubs or casinos, can be similarly 
inaccessible to children and, if so, should be permitted to make 
cigarette vending machines available to their adult members or 
employees.
    Futhermore, an exemption for vending machines located in areas 
where no person under 18 is present or permitted to enter is consistent 
with the ``Prohibition of Cigarette Sales to Minors in Federal 
Buildings and Lands Act'' (Pub. L. 104-52, sec. 636). This particular 
statute, which became law on November 19, 1995, prohibits the sale of 
tobacco products in vending machines located ``in or around any Federal 
building,'' but the statute authorizes the Administrator of the General 
Services Administration (GSA) or the head of an agency to exempt areas 
that prohibit the ``presence of minors'' (whom the statute defines as 
individuals under age 18). See also 41 CFR 101-20.109(d) (Administrator 
of the GSA or agency head may designate areas where vending machine 
sales of tobacco products may occur ``if the area prohibits minors''); 
61 FR 2121, January 25, 1996.
    Consequently, Sec. 897.16(c) exempts vending machines located in 
establishments that are totally inaccessible to persons under 18. The 
owner of the facility must ensure, by means of photographic 
identification or some other means, that no one under 18 enters the 
facility. Thus, the rule would permit a vending machine in an 
establishment only where persons under 18 are not present, or permitted 
to enter, at any time. FDA emphasizes that this narrowly drawn 
exemption accommodates adults only in locations where young people, in 
fact, have no access at any time. For example, a vending machine might 
be permitted in a facility that employs only adults and where guards 
prevent any person under 18 from entering. A vending machine would not 
be permitted in a facility that employs only adults but also permits 
employees to bring children to work. The agency further emphasizes that 
it is the exempt establishment's responsibility to ensure that no one 
under 18 is present, or permitted to enter the premises, at any time.
    In addition, under Sec. 897.16(c), a vending machine in an exempt 
establishment must be entirely inaccessible to children. Thus, an 
establishment must place the machine entirely inside the premises, 
beyond the point where persons are required to present proof of age, 
membership, or employment. Vending machines are prohibited from any 
public area in or around the establishment, including, for example, 
lobbies, parking lots, and entrances.
    FDA emphasizes that the final rule exempts only establishments that 
are, in fact, inaccessible to young people at all times. FDA will 
monitor young people's access to cigarettes from vending machines in 
exempt establishments, and, after 2 years, will assess whether the 
vending machine exemption has been effective. At that time, the agency 
finds that vending machines continue to be accessible to young people, 
FDA will propose further restrictions.
    (68) Several comments suggested that, rather than eliminate vending 
machines or restrict their location, FDA require that they be 
supervised. These comments would allow vending machines to be placed 
anywhere, even in locations frequented by children and adolescents, as 
long as the machines were supervised.
    FDA disagrees that supervising vending machines would prevent 
illegal sales to children and adolescents. Comments opposed to the 
provision offered no evidence that supervision of vending machines 
would sufficiently impede a young person's access to cigarettes. In 
fact, studies indicate that young people are able to purchase

[[Page 44451]]

cigarettes even from vending machines under the immediate vicinity and 
control of employees.
    One study conducted in a State requiring that vending machines be 
supervised demonstrated that youths were able to purchase from 72 
percent of vending machines, in bars and taverns, within clear view of 
an employee. \53\ Another report examining vending machine sales in New 
York City demonstrated that 11- and 12-year-olds successfully purchased 
cigarettes from supposedly supervised vending machines in bars and 
taverns 100 percent of the time. The study found that children and 
adolescents ``had no more difficulty buying cigarettes from vending 
machines in bars than they had buying cigarettes from restaurants, 
pizza parlors, or video arcades. In all instances, the barman and/or 
patrons watched but did not intervene.'' \54\
---------------------------------------------------------------------------

    \53\ Cismoski, J., and M. Sheridan, ``Availability of Cigarettes 
to Under-age Youth in Fond du Lac, Wisconsin,'' Wisconsin Medical 
Journal, vol. 92, No. 11, pp. 626-630, 1993.
    \54\ ``Cigarette Vending Machines Sell Cigarettes to Children, 
11-15 Years Old, 100% of the Time,'' Smokefree Educational Services, 
Inc., October 1990. ``Critics Target Vending Machines,'' The 
Christian Science Monitor, p. 6, April 1990.
---------------------------------------------------------------------------

    In other studies, employees helped children and adolescents to 
illegally purchase cigarettes by providing change for the cigarette 
vending machine \55\ or suggesting that the children and adolescents go 
next door where cigarettes were cheaper. \56\
---------------------------------------------------------------------------

    \55\ Mead, R., ``Teen Access to Cigarettes in Green Bay, 
Wisconsin,'' Wisconsin Medical Journal, pp. 23-24, January, 1993.
    \56\ ``Springfield Teen Tobacco Purchase Survey,'' Stop Teenage 
Addiction to Tobacco (STAT), 1993.
---------------------------------------------------------------------------

    Additionally, each provision in subpart B of part 897 is intended 
to eliminate a popular source of cigarettes and smokeless tobacco for 
children. The vending machine restriction is intended to complement, 
and be reinforced by, the other restrictions.
    The preamble to the 1995 proposed rule cited studies indicating 
that the use of vending machines by adolescents is greater in 
jurisdictions that have stronger access restrictions (60 FR 41314 at 
41325). Based on those studies and comments that it received, FDA 
concludes that decreasing the supply of tobacco products to children 
and adolescents by one means of access, such as restricting self-
service displays, would cause an increased demand by another means of 
access, such as cigarette vending machines. FDA remains persuaded that, 
without eliminating cigarette vending machines accessible to children 
and adolescents, other access restrictions would cause an increase in 
illegal vending machine sales.
    (69) Most comments submitted by the tobacco and vending machine 
industries recommended that, rather than eliminate vending machines, 
FDA should require that they be equipped with electronic locking 
devices (devices that render the machine inoperable until activated by 
an employee) or token mechanisms (which require consumers to purchase 
tokens from an employee in order to use a vending machine). Either 
method would require a face-to-face transaction between the purchaser 
and the retailer.
    The cigarette and vending machine industries commented that studies 
do not support FDA's conclusion that locking devices are ineffective. 
Comments asserted that the studies failed to include vending machines 
fitted with locking devices in traditionally adult locations or to 
account for the lack of enforcement in the jurisdiction in which the 
study was conducted. In addition, several comments pointed out that the 
tobacco sales ordinance in Woodridge, IL, where illegal tobacco sales 
were reduced from 70 percent to less than 5 percent 2 years later, 
included a locking device requirement rather than a ban on cigarette 
vending machines.
    On the other hand, one comment from a public interest group 
strongly supported FDA's proposal to eliminate vending machines 
altogether and urged that FDA not permit the use of locking devices. 
The comment cited a survey, conducted by an association of public 
health officials in New Jersey, in which young people successfully 
purchased cigarettes from supposedly locked vending machines in 11 of 
15 attempts. The comment noted that ``[i]n some instances, the remote 
control device to operate the machine was sitting on top of the machine 
to save store personnel the bother of having to press the switch.''
    FDA acknowledges that properly installed locking devices require 
that vending machine purchasers engage in a face-to-face transaction, 
increasing the likelihood that children would be prevented from 
purchasing cigarettes. However, as explained in the preamble to the 
1995 proposed rule, available evidence indicates that the industry is 
slow to install the locking devices, and that, after a short period, 
the locking devices are often disabled (60 FR 41314 at 41324 through 
41325).
    FDA agrees that the Woodridge, IL, community was able to 
dramatically reduce illegal tobacco sales while permitting the use of 
locking devices on cigarette vending machines. However, FDA notes that 
when the community implemented its tobacco ordinance in May, 1989, the 
community had only six vending machines, and when the study was 
completed December, 1990, the number of vending machines had dropped to 
two. Moreover, despite the requirement of locking devices and 
persistent compliance checks by law enforcement, a child was able to 
purchase cigarettes from one of the two remaining vending machines in 
December, 1990. \57\
---------------------------------------------------------------------------

    \57\ Jason, L. A., P. Y. Ji, M. D. Aneo, and S. H. Birkhead, 
``Active Enforcement of Cigarette Control Laws in the Prevention of 
Cigarette Sales to Minors,'' JAMA, vol. 266, No. 22, pp. 3159-3161, 
December 11, 1991.
---------------------------------------------------------------------------

    Similarly, in 1990, Minnesota enacted a law eliminating vending 
machines in public areas unless the machines were only operable by 
activation of an electronic switch or token and were under the direct 
supervision of a responsible employee. One year after the law was 
passed, a study conducted in four cities found many machines had not 
been fitted with the required devices and, of those fitted with the 
devices, there was no significant reduction in purchase success. \58\
---------------------------------------------------------------------------

    \58\ Kotz, K., ``An Evaluation of the Minnesota Law to Restrict 
Youth Access to Tobacco,'' presented to the American Public Health 
Association (APHA) 121st Annual Meeting, San Francisco, CA, October 
24-28, 1993.
---------------------------------------------------------------------------

    IOM reviewed the available evidence and determined that locking 
devices do not effectively prevent youth access to cigarette vending 
machines. IOM noted that ``although fewer cigarettes are sold to youths 
than where vending machines are completely unrestricted, businesses 
that installed locking devices on vending machines were still more 
likely to sell cigarettes to young people than businesses that used 
over-the-counter sales.'' \59\
---------------------------------------------------------------------------

    \59\ IOM Report, p. 213.
---------------------------------------------------------------------------

    Finally, the Inspector General reported that Utah experienced 
limited success with locking devices:
    Reportedly, clerks would simply activate the machine without 
checking the age of the purchaser. Since the locking devices require 
employee participation, they are often not as effective in busy 
places, such as bars or restaurants, where employees are more likely 
to simply activate the machine. \60\
---------------------------------------------------------------------------

    \60\ ``Youth Access to Cigarettes,'' Department of Health and 
Human Services (DHHS), Office of the Inspector General, Pub. No. 
OEI-02-90-02310, p. 9, May 1990.
---------------------------------------------------------------------------

    FDA has not been persuaded that vending machines equipped with 
locking devices sufficiently guard

[[Page 44452]]

against children's access to tobacco products. Comments provided no 
evidence, and FDA is not aware of any studies, on whether law 
enforcement efforts affect children's ability to access tobacco 
products through locked vending machines. However, one study examined 
the effect of law enforcement efforts on illegal vending machine sales 
in three comparable communities that did not require locking devices. 
Despite the fact that merchants in one of the three communities 
received a letter describing the State law and warning them of the 
city's intention to enforce the law, there was no significant 
difference in the rate of illegal vending machine sales among the 
communities. \61\
---------------------------------------------------------------------------

    \61\ Forster, J. L., M. Hourigan, and P. McGovern, 
``Availability of Cigarettes to Underage Youth in Three 
Communities,'' Preventive Medicine, vol. 21, No. 3, pp. 320-328, May 
1992.
---------------------------------------------------------------------------

    Comments also provided no evidence that restricting the location of 
cigarette vending machines equipped with a locking device renders the 
machines less accessible to children and adolescents. FDA notes that, 
if locking devices were effective, the location of the machine would be 
of no consequence. Yet, as discussed in the preceding paragraphs, FDA 
is persuaded that some establishments are entirely inaccessible to 
young people. Accordingly, the final rule allows the use of vending 
machines in those establishments without requiring that the machines be 
equipped with a locking device.
    FDA declines to grant an exception for tokens in the absence of 
evidence that machines operated only by tokens prevent children from 
obtaining cigarettes. Several comments suggested, rather than eliminate 
vending machines, that FDA require either locking devices or tokens. 
These comments focused on locking devices, without offering any 
evidence of the number of vending machines currently operating with 
tokens, the extent to which tokens have been tested in the marketplace, 
or whether the technology prevents children and adolescents from 
obtaining cigarettes from vending machines. FDA is aware that three 
States whose laws restrict the use of vending machines permit the use 
of locking devices or tokens. However, FDA is not aware of any evidence 
indicating that the use of tokens prevents young people's access to 
cigarettes from vending machines that are otherwise accessible to 
children.
    (70) The most common concern raised by adult smokers was that the 
elimination of vending machines would inconvenience them. Most adult 
smokers stated that vending machines are closer than retail outlets to 
their homes or places of work. Some adult smokers stated that they 
would be unable to purchase cigarettes late at night if vending 
machines were eliminated. Others indicated that vending machines 
provide the only means of obtaining their brand, or of obtaining 
cigarettes altogether.
    In contrast, while acknowledging that adult smokers would be 
somewhat inconvenienced, comments in support of eliminating vending 
machines pointed out that adult smokers would still be able to purchase 
their products in retail transactions. Nearly all comments in support 
of the provision, including comments from grade school students, 
parents, and health professionals, said that the significant reduction 
in children's access to cigarettes would outweigh any inconvenience 
experienced by adult smokers.
    The agency is persuaded that the provision would not unduly burden 
adult smokers, who could continue to purchase cigarettes in retail 
transactions, and that the inconvenience some smokers would experience 
is a small burden when compared to the significant public health 
benefit of reducing children's and adolescents' access to tobacco.
    (71) A few comments questioned the propriety of using young people 
in ``sting'' operations to determine the level of compliance with 
existing laws restricting the sale of tobacco products to children. One 
comment suggested that these operations taught children how and where 
to purchase cigarettes, concluding that the operations ``have done more 
to increase smoking in our youth than any tobacco company or 
advertisement could have.''
    FDA relied on several types of evidence in proposing these 
regulations, including teen surveys and peer-reviewed studies. 
Compliance testing involves sending underage children and adolescents 
into tobacco outlets to attempt to purchase cigarettes or smokeless 
tobacco. This type of study provides reliable evidence of children's 
ability to illegally obtain tobacco products.
    A 1994 review \62\ of the design of recent studies indicates 
children who participated in these studies received specific 
instructions about the method and purpose of the study and were 
escorted by at least one adult. Some adults waited outside the outlet 
for the young person while others went inside to observe the child 
attempt the purchase. In response to comments on the final rule on 
substance abuse prevention and treatment block grants (suggesting that 
participating in sting operations could be detrimental to children and 
adolescents), DHHS explained that ``proper training and adult 
supervision can reduce any potential risk of negative consequences 
toward youth'' (61 FR 1492 at 1494, January 19, 1996). In addition, 
DHHS offered States assistance in developing compliance testing 
procedures.
---------------------------------------------------------------------------

    \62\ ``Design of Inspections Surveys for Vendor Compliance with 
Restrictions on Tobacco Sales to Minors,'' Battelle, prepared for 
CDC, OSH, p. 14, April 1994.
---------------------------------------------------------------------------

    FDA is not persuaded that participating in compliance testing 
entices children to smoke. The agency believes that, with proper 
training and adult supervision, children and adolescents who 
participate in compliance testing will understand that their role in 
this testing is to help reduce teenage smoking by identifying places 
that illegally sell tobacco products to children, and that, after 
identification and publicity or enforcement action, these places will 
stop illegal sales.
    (72) Several adult smokers commented that the provision, either 
alone or in conjunction with other provisions, would cause a decrease 
in tobacco consumption. To compensate for this loss, they argue, 
tobacco companies will raise their prices and governments will increase 
taxes. Overwhelmingly, adult smokers commented that the price of a 
package of cigarettes is already unfairly high.
    The agency has narrowly tailored the final regulations to prevent 
only young people's use of cigarettes and smokeless tobacco. Because 
sales to children account for a small percentage of total tobacco 
sales, industry revenues will be significantly diminished only after 
many years have passed. Moreover, the long-term effect on product 
prices is difficult to forecast because reduced product demand could 
easily result in price decreases.
    (73) In contrast, one comment cited a 1995 survey in which three-
quarters or more of those Californians polled supported increasing the 
tobacco tax by 25 cents. Another comment suggested that an additional 
portion of excise taxes be allocated to smoking cessation programs and 
to prenatal care, especially antismoking messages targeted to pregnant 
women. Other comments noted that increased prices

[[Page 44453]]

could serve to deter some children and adolescents from purchasing 
cigarettes.
    The agency cannot act on these comments as it lacks the authority 
to levy taxes or mandate prices.
    (74) One comment submitted by cigarette manufacturers characterized 
as misleading FDA's claim that its proposal to eliminate vending 
machines is consistent with recommendations from IOM, PHS, a working 
group of State attorneys general, and the Inspector General of DHHS (60 
FR 41314 at 41325). FDA disagrees. IOM and PHS specifically recommended 
that vending machines be eliminated. IOM advocated that less 
restrictive measures be adopted only if shown to be effective, \63\ 
while PHS cautioned that alternatives be examined carefully. \64\ 
Moreover, PHS specifically noted that Utah found disabling devices to 
be ``ineffectual in practice.'' \65\
---------------------------------------------------------------------------

    \63\ IOM Report, p. 214.
    \64\ ``Model Sale to Tobacco Products to Minors Control Act, A 
Model Law Recommended for Adoption by States of Localities to 
Prevent the Sale of Tobacco Products to Minors,'' DHHS, p. 2, May 
24, 1990.
    \65\ Id., p. 5.
---------------------------------------------------------------------------

    The State attorneys general determined that ``very young children 
rely heavily on vending machines as a major source of tobacco 
products,'' and that ``their use of these machines is difficult to 
police.'' \66\ Consequently, the group recommended that retail stores 
``remove cigarette vending machines from their premises and sell 
tobacco products only from the controlled settings recommended above.'' 
\67\ The referenced controlled settings included the use of electronic 
price scanners to prompt retail clerks to check a customer's 
identification and to display the last acceptable date of birth, using 
price scanner systems with tobacco ``locks,'' and requiring tobacco 
products to be kept behind sales counters. The State attorneys general 
did acknowledge that, ``at a minimum,'' vending machines should be 
modified to require tokens that could be purchased only from a store 
manager or be programmed to operate only if a cashier activates a 
remote switch, but their principal recommendation was the removal of 
vending machines.
---------------------------------------------------------------------------

    \66\ ``No Sale: Youth Tobacco and Responsible Retailing 
Developing Responsible Retail Sales Practices and Legislation to 
Reduce Illegal Tobacco Sales to Minors, Findings and Recommendations 
of a Working Group of State Attorneys General,'' pp. 31-32, December 
1994.
    \67\ Id., p. 32.
---------------------------------------------------------------------------

    While the Inspector General made no recommendation, his report 
noted that 42 percent of State health department officials believe that 
total bans are the only way to prevent teens from using cigarettes. 
\68\
---------------------------------------------------------------------------

    \68\ ``Youth Access to Cigarettes,'' DHHS, Office of the 
Inspector General, Pub. No. OEI-02-90-02310, pp. 8-9, May 1990.
---------------------------------------------------------------------------

    FDA believes the provision on vending machines is consistent with 
the positions taken by the IOM, PHS, State attorneys general, and the 
Inspector General of DHHS.
    (75) One comment suggested that the rule define ``vending machine'' 
to avoid regulating machines that dispense cigarettes to salespersons 
rather than customers. The comment described a machine designed to 
limit theft and to control the inventory of cigarettes and other 
similarly packaged items in retail stores, principally supermarkets. 
The machine requires that a computer command be entered before it 
dispenses a package of cigarettes. The comment asserted that among the 
machine's benefits is its ability to exclude customer access to 
cigarettes.
    FDA did not contemplate the type of inventory machine described by 
the comment, and the provision, as drafted, would not include this type 
of machine. Section 897.16(c) is intended, in part, to eliminate 
mechanical devices that dispense cigarettes or smokeless tobacco to 
purchasers in locations that are accessible to children. FDA declines 
at this time to define ``vending machine'' so as to exclude from the 
rule mechanical devices developed in the future, including those 
intended to aid in preventing theft.
    (76) One comment opposed to the provision interpreted it as 
prohibiting a vending machine that dispenses single cigarettes, 
packaged separately in tubes, each bearing the Surgeon General's 
warning and in compliance with tax laws. The comment explained that in 
some adult locations, such as cocktail lounges and casinos, many adults 
would like to purchase a single cigarette, and that the person 
submitting the comment developed the machine to fill this perceived gap 
in the marketplace.
    The proposal did not contemplate the type of machine described by 
the comment. Accordingly, Sec. 897.16(c) has been amended to permit the 
sale of a packaged, single cigarette in locations inaccessible to 
persons under the age of 18. This exception is restricted to packaged, 
single cigarettes that comply with other applicable laws and 
regulations.
    b. Self-service displays. Proposed Sec. 897.16(c) also would have 
prohibited the use of self-service displays. The preamble to the 1995 
proposed rule explained that self-service displays enable young people 
to quickly, easily, and independently obtain cigarettes and smokeless 
tobacco. FDA cited one report that reviewed surveys of grade school 
students; the report found that over 40 percent of the students who 
smoked daily shoplifted cigarettes from self-service displays (60 FR 
41314 at 41325). The agency also cited one study showing that tobacco 
sales to young people dropped 40 to 80 percent after enactment of 
ordinances prohibiting self-service displays and requiring vendor-
assisted sales (60 FR 41314 at 41325). The proposed provision, 
therefore, was intended to prevent young people from helping themselves 
to these products and to increase the amount of interaction between the 
sales clerk and the underage customer.
    The preamble to the 1995 proposed rule also referred to the IOM 
Report which stated that placing products out of reach ``reinforces the 
message that tobacco products are not in the same class as candy or 
potato chips.'' \69\
---------------------------------------------------------------------------

    \69\ IOM Report, p. 215.
---------------------------------------------------------------------------

    In response to the comments, the agency has amended this section to 
except certain self-service displays (merchandisers) in facilities 
inaccessible to persons under the age of 18.
    (77) Several comments asserted that the proposed restriction 
pertaining to self-service displays would effect takings compensable 
under the Fifth Amendment.
    The agency disagrees with the comments. Given the character of the 
section, as modified in this final rule, and the lack of reasonable 
investment-backed expectations in personal property, its economic 
impact, while potentially significant for some parties, is not such as 
to effect a taking. The agency addresses Fifth Amendment issues in 
greater detail in section XI.A. of this document.
    (78) Several comments challenged FDA's basis and authority for 
prohibiting self-service displays. The comments focused, in part, on 
the studies and reports cited by the agency. They argued that active 
enforcement of laws, rather than elimination of self-service displays, 
led to decreases in young people's access to cigarettes and smokeless 
tobacco. Other comments disputed whether significant shoplifting occurs 
from self-service displays. According to these comments, FDA did not 
provide any evidence to suggest that eliminating self-service displays 
is necessary to prevent shoplifting.

[[Page 44454]]

    One comment examined studies that FDA did not cite in the 1995 
proposed rule and found one study estimating that less than 5 percent 
of the adolescents surveyed had shoplifted cigarettes. Also, a number 
of comments stated that, if shoplifting were truly a significant 
problem, retailers would have a financial interest in reducing their 
losses and would remove self-service displays themselves. The comments 
implied that shoplifting is not a significant problem, and several 
claimed FDA's rationale was inconsistent because, if young people could 
purchase cigarettes and smokeless tobacco easily from retailers, they 
would not have to steal them from self-service displays.
    In contrast, several comments supported the prohibition on self-
service displays, reiterating FDA's position that displays encourage 
shoplifting, and their absence increases the likelihood of age 
verification. For example, a drug addiction counselor commented that 
teens do not want to go to the counter and ask for cigarettes since 
there is a greater likelihood that they will be asked to show their 
identification and they might be embarrassed. One comment also asserted 
that retailers get products for displays at a discount, and such 
discounts are, in effect, a subsidy for shoplifting. Another comment 
alleged that, in one area of the country, low-priced brands are put in 
displays and that retailers are compensated for any shoplifting losses.
    Comments from other areas of the country agreed that shoplifting 
occurs, sometimes at significant rates. One comment stated that a 1993 
survey of 9th-grade students in one county revealed that 51 percent had 
shoplifted cigarettes. Another comment, reflecting on experiences 
conducting retailer compliance checks in three small towns, stated that 
its teenage volunteers ``commented on the ease with which they could 
have lifted cigarettes from free-standing displays.'' A comment 
describing practices in a rural part of the country stated that theft 
was one method of acquiring smokeless tobacco, and that young people 
often began using such products at the age of 10, 11, or 12.
    Other comments suggested an additional reason for eliminating self-
service displays. These comments indicated that young people can easily 
pick up products from displays, leave their money at the cashier's 
desk, and leave the premises without being challenged by a retailer or 
before the retailer can request proof of age.
    FDA believes there is ample evidence to support a restriction on 
self-service displays. The preamble to the 1995 proposed rule cited 
surveys suggesting that a significant percentage of children and 
adolescents (40 percent in the two areas surveyed) shoplift cigarettes 
(60 FR 41314 at 41325), and at least one comment reported an even 
higher percentage (50 percent). Although one comment from cigarette 
manufacturers suggested the shoplifting rate to be only 5 percent, FDA 
emphasizes that, even if one accepts the 5 percent figure, the numbers 
of young people engaging in shoplifting can be very large. For example, 
5 percent of the estimated 3 million young people who smoke cigarettes 
daily equals 150,000 children and adolescents. Five percent of the 
estimated 3 million smokeless tobacco product users under the age of 21 
also equals 150,000 people.
    These numbers may even be artificially low because they exclude the 
number of young people who do not smoke or use smokeless tobacco daily, 
and these numbers may be extremely low if the 40 or 50 percent 
shoplifting rates identified by the agency or by other comments prove 
to be more accurate than the 5 percent rate cited by the cigarette 
manufacturers.
    FDA also disagrees with those comments claiming that shoplifting is 
not a significant problem. Generally, such comments asserted that the 
problem is not significant because, if it were, retailers would move 
self-service displays, and most have not done so. Such comments, 
however, misconstrue the significance of the problem. The agency did 
not, and does not, claim that individual retailers are suffering 
significant shoplifting losses (although FDA did receive one comment 
containing information showing that shoplifting losses at two stores 
amounted to several thousands of dollars worth of cigarettes annually). 
Instead, FDA is stating that significant numbers of young people 
shoplift these products. The distinction is critical. To illustrate, if 
1,000 retailers each lose 1 cigarette package to shoplifting, each 
retailer might feel that the shoplifting rate, from its perspective, is 
insignificant. However, if 1,000 young people acquire cigarettes by 
shoplifting, the shoplifting problem, from a public health perspective, 
then becomes much more significant.
    (79) Several comments argued that the studies cited by the agency, 
having been conducted at only two locations in the United States (Erie 
County, NY, and Fond du Lac, WI), cannot be used to justify a 
nationwide prohibition against self-service displays.
    The agency disagrees with these comments. The comments offered no 
evidence to show that these communities are so distinct or unique from 
the remainder of the United States to require FDA to discount or to 
ignore their findings. To the contrary, FDA received other comments 
from various parts of the nation supporting the rule, and these 
comments often agreed that young people shoplift these products from 
displays.
    FDA also notes that it does not require clinical investigations for 
product approvals to be conducted on a national scale. One important 
aspect of any study, whether it is submitted as part of an 
investigational product exemption, marketing application, or 
rulemaking, is whether the study is conducted and analyzed in a 
scientifically valid way that permits the results to be extrapolated to 
a broader population. In other words, the methodology and analysis are 
more important than where the study was conducted. If the agency could 
only act after nationwide studies had been conducted, it would be 
unable to act or to respond promptly, even in response to significant 
public health problems or emergencies.
    (80) Several comments questioned the evidence supporting the 
proposed restriction on self-service displays. The comments stated that 
FDA had no evidence to support the assertion that removing self-service 
displays will increase the likelihood of retail clerks requesting proof 
of age. One comment stated that the one document cited by FDA (which 
compared smoking practices in five California counties before and after 
the institution of ordinances prohibiting self-service merchandising) 
\70\ cannot be used to justify a rule with nationwide application 
because the document, which the comment correctly identified as a 
``position paper'' rather than a study, did not: (a) Indicate whether 
the ordinances contained other provisions that would have led to 
enhanced compliance with minimum age laws; and (b) disclose whether 
retailers were told of the compliance testing operation before or after 
the fact, such that, had the retailers known, they would have been more 
vigilant in ensuring

[[Page 44455]]

compliance regardless of how their products were displayed. This 
comment further asserted that the act of adopting the ordinances, and 
the penalties they contained, may have made retailers more vigilant in 
ensuring compliance with minimum age laws than the restrictions in the 
ordinances themselves. Finally, the comment stated that the document 
was not a controlled study and that there was no indication that it was 
not biased, was subjected to peer review, or was even published in a 
scientific journal. The comment stated that the document would not be 
acceptable to FDA if it had been submitted as proof of a product's 
effectiveness.
---------------------------------------------------------------------------

    \70\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to 
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco 
Sales,'' Stop Tobacco Access for Minors Project (STAMP), North Bay 
Health Resources Center, November 3, 1994.
---------------------------------------------------------------------------

    Another comment echoed criticism of the document, stating that 
factors besides the restriction on self-service displays could have 
reduced tobacco use by young people and so the document does not 
support a prohibition against self-service displays.
    FDA acknowledges that the document omitted details regarding the 
author's methodology and the ordinances in the 5 California counties 
and the 24 cities covered in the document. The agency disagrees, 
however, with the comments' assertion that factors other than the 
restriction on self-service displays or other features of the 
ordinances may have been principally responsible for decreasing tobacco 
use among young people. Such comments overlook the document's statement 
that the ordinances were to ``prohibit self-service merchandising 
(display and sale) of tobacco products and point-of-sale tobacco 
promotional products and require only vendor-assisted sales of tobacco 
products and point-of-sale tobacco promotional products in retail 
stores.'' \71\ This statement suggests that the ordinances focused on 
restricting self-service displays (or merchandisers) and point-of-sale 
promotional products rather than other activities.
---------------------------------------------------------------------------

    \71\ Id., p. 3.
---------------------------------------------------------------------------

    Other criticisms of the document are inappropriate as well. For 
example, the comment claimed that other provisions in the ordinances or 
other factors may have contributed to the decline in tobacco use in 
young people so that a restriction on self-service displays, alone, may 
not have been a significant factor in reducing tobacco use among young 
people. This criticism, however, overlooks the fact that the rule's 
restriction on self-service displays is also complemented by other 
provisions (such as requiring retailers to verify age and prohibiting 
distribution of free samples) that will, both individually and 
collectively, reduce young people's access to cigarettes and smokeless 
tobacco.
    Similarly, FDA does not agree that the document is flawed because 
retailers were not informed of the compliance testing operation before 
it was conducted. Alerting a retailer to an upcoming compliance test 
would bias any results because the retailer would alter its behavior in 
order to ``pass'' the test.
    Additionally, in drafting the 1995 proposed rule, FDA used the best 
evidence available to it. The comments did not provide any studies to 
contradict the cited document, and while some criticisms of the 
document may be valid, such criticisms do not require the agency to 
revoke the provision entirely. The document was not FDA's sole basis 
for proposing to restrict self-service displays. The preamble to the 
1995 proposed rule indicated that such a restriction would also reduce 
shoplifting, eliminate the ``message'' that displays send to young 
people, and increase interaction between retailers and their customers. 
These other justifications, and the comments pertaining to them, are 
discussed in greater detail in this document.
    (81) Other comments objected to a prohibition on self-service 
displays because, according to these comments, the rule did not impose 
any sanctions on young people or contain any provisions that would 
modify a young person's behavior so that he or she would not shoplift. 
Some comments suggested that, instead of restricting the use of self-
service displays, shoplifters should be prosecuted, but these same 
comments also declared that State or local government authorities 
usually decline to prosecute young shoplifters.
    As stated earlier, it would be inappropriate for FDA to amend the 
rule to impose penalties on young people who purchase or possess 
cigarettes or smokeless tobacco. The main focus of the act is on the 
introduction, shipment, holding and sale of goods in interstate 
commerce. Thus, whether young people should be prosecuted for 
shoplifting, and the penalty for shoplifting are appropriately matters 
for State or local law.
    (82) Several comments challenged the statement in the preamble to 
the 1995 proposed rule that removing self-service displays would 
reinforce the message to children that tobacco products are not as 
acceptable as candy or potato chips. The comments said that young 
people know that tobacco products are not like candy or potato chips 
and that there is no evidence to show that the statement is true. A 
small number of comments added that FDA's rationale would force 
retailers to remove other ``unhealthy'' products (such as products 
containing fat or cholesterol) from displays.
    In contrast, a few comments agreed that self-service displays for 
cigarettes and smokeless tobacco convey an implied message that these 
products are acceptable. One comment from a local government reported 
that young people often see tobacco products as being socially 
acceptable (or less harmful to health) because they are openly 
displayed. The comment noted that the local jurisdiction had restricted 
displays to being within 20 feet of the checkout counter and in a 
direct line of sight, but expressed regret that it had not eliminated 
displays altogether. Other comments noted that many retailers display 
cigarettes next to candy, baseball cards, and other items that appeal 
to children and adolescents. These comments concluded that it is 
necessary to eliminate self-service displays so that young children do 
not associate cigarettes with other products that they find amusing or 
that adults give to children and adolescents as treats.
    The IOM Report advanced the theory that young people see self-
service displays as an implied message regarding the acceptability or 
safety of cigarettes and smokeless tobacco. The IOM report represents 
the informed decisions, opinions, and recommendations of a body of 
experts, and so, with respect to this issue, the agency disagrees with 
those comments that would have FDA dismiss the IOM's opinion.
    FDA also disagrees with those comments arguing that the agency 
would have to eliminate self-service displays for potato chips, candy, 
and other supposedly ``unhealthy'' products. These food products do not 
present the same range or magnitude of adverse health effects or 
effects on the body to warrant tighter restrictions on their sale, 
distribution, or use.
    (83) Several comments challenged FDA's claim that removing self-
service displays would increase direct interaction between sales clerks 
and underage consumers. The comments asserted that removing self-
service displays will not prompt sales clerks to check for proof of age 
and that FDA had no evidence to support this proposition. Other 
comments opposed any restriction on self-service displays

[[Page 44456]]

because, they claimed, retail clerks, rather than self-service 
displays, are responsible for sales to young people. If retail clerks 
consistently demanded proof of age, these comments would permit self-
service displays to be used.
    Other comments asserted that FDA has no reasonable basis to assume 
that clerks will check for proof of age when clerks already ignore 
State laws.
    In contrast, a few comments agreed that eliminating self-service 
displays would increase interaction between clerks and underage 
consumers or deter young people from attempting to purchase cigarettes 
or smokeless tobacco. One comment from a local board of health stated 
that it eliminated self-service displays because its evidence indicated 
that young people in the locality are less likely to purchase 
cigarettes if they have to request them from retail clerks. Another 
comment reflected on the author's own experience as a child when she 
would purchase cigarettes and said it is easy to grab a cigarette 
package, leave money on the counter, and simply leave a store before 
the sales clerk can react.
    Section 897.14(b)(1) requires retailers to verify that persons 
purchasing cigarettes or smokeless tobacco are not under the age of 18. 
This provision, in conjunction with the prohibition against sales to 
anyone under 18 in Sec. 897.14(a), the restriction on self-service 
displays in Sec. 897.16(c), the sanctions that are available under the 
act, and the likelihood that State agencies will devote more attention 
to illegal sales to young people as a result of section 1926 of the PHS 
Act should increase the probability that retailers will verify the age 
of prospective purchasers.
    Yet logically, removing self-service displays should increase 
interaction between retailers and potential consumers because the 
retailer, under this rule, must physically hand the product to the 
consumer. While this action probably will take little time (the 
preamble to the 1995 proposed rule and to this final rule estimate that 
the elimination of self-service displays would require 10 seconds of 
additional labor time for many retail transactions), nevertheless it 
increases the interaction between the retailer and potential customers. 
Furthermore, by restricting self-service displays, the rule eliminates 
a young person's ability to take a package of cigarettes or smokeless 
tobacco, leave money on the counter, and leave the retailer's premises 
without having to provide proof of age.
    (84) Many comments opposed any restriction on self-service displays 
because they said eliminating self-service displays would adversely 
affect adult consumers or would be ``inconvenient'' because adults 
would not be able to purchase products quickly; see, handle, or choose 
products; or obtain information about a product or a special promotion. 
A few comments asserted, without any supporting evidence, that self-
service displays are not or cannot be used by young people, and, 
therefore, should not be regulated.
    Conversely, one comment supporting the provision recommended that 
FDA clarify or modify the term ``self-service displays'' to distinguish 
self-service sales or merchandisers from advertising displays.
    The comments opposing the rule misinterpreted how it would apply. 
The final rule prohibits self-service displays from being in facilities 
that are accessible to young people. Eliminating self-service displays 
from such facilities simply means that a consumer will not be able to 
take physical possession of a product without the retailer's 
assistance. Any inconvenience to an adult should be slight. For 
example, it is extremely unlikely that adults will suffer undue 
hardship or wait an unreasonable amount of time if they must ask a 
retail clerk to hand a product to them. Moreover, the provision does 
not prevent adults from seeing or choosing a product or from seeing or 
receiving information about a product; products would remain visible, 
but they would be behind a counter or in an area accessible only to the 
retailer.
    Deleting self-service displays from the rule because adults wish to 
avoid contact with clerks would be inappropriate as well. As a 
practical matter, adults who use self-service displays would not be 
able to avoid all contact with a retailer because they presumably still 
interact with the retailer when they pay for the product. An important 
component of these regulations is to eliminate those modes of sale used 
by young people that do not require them to show proof of age or 
otherwise do not challenge a young person to show that he or she is 
legally entitled to purchase the product.
    FDA does agree, however, that the rule should be clarified so that 
the reference to displays in Sec. 897.16(c) is understood to cover 
self-service sales or merchandisers rather than advertising displays 
that contain no products and has amended the rule accordingly. However, 
advertising displays are restricted under the advertising provisions in 
this rule.
    (85) The preamble to the 1995 proposed rule expressed a belief that 
retailers, in order to comply with a prohibition on self-service 
displays, could move displays behind a retail counter or create an area 
that would be accessed only by the retailer's employees.
    Many comments rejected this notion, claiming that, due to space 
constraints, many retailers would be unable to move displays behind a 
counter and would be obliged to build areas where access would be 
controlled. The comments said such construction and remodeling could be 
expensive and could force some retailers to scale back their tobacco 
sales or abandon them completely; such actions would lead to decreased 
sales by the retailer and trigger reductions in staff and in State or 
local Government tax revenues.
    One comment estimated that, for convenience stores, the average 
remodeling cost would be as high as $7,000 per store and noted that 
tobacco purchases account for 28 percent of convenience store sales. 
So, instead of eliminating self-service displays, some comments 
advocated alternative approaches. The alternatives included attaching 
electronic article surveillance tags to products (although the comment 
suggesting this alternative conceded that new technology or assistance 
at the manufacturer's level would be needed); ``source tagging,'' where 
random packages contain an electronic tag so that would-be shoplifters 
would not know which packages were tagged and, as a result, would be 
less inclined to shoplift products; and requiring displays to be within 
a certain distance of a cash register or the cashier's line of sight, 
supplemented by posting signs against underage sales and by training 
sales clerks. ``Source tagging'' would require manufacturers, rather 
than retailers, to insert tags into packages.
    The alternatives identified by the comments appear to be less 
effective or less practical than removing self-service displays from 
places that are accessible to young people. For example, surveillance 
tags and, to a lesser extent, ``source tagging'' might deter 
shoplifting, but this would require all manufacturers to agree to place 
such tags in their products and would require retailers to install 
machines or gates to detect those tags. More importantly, comments from 
manufacturers did not address the creation or use of such tags. A 
``line-of-sight'' or restricted-placement alternative (requiring a 
display to be within a certain distance of a retail employee) would 
require no changes by

[[Page 44457]]

manufacturers and few changes by retailers, yet the preamble to the 
1995 proposed rule cited studies where similar requirements for vending 
machines failed to prevent illegal sales to young people (60 FR 41314 
at 41325). Employees might also be distracted or blocked from seeing 
the displays, thereby reducing the effectiveness of any ``line-of-
sight'' or restricted placement alternative. Furthermore, the 
alternatives would fail to eliminate the implied message that self-
service displays send regarding the acceptability or safety of these 
products. Because FDA is unaware of any effective alternative, the 
agency declines to amend the rule as suggested by the comments.
    FDA has, however, amended the rule to permit self-service displays 
(merchandisers only) in facilities that are inaccessible to people 
under 18 at all times. The agency made this change in response to 
comments stating that some facilities are inaccessible to young people 
and so certain requirements, such as restrictions against vending 
machines and self-service displays, should not apply. This exception is 
subject to the same restrictions as the exception on vending machine 
sales.
    (86) Many comments, particularly from retailers, opposed 
eliminating self-service displays, stating that they derive a 
significant portion of their revenue from displays and slotting fees 
provided by manufacturers. Several cited figures that were in the 
hundreds of thousands of dollars. The comments generally stated that 
eliminating self-service displays would decrease or eliminate a 
significant portion of their revenue and, according to some, lead to 
layoffs or prevent them from hiring young people.
    Similarly, FDA received a few comments from firms that manufacture 
or sell displays. These comments stated that the firms would lose 
significant amounts of revenue or would be forced out of business if 
self-service displays were eliminated.
    A few comments, however, disputed whether retailers would lose 
slotting fees. One comment explained that manufacturers would continue 
to pay fees to ensure that their products would be placed in strategic 
locations behind the counter, while another comment noted that many 
retailers in a northern California region where self-service displays 
were eliminated did not lose slotting fees.
    The agency declines to amend the rule because of the possible loss 
of slotting fees or other revenue from manufacturers. The theoretical 
loss of fees that are, at best, tangential to the sale of these 
products is an inappropriate basis for determining whether this 
provision denies young people's access to these products effectively. 
Furthermore, FDA appreciates that such fees may be important to certain 
retailers, but, as stated earlier, the agency has no reason to conclude 
that all manufacturers will discontinue those fees because of this 
rule. The preamble to the 1995 proposed rule (see 60 FR 41314 at 41369) 
and one comment cited experience in California to show that retailers 
might not suffer significant economic losses if self-service displays 
are removed.
    FDA reiterates that removing self-service displays from places that 
are accessible to young people does not mean that cigarettes and 
smokeless tobacco must be hidden from public view. It simply means that 
retailers will be required to hand these products to consumers. 
Presumably, if the products are moved behind the counter, manufacturers 
still have an incentive to ensure that their products are strategically 
placed in order to attract adult consumers.
    (87) Several comments objected to a restriction on self-service 
displays, claiming that retailers have a ``right'' to advertise and 
sell products in their own establishments in any manner they select.
    As mentioned in section IV.B. of this document earlier, section 
520(e) of the act states, in part, that the agency may issue 
regulations to establish conditions on the sale, distribution, or use 
of a restricted device. Restrictions on cigarette and smokeless tobacco 
sales are appropriate given the potential adverse health effects caused 
by or associated with the use of these products and their accessibility 
and appeal to young people.
    (88) A few comments said that eliminating self-service displays 
will make it difficult or impossible for marginal brands of cigarettes 
or smokeless tobacco to compete against established brands.
    FDA reiterates that eliminating self-service displays from places 
that are accessible to young people does not mean that the products 
must be hidden from view; it simply means that consumers will not be 
able to take physical possession of the product without the retailer's 
assistance. Consequently, all products will face the same constraints, 
insofar as retailer space is concerned.
    (89) Many comments would delete a prohibition against self service 
displays because, according to these comments, the prohibition would be 
ineffective. These comments stated that self-service displays do not 
entice young people to smoke, do not increase consumption of tobacco 
products, or are only used where retailers check the consumer's age. 
Others stated that young people would get the products anyway, so there 
was no need to prohibit the use of self-service displays.
    The preamble to the 1995 proposed rule stated, among other things, 
that young people shoplift products from displays (60 FR 41314 at 
41325). Additionally, the preamble to the 1995 proposed rule indicated 
that young people will adjust or shift their purchasing behavior as 
certain avenues of obtaining these products are eliminated. (See 60 FR 
41314 at 41325 (citing different vending machine use rates depending on 
the access restrictions used in the jurisdiction).) Given this 
evidence, it is reasonable to assume that, as young people are 
precluded from purchasing these products, they may be inclined to 
acquire them by theft and other means. Thus, when properly framed, the 
issue is not whether displays entice young people to smoke or to use 
smokeless tobacco (which FDA did not advance as the principal 
justification for the rule), but whether the agency should eliminate 
self-service displays as an avenue that young people use to obtain 
these products. The agency concludes that self service displays must be 
eliminated from places that are accessible to young people as part of 
the general restriction against impersonal modes of sale.
    (90) Several comments opposed elimination of self-service displays 
because they claimed that retailers would be forced to hire additional 
staff. These comments contrasted sharply with the majority of comments 
from retailers who predicted that the loss of self-service displays 
would compel them to lay off staff. One comment explained that a self-
service display frees the retailer's staff to perform other tasks. The 
other asserted that the rule would compel retailers to hire additional 
staff in order to sell these products and that this would result in an 
``unfunded mandate'' in violation of the Unfunded Mandates Reform Act.
    The preambles to the 1995 proposed rule and to this final rule 
estimate that eliminating self-service displays would require 10 
seconds of additional labor time for many retail transactions involving 
cigarette cartons (60 FR 41314 at 41367). The ``Analysis of Impacts''

[[Page 44458]]

discussion in section XV. of this document places the labor cost for 
this time at approximately 2.6 cents per carton. Thus, for a retailer 
to be compelled to hire additional staff to compensate for the loss of 
self-service displays, cigarette and smokeless tobacco product 
purchases would have to account for a substantial number of 
transactions. Some retailers may indeed feel that they need to hire 
additional staff, but the agency believes that the rule's benefits--
reducing young people's access to cigarettes and smokeless tobacco 
nationwide--outweigh the hiring and accompanying economic burdens that 
might be imposed on some retailers. Moreover, because the final rule 
permits self-service displays (merchandisers only) in facilities that 
are inaccessible to under 18 people at all times, the final rule's 
impact on some retailers may be reduced.
    FDA also disagrees with the comment claiming that the agency 
violated the Unfunded Mandates Reform Act. The preamble to the 1995 
proposed rule contained a discussion of the Unfunded Mandates Reform 
Act as well as the estimated added labor costs in the ``Analysis of 
Impacts'' (60 FR 41314 at 41367 and 41359 through 41372).
    (91) One comment disputed FDA's estimate that eliminating self-
service would result in 10 seconds of additional labor time for most 
retail transactions. The comment, however, did not provide any estimate 
of the time that would be required.
    The agency did not receive any data to suggest that the additional 
labor time would be greater or less than 10 seconds. While some 
transactions may take more than 10 seconds, the agency believes that 
the additional labor time will be so negligible that it will not be a 
significant burden on the retailer.
    c. Mail-order sales and mail-order redemption of coupons.--i. Mail-
order sales. Proposed Sec. 897.16(c) would also have prohibited the use 
of mail-order sales and mail-order redemption of coupons. The preamble 
to the 1995 proposed rule stated that mail-order sales and mail-order 
redemption of coupons do not involve a face-to-face transaction that 
would enable verification of the consumer's age.
    The agency received thousands of comments on the proposed 
restriction against the mail-order sale of cigarettes and smokeless 
tobacco. Comments supporting the proposed restriction noted that it 
would make cigarettes and smokeless tobacco more difficult for young 
people to obtain. Specifically, comments stated that ``mail-order sales 
should be prohibited since the seller has obvious difficulties 
verifying the age of the purchaser in selling where there is no face-
to-face encounter.'' A comment from 26 State attorneys general stated 
that ``ending distribution of tobacco by mail-order * * * will greatly 
assist our efforts to enforce compliance with our state laws.'' As a 
result of some comments discussed in detail below, however, the final 
rule permits mail-order sales, except for redemption of coupons and 
free samples.
    (92) The agency received hundreds of comments opposing the proposed 
restriction against mail-order sales. Many comments were submitted by 
older smokers (senior citizens, retirees on fixed incomes, etc.) who 
identified themselves as pipe tobacco smokers who purchased tobacco 
products through the mail; most individuals appeared to be clients from 
one tobacco product supply house in Tennessee. These comments stated 
that young people do not smoke pipe tobacco and added that they would 
like to continue to purchase their pipe tobacco through the mail.
    The agency believes that the comments misinterpreted the 1995 
proposed rule. The preamble to the 1995 proposed rule stated that the 
rule did not apply to pipe tobacco or to cigars because FDA has no 
evidence demonstrating that pipe tobacco and cigars are drug delivery 
devices under the act or that young people use such products to any 
significant degree (60 FR 41314 at 41322).
    (93) One comment asserted that the proposed mail-order provision is 
unauthorized and contrary to law. According to the comment, neither 
section 520 of the act nor any other provision of the act gives FDA the 
authority to declare matter unmailable. The comment explained that, 
under the Prescription Drug Marketing Act (PDMA), prescription drug 
samples may be sent through the mail to those authorized by law to 
obtain them. Furthermore, the comment argued, Congress has specifically 
determined and legislated what products should not be sent through the 
mail (39 U.S.C. 3001(f) and (g) (Federal statute on ``nonmailable 
matter'')).
    The agency disagrees with the comment. Section 520(e) of the act 
expressly authorizes the agency to issue regulations pertaining to the 
sale, distribution, or use of a restricted device. Restrictions on the 
sale or distribution of such a device through the mail are clearly 
within the scope of FDA's authority under that section.
    Additionally, FDA does not agree that the PDMA or 39 U.S.C. 3001 
prevents the agency from acting on mail-orders. The PDMA's mail-order 
restrictions represented a congressional response to a specific 
problem, namely the diversion of adulterated prescription drug products 
(including drug samples) into illegal markets. Here, the products in 
question are devices rather than prescription drugs, and the rule does 
not purport to address the diversion of adulterated cigarettes or 
smokeless tobacco or samples of those products.
    Similarly, the Postal Service provision (39 U.S.C. 3001) on 
``nonmailable matter'' does not preclude FDA from issuing regulations 
pertaining to the distribution of a regulated device. The provision 
simply states that certain items or types of items are nonmailable and 
directs the United States Postal Service (USPS), in certain situations, 
to issue regulations (such as regulations pertaining to fragrance 
advertising samples). FDA interprets 39 U.S.C. 3001, therefore, as 
establishing certain ``nonmailable'' items for USPS purposes rather 
than precluding FDA from regulating the sale and distribution of a 
device pursuant to its device authority. Nevertheless, as discussed in 
comment 94 below, FDA has amended the rule to permit mail order sales, 
so the issue of the USPS restrictions on nonmailable matter is moot.
    (94) The agency received many comments from individuals who 
contended that the proposed mail-order restriction is unwarranted 
because the agency cited no studies to demonstrate that young people 
actually use the mail to obtain cigarettes. One comment noted that IOM 
acknowledges that ``the extent of mail-order purchase of tobacco 
products by minors is not known.'' According to the comment, the mail-
order restriction must be based on actual evidence that a substantial 
number of young people use the mail to purchase cigarettes and not 
based on ``theoretical purchasability.''
    Other comments stated that young people do not obtain cigarettes 
through the mail because they do not possess checks or credit cards to 
effectuate mail-order purchases. In addition, the comments questioned 
whether young people are patient enough to wait several weeks to obtain 
tobacco products. A few comments, including a comment from a mail-order 
firm, contended that mail-order purchases would be too expensive for 
young people, either because of the cost or the

[[Page 44459]]

minimum order sizes (which, according to one comment, usually consists 
of several pounds of tobacco). These comments opposed the proposed 
mail-order restriction on the basis that it would not effectively 
reduce young people's access to tobacco products and would instead 
eliminate an adult's access to entirely legal tobacco products.
    Other comments from firms with a significant mail-order business 
stated that the elimination of mail-order sales would force the firms 
to terminate staff or go out of business.
    The agency also received many comments from adults opposing the 
proposed mail-order restriction. These comments stated that because 
mail-order sales are highly preferable to purchases in retail stores 
the products sold through the mail are unavailable in stores or are 
less expensive than those sold in stores. Other comments (including one 
from a prison inmate) said that because mail-order sales serve those in 
rural or isolated areas, eliminating mail-order sales would eliminate 
the principal or sole source of tobacco for those adults.
    After carefully reviewing the comments, the agency has decided to 
delete mail-order sales from Sec. 897.16. The restriction was intended 
to preclude young people from having easy access to cigarettes and 
smokeless tobacco. However, there is inadequate evidence demonstrating 
that young people use mail-order sales to any significant degree. This 
lack of evidence may indicate that it is not relatively easy for young 
people to purchase cigarettes and smokeless tobacco through the mail.
    FDA also considered the impact of the proposed mail-order 
restriction on adults. The agency does not intend to unreasonably 
interfere with an adult's ability to obtain legally his or her 
preferred tobacco products.
    Consequently, FDA has amended Sec. 897.16(c) to allow mail-order 
sales of cigarettes and smokeless tobacco. The agency emphasizes, 
however, that the final rule retains the restrictions against the 
redemption of coupons and distribution of free samples through the 
mail. This amendment is consistent with the IOM Report which 
recommended a suitably limited Federal ban on the distribution of 
tobacco products through the mail as part of a long-term access 
strategy and, at a minimum, restrictions against the mail-order 
redemption of coupons and the distribution of free samples through the 
mail. \72\
---------------------------------------------------------------------------

    \72\ IOM Report, pp. 108, 225-226.
---------------------------------------------------------------------------

    FDA remains concerned, however, that young people may turn to mail-
order sales as the rule's restrictions against other forms of access 
(such as vending machines and retail stores) become effective. 
Accordingly, FDA strongly advises mail-order firms to take appropriate 
steps to prevent sales to young people and reminds mail-order firms 
that Sec. 897.14(a) prohibits the sale of cigarettes and smokeless 
tobacco to anyone under age 18. The agency will monitor the sales of 
mail-order tobacco products, and if FDA determines that young people 
are obtaining cigarettes or smokeless tobacco through the mail, the 
agency will take appropriate action to address the situation.
    (95) Several comments criticized the agency for failing to consider 
less restrictive alternatives. The comments noted that tobacco mail-
order houses require payment by check or credit card. Other comments 
would amend the rule to require firms to maintain records evidencing 
compliance with proof of age requirements. Another comment suggested a 
requirement for photocopies of photographic identification cards, such 
as an identification with a drivers license number, for mail-order 
transactions.
    As stated previously, FDA has amended the final rule to permit 
mail-order sales, but will monitor such sales to ensure that young 
people do not obtain cigarettes or smokeless tobacco through the mail. 
The agency, therefore, strongly advises firms to take appropriate 
measures to prevent sales to young people.
    (96) Several comments expressed concern about the financial well 
being of the USPS. These comments predicted that the USPS would lose 
income if tobacco products could no longer be sent by mail. The 
comments predicted that the USPS would be forced to raise postal rates 
to compensate, thus affecting product users and nonusers alike.
    As stated previously, the agency has amended the rule to permit 
mail-order sales to continue. However, FDA notes that speculative or 
theoretical impacts on the USPS are not an appropriate basis for 
determining how or whether to regulate a restricted device under the 
act.
    (97) One comment representing the concerns of specialty tobacco 
products noted that 90 percent of its manufacturer-distributor-retailer 
distribution system uses the mail or other commercial carriers. This 
comment requested that FDA clarify that the proposed restriction on 
mail-order sales pertained to mail-order sales to the ultimate user 
rather than to inter-company transfers.
    Proposed Sec. 897.16(c) was intended to address sales and 
distributions to consumers. Transactions and shipments between 
manufacturers, distributors, and retailers, therefore, are not subject 
to the restrictions on mail-order sales of cigarettes and smokeless 
tobacco. However, because the final rule permits mail-order sales, 
there is no need to amend the rule to clarify this point.
    (98) One comment supported the restriction against mail-order sales 
in part because, the comment claimed, such sales permit the purchaser 
to avoid taxes on these products (by purchasing the products from firms 
in States with lower taxes). The comment also stated that eliminating 
these sales would help Canadians because American mail-order firms are 
not subject to high Canadian taxes and can sell comparatively lower-
cost cigarettes in Canada. The comment said this practice increases 
cigarette consumption in Canada and undermines the health benefits 
resulting from high Canadian taxes.
    The issues raised by the comments are beyond the scope of this rule 
and FDA's authority.
    ii. Mail-order redemption of coupons. Proposed Sec. 897.16(c) would 
have prohibited mail-order redemption of coupons. The preamble to the 
1995 proposed rule addressed mail-order redemption of coupons in 
conjunction with mail-order sales, and the restriction against mail-
order redemption of coupons was meant to apply only to coupons that a 
prospective purchaser would send through the mail (regardless of 
whether the prospective purchaser used the USPS or a private carrier) 
to a firm to obtain cigarettes or smokeless tobacco.
    (99) Most comments on this issue mistakenly assumed that FDA was 
proposing to ban all direct mail coupons. These comments contended that 
direct mail coupons are redeemed during face-to-face transactions at 
larger retail establishments such as grocery stores. For the most part, 
these comments suggested that young people do not routinely use coupons 
to purchase tobacco products, noting that the smaller, convenience 
stores where young people frequently obtain cigarettes and smokeless 
tobacco often do not accept coupons.

[[Page 44460]]

    In contrast, FDA also received several comments supporting the 
proposal to eliminate mail-order redemption of cigarette and smokeless 
tobacco coupons. For example, the attorney general for a populous 
northeastern State commented that ``[i]n another operation conducted by 
my office earlier this year, 30 minors mailed in coupons to obtain free 
samples of smokeless tobacco products from United States Tobacco 
Company. Virtually all of the minors were provided with such free 
samples.''
    Proposed Sec. 897.16(c)'s reference to mail-order redemption of 
coupons was directed at the redemption of coupons through the mail. The 
provision was not intended to prevent adults from redeeming coupons at 
a point of sale or from receiving coupons through the mail. FDA based 
this provision on the IOM Report which, among other things, noted that 
value added promotions, including coupons, constituted the largest 
market expenditure by the tobacco industry in 1991, that coupons are 
accessible to young people through direct mail campaigns, and that 
price-sensitive young people are attracted to such schemes or may be 
increasingly attracted to such schemes as their other sources of 
tobacco products are restricted. \73\
---------------------------------------------------------------------------

    \73\ Id.
---------------------------------------------------------------------------

    Comments supporting this provision confirmed the need for 
prohibiting mail-order redemption of coupons. These comments reported 
incidents where one or more young people obtained several packages of 
cigarettes or smokeless tobacco by sending in coupons (usually for free 
samples). Consequently, the final rule retains the restriction against 
mail-order redemption of coupons. FDA adds that, for purposes of this 
subpart, ``mail'' is not confined to USPS delivery but includes items 
shipped through private carriers.
    d. Free samples. Proposed Sec. 897.16(d) would have prohibited 
manufacturers, distributors, and retailers from distributing or causing 
to be distributed any free samples of cigarettes or smokeless tobacco. 
The agency proposed this restriction because free samples are often 
distributed at ``mass intercept locations,'' such as street corners and 
shopping malls, and at events such as festivals, concerts, and games. 
The preamble to the 1995 proposed rule stated that free samples 
represent a ``risk-free and cost-free'' way for young people to obtain 
and possibly use cigarettes or smokeless tobacco and that, when free 
samples are distributed at cultural or social events, peer pressure may 
lead some young people to accept and to use the free samples (60 FR 
41314 at 41326).
    The preamble to the 1995 proposed rule also cited surveys and 
reports demonstrating that young people, including elementary school 
children, can obtain free samples easily. Young people were able to 
obtain free samples despite industry-developed, voluntary codes that 
supposedly restrict distribution of free samples to underage persons. 
The agency cited the IOM Report which suggested that distribution of 
free samples to young people occurs because the samplers are often 
placed in crowded places and operating under time constraints that may 
limit their ability to request proof of age. The IOM Report added that 
the samplers are usually young themselves and, as a result, ``may lack 
the psychological wherewithal to request proof of age and refuse 
solicitations from those in their own peer group'' (60 FR 41314 at 
41326).
    (100) FDA received a few comments that opposed any restrictions on 
free samples, claiming that eliminating free samples would violate the 
``rights'' of adult consumers, reduce choices for adults, or deprive 
adults of the opportunity to save money.
    In contrast, many comments supported proposed Sec. 897.16(d), 
including several that opposed the remainder of the rule but expressly 
supported a prohibition on the distribution of free samples. Several 
comments stated that young people can easily obtain free samples; a few 
comments, including two from 12-year old students, mentioned that their 
classmates were able to receive free samples or reported that young 
people were able to receive free samples without being asked to show 
proof of age. One comment even reported that a young person was able to 
receive 4 cigarette packages through the mail as free samples, while 
another claimed to have seen 12 cans of smokeless tobacco being given 
to teenagers.
    Another comment supported the provision, based on the author's own 
experience when he was 15 years old; a neighborhood grocer gave him and 
his friends free cigarettes ``until we were hooked'' and then the 
grocer ``had steady paying customers.'' Other comments supported this 
provision for the same reason that they supported eliminating single-
cigarette sales and establishing a minimum package size: Such items 
encourage young people to experiment with cigarettes or they represent, 
as a consortium of State attorneys general said, ``sales and marketing 
practices that provide young people with the easiest access to 
tobacco.''
    The agency agrees that Sec. 897.16(d) will affect adults by 
effectively requiring them to purchase cigarettes and smokeless tobacco 
rather than receive them free of charge. However, the comments opposing 
the elimination of free samples did not offer any suggestions as to how 
to prevent free samples from reaching young people. In view of the 
evidence showing that young people obtain free samples despite any 
industry-imposed restrictions or (in the case of at least one comment) 
that they obtain free cigarettes from a retailer, the agency concludes 
that the benefits of eliminating free samples as a source for young 
people outweigh the inconvenience to adults.
    FDA also disagrees with the comments asserting that eliminating 
free samples adversely affects an adult's ability to choose products or 
otherwise violates adult ``rights.'' The final rule does not alter an 
adult's ability to select or purchase cigarettes and smokeless tobacco.
    (101) Several comments submitted by manufacturers or their 
representatives opposed the prohibition against the distribution of 
free samples, stating that manufacturers use free samples to introduce 
new products, to encourage adult consumers to switch brands, or to 
thank their adult consumers for their patronage. Others comments added 
that free samples do not encourage young people to smoke or to use 
smokeless tobacco or that eliminating free samples would not reduce 
cigarette or smokeless tobacco use by young people.
    The agency is eliminating free samples because they are an 
inexpensive and easily accessible source of these products to young 
people and, when distributed at cultural or social events, may increase 
social pressure on young people to accept and use free samples (60 FR 
41314 at 41326). The preamble to the 1995 proposed rule cited studies 
and reports to support the agency's views; those documents contradict 
the comments' claim that free samples do not encourage young people to 
use these products or affect use by young people.
    As for the rule's impact on manufacturers' practices, the public 
health benefits from eliminating free samples as an avenue that young 
people use to obtain cigarettes and smokeless tobacco outweigh any 
inconvenience to

[[Page 44461]]

manufacturers who will be obliged to devise new ways to introduce new 
products, to get adults to switch brands, or to thank adult consumers. 
FDA believes that manufacturers will be able to devise new approaches 
to promote new brands or to attract new adult customers that comply 
with these regulations.
    (102) One comment expressed strong opposition to proposed 
Sec. 897.16(d). The comment argued that FDA lacked authority to ban 
free samples, especially when the agency would permit sales to adults, 
and that the agency had no evidence to support a ban on free samples. 
The comment added that the act did not extend to device samples and 
argued that Congress knows how to give FDA authority over samples, as 
evidenced by sampling provisions in the PDMA. The comment further 
stated that the term ``sample'' was over-broad because it was not 
limited to products distributed in public settings for promotional 
purposes; thus, the comment continued, any complimentary gift could be 
a ``sample'' under proposed Sec. 897.16(d).
    FDA disagrees with the comment. Section 520(e) of the act states 
that the agency may ``require that a device be restricted to sale, 
distribution, or use * * * upon such other conditions as the Secretary 
may prescribe by * * * regulation.'' Restricting free samples is 
clearly a restriction on the product's distribution.
    As for the PDMA, the comment's claim that the PDMA's sampling 
restrictions shows that Congress has not authorized FDA to regulate 
device samples (due to the absence of express language on device 
samples) fails to take into account the fact that FDA's restricted 
device authority is broader than its prescription drug authority. Also, 
the comment fails to take into account the reasons behind enactment of 
PDMA. PDMA was enacted not to give FDA new authority over prescription 
drug samples, but to curtail the illegal diversion of drugs, including 
samples, into the market. (See S. Rept. 100-303, 100th Cong., 2d sess. 
2-3 (1988).) Before PDMA was enacted, FDA regulated prescription drug 
samples in the same manner as prescription drug products. Thus, PDMA is 
not intended to give FDA new authority over samples; instead, it 
reflects a congressional decision to give FDA a comprehensive and 
explicit set of new authority to prevent illegal diversions of 
prescription drug products, including the diversion of prescription 
drug samples to illegal markets.
    FDA also declines to amend the rule to allow ``gifts.'' Allowing 
``gifts'' would enable parties to declare that their free samples were 
now ``gifts'' and therefore outside the rule and could lead to disputes 
as to whether an item was a prohibited ``sample'' or an allowable 
``gift.'' However, the agency will exercise discretion in interpreting 
and enforcing this rule. For example, a manufacturer's employee who 
sends cigarettes or smokeless tobacco to an adult relative to celebrate 
a birthday would not be subject to regulatory action under the free 
sample restriction in Sec. 897.16(c).
    (103) One comment stated that, notwithstanding the preamble to the 
1995 proposed rule, FDA has no evidence to support a restriction on the 
distribution of free samples. The comment stated that the rule 
overestimated the prevalence of sample activities and that cigarette 
sampling accounted for only 0.7 percent of the total spent on cigarette 
advertising and promotion in 1993. The comment also said that FDA 
relied on an outdated version of the cigarette manufacturers' voluntary 
code. According to the comment, the outdated code prohibited 
distribution of cigarette samples within two blocks of any ``center of 
youth activities'' and ``required samplers to demand proof of age in 
doubtful cases.'' The revised code adds that ``[s]ampling shall not be 
conducted in or on public streets, sidewalks or parks, except in places 
that are open only to persons to whom cigarettes lawfully may be 
sold.''
    In contrast, two comments cautioned FDA against deferring to a 
voluntary code or relying on the industry. One comment stated that, in 
Maine, the industry agreed to submit reports on sampling activities to 
the State in place of legislation that would have curtailed sampling 
activities, but the industry discontinued these reports as soon as 
State authorities stopped sending reminders that the reports were due. 
Another comment stated that, in Massachusetts, a lawsuit over sampling 
practices by a smokeless tobacco firm ended in a settlement whereby the 
firm would require photocopies of identification cards for all mail-in 
requests for samples. The comment said that the settlement represented 
an improvement over requiring no proof of age at all, but noted that 
the firm refused to apply this practice outside the State and that the 
restriction did not apply to other smokeless tobacco firms. The comment 
also claimed that firms often agree to restrict sampling activities 
only after adverse publicity or agree to restrict sampling activities 
without setting any measurable performance goals.
    FDA disagrees with the comment asserting that the agency has no 
evidence to support a restriction on free samples. The preamble to the 
1995 proposed rule cited several reports and surveys showing that young 
people, including elementary school children, obtain free samples 
easily (60 FR 41314 at 41326). The agency also has no assurance that 
the revised cigarette industry code will be any more effective than 
earlier versions. Moreover, as mentioned earlier in this document, FDA 
received comments stating that young people continue to receive free 
samples of cigarettes and smokeless tobacco. The comments refute the 
claim that voluntary industry restrictions on sampling preclude the 
need for FDA regulation of free samples.
    Additionally, the rule offers several important advantages over 
voluntary codes. The rule creates enforceable obligations which, if 
violated, may subject the manufacturer, distributor, or retailer to 
sanctions under the act. These sanctions, in turn, create an incentive 
for regulated parties to adhere to the act and its implementing 
regulations. A voluntary code also applies only to the parties that 
accept the code or fall within the same industry; for example, a 
voluntary manufacturers' code might not extend to distributors or to 
retailers, or, as the comment recognized, a voluntary cigarette 
manufacturers' code might differ from a voluntary smokeless tobacco 
manufacturers' code.
    Furthermore, a regulation creates uniform standards and policies 
for the same product. Those standards apply regardless of whether a 
firm is a member of a voluntary organization.
    Finally, the agency notes that, while the comment said that ``only 
0.7 percent of the total spent on cigarette advertising and promotion'' 
in 1993 went to cigarette sampling activities, this percentage still 
translates into a large sum. Cigarette advertising and promotion 
expenditures, according to the same FTC report cited by the comment, 
were approximately $6 billion in 1993. Thus, the seemingly small 
percentage devoted to cigarette sampling activities, when translated 
into dollars, represents $42 million.
    (104) Several comments supported the prohibition against the 
distribution of free samples, but suggested that FDA amend the rule to 
prevent distribution of cigarettes and smokeless tobacco at prices 
below their fair market value. One comment would define a product's

[[Page 44462]]

fair market value as the average retail price in the region. Another 
comment would amend Sec. 897.16(d) to prohibit sales or distribution of 
cigarettes and smokeless tobacco ``in return for nominal 
consideration.''
    The agency declines to amend the rule as suggested by comments. 
While the comments have merit, FDA usually has no role in the prices 
charged for an FDA-regulated product. Additionally, it would be 
difficult for FDA to monitor fair market values for various products, 
and disputes would inevitably arise as to whether the ``market'' should 
cover a broader or narrower geographic area, the data used to determine 
the fair market value, and how compliance actions would be affected by 
fluctuations in the fair market value. Similar disputes would arise 
regarding ``nominal consideration.'' Furthermore, regardless of the 
price at which the product is sold, other provisions in this subpart 
should deter or reduce access by young people.
    e. Restrictions on labeling and advertising. The agency on its own 
initiative has added Sec. 897.16(e) as a point of clarification to the 
final rule. This provision states that ``no manufacturer, distributor, 
or retailer may sell or distribute, or cause to be sold or distributed, 
cigarettes or smokeless tobacco with labels, labeling, or advertising 
not in compliance with the restrictions in Subparts C and D * * *.'' 
The restrictions on labels, advertising, and labeling in subparts C and 
D of part 897 are authorized, in part, under section 520(e) of the act 
and are considered conditions of sale, distribution, and use. 
Therefore, Sec. 897.16(e) clarifies the statutory obligations of 
manufacturers, distributors, or retailers under this rule.

V. Label

    In the 1995 proposed rule (60 FR 41314, August 11, 1995), subpart C 
of part 897 was entitled ``Labels and Educational Programs,'' and 
contained two provisions. Proposed Sec. 897.24, would have required 
cigarette or smokeless tobacco packages to contain the appropriate 
``established name'' of the product; the final rule retains that 
provision and does not make any substantive changes to it. Proposed 
Sec. 897.29 would have required manufacturers to establish and maintain 
a national educational program to discourage children from using 
cigarettes and smokeless tobacco. Based on issues raised by comments, 
proposed Sec. 897.29 has been deleted from the final rule, and instead, 
the Food and Drug Administration (FDA) has determined that issuing 
notification orders under section 518 of the Federal Food, Drug, and 
Cosmetic Act (the act) (21 U.S.C. 360h) would be the most practicable 
and appropriate means of requiring tobacco manufacturers to inform 
young people of the unreasonable health risks. Discussion of the 
comments received regarding this education provision is included in 
section VII. of this document.

A. Established Name (Sec. 897.24)

    Proposed Sec. 897.24 would have required that each cigarette or 
smokeless tobacco product package, carton, box, or container of any 
kind that is offered for sale, sold, or otherwise distributed bear 
whichever of the following established names is appropriate: 
``Cigarettes,'' ``Cigarette Tobacco,'' ``Loose Leaf Chewing Tobacco,'' 
``Plug Chewing Tobacco,'' ``Twist Chewing Tobacco,'' ``Moist Snuff,'' 
or ``Dry Snuff.''
    The preamble to the 1995 proposed rule explained that this 
provision was intended to implement section 502(e)(2) of the act (21 
U.S.C. 352(e)(2)), which states that a device shall be deemed 
misbranded if its label fails to display the established name for the 
device. Section 502(e)(4) of the act, in turn, explains that the 
``established name'' for a device is the applicable official name of 
the device designated under section 508 of the act (21 U.S.C. 358), the 
official title in a compendium if the device is recognized in an 
official compendium but has no official name, or ``any common or usual 
name of such device.'' In this case, no official names have been 
designated under section 508 of the act, and no compendium provides an 
established name for these products. Consequently, Sec. 897.24 proposed 
designating ``cigarettes,'' ``cigarette tobacco,'' and the common or 
usual names for smokeless tobacco (such as ``moist snuff'' or ``loose 
leaf chewing tobacco'') as established names for these products.
    (1) The agency received few comments on proposed Sec. 897.24. One 
comment that opposed the provision stated that it was unnecessary and 
would produce anomalous results. The comment stated that, because 
cigarettes are already required to be labeled ``cigarettes'' under 
regulations adopted by the Bureau of Alcohol, Tobacco and Firearms 
(BATF) under the Internal Revenue Code (27 CFR 270.215 (1995)), 
``Cigarettes'' is already the common and usual name and, therefore, 
there is no need to designate an ``established name.''
    The agency has concluded that the BATF requirement does not 
conflict with the act's requirement that the label bear the established 
name of these products. The agency recognizes that BATF regulations 
currently require cigarette packages to include the word ``cigarettes'' 
on the package or on a label securely affixed to the package (27 CFR 
270.215). For smokeless tobacco and chewing tobacco, BATF regulations 
require the packages to include the words ``snuff'' or ``chewing 
tobacco,'' or alternatively, ``Tax Class M'' or ``Tax Class C,'' 
respectively (27 CFR 270.216). These terms also describe the 
established name, as required in section 502(e) of the act.
    Many of the labeling provisions of the act, including section 
502(e)(2), are intended to provide important basic information to 
consumers and others coming in contact with a regulated product. In 
this case, the act requires that the established or common name be 
placed on the product's label in a clear way so that it is easily seen 
and consumers can readily identify the product. Congress provided an 
exception only for cases where compliance with this provision is 
``impracticable.'' If a manufacturer believes that it cannot comply 
with this provision of the rule, the manufacturer should consult with 
the agency to determine if it qualifies for an impracticability 
exception under section 502(e)(2) of the act.
    (2) One comment that supported the provision on established name 
recommended that, in addition to the established names set forth in the 
1995 proposed rule, little cigars and tobacco sticks should also be 
listed as separate products with their own specific established names, 
``little cigars'' and ``tobacco sticks'' ``in keeping with the manner 
and style of the established names to be used for smokeless tobacco 
products.''
    One comment that opposed the provision stated that since proposed 
Sec. 897.3(a) would define ``cigarettes'' to include little cigars, the 
same package of little cigars that must be labeled ``small cigars'' or 
``little cigars'' (under current BATF regulations, 27 CFR 270.214(c) 
(1995)), would also have to carry the established name of 
``cigarettes'' under the proposed FDA regulation. The comment argued 
that such a conflicting labeling requirement is absurd, and would 
create confusion where none now exists.
    The agency has modified the definition of ``cigarette'' found in 
proposed Sec. 897.3(a) to exclude little

[[Page 44463]]

cigars from the final rule. The agency also advises that, to the best 
of its knowledge, tobacco sticks currently are not sold in the United 
States. If tobacco sticks were to be marketed in this country, the 
agency advises that such products would be subject to premarket 
notification under section 510(k) of the act (21 U.S.C. 360(k)) and 21 
CFR part 807, and could be included under the established name of 
``cigarette tobacco,'' and therefore do not need to be listed as 
separate products at this time.

B. Package Design

    (3) Several comments noted that the 1995 proposed rule did not 
include any action to eliminate the use of the tobacco product package 
itself to influence children. A few comments cited a March 1995 
Canadian study, which found that package designs affect the ability of 
teens to associate lifestyle and personality imagery to specific brands 
and detract from the health message. \74\ Another study found that the 
``badge'' value of cigarette packages for youths was decreased when the 
packages were stripped of their unique characteristics. \75\ The 
comment suggested that the provisions of proposed Sec. 897.30, 
requiring text only with black text on a white background, should be 
extended to cigarette packages. One comment pointed out that FDA has 
the authority to require plain packaging without violating the Federal 
Cigarette Labeling and Advertising Act (the Cigarette Act), 15 U.S.C. 
1334(a), which prohibits additional statements related to smoking and 
health on cigarette packages.
---------------------------------------------------------------------------

    \74\ ``When Packages Can Speak: Possible Impacts of Plain and 
Generic Packaging of Tobacco Products,'' Health Minister of Canada, 
March 1995.
    \75\ Rootman, I., B. R. Flay, and D. Flay, ``A Study on Youth 
Smoking, Plain Packaging Health Warnings, Event Marketing and Price 
Reductions, Key Findings,'' A Joint Research Project by University 
of Toronto, University of Illinois, York University, Ontario Tobacco 
Research Unit, Addiction Research Foundation, p. 7, 1995.
---------------------------------------------------------------------------

    The agency agrees with the comments that cigarette package design 
and imagery are powerful tools that increase the appeal of the product, 
especially to young people. In the preamble to the 1995 proposed rule 
the agency cited several studies demonstrating that ``[i]magery ties 
the products to a positive visual image'' (60 FR 41314 at 41335). 
Another study showed that ``children and adolescents react more 
positively to advertising with pictures and other depictions than to 
advertising (or packaging) that contains only print or text'' (60 FR 
41314 at 41335).
    The agency has considered extending the requirements of Sec. 897.30 
(text only, black on white background) to the package itself, but 
believes at this time these measures are not necessary considering the 
comprehensive nature of the regulatory scheme contained in this rule. 
Therefore, the agency is not extending the requirements applicable to 
advertising and labeling to the package itself.

C. Ingredient Labeling

    The agency specifically requested comments on whether it should 
implement recommendations from the Ad Hoc Committee of the President's 
Cancer Panel, which recommended, among other things, that the range of 
tar, nicotine, and carbon monoxide delivered by each product be 
communicated to consumers. In addition, the Ad Hoc Committee 
recommended that smokers be informed of ``other hazardous smoke 
constituents.''
    (4) The agency received several comments suggesting that tar and 
nicotine delivery or yield information should be disclosed on product 
packages in order to assist consumers in making more informed decisions 
about the use of cigarettes. Some of these comments also suggested that 
labels list the toxins present in, or delivered from, cigarettes and 
state their effect, e.g., ``known carcinogen.''
    One comment stated that it cannot be claimed that the ingredients 
are trade secret information and, therefore, cannot be disclosed, 
because the tobacco companies voluntarily released a list of 
ingredients to the public in 1995. The comment noted that, under 
current case law, only items kept confidential qualify as trade 
secrets. (See Kewanee Oil v. Bicron Corp., 416 U.S. 470 (1974); Avtect 
Systems v. Peiffer, 21 F.3d 568 (4th. Cir. 1994).) The comment noted 
further that because companies can and do perform reverse engineering 
on another company's products, the ingredients are not trade secret. 
The comment proposed that, at a minimum, FDA should designate a partial 
list of previously disclosed ingredients and require that the list be 
included on package labels. Another comment stated that only a 
reasonable number of ingredients should be listed on the label or in a 
package insert.
    One comment stated that ingredient listing is not barred by the 
Cigarette Act or by the Comprehensive Smokeless Tobacco Health 
Education Act of 1986 (Smokeless Act). (See 15 U.S.C. 1331 et seq. and 
15 U.S.C. 4401 et seq.) These statutes require the current Surgeon 
General's warnings on tobacco products and preempt any additional 
statements relating to smoking or health from being required on 
cigarette or smokeless tobacco packages. The comment asserted that a 
list of ingredients is not a statement, and cannot be reasonably 
construed as a statement relating to smoking and health, because a 
statement expresses a point of view, whereas an ingredient list does 
not.
    One comment noted that the Cigarette and Smokeless Acts require 
manufacturers to submit annually to the Department of Health and Human 
Services (DHHS) a list of ingredients added to tobacco products, and 
the statutes further require that the lists be treated as confidential 
commercial or trade secret information. (See 15 U.S.C. 1335(a) and 15 
U.S.C. 4403.) The comment stated that the confidentiality provisions in 
both statutes bind the Secretary of DHHS with respect to trade secrets, 
but do not restrict FDA's authority to require ingredient listing.
    FDA agrees that accurate information about the tar, nicotine, and 
carbon monoxide delivery from a cigarette to the user would be useful 
information. FDA is aware of the Federal Trade Commission's (FTC's) 
recent efforts to develop a system to measure, more accurately than the 
current test, the tar, nicotine, and carbon monoxide delivered by 
cigarettes. FTC has announced that it will issue a report of its 
findings regarding a new test method in the near future. FDA believes 
that it would be premature to require manufacturers to put any of this 
information on tobacco product labels before FTC has issued its report 
and made recommendations on accurately measuring the delivery of tar, 
nicotine, and carbon monoxide to product users.
    With regard to ingredients other than tar, nicotine, and carbon 
monoxide, the agency agrees that it has authority under the act to 
require labeling or listing of other substances present or delivered by 
cigarettes. (See section 502(r) of the act.) The agency notes that 
there are hundreds of ingredients added to or delivered by cigarettes 
and smokeless tobacco. Even if the agency were to require listing of 
only a ``reasonable number,'' current methodologies are not adequate to 
accurately identify and quantify the added ingredients or the 
constituents delivered by these products. Moreover, at this time there 
is not enough data to enable the agency to determine what a 
``reasonable'' number of ingredients would be or to determine which 
ingredients should be listed and

[[Page 44464]]

which should not. Therefore, the agency is not requiring the listing of 
ingredients in the rule.
    As discussed in the preamble to the 1995 proposed rule, cigarettes 
and smokeless tobacco are subject to various pre-existing requirements 
in the statute and the regulations. The preamble stated that such 
``regulations include the general labeling requirements for devices at 
part 801 (21 CFR part 801) (excluding Sec. 801.62)'' (60 FR 41314 at 
41352). The parenthetical reference was a typographical error because 
the 1995 proposed rule would have exempted such products from 
Sec. 801.61, not Sec. 801.62 (60 FR 41314 at 41342). Section 801.62 
states the requirements for ``Declaration of net quantity of 
contents.'' This provision requires that the label of an over-the-
counter device bear a declaration of the net quantity and weight of the 
contents, e.g., ``20 cigarettes.'' The agency fully expects 
manufacturers to comply with this provision and, as discussed below, 
also expects manufacturers to comply with Sec. 801.61.

D. Labeling for Intended Use

    (5) The agency received comments suggesting that FDA require 
intended use information on the package label of cigarettes and 
smokeless tobacco. Proposed Sec. 801.61(d) would have exempted 
cigarettes and smokeless tobacco from the statement of identity and 
labeling for intended use requirements of Sec. 801.61. The comments 
stated that such information informs the public about the product's 
intended use. One comment supported proposed Sec. 801.61(d).
    Based on the comments received, the agency has reconsidered the 
matter and concluded that it is appropriate to require that this 
information appear on the label. Consequently, the agency has deleted 
Sec. 801.61(d) from the final rule.
    All over-the-counter devices are required to comply with 
Sec. 801.61 and bear the ``common name of the device followed by an 
accurate statement of the principal intended action(s) of the device'' 
on the principal display panel of the package. (See Sec. 801.61.) As 
over-the-counter devices, cigarettes and smokeless tobacco are legally 
required to comply with this provision.
    In the 1995 proposed rule, the agency proposed to exempt these 
products because ``section 801.61 stems, in part, from the Fair 
Packaging and Labeling Act (FPLA), and [t]obacco products are exempt 
from the statute's requirements'' (60 FR 41314 at 41342). Further 
evaluation revealed that the requirements in Sec. 801.61 are also based 
on FDA labeling authorities including, but not limited to, section 
502(a), (c), (e), (f), and (q) of the act, and not the FPLA.
    Furthermore, section 1460 of the FPLA contains ``Savings 
provisions'' (15 U.S.C. 1460). The provisions state that ``Nothing 
contained in this Act [15 U.S.C. 1451 et. seq.] shall be construed to 
repeal, invalidate, or supersede * * *(b) the Federal Food, Drug, and 
Cosmetic Act [21 U.S.C. 301 et. seq.] * * *.'' Thus, because FDA's 
assertion of jurisdiction over these products is under its statutory 
authority under the act, any conflict between the two statutes shall be 
resolved in favor of the act. (See Jones v. Rath Packing, 430 U.S. 519 
(1977).) Consequently, section 1459 of the FPLA, which removes tobacco 
from the definition of ``consumer commodity,'' and thus, removes it 
from jurisdiction under the FPLA, is superseded by FDA's coverage of 
these products under the act.
    As stated in the preamble to the 1995 proposed rule, manufacturers 
of cigarette and smokeless tobacco are expected to comply with the 
general labeling requirements in part 801 (60 FR 41314 at 41352). For 
purposes of Sec. 801.61, the ``common name of the device'' is the 
established name as set forth in Sec. 897.24.
    To more accurately reflect the permitted intended use of these 
products, the agency has modified the statement of intended use set 
forth in the proposal. The agency proposed that the intended use of 
these products be described as a ``nicotine delivery device.'' Under 
this rule, these products may be intended for use only by persons 18 
years of age and older. Thus, a more accurate statement of the 
permitted intended use of these products is ``Nicotine Delivery Device 
For Persons 18 or Older.''
    Further authority for this requirement stems from section 520(e)(2) 
of the act (21 U.S.C. 360j(e)(2). This provision states that: ``The 
label of a restricted device shall bear such appropriate statements of 
the restrictions required by a regulation under paragraph (1) as the 
Secretary may in such regulation prescribe.'' The statement of intended 
use, in essence, incorporates the statement of one of the principal 
restrictions FDA is imposing on these products.
    Accordingly, a provision has been added to Sec. 897.25 that 
codifies this intended use statement and statement of restrictions for 
purposes of Sec. 801.61.

E. Adequate Directions for Use and Warnings Against Use (Section 502(f) 
of the act)

    (6) A few comments stated that FDA failed to discuss or provide for 
adequate directions for use, as required in section 502(f) of the act. 
The comments stated that FDA's silence on this issue is a tacit 
acknowledgment that the agency cannot have jurisdiction over these 
products because adequate directions for use cannot be prepared for 
them.
    The agency disagrees with these comments. It does not logically 
follow that because the agency was silent on this issue, it does not 
have jurisdiction over tobacco products. In fact, in the preamble to 
the 1995 proposed rule, the agency cited one of the authorities for the 
labeling requirements for these products as section 502 of the act.
    According to section 502(f) of the act, a device shall be deemed 
misbranded:
    Unless its labeling bears (1) adequate directions for use; and 
(2) such adequate warnings against use in those pathological 
conditions or by children where its use may be dangerous to health, 
or against unsafe dosage or methods or duration of administration or 
application, in such manner and form, as are necessary for the 
protection of users, except that where any requirement of clause (1) 
of this paragraph, as applied to any drug or device, is not 
necessary for the protection of the public health, the Secretary 
shall promulgate regulations exempting such drug or device from such 
requirement.
    For devices, ``adequate directions for use'' means ``directions 
under which the layman can use a device safely and for the purposes for 
which it is intended'' (Sec. 801.5). These regulations outline the type 
of information which, if missing, may lead to a product being deemed to 
be misbranded. Such information includes conditions, purposes, and uses 
for which the device is intended; quantity of dose; frequency, 
duration, time, route or method of administration; or preparation for 
use (Sec. 801.5).
    The agency acknowledges that it is very difficult to establish 
adequate directions for use for cigarettes and smokeless tobacco, 
primarily because of the inherent nature of the products, their 
addictiveness, the numerous hazards associated with their use, and 
because the behavior of each user (e.g., the depth of inhalation, the 
duration of puff, whether the filter holes are covered, and length of 
time in mouth) determines the amount of tar and nicotine delivered to 
the user from the device.
    Section 502(f) of the act provides for an exemption for adequate 
directions for use if they are ``not necessary for the

[[Page 44465]]

protection of the public health.'' For example, the agency has 
established exemptions from adequate directions for use where adequate 
directions for common uses of certain devices are known to the ordinary 
individual. (See Sec. 801.116.) Tobacco products have a very long 
history of use in this country, and they are one of the most readily 
available consumer products on the market today. Consequently, the way 
in which these products are used is common knowledge. FDA believes that 
the public health would not be advanced by requiring adequate 
directions for use. Accordingly, the agency has added a provision to 
the final rule exempting cigarette and smokeless tobacco from the 
requirement of having adequate directions for use. Section 801.126, 
states, ``Cigarette and smokeless tobacco as defined in part 897 of 
this chapter are exempt from section 502(f)(1) of the Federal, Food, 
Drug, and Cosmetic Act.''
    The agency has considered the requirement in section 502(f)(2) of 
the act that the labeling of a medical device must provide ``adequate 
warnings against use * * * by children where its use may be dangerous 
to health.'' In the agency's view, the warnings mandated by the 
Cigarette Act (15 U.S.C. 1333) and the Smokeless Act (15 U.S.C. 4402) 
satisfy this requirement. Additionally, the Surgeon General's warnings 
provide information warning against use in persons with certain 
conditions, i.e., pregnant women. Consequently, cigarettes and 
smokeless tobacco are not exempt from the statutory requirements under 
section 502(f)(2) of the act.

F. Package Inserts

    (7) Several comments stated that FDA should require cigarette and 
smokeless tobacco packages to contain package inserts that contain 
health information and information about the chemicals added to 
cigarettes and smokeless tobacco. One comment stated that FDA has 
statutory authority to require package inserts under sections 502(a) 
and (q) and 520(e) of the act. Another comment stated that the agency 
is not preempted from requiring package inserts because sections 
1334(a) and 4406 of the Cigarette Act and the Smokeless Act, 
respectively, preempt statements related to health ``on any package,'' 
not in any package.
    FDA agrees with the comments that it has statutory authority under 
the act to require package inserts for these products. Under section 
502(a) of the act, a device is misbranded if its labeling is false or 
misleading in any particular. Section 201 of the act (21 U.S.C. 321), 
the ``Definitions'' section of the act, describes the concept of 
``misleading'' in the context of labeling and advertising. Section 
201(n) of the act explicitly provides that, in determining whether the 
labeling of a device is misleading, there shall be taken into account 
not only representations or suggestions made in the labeling, but also 
the extent to which the labeling fails to reveal facts that are 
material in light of such representations or material with respect to 
the consequences that may result from use of the device under the 
conditions for use stated in the labeling or under customary or usual 
conditions of use.
    These statutory provisions, combined with section 701(a) of the act 
(21 U.S.C. 371(a)), authorize FDA to issue a regulation designed to 
ensure that persons using a medical device will receive information 
that is material with respect to the consequences that may result from 
use of the device under its labeled conditions. In the prescription 
drug context, this interpretation of the act and the agency's authority 
to require patient labeling for prescription drug products have been 
upheld. (See Pharmaceutical Manufacturers Assn. v. FDA, 484 F.Supp. 
1179 (D. Del. 1980) aff'd per curiam, 634 F.2d 106 (3rd Cir. 1980).)
    Additionally, on several occasions, the agency has required patient 
package inserts for devices, and has specified either the express 
language for the patient package insert or the type of information to 
be included in the patient package insert. These devices include 
hearing aids (Sec. 801.420), intrauterine devices (Sec. 801.427), and 
menstrual tampons (Sec. 801.430).
    The agency also agrees with the comment that it is not prohibited 
from requiring patient package inserts due to the preemption clauses in 
the Cigarette Act and the Smokeless Act. Each of the clauses in these 
statutes specifically prohibits requirements that statements relating 
to smoking and health be placed on the package. Package inserts, by 
nature, are typically found in the package.
    Although the agency believes that package inserts for these 
products are authorized under the act and would provide useful 
information to users, further evaluation would be needed to determine 
what specific information a package insert would contain. Therefore, 
the agency is not requiring them as part of this rule.

VI. Advertising

A.  Subpart D--Restrictions on Advertising and Labeling of Tobacco 
Products

    Subpart D in part 897 contains the restrictions for advertising and 
labeling of cigarettes and smokeless tobacco. Subpart D of part 897 in 
the Food and Drug Administration's (FDA's) August 11, 1995, proposed 
rule (60 FR 41314) (the 1995 proposed rule) provoked some of the 
strongest and most passionate comments from both supporters and 
opponents of the proposed restrictions. Many comments from the tobacco 
industry, the advertising industry, public interest groups, and 
individuals expressed major concerns about the legality, 
constitutionality, and wisdom of the advertising restrictions in 
general and about the underlying support for individual sections of the 
1995 proposed rule. Comments from the largest organization of 
psychologists in the world, public interest and health groups, 
individual advertisers, and individuals expressed strong support for 
the legality and constitutionality of the proposal, provided 
information supporting various provisions of the proposal, and 
emphasized the necessity for comprehensive advertising regulations.
    The purpose of the advertising regulations is to decrease young 
people's use of tobacco products by ensuring that the restrictions on 
access are not undermined by the product appeal that advertising for 
these products creates for young people. (See Central Hudson Gas and 
Electric Corp. v. Public Serv. Comm'n of N.Y., 447 U.S. 557, 569 
(1980).) Proposed subpart D of part 897 included a range of 
restrictions that attempted to preserve the informational components of 
advertising and labeling which can provide useful product information 
for adult smokers, while eliminating the imagery and color that make 
advertising appealing and compelling to children and adolescents under 
18 years of age.
    Briefly, the 1995 proposed rule included four provisions. Section 
897.30 would have defined those media in which labeling and advertising 
for cigarettes or smokeless tobacco may appear. In addition, it would 
prohibit outdoor advertising within 1,000 feet of elementary and 
secondary schools and playgrounds. Proposed Sec. 897.32 would limit all 
advertising to black text on a white background. Advertising in any 
publication that is read primarily by adults would be permitted to 
continue to use imagery and color. Further, all

[[Page 44466]]

cigarette and smokeless tobacco product advertisements would be 
required to include the product's established name and intended use, 
e.g., ``Cigarettes--A Nicotine Delivery Device,'' and cigarette 
advertisements would be required to include a brief statement, such as 
``About one out of three kids who become smokers will die from their 
smoking.'' Proposed Sec. 897.34 would prohibit the sale and 
distribution of nontobacco items, contests and games of chance, and 
sponsored events using any indicia of product identification (e.g., 
brand name, logo, recognizable pattern of color). Finally, proposed 
Sec. 897.36 outlined those conditions under which the agency would find 
the advertising or labeling of any cigarette or smokeless tobacco 
product to be false or misleading.
    In response to comments filed, FDA has modified the proposed 
regulations. Briefly, some of the more substantive changes include: The 
definition of adult-oriented publications remains unchanged, but the 
preamble makes clear that the responsibility will be assigned 
specifically to the manufacturer, distributor, or retailer of tobacco 
products that wishes to place advertisements to gather and retain 
competent and reliable evidence that the readership of the publication 
meets the criteria for an adult-oriented publication. Moreover, 
unrestricted advertising, i.e., with color and imagery, may be 
displayed at facilities described in Sec. 897.16(c)(2)(ii) that may 
sell tobacco from vending machines and self-service provided that the 
advertising, e.g., posters and signs, must be displayed so that they 
are not visible from outside the facility and are affixed to a wall or 
fixture in the facility.
    The revised intended use statement is ``Nicotine Delivery Device 
for Persons 18 or Older,'' and the agency will not require a brief 
statement other than the Surgeon General's warnings.
    As provided in the 1995 proposed rule, the final rule states that 
any event sponsored by a manufacturer, distributor, or retailer of 
tobacco products is to be sponsored only in the corporate name. Teams 
and entries also may be sponsored but only in the corporate name. The 
regulation includes a ban on all brand-identified nontobacco items, 
including those transactions based upon proofs-of-purchase. However, 
the proposed ban on contests and games has been deleted. Finally, the 
agency has decided to delete the definition of false or misleading 
advertising and labeling from this final rule because it is duplicative 
and unnecessary in light of the underlying requirements in sections 
201(n), 502(a), and 502(q) (21 U.S.C. 321(n), 352(a), and 352(q)) of 
the Federal Food, Drug, and Cosmetic Act (the act).
     Section VI.B. of this document provides a general discussion of 
the rationale for including significant advertising restrictions in the 
final regulation, including a discussion in response to comments 
concerning the theory of advertising and the importance of color and 
imagery to advertising's appeal, especially for young people. This 
section also provides a discussion of the effects of advertising on 
young people, including expert opinion and research evidence provided 
by the American Psychological Association.
    Section VI.C. of this document provides responses to questions 
raised about the constitutionality of the regulations. Section VI.D. of 
this document includes a discussion of the evidence that cigarettes and 
smokeless tobacco advertising plays a direct and material role in young 
people's decisions to purchase and use these products. This part also 
explains why restricting tobacco advertising will advance the Federal 
Government's interest in preventing the use of tobacco products by 
young people, and provides responses to comments about the evidence. 
Finally, section VI.E. of this document responds to comments concerning 
the factual evidence provided by FDA in support of its proposed 
regulation in a section-by-section format, as well as to comments 
claiming that each of these sections was not narrowly tailored to 
minimize the burden on commercial speech. \76\
---------------------------------------------------------------------------

    \76\ For the purposes of section VI. of this document, the 
agency will refer to advertising and labeling merely as 
``advertising.'' As the agency pointed out in the preamble to the 
1995 proposed rule, advertising and labeling often perform the same 
function: to convey information about the product; to promote 
consumer awareness, interest, and desire; to change or shape 
consumer attitudes and images about the product; and/or to promote 
good will for the product (60 FR 41314 at 41328). Moreover, most 
court cases involving advertising do not distinguish between the 
forms of advertising that FDA calls labeling and those referred to 
as advertising. When there is a need to distinguish between the two 
forms of promotion, for example, when labeling and advertising are 
subject to different statutory requirements, this document will make 
clear what is being discussed.
---------------------------------------------------------------------------

B.  The Need for Advertising Restrictions

    In the preamble to the proposed 1995 rule, FDA tentatively asserted 
that a preponderance of the quantitative and qualitative studies of 
cigarette advertising suggested: (1) A causal relationship between 
tobacco advertising and tobacco use by young people, and (2) a positive 
effect of stringent advertising measures on smoking rates and on youth 
tobacco use. In arriving at this tentative finding, FDA relied heavily 
on the National Academy of Sciences Institute of Medicine's (IOM's) 
Report entitled Growing Up Tobacco Free, Preventing Nicotine Addiction 
in Children and Youths, Washington, DC 1994 (the IOM Report) and the 
Department of Health and Human Services' (DHHS') Center for Disease 
Control and Prevention's (CDC's) Report entitled Preventing Tobacco Use 
Among Young People, A Report of the Surgeon General (1994) (1994 SGR). 
Both indicated that advertising was an important factor in young 
people's tobacco use, and that restrictions on advertising must be part 
of any meaningful approach to reducing smoking and smokeless tobacco 
use among young people. In addition, FDA was careful to note that 
industry statements and actions and examples of youth oriented 
advertising and marketing campaigns lent support to the agency's 
findings.
    FDA's review and consideration of the comments received has led the 
agency to conclude that advertising plays a material role in the 
decision by those under 18 to use tobacco products.
1. Advertising and Young People
    (1) Comments from the tobacco industry argued that FDA had simply 
assumed that young people found cigarette and smokeless tobacco 
advertising to be appealing, and that there was no empirical evidence 
of how young people actually perceived the imagery displayed in 
cigarette and smokeless tobacco advertisements. The comments argued 
that the research cited by the agency relates primarily to the role of 
imagery in brand choice decisions. In addition, several comments 
disputed FDA's evidence that young people are particularly vulnerable 
to image-oriented advertisements. To respond to these comments, it is 
necessary to describe the function of advertising and how it affects 
young people.
    a. Function of advertising. Advertisers use a mix of advertising 
and promotional vehicles to call attention to the product they are 
selling--to describe its properties, to convey its superiority over 
other products, and in some cases to give it an allure above and beyond 
the qualities of the product itself. (A red convertible can be a mode 
of transportation; it can also tell people a

[[Page 44467]]

lot about who you are, or who you think you are or want to be.)
    Advertising creates a matrix of attributes for a product or product 
category and beliefs about the product and its possessor. It can serve 
to convey images that are recalled later when an event prompts the 
consumer to think about a purchase. Consumers, as a general rule, 
overestimate the effect that advertising has on the market in general, 
but they routinely underestimate its effect upon them and their own 
purchasing choices. \77\
---------------------------------------------------------------------------

    \77\ Gunther, A. C., and E. Thorson, ``Perceived Persuasive 
Effects of Product Commercials and Public Service Announcements: 
Third Person Effects in New Domains,'' Communication Research, vol. 
19, pp. 574-575, 1992.
---------------------------------------------------------------------------

    As discussed in sections VI.B.1.b. and VI.B.1.c. of this document, 
advertising that is diverse, image-laden, and colorful can be 
particularly effective in attracting attention in a cluttered 
advertising environment. Further, advertising that is repeated 
frequently and in as many different media as possible is most likely to 
ensure that its message is received by the maximum number of consumers. 
This trend toward the use of many media in a coordinated effort to 
communicate an advertising message supports the need for a 
comprehensive approach to mitigating the effects of tobacco 
advertising. \78\
---------------------------------------------------------------------------

    \78\ Flynn, B. S., J. K. Worden, R. H. Secker-Walker, G. J. 
Badger, B. M. Geller, and M. C. Costanza, ``Prevention of Cigarette 
Smoking Through Mass Media Intervention and School Programs,'' 
American Journal of Public Health, vol. 82, pp. 827-834, 1992.
---------------------------------------------------------------------------

    Every presentation can add to and build upon the imagery and appeal 
created for a product category or a particular brand. Print 
advertising, direct mail, and outdoor advertising help to create an 
image of the brand (and sometimes an image of the brand's user) and 
provide information about price, taste, relative safety, and product 
developments for current or prospective users. William Campbell, Chief 
Executive Officer of Philip Morris, explained the importance of linking 
the brand imagery in various media in relationship to the success in 
marketing its Marlboro product:
     [W]e've managed to take what was originally tunnel vision 
advertising and positioning * * * into every kind of avenue * * *. 
For example, our auto racing activities are just another way to 
express the Marlboro positioning. Some would say the Marlboro Cup is 
different from Marlboro Country, but it is absolutely consistent. 
\79\
---------------------------------------------------------------------------

    \79\ ``Philip Morris Keeps Smoking--Campbell Sees Growth for 
Tobacco Unit in Declining Industry,'' Advertising Age, p. 20, Nov. 
19, 1990.
---------------------------------------------------------------------------

     The use of many different media is also important in advertising 
directed to children. An example of a successful multimedia approach 
directed to children is the cigarette smoking prevention program 
conducted by Flynn et al., in Vermont, New York, and Montana, and cited 
in the preamble to the 1995 proposed rule. \80\ This effort combined 
school cigarette smoking prevention programs with a mass media 
intervention featuring more than 50 different television and radio 
spots over a 4-year period. Some communities received the school 
cigarette smoking prevention programs alone, and others received the 
school program in combination with the mass media intervention. By the 
final year of the program, students exposed to both school and mass 
media interventions were 35 percent less likely to have smoked during 
the past week than students exposed only to the school program. 
Further, this preventive effect persisted for at least 2 years 
following the completion of the program. \81\ The researchers 
attributed the effectiveness of their program in part to the fact that 
their intervention used a wide variety of messages and message styles 
over a significant period of time.
---------------------------------------------------------------------------

    \80\ Flynn, B. S., J. K. Worden, R. H. Secker-Walker, G. J. 
Badger, B. M. Geller, and M. C. Costanza, ``Prevention of Cigarette 
Smoking Through Mass Media Intervention and School Programs,'' 
American Journal of Public Health, vol. 82, pp. 827-834, 1992.
    \81\ Flynn, B. S., J. K. Worden, R. H. Secker-Walker, P. L. 
Pirie, G. J. Badger, and B. M. Geller, ``Mass Media Interventions 
for and School Interventions for Cigarette Smoking Prevention: 
Effects Two Years After Completion,'' American Journal of Public 
Health, vol. 84, pp. 1148-1150, 1994.
---------------------------------------------------------------------------

    Thus, all media collectively along with the amount of exposure time 
to young people, can increase the effectiveness of the advertiser's 
message. For example, billboards near schools or playgrounds expose 
children to unavoidable advertising messages for a more prolonged 
period of time than billboards they pass on the highway. Further, 
sponsored events that typically last for 2 to 3 hours ensure that those 
attending the event or viewing it at home on television are exposed for 
a sustained period of time.
    b. Color contributes. Color is an important component of 
advertising. It can be used to promote a ``feeling'' and a message--
blue is cool, red is hot, green is menthol. Studies have shown that 
four-color advertisements significantly increase attention and recall 
relative to two color or black- and white- advertisements. \82\ 
Moreover, the importance of color in advertising becomes more salient 
when it is considered that most consumer behavior occurs in conditions 
of ``low involvement.'' \83\ Low involvement conditions are those that 
occur when a reader skims a magazine advertisement rather than 
carefully searching for an advertisement for information about price, 
taste, relative ``safety'' of the product, or product improvement.
---------------------------------------------------------------------------

    \82\ Hanssens, D., and B. Weitz, ``The Effectiveness of 
Industrial Print Advertisements Across Product Categories,'' Journal 
of Marketing Research, vol. 17, pp. 294-306, 1980.
    \83\ MacInnis, D. J., and L. L. Price, ``The Role of Imagery in 
Information Processing: Review and Extensions,'' Journal of Consumer 
Research, vol. 13, pp. 473-491, 1987.
---------------------------------------------------------------------------

    A recent article in The European \84\ described the importance of 
color:
---------------------------------------------------------------------------

    \84\ Short, D., ``The Colour of Money,'' The European, p. 21, 
April 10, 1996.
---------------------------------------------------------------------------

    [S]ecuring a brand colour is more important than ever, 
particularly for companies chasing a youth market. The main reason 
is the increasing use of fast and furious graphics in advertising 
and marketing communications generally. ``This makes owning a colour 
more and more important. You can keep changing the graphics, but the 
colour remains constant in the consumer's mind.'' Owning a colour 
also helps when sponsoring a sports event, for instance, ``All Pepsi 
now has to do is put up lots of blue,'' said Brant. \85\
---------------------------------------------------------------------------

    \85\ Id. Brant was commenting on Pepsi's decision to change its 
brand color to blue.
---------------------------------------------------------------------------

    c. The importance of imagery. Imagery also enhances the ability of 
advertising to communicate more quickly in low involvement situations 
and in quick exposure contexts. Pictorial information is remembered 
much better than verbal information, as pictures perform a function of 
``organizing'' the qualities of the product as depicted with an image. 
Generally, as the pictures or images in an advertisement increase (both 
in number and the proportion of the advertisement occupied by the 
image), the advertisement is more likely to be recognized, and the 
brand name more likely to be remembered. In most cases, pictorial or 
image advertising is a more robust and flexible communications medium 
and can be used to communicate with the functionally illiterate or the 
young person in a hurry. \86\
---------------------------------------------------------------------------

    \86\ Lutz, K. A., and R. J. Lutz, ``Effects of Interactive 
Imagery on Learning: Applications to Advertising,'' Journal of 
Applied Psychology, vol. 62, pp. 493-498, 1977; Hendon, D. W., ``How 
Mechanical Factors Affect Ad Perception,'' Journal of Advertising 
Research, vol. 13, pp. 39-45, 1973; See also Holbrook, M. B., and D. 
R. Lehmann, ``Form Versus Content in Predicting Starch Scores,'' 
Journal of Advertising Research, vol. 20, pp. 53-62, 1980; Twedt, D. 
W., ``A Multiple Factor Analysis of Advertising Readership,'' 
Journal of Applied Psychology, vol. 36, pp. 207-215, 1952.

---------------------------------------------------------------------------

[[Page 44468]]

    An executive from Griffin Bacal, one of the largest advertising 
agencies in New York, explained how visual imagery scored with young 
people:
     Pictures sell. Visuals count * * * even those visuals that 
seemingly have nothing to do with the product sale. * * * [including 
locations, sets, props, wardrobe, colors, numbers, sexes and ages of 
people in the ads] * * * Kids want to be like each other. Group 
acceptance, and living the life of the gang, is critical. * * * 
Similarly, kids define themselves by the product choices they make 
and share. Be sure your advertising makes the ``world'' accessible 
and ``invites'' the viewer to join. \87\
---------------------------------------------------------------------------

    \87\ Kurnit, P., ``10 Tips From the Top Agency-Exec Explains How 
Griffin Bacal Scores with Kids,'' Advertising Age Supplement, pp. 
19-20, February 10, 1992.
---------------------------------------------------------------------------

    Evidence from social psychology and marketing research shows image-
based advertising, such as that employed by the cigarette and smokeless 
tobacco industry, is particularly effective with young people, and that 
the information conveyed by imagery is likely to be more significant to 
young people than information conveyed by other means in the 
advertisement.
    According to the ``elaboration-likelihood model of persuasion,'' 
persuasive communications, such as advertisements, can persuade people 
either: (1) By the ``central route,'' or (2) by the ``peripheral 
route.'' \88\ The central route refers to the process by which a person 
reads the messages or information contained in the advertisement and 
thinks carefully about it and is influenced by the strength of its 
arguments. The peripheral route is a process in which individuals, 
particularly young people, are more likely to pay attention and be 
persuaded by peripheral cues such as attractive models, color and 
scenery, which are unrelated to the primary parts of the message. 
Therefore, a young person, or anyone who is unmotivated or unable to 
carefully consider the arguments in a message, is likely to be 
persuaded via the peripheral route.
---------------------------------------------------------------------------

    \88\ Petty, R. E., and J. T. Cacioppo, Communication and 
Persuasion: Central and Peripheral Routes to Attitude Change, 
Springer-Verlag, New York, p. 3, 1986.
---------------------------------------------------------------------------

    In markets where most brands in a product category are similar (as 
is the case with cigarettes and smokeless tobacco products), most 
advertising provides little, if any, new information. Thus, peripheral 
cues (such as color and imagery) take on added significance. Moreover, 
according to the model, for children, the motivation and ability to 
``elaborate'' upon the arguments (pay attention to and think about the 
factual information) contained in cigarette and smokeless tobacco 
advertising are relatively low, making young people more susceptible to 
influence from peripheral cues such as color and imagery.
    Finally, according to the comment from the nation's largest 
psychological association, children generally have less information-
processing ability than adults, and they are less able or less willing 
to pay attention to the factual information in the advertisements. This 
comment stated that because any possible negative health consequences 
associated with using tobacco products are relatively far in the future 
for them, children are less motivated than adults to carefully consider 
information such as tar and nicotine content or the Surgeon General's 
warnings, which are contained in cigarette and smokeless tobacco 
advertising. Thus, the comment concludes, color and imagery in 
advertisements are important components for young people. \89\
---------------------------------------------------------------------------

    \89\ See also, Huang, D. P., D. Burton, H. L'Howe, and D. M. 
Sosin, ``Black-White Differences in Appeal of Cigarette 
Advertisements Among Adolescents,'' Tobacco Control, vol. 1, pp. 
249-255, 1992.
---------------------------------------------------------------------------

    A communications researcher who provided comments on FDA's 1995 
proposed rule for the consolidated comment of the cigarette industry 
asserted that the elaboration likelihood model was relevant to the way 
children respond to tobacco advertising, but took a somewhat different 
view than that expressed above. Specifically, the comment stated that 
children are most likely to use the central route when they are ego-
involved in the subject of persuasion, and that ``ego-involvement 
generally comes from those subjects which are salient to the groups 
with which one is aligned - e.g. peers.'' However, the comment also 
stated that because children would have no real experiences surrounding 
the initiation of cigarette smoking, they would be likely to engage in 
peripheral processing, and would rely on credible sources, such as 
peers. The comment contended,
     The reason the elaboration likelihood model is relevant here is 
that the decision to begin smoking cigarettes does not come out of a 
set of fixed or habituated experiences personal to the decision 
maker. For that reason this decision is likely to be one on which a 
person is particularly susceptible to the influence of others, and 
therefore source credibility becomes key. [Emphasis added].
    The agency is not convinced by the comment. This explanation does 
not address children's responses to tobacco advertisements--it 
essentially assumes that children are influenced by advertising only 
insofar as it is filtered through the experience of their peers. This 
reasoning is both circular and illogical. However, the agency does 
concur with the comment's view that children typically process tobacco 
advertising via the peripheral route, that children are particularly 
susceptible to the influence of others regarding the decision to start 
smoking or to use smokeless tobacco, and that perceived source 
credibility plays an important role. FDA maintains that the ``source'' 
of the persuasive message in tobacco advertising is frequently conveyed 
by the imagery presented in the advertisement. The same comment 
expressed this sentiment, stating ``[s]ince the media consumer often 
does not know the writer or broadcaster personally, the consumer or 
receiver may attribute source credibility to the media themselves.'' To 
the extent that characters featured in tobacco advertising, such as Joe 
Camel, the Marlboro Man or the attractive models or race car heroes 
typically portrayed in such advertising appear credible and appealing, 
they are perceived as credible sources, and could influence children 
regarding the decision to smoke or to use smokeless tobacco products.
2. Advertising and Adults
    (2) Several comments from the tobacco industry and the advertising 
industry stated that cigarette and smokeless tobacco advertising plays 
an important economic role in tobacco marketing. A comment from the 
tobacco industry stated that FDA proposed restrictions would: (1) 
Substantially impair advertising of tobacco to adults; (2) deprive 
adults of useful information about products and services such as 
availability, price, and quality; (3) reduce the incentive and ability 
to market improved products; and (4) deprive adult smokers of the 
benefits of competition to provide a broad range of choices and to 
assure that tobacco products are provided at the lowest possible cost. 
Consequently, the comment said that the 1995 proposed rule would have a 
far greater adverse impact on advertising to adults than on advertising 
seen by young people.
    One comment from an advertising agency argued that restrictions on 
the advertising of tobacco products would ``significantly erode the 
progress made over the past 15 years in increasing the quantity and 
variety of information readily available to the public.'' This

[[Page 44469]]

progress, the comment reiterated, has benefited and continues to 
benefit the public.
    Further, several comments argued that unfettered advertising is 
consistent with our Nation's belief in providing the broadest possible 
range of information to individuals, so that they can exercise informed 
judgment in their daily lives. For these reasons, the comment stated, 
further restrictions on the advertising of legal products would not be 
in the public interest and should be opposed.
    FDA recognizes, as these comments maintained, that imagery and 
color make advertising appealing to adults, as well as to children, and 
that advertisers consistently use these elements to make advertisements 
compelling and attention getting. Moreover, removal of color and 
imagery will make advertising's role in presenting information to 
adults more difficult. However, as stated more fully in the preamble to 
the 1995 proposed rule, FDA has attempted to tailor its advertising 
restrictions as narrowly as possible consistent with its purpose of 
reducing young people's attraction to and use of tobacco. Thus, rather 
than banning all advertising, the proposed regulations retain the 
informational function of advertising by permitting text-only 
advertising while removing color and imagery from those advertisements 
to which young people are unavoidably exposed.
    FDA does not believe that these restrictions should dramatically 
increase search costs for adult smokers and smokeless tobacco users who 
are actively looking for information on price and new product 
innovations. Text-only advertising requires a high involvement on the 
part of the consumer but can realistically be expected to provide 
sufficient information to carry the message and also provide sufficient 
appeal to attract current smokers and smokeless tobacco users. Some 
advertising for low-tar products relies on text-only or text with few 
pictures.
    If the information about product type is important and desired by 
adult tobacco users, it can and will be provided by text-only 
advertisements if the industry desires to make the information 
available. As noted above, advertising for low-tar cigarettes is 
generally high-involvement advertising at the present and therefore can 
be expected to survive in a text-only environment. Nonetheless, the 
agency recognizes that it may be more difficult for advertising, 
without imagery and color, to attract the attention of current tobacco 
users. However, the agency has decided that the public health benefits 
of reducing advertising's ability to create appeal for young people 
greatly outweighs the tobacco companies' interest in unrestricted 
advertising to adults.
    The position argued by these comments is essentially that industry 
has the right to communicate freely with its intended audience 
regardless of the impact its advertising has on the illegal and 
vulnerable audience of children and adolescents. Other comments counter 
this comment asserting that it is the Government's obligation to 
protect children because of their special vulnerabilities, their lack 
of experience and knowledge, and their limited ability to make 
appropriate decisions regarding behavior that will have lifelong health 
consequences. FDA believes its obligation with respect to tobacco 
products is to safeguard the health and safety of young people to 
ensure that they do not begin a potentially lifelong addiction to 
products that cause so much disease and premature death.

C.  The Regulations Under the First Amendment 

1. Introduction
    Under section 520(e) of the act (21 U.S.C. 360j(e)), FDA included a 
number of proposed conditions in the 1995 proposed rule on how 
cigarettes and smokeless tobacco could be advertised as part of its 
proposed restrictions on the sale of these products. The agency 
tentatively found that these conditions are necessary to reduce the 
advertising's ability to create demand for these products--that is, the 
desire to purchase them--among children and adolescents under 18, for 
whom these products are not safe (60 FR 41314 at 41350). In addition, 
FDA tentatively found that it was necessary to include an industry-
financed education program among these conditions.
    In proposing these measures, FDA recognized that they would have to 
pass muster under the protections of communication extended by the 
First Amendment to the United States Constitution, in particular, under 
the protections extended to commercial speech (60 FR 41314 at 41353). 
Before addressing the commercial speech analysis, however, this section 
responds to several comments which registered more fundamental 
complaints under the First Amendment about FDA's proposed approach.
    (3) Several comments, which were from the tobacco and advertising 
industries, found in statements made by FDA evidence of an intent not 
merely to protect the health of young persons but to ``delegitimize'' 
lawful adult conduct, to engage in ``viewpoint discrimination,'' and to 
run ``roughshod'' over the rights of cigarette and smokeless tobacco 
companies. One comment said that it is outside the realm of permissible 
exercise of governmental power to suppress speech for the purpose of 
instilling values that the Federal Government believes are appropriate. 
This comment also said that the purpose of FDA's rulemaking is to 
eliminate speech that conflicts with Government messages on smoking and 
health. The comment noted that FDA's goal is to bring about the demise 
of smoking as a social custom. However, a comment from a consumer group 
disagreed, saying instead that FDA's 1995 proposed rule was limited to 
covering only those activities designed to promote the sale of the 
product to young people and thus covered only commercial speech.
    FDA has carefully considered these comments and has taken the 
concerns that they expressed into account as it developed this final 
rule. The agency recognizes that its authority is limited by the act 
and the Constitution. Thus, it has scrutinized each of the conditions 
on advertising that it proposed in light of whether the condition 
advances the purposes of section 520(e) of the act or some other 
section of the act, and whether the condition is consistent with the 
First Amendment.
    FDA's primary concern is the public health. Because of the 
potentiality for harmful effects on individuals under 18 from use of 
cigarettes and smokeless tobacco, FDA is adopting restrictions on 
advertising among other restrictions on the sale, distribution, and use 
of these products. These restrictions will mean that it should be more 
difficult to sell these products to people under age 18, who currently 
purchase these products in significant numbers.
    The agency acknowledges that insofar as these restrictions help 
reduce the sale of tobacco products to young people, the restrictions 
will have an adverse effect on the cigarette and smokeless tobacco 
companies. However, this fact does not mean that FDA is trying to bring 
about the demise of the tobacco industry. The restrictions that FDA is 
adopting have been tailored to help reduce tobacco advertising's 
ability to create an underage market for these products, while leaving 
open ample avenues for cigarette and smokeless tobacco companies to 
communicate to current users 18 years of age or older about their 
products. As explained in detail in

[[Page 44470]]

section VI.E. of this document, this is all that the First Amendment 
requires.
    (4) Several comments argued that, in the 1995 proposed rule, FDA 
had understated the protection that commercial speech is afforded under 
the First Amendment. These comments pointed out that advertisers and 
consumers have powerful First Amendment rights to send and receive 
commercial messages. To support this point, one comment pointed out 
that the Supreme Court has recognized that the free flow of commercial 
information is ``indispensable to proper allocation of resources in a 
free enterprise system.'' (See Virginia State Bd. of Pharmacy v. 
Virginia Citizen's Consumer Council, Inc., 425 U.S. 748, 765 (1976).) 
The comment also pointed out that the Court went on to say that a 
``particular consumer's interest in the free flow of commercial 
information * * * may be as keen, if not keener by far, than his 
interest in the day's most urgent political debate'' (Id. at 763).
    Another comment, however, citing Ohralik v. Ohio State Bar Ass'n., 
436 U.S. 447 (1978), stated that there are dangers inherent in a free-
for-all marketplace, and that, at times, vigilant Government action is 
needed to protect the public from false, deceptive, or overbearing 
sales campaigns.
    In addition to the comments, the agency has considered the Supreme 
Court's recent decision in 44 Liquormart, Inc. v. Rhode Island, 116 
S.Ct. 1495 (1996), which was handed down after the rulemaking record 
was closed. The Court ruled unanimously that Rhode Island's ban on all 
dissemination of price advertising for alcoholic beverages was 
violative of the First Amendment. No rationale for this judgment 
commanded a majority of the Court, however. Nonetheless, FDA considered 
each part of the principal opinion, as well as the concurring opinions, 
in arriving at the decisions that are set forth in this final rule.
    FDA in no way underestimates the protection extended to commercial 
speech by the First Amendment. FDA recognizes the important societal 
interests served by this type of speech and has given full 
consideration to those interests in developing this final rule. 
Nonetheless, it is also true, as the agency stated in the 1995 proposed 
rule (60 FR 41314 at 41353 to 41354), that the measure of protection 
that commercial speech receives is commensurate with its subordinate 
position in the scale of First Amendment values, and it is subject to 
modes of regulation that might be impermissible in the realm of 
noncommercial expression. (See Florida Bar v. Went For It, Inc., 115 
S.Ct. 2371, 2375 (1995).)
    However, in 44 Liquormart, Inc., three Justices stated:
     [w]hen a State entirely prohibits the dissemination of 
truthful, nonmisleading commercial messages for reasons unrelated to 
the preservation of a fair bargaining process, there is far less 
reason to depart from the rigorous review that the First Amendment 
generally demands.
(116 S.Ct. at 1507)
    This statement has no application to the restrictions that FDA is 
imposing for two reasons. First, FDA is not entirely prohibiting the 
dissemination of commercial messages about cigarettes and smokeless 
tobacco. As explained in section VI.E. of this document, it is adopting 
carefully tailored restrictions on the time, place, and manner in which 
such messages may be conveyed so that they are not used to undermine 
the restrictions on access by minors. Second, the restrictions are 
related to the bargaining process. As explained in section II.C.3. of 
this document in the discussion of section 520(e) of the act, the 
access restrictions, and the concomitant restrictions on promotion of 
these products, derive from the fact that, at least as a matter of law, 
minors are not competent to use these products.
    ``The protection available for particular commercial expression 
turns on the nature both of the expression and of the governmental 
interests served by its regulation.'' (See Central Hudson, 447 U.S. at 
563.) FDA has weighed these factors in deciding what restrictions on 
cigarette and smokeless tobacco advertising can appropriately be 
included in this final rule.
2. The Central Hudson Test
    The comments were unanimous in agreeing that any restrictions the 
agency adopts on commercial speech will be assessed under the test 
first articulated by the Supreme Court in Central Hudson, 447 U.S. at 
563-64. This test was originally set out as a four-step analysis in 
Central Hudson; however, in one recent case, Florida Bar v. Went For 
It, Inc., the Supreme Court described the test as having three prongs 
after a preliminary determination is made, although the matters to be 
considered remain unchanged:
     Under Central Hudson, the government may freely regulate 
commercial speech that concerns unlawful activity or is misleading* 
* *. Commercial speech that falls into neither of these categories, 
* * * may be regulated if the government satisfies a test consisting 
of three related prongs: first, the government must assert a 
substantial interest in support of its regulation; second, the 
government must demonstrate that the restriction on commercial 
speech directly and materially advances that interest; and third, 
the regulation must be ``narrowly drawn'' * * *.
(115 S.Ct. at 2376 (citations omitted))
    FDA explained in the preamble to the 1995 proposed rule why the 
restrictions on advertising that it was proposing met each requirement 
of the Central Hudson test (60 FR 41314 at 41354 and 41356). The agency 
received a number of comments on its analysis--mostly from the tobacco 
industry, newspaper or magazine associations, and advertisers. These 
comments argued that FDA's proposed restrictions failed under one or 
more elements of the Central Hudson test. The agency also received 
comments from a public interest group, which has the protection of 
commercial speech as one of its interests, and from a coalition of 
major national health organizations. Both of these comments argued 
that, in virtually all respects, FDA's proposed restrictions satisfy 
the Central Hudson test.
    In the sections that follow, for each of the restrictions on 
advertising that the agency proposed, FDA will analyze the case law 
that elucidates the applicable standard, the information presented in 
comments, and all other available evidence and decide whether that 
standard is met. However, before the agency does so, it must first 
consider the preliminary inquiry under Went For It and decide whether 
the First Amendment provides any protection to the advertising that is 
restricted by this final rule.
3. Is Cigarette and Smokeless Tobacco Advertising Misleading, or Does 
It Relate to Unlawful Activity?
    As stated earlier, the preliminary inquiry under the Went for It 
case is whether the commercial speech is misleading or relates to 
unlawful activity. FDA did not specifically address this aspect of the 
Central Hudson analysis in its proposal (60 FR 41314 at 41354). 
Nonetheless, several comments did.
    Many of the comments asserted that the targeted speech concerns 
lawful conduct, and that, therefore, this aspect of the Central Hudson 
analysis is satisfied. One comment noted FDA's silence on this matter 
and said that there is thus no suggestion that cigarette advertisements 
propose an illegal transaction or urge youths to begin smoking before 
it is lawful for them to do so.
    Some comments argued, however, that cigarette and smokeless tobacco

[[Page 44471]]

advertising is not entitled to First Amendment protection because it is 
misleading, and it concerns unlawful activity. These comments pointed 
out that it is unlawful in all 50 States to sell tobacco products to 
children under the age of 18. The comments said the evidence that FDA 
assembled in its 1995 proposal suggested that manufacturers of tobacco 
products are aware that their advertising campaigns induce minors to 
experiment with tobacco products (citing 60 FR 41314 at 41330-41331), 
and that much of the promotional efforts of the tobacco industry are 
geared toward an illegal end--inducing minors to try to break the law 
by obtaining cigarettes and smokeless tobacco that may not legally be 
sold or otherwise provided to them.
    The comments also argued that governmental entities are entitled to 
broad discretion when regulating the promotion of legal products or 
activities that pose dangers to society (citing, e.g., United States v. 
Edge Broadcasting Co., 509 U.S. 418 (1993)). The comments argued that 
cigarette advertising is designed to persuade minors that any concerns 
about health hazards are misplaced or overstated, and that their peers 
are having fun because they smoke.
    Contrary positions were taken by several comments. One argued that 
the fact that the sale of tobacco to minors is illegal under State law 
does not remove the constitutional protection for advertising to adults 
an otherwise lawful product (citing Dunagin v. City of Oxford, 718 F.2d 
738, 743 (5th Cir. 1983) (en banc), cert. denied, 467 U.S. 1259 
(1984).) A second comment cited the conclusion of a respected 
researcher that: ``the suggestion that advertising messages are somehow 
working subliminally to twist children's minds before they are old 
enough to know better is a complete invention, for which there is no 
evidence whatever'' (citing McDonald, C., ``Children, Smoking and 
Advertising: What Does the Research Really Tell Us?,'' 12 International 
Journal Of Advertising 286 (1993)). These comments also argued that 
given the warnings that must appear in all tobacco advertising, it 
could not be maintained that tobacco advertising is misleading.
    FDA has carefully considered these comments. They raise the 
fundamental question of whether tobacco advertising is protected by the 
First Amendment. This question cannot be disposed of based simply on 
the question of whether such advertising explicitly urges young people 
to begin purchasing or using tobacco products before it is lawful for 
them to do so. \90\
---------------------------------------------------------------------------

    \90\ As explained more fully below, FDA finds unpersuasive the 
quote from McDonald because it does not address the means by which 
cigarette and smokeless tobacco product advertising influences 
minors' decisions on whether to purchase and use these products. 
Therefore, the agency turns to the legal issue raised by the 
comments.
---------------------------------------------------------------------------

    The Supreme Court has repeatedly said that commercial speech 
``related to'' unlawful activity is not entitled to First Amendment 
protection. (See 44 Liquormart, Inc., 116 S.Ct. at 1505 n.7 (`` By 
contrast, the First Amendment does not protect commercial speech about 
unlawful activities.''); Florida Bar v. Went For It, 115 S.Ct. 2376 
(``Under Central Hudson, the government may freely regulate commercial 
speech that concerns unlawful activity or is misleading''); Bolger v. 
Youngs Drug Products Corp., 463 U.S. 60, 69 (1983) (``The State may 
also prohibit commercial speech related to illegal behavior.''); 
Central Hudson, 447 U.S. at 563-564 (``The government may ban * * * 
commercial speech related to illegal activity.'' (citations omitted)).) 
Tobacco advertising is ``related to illegal activity'' in two 
significant respects and thus, in fact, might not be protected speech.
    First, tobacco ads, at least as a legal matter, propose a 
commercial transaction (see Virginia State Bd. of Pharmacy v. Virginia 
Citizens Consumer Council, Inc., 425 U.S. 748, 762 (1976); Pittsburgh 
Press Co. v. Human Relations Com'n, 413 U.S. 376, 389 (1973)), that is, 
to sell cigarettes and smokeless tobacco. In proposing these 
transactions, the advertisers do not differentiate between adult and 
minor purchasers. Because sales to minors are unlawful in every State, 
\91\ the undifferentiated offer to sell constitutes, at least in part, 
an unlawful offer to sell. At the very least, these advertisements are 
clearly perceived by minors as offers or inducements to buy and use 
these products. Millions of American children and adolescents act on 
these perceived offers. It is estimated that each year children and 
adolescents consume between 516 million and 947 million cigarette 
packages and 26 million containers of smokeless tobacco (60 FR 41314 at 
41315). Thus, in a practical sense, cigarette and smokeless tobacco 
advertising is proposing transactions that are illegal (see Virginia 
State Board of Pharmacy v. Virginia Citizens Council, Inc., 425 U.S. at 
772), whether or not that is the advertiser's intent. As such, the 
protections of the First Amendment might not attach to such advertising 
because it proposes an illegal transaction. (See Pittsburgh Press Co., 
413 U.S. at 389; Zauderer v. Office of Disciplinary Counsel, 471 U.S. 
626 638 (1985) (``The States and the Federal Government are free to 
prevent the dissemination of commercial speech that is false, 
deceptive, or misleading, * * *, or that proposes an illegal 
transaction * * *'' (citations omitted)).)
---------------------------------------------------------------------------

    \91\ ``State Laws on Tobacco Control--United States, 1995,'' 
Morbidity and Mortality Weekly Report (MMWR), CDC, DHHS, vol. 44, 
No. ss-6, pp. 16-17, November 3, 1995.
---------------------------------------------------------------------------

    Second, even if it is assumed, arguendo, that cigarette and 
smokeless tobacco ads are not, for constitutional purposes, literal 
offers to sell to minors, they nonetheless are ``related to'' an 
unlawful activity. Whether it is the advertiser's intent or not, as 
explained in sections VI.D.3. through VI.D.6. of this preamble, 
cigarette and smokeless tobacco advertising has a powerful appeal to 
children and adolescents under the age of 18 and through this appeal, 
by means of the image that it projects, it has an effect on a young 
person's decision to use, and thus to attempt to purchase, tobacco 
products. Yet, as stated above, sale of tobacco products to minors is 
unlawful in all 50 States, and the purchase, possession, or use of 
tobacco products by minors is unlawful in a majority of States.\92\ 
Thus, the appeal of tobacco advertising to minors is such that this 
type of advertising can appropriately be viewed as encouraging, and 
thus being ``related to'', illegal activity. As a result, it is 
arguable that, without more, FDA would be able to freely restrict such 
advertising.
---------------------------------------------------------------------------

    \92\ Id.
---------------------------------------------------------------------------

    Nevertheless, the advertising also relates to lawful activity--the 
sale of tobacco products to adults. Consequently, FDA may not have 
unlimited discretion to regulate tobacco advertising. (See Dunagin v. 
City of Oxford, 718 F.2d at 743.) At the very least, however, FDA 
should be afforded discretion to do what it has tried to do in these 
regulations; that is, to distinguish advertising that ``relates to'' 
commercial activity that, in substantial respects, is unlawful, the 
sale of tobacco products to children, from advertising that does not.
    Significantly, the Supreme Court was confronted with a situation 
similar to this in United States v. Edge Broadcasting. In Edge, the 
Supreme Court upheld a Federal statute that prohibited advertising that 
``related to'' unlawful activity (broadcast of lottery advertising by a 
broadcaster licensed to

[[Page 44472]]

a State that does not allow lotteries), but not advertising that did 
not relate to unlawful activity (broadcasting of lottery advertising by 
a broadcaster licensed to a State that allowed a lottery.)
    Edge was recently cited with approval by the plurality opinion in 
44 Liquormart Inc., 116 S.Ct. at 1511. Justice Stevens (joined by 
Justices Thomas, Kennedy, and Ginsburg) reasoned that the statute in 
Edge ``was designed to regulate advertising about an activity that had 
been deemed illegal in the jurisdiction in which the broadcaster was 
located.'' He contrasted the statute in Edge to the statute in 44 
Liquormart which ``targets information about entirely lawful behavior'' 
(Id.). Thus, the Supreme Court has countenanced distinctions in how 
speech is regulated that are based on whether the underlying conduct to 
which the speech relates is entirely lawful or not. That is exactly the 
type of distinction that FDA is drawing here.
    Thus, a credible argument can be made that advertising of 
cigarettes and smokeless tobacco, at least to the extent that it is 
related to sale of these products to children under 18, is not speech 
protected by the First Amendment, and thus that the regulations that 
FDA is adopting restricting such advertising are subject only to review 
under an arbitrary or capricious standard. (See Florida Bar v. Went For 
it, Inc., 115 S.Ct. at 2376.) However, FDA is not relying solely on 
this analysis. Alternatively, FDA has assumed that a Central Hudson 
test, such as that applied in Edge--for products that relate to both 
lawful and unlawful transactions--would be appropriate here. Therefore, 
a full analysis of these restrictions under Central Hudson follows.
    Before proceeding to the Central Hudson analysis and considering 
the comments that bear on it, FDA wants to emphasize that, even if the 
First Amendment applies to tobacco advertising, the restrictions that 
the agency is adopting have very limited impact on those attributes of 
commercial speech that are protected by the First Amendment. In 44 
Liquormart, Inc., a plurality of the Supreme Court reemphasized that 
commercial speech is protected solely because of the informational 
value:
     Advertising, however tasteless and excessive it sometimes may 
seem, is nonetheless dissemination of information as to who is 
producing and selling what product, for what reason, and at what 
price. So long as we preserve a predominantly free enterprise 
economy, the allocation of our resources in large measure will be 
made through numerous private economic decisions. It is a matter of 
public interest that those decisions, in the aggregate, be 
intelligent and well informed. To this end, the free flow of 
commercial information is indispensable.
116 S.Ct. at 1505 (emphasis added), quoting Virginia Board of Pharmacy 
v. Virginia Citizens Consumer Council.
    The restrictions that FDA is adopting have virtually no effect on 
the core informational function of commercial speech as described in 44 
Liquormart, Inc. and Virginia Board of Pharmacy. Except for billboards 
within 1,000 feet of schools and playgrounds, which, as explained 
below, present special circumstances, FDA is not restricting the 
ability of a manufacturer, distributor, or retailer to inform the 
public about what they are selling, why they are selling it, or the 
price of their products or, for that matter, about the characteristics 
of their products or about any other aspect of what they sell. FDA's 
concerns are about the ability of manufacturers to use images, color, 
and peripheral presentations (such as sponsorship) in their advertising 
and promotion of their products to create particular appeal for 
children and adolescents under 18. Thus, FDA has designed the 
restrictions that it is adopting to ensure that adults can continue to 
be informed by the information in tobacco advertising while restricting 
the noninformative aspects of advertising that appeal to children and 
adolescents under the age of 18. The agency will explain how it has 
achieved this end in the discussion that follows.
4. Is the Asserted Government Interest Substantial?
    Assuming that the Central Hudson test applies, ``[t]he State must 
assert a substantial interest to be achieved by restrictions on 
commercial speech.'' (See Central Hudson, 447 U.S. at 564.) In the 1995 
proposed rule, FDA stated that this prong of the Central Hudson test 
was satisfied because the proposed regulations serve the substantial 
Government interest of protecting the public health. FDA stated that 
the advertising restrictions will help to reduce the use of cigarettes 
and smokeless tobacco by those who are ``the most vulnerable to 
addiction and, perhaps, the least capable of deciding whether to use 
the products. Decreased use of these products will reduce the risk of 
tobacco-related illnesses and deaths'' (60 FR 41314 at 41354).
    Most of the comments that FDA received on this issue, even some 
from those who otherwise opposed the agency's proposed restrictions, 
agreed with the agency that it has a substantial interest in protecting 
the health of individuals under 18 years of age.
    (5) Two comments, however, said that the interest asserted by FDA 
is insufficient to justify the proposed restrictions on speech. One of 
those comments said that smoking is a legal and widespread activity, 
and that there is no congressional policy against smoking. One comment 
said that while the Government has a substantial interest in ensuring 
that tobacco products are used by adults only, FDA is not empowered to 
protect that interest.
    FDA strongly disagrees with the latter comments. The Government's 
interest in the public health, and particularly in the well-being of 
minors, is well-established. (See Action for Children's Television v. 
FCC, 58 F.3d 654, 661 (D.C. Cir. 1995) and 60 FR 41314 at 41354.) In 
fact, the Supreme Court has found that there is a compelling, not 
merely a substantial, interest in protecting the physical and 
psychological well-being of children, New York v. Ferber, 458 U.S. 747, 
756-57 (1982), and that the Government's interest in the well-being of 
youth and in parents' claim to authority in their own household can 
justify the regulation of otherwise protected expression, FCC v. 
Pacifica Foundation, 438 U.S. 726, 749 (1978). (See also Denver Area 
Educational Telecommunications Consortium v. FCC, 64 U.S.L.W. 4706 (in 
press) (June 28, 1996).)
    As the agency has explained in section II.B. and in the 1996 
Jurisdictional Determination annexed hereto, cigarettes and smokeless 
tobacco are drug delivery devices that are subject to regulation as 
devices under the act. Their use by children and adolescents under 18 
presents serious risk to the health of this segment of the population. 
For example, studies show that the age one begins smoking influences 
the amount of smoking one will engage in as an adult and will 
ultimately influence the smoker's risk of tobacco related morbidity and 
mortality (60 FR 41314 at 41317). In addition, the risk of oral cancer 
increases with increased exposure to smokeless tobacco products (60 FR 
41314 at 41319). Thus, the health of children and adolescents is 
related to their use of cigarettes and smokeless tobacco.
    FDA's compelling interest in the health and well-being of minors 
supports restrictions on cigarette and smokeless tobacco advertising to 
ensure

[[Page 44473]]

that advertising does not undermine FDA's restrictions on the sale of 
these products.
    One comment said that while FDA's articulated interest in 
protecting minors from harm clearly is substantial, this interest is 
not served by FDA's regulations. According to the comment, the only 
goal served directly by the proposed regulations is that of 
delegitimatizing smoking. Two comments said that under the guise of 
protecting adolescents and children, FDA is trying to ```save' all 
Americans from the `evils' of smoking.'' Two comments said that the 
agency is trying to prevent cigarette advertising from presenting 
smoking in a positive light. One comment, citing Carey v. Population 
Services International, 431 U.S. 678 (1977), said that the Government 
cannot restrict cigarette advertising because it legitimizes or 
favorably influences a young person's views toward tobacco products.
    FDA finds no merit in these comments. Advertisements for cigarette 
and smokeless tobacco are not banned by the restrictions that FDA is 
adopting. For example, the companies are free to use advertising in 
almost all media that communicates to adults about the price, taste, or 
joys of using their product, as long as they do so using black-and-
white, text-only advertisements, or using imagery and color in 
publications read primarily by adults. Thus, it is simply not true that 
manufacturers will be prevented from presenting tobacco use in a 
positive light or that they will be prevented from conveying truthful, 
nonmisleading information in almost all media.
    These regulations are intended, however, as explained in section 
VI.E. of this document, to prevent manufacturers from advertising their 
tobacco products in a way that encourages underage individuals to 
purchase these products. They are authorized by sections 520(e) and 
502(q) of the act and are in no way inconsistent with Carey v. 
Population Services International.
    Carey involved a challenge to a law that banned all advertisement 
of contraceptives. The Government argued that advertising 
contraceptives would legitimize sexual activity of young children. The 
Supreme Court said that this basis was not a justification for 
validating suppression of expression protected by the First Amendment 
(431 U.S. at 701).
    Carey is distinguishable from the present situation in several 
ways. The advertisements in that case stated the availability of 
products and services that were not only entirely legal but were 
constitutionally protected because they involved the exercise of a 
fundamental right (Id.). (The Court also struck down other provisions 
of the law that prohibited distribution of contraceptives to anyone 
under the age of 16 and by anyone other than a licensed pharmacist.) 
Cigarettes and smokeless tobacco are neither lawful for all people nor 
constitutionally protected. The sale of these products to individuals 
under 18 is unlawful in every State (see also, 42 U.S.C. 300x-26), and 
possession, purchase, or use of at least some tobacco products by this 
segment of the population is unlawful in a majority of States. \93\ 
Moreover, there was no credible suggestion in any of these comments 
that the restrictions on the sale of these products infringe on the 
exercise of a fundamental right.
---------------------------------------------------------------------------

    \93\ Id.
---------------------------------------------------------------------------

    The Supreme Court in Carey made clear the limited coverage of its 
holding. (See 431 U.S. at 702, n. 29 (``We do not have before us, and 
therefore express no views on, state regulation of the time, place, or 
manner of such commercial advertising based on these or other state 
interests.'').) Thus, given the significant differences in the two 
situations, Carey does not limit FDA's ability to adopt conditions on 
advertising that are designed to ensure that restrictions on sale to 
minors are not undermined.
    (6) Finally, a group of comments on this first prong of the Central 
Hudson test attacked FDA for being paternalistic. These comments said 
that a principal theme of commercial speech doctrine is a societal 
intolerance for Government-enforced ignorance designed to ``help'' 
consumers who are not trusted by bureaucrats to evaluate advertising 
for themselves. One comment said that how to balance short-term 
gratification against long-term risk is a uniquely personal analysis 
that is best left to individual autonomy rather than Government 
censorship. The comment said that people must be trusted to perceive 
their own best interests without Government intervention in the 
information flow. These comments take on a particular significance in 
light of the plurality's statement in 44 Liquormart, Inc. v. Rhode 
Island, 116 S.Ct. at 1508, that ``[t]he First Amendment directs us to 
be especially skeptical of regulations that seek to keep people in the 
dark for what the government perceives to be their own good.''
    FDA has no disagreement with these comments with respect to 
individuals and, in fact, finds these regulations cannot fairly be 
characterized as paternalistic with respect to that population group. 
These regulations do not prohibit the inclusion of any information in 
advertising. They also do not impose the type of ban on accurate 
commercial information that has characterized the limitations on 
commercial speech that the Supreme Court has branded as paternalistic. 
(See, e.g., 44 Liquormart, Inc., 116 S.Ct. at 1510; Virginia Bd of 
Pharmacy, 425 U.S. at 769-770.)
    The agency acknowledges, however, that in another respect, these 
regulations are paternalistic. These regulations are specifically aimed 
at protecting children and adolescents under the age of 18 from the 
appeal of tobacco advertising. The agency finds however, that for it to 
be paternalistic with respect to children and adolescents in no way 
offends the First Amendment or Supreme Court precedent. (See Denver 
Area Communications Consortium, Inc. v. FCC, No. 95-124 (U.S. June 28, 
1996) slip op. at 25.) Nothing in 44 Liquormart, Inc., for example, 
suggests in any way that government may not be paternalistic with 
respect to children and adolescents under the age of 18.
    In fact, the Supreme Court has stated: ``* * * [T]he law has 
generally regarded minors as having a lesser capability for making 
important decisions.'' (See Carey v. Population Services International, 
431 U.S. at 693, n. 15.) Given these facts--that most cigarette smokers 
smoke their first cigarette before 18, that children and adolescents 
who use tobacco products quickly become addicted to them before they 
reach the age of 18, that among smokers aged 12 to 17 years, 70 percent 
regret their decision to smoke, and 66 percent state that they want to 
quit (60 FR 41314)--the decision to smoke is among the most important 
that an individual will make. Significantly, all 50 States have 
prohibited sales of cigarettes to people under 18 years of age. These 
regulations have been tailored to help ensure that individuals do not 
make a decision on whether to smoke before they are 18 and have a 
greater capacity to understand the consequences of their actions, and 
that they are not influenced to make this decision before that time by 
advertising. At the same time, FDA has sought to ensure that the 
restrictions do not burden any more speech than is necessary to 
accomplish this goal. Thus, FDA's purpose is not inconsistent with law, 
commercial speech doctrine, or the

[[Page 44474]]

country's precepts of individual autonomy.

D. Evidence Supporting FDA's Advertising Restrictions

1. Introduction
    Having considered the preliminary inquiry and the first prong of 
the Central Hudson analysis, the agency turns to the heart of this 
analysis, whether the restrictions on cigarette and smokeless tobacco 
advertising that FDA is imposing are in proportion to the interest that 
it is seeking to advance. To meet its burden on this issue, FDA first 
must show that tobacco advertising plays a concrete role in the 
decision of minors to smoke, and that each specific restriction on this 
advertising that it is adopting will contribute to limiting its effects 
and thus to protecting the health of children and adolescents under the 
age of 18. The extensive evidence in this proceeding fully supports 
these judgments.
2. Do the Regulations Directly Advance the Governmental Interest 
Asserted?
    In Central Hudson, the Supreme Court said that any limitation on 
commercial speech that the State imposes ``must be designed carefully 
to achieve the State's goal'' (447 U.S. at 564). ``* * * [T]he 
restriction must directly advance the State interest involved; the 
regulation may not be sustained if it provides only ineffective or 
remote support for the government's purpose'' (Id.).
    The Supreme Court elaborated on what this aspect of the Central 
Hudson test requires in Edenfield v. Fane, 507 U.S. 761, 770-771 
(1993);
     It is well-established that ``[t]he party seeking to uphold a 
restriction on commercial speech carries the burden of justifying 
it.'' * * * This burden is not satisfied by mere speculation or 
conjecture; rather, a governmental body seeking to sustain a 
restriction on commercial speech must demonstrate that the harms it 
recites are real and that its restriction will in fact alleviate 
them to a material degree * * *. Without this requirement, a state 
could with ease restrict commercial speech in the service of other 
objectives that could not themselves justify a burden on commercial 
expression.
    In Edenfield, the Court struck down a Florida ban on in-person 
solicitation by Certified Public Accountants (CPA's) because the State 
board failed to demonstrate that the harm it recited was real.
     It presents no studies that suggest personal solicitation of 
prospective business clients by CPAs creates the dangers of fraud, 
overreaching, or compromised independence that the Board claims to 
fear. The record does not disclose any anecdotal evidence, either 
from Florida or another State, that validates the Board's 
suppositions.
(Id.)
    In Rubin v. Coors, the Court struck down a section of the Federal 
Alcohol Administration Act (27 U.S.C. 201 et seq.) that prohibited beer 
labels from displaying alcohol content because the Government failed to 
demonstrate that this restriction would alleviate the recited harm to a 
material degree. (See 115 S.Ct. at 1592.) The Court characterized the 
Government's regulatory scheme as ``irrational'' (Id.). See also, 
Justice Stevens' opinion in 44 Liquormart, 116 S.Ct. at 1509, 1510. (In 
striking down Rhode Island's ban on price advertising for failure to 
demonstrate that the restrictions would advance the State's interest, 
Stevens, joined by Justices Kennedy, Ginsburg, and Souter, found that 
while the record ``suggests that the price advertising ban may have 
some impact on the purchasing patterns of temperate drinkers of modest 
means * * * no evidence [has been presented] to suggest that its speech 
prohibition will significantly reduce market-wide consumption.'' 
Therefore, Stevens stated that ``[s]uch speculation certainly does not 
suffice when the State takes aim at accurate commercial information for 
paternalistic ends.'')
    Thus, under the applicable case law, to adopt the proposed 
restrictions on cigarette and smokeless tobacco advertising, FDA must 
find that it can conclude from the available evidence that: (1) 
Advertising plays a material role in the process by which children and 
adolescents decide to begin or to continue to use these products; and 
(2) Limitations on advertising will contribute in a direct and material 
way to FDA's efforts to ensure that the restrictions it is adopting on 
the sale and use of tobacco products to minors are not undermined.
    Contrary to what some comments asserted, it is not necessary for 
FDA to establish by empirical evidence that advertising actually causes 
underage individuals to smoke, or that the restrictions on advertising 
will directly result in individuals that are under 18 ceasing to use 
cigarettes or smokeless tobacco. It is not necessary in satisfying this 
prong of Central Hudson for the agency to prove conclusively that the 
correlation in fact (empirically) exists, or that the steps undertaken 
will completely solve the problem. (See United States v. Edge 
Broadcasting Co., 509 U.S. 418, 434-35.) Rather, the agency must show 
that the available evidence, expert opinion, surveys and studies 
provide sufficient support for the inference that advertising does play 
a material role in children's tobacco use.
    In the 1995 proposed rule, FDA suggested that its judgment as to 
whether the governmental interest involved was directly advanced by its 
actions was entitled to some deference. ``The Supreme Court has stated 
that, when determining whether an action advances the governmental 
interest, it is willing to defer to the `common sense judgments' of the 
regulatory agency as long as they are not unreasonable'' (citing, 
Metromedia Inc. v. City of San Diego, 453 U.S. 490, 509 (1981) (60 FR 
41314 at 41354)).
    Several comments took issue with this suggestion. One comment said 
that FDA had mischaracterized Supreme Court jurisprudence, and two 
comments said that courts will defer only to common sense judgments of 
legislatures.
    FDA disagrees with those comments. In Florida Bar v. Went For It, 
Inc., the Supreme Court said that it had permitted ``litigants,'' which 
it did not limit to State legislatures, to justify speech restrictions 
by ``studies and anecdotes pertaining to different locales altogether, 
* * * or even, in a case applying strict scrutiny, to justify 
restrictions based solely on history, consensus, and ``simple common 
sense * * *'' (115 S.Ct. at 2378). Thus, FDA's reliance on common sense 
(which, as made clear in section VI.D.3. through VI.D.6. of this 
document, provides only part of the basis for FDA's findings) is 
justified.
    (7) One comment said that, rather than giving FDA deference, courts 
review with special care any regulations that suppress commercial 
speech to pursue a nonspeech-related policy.
    FDA disagrees with this comment for two reasons. First, these 
regulations do not suppress commercial speech. While they limit such 
speech, they leave open significant means of communication about these 
products. Second, this comment derives specifically from footnote 9 of 
Central Hudson, 447 U.S. at 566 (``We review with special care 
regulations that entirely suppress commercial speech in order to pursue 
a nonspeech-related policy.''). In that case, the Supreme Court found 
that control of demand for electricity was a speech-related policy (see 
447 U.S. at 569). Similarly, the policy that FDA seeks to advance here, 
control of demand for cigarettes and smokeless tobacco by minors, is a 
speech-related policy.

[[Page 44475]]

    (8) Finally, one comment said that FDA claimed deference for its 
common sense judgments to deflect attention from the lack of a factual 
basis for the 1995 proposed rule. Two comments, however, stated that 
FDA has compiled a record on the problem that is more extensive than 
any that existed in any of the cases in which the Supreme Court upheld 
restrictions on commercial speech.
    In the discussion that follows, FDA reviews the evidence on whether 
cigarette and smokeless tobacco advertising affects the decision by 
minors to use these products, and whether the restrictions on 
advertising that it is imposing will limit the effect to a material 
degree. This review demonstrates that FDA's judgment on these issues is 
supported not only by common sense but by studies, anecdotes, history, 
expert consensus documents, and empirical data. All of this evidence 
provides support that restrictions on the advertising of these products 
will directly advance the Government's interest in protecting the 
health of children and adolescents under 18 years of age.
3. Is There Harm? Does Advertising Affect the Decision by Young People 
to Use Tobacco Products?
    a. In general. In the preamble to the 1995 proposed rule, FDA 
stated that perhaps the most compelling piece of evidence supporting 
restrictions was that these products were among the most heavily 
advertised and widely promoted products in America. The agency cited 
the most recent Federal Trade Commission (FTC) figures of overall 
expenditures for 1993, that indicated that over $6.1 billion had been 
spent by the cigarette and smokeless tobacco industries to promote 
their products in diverse media. These include magazines, newspapers, 
outdoor advertising, point of purchase, direct mail, in-store, 
dissemination of nontobacco items with brand identification, and 
sponsorship of cultural and sporting events.
    (9) Several comments from the tobacco industry and the advertising 
industry criticized FDA's reliance on the immensity of advertising 
expenditures that show that tobacco products are heavily advertised. 
The comments claimed that the size of the industry advertising budget 
is not evidence that it is effective in causing young people to 
smoke.Conversely, one comment concluded that:
     [h]ighly repetitious ad exposure likely leads to judgment 
biases in both risk and social perceptions, such as assessments of 
smoking prevalence and the social acceptance experienced by smokers.
    The largest psychological association, in its comments, agreed and 
stated that research indicates that young people are indeed exposed to 
substantial and unavoidable advertising and promotion, \94\ even though 
they have been banned from radio and television. Referencing numerous 
studies, this comment stated further that:
---------------------------------------------------------------------------

    \94\ Fischer, P. M., M. P. Schwartz, J. W. Richards, A. O. 
Goldstein, and T. H. Rojas, ``Brand Logo Recognition by Children 
Aged 3 to 6 years: Mickey Mouse and Old Joe Camel,'' Journal of the 
American Medical Association (JAMA), vol. 266, pp. 3145-3148, 1991; 
Mizerski, R., K. Straughn, and J. Feldman, ``The Relationship 
Between Cartoon Trade Character Recognition and Product Category 
Attitude in Young Children,'' presented at Marketing and Public 
Policy Conference, 1994.
---------------------------------------------------------------------------

     there is considerable evidence that young people are exposed to 
tobacco ads, that those who smoke are especially likely to be aware 
of cigarette advertising, and that liking of cigarette advertising 
among young people is predictive of smoking behavior * * *.
    The comment continued that increasing one's exposure to advertising 
and promotions creates persuasion, and that reducing that exposure will 
impede that process. \95\ One study \96\ found that even brief exposure 
to tobacco advertising can cause some young people to have more 
favorable beliefs about smokers. \97\
---------------------------------------------------------------------------

    \95\ For example, Lavidge, R. J., and G. A. Steiner, ``A Model 
for Predictive Measurements of Advertising Effectiveness,'' Journal 
of Marketing, vol. 25, pp. 59-62, 1961; McGuire, W. J., 
``Persistence of the Resistance to Persuasion Induced by Various 
Types of Prior Belief Defenses,'' Journal of Abnormal and Social 
Psychology, vol. 64, pp. 241-248, 1962.
    \96\ Pechmann, C., and S. Ratneshwar, ``The Effects of 
Antismoking and Cigarette Advertising on Young Adolescents' 
Perceptions of Peers who Smoke,'' Journal of Consumer Research, vol. 
21, pp. 236-251, 1994.
    \97\ See also, Hock, J., P. Gendall, and M. Stockdale, ``Some 
Effects of Tobacco Sponsorship Advertisements on Young Males,'' 
International Journal of Advertising, vol. 12, pp. 25-35, 1993.
---------------------------------------------------------------------------

    FDA did not cite the industry's expenditures to indicate that the 
size of the industry's advertising budget was, in and of itself, a 
problem, but rather to show that the very size of the campaign, and the 
resultant ubiquity and unavoidability of the advertising in all media, 
created a climate that influences young people's decisions about 
tobacco use. The ubiquity creates what FDA referred to in the preamble 
to the proposed rule (60 FR 41314 at 41343), as ``friendly 
familiarity'' that makes smoking and smokeless tobacco use seem 
respectable to young people. In its comments, the advertising agency 
that coined this phrase in the 1960's has protested that FDA used the 
phrase improperly. However, regardless of the firm's protest, the 
agency finds that this phrase ``friendly familiarity'' accurately 
describes the effect of massive marketing that uses a variety of media 
and saturates potential consumers with information and imagery. 
Researchers have found that ``the ubiquitous display of messages 
promoting tobacco use clearly fosters an environment in which 
experimentation by youth is expected, if not implicitly encouraged.'' 
\98\
---------------------------------------------------------------------------

    \98\ Bonnie, R. J., and B. S. Lynch, ``Time to Up the Ante in 
the War on Smoking,'' Issues in Science and Technology, vol. 11, pp. 
33-37, 1994.
---------------------------------------------------------------------------

    b. Evidence regarding young people's exposure to, recall of, 
approval of, and response to advertising. Many studies have 
demonstrated that young people are aware of, respond favorably to, and 
are influenced by cigarette advertising. In the preamble to the 1995 
proposed rule, FDA presented a number of studies examining young 
people's exposure to, recall of, approval of, and response to cigarette 
advertising. \99\ Collectively, these studies showed that children who 
smoke are more likely to correctly identify cigarette advertisements 
and slogans in which the product names or parts of the slogans have 
been removed than are children who do not smoke, and that exposure to 
and approval of cigarette advertising were positively

[[Page 44476]]

related to smoking behavior and intentions to smoke.
---------------------------------------------------------------------------

    \99\ Chapman, S., and B. Fitzgerald, ``Brand Preference and 
Advertising Recall in Adolescent Smokers: Some Implications for 
Health Promotion,'' American Journal of Public Health, vol. 72, pp. 
491-494, 1982; Aitken, P. P., and D. R. Eadie, ``Reinforcing Effects 
of Cigarette Advertising on Under-Age Smoking,'' British Journal of 
Addiction, vol. 85, pp. 399-412, 1990; Goldstein, A. O., P. M. 
Fischer, J. W. Richards, and D. Creten, ``Relationship Between High 
School Student Smoking and Recognition of Cigarette 
Advertisements,'' Journal of Pediatrics, vol. 110, pp. 488-491, 
1987; Botvin, G. L., C. J. Goldberg, E. M. Botvin, and L. Dusenbury, 
``Smoking Behavior of Adolescents Exposed to Cigarette 
Advertising,'' Public Health Reports, vol. 108, pp. 217-224, 1993; 
Klitzner, M., P. J. Gruenewald, and E. Bamberger, ``Cigarette 
Advertising and Adolescent Experimentation With Smoking,'' British 
Journal of Addiction, vol. 86, pp. 287-298, 1991; Aitken, P. P., D. 
R. Eadie, G. B. Hastings, and A. J. Haywood, ``Predisposing Effects 
of Cigarette Advertising on Children's Intentions to Smoke When 
Older,'' British Journal of Addiction, vol. 86, pp. 383-390, 1991; 
O'Connell, D. L., H. M. Alexander, A. J. Dobson, D. M. Lloyd, G. R. 
Hardes, H. J. Springthorpe, and S. R. Leeder, ``Cigarette Smoking 
and Drug Use in Schoolchildren: II. Factors Associated With 
Smoking,'' International Journal of Epidemiology, vol. 10, pp. 223-
231, 1981; Alexander, H. M., R. Calcott, A. J. Dobson, G. R. Hardes, 
D. M. Lloyd, D. L. O'Connell, et al., ``Cigarette Smoking and Drug 
Use in Schoolchildren: IV. Factors Associated With Changes in 
Smoking Behaviour,'' International Journal of Epidemiology, vol. 12, 
pp. 59-66, 1983.
---------------------------------------------------------------------------

    (10) Several comments from the tobacco industry and advertising 
groups were critical of these studies. The comments argued that none of 
the studies demonstrated that recognition of, exposure to, or approval 
of, cigarette advertising caused the initiation of cigarette smoking; 
that smoking in fact engendered increased exposure to, approval of and 
recognition of cigarette advertising; and that the samples were 
inappropriate and not generalizable. One comment took issue with the 
way in which smoking transition was defined in the Aitken study cited 
by the agency. \100\ In addition, the same comment questioned the use 
of self-reported measures of cigarette advertising exposure in several 
of the studies.
---------------------------------------------------------------------------

    \100\ Aitken, P. P., D. R. Eadie, G. B. Hastings, and A. J. 
Haywood, ``Predisposing Effects of Cigarette Advertising on 
Children's Intentions to Smoke When Older,'' British Journal of 
Addiction, vol. 86, pp. 383-390, 1991.
---------------------------------------------------------------------------

    FDA agrees that none of these studies individually is sufficient 
to: (1) Establish that advertising has an effect of directly causing 
minors to use tobacco products; (2) determine directionality--that is, 
did advertising cause the observed effect, or are smokers more 
observant of advertising (the Klitzner, Aitken, et al., and Alexander 
studies attempted to control for this effect); or (3) define terms or 
disprove the influence of peer pressure in smoking behavior.
    However, none of these defects is sufficient to render it 
inappropriate for FDA to use the studies as evidence. The studies, in 
fact, present useful insight into how advertising affects smoking 
behavior and when considered with other studies provide sufficient 
support for the agency's conclusions. For example, one study \101\ 
stated that the results show that part of the process of becoming a 
smoker is to adopt a preferred brand, which the advertising and tobacco 
industries concede is affected by advertising. Moreover, these studies 
clearly indicate that, at a minimum, advertising plays an important 
role in developing an appealing and memorable image for brands. 
Finally, FDA recognizes that advertising may not be the most important 
factor in a child's decision to smoke; however, the studies cited by 
the agency establish that it is a substantial, contributing, and 
therefore material, factor.
---------------------------------------------------------------------------

    \101\ Chapman, S., and B. Fitzgerald, ``Brand Preference and 
Advertising Recall in Adolescent Smokers: Some Implications for 
Health Promotion,'' American Journal of Public Health, vol. 72, pp. 
491-494, 1982.
---------------------------------------------------------------------------

    c. Evidence concerning overestimation of smoking prevalence. In the 
preamble to the 1995 proposed rule, FDA cited numerous studies finding 
that children's misperceptions about the prevalence of smoking are 
related to smoking initiation and the progression to regular smoking. 
\102\ Further, the evidence indicated that cigarette advertising plays 
a role in leading young people to overestimate the prevalence of 
smoking.
---------------------------------------------------------------------------

    \102\ Chassin, L., C. C. Presson, S. J. Sherman, E. Corty, and 
R. W. Olshavsky, ``Predicting the Onset of Cigarette Smoking in 
Adolescents: A Longitudinal Study,'' Journal of Applied Social 
Psychology, vol. 14, pp. 224-243, 1984; Collins, L. M., S. Sussman, 
J. Mestel Rauch, C. W. Dent, C. A. Johnson, W. B. Hansen, and B. R. 
Flay, ``Psychosocial Predictors of Young Adolescent Cigarette 
Smoking: A Sixteen-Month, Three-Wave Longitudinal Study,'' Journal 
of Applied Social Psychology, vol. 17, pp. 554-573, 1987; Sussman, 
S., C. W. Dent, J. Mestel-Rauch, C. A. Johnson, W. B. Hansen, and B. 
R. Flay, ``Adolescent Nonsmokers, Triers, and Regular Smokers' 
Estimates of Cigarette Smoking Prevalence: When do Overestimations 
Occur and by Whom?,'' Journal of Applied Social Psychology, vol. 18, 
pp. 537-551, 1988; 1994 SGR, p. 192-195, citing Burton, et al., The 
L.A./Finland Study; Sherman, S. J., C. C. Presson, L. Chassin, E. 
Corty, and R. Olshavsky, ``The False Consensus Effect in Estimates 
of Smoking Prevalence: Underlying Mechanisms,'' Personality and 
Social Psychology Bulletin, vol. 9, pp. 197-207, 1983; Botvin, G. 
J., C. J. Goldberg, E. M. Botvin, and L. Dusenbury, ``Smoking 
Behavior of Adolescents Exposed to Cigarette Advertising,'' Public 
Health Reports, vol. 108, pp. 217-224, 1993.
---------------------------------------------------------------------------

    (11) Several comments criticized the overestimation of smoking 
prevalence studies presented by FDA in its 1995 proposed rule. The most 
common criticism was that the cited studies did not demonstrate a 
causal relationship between either exposure to advertising or 
overestimation of smoking prevalence and intentions to smoke. One 
comment noted that some of the cited studies did not necessarily 
measure ``overestimation,'' but instead simply measured respondents' 
perceptions of smoking levels among their peers and adults. Another 
comment argued that FDA ignored other variables (such as whether or not 
one's friends smoked) that were predictive of smoking status or 
intentions to smoke.
    It is true that some of the cited studies did not measure 
``overestimation'' in the most literal sense but instead measured 
respondents' perceptions of smoking levels among peers and adults. 
However, the perceived levels were still uniformly higher among those 
who smoked than among those who did not. The importance of these 
studies is the fact that they established differences in perception 
between smoking and nonsmoking young people about the prevalence, and 
therefore the acceptability, of smoking.
    d. The effects of selected advertising campaigns that were 
effective with children. In the preamble to the 1995 proposed rule, FDA 
presented evidence about two campaigns that appear to have been 
particularly effective with children, and a historical analysis of 
trends in U.S. smoking initiation among 10- to 20-year-olds from 1944 
to 1980. \103\
---------------------------------------------------------------------------

    \103\ Pierce, J. P., E. Gilpin, D. M. Burns, E. Whalen, B. 
Rosbrook, D. Shopland, and M. Johnson, ``Does Tobacco Advertising 
Target Young People to Start Smoking?'' JAMA, vol. 266, pp. 3154-
3158, 1991; Fischer, P. M., M. P. Schwartz, J. W. Richards, A. O. 
Goldstein, and T. H. Rojas, ``Brand Logo Recognition by Children 
Aged 3 to 6 Years: Mickey Mouse and Old Joe Camel,'' JAMA, vol. 266, 
pp. 3145-3148, 1991; Hastings, G. B., H. Ryan, P. Teer, and A. M. 
MacKintosh, ``Cigarette Advertising and Children's Smoking: Why Reg 
was Withdrawn,'' British Medical Journal, vol. 309, pp. 933-937, 
1994; Pierce, J. P., L. Lee, and E. A. Gilpin, ``Smoking Initiation 
by Adolescent Girls, 1944 through 1988: An Association with Targeted 
Advertising,'' JAMA, vol. 271, pp. 608-611, 1991.
---------------------------------------------------------------------------

    FDA presented several studies finding that the ``Joe Camel'' 
campaign had a significant impact on underage smoking in the United 
States, \104\ and that a humorous character for Embassy Regal 
cigarettes named ``Reg'' was appealing to children in the United 
Kingdom. \105\
---------------------------------------------------------------------------

    \104\ Fischer, P. M., M. P. Schwartz, J. W. Richards, A. O. 
Goldstein, and T. H. Rojas, ``Brand Logo Recognition by Children 
Aged 3 to 6 Years: Mickey Mouse and Old Joe the Camel,'' JAMA, vol. 
266, pp. 3145-3148, 1991; Pierce, J. P., E. Gilpin, D. M. Burns, E. 
Whalen, E. Rosbrook, D. R. Shopland, and M. Johnson, ``Does Tobacco 
Advertising Target Young People to Start Smoking?'', JAMA, vol. 266, 
pp. 3154-3158, 1991.
    \105\ Hastings, G. B., H. Ryan, P. Teer, and A. M. MacKintosh, 
``Cigarette Advertising and Children's Smoking: Why Reg was 
Withdrawn,'' British Medical Journal, vol. 309, pp. 933-937, 1994.
---------------------------------------------------------------------------

    FDA also cited a recent study that used data from the National 
Health Interview Survey to study trends in smoking initiation among 10 
to 20 year olds from 1944 through 1980. \106\ The study concluded that 
tobacco marketing campaigns that targeted women resulted in increased 
smoking uptake in young women and girls, but not in adults generally. 
\107\
---------------------------------------------------------------------------

    \106\ Pierce, J. P., L. Lee, and E. A. Gilpin, ``Smoking 
Initiation by Adolescent Girls, 1944 through 1988: An Association 
with Targeted Advertising,'' JAMA, vol. 271, pp. 608-611, 1994.
    \107\ Id.; See also Pierce, J. P., and E. A. Gilpin, ``A 
Historical Analysis of Tobacco Marketing and Uptake of Smoking by 
Youth in the United States: 1890-1977,'' Health Psychology, vol. 14, 
pp. 500-508, 1995. Burns, D. M., L. Lee, J. W. Vaughn, Y. K. Chiu, 
and D. R. Shopland, ``Rates of Smoking Initiation Among Adolescents 
and Young Adults, 1907-1981,'' Tobacco Control, vol. 4, supp. 1, pp. 
52-58, 1995.
---------------------------------------------------------------------------

    The Joe Camel Campaign--In the preamble to the 1995 proposed rule,

[[Page 44477]]

FDA described R. J. Reynolds' (RJR) use of the cartoon Joe Camel as the 
centerpiece of a very successful campaign that sought to revitalize 
Camel cigarettes. The preamble to the 1995 proposed rule described two 
sets of studies. One set indicatedthat the campaign was so pervasive 
and juvenile that children as young as 3 to 6 years old, recognized the 
Joe Camel character and knew that he sold cigarettes. The other set of 
studies provided evidence that the campaign had resulted in Camel's 
share of the adolescent youth market rising from below 4 percent of 
underage smokers to between 13 and 16 percent in a short period of time 
(60 FR 41314 at 41333).
    This description of the Camel campaign produced over 200 comments 
from the advertising, tobacco, legal and publications industries, 
members of legislative bodies, State and local government officials and 
agencies, health providers and organizations, academics, and the 
general public. The latter included many anecdotal references to 
children's positive reactions to the campaign, including comments from 
parents, teachers, and children themselves. One comment, from a State 
attorney general, stated that ``in 1993, after reviewing research 
documenting the extremely powerful effect R. J. Reynolds' `Cool Joe 
Camel' ads have on children, I joined with 26 other State Attorneys 
General in calling'' for a ban on that campaign.
    (12) The comments differed radically in assessing the accuracy of 
FDA's use of Joe Camel as evidence of the effect of a youth-oriented 
campaign. A number of comments stated that the Joe Camel campaign was 
neither directed toward children nor effective at reaching them, and 
that FDA's evidence did not support the agency's position. The comments 
criticized the studies cited by FDA and referred to other studies that 
they believed supported their contention that the Joe Camel campaign 
was not directed toward children. For example, one comment argued there 
was no evidence to suggest that brand recognition had any influence on 
smoking initiation. This same comment also complained that the studies 
relied on by FDA were ungeneralizable and were from medical journals, 
not marketing journals. Another comment argued that the Pierce study 
cited by the agency had demonstrated only that Camel and Marlboro were 
thought to be the most advertised brands across all respondent age 
groups. \108\
---------------------------------------------------------------------------

    \108\ Pierce, J., et al., ``Does Tobacco Advertising Target 
Young People to Start Smoking? Evidence from California,'' JAMA, 
vol. 266, No. 22, p. 3154-3158, 1991.
---------------------------------------------------------------------------

    Several comments argued that the finding in the Fischer and 
Mizerski studies that children recognize Joe Camel did not necessarily 
indicate that they liked Joe Camel, let alone that they would be more 
likely to take up cigarette smoking. \109\ For example, some comments 
from the tobacco industry discussed the Mizerski study funded by RJR 
and criticized FDA's use of it. FDA, as noted above, had cited this 
study in the 1995 proposed rule to show that 72 percent of 6 year olds 
and 52 percent of children between the ages of 3 and 6 could identify 
Joe Camel. \110\ This exceeded the recognition rates for Ronald 
McDonald, a character frequently advertised on television. The 
comments, however, stated that the results of the study indicated that 
while recognition of the cartoon trade characters and liking of the 
associated product each tended to increase with age, for Joe Camel, at 
every age, children who recognized Joe Camel were more likely to report 
disliking cigarettes than did children who did not recognize Joe Camel.
---------------------------------------------------------------------------

    \109\ Fischer, P. M., et al., ``Brand Logo Recognition by 
Children Aged 3 to 6 Years: Mickey Mouse and Old Joe the Camel,'' 
vol. 266, pp. 3145-3148, 1991; Mizerski, R., ``The Relationship 
Between Cartoon Trade Character Recognition and Product Category 
Attitude in Young Children,'' presented at ``Marketing and Public 
Policy Conference,'' May 13-14, 1994.
    \110\ Independent research by Fischer found that 91 percent of 6 
year-olds and 30 percent of 3 year-olds recognized Joe Camel. 
Fischer, P. M., J. W. Schwartz, A. O. Goldstein, and T. H. Rojas, 
``Brand Logo Recognition by Children Aged 3 to 6 Years: Mickey Mouse 
and Old Joe the Camel,'' JAMA, vol. 266, pp. 3145-3148, 1991.
---------------------------------------------------------------------------

    Several comments also cited another study by Henke (the Henke 
Study), \111\ which found results suggesting that even though 
recognition of brand advertising symbols increases with age, 
recognition does not necessarily indicate favorable attitudes about a 
product. Although the children in the study were generally able to 
recognize Joe Camel, 97 percent of the respondents reported that 
cigarettes were ``bad for you,'' and all but one of the minors stated 
that cigarettes were for adults. Several comments also mentioned a 
November 1993 Roper survey of over 1,000 young people between ages 10 
and 17. \112\ This survey found that 97 percent of those youths who 
recognized ``Joe Camel'' had negative opinions about smoking.
---------------------------------------------------------------------------

    \111\ Henke, L., ``Young Children's Perceptions of Cigarette 
Brand Advertising Symbols: Awareness, Affect and Target Market 
Identification,'' Journal of Advertising, in press.
    \112\ Roper Starch, ``Advertising Character and Slogan Survey,'' 
pp. 16-17, November 1993 (conducted for R. J. Reynolds Tobacco Co.).
---------------------------------------------------------------------------

    Finally, these comments also stated that the Joe Camel campaign did 
not increase the smoking rates of minors. The comments cited to data 
from CDC's Office of Smoking and Health's (OSH's) study ``1993 Teenage 
Attitudes and Practices Survey, Public Use Data Tape'' (TAPS II) \113\ 
that show that, contrary to FDA's assertion and citation to data from 
Monitoring the Future, \114\ there has not been an increase in youth 
smoking rates as a result of the Joe Camel campaign.
---------------------------------------------------------------------------

    \113\ ``1993 Teenage Attitudes and Practices Survey, Public Use 
Data Tape,'' CDC, OSH, p. 3, 1993 (unpublished data).
    \114\ Johnston, L. D., P. M. O'Malley, and J. G. Bachman, 
National Survey Results on Drug Use from the Monitoring the Future 
Survey, 1975-1993: vol. I: Secondary School Students, Rockville, MD, 
DHHS, Public Health Service (PHS), National Institutes of Health 
(NIH), National Institute on Drug Abuse (NIDA), NIH Pub. No. 94-
3809, 1994.
---------------------------------------------------------------------------

    Conversely, several comments from professional associations and 
many from private citizens supported FDA's tentative conclusion that 
some tobacco advertising campaigns--particularly Joe Camel--are very 
effective with children. Some comments referred to the same research 
evidence cited by FDA in the 1995 proposed rule.
    It is not the agency's position that the recognition studies 
provide evidence of the effect of this campaign upon the smoking habits 
of children. The Henke study found that children age 6 and younger do 
not smoke and uniformly report that they dislike smoking. \115\ 
However, although young children usually dislike smoking, many of them 
later do smoke. FDA's point in using the recognition studies was that 
advertising for Camel cigarettes was so pervasive and appealing to 
young people that children saw the advertisements and assimilated them 
even though they were too young to even think about smoking. These 
studies provide important evidence of the pervasiveness of tobacco 
advertising.
---------------------------------------------------------------------------

    \115\ Henke, L., ``Young Children's Perceptions of Cigarette 
Brand Advertising Symbols: Awareness, Affect and Target Market 
Identification,'' Journal of Advertising, in press.
---------------------------------------------------------------------------

    The Henke study (cited by comments opposed to the 1995 proposed 
rule), which reported that although recognition of brand advertising 
symbols increases with age, recognition does not necessarily indicate 
favorable attitudes toward a product--is subject to

[[Page 44478]]

many of the same criticisms as those leveled by the tobacco industry at 
studies cited by FDA, and in fact contains more serious flaws that 
suggest that its results should be interpreted with a great deal of 
caution.
    First, the sample employed in this study was both inadequate to 
test the author's hypotheses, and is nongeneralizable to other 
populations. There were only 83 participants in the study; this sample 
is too small to allow for adequate power to test the author's fine-
grained hypotheses concerning age. In fact, the inadequate sample size 
led the author to collapse the participants into three age groups for 
many analyses, which meant that 3-year olds were placed into the same 
group as children who were 5-and-a-half years old. In addition, 
participants all were recruited from middle class neighborhoods in the 
same ``small coastal town'' in Maine. Racial breakdowns were not 
presented, but it is likely, given the demographics of upstate Maine, 
that whites were overrepresented and African-Americans 
underrepresented. In addition, males were overrepresented. At best, the 
sample represents the population of 3- to 8-year-old children in that 
small town in Maine, but it is not even clear that this is the case.
    Second, the interview process used to collect data in the study, 
and even the nature of the interviewers themselves, greatly limit the 
conclusions that may be drawn from the study. The study used six 
different interviewers, five of whom were college undergraduates, and 
one of whom was a child care professional. Each interviewer 
participated in but a single training session before collecting data. 
Further, not all of the interviewers were blind to the hypotheses of 
the study. This is a great concern, considering the very subjective 
nature of the interview. It was not reported whether who the 
interviewer was had significant effects on the results of the study 
(and indeed the sample size is probably too small to permit such an 
analysis), but it is unlikely that all six interviewers conducted the 
interviews in precisely the same way or elicited the same types of 
responses from the participants.
    The interview process itself appeared to be highly biased and 
subjective in nature. It is not surprising that the children 
overwhelmingly reported that cigarettes were ``bad for you'' and were 
meant for adults, given that they were being interviewed face-to-face 
by adult strangers. Any potential differences attributable to 
recognition of cigarette advertising were probably masked by the 
intimidating presence of the interviewer. Further, the answers to 
questions such as ``Do you like this product or not like this 
product?,'' and ``Is this product good for you or bad for you?'' can 
depend to a great extent on the manner in which they are asked.
    Overall, the small, nonrepresentative sample, the excessive number 
of questionable interviewers, and the interview process itself all cast 
serious doubt on the value of this study. Finally, as noted in the 
previous paragraph, children almost uniformly report that smoking is 
bad, but many of them will smoke in the future in part due to the 
appeal created for the product by advertising.
    Additional studies--Two additional studies on this issue of 
recognition were submitted to the docket. The first, an article by Joel 
S. Dubow, \116\ merely commented on several general studies on recall 
of advertising. The result was that children and especially adolescents 
remember more about advertising than adults. (FDA agrees with the point 
that advertising is more memorable to children.) Further, all the 
advertisements tested, and those that children and adolescents 
remembered so well, were either on television or presented in a movie 
theater setting.
---------------------------------------------------------------------------

    \116\ Dubow, J. S., ``Advertising Recognition and Recall by Age-
Including Teens,'' Journal of Advertising Research, pp. 55-60, Sept/
Oct 1995.
---------------------------------------------------------------------------

    Children and adolescents are more visually oriented than adults; 
they remember what they see on television. However, as noted, 
commercials for cigarettes are not on television and so the high 
recognition rates of Joe Camel cannot be accounted for on that basis. 
Thus, the study begs the same question that is raised by the Mizerski 
study: Where did those 3 to 6 year olds see the cigarette 
advertisements they found so memorable?
    The answer may be provided by the second recognition study 
submitted by RJR. One study was conducted by Roper Starch in November 
1993 for RJR and tested young people's recognition of advertising 
characters. The results of that study show that Joe Camel was 
recognized by 86 percent of all 10 to 17 year olds, in both aided and 
unaided recall. The characters with greater recognition were all 
televised characters: the Energizer Bunny, Ronald McDonald, the Keebler 
Elves, etc. Recognition scores for those characters were in the 97 
percent to 100 percent range. Of more interest, 95 percent of those who 
recognized Joe Camel knew that he sold cigarettes, similar to the 
product familiarity rates for the other characters. \117\
---------------------------------------------------------------------------

    \117\ ``Advertising Character and Slogan Survey,'' pp. 10, 12, 
22-23.
---------------------------------------------------------------------------

    But perhaps the most interesting answers were those provided by the 
children who responded that they knew that Joe Camel sold cigarettes. 
In response to the question, ``[p]lease tell me the ways that you might 
have seen or heard about this character,'' 51 percent said the 
information came from a billboard advertisement, 45 percent said from 
an advertisement in a magazine, 32 percent said from an advertisement 
in the store, and 22 percent said on a tee shirt. A sizable group said 
they had seen him on television (42 percent). On the other hand, all 
the other characters were identified as having been on television (88 
percent to 100 percent). Recognition based upon billboard exposure for 
these other characters was between 6 percent and 13 percent. Most were 
not recognized as having been on tee shirts.
    Clearly, cigarettes are marketed differently than most consumer 
products; nonetheless, whatever the marketing mix used by the tobacco 
industry, cigarette advertisements are clearly being seen and 
assimilated by those too young to be interested in or to have started 
smoking.
    A second type of study, provided evidence of the effect of this 
campaign on adolescent smoking rates. As noted, one comment disputed 
that there was a rise in young people's smoking rates that corresponded 
to the introduction of the Joe Camel campaign. The significance of this 
argument is that if smoking rates after the introduction of the Joe 
Camel advertising campaign did not rise, there is little reason to 
believe that the campaign caused young people to take up smoking. This 
comment referred to its own analysis of smoking trends, which it stated 
were derived from TAPS II \118\ data and not from the data in 
Monitoring the Future used by FDA. \119\
---------------------------------------------------------------------------

    \118\ ``Current Trends: Changes in the Cigarette Brand 
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR, 
CDC, vol. 43, pp. 577-581, Aug 19, 1994.
    \119\ Johnston, L. D., P. M. O'Malley, and J. G. Bachman, 
National Survey Results on Drug Use from the Monitoring the Future 
Study, 1975-1993: Vol. I; Secondary School Students, DHHS, PHS, NIH, 
NIDA, NIH Pub. No. 94-3809, 1994.
---------------------------------------------------------------------------

    FDA has provided a more detailed answer to this comment above. As 
explained there, the agency finds this comment to be without merit. The 
Monitoring the Future study is the most consistent source of data 
available on youth smoking rates. RJR's expert, Dr. J.

[[Page 44479]]

Howard Beales, III, has referred to it as ``[t]he most consistent data 
available'' to track the incidence of teen smoking over time. \120\ 
Moreover, Dr. Beales noted that other Government studies are 
``sporadic'' and, by implication, cannot be relied upon to give an 
accurate picture of overall smoking trends.
---------------------------------------------------------------------------

    \120\ Beales, J. H., ``Teenage Smoking: Fact and Fiction,'' The 
American Enterprise, vol. 21, March/April 1994.
---------------------------------------------------------------------------

    The Monitoring the Future Study indicates that from 1987 to 1993, 
the 30-day smoking rates and daily smoking rates for male high school 
seniors increased steadily, although with variations in some years. 
\121\ During that same period, Camel's share of the youth market rose 
from below 4 percent to around 13 percent (60 FR 41314 at 41330).
---------------------------------------------------------------------------

    \121\ Johnston, L. D., P. M. O'Malley, and J. G. Bachman, 
National Survey Results on Drug Use from the Monitoring the Future 
Study, 1975-1994, Vol. I: Secondary School Students, DHHS, PHS, NIH, 
NIDA, NIH Pub. No. 94-3809, 1995.
---------------------------------------------------------------------------

    These data do not absolutely prove that Camel advertising 
``caused'' a rise in youth smoking. However, they do provide further 
evidence that the Joe Camel campaign had an effect on youth smoking 
rates.
    (13) Comments from the tobacco industry maintained that FTC's 
investigation, which failed to produce ``evidence to support'' FTC 
action against RJR for the Joe Camel campaign, should have been 
dispositive of the issue. Therefore, the comments argued, it is 
inappropriate for FDA to use the campaign as evidence that advertising 
causes children to start to smoke. The comments maintained that the FTC 
review included the same studies relied upon by FDA to condemn the Joe 
Camel campaign.
    Comments stated further that Congress has vested jurisdiction in 
FTC to prosecute unfair and deceptive advertising of tobacco products, 
and that it has sole jurisdiction in this area. (See Federal Trade 
Commission Act (the FTC Act) (15 U.S.C. 41).) These comments noted 
further that FTC has shown its ability to fulfill its responsibilities 
in this area, citing two recent consent agreements secured by FTC. One 
was against RJR for advertising that disputed some of the health risks 
of smoking. (See In the matter of R. J. Reynolds Tobacco Company, 113 
FTC 344 (1990).) The other was against American Tobacco Company for 
allegedly misleading statements about tar and nicotine ratings. (See In 
the matter of The American Tobacco Company, Dkt. No. C-3547 (Consent 
Order, January 31, 1995).)
    On the other hand, comments from two national health organizations 
alleged that the fact FTC concluded it was unable to take action 
against Joe Camel demonstrates that the FTC Act, as it is currently 
being interpreted by the Commission, is not sufficient to protect 
American youth from inappropriate tobacco advertising and that FDA, 
therefore, needs to take action under its authority.
    The industry comments misapprehend FDA's citation to the Joe Camel 
campaign. As noted above, FDA cited to numerous studies that had been 
performed by independent researchers on children's recognition of the 
main character of a youth oriented advertising campaign (60 FR 41314 at 
41333). The agency also cited to several documents that it had obtained 
that indicated that RJR may have intended for its Joe Camel campaign to 
appeal to and attract young people (60 FR 41314 at 41330). FDA's 
discussion of the marketing success of the Joe Camel campaign is not 
intended to suggest that FDA had found or concluded that the Joe Camel 
campaign violated any law, but that FDA had found in that success--
tripling Camel's share of the youth market--support for restricting 
such activities in the future through rulemaking.
    Moreover, FTC did not disagree with FDA's use of the campaign. In 
its comment to FDA on the 1995 proposed rule, FTC stated, ``This 
decision [by FTC to close the RJR investigation without issuing a 
complaint] does not contradict FDA's conclusion.'' FTC continued that 
its failure to initiate legal action did not ``mean that cigarette and 
smokeless tobacco advertising, in the aggregate, is not one of a number 
of factors that `play[s] an important role in a youth's decision to use 
tobacco.''' \122\
---------------------------------------------------------------------------

    \122\ FTC analyzed the complaint recommendation before it under 
its unfairness jurisdiction. An action is unfair if it causes 
substantial consumer injury, without offsetting benefits to 
consumers or competition, which consumers cannot reasonably avoid. 
(International Harvester, 194 FTC 949, 1070, 1984.)
---------------------------------------------------------------------------

    (14) The other citation to the Joe Camel campaign (60 FR 41314 at 
41330) utilized RJR's documents to illustrate the youth focus of one 
advertising campaign through use of the company's own documents. Some 
comments received from the tobacco industry (including one from RJR), 
trade associations, and some individuals disagreed with this use and 
stated that the Camel campaign was designed to, and did in fact, 
attract the attention of young adult smokers, aged 18 to 24. These 
comments stated that the Joe Camel campaign was directed to adult 
smokers, specifically existing male Marlboro smokers aged 18 to 24. The 
comments stated that the illustrated character Joe Camel was developed 
to reposition the brand by stressing images and characteristics, such 
as the ``Smooth Moves'' image, which appeal to the young adult, 
particularly male, Marlboro smoker.
    Industry comments further stated that the company conducted no 
market research on nonsmokers, and that the campaign reached adult 
smokers aged 18 to 24 years. One comment postulated that it is merely 
the cartoon form of Joe Camel that causes people to mistakenly believe 
that Joe Camel is child-oriented. It stated further that many adult 
products are advertised using illustrated characters, such as the Pink 
Panther for fiberglass insulation, Garfield the Cat for a hotel chain, 
Mr. Clean for household products, and the Peanuts characters for life 
insurance. Moreover, RJR stated that it made efforts to ensure that the 
ad copy and promotional activity for Joe Camel would not appeal to 
minors. It said that a skateboard promotion proposed by an advertising 
agency was rejected by the company because it was assumed that 
skateboarding is disproportionately engaged in by children and 
adolescents. Similarly, marketing research included 25 to 34 year olds 
``to serve as a safety check to make sure that the concept appeal did 
not skew too young.''
    These comments further stated that Joe Camel advertisements were 
directed to, and reached, the intended market. Examples of publications 
in which the Joe Camel advertisements were placed are Cycle World, 
Penthouse, Gentleman's Quarterly, and Road and Track. Joe Camel's share 
of 18 to 24 year olds increased by 6.9 percentage points, from 3.2 in 
1986, the year before Joe Camel's inception, to 10.1 by the end of 
1994. The comment stated that Camel's and Marlboro's growth came at the 
expense of other brands. These comments are consistent with the 
industry's assertion that this is the whole point of cigarette 
advertising: to encourage current smokers to buy the advertised brand 
either by switching brands or remaining loyal to their existing brands. 
(This comment states that because there is no evidence that smoking 
rates have risen among adolescents, there cannot be a reason to believe 
that Camel's success among adolescents came from new, as opposed to 
existing, smokers. See section III.B. of

[[Page 44480]]

this document for a refutation of the industry assertion that smoking 
rates among adolescents are static.)
    In contrast, comments from health organizations and concerned 
citizens stated that Joe Camel has been successful in attracting 
underage smokers. These comments further stated the belief that the 
campaign was intended to attract children, citing the methods of 
advertising and promotion employed as evidence of its intention to 
appeal to children. For example, one comment stated: ``* * * T-shirts 
and caps, like those marketed with `Joe Camel' are found in 
disproportionate numbers of children.''
    FDA continues to believe that RJR documents do illustrate the 
creation of and execution of a decidedly youth-oriented campaign.
    FDA finds that previously confidential RJR documents provide 
convincing evidence of the company's intention to attract young smokers 
and so-called presmokers to its Camel brand. These documents, 
identified as RJR marketing documents and submitted during the comment 
period, reflect a company policy that in order to grow and ensure a 
profitable future, the company must develop new brands that would 
appeal to and capture a share of the youth market. These young people 
were described as ``presmokers'' and ``learners'' in RJR marketing 
language and were identified as being 14 to 18 year olds.
    While the documents concerning the Camel campaign (focus group 
reports, etc.) submitted by RJR to the rulemaking docket do not 
identify the under-18 group as the company's target, the implication 
arises from the company-submitted documents that the Camel campaign was 
the logical outgrowth of the planning and forecasting contained in the 
heretofore confidential marketing documents.
    In a 1972 memo entitled ``Research Planning Memorandum on the 
Nature of the Tobacco Business and the Crucial Role of Nicotine 
Therein,'' the author, Claude Teague Jr., Assistant Director of 
Research and Development, wrote:
     [I]t may be well to consider another aspect of our business; 
that * * * the factors which induce a presmoker or nonsmoker to 
become a habituated smoker. * * * He does not start smoking to 
obtain undefined physiological gratifications or reliefs, and 
certainly he does not start to smoke to satisfy a nonexistent 
craving for nicotine. Rather, he appears to start to smoke for 
purely psychological reasons--to emulate a valued image, to conform, 
to experiment, to defy, to be daring, to have something to do with 
his hands, and the like. Only after experiencing smoking for some 
period of time do the physiological ``satisfactions'' and 
habituation become apparent and needed. Indeed, the first smoking 
experiences are often unpleasant until a tolerance for nicotine has 
been developed. * * * [I]f we are to attract the nonsmoker or 
presmoker, there is nothing in this type of product that he would 
currently understand or desire. We have deliberately played down the 
role of nicotine, hence the nonsmoker has little or no knowledge of 
what satisfactions it may offer him and no desire to try it. 
Instead, we somehow must convince him with wholly irrational reasons 
that he should try smoking, in the hope that he will for himself 
then discover the real ``satisfactions'' obtainable. \123\
---------------------------------------------------------------------------

    \123\ Teague, C., Research Planning Memorandum on the Nature of 
the Tobacco Business and the Crucial Role of Nicotine Therein, pp. 
4-5, 1972.
---------------------------------------------------------------------------

    In 1973, the same author reported in another memo, ``Research 
Planning Memorandum on Some Thought about New Brands of Cigarettes for 
the Youth Market,'' his thoughts on how to acquire a portion of the 
important youth market:
     [W]e should simply recognize that many or most of the ``21 and 
under'' group will inevitably become smokers, and offer them an 
opportunity to use our brands.Realistically, if our Company is to 
survive and prosper, over the long-term we must get our share of the 
youth market. In my opinion this will require new brands tailored to 
the youth market; I believe it unrealistic to expect that existing 
brands identified with an over-thirty 'establishment' market can 
ever become the 'in' products with the youth group. Thus we need new 
brands designed to be particularly attractive to the young smoker, 
while ideally at the same time being appealing to all smokers. \124\
---------------------------------------------------------------------------

    \124\ Teague, C., Research Planning Memorandum on Some Thought 
About New Brands for Cigarettes for the Youth Market, p. 1, 1973.
---------------------------------------------------------------------------

    Mr. Teague then described the factors he thought must be taken into 
account in designing a brand that would attract young people:
     Several things will go to make up any such new ``youth'' 
brands, the most important of which may be the image and quality-
which are, of course, interrelated. The questions then are: What 
image? and What quality? Perhaps these questions may best be 
approached by consideration of factors influencing pre-smokers to 
try smoking, learn to smoke and become confirmed smokers. * * * For 
the pre-smoker and ``learner'' the physical effects of smoking are 
largely unknown, unneeded, or actually quite unpleasant or awkward. 
The expected or derived psychological effects are largely 
responsible for influencing the pre-smoker to try smoking, and 
provide sufficient motivation during the ``learning'' period to keep 
the ``learner'' period going, despite the physical unpleasantness 
and awkwardness of the period. * * * \125\

    \125\ Id., pp. 1-2.
---------------------------------------------------------------------------

Mr. Teague continues with some reasons why young people smoke and then 
gives advice on the type of advertising campaign that would appeal to 
the presmoker group based on these reasons:
    A. Group Identification--Pre-smokers learn to smoke to identify 
with and participate in shared experiences of a group of associates. 
If the majority of one's closest associates smoke cigarettes, then 
there is strong psychological pressure, particularly on the young 
person, to identify with the group, follow the crowd, and avoid 
being out of phase with the group's value system even though, 
paradoxically the group value system may esteem individuality. This 
provides a large incentive to begin smoking.
 * * * * *
[The brand's] promotion should emphasize togetherness, belonging and 
group acceptance, while at the same time emphasizing individuality 
and ``doing ones own thing.''
    B. Stress and Boredom Relief--The teens and early twenties are 
periods of intense psychological stress, restlessness and boredom. 
Many socially awkward situations are encountered. [the documents 
mentions smoking gives you something to do with your hands--find an 
ashtray etc.]
    C. Self-Image Enhancement--The fragile, developing self-image of 
the young person needs all of the support and enhancement it can 
get. Smoking may appear to enhance that self-image in a variety of 
ways. [Values mentioned in the document include adventurousness, 
adult image.] If one values certain characteristics in specific 
individuals or types and those persons or types smoke, then if one 
also smokes he is psychologically a little more like the valued 
image. This self-image enhancement effect has traditionally been a 
strong promotional theme for cigarette brands and should continue to 
be emphasized.
    D. Experimentation--There is a strong drive in most people, 
particularly the young, to try new things and experiences. This 
drive no doubt leads many presmokers to experiment with smoking, 
simply because it is there and they want to know more about it. A 
new brand offering something novel and different is likely to 
attract experimenters, young and old, and if it offers an advantage 
it is likely to retain those users. \126\
---------------------------------------------------------------------------

    \126\ Id., pp. 6-7.
---------------------------------------------------------------------------

In March 1976 R. J. Reynolds' Research Department created a memo 
entitled, ``Planning Assumptions and Forecast for the Period 19**-1986 
for R. J. Reynolds Tobacco Company.'' Under a heading, The Tobacco 
Industry and R. J. Reynolds Tobacco Company--subheading E. Products--
the memo states:
    The present large number of people in the 18-35 year old age 
group represents the greatest opportunity for long-term cigarette 
sales growth. Young people will continue to become smokers at or 
above the present rates during the projection period. The brands 
which these beginning smokers accept and

[[Page 44481]]

use will become the dominant brands in future years. Evidence now 
available * * * indicate[s] that the 14 to 18 year old group is an 
increasing segment of the smoking population. RJR must soon 
establish a successful new brand in this market if our position in 
the industry is to be maintained over the long term.
(Emphasis omitted.) \127\
---------------------------------------------------------------------------

    \127\ An RJR spokesperson referred to these documents and did 
not dispute their validity. (See Levy, D., ``RJR Memo Targeted Teen 
Market,'' USA Today, p. 1D, October 6, 1995; ``Report: Teen 
Cigarettes Eyed,'' AP Online, October 4, 1995.); Planning 
Assumptions and Forecast for the Period 197*-1986 for R.J. Reynolds 
Tobacco Company, Research Department, 1976.
---------------------------------------------------------------------------

    By the mid to late 1980's, RJR was marketing its newly revitalized 
Camel brand to ``young adults'' 18 to 20 years old. According to an 
internal memo cited in the Wall Street Journal, \128\ the business plan 
for 1990 had a single-minded focus on getting young adults, especially 
the 18 to 20 year olds, to smoke Camels. The brand was to be refocused 
on young adult smokers, aged 18 to 24 with a strong emphasis on males 
18 to 20. \129\
---------------------------------------------------------------------------

    \128\ Freedman, A. M., and S. L. Huang, ``Reynolds Marketing 
Strategy Sought to Get Young Adults to Smoke Camels,'' Wall Street 
Journal, p. B10, col. 3, November 2, 1995.
    \129\ A 1984 strategic research document, authored by Diane 
Burrows of R. J. Reynolds and entitled ``Younger Adult Smokers: 
Strategies and Opportunities,'' came to FDA's attention as a result 
of its inclusion as an exhibit attached to a brief filed by the 
State of Minnesota and Blue Cross in Ramsey County District Court in 
litigation involving the seven tobacco companies. The document was 
also described in numerous press accounts of the event (e.g., 
Phelps, D., and J. Hodges, ``Suit: Kids were focus of Reynolds 
strategy. Documents filed in state's lawsuit against the tobacco 
industry show how R. J. Reynolds targeted young smokers as critical 
to the industry's future,'' Star Tribune, 1A, July 11, 1996; 
Worklan, P., ``R. J. Reynolds Secret Report Targets Young Adult 
Market,'' Chicago Tribune, N19, July 11, 1996.) Although the agency 
has not relied on this memo as part of the justification for this 
rule, FDA is citing to it here because it is relevant to the issues 
discussed.
      The memo indicates that by 1984, R. J. Reynolds was beginning 
to conduct research on the concepts detailed above that were 
developed during the 1970's. The memo describes the problem facing 
Reynolds at that time of declining market share and then proposed a 
solution: ``RJR's consistent policy is that smoking is a matter of 
free, informed, adult choice which the Company does not seek to 
influence. However, in order to plan our business, we must consider 
the effects those choices may have on the future of the Industry. 
Furthermore, if we are to compete effectively, we must recognize the 
imperative to know and meet the wants of those who are 18 and have 
already elected to smoke, as well as those of older smokers 
(emphasis added).''
    The memo recognizes several important facts: ``The renewal of 
the market stems almost entirely from 18-year-old smokers. No more 
than 5% of smokers start after age 24.''Moreover, the memo also 
recognizes that: ``[t]he brand loyalty of 18-year-old smokers far 
outweighs any tendency to switch with age. Thus, the annual influx 
of 18-year-old smokers provides an effortless, momentum to 
successful `first brands'.''
    These ``first brands'' were identified as those which appeal to 
the 18-year-old smoker rather than switchers ages 19-24.
      The memo identifies additional factors that had to be 
considered in this calculus: (1) Although 18- to 24-year-olds 
account for a very small part of market share, this age group 
represents the future of a brand. Those young, brand loyal smokers 
who now consume very few cigarettes, will consume more cigarettes 
with age and generally remain loyal to this first brand, its brand 
family or to the company; (2) Although young smokers are easier to 
switch than older smokers, a brand can not rely exclusively on 
switching younger smokers to produce a lasting brand equity--the 
major and most important share advantage available to a company is 
to have a cigarette brand relevant to young people and accepted by 
them as their ``first brand.''
      The reports's recommendation was to research and capitalize on 
the factors and strategies which have been successful with youth 
brands of the past. This would require devoting substantial 
resources to identifying and tracking values, wants, and media 
effectiveness relevant to younger people. Because of the sensitivity 
of this young market, the memo continued: ``brand development/
management should encompass all aspects of the marketing mix and 
maintain a long term, single-minded focus to all elements-product, 
advertising, name, packaging, media, promotion and distribution. 
(Emphasis omitted)''
    This must include, the memo stated, a careful emphasis on the 
``imagery and product positives'' relevant to ``younger adults.''
---------------------------------------------------------------------------

    Documents submitted by RJR in its comment detail its plans for 
developing and promoting Joe Camel as the spokescharacter for the 
brand. In language reminiscent of the 1973 Teague memo, RJR 
reemphasized the importance of the young adult smokers (which RJR 
nicknamed the ``YAS'')--noting that only 5 percent of smokers start 
after age 24. \130\ The paper noted that 40 percent of the ``virile'' 
segment have made a brand choice at age 18--a brand to which they will 
be loyal for years or throughout their smoking career. Thus, although 
this document describes the YAS as 18 to 24 year olds, the company's 
interest appears to have been with those younger than 18 who are in the 
process of selecting their first brand, the 14 to 18 year olds 
described by Teague.
---------------------------------------------------------------------------

    \130\ ``White Paper,'' Camel Advertising Development, p. 1, 
undated.
---------------------------------------------------------------------------

    In addition, the problem, the White Paper emphasized, was that 
Camel needed a facelift to make it relevant to this YAS group. 
Research, they noted, indicates that YAS see advertising as ``younger 
adult oriented'' when it is speaking directly to them. Therefore, 
advertising needed to be developed to speak to the target audience, to 
appeal to the ``hot buttons'' of young people such as to ``escape into 
imagination.'' ``Fantasy to these smokers can mean imagining a place to 
escape to or an image of yourself that is better than reality.''
    The YAS group also relates to excitement and fun, noted the White 
Paper: ``Younger adults center their lives on having fun in every way 
possible and at every time possible. Their definition of success is 
`enjoying today' which differentiates them from older smokers. 
Advertising which incorporates an `exciting', `fun', `humorous' theme 
provides a way for these smokers to `feel good' about the message.''
    By 1988 RJR was testing its new ideas about Camel. It described the 
results in a Marketing Research Report, entitled Camel ``Big Idea'' 
Focus Groups--Round II dated September 21, 1988, and written by M. R. 
Bolger. The group was composed of male Marlboro smokers ages 18 to 34. 
Two groups were men 18 to 20, two groups were 21 to 24, and one group 
was age 25 to 34 to serve as a ``safety check'' to make sure the 
concept did not skew too young. Various themes were tested and one, 
``Smooth Moves,'' was received best by the younger portion of the 
target--those that had fewer responsibilities, are single, and go to 
parties. The focus groups also showed that premiums (nontobacco items) 
performed best among the younger portion of the group. Older smokers 
were more discerning and saw the items as being of little value to 
them. \131\
---------------------------------------------------------------------------

    \131\ Bolger, M. R., ``Camel `Big Idea' Focus Groups--Round 
II,'' Marketing Research Report, September 21, 1988.
---------------------------------------------------------------------------

    What resulted from this research was the Joe Camel campaign, an 
unusually successful effort, particularly with the group that RJR 
research documents discussed--the 14 to 18 year olds. Thus, RJR appears 
to have used its research on 18 to 20 year olds to its advantage with 
the 14 to 18 year old group--a group who shares many of the same 
interests and ``hot'' buttons of the older group. These internal 
documents complement those cited in the preamble to the 1995 proposed 
rule. In the preamble to the 1995 proposed rule, FDA described two 
letters from RJR sales managers about the placement of YAS [Camel] 
merchandise. Both letters stated that high school neighborhoods were a 
likely location for YAS. RJR, in its comments to the proposed rule, 
stated that those two letters were mistakes. However, these latest 
documents rebut RJR's comment. The mistake made by the two sales 
representatives was in speaking too clearly of the company's intention.
    ``Reg''--The second campaign reviewed by FDA was the ``Reg'' 
campaign used in the United Kingdom. One comment took issue with FDA's 
claim that the ``Reg'' campaign was

[[Page 44482]]

particularly effective with British adolescents and argued that the 
study that FDA relied on was based on unreliable evidence and is not 
applicable to American adolescents. The comment contended that there 
was no evidence to show that liking the ``Reg'' character caused 
children to smoke and argued instead that children who smoked came to 
like ``Reg.'' The comment also argued that the recognition task, 
described in the study, was too suggestive and biased, and suggested 
that the young people were primed and pressured to say they had seen 
the advertisements during ``games'' that they say took place before the 
recognition task.
    First, this comment is wrong. Games were played during another 
portion of the study, not the one referenced. The comment confused the 
quantitative survey with the qualitative. Second, evidence from England 
about youth smoking habits is no less probative than evidence from the 
United States, as it provides insights into children's smoking 
behavior.
    Smoking Trends--A few comments were critical of the study of trends 
in the smoking initiation study, which found a temporal relationship 
between advertising targeted at women and rising initiation rates among 
girls and young women. \132\ The principal criticisms were that the 
authors failed to examine the actual advertising campaigns in question, 
that FDA failed to consider alternative explanations for the study's 
findings, and that the study's measures were subjective and unreliable.
---------------------------------------------------------------------------

    \132\ Pierce, J. P., L. Lee, and E. A. Gilpin, ``Smoking 
Initiation by Adolescent Girls, 1944 through 1988, An Association 
with Targeted Advertising,'' JAMA, vol. 271, pp. 608-611, 1994.
---------------------------------------------------------------------------

    In response, the agency reiterates that it did not cite to this 
study, or any one study, as ``proof'' that advertising during this 
period ``caused'' a rise in smoking initiation. The study was provided 
as one example of targeted marketing being ``associated'' with 
increases in cigarette consumption among young people. \133\ A logical 
inference to be drawn from the cumulative effect of such studies is 
that advertising does play a role in young people's smoking behavior.
---------------------------------------------------------------------------

    \133\ A more sophisticated example of this type of time series 
analysis was published by the FTC to show that health claims in food 
advertising could have a beneficial effect upon people's consumption 
of high fiber breakfast cereals. (Ippolito, P., and A. Mathios, 
Health Claims in Advertising and Labeling, A Study of the Cereal 
Market, Bureau of Economics Staff Report, FTC, August 1989.)
---------------------------------------------------------------------------

    e. Evidence that youth brand choices are related to advertising. 
Virtually all of the comments from the tobacco industry claimed that 
cigarette and smokeless tobacco manufacturers market their products 
solely to adults. They disputed the findings of studies, cited by FDA 
in the preamble to the 1995 proposed rule, examining advertising 
campaigns that had been particularly effective with children. In 
addition, while the comments acknowledged that younger smokers are the 
intended targets for some cigarette advertising, they argued that only 
younger smokers of legal age were targeted.
    In the preamble to the 1995 proposed rule, FDA presented a number 
of studies showing that youth cigarette brand choices are related to 
advertising. \134\ These studies showed that young people smoke many 
fewer brands than adults, and that their choices are directly related 
to the amount and kind of advertising. While 86 percent of youths who 
smoke choose the three most advertised brands, \135\ the most commonly 
smoked cigarettes (39 percent) among adult smokers are brandless (i.e., 
private label, generics, or plain packaged products). \136\ Another 
study found that children who smoke as few as one cigarette per week 
can identify a preferred brand. \137\
---------------------------------------------------------------------------

    \134\ ``Current Trends: Changes in the Cigarette Brand 
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR, 
CDC, vol. 43, pp. 577-581, August 19, 1994; Goldstein, A. O., P. M. 
Fischer, J. W. Richards, and D. Creten, ``Relationship Between High 
School Student Smoking and Recognition of Cigarette 
Advertisements,'' Journal of Pediatrics, vol. 110, pp. 488-491, 
1987.
    \135\ ``Current Trends: Changes in the Cigarette Brand 
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR, 
CDC, vol. 43, pp. 577-581, August 19, 1994.
    \136\ Teinowitz, I., ``Add RJR to List of Cig Price Cuts,'' 
Advertising Age, pp. 3 and 46, April 26, 1993.
    \137\ Goldstein, A. O., P. M. Fischer, J. W. Richards, and D. 
Creten, ``Relationship Between High School Student Smoking and 
Recognition of Cigarette Advertisements,'' Journal of Pediatrics, 
vol. 110, pp. 488-491, 1987.
---------------------------------------------------------------------------

    One comment argued that the CDC study that found that most children 
smoke the three most advertised brands showed only a correlation 
between advertising expenditures and brand preferences, and that the 
data did not even support this correlation consistently. The comment 
noted that the data on which these findings were based included 18 year 
olds, who are of legal age to smoke. The comment also contended that 
the data did not allow a determination of what came first: Changes in 
advertising expenditures or changes in brand preference 
(directionality).
    The same comment also criticized the study indicating that children 
who smoke as few as one cigarette per week can identify a preferred 
brand. In addition to pointing out that the study did not demonstrate a 
causal relationship and that the sample was not generalizable, the 
comment argued that:
    * * * other research has found that adolescents smoke a smaller 
number of different brands than do adults, [the researchers] tested 
only the correlation between adolescent smoking and advertising 
recognition. [The researcher] did not know which brands the 
adolescents in this study smoked. [emphasis in original]
    Contrary to the comment, these studies are evidence that, when 
considered together, form a coherent pattern that establishes the role 
that advertising plays in young people's smoking behavior.
     The CDC study \138\ provides evidence of young people's smoking 
choices. Neither the fact that the data included 18-year-olds nor the 
question of directionality is sufficient to invalidate the study's 
utility. While the data available for the study contained 18-year-old 
use, there is little difference between 17- and 18-year-old cigarette 
use; certainly not enough to invalidate the general finding that 
underage and 18-year-old smokers choose the three most heavily 
advertised brands. The issue of directionality of the results is no 
more important. The results showed that young people chose cigarettes 
that are heavily advertised, not ones that are cheap or low tar, etc. 
The CDC study, as noted, did not prove causality--it was not intended 
to and it did not.
---------------------------------------------------------------------------

    \138\ ``Current Trends: Changes in the Cigarette Brand 
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR, 
CDC, vol. 43, pp. 577-581, August 19, 1994.
---------------------------------------------------------------------------

    The comment's criticism of the study, which involved children who 
smoke as few as one cigarette a week, is not correct. The researchers 
did know the brands that the adolescents in the study smoked. ``Fifty-
two percent of all students who had used cigarettes identified a single 
preferred brand * * *. One brand of cigarettes (Marlboro) accounted for 
76% of all preferred brands.'' The study's finding is consistent with 
every other study of adolescent brand preference: Marlboro is the 
number one brand choice.
    The effect of advertising on brand choice by young people is 
important. It shows that young people choose the imagery of the two or 
three most highly advertised brands to smoke, brands that provide 
specific definitions of a user.

[[Page 44483]]

The choice permits the user to adopt the image created by the brand.
    f. The Canada advertising case. A series of comments raises new 
issues not considered in the preamble to the 1995 proposed rule.
    The September 1995 decision of the Supreme Court of Canada on the 
Canadian Tobacco Products Control Act (TPCA), \139\ enacted to regulate 
tobacco advertising and promotion in Canada, prompted several comments, 
primarily from the tobacco industry. The TPCA banned all tobacco 
advertising, restricted the promotion of tobacco products and required 
packaging to display prominent unattributed health messages and toxic 
constituent information. As soon as the TPCA was enacted in 1988, the 
tobacco companies challenged the act as unconstitutional. On September 
21, 1995, the Supreme Court of Canada found that Parliament had the 
criminal law power to legislate regarding the advertising and promotion 
of tobacco products, but that, based on the record developed in the 
court below, the restrictions on advertising and promotion violated the 
tobacco companies' freedom of expression guaranteed to all Canadians. 
Several of the key sections of the TPCA were struck down by the 
Canadian Supreme Court. The Canadian court ruled that the government 
had failed to demonstrate that the restraints regarding advertising, 
promotion, and labeling were reasonable and justified restrictions on 
freedom of expression.
---------------------------------------------------------------------------

    \139\ RJR-MacDonald, Inc. v. Canada (Attorney General), S.Ct. of 
Canada, 100 C.C.C. 3d 449, Sept. 21, 1995.
---------------------------------------------------------------------------

    The Canadian court also found that the government had failed to 
demonstrate that less intrusive measures, falling short of a complete 
restriction on advertising and promotion, would be less effective in 
protecting young people from inducements to use tobacco products. 
Further, the Canadian court found that the government had failed to 
show that unattributed health messages were required to achieve its 
objective of reducing tobacco consumption. Finally, the Canadian court 
decided that there was no rational connection between prohibiting a 
tobacco product trademark on a nontobacco product and the objective of 
the TPCA. The decision left the advertising and promotion of tobacco 
products substantially unregulated in Canada.
    Because of some similarities between the Canadian federal tobacco 
control strategy and FDA's proposed regulation, some comments suggested 
that the opinions of the Canadian court are a basis for rejecting 
actions and laws targeting lawful tobacco advertising, particularly FDA 
proposed regulations. Moreover, the comments said that the Canadian 
court concluded that the proposed prohibition on tobacco advertising 
could not be sustained because it ``failed the rational connection 
test'' in that there was no causal connection ``whether based on direct 
evidence or logic and reason'' justifying the law (100 C.C.C. 3d. 449, 
Charter of Rights).
    In contrast, one comment suggested that the ruling on this case is 
consistent with FDA's emphasis on reducing image advertising directed 
towards young people. The comment stated that FDA's focus fits the 
Canadian court's decision and had the Canadian government restricted 
image advertising rather than banning all advertising, it would have 
upheld the regulation.
    FDA does not find the decision of the Canadian court to be contrary 
to its findings. The Canadian court did recognize that image or 
lifestyle advertising can affect overall consumption. Moreover, 
contrary to the comment's suggestion, the court specifically recognized 
that: ``measures * * * to prohibit advertising aimed at children and 
adolescents * * * would be a reasonable impairment of the right to free 
expression, given the important objective and the legislative context'' 
(100 C.C.C. 3d. 449).
    Finally, FDA has considered a much larger quantity of evidence than 
that which was before the Canadian court, including the evidence 
concerning nontobacco item ownership by young people and the materials 
received during the comment period. The latter included the heretofore 
confidential or secret documents from RJR's marketing department and 
also those concerning the results of RJR's focus groups, which showed 
that interest in nontobacco items was highest among the young. Thus, 
FDA considered a much fuller record than that before the Canadian 
court. Moreover, the comment period provided the agency with additional 
evidence concerning various proposed provisions. FDA's final rule is 
thus based on a very complete and full record and its decisions are 
well justified.
    g. Roberts and Samuelson. Concerning the effect of advertising on 
consumption patterns, one study not considered by the court in Canada, 
but cited by FDA in the preamble to the 1995 proposed rule, was an 
econometric analysis employed by Roberts and Samuelson \140\ to show 
that advertising can increase the market demand for tobacco products. 
The study measured the effect on brand share and market size of 
advertising for low and high-tar cigarettes. The results indicated that 
advertising for low tar cigarettes did increase overall market size.
---------------------------------------------------------------------------

    \140\ Roberts, M. J., and L. Samuelson, ``An Empirical Analysis 
of Dynamic, Nonprice Competition in an Oligopolistic Industry,'' 
Rand Journal of Economics, vol. 19, pp. 200-220, 1988.
---------------------------------------------------------------------------

    The study looked at the question of the effect of advertising not 
from the viewpoint of the consumer, but from the producer's 
perspective--how much should a firm invest in advertising in order to 
maximize its profits. A predicate assumption is that a manufacturer 
would not invest in advertising if the cost did not produce a return. 
This study also was conducted by independent economists and appeared in 
a peer reviewed journal.
    Several comments criticized the study as an ``ambitious failure.'' 
The industry comments criticized the study on the following grounds: 
The study inappropriately measures the level of advertising in messages 
and not in expenditures, and the study had inadequacies in some 
assumptions and in the data and these flaws thus call into question the 
study's results. Moreover, the comments alleged that misallocation of 
advertising expenditures may have biased the results. The results of 
the study show that advertising for low tar cigarettes had a beneficial 
effect on the overall level of consumption, but that the same effect 
did not occur for high tar cigarette advertising. The comments noted 
that young people do not consume low tar cigarettes, and therefore the 
results are irrelevant to a discussion of youth smoking. Moreover, the 
comments said that the results are not generalizable to all cigarette 
advertising. Finally, the comments said that population growth may have 
accounted for the finding of a relationship between advertising and 
consumption.
    The agency disagrees with the criticisms of this study and finds 
instead that it is persuasive evidence of the effects of tobacco 
advertising for low-tar cigarettes on the overall market. In answer to 
the first criticism, the study used messages instead of expenditures as 
a measure of advertising in order to increase the accuracy of the 
analysis. It is the messages actually seen by a consumer, and not the 
amount spent by the company on advertising, that is more relevant in 
assessing the effect of advertising. If the cost of advertising

[[Page 44484]]

were to go up, and thus firms would have to pay more for fewer 
messages, we would not expect to find a greater effect on consumers, 
which was the effect shown by the study.
    The second issue, that there were flaws in the study, is similarly 
not fatal. As noted in section VI.D.4.d. of this document, each study 
utilizes the best data and methods available at the time. This may not 
be the perfect study, but its flaws are minor and do not affect its 
usefulness. Moreover, one major criticism was with the advertising 
variable and as noted more fully in section VI.D.6.a. of this document 
data on advertising expenditures are generally considered trade secrets 
by the companies. Thus, independent researchers have to use whatever 
data are available, even if they are not perfect. If the industry 
wanted to ensure more complete studies, it could release old data 
relevant to advertising expenditures.
    Third, the comments complain that the focus of the study, low-tar 
advertising, limits the applicability of the results. However, the fact 
that this study found that advertising for low-tar cigarettes increased 
the market is not a limitation that restricts the results to that one 
example. The importance of the results is that the study shows that 
advertising in this oligopolistic industry can affect the market size. 
The purpose of dividing the market into high- and low-tar advertising 
was an attempt to isolate the effect of advertising for each of the 
product classes.
    Fourth, the comments expressed concern about the possibility of 
population growth as an intervening factor. Population growth should 
not have affected the results as growth would have affected the high-
tar market as well as the low-tar market, a consequence that did not 
occur.
    FDA concludes that this study presents excellent evidence of the 
effect of advertising on consumption patterns and, that it would have 
provided quite supportive evidence before the Canada court for 
advertising restrictions.
    h. The African-American youth market. Referring to the declining 
African American youth tobacco market, several comments argued that 
FDA's tentative finding in the preamble to the 1995 proposed rule on 
the relationship between outdoor cigarette advertising and tobacco 
consumption by young people is incorrect. Comments said that if 
cigarette advertising increases the prevalence of smoking among young 
people, the percentage of African-American young people who smoke 
should be equivalent to that of whites, because African-American young 
people see as much or more cigarette advertising than do whites. 
However, smoking rates for young African-Americans are much lower than 
for white young people. One comment further indicated that African-
American young people's decision to smoke may be more responsive to 
peer influence and parental and community advice than cigarette 
advertising.
    It is unclear why African-American young people do not use tobacco 
at the same rate as white young people. It is surely not that their 
parents smoke less; the smoking rate among African-American adults is 
26 percent, almost the same rate as for white adults. \141\ Whatever 
may be the reason (and it is unknown) for the lower smoking rates among 
youth among that segment of the population, it does not provide 
sufficient evidence against advertising restrictions when other 
evidence shows that advertising does affect children's decisions to use 
tobacco products.
---------------------------------------------------------------------------

    \141\ ``Cigarette Smoking Among Adults--United States-, 1993,'' 
MMWR, CDC, vol. 43, pp. 925-930, 1994.
---------------------------------------------------------------------------

    i. The evidence relating to smokeless tobacco. A couple of comments 
argued that FDA had presented insufficient evidence regarding the 
effect of advertising on the decision to use smokeless tobacco. One 
joint comment from the smokeless tobacco manufacturers stated:
    The studies cited by the agency regarding cigarette 
advertisements and smoking are all either highly flawed, biased, or 
simply do not support the agency's hypothesis. * * * Even more 
troubling--and from the standpoint of sustaining its legal 
obligation, a fatal flaw--is the agency's audacity to propose a 
virtual ban on advertising for smokeless tobacco products without 
even deigning to build a case.
    The comment is correct that there is less evidence available 
regarding smokeless tobacco advertising practices and smokeless tobacco 
use. Nevertheless, the record contains sufficient evidence to provide a 
basis for applying the advertising restrictions in the 1995 proposed 
rule to smokeless products. In the preamble to the 1995 proposed rule 
(60 FR 41314 at 41331), reference was made to the remarkably successful 
regeneration of the smokeless tobacco market by U.S. Tobacco (UST), the 
leading smokeless tobacco company, in the 1980's. In the 1970's, the 
segment of the population with the highest use of these products was 
over age 50, and young men were among the lowest. Fifteen years later, 
there had been a tenfold increase in the use of smokeless tobacco by 
young men, whose use became double that of men over 50. The preamble to 
the 1995 proposed rule attributed that increase to the concerted 
advertising and marketing efforts of UST.
    As detailed more fully in the preamble to the 1995 proposed rule 
(60 FR 41313 at 41331), officials at UST held a marketing meeting in 
1968 where, according to the Wall Street Journal, the vice-president 
for marketing said, ``We must sell the use of tobacco in the mouth and 
appeal to young people *** we hope to start a fad.'' Another official 
attending the same meeting was quoted as saying, ``We were looking for 
new users-younger people who, by reputation, wouldn't try the old 
products.''
    Later, Louis Bantle, the chairman of the board of UST, described 
the reason that so many young males use smokeless tobacco, ``I think 
there are a lot of reasons, with one of them being that it is very 
`macho;.'' UST's advertising utilized the themes that play well with 
`macho' boys--rugged masculine images--and utilized heros to this 
group--professional athletes. Bantle described the success of this 
program thus: ``In Texas today, a kid wouldn't dare to go to school, 
even if he doesn't use the product, without a can in his Levis.''
    The UST program also utilized a promotional program that it called 
``graduation strategy'':
    UST distributes free samples of low nicotine-delivery brands of 
moist snuff and instructs its representatives not to distribute free 
samples of higher nicotine-delivery brands. The low nicotine-
delivery brands also have a disproportionate share of advertising 
relative to their market share. For example, in 1983, Skoal Bandits, 
a starter brand, accounted for 47 percent of UST's advertising 
dollars, but accounted for only 2 percent of the market share by 
weight. In contrast, Copenhagen, the highest nicotine-delivery 
brand, had only 1 percent of the advertising expenditures, but 50 
percent of the market share. This advertising focus is indicative of 
UST's ``graduation process'' of starting new smokeless tobacco 
product users on low nicotine-delivery brands and having them 
graduate to higher nicotine-delivery brands as a method of 
recruiting new, younger users.
(60 FR 41314 at 41331)
    Therefore, the agency disagrees with the assertion that it has 
presented no evidence to support restricting smokeless tobacco 
advertising. In fact, it finds the graduation strategy to be strong 
evidence of the effectiveness of advertising in targeting young people 
to become new users and consistent with and supported by the general

[[Page 44485]]

discussion, see sections VI.B. and VI.D. of this document.
4. Why Young People Use Tobacco and the Role of Advertising in That 
Process
    (15) Regardless of the evidence cited in section VI.D.3. of this 
document, many comments argued that children start to smoke and use 
smokeless tobacco because of influences on them other than advertising, 
primarily the influence of their friends and peers.
    a. Why young people use tobacco. One comment cited studies showing 
that young people who were most likely to be smokers were those who 
were particularly rebellious or prone to deviant behavior, \142\ and 
said that it was counterintuitive that young people fitting these 
profiles would want to conform to what advertising portrayed as 
desirable.
---------------------------------------------------------------------------

    \142\ Chassin, L., C. C. Presson, S. J. Sherman, E. Corty, and 
R. W. Olshavsky, ``Predicting the Onset of Cigarette Smoking in 
Adolescents: A Longitudinal Study,'' Journal of Applied Social 
Psychology, vol. 14, pp. 224-243, 1984; Collins, L. M., S. Sussman, 
J. Mestel Rauch, C. W. Dent, C. J. Johnson, W. B. Hansen, and B. R. 
Flay, ``Psychosocial Predictors of Young Adolescent Cigarette 
Smoking: A Sixteen-Month, Three-Wave Longitudinal Study,'' Journal 
of Applied Social Psychology, vol. 17, pp. 554-573, 1987.
---------------------------------------------------------------------------

    Conversely, many comments said that cigarette advertising, like all 
advertising portrays highly attractive images. One comment stated that 
when young people's peers are also smoking, this can serve to 
personalize the images and make them relevant for their own lives, and 
cause them to have favorable impressions about their friends who smoke. 
\143\
---------------------------------------------------------------------------

    \143\ Pechmann, C., and S. J. Knight, ``Cigarette Ads, 
Antismoking Ads and Peers: Why do Underage Youth Smoke Cigarettes?'' 
Advances in Consumer Research, Association for Consumer Research, 
edited by Corfman, K. P., and J. G. Lynch, eds., Provo, UT, vol. 23, 
pp. 267-268, 1996.
---------------------------------------------------------------------------

    One comment argued further that children smoke because they hope to 
convey a positive self-image. \144\ Hence, young people may be 
particularly vulnerable to being influenced by the attractive images 
presented in cigarette and smokeless tobacco advertising. \145\
---------------------------------------------------------------------------

    \144\ Chassin, L., C. Presson, S. J. Sherman, E. Corty, and R. 
W. Olshavsky, ``Self-Images and Cigarette Smoking in Adolescence,'' 
Personality and Social Psychology Bulletin, vol. 7, pp. 670-676, 
1981; Barton, J., L. Chassin, C. Presson, and S. J. Sherman, 
``Social Image Factors as Motivators of Smoking Initiation in Early 
and Middle Adolescence,'' Child Development, pp. 1499-1511, 1982.
    \145\ Id.
---------------------------------------------------------------------------

    Specifically, the same comment cited numerous studies that indicate 
that many young people smoke because they hope to convey a positive 
image. \146\ Based on these studies, the comment stated: ``Image or 
impression management (Schlenker, 1980) has great utility for young 
people as they struggle for social acceptance and autonomy (citations 
omitted).''
---------------------------------------------------------------------------

    \146\ Chassin, L., C. Presson, S. J. Sherman, E. Corty, and R. 
W. Olshavsky, ``Self-Images and Cigarette Smoking in Adolescence,'' 
Personality and Social Psychology Bulletin, vol. 7, pp. 670-676, 
1981; Barton, J., L. Chassin, C. C. Presson, and S. J. Sherman, 
``Social Image Factors as Motivators of Smoking Initiation in Early 
and Middle Adolescence,'' Child Development, pp. 1499-1511, 1982; 
Belk, R. W., ``Possessions and the Extended Self,'' Journal of 
Consumer Research, vol. 15, pp. 139-168, 1988; Belk, R. W., R. 
Mayer, and A. Driscoll, ``Children's Recognition of Consumption 
Symbolism in Children's Products,'' Journal of Consumer Research, 
vol. 10, pp. 386-397, 1984; Brown, B. B., M. J. Lohr, and E. L. 
McClenahan, ``Early Adolescents' Perceptions of Peer Pressure,'' 
vol. 6, pp. 139-154, 1986; Messick, P. M., and C. C. McClelland, 
``Social Traps and Temporal Traps,'' Personality and Social 
Psychology Bulletin, vol. 9, pp. 105-110, 1983; Levy, S. J., 
``Meanings in Advertising Stimuli,'' Advertising and Consumer 
Psychology, Praeger, New York, pp. 214-226, 1986; Solomon, M. R., 
``The Role of Products as Social Stimuli: A Symbolic Interactionism 
Perspective,'' Journal of Consumer Research, vol. 10, pp. 319-329, 
1983.
---------------------------------------------------------------------------

    Finally, the comment described the developmental aspects of 
adolescents that are relevant to this issue:
     With respect to developmental aspects of adolescence, there are 
two related factors that make adolescents especially vulnerable to 
being influenced by tobacco advertising. First, adolescents are 
typically beginning to focus on peer group interactions more than on 
family interactions (e.g., Brown et al., 1986), which they may 
likewise value to a far greater extent. Second, tobacco use 
constitutes a ``temporal trap'' (Messick and McClelland, 1983) in 
the sense that the peer group benefits of tobacco use are immediate, 
while the negative consequences in terms of health outcomes are so 
far into the future that many adolescents, who often see themselves 
as invulnerable even in the present, would consider them to be 
irrelevant. Furthermore, the negative social consequences of tobacco 
use in adulthood (i.e., social stigmatization * * *) are also 
unimportant to adolescents at the time they are making the decision 
to use tobacco products. \147\
---------------------------------------------------------------------------

    \147\ Brown, B. B., M. J. Lohr, and E. L. McClenhanan, ``Early 
Adolescents' Perceptions of Peer Pressure,'' Journal of Early 
Adolescence, vol. 6, pp. 139-154, 1986; Messick, P. M., and C. C. 
McClelland, ``Social Traps and Temporal Traps,'' Personality and 
Social Psychology Bulletin, vol. 9, pp. 105-110, 1983.
---------------------------------------------------------------------------

    Stated differently, adolescence is a time of ``identity 
formation.'' Young people use the attractive imagery of advertising as 
a ``window into the adult world.'' They are ``susceptible to the images 
of romance, success, sophistication, popularity, and adventure * * *.'' 
\148\ By adolescence, clothes, possessions, and ``badge products'' such 
as cigarettes are used to define oneself and to control relations with 
others. \149\
---------------------------------------------------------------------------

    \148\ Nichter, M., and E. Cartwright, ``Saving the Children for 
the Tobacco Industry,'' Medical Anthropology Quarterly, vol. 5, pp. 
236-256, 1991.
    \149\ Stacey, B. G., ``Economic Socialization in the Pre-Adult 
Years,'' British Journal of Social Psychology, vol. 21, pp. 159-173, 
1982.
---------------------------------------------------------------------------

    Support for this view of the role of tobacco advertising also comes 
from the tobacco industry:
     FDA turns a blind eye to the fact that the personal display of 
products with commercial logo--through dress and other forms of 
expression--is a form of participation in American popular culture. 
It is a way to register a group identity to signal one's place in 
the social fabric.
In addition to these comments, FDA has the words of RJR's research 
department in a 1973 memo, detailed in section VI.D.3.d. of this 
document, that chart a course for attracting the young smoker. \150\
---------------------------------------------------------------------------

    \150\ A July 3, 1974 memo, authored by D. W. Tredennick, of R. 
J. Reynolds' Marketing Research Department was submitted to the 
rulemaking docket by the Attorney General of Mississippi in response 
to the reopening of the rulemaking record (61 FR 11349, March 20, 
1996). Although the agency has not relied on the memo as part of the 
justification for this rule, FDA is citing to it here because it is 
relevant to the issues discussed. The memo was also reported in the 
press, see Schwartz, J., ``R. J. Reynolds Marketing Memo Discusses 
Young Smokers' Brand Image,'' Washington Post, A03, April 23, 1996. 
The memo asked and answered the question: ``What causes smokers to 
select their first brand of cigarettes?'' The answers developed by 
Mr. Tredennick echos the concepts discussed above. The memo 
hypothesized that: ``[t]he causes of initial brand selection relate 
directly to the reasons a young person smokes. The more closely a 
brand meets the psychological 'support' needs (advertising or 
otherwise communicated brand or physiological needs (product 
characteristics), the more likely it is that a given brand will be 
selected. (Emphasis added)'' One important characteristic was 
associated with the user ``image'' associated with a brand. ``To 
some extent young smokers 'wear' their cigarette and it becomes an 
important part of the 'I' they wish to be, along with their clothing 
and the way they style their hair.'' The memo also recognized the 
importance of peer influence on a young person's decisions about 
smoking and noted that: ``It must also be true that influential 
young smokers (perhaps relatively few) have made brand selections 
based on product characteristics or advertising and promotion 
communication. The fact that two brands, Marlboro and Kool, have 
such dominant shares among youths suggests the above hypothesis * * 
*.'' Tredennick noted further that both Marlboro and Kool project 
imagery that is psychologically important to adolescents--the need 
for support and strength.
---------------------------------------------------------------------------

    On the basis of the evidence cited and reviewed in section VI.D.3. 
of this document, the agency finds that the suggestion that it is 
impossible to advertise in a way that would appeal to rebellious 
nonconformist teenagers is

[[Page 44486]]

without merit. Tobacco advertising plays directly to the factors that 
are central to adolescents as they decide whether to use tobacco 
products. Thus, the available evidence clearly supports a finding that 
advertising plays an important role in young people's tobacco use.
    b. Determinants of smoking. Several comments from the advertising 
and tobacco industries claimed that the econometric studies performed 
for them by experts found that peers, parents, and siblings have the 
greatest influence on young peoples' decision to start smoking.
    Citing an econometric analysis performed for RJR by Dr. J. H. 
Beales, on data concerning its Joe Camel advertising campaign, one 
comment argued that ``minors balance the risks and rewards of smoking 
to decide whether or not to smoke, just as they would any other 
consumption decision. The greater an individual minor perceives the net 
rewards of smoking, the more likely he or she will try smoking. Minors 
who perceive greater net rewards of smoking are also likely to smoke 
more intensively.''
    The comment further argued that an analysis based upon this 
theoretical model by Dr. Beales found that neither advertising nor 
advertising expenditures has an appreciable effect on young people's 
perceptions of the benefits of smoking and thus would have no indirect 
effect on teenage smoking decisions. \151\ More specifically, the 
comments stated that the Beales' studies show that advertising 
expenditures for the particular brands that most teenagers smoke, 
Marlboro and Camel, do not influence and are not associated with 
smoking decisions. Moreover, Dr. Beales reported that the results of 
his studies indicate further that advertising did not have an indirect 
effect on smoking behavior. Beales concluded that minors who had been 
exposed to more advertising did not identify the perceived rewards of 
smoking--``smoking helps when bored,'' ``smoking helps relax,'' 
``smoking helps with stress,'' and ``smoking helps in social 
situations,'' in a greater number than did those minors who reported 
less exposure. The comment concluded that the failure of the 1993 
Beales study to find either direct or indirect effects from advertising 
on smoking behavior should be conclusive.
---------------------------------------------------------------------------

    \151\ Dr. Beales used children's designation of a ``most 
advertised brand'' as a surrogate for the effect of advertising.
---------------------------------------------------------------------------

    FDA does not agree. The 1993 Beales study presents only one 
analysis of youthful smoking and that analysis is flawed. \152\ Dr. 
Beales appears to have performed tests using an ordered logistic 
regression model to test for: (1) The effect of advertising on smoking 
behavior, using advertising expenditures and young people's view of 
``most advertised brand'' as measures; and (2) smoking behavior as a 
function of a number of psychosocial variables and determinants.
---------------------------------------------------------------------------

    \152\ Beales, J. H., ``Advertising and the Determinants of 
Teenage Smoking Behavior,'' p. 44, 1993.
---------------------------------------------------------------------------

    First, a logistic model is only as good as the variables used. 
Thus, if a variable is mispecified or imprecise, the model's predictive 
capacity will be severely compromised. The variable ``most advertised 
brand'' appears to be quite imprecise as a measure to capture the 
effect of advertising. The most that this variable would capture would 
be the ability of the campaign to be seen and remembered. It would not 
capture the appeal of the campaign, or the effect of the campaign on 
consumers, nor could it measure the ability of an advertising campaign 
to change or create consumer action. In addition, it would not be 
surprising to find that almost as many nonsmoking young people as young 
smokers found Camel (or Marlboro) to be the most advertised brands, 
since those advertising campaigns were quite ubiquitous at the time the 
data for this study were collected and were, in fact, the most 
advertised brands. A variable that cannot discriminate between users 
and nonusers, because all had seen and remembered the advertising, 
cannot be expected to produce useful predictive results in a regression 
analysis of why people, particularly young people, smoke.
    Second, Dr. Beales attempted to determine whether differences in 
advertising expenditures would predict smoking behavior. It appears, 
however, that Dr. Beales did not look at this question longitudinally--
that is, he did not look at whether smoking rates varied as a function 
of advertising expenditures for Camel cigarettes before the Joe Camel 
campaign and after the campaign started. Instead, he appears to have 
measured smoking rates as a function of the differences in regional 
advertising expenditures in California during one time period. It 
should not be surprising therefore that little if any effect on smoking 
rates was found: (1) There is no reason to expect to find significant 
changes in smoking behavior based on small regional variations within 
one State in advertising expenditures, and (2) optimum expenditures for 
advertising outlays in any given region would have been determined in 
advance by an advertising agency and therefore would more likely 
reflect smoking patterns already in existence. Had he wanted to measure 
smoking behavior as a function of Camel's advertising, he should have 
modeled it longitudinally over time. Since the regional advertising 
expenditures must have been obtained from a RJR data base, Beales 
clearly had access to other sources of data within the company. He 
therefore should have been able to acquire advertising expenditures for 
the Camel brand before the introduction of Joe Camel and advertising 
expenditures for the period after Joe Camel's appearance. This would 
have been a better test.
    Finally, Dr. Beales performed an analysis to determine the ``true'' 
determinants of smoking. Dr. Beales' regression analysis utilized a 
series of psychosocial characteristics and beliefs about smoking. He 
found that the only factor that failed to produce an association was 
advertising. First, as noted, there is no reason to believe that ``most 
advertised brand'' would perform as a useful surrogate for the effects 
of advertising. Therefore, regardless of the value of the study, it is 
not good evidence concerning the role of advertising in young people's 
smoking decision. Second, the analysis indicates what is already known: 
certain beliefs and life patterns can help predict who may become a 
smoker. However, it does not measure what effect advertising can have 
on a young person's perception or beliefs.
    Additional concerns about the study are similar to those that the 
tobacco industry comments raised about studies cited by FDA. The first 
concern is that several variables used in the model measure the same 
impact. This redundancy could create a multicollinearity problem (i.e., 
two or more variables vary together but it is very difficult to 
determine which variable influences the other). Moreover, the 
redundancy may have caused irrelevant variables to be included in the 
regression equation. Both multicollinearity and the inclusion of 
irrelevant variables can affect the efficiency of the model's 
estimates. The second concern is that the model used in the study is 
questionable. The correct model could well have been a double hurdle 
model, i.e., modeling the decision to smoke first and then modeling the 
choice of what brand to smoke, second.

[[Page 44487]]

    Finally, there is concern that the data for the impact of 
advertising expenditures and smoking behavior were incompatible and, 
thus, may have failed to find a relationship that did in fact exist. 
The teen smoking prevalence data were from a behavioral study, and the 
measurement of advertising expenditures was from regional advertising 
expenditures, undoubtedly maintained by the company. The smoking 
decision for a teenager may very well not have been influenced by the 
amount of money spent but by the number of messages he/she receives. 
The aggregate expenditures for advertising cannot measure the number of 
messages actually received by an individual teen.
    Given the multitude of problems with the design of the study and 
the choice of variables, the study has limited capability for producing 
results that can adequately describe advertising effects on smoking 
behavior. Moreover, this study is but one of many and, whatever its 
value, it does not overwhelm the evidence that FDA has relied on.
    c. Laugesen and Meads. In contrast to the Beales' study, FDA had 
cited a study by Laugesen and Meads, entitled ``Advertising, Price, 
Income and Publicity Effects on Weekly Cigarette Sales in New Zealand 
Supermarkets,'' \153\ which provided evidence that increases in 
advertising expenditures had an effect on youth smoking behavior 
including recruiting new smokers and increasing the market base.
---------------------------------------------------------------------------

    \153\ Laugesen, M., and C. Meads, ``Advertising, Price, Income, 
and Publicity Effects on Weekly Cigarette Sales in New Zealand 
Supermarkets,'' British Journal of Addiction, vol. 86, pp. 83-89, 
1991.
---------------------------------------------------------------------------

    One comment stated that data from supermarkets were 
unrepresentative, both because of the percentage of sales from 
supermarkets in New Zealand (presumably not large), and because it is 
not known what percentage of sales to young people are made at 
supermarkets. Moreover, many conditions were not accounted for, 
including possible different pricing structures between retail outlets.
    The comments also criticized several major assumptions they claim 
were made in the study, for example, that young people purchase the 
less expensive, down market brand. Finally, the comment criticizes the 
failure to control for other variables (such as rotating health 
warnings and new advertising restrictions).
    The authors themselves responded to some of the concerns expressed. 
For example, they explained that they specifically chose to collect 
data from supermarkets because other ``authors with access to full 
industry data \154\ have recommended that the data interval [for 
supermarket sales] should reflect the inter-purchase time for 
cigarettes,'' which in New Zealand is a week or less. Moreover, the 
authors found that supermarket cigarette sales are more consistent than 
other points of sales. Hence there were fewer fluctuations in the 
demand data for cigarettes.
---------------------------------------------------------------------------

    \154\ The authors cited this study as an example of one having 
access to full industry data. Leeflang, P. S. H., and Reuiyl, 
``Advertising and Industry Sales: An Empirical Study of the West 
German Cigarette Market,'' Journal of Marketing, vol. 49, p. 97, 
1985; Laugesen, M., and C. Meads, ``Advertising, Price, Income, and 
Publicity Effects on Weekly Cigarette Sales in New Zealand 
Supermarkets,'' British Journal of Addiction, vol. 86, pp. 83-89, 
1991.
---------------------------------------------------------------------------

    Moreover, in response to the second comment, the authors did not 
assume that young people purchase downmarket cigarettes at a higher 
rate than the general population, but that people with lower income, 
which includes young people, purchase these brands more often. But more 
importantly, the study found that it takes only 2 years of advertising 
of this downmarket brand to expand the teen market by 4 percent, and 
this fact was not disputed.
    d. Other comments. Finally, several comments criticized the quality 
of the evidence cited by FDA in its preamble to the 1995 proposed rule. 
One comment stated that FDA has relied too heavily on studies conducted 
by physicians or others not familiar with the art and science of 
persuasion. Further, it asserted that most of the evidence cited in 
support of the regulations had been published in medical journals and 
not in peer reviewed marketing journals.
    However, a review of the evidence presented belies that concern. 
First, FDA relied on the research and expert opinion of consumer 
psychologists, business and marketing experts, economists and social 
science researchers as well as medical experts. Moreover, FDA has 
relied on two outstanding reports issued in the past few years that 
specifically addressed the issue of young people's use of tobacco--the 
1994 SGR and the IOM Report. Both commented extensively on the role 
that advertising plays in young people's smoking behavior and use of 
smokeless tobacco and both recommended strongly that a comprehensive 
plan to attack the problem of youth tobacco use include stringent 
advertising restrictions.
    Moreover, of the 15 members of the IOM committee, 7 were expert in 
the fields of behavioral sciences, including psychology, psychiatry and 
public policy, anthropology, and economics. Similarly, the contributing 
authors to the 1994 SGR included experts in economics, social research, 
marketing, and business administration. Finally, the comments submitted 
include additional empirical evidence, the expert opinion of the 
American Psychological Association, \155\ and the words of the tobacco 
industry itself, all of which are referred to in this document.
---------------------------------------------------------------------------

    \155\ The American Psychological Association represents 132,000 
members and affiliates and is the largest organization of 
psychologists in the world. Its comment represents the 
organization's ``research-based recommendations'' and reflects 
significant input from several relevant divisions including the 
Division of Personality and Social Psychology, the Division of 
Society for the Psychological Study of Social Issues, and the 
Division of Consumer Psychology.
---------------------------------------------------------------------------

    One comment criticized FDA's reliance on the IOM Report and the 
1994 SGR as simply presenting ``selective reviews'' of much of the same 
``dubious literature'' reviewed by FDA. Another comment stated that FDA 
had indiscriminately relied on studies cited in the 1994 SGR, none of 
which, the comment claimed, was capable of determining whether 
advertising influences children to initiate smoking.
    Several comments appeared to place great importance on the fact 
that both reports acknowledge that the psychosocial and econometric 
research that they present do not prove that cigarette advertising 
causes young people to begin smoking or to use smokeless tobacco. The 
IOM Report stated that, because of the nature of the research, it is 
not known for certain whether youths already interested in smoking or 
smokeless tobacco become more attentive to advertisements for these 
products or whether these advertisements lead youths to become more 
interested in these products. One comment argued that the ``IOM's 
recognition of this weakness fatally undermines its own and FDA's 
arguments on the impact of advertising on smoking behavior.'' Another 
comment claimed that the IOM Report acknowledges the lack of a causal 
relationship between advertising and smoking and acknowledges that the 
very econometric studies it cites are unreliable to determine whether 
advertising contributes to youth smoking behavior. The comment also 
stated that FDA misstates IOM's conclusion regarding evidence of a

[[Page 44488]]

causal relationship between advertising and smoking initiation. 
Further, several comments cited to a statement in the 1994 SGR that 
``no longitudinal study of the direct relationship of cigarette 
advertising to smoking initiation has been reported in the 
literature.'' \156\ However, these comments failed to include the 
sentence immediately preceding this quote: ``Considered together, these 
studies offer a compelling argument for the mediated relationship of 
cigarette advertising and adolescent smoking.''
---------------------------------------------------------------------------

    \156\ 1994 SGR, p. 188.
---------------------------------------------------------------------------

    Another comment in support of advertising restrictions on tobacco 
products argued that the multidisciplinary studies cited in the 1994 
SGR supported the conclusion that marketing and advertising tobacco 
products do play a role in tobacco use among young people. The comment 
suggested that this conclusion is consistent with the 1989 Surgeon 
General's conclusion that ``the collective empirical, experiential, and 
logical evidence makes it more likely than not that advertising and 
promotional activities do stimulate cigarette consumption.'' \157\ 
Additionally, the comment supported the findings of the 1994 SGR that 
``cigarette advertising appears to increase young people's risk of 
smoking'' by conveying the impression that smoking has social benefits 
and is far more common than it really is. \158\ Moreover, this comment 
contended that the IOM's conclusions supported FDA's tentative view 
that image advertising of tobacco products is tremendously appealing to 
young people.
---------------------------------------------------------------------------

    \157\ 1989 SGR, p. 517.
    \158\ 1994 SGR, p. 195.
---------------------------------------------------------------------------

    As noted more fully in section VI.B. of this document, FDA did rely 
heavily on the two reports, and continues to find the reports 
persuasive evidence. They represent mainstream scientific consensus and 
are appropriately entitled to a great deal of deference. The agency 
notes that, in a different but not entirely unrelated context, that of 
health claims for food, Congress has said that FDA would have to 
specifically justify any decision rejecting the conclusions of a report 
from an authoritative scientific body of the United States. (See 
section 403(r)(4)(C) of the act (21 U.S.C. 343(r)(4)(C)).) No 
justification for rejecting the IOM's conclusions exists here.
    Finally, the agency, like the 1994 SGR and IOM Report, finds that 
an adequate basis does exist to conclude that advertising plays a 
``mediated relationship'' to adolescent tobacco use. \159\ The proper 
question is not, ``Is advertising the most important cause of youth 
initiation?'' but rather, ``does FDA have a solid body of evidence 
establishing that advertising encourages young people's tobacco use 
such that FDA could rationally restrict that advertising?'' The answer 
to this question is ``yes.''
---------------------------------------------------------------------------

    \159\ Id., p. 188.
---------------------------------------------------------------------------

5. Has the Agency Met Its Burden?
    (16) Several comments from the tobacco and advertising industries 
criticized the agency for failing to present evidence that conclusively 
establishes a causal link between advertising and young people's 
decisions to begin using cigarettes and smokeless tobacco.
    FDA disagrees that its burden is to conclusively prove by rigorous 
empirical studies that advertising causes initial consumption of 
cigarettes and smokeless tobacco. No single study is capable of doing 
so. As one comment stated, it would in fact be practically and 
ethically impossible to conduct such a study. Certainly no study 
presented by industry or any other party demonstrated that advertising 
does not cause the initial consumption of cigarettes and smokeless 
tobacco. Indeed, it should be noted that not one study cited by FDA or 
submitted by industry could conclusively demonstrate that any factor 
actually caused children to begin smoking or to use smokeless tobacco. 
This includes family and peer influences, which the tobacco industry 
repeatedly cite as the major determinants of youth smoking and 
smokeless tobacco use. As was suggested by a comment, however, even 
when a young person's decision to smoke is strongly influenced by a 
friend or parent, advertising reinforces the decision and makes the 
young person feel good about the decision and the ``identity'' thereby 
acquired.
    It should also be noted that the apparent focus on the possible 
causal role of cigarette and smokeless tobacco advertising in young 
people's initial decision to smoke or to use smokeless tobacco is 
overly narrow. Human behavior cannot be modeled so simplistically. In 
point of fact, tobacco advertising has an effect on young people's 
tobacco use behavior if it affects initiation, maintenance, or attempts 
at quitting.
    The evidence that FDA has gathered in this proceeding establishes 
that cigarette and smokeless tobacco advertising does have such an 
effect. While not all the evidence in the record supports this 
conclusion, there is more than adequate evidence, that when considered 
together, supports a conclusion that advertising, with the knowledge of 
the industry, does affect the smoking behavior and tobacco use of 
people under the age of 18. This behavior includes the decision whether 
to start using cigarettes or smokeless tobacco, whether to continue 
using or to increase ones consumption, when and where it is proper to 
use tobacco, and whether to quit. This evidence includes:
    Expert opinion--The American Psychological Association provided 
expert opinion, with specific citation to numerous studies, to show 
that tobacco advertising plays directly to the factors that are central 
to children and adolescents and thus plays an important role in their 
decision to use tobacco. (See section VI.D.4.a. of this document; and 
60 FR 41314 at 41329.)
    Advertising Theory--Basic advertising and consumer psychology 
theory, statements from advertising experts, and general consumer 
testing show that advertising that is multi-media, that uses color, and 
that employs more pictures, characters, or cartoons as opposed to text 
is more robust and can be better processed, understood and remembered 
by children and adolescents, who have less information processing 
ability than adults. (See section VI.B.1. and VI.B2. of this document.)
    Studies and Surveys--Studies show that children are exposed to 
substantial and unavoidable advertising, that exposure to tobacco 
advertising leads to favorable beliefs about tobacco use, that 
advertising plays a role in leading young people to overestimate the 
prevalence of tobacco use, and that these factors are related to young 
people's tobacco initiation and use. (See sections VI.D.3.a., 
VI.D.3.b., and VI.D.3.c. of this document.)
    Empirical Studies--Studies conducted on sales data have shown that 
advertising did increase one segment of the tobacco market (low tar 
cigarettes), that advertising in New Zealand had the effect of 
increasing tobacco sales to young people, and that a large multi-
country survey showed that advertising tends to increase consumption of 
tobacco products. (See 60 FR 41314 at 41333 through 41334; sections 
VI.D.3.g., VI.D.4.c., and VI.D.6.a. of this document)
    Anecdotal Evidence, and Various Advertising Campaigns Successful 
with

[[Page 44489]]

Young People--Studies show that the buying behavior of young people is 
influenced by advertising, that they smoke the most advertised brands, 
that children ages 3 to 6 can recognize a cartoon character associated 
with smoking at the same rate as they recognize Ronald McDonald, that 
various ad campaigns (Camel cigarettes, Reg cigarettes, products 
designed for women, and smokeless tobacco advertising aimed at new 
users) that appeared to be targeted to young people did have an effect 
upon young people's purchases and use of tobacco, and that young people 
report that they got their information about a tobacco brand from 
billboards, magazines, in store advertising and on teeshirts (60 FR 
41314 at 41329 through 41334; and see sections VI.D.3.d., VI.D.3.e., 
and VI.D.3.i. of this document).
    Industry Statements--Statements in documents created by R. J. 
Reynolds' researchers, by Philip Morris advertising people, by 
executives of US Tobacco and by people in and doing work for various 
Canadian tobacco companies indicate that young people are an important 
and often crucial segment of the tobacco market.
    Consensus Reports--The IOM and 1994 SGR concluded on the basis of 
an exhaustive review of the evidence that advertising affects young 
people's perceptions of the pervasiveness, image, and function of 
smoking, that misperceptions in these areas constitute psychosocial 
risk factors for the initiation of tobacco use, and thus advertising 
appears to increase young people's risk of tobacco use.
    Consequently, tobacco advertising works in a way that is roughly 
analogous to the way the Supreme Court described how deceptive 
advertising works (FTC v. Colgate - Palmolive Co., 380 U.S. 374 
(1965)). The Supreme Court described how sellers use deceptive 
practices to break down the resistance of the buying public (Id. at 
389-90). Here, as the 1994 SGR, the IOM report, and the comment of the 
American Psychological Association demonstrate, cigarette and smokeless 
tobacco companies use image and other advertising techniques to appeal 
to adolescents' need to belong and to appear to be adult, and thereby 
to break down their resistance to tobacco use. The advertising helps 
the companies to overcome the fact, as documents for R. J. Reynolds 
show, that there is no natural craving for nicotine. While the 
advertising techniques used by the tobacco industry are quite different 
than those used by the company in the referenced Supreme Court case, 
they ultimately have the same goal--to induce people, in this case 
young people, to purchase and use these products.
    Thus, the evidence in this proceeding demonstrates that cigarette 
and smokeless tobacco advertising plays a material role in the decision 
of children and adolescents under the age of 18 to engage in tobacco 
use behavior. It therefore establishes that the harm from this 
advertising is real.
6. The Efficacy of the Restrictions; Empirical Evidence Concerning 
Advertising Restrictions
    The final aspect of the analysis under the second prong of the 
Central Hudson test requires a showing by the agency that the 
restrictions that it seeks to impose will alleviate the harm to a 
material degree. FDA finds, based upon a review of all of the evidence 
and the comments received, that the restrictions will, in fact, meet 
this test.
    (17) Nearly all comments in opposition to advertising restrictions 
argued that the preponderance of the empirical evidence supported a 
finding of no effect from advertising on young people. Some comments 
stated that, consequently, the advertising restrictions are 
``unwarranted, unjustified, unnecessary, [and] will not be effective in 
reducing underage smoking.'' Several comments, representing a variety 
of interest groups, claimed that the ``best available evidence'' found 
that ``peer pressure,'' ``peer and family smoking behaviors'' and 
``young people's perceptions of the costs and benefits of smoking'' are 
more important than advertising and promotion in encouraging young 
people to experiment with cigarettes and smokeless tobacco. \160\ Still 
others claimed that ``being a girl,'' ``living with a single parent,'' 
``having relatively less negative views about smoking,'' ``having no 
intention to stay in full-time education after age 16,'' and ``thinking 
they might be a smoker in the future,'' are key influencing factors for 
a young person to start smoking. \161\
---------------------------------------------------------------------------

    \160\ Beales, J. H., ``Advertising and the Determinants of 
Teenage Smoking Behavior,'' vol. 44, 1993.
    \161\ McDonald, C., ``Children, Smoking and Advertising: What 
Does the Research Really Tell Us?'', International Journal of 
Advertising, vol. 12, pp. 279-287, 1993; Goddard, E., ``Why Children 
Start Smoking,'' British Journal of Addiction, vol. 87, No. 1, pp. 
17-25, 1992.
---------------------------------------------------------------------------

    The tobacco industry and the advertising industry stated that their 
advertising is not directed at children and adolescents but to adults 
who already use tobacco, and thus it is not a proper subject for 
government regulation. The advertising agency for the largest cigarette 
brand stated, ``[T]obacco advertising has as its intended audience 
existing smokers * * * it is not the company's desire that children 
start to smoke.''
    However, one comment questioned this and asked how cigarette 
advertising that has an impact upon adults can be assumed to leave 
unaffected a young viewer, smoker or otherwise. The same comment also 
cited the words of one retired Marlboro ad man: ``I don't know any way 
of doing this (advertising cigarettes) that doesn't tempt young people 
to smoke.'' \162\
---------------------------------------------------------------------------

    \162\ Daniels, D., Giants, Pygmies and Other Advertising People, 
Crain, Chicago, p. 245, 1974.
---------------------------------------------------------------------------

    Many comments from consumer groups, public health organizations and 
numerous private individuals were supportive of the agency's position 
that the 1995 proposed rule will reduce underage smoking and use of 
smokeless tobacco. The comments cited evidence from numerous sources 
such as government officials, university researchers, and antismoking 
advocates to demonstrate that restrictions on advertising would be 
effective.
    For example, a comment from a leading psychological association 
stated that research, common sense, and its expert opinion support 
that, if image-oriented advertising and promotion are replaced with 
text-only advertising, it would reduce the advertiser's ability to 
suggest that tobacco users project a desirable image, e.g., glamour, 
sexiness or maturity. \163\
---------------------------------------------------------------------------

    \163\ Cohen, J. B., ``Reconceptualizing Alcohol Advertising 
Effects: A Consumer Psychology Perspective,'' The Effects of the 
Mass Media on the Use and Abuse of Alcohol, Research Monograph, No. 
28, Bethesda, MD, NIH, 1995; Goldberg, M. W., J. Madill-Marshall, G. 
J. Gorn, J. Liefeld, and H. Vredenburg, ``Two Experiments Assessing 
the Visual and Semantic Images Associated with Current and Plain 
(Generic) Cigarette Packaging,'' Advances in Consumer Research, 
edited by Corfman, K. P., and J. G. Lynch, Association for Consumer 
Research, Provo, UT, vol. 23, 1996; Pollay, R. W., and A. M. Lavack, 
``The Targeting of Youths by Cigarette Marketers: Archival Evidence 
on Trial,'' Advances in Consumer Research, Association for Consumer 
Research, Provo, UT, vol. 20, pp. 266-271, 1993; Richins, M. L., 
``Social Comparison and the Idealized Images of Advertising,'' 
Journal of Consumer Research, vol. 18, pp. 71-83, 1991.
---------------------------------------------------------------------------

    FDA has concluded that restrictions on advertising and promotion 
are necessary to reduce the appeal of tobacco products to young people. 
Such restrictions will protect the access restrictions that the agency 
is adopting from being undermined and thereby the health of young 
people. To be effective,

[[Page 44490]]

these restrictions must be comprehensive, that is, they must apply to 
the many types of media currently used in a coordinated way to 
advertise cigarettes and smokeless tobacco.
    FDA finds support for the need for comprehensive regulation in the 
experiences of other countries which have enacted and put into place 
some form of restrictions on the advertising of tobacco. Some comments 
discussed the experience in other countries in which tobacco 
advertising has been banned. These comments indicated that in countries 
that have enacted restrictions on advertising that were not 
comprehensive, the industry was able to continue advertising and 
portraying attractive imagery in media left uncovered by regulations. 
For example, Canada, Finland, Great Britain, and Australia enacted 
regulations of tobacco advertising that did not completely ban or 
restrict all forms of advertising and promotion. In each of those 
instances, according to the comments, the tobacco industry was able to 
take advantage of loopholes in the system to continue to advertise to 
reach their target audience. Thus, in Canada the advertising ban, which 
did not ban nontobacco items, was accompanied by the increased use of 
nontobacco items that carried the tobacco brand name as a mechanism for 
continuing to advertise the tobacco brand and its prior image. In Great 
Britain, sophisticated colorful advertisements appeared when the use of 
human figures in tobacco advertising was banned; in Australia, 
loopholes in sports sponsorship provisions enabled the industry to 
continue sports advertising.
     Another comment detailed numerous other examples of tobacco 
companies continuing to advertise effectively in spite of a ban or 
restrictions on advertising. For example, this comment noted that after 
France banned all cigarette advertising in magazines, Philip Morris set 
up a travel agency and advertised ``Marlboro Country Travel'' in French 
magazines (Thus, although there was no longer any ``cigarette 
advertising,'' Philip Morris was able to continue using its western, 
cowboy theme in advertisements for a travel agency). The comment noted 
further that in Europe, advertising for cigarettes was replaced by 
advertisements, using the same imagery, for Camel and Marlboro sports 
watches and Camel boots. In Malaysia, cigarette companies set up travel 
agencies called Marlboro, Kent, and Peter Stuyvesant, clothing stores 
named Camel, jewelry stores named for Benson and Hedges, luxury car 
dealerships named More, Salem record stores and Salem and More concert 
and movie promotions to advertise cigarettes in a country that has 
banned cigarette advertising. FDA finds that these comments provide 
strong support for the need for the advertising restrictions to be 
comprehensive and apply to all advertising media to be effective.
    Two aspects of the evidence in this proceeding are particularly 
persuasive in evidencing that restrictions on advertising will directly 
advance the agency's goal of protecting the health of children and 
adolescents under 18. The experience of other countries that have 
adopted advertising restrictions shows that when those restrictions are 
enforced, they have resulted in reductions in the level of tobacco use. 
In addition, the courts themselves have generally found that, as a 
matter of common sense, reductions in advertising have produced a 
reduction in demand. While some comments tried to distinguish these 
cases, FDA finds that they are relevant.
    A discussion of each of these aspects of the evidence follows:
    a. International and cross country studies. FDA did not receive 
consistent comment on the international studies \164\ that it cited in 
the preamble to the 1995 proposed rule on the relationship between 
advertising restrictions and consumption.
---------------------------------------------------------------------------

    \164\ Smee, C., ``Effect of Tobacco Advertising on Tobacco 
Consumption--A Discussion Document Reviewing the Evidence,'' 
Department of Health, Economics, and Operational Research Division, 
London, 1992; ``Health or Tobacco--An End to Tobacco Advertising and 
Promotion,'' Toxic Substances Board (TSB), Wellington, New Zealand, 
May 1989; Laugesen, M., and C. Meads, ``Tobacco Advertising 
Restriction Price, Income and Tobacco Consumption in OECD Countries, 
1960-1986,'' British Journal of Addiction, vol. 86, pp. 1343-1354, 
1991.
---------------------------------------------------------------------------

    (18) Several comments stated that advertising restrictions have not 
affected tobacco product consumption, and further stated that, in fact, 
tobacco product consumption has increased in most countries with 
advertising and promotional restrictions.
    In contrast, other comments supported the findings of the same 
studies and stated that the studies support the conclusion that 
advertising and promotional restrictions can be effective in curbing 
smoking initiation among young people.
    Several comments opposing the 1995 proposed rule maintained that 
better surveys of the results of advertising restrictions abroad were 
done in conjunction with the World Health Organization (WHO). The two 
WHO surveys on the health behavior of schoolchildren in four countries 
found that smoking among schoolchildren is related to peer smoking 
behaviors and to the number of smokers in the family. \165\ More 
importantly, the comments said that the survey found ``no systematic 
differences'' between the smoking behavior of young people in countries 
where tobacco advertising is completely restricted and in countries 
where it is not. They asserted that the findings of the WHO survey 
completely repudiate FDA's assertion that advertising restrictions 
reduce tobacco consumption among young people. The comments further 
argued that a followup survey found that the prevalence of smoking 
among schoolchildren in countries with total tobacco advertising 
restrictions was actually higher than countries with fewer 
restrictions. \166\
---------------------------------------------------------------------------

    \165\ Aaro, L. E., B. Wold, L. Kannas, and M. Rimpela, ``Health 
Behavior in Schoolchildren: A WHO Cross-National Survey,'' Health 
Promotion, vol. 1, pp. 17-33, May 1986.
    \166\ Van Reek, J., H. Adriaanse, and L. Aaro, ``Smoking by 
Schoolchildren in Eleven European Countries,'' Proceedings of the 
7th World Conference on Tobacco and Health, Duroton, B., and K. 
Jamrozik, vol. 301, pp. 301-302, 1991.
---------------------------------------------------------------------------

    However, the two surveys cited by these comments did not compare 
the percentage of young people who smoked before and after the 
implementation of tobacco advertising restrictions within countries. In 
order to realistically measure the effect of advertising restrictions, 
each country must be looked at individually. For example, country A, 
with a high rate of smoking, cuts its smoking rate in half. This would 
be considered a major success for country A, but country A still may 
have a higher smoking rate than country B. Country B may not have 
instituted any advertising restrictions because its smoking rate has 
always been low. Thus, comparing the rates of countries A and B would 
be like comparing apples and oranges.
    Studies that have looked at before and after data from individual 
countries have reported downward trends in smoking rates among young 
people following advertising restrictions. \167\ For example, in Norway 
the percentage of 15-year old boys and the percentage of 15-year old 
girls who were daily smokers in 1975, before a restriction on all forms 
of tobacco advertising and promotion was put in place, was

[[Page 44491]]

approximately 23 percent and 28 percent, respectively. \168\ According 
to the WHO followup survey, the percentage of 15- to 16-year old boys 
and the percentage of 15- to 16-year old girls who were daily smokers 
in 1986-1987 was 16 percent and 17 percent, respectively. \169\ This 
represents success not only with the group that was prohibited from 
purchasing cigarettes, those younger than 16, but also with a group 
that could legally purchase cigarettes. These results also appear to 
indicate that the restrictions did not simply move the onset of smoking 
to the first legal year of purchase.
---------------------------------------------------------------------------

    \167\ Bjartveit, K., ``The Effect of an Advertising Ban--Who has 
the Burden of Proof,'' National Health Screening Service, Norway, 
1994; Rimpela, M., L. E. Aaro, and A. H. Rimpela, ``The Effects of 
Tobacco Sales Promotion on Initiation of Smoking,'' Scandinavian 
Journal of Social Medicine, 1994.
    \168\ Rimpela, M., L. E. Aaro, and A. H. Rimpela, ``The Effects 
of Tobacco Sales Promotion on Initiation of Smoking,'' Scandinavian 
Journal of Social Medicine, vol. 49, pp. 1-23, 1994.
    \169\ Van Reek, J., H. Adriaanse, and L. Aaro, ``Smoking by 
Schoolchildren in Eleven European Countries,'' Proceedings of the 
7th World Conference on Tobacco and Health, Duroton, B., and K. 
Jamrozik, vol. 301, pp. 301-302, 1991.
---------------------------------------------------------------------------

    Comments from the tobacco industry also relied upon research 
conducted by J. J. Boddewyn, which has found results contrary to those 
presented by FDA, to argue that tobacco advertising bans have not been 
a successful part of tobacco control policy. \170\ Boddewyn's research 
is directly contrary to many of the studies cited by FDA in support of 
its 1995 proposed rule and is also inconsistent with the best available 
data on smoking rates from the countries studied.
---------------------------------------------------------------------------

    \170\ Boddewyn, J. J., ``Tobacco Advertising Bans and 
Consumption in 16 Countries,'' International Advertising 
Association, 1986; Boddewyn, J. J., ``Why do Juveniles Start 
Smoking?'' Children's Research Unit of London (CRU) Study, 1986; 
Boddewyn, J. J., ``Cigarette Advertising Bans and Smoking: The 
Flawed Policy Connection,'' International Journal of Advertising, 
vol. 13, No. 4: pp. 311-332, 1994.
---------------------------------------------------------------------------

    Boddewyn has used selective data on the total number of cigarettes 
sold in a particular country as the basis for his analysis and has used 
it to justify a finding that, in those countries where advertising bans 
have been introduced, decreases in the total number of cigarettes sold 
have not followed. Relying solely on the number of cigarettes sold in a 
country to measure the effects of government restrictions fails to take 
into account the myriad of influences that can affect cigarette 
consumption and, thus, will not yield accurate results.
    First, the overall number of cigarettes sold in a country may be 
influenced by factors other than the percentage of the population that 
smokes. For example, if the population of a country has risen, or if 
those who remained smokers were the heaviest smokers, the number of 
cigarettes smoked may not fall even though the percentage of the 
population that smokes has decreased. Moreover, an analysis based on 
the number of cigarettes sold would not account for the success 
advertising restrictions might have had with those not yet addicted to 
tobacco. The preaddicted group, mostly composed of children, does not 
smoke as many cigarettes as do older addicted smokers. Therefore, any 
success in stemming initiation rates would not show up for many years 
if measured as fewer cigarettes consumed.
    Finally, Boddewyn and others have claimed that the experience in 
Norway, Finland, and Sweden supports the view that advertising 
restrictions have been ineffective in reducing smoking rates. However, 
three reports \171\ presented at the World Conference of Tobacco and 
Health in Paris, France in October 1994 support the conclusion that 
advertising restrictions, if comprehensive and enforced, are effective 
in helping to reduce the percentage of people who smoke, particularly 
young people not yet addicted to tobacco.
---------------------------------------------------------------------------

    \171\ Bjartveit, K., ``The Effect of an Advertising Ban--Who Has 
the Burden of Proof,'' National Health Screening Service, Oslo, 
Norway, October 1994; Lund, K., ``Tobacco Advertising and How to 
Measure Its Effect on Smoking Behavior,'' Tobacco and Health, Slama, 
K., ed., Plenum Press, New York, pp. 199-204, 1995; Rimpela, M., L. 
E. Aaro, and A. H. Rimpela, ``The Effects of Tobacco Sales Promotion 
on Initiation of Smoking,'' Scandinavian Journal of Social Medicine, 
vol. 49, pp. 1-23, 1994.
---------------------------------------------------------------------------

    Bjartveit's report presented the results of the Norwegian 
experience after the implementation of the 1975 Norway advertising ban. 
In 1975, Norway banned all advertising of tobacco products and 
prohibited the sale of tobacco to anyone under the age of 16. Norway 
also required warnings on packages, an educational program, and, in 
1980, a larger excise tax. The results of Norway's actions belie 
Boddewyn's claims. First, the prevalence of smoking for boys and girls 
declined between 1975 and 1990. The percentage of daily smokers aged 13 
to 15 declined from 15 percent to 9 percent for boys and from 17 
percent to less than 10 percent for girls. Per-capita consumption for 
boys and girls also declined. Between 1975 and 1994, the overall sales 
of cigarettes and smoking tobacco per person among 15 year olds has 
declined from over 2,000 grams of tobacco to less than 1,800 grams.
    In 1976, Finland banned some forms of tobacco advertising and 
promotion and increased expenditures for health education. While 
relatively little data are available on the smoking trends in Finland, 
one comment reported data that showed the government's actions did have 
an impact, although the extent has been more uneven than in Norway. 
Before the advertising restrictions, cigarette consumption was 
increasing at the rate of 2.2 percent per year. In the decade since the 
1975 Finland advertising ban, the rate of increase has been cut in half 
to a little over 1 percent per year--a meaningful change but not a 
decline. However, the greatest benefits have been for teenagers. In 
1973, 26 percent of 16 to 18 year olds in secondary school smoked. By 
1979, 2 years after restrictions went into place, this rate dropped to 
14 percent. Since that time, the decrease has continued but has leveled 
off. In 1973, 19 percent of 14-year old children in Finland smoked. By 
1979, 2 years after the ban, only 8 percent of 14-year old children in 
Finland smoked, a decrease of over 50 percent.
    Moreover, a report by Rimpela \172\ provided a more complete 
explanation of the experience that Finland has had with its advertising 
restrictions. Although the 1978 Finnish Tobacco Act banned cigarette 
advertisements in youth magazines, it did not eliminate the advertising 
of product-families or the sponsorship of events. Consequently, the 
tobacco companies found new means of sales promotion through image 
advertising in these two venues. The author concluded that a 
promotional onslaught in these two forums undercut the so-called 
advertising ban, and the weak implementation of the legislation by 
health authorities caused the advertising restrictions to be less 
effective than they might have been with a total ban. The author 
contrasted these uneven results with the success of Norway's total ban.
---------------------------------------------------------------------------

    \172\ Rimpela, M., L. E. Aaro, and A. H. Rimpela, ``The Effects 
of Tobacco Sales Promotion on Initiation of Smoking,'' Scandinavian 
Journal of Social Medicine, vol. 49, pp. 1-23, 1994.
---------------------------------------------------------------------------

    The study presents strong evidence for the need for comprehensive 
advertising restrictions covering all forms of advertising and 
promotion in order to achieve the best results in reducing youth 
tobacco use. Finally, the restrictions imposed in Sweden have not been 
in effect long enough to measure accurately.
    i. The British Health Department Report. Several comments from the 
tobacco industry criticized the findings of the British Health 
Department Report (Smee Report) that advertising increases consumption 
of tobacco products, and that restrictions on advertising decrease 
tobacco use beyond what would have occurred in the absence of

[[Page 44492]]

regulation. \173\ The Smee Report examined: (1) The relationship 
between cigarette advertising, (2) the effects of partial and complete 
advertising bans on tobacco consumption, and (3) the results of cross-
national studies. The study focused on countries for which the most 
complete data exists--Norway, Finland, Canada, New Zealand, and the 
United Kingdom. One reported result of this analysis was that in all 
five countries, bans or restrictions on cigarette advertising resulted 
in an aggregate decrease in cigarette consumption.
---------------------------------------------------------------------------

    \173\ Smee, C., ``Effect of Tobacco Advertising on Tobacco 
Consumption--A Discussion Document Reviewing Evidence,'' Department 
of Health, Economics, and Operational Research Division, London, p. 
18, 1992.
---------------------------------------------------------------------------

    (19) The comments argued that the WHO study contradicts the 
findings of this report regarding Norway, Finland, and Canada, stating 
that the findings do not indicate that advertising restrictions affect 
consumption. Several comments stated their belief that the author's 
(Smee's) ``sweeping and unjustified'' conclusions are based on ``data 
collected over a short time period'' and on a ``limited and incomplete 
review of the available evidence''. They also argued that Smee's 
reliance on existing studies linking advertising and consumption is 
misplaced. Furthermore, the comments specifically criticized the 
report's use of several of the reviewed studies, which, they claim, did 
not apply rigorous statistical analysis. Finally, the comments stated 
that the author's model made no allowances for the effect of 
externalities, such as health shocks (the Royal College of Physicians' 
Report on Smoking in 1962, the Report of the Surgeon General's Panel on 
Smoking and Lung Cancer in 1964, etc.). All the above comments 
maintained that the Smee Report should not be relied upon as evidence 
of the causal relationship between advertising restrictions and teen 
smoking behavior.
    FDA disagrees with the comments' assessment and finds the Smee 
Report to be unbiased and useful as a comprehensive survey of the 
literature. Upon examining the specific concerns expressed by the 
comments in connection with specific country analyses, FDA has found 
that the criticisms are without merit. For example, the comments stated 
that the reduction in tobacco consumption found in Norway could be 
attributed to externalities, such as to enforcement of other provisions 
of the antitobacco legislation package, e.g., health warnings, health 
education, and sales restrictions. However, Smee reported that the 
share of reduction in tobacco consumption attributable to the 
advertising ban ``is likely to account for the great majority of the 
effect.'' Another comment expressed concern that Smee, in reporting on 
the Canadian experience, failed to include income as an independent 
variable. The comment stated that this could seriously bias the results 
because real income was falling in Canada at the time the advertising 
ban went into effect. However, in the initial Smee model, the income 
variable was included, and it did not explain the variation in tobacco 
consumption. In the final model, Smee did not include the income 
variable. However, removing the income variable did not significantly 
change the estimated coefficient and would not have biased the 
estimates from the model.
    Finally, all econometric studies are subject to limitations. As 
noted in sections VI.D.4.d. and VI.D.5. of this document, it would 
require controlled studies to produce better results and it is neither 
practical nor ethical to conduct such studies. Empirical research is 
always subject to the criticism that some variables were omitted, or 
that alternative specifications would yield different results. However, 
Smee collected many studies, and hence his compilation includes many 
different specifications of tobacco demand. Thus, although it is 
difficult to evaluate the causes of variations in each study, an 
analysis of all the existing studies should yield more generalizable 
and robust results than those of a single study. The question here is 
not whether each of the studies has limitations, but to what extent 
those limitations impair the findings of the overall survey. Smee's 
study represents the best attempt to date to compile the numerous 
studies on the effects of advertising restrictions on tobacco use and 
to provide a coherent analysis. His conclusion was that restrictions on 
advertising did reduce tobacco use.
     A comment in support of the findings of the Smee Report stated 
that this study was unbiased and performed by a credible organization. 
The comment argued that advertising restrictions produced the decline 
in the percentage of young people who smoke in the countries studied. 
In response to the tobacco industry's claim that the total number of 
cigarettes consumed continued to rise in several countries, the comment 
said that ``it takes a number of years for the impact of the fact that 
fewer people are starting to smoke to show up in overall tobacco 
consumption data.''
    ii. New Zealand Toxic Substances Board Study. Several comments gave 
considerable attention to the New Zealand Government Toxic Substances 
Board (``TSB'') Study which reviewed the effect of advertising 
restrictions in 33 countries. \174\ The study concluded that there was 
a correlation between the degree of restrictions imposed in each 
country and decline in tobacco use.
---------------------------------------------------------------------------

    \174\ ``Health or Tobacco--An End to Tobacco Advertising and 
Promotion,'' TSB, Wellington, New Zealand, May 1989.
---------------------------------------------------------------------------

    (20) Comments submitted by those opposing the proposed regulations 
argued that the study lacked objectivity because of methodological 
errors, particularly in the collection, sorting and selective use of 
data. The comments argued that these errors removed all probative value 
from the study. Moreover, the comments noted that FDA's use of the 
study illustrates its inconclusive nature. In addition, one comment 
asserted that the drop-offs in consumption and the number of smokers 
may be related to events other than legislated restrictions.
    One comment argued that several studies cited by FDA in the 
preamble to the 1995 proposed rule, including Chetwynd and Harrison, do 
not support the claimed relationship between advertising expenditures 
and consumption because the studies have flawed data and fundamental 
methodological errors. For instance, the comment argued that, in the 
Laugesen study on tobacco consumption in 23 Organization for Economic 
Cooperation and Development (OECD) countries described below, \175\ the 
qualitative variables used were not relevant to the regression model 
and biased the results. Additionally, the comment criticized the 
authors of the study for ignoring contradictory findings.
---------------------------------------------------------------------------

    \175\ Laugesen, M., and C. Meads, ``Tobacco Advertising 
Restrictions, Price, Income, and Tobacco Consumption in OECD 
Countries, 1960-1986,'' British Journal of Addiction, vol. 86, pp. 
1343-1354, 1991.
---------------------------------------------------------------------------

    One comment suggested that the findings in several smaller studies 
cited by FDA \176\ do not indicate that

[[Page 44493]]

advertising affects consumption. The comment argued that one of the 
analyses failed to account for common trends resulting from the 
diffusion of information about health risks. The comment further stated 
that Chetwynd used a model in his study that was more likely to 
indicate correlation than causation. The comment also asserted that the 
model suffers from poor data and fails to take into account changing 
social mores. In addition, the comment argued that a comparable study 
(Boddewyn) has not shown a decrease in cigarette consumption in areas 
that restrict advertising. \177\
---------------------------------------------------------------------------

    \176\ Chetwynd, J., P. Coope, R. J. Brodie, and E. Wells, 
``Impact of Cigarette Advertising on Aggregate Demand for Cigarettes 
in New Zealand,'' British Journal of Addiction, vol. 83, p. 409-414, 
1988; Harrison, R., J. Chetwynd, and R. J. Brodie, ``The Influence 
of Advertising on Tobacco Consumption: A Reply to Jackson and 
Ekelund,'' British Journal of Addiction, vol. 84, pp. 1251-1254, 
1989; Raferty, J., ``Advertising and Smoking--A Smoldering 
Debate?'', British Journal of Addiction, vol. 84, pp. 1241-1246, 
1989.
    \177\ Boddewyn, J. J., ``Tobacco Advertising Bans and 
Consumption in 16 Countries,'' International Advertising 
Association, 1986.
---------------------------------------------------------------------------

    Industry comments uniformly criticized the TSB study. This study 
was also criticized by the Canadian courts in the course of litigation 
over the validity of Canada's advertising restrictions, see section 
VI.D.3.f. of this document. In response, the TSB published a 
modification of the original study that recognized that mistakes had 
been made in the initial report. The reissued report was entitled ``A 
Reply to Tobacco Industry Claims about Health or Tobacco,'' ISBN-0-477-
04574-X (hereinafter referred to as the Reply). According to one 
comment from a public interest group:
     The Reply re-analyzed the data of the impact of advertising in 
a number of countries based upon criticisms of the original report 
by the tobacco industry. Even after taking into account the 
criticisms of the tobacco industry, the New Zealand government found 
strong empirical evidence of the link between tobacco advertising 
and tobacco consumption.
    In addition to the issuance of the Reply, Laugesen and Meads \178\ 
retested the typology created by the TSB and applied it to 22 OECD 
countries for a 15-year period. In the preamble to the 1995 proposed 
rule, FDA referred to the Laugesen study as providing affirmation of 
the TSB's analysis and conclusions, that, as a group, countries 
prohibiting tobacco advertising in most or all media experienced more 
rapid percentage falls in consumption than the group of countries that 
permitted promotion (60 FR 41314 at 41334).
---------------------------------------------------------------------------

    \178\ Laugesen, M., and C. Meads, ``Tobacco Advertising 
Restriction, Price, Income, and Tobacco Consumption in OECD 
Countries, 1960-1986,'' British Journal of Addiction, vol. 86, pp. 
1343-1354, 1991.
---------------------------------------------------------------------------

    The industry comments' major criticism of the Laugesen study is 
that the scale developed by Laugeson is flawed. The comments criticized 
the amount of weight accorded to different types of advertising 
restrictions (i.e., TV ban versus warning on package). However, the 
rating scale accurately reflects the level of restrictions in each 
country. The steps between the ratings in the scale may be smaller or 
larger than the comments believe were warranted, but the relative 
rankings would remain the same regardless.
    Finally, several comments found fault with the smaller studies 
cited by FDA, including ones by Chetwynd and Harrison. Contrary to the 
comments' assertions, the studies do include the most relevant 
variables such as price, income and advertising expenditures. A major 
complaint of the industry regarding studies done abroad is that the 
advertising expenditures fail to be totally inclusive. However, the 
solution to that problem lies with the industry in most cases. 
Advertising expenditures are a closely guarded industry trade secret, 
\179\ which the companies state cannot be released to the public 
because of their commercial sensitivity. However, the industry could 
release older relevant data that are no longer sensitive for the 
purposes of investigation and study. Moreover, researchers who have had 
access to industry data have not released their data sets for 
replication by other research groups. \180\
---------------------------------------------------------------------------

    \179\ Even in the United States, only FTC has access to company 
expenditure data and it is prevented from disclosing information 
concerning advertising expenditures except at the industry-
agglomerated level.
    \180\ Beales, J. H., ``Advertising and the Determinants of 
Teenage Smoking Behavior,'' p. 44, 1993.
---------------------------------------------------------------------------

    The final study criticized by the industry, performed by Harrison, 
was written in response to earlier criticism by the industry about the 
Chetwynd study, and it therefore provided some answers to the comments' 
concerns. For example, the comments fault Chetwynd for failing to take 
into account changing social mores. Harrison stated that he retested 
Chetwynd's model and found that the model was structurally stable 
through time in the long term. He also found that the long run analyses 
indicated that the impact of cigarette advertising on consumption may 
be larger than was suggested in the original work. \181\
---------------------------------------------------------------------------

    \181\ Harrison, R., J. Chetwynd, and R. J. Brodie, ``The 
Influence of Advertising on Tobacco Consumption: A Reply to Jackson 
and Ekelund,'' British Journal of Addiction, vol. 84, pp. 1251-1254, 
1989.
---------------------------------------------------------------------------

    After reviewing the studies provided by the comments and 
reevaluating the studies relied upon in the preamble to the 1995 
proposed rule, FDA reaffirms that the statement that it made in the 
preamble is correct:
    These studies provide insight into the effects of advertising on 
the general appeal of and demand for cigarettes and smokeless 
tobacco products. They also provide evidence confirming 
advertising's effect on consumption and the effectiveness of 
advertising restrictions on reducing youth smoking.
(60 FR 41314 at 41333)
    Based on the foregoing, FDA finds that the international experience 
provides empirical evidence that restrictions on tobacco advertising, 
when given appropriate scope and when fully implemented, will reduce 
cigarette and smokeless tobacco use among children and adolescents 
under the age of 18. This experience provides strong evidence that the 
restrictions that FDA is imposing will directly advance its interest in 
protecting the health of these young people.
    b. Case law considering the effect of advertising and advertising 
restrictions upon tobacco use by young people. Virtually every court 
that has examined the issue has held that there is a direct connection 
between advertising and demand for the product advertised. For example, 
in Central Hudson Gas and Electric, 447 U.S. at 569, the Supreme Court 
stated: ``[T]he State's interest in energy conservation is directly 
advanced by the Commission order at issue here. There is an immediate 
connection between advertising and demand for electricity.'' See also 
Posadas de Puerto Rico v. Tourism Co. of Puerto Rico, 478 U.S. at 341-
342. In United States v. Edge Broadcasting Co., the Supreme Court 
carried its position in Central Hudson one step further:
     If there is an immediate connection between advertising and 
demand, and the federal regulation decreases advertising, it stands 
to reason that the policy of decreasing demand for gambling is 
correspondingly advanced.
(509 U.S. 434)
    Each circuit court that has considered the issue has also concluded 
that the regulation of advertising is reasonably aimed at reducing 
demand. (See, Anheuser-Busch, Inc. v. Schmoke, 63 F.3d 1305. 1314-15 
(4th Cir 1995), vacated and remanded 64 U.S.L.W. 3333 (May 20, 1996); 
Dunagin v. City of Oxford, Miss., 718 F.2d at 750 (``[W]e hold that 
sufficient reason exists to believe that advertising and consumption 
are linked to justify the ban, whether or not 'concrete scientific 
evidence' exists to that effect.''); and Oklahoma Telecasters Ass'n v. 
Crisp, 699 F.2d 490, 501 (10th Cir. 1983), rev'd on other grounds 
sub.nom. Capital

[[Page 44494]]

Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984)).) In Greater New 
Orleans Broadcasting Ass'n v. United States, 69 F.3d 1296, 1301 (5th 
Cir. 1995), the court said:
     They cannot seriously dispute that a prohibition of advertising 
of casino gambling directly advances the governmental interest in 
discouraging such gambling and fulfills the [second] Central Hudson 
prong. It is axiomatic that the purpose and effect of advertising is 
to increase consumer demand.
    To counter the weight of this case law, comments that opposed FDA's 
advertising restrictions made two arguments. First, several comments 
from the tobacco and advertising industries argued that the agency 
cannot rely on the assumption of a link between advertising and demand 
that is embodied in these decisions and, citing the Court's more recent 
Coors decision, contended that the agency's evidentiary record will be 
held to a higher standard of proof.
    However, as one comment correctly noted, the Court in Coors wrote:
     It is assuredly a matter of `common sense' that a restriction 
on the advertising of a product characteristic will decrease the 
extent to which consumers select a product on the basis of that 
trait.
(115 S.Ct. at 1592) Moreover, in 44 Liquormart, Inc., Justice Stevens 
quoted with apparent approval Central Hudson's reliance on the 
``immediate connection'' between ``promotional advertising'' and demand 
(116 S.Ct. at 1506, quoting Central Hudson 447 U.S. at 569). Thus, the 
Supreme Court continues to hold that there is a connection between 
advertising and demand, and FDA finds no merit to this contention in 
the contrary argument in the comments.
    The second argument that these comments made is that because 
tobacco products constitute a ``mature product'' whose availability and 
qualities are widely known to consumers, the purpose and function of 
cigarette advertising is to build market share and to maintain brand 
loyalty, not to stimulate demand. FDA considers these comments in depth 
in the following section of this document.
    c. The function of advertising in the ``mature'' market. Comments 
from the industry, advertisers, psychologists, and economists argued 
that although it may be true that advertising generally serves the 
function of increasing demand for a product category, that truism does 
not work for tobacco, which, they claim, is a mature market.
    (21) The comments argued that because tobacco is a mature product, 
advertising serves to reinforce brand loyalty and to induce current 
smokers to switch brands. They stated that because consumers are 
already aware of the tobacco category, advertising does not serve to 
inform potential consumers of the product and to entice them to become 
a user. One comment likened tobacco to other mature products such as 
soft drinks, deodorants, antiperspirants, and appliances. Moreover, 
this comment argued that ``[b]ecause FDA lacks marketing expertise,'' 
it has been misled by the size of the industry's advertising 
expenditures and assumed, incorrectly, that this means that the 
industry is attempting to expand its overall market. Finally, several 
comments stated that there are no data that clearly prove that 
advertising and promotion increase demand in the tobacco market.
    Other comments took the opposing view and agreed with FDA's 
assessment that tobacco advertisements make tobacco products more 
appealing to young people and affects tobacco use among young people. 
Several comments argued that the market for cigarettes and smokeless 
tobacco is not mature but is actually very dynamic. In addition to 
brand switching and brand loyalty, they argued that tobacco marketing 
generates market expansion. The comment noted that there is substantial 
movement at the margins with new customers entering the market, and 
many current customers trying to leave.
    FDA agrees with those comments that expressed the view that 
labeling the tobacco market as a ``mature market'' is a simplistic 
denotation, which fails to recognize the movement into the market each 
day of new young smokers often motivated in part by advertising. Even 
``mature'' markets must replenish their customer base as older 
consumers leave the market. In fact, approximately one million new 
young smokers enter the tobacco market each year. These new smokers are 
necessary to keep the mature market stable and to prevent decline. 
There is no evidence to suggest that these new smokers are predestined 
\182\ to enter the market. RJR acknowledged this in one marketing memo,
---------------------------------------------------------------------------

    \182\ Teague, C., Research Planning Memorandum on Some Thought 
about New Brands of Cigarettes for the Youth Market, 1973.
---------------------------------------------------------------------------

     ``[I]f we are to attract the nonsmoker or the presmoker, there 
is nothing in this type of product that he would currently 
understand or desire. * * * Instead, we somehow must convince him 
with wholly irrational reasons that he should try smoking.'' \183\
---------------------------------------------------------------------------

    \183\ Teague, C., Research Planning Memorandum on the Nature of 
the Tobacco Business and the Crucial Role of Nicotine Therein, 1972.
---------------------------------------------------------------------------

They must be influenced by peers, parents, and advertising, either to 
join the market or to decline to enter.
    The agency finds that regardless of whether marketers and their 
advertising agencies intentionally target children and adolescents, 
young people are still affected by advertising. Children are not 
isolated from tobacco advertising's attractiveness or inducements. 
There is no ``magic curtain around children and teenagers who seek to 
learn how to fit into the adult world,'' nor is there any evidence to 
support a claim that young people are immune from advertising's 
blandishments. \184\
---------------------------------------------------------------------------

    \184\ Cohen, J. B., ``Charting a Public Policy for Cigarettes,'' 
Marketing and Advertising Regulation: The Federal Trade Commission 
in the 1990's, edited by Murphy, P. E., and W. L. Wilkie, University 
of Notre Dame Press, Notre Dame, IN, pp. 234-254 , 1990.
---------------------------------------------------------------------------

    Comments asserting that tobacco advertising fails to increase 
consumption for the tobacco market run contrary to the views of one 
well-known advertising executive who stated:
    I am always amused by the suggestion that advertising, a 
function that has been shown to increase consumption of virtually 
every other product, somehow miraculously fails to work for tobacco 
products. \185\
---------------------------------------------------------------------------

    \185\ Foote, E., ``Advertising and Tobacco,'' JAMA, vol. 245, 
pp. 1667-1668, 1981.
---------------------------------------------------------------------------

    Further, the view that advertising does not affect consumption is 
contradicted by industry experience, logic, and evidence. It does not 
appear credible that the industry spends more than $6 billion annually 
merely to maintain brand share and to try to switch current smokers; 
this argument defies common sense. The economics of this argument are 
strained--five manufacturers control almost 100 percent of the market, 
and three of these have approximately 90 percent of the market. \186\
---------------------------------------------------------------------------

    \186\ Weidner, D., ``RJR Tobacco International Gets New Chief,'' 
Winston-Salem Journal, p. A1, Dec. 8, 1995. (Philip Morris, 45 
percent, Reynolds 27 percent.); Antunes, S., ``B & W Harassed 
Workers,'' Evening Standard, p. 47, Nov. 16, 1994. (After Brown & 
Williamson acquired American Tobacco, it had 18 percent of the 
market.)
---------------------------------------------------------------------------

    The courts have also expressed skepticism about this argument. In 
Dunagin v. City of Oxford, Miss., the advertiser's expert, a professor 
in sociology who specialized in alcoholism, testified that advertising 
merely affected brand loyalty and market share, rather than increasing 
overall consumption or consumption of individual consumers (718 F.2d at 
748). The court rejected this argument:
    It is beyond our ability to understand why huge sums of money 
would be devoted to the promotion of sales of liquor without 
expected

[[Page 44495]]

results, or continue without realized results. No doubt competitors 
want to retain and expand their share of the market, but what 
businessperson stops short with competitive comparisons? It is total 
sales, profits, that pay the advertisers and dollars go into 
advertising only if they produce sales. Money talks: it talks to the 
young and the old about what counts in the marketplace of our 
society, and it talks here in support of Mississippi's concern.
(718 F.2d at 749)
The court concluded: ``We simply do not believe that the liquor 
industry spends a billion dollars a year on advertising solely to 
acquire an added market share at the expense of competitors'' (718 F.2d 
at 750). The same reasoning applies here.
    (22) One comment discussed the results of a recent study that the 
comment said had been accepted for publication \187\ which found that 
less than 10 percent of adult smokers switch brands each year, and that 
only 6.7 percent switch companies. The commentary suggests that this 
amount of ``real'' brand switching would not justify $6.1 billion, an 
amount in annual advertising and promotional expenditures.
---------------------------------------------------------------------------

    \187\ Siegel, M., et al., ``The Extent of Cigarette Brand and 
Company Switching: Results from the Adult Use-of-Tobacco Survey,'' 
American Journal of Preventive Medicine, vol. 12, No. 1, pp. 14-16, 
1996.
---------------------------------------------------------------------------

    In addition to logic, there is empirical evidence that advertising 
can expand demand in a so-called mature market and in fact has done so 
in the cigarette market before. Smoking rates for teenage girls rose 
from 8.4 percent in 1968, when major promotional campaigns first 
targeted women, to 15.3 percent in 1974, by which time other tobacco 
companies had also begun marketing women's brands. \188\ The same 
phenomenon was captured differently in a recent study \189\ that 
tracked initiation rates for girls and women over a 40-year period. The 
study found that smoking initiation rates rose for girls under 18 
during the period between 1967 and 1973 (women's targeting period), 
even though initiation rates did not rise for women 18 and older. 
Finally, as detailed more fully in the preamble to the 1995 proposed 
rule (60 FR 41314 at 41345), another study looked at the effect of 
variations in advertising expenditures for low tar cigarettes. Although 
the advertising did not increase the advertiser's brand share, 
increased advertising for low tar cigarettes caused the entire market 
for cigarettes to increase. \190\
---------------------------------------------------------------------------

    \188\ Botvin, G. J., C. J. Goldberg, E. M. Botvin, and L. 
Dusenbury, ``Smoking Behavior of Adolescents Exposed to Cigarette 
Advertising,'' Public Health Reports, vol. 108, pp. 217, 222, 1993.
    \189\ Pierce J. P., L. Lee, and E. A. Gilpin, ``Smoking 
Initiation by Adolescent Girls, 1944 through 1988,'' Journal of the 
American Medical Association, vol. 271, No. 8, pp. 608-611, 1994.
    \190\ Roberts, M. J., and L. Samuelson, ``An Empirical Analysis 
of Dynamic, Nonprice Oligoplistic Industry,'' Rand Journal of 
Economics, vol. 19, pp. 200-220, 1988.
---------------------------------------------------------------------------

    The ability of advertising to expand total demand for a particular 
class of products through market segmentation has also been 
demonstrated in other markets when the breakfast cereal industry first 
began making health claims for their products, such as those regarding 
the cancer-prevention benefits of dietary fiber. The creation of a new 
segment of the cereal market--healthy cereal--through the use of 
advertising resulted in an increase in the overall adult cereal market. 
Advertising caused an increase in aggregate demand by giving consumers 
a ``new'' product that met their needs, wants, and desires. \191\
---------------------------------------------------------------------------

    \191\ Ippolito, P., and A. Mathios, Health Claims in Advertising 
and Labeling: A Study of the Cereal Market, p. 32, 1989.
---------------------------------------------------------------------------

    Thus, advertising can serve an important role in meeting and 
expanding desires in the marketplace. It identifies consumers' needs 
and desires and then matches them with the attributes of particular 
product categories and brands. Advertising can perform this function 
through its use of explicit claims or through imagery, code words, or 
psychosocial cues. And, in doing so, it can both shift demand across 
the entire product category and create new demand.
    Moreover, the industry's mature market categorization assumes that 
the product category has no outside competitors, i.e., that there is no 
other product line that competes for the consumers' attentions and 
dollars. For example, soft drinks are a mature market, but more 
healthful drinks, such as milk, juices, or even water, can attempt to 
draw off part of the market. In addition, soft drinks can try to expand 
their own market share as Coca Cola and later Pepsi did a number of 
years ago \192\ when they promoted cola for breakfast.
---------------------------------------------------------------------------

    \192\ Dourado, P., ``Breakfast Cola Takes on America's Coffee 
Giants,'' The Independent, p. 28, April 15, 1990.
---------------------------------------------------------------------------

    Similarly, tobacco has competitors. New users or ``presmokers,'' as 
one RJR employee refers to them, \193\ are faced not only with tobacco 
imagery but also with antismoking health messages in commercial media 
and in schools. Current smokers are faced with alternatives to smoking, 
including over-the-counter and prescription drug advertising for 
nicotine replacement products and stop-smoking cures. The tobacco 
market thus has to convince the presmoker or new smoker to switch from 
the nonuse category promoted by health professionals, public service 
announcements, and school messages, to tobacco use. Also, it must 
constantly convince the addicted smoker not to leave the market by use 
of a competing nicotine-delivery product, a nicotine replacement 
source, or by other voluntary means.
---------------------------------------------------------------------------

    \193\ Teague, C., Research Planning Memorandum on Some Thoughts 
about New Brands of Cigarettes for the Youth Market, p. 1, 1973.
---------------------------------------------------------------------------

    Finally, even the industry acknowledges that young people are a 
strategically important audience because brand loyalty often develops 
during this period of trying cigarettes and becoming a smoker. In 1973, 
RJR's research and development officer wrote ``Realistically, if our 
Company is to survive and prosper over the long term, we must get our 
share of the youth market.'' \194\ And, as noted in the preamble of the 
1995 proposed rule, these words reflect those uttered by the Canadian 
sister company of the American tobacco company, Brown and Williamson 
Tobacco Corp.
---------------------------------------------------------------------------

    \194\ Id.
---------------------------------------------------------------------------

     If the last ten years have taught us anything, it is that the 
industry is dominated by the companies who respond most effectively 
to the needs of younger smokers. \195\
---------------------------------------------------------------------------

    \195\ Overall Marketing Objectives-F88, 1988 Imperial Tobacco 
Ltd. Marketing Plan, p. 6; 60 FR 41314 at 41331.
---------------------------------------------------------------------------

    FDA finds that there is no merit to the industry's claim that 
because the tobacco market is a mature market, advertising does not 
stimulate demand but only reallocates the existing market between 
companies. Not only is the industry's argument overly simplistic, but, 
as shown, advertising plays an important role in creating new 
customers, including young people. FDA shares the incredulity expressed 
by the court in Dunagin, 718 F.2d at 750, regarding this argument: ``It 
is beyond our ability to understand'' why an industry would spend 
billions a year merely to acquire market share at the expense of its 
competitors, when it has a much harder job of convincing young people 
to start a habit that is neither easy to acquire nor pleasant. 
Consequently, FDA finds that the second prong of Central Hudson is 
satisfied, i.e., the advertising restrictions directly and materially 
advance the substantial state interest.

[[Page 44496]]

E. Provisions of the Final Rule

    FDA selected each of the restrictions that it included in the 1995 
proposed rule based on its tentative view that the particular 
restriction is necessary to providing a comprehensive response to the 
appeal of tobacco advertising to young people. Each proposed 
restriction was intended to address an aspect of this advertising that 
contributes to its appeal. The agency tentatively concluded that, 
together, these restrictions will ensure that advertising is not used 
to undermine the access restrictions that FDA proposed and thus will 
help to protect the health of children and adolescents under the age of 
18.
    In this section of the document, FDA will respond to comments on 
each element of this comprehensive approach, including comments on 
whether the regulations are legally supportable. A key question about 
the agency's approach is whether there is a reasonable fit between the 
agency's interest and the means that it has chosen to accomplish it; 
that is, between the agency's interest and the specific restrictions 
that it proposed. This inquiry involves consideration of the 
restrictions under the third and final prong of Central Hudson.
    FDA will first consider comments that raised general concerns about 
its approach under the third prong of Central Hudson. It will then 
consider comments that raised concerns about specific restrictions 
under this aspect of Central Hudson as part of its discussion of the 
comments on each restriction.
1. Are FDA's Regulations Narrowly Drawn?
    In the preamble to the 1995 proposed rule, FDA stated that the 
regulations that it was proposing met the final prong of the Central 
Hudson test (60 FR 41314 at 41355). In Central Hudson, the Supreme 
Court stated that the First Amendment mandates that speech restrictions 
be ``narrowly drawn.'' The Court continued:
     The regulatory technique may extend only as far as the interest 
it serves. The State cannot regulate speech that poses no danger to 
the asserted State interest, * * * nor can it completely suppress 
information when narrower restrictions on expression would serve its 
interest as well.
(447 U.S. at 565, n.7) FDA pointed out, however, that: ``The Supreme 
Court has made it clear that this prong does not require a `least 
restrictive means test,' but rather that there be a `reasonable fit' 
between the government's regulation and the substantial governmental 
interest sought to be served'' (Board of Trustees of State University 
of New York v. Fox, 492 U.S. 469, 480 (1989); (60 FR 41314 at 41355).
    (23) This statement by FDA provoked a significant amount of 
comment. Several comments said that FDA had mischaracterized its 
burden. These comments argued that Fox did not dilute the Central 
Hudson analysis, and that any restriction on commercial speech must be 
narrowly tailored. One comment pointed out that, in Rubin v. Coors, the 
Supreme Court made no mention of reasonable fit. The comment stated 
that in Rubin v. Coors, the Supreme Court said that Central Hudson 
requires that a valid restriction be no more extensive than necessary 
to serve the governmental interest (115 S.Ct. at 1591). Finally, one 
comment said that FDA was arguing that courts have applied a rational 
basis standard to restrictions on commercial speech, but the comment 
stated that FDA was wrong because courts have rejected this notion.
    In response to these comments, FDA has carefully evaluated the 
relevant case law. The agency does not agree that it mischaracterized 
its burden in the 1995 proposed rule.
    It is true that in Rubin v. Coors the Supreme Court found that the 
challenged statutory provision violated the First Amendment's 
protection of commercial speech, at least in part, because it was more 
extensive than necessary (115 S.Ct. at 1594). However, the Court also 
stated that its inquiry under the last two steps of Central Hudson 
involves ``a consideration of the 'fit' between the legislature's ends 
and the means chosen to accomplish those ends'' (Id. at 1391 (quoting 
Posadas De Puerto Rico Associates v. Tourism Co. of Puerto Rico, 478 
U.S. at 341); (See also 44 Liquormart, Inc. v. Rhode Island, 116 S.Ct. 
at 1510 (``As a result, even under the less than strict standard that 
generally applies in commercial speech cases, the state has failed to 
establish a reasonable fit between its abridgment of speech and its 
temperance goal.'')).
    Moreover, the Court's statement in Rubin v. Coors that a 
restriction on commercial speech must be no broader than necessary, 
which was cited by a comment, must be read in light of the Court's 
discussion of this requirement in Board of Trustees of State University 
of New York v. Fox, 492 U.S. at 476-481. In Fox, the Supreme Court 
concluded from its consideration of how this phrase has been used in 
its case law and in the related case law on time, place, and manner 
restrictions, that what is required, exactly as the agency said in the 
1995 proposed rule, is a fit between the Government's ends and the 
means chosen to accomplish those ends that is not necessarily perfect 
but reasonable (492 U.S. at 480). The Supreme Court reiterated this 
point in Florida Bar v. Went For It, Inc., 115 S.Ct. at 2380 (citations 
omitted):
     With respect to this prong, the differences between commercial 
speech and noncommercial speech are manifest. In Fox, we made clear 
that the ``least restrictive means'' test has no role in the 
commercial speech context * * * ``What our decisions require,'' 
instead, ``is a `fit' between the legislature's ends and the means 
chosen to accomplish those ends,'' a fit that is not necessarily 
perfect, but reasonable; that represents not necessarily the single 
best disposition but one whose scope is `in proportion to the 
interest served' that employs not necessarily the least restrictive 
means but * * * a means narrowly tailored to achieve the desired 
objective.
    Thus, FDA did not mischaracterize its burden in the 1995 proposed 
rule. Moreover, in any event, FDA has narrowly tailored its provisions.
    Before turning to the question of whether there is a reasonable fit 
between FDA's interest in the health of children and the restrictions 
that FDA proposed on tobacco advertising, the agency wishes to make 
clear that, contrary to the claim of one comment, it recognizes that 
courts have not equated the reasonable fit test with rational basis 
review. (See, e.g., Florida Bar v. Went For It, Inc.) FDA recognizes 
that the reasonable fit test requires that the Government goal be 
substantial, and that the cost of achieving that goal be carefully 
calculated. (See Board of Trustees of State University of New York v. 
Fox, 492 U.S. at 480.) It also recognizes that this test requires that 
the agency consider whether there are less burdensome alternatives to 
restrictions on speech.
    Having already established that its goal is substantial (see 
section VI.C.4. of this document), FDA will consider the issues of the 
costs of the restrictions and alternatives to these restrictions in its 
analysis of the comments that follows.
    (24) Several comments argued that the restrictions on cigarette and 
smokeless tobacco advertising that FDA proposed are not narrowly 
tailored. One comment said that the premise of the narrow tailoring 
requirement is that commercial speech is valuable, and that it may only 
be restricted when it is necessary to do so. Other comments argued that 
restrictions on speech must attack only problem speech, and that FDA 
had failed to prove that this is what the proposed restrictions did. 
These

[[Page 44497]]

comments stated that FDA's proposed restrictions are more extensive 
than necessary to achieve the agency's asserted interest, particularly 
because the agency had failed to show that the advertising restrictions 
will have any effect on underage smoking. Some comments argued that the 
restrictions that FDA proposed were tantamount to a ban because they 
will prevent the advertiser's message from reaching consumers.
    Other comments disagreed. These comments said that FDA's proposed 
action is narrowly tailored. They argued that FDA had steered clear of 
imposing a categorical ban on tobacco advertising, or even broad 
prophylactic rules. One comment said that tailored prohibitions, 
instead of all-out bans, are important signposts indicating a measured 
response.
    FDA disagrees with the comments that claimed that the restrictions 
were not narrowly tailored. The agency recognizes, as the Supreme Court 
said in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 646 
(1985), that it has the burden of distinguishing the harmless from the 
harmful. FDA has met this burden.
    The restrictions that FDA is adopting are not like those in Central 
Hudson, which, even though the Public Service Commission's interest was 
limited to energy conservation, reached all promotional advertising, 
regardless of the impact of the touted service on energy use. (See 447 
U.S. at 570.) Rather, FDA's restrictions are carefully crafted to focus 
on those media and aspects of advertising that children are routinely 
exposed to and that the available evidence shows has the greatest 
effect on youngsters, while leaving the informational aspects of 
advertising largely untouched. FDA is not banning outdoor advertising; 
it is restricting it so that it does not unavoidably confront children 
when they play. It is not banning print advertising. It is restricting 
the use of images and color, which are particularly appealing to 
children, in publications that have a large number of young readers 
under the age of 18 and in other forms of advertising to which children 
are routinely exposed but permitting unrestricted advertising in adult 
publications and adult venues. It is restricting cigarette and 
smokeless tobacco companies' use of brand names and product 
identifications in sponsored events, but again in a way that reflects 
the agency's concern about children and adolescents under the age of 
18. That is, it is permitting companies to sponsor in the corporate 
name in order to engender good will, but preventing them from using the 
brand specific attractive imagery that is influential with young 
people. Finally, it is prohibiting the use of branded promotional items 
because it is the young who find particular value in these items. In 
each of these respects, the agency has gone no further than it has 
found, based on the evidence, is necessary to meet its ends. (See 
Dunagin v. City of Oxford, Miss., 718 F.2d at 751.)
    Under the restrictions that FDA is adopting, firms will remain free 
to disseminate advertising that performs all the informational 
functions that are protected by the First Amendment. They will be able 
to disseminate information on what they are selling, for what reason, 
and at what price. (See Virginia State Board of Pharmacy v. Virginia 
Citizens Consumer Council, 425 U.S. 748, 765 (1976); Bates v. State Bar 
of Arizona, 433 U.S. 350, 364 (1977).) Thus, the situation here is 
analogous to that in Friedman v. Rogers, 440 U.S. 1 (1979), where the 
Supreme Court found that a restriction on the use of optometrical trade 
names had only an incidental effect on the content of commercial 
speech. The Court said that ``the factual information associated with 
trade names may be communicated freely and explicitly to the public'' 
(440 U.S. at 16). So, here, any information that firms wish to 
communicate to adults may still be communicated by use of words. 
Indeed, the tobacco industry has used text-only advertising 
successfully in the past. \196\
---------------------------------------------------------------------------

    \196\ As discussed more fully elsewhere, advertising for low-tar 
products is generally more reliant on text than on imagery.
---------------------------------------------------------------------------

    It may be true, as some of the comments state and as the agency 
recognized above, that it will be more difficult for adult consumers to 
find cigarette and smokeless tobacco advertising without images and 
color, but willingness to search for information is one of the things 
that adults will do when they need information about price, quality, or 
product performance. Moreover, as discussed above, adult tobacco users 
are particularly interested in information on price, ``safer'' 
cigarettes, and new products, information that can be freely conveyed 
under FDA's regulations.
    (25) The effect of the proposed restrictions on cigarette and 
smokeless tobacco product manufacturers' ability to communicate with 
adults was the subject of a number of comments. These comments argued 
that the proposed restrictions would not only preclude speech that may 
be perceived by young people, it would preclude speech that would be 
received by adults. The restrictions, these comments asserted, would 
deprive adults, who are legally entitled to smoke, of their right to 
the free flow of relevant commercial information. Other comments, 
relying on several cases, said that the First Amendment does not 
countenance wholesale censorship of speech for adults under the guise 
of protecting children. Many comments, for example, quoted a statement 
from Butler v. State of Michigan, 352 U.S. 380, 383 (1957) (``Surely, 
this is to burn the house to roast the pig.'') in support of this 
point. One comment said that FDA's purpose of reducing tobacco use by 
minors cannot support massive censorship between tobacco advertisers 
and adults.
    One comment, however, argued that FDA's proposed restrictions are 
narrowly tailored to the specific types of advertising that are most 
effective with children. This comment said that these restrictions 
permit companies to continue marketing practices that do not appeal to 
children.
    FDA has considered the concerns expressed in the comments. First, 
FDA does not agree that its interest is limited. As discussed above, 
the agency's interest is compelling. Nonetheless, the agency has tried 
very hard to tailor the restrictions on advertising in this final rule 
to focus them in order to limit the appeal of advertising to the young 
and ensure that the restrictions on access to cigarettes and smokeless 
tobacco will not be undermined, while at the same time, minimizing 
their effect on adults. Given this approach, FDA's restrictions differ 
significantly from those struck down in Butler v. State of Michigan, 
where the Court overturned conviction of a bookseller for selling a 
book to adults that contained some portions that might be objectionable 
to young people. In that case, the Supreme Court stated:
     We have before us legislation not reasonably restricted to the 
evil with which it is said to deal. The incidence of this enactment 
is to reduce the adult population of Michigan to only what is fit 
for children.
(352 U.S. at 383)
    This statement clearly does not describe the situation under the 
restrictions FDA is adopting. Except for limits on images and colors, 
the restrictions that FDA is adopting do not limit what cigarette and 
smokeless tobacco manufacturers, distributors, or retailers may say. As 
stated above, they are free to put into words any nondeceptive message 
that they would have communicated by color or image.

[[Page 44498]]

FDA's restrictions, as one comment stated, restrict only those 
advertising techniques that have the most appeal. Thus, contrary to the 
situation in Butler v. Michigan, these restrictions are reasonably 
restricted to the harms they are intended to address.
    Nor are the restrictions that FDA is imposing like the one struck 
down in Bolger v. Youngs Drug Products Corp., 463 U.S. 60 (1983), which 
was cited by several comments. In that case, a Federal statute 
prohibited the mailing of unsolicited advertisements for 
contraceptives. The Postal Service sought to justify this restriction 
as aiding parents' efforts to discuss birth control with their 
children. While the Court found this interest to be substantial, it 
found the restriction to be more extensive than the Constitution 
permits (463 U.S. at 73). The Supreme Court struck down the 
restrictions, stating: ``The level of discourse reaching the mailbox 
simply cannot be limited to that which would be suitable for a 
sandbox'' (Id. at 74). It is in this respect that FDA's restrictions 
differ from those in Bolger. While FDA may limit the type of color or 
imagery, or the use of noncommunicative media, i.e., hats, FDA's 
restrictions do not limit the types of information that can be 
disseminated, except within 1,000 feet of schools and playgrounds.
    (26) Other comments cited Sable Communications v. FCC, 492 U.S. 115 
(1989), in which the Supreme Court struck down an outright ban on 
indecent as well as obscene interstate commercial telephone messages. 
This case is not relevant here because FDA is not imposing an outright 
ban on cigarette and smokeless tobacco advertising, \197\ and because 
in contrast to Congress's failure to make findings that would justify 
the ban in Sable, FDA is fully explaining the basis for each of the 
restrictions that it is adopting here.
---------------------------------------------------------------------------

    \197\ The Court specifically distinguished FCC v. Pacifica 
Foundation, 438 U.S. 726 (1978), because that case did not involve a 
total ban on broadcasting indecent material. The Court pointed out 
that the FCC rule in that case sought to channel the indecent 
material to times of the day when children most likely would not be 
exposed to it (Sable Communications v. FCC, 492 U.S. at 127). FDA's 
intention here is to impose a similar type of focused and tailored 
restriction on tobacco advertising to limit the appeal of such 
advertising to children.
---------------------------------------------------------------------------

    Other comments cited Erznoznik v. City of Jacksonville, 422 U.S. 
205 (1975), in which the Supreme Court struck down an ordinance that, 
to protect minors, made it illegal to exhibit a motion picture visible 
from public streets in which female buttocks and bare breasts were 
shown. In doing so, the Supreme Court stated that: ``Speech * * * 
cannot be suppressed solely to protect the young from ideas or images 
that a legislative body thinks unsuitable for them'' (422 U.S. at 213).
    Again, however, FDA is imposing restrictions on the manner and, to 
a limited extent, places in which cigarettes and smokeless tobacco are 
advertised, not content restrictions. Moreover, FDA is restricting 
commercial speech, which, as stated in section VI.C.1. of this 
document, is subject to a subordinate position in the scale of First 
Amendment values to the noncommercial expressions involved in 
Erznoznik. Thus, this case has no application here.
    (27) Finally, a few comments cited Project 80's, Inc. v. City of 
Pocatello, 942 F.2d 635 (9th Cir. 1991), a case in which the U.S. Court 
of Appeals for the Ninth Circuit struck down ordinances that prohibited 
door-to-door solicitation because they restricted both wanted and 
unwanted solicitations. (See 942 F.2d at 638-639.) The municipalities 
sought to defend these ordinances on the grounds that they did not 
prohibit in-home sales. However, the court said that residents who 
wanted to receive unwanted solicitors had to post a ``Solicitors 
Welcome'' sign, and that the Government's imposition of affirmative 
obligations on the residents' First Amendment rights to receive speech 
is not permissible (Id. at 639).
    Presumably, the comments cited this case as evidence that FDA's 
restrictions on tobacco advertising sweep too broadly because they 
affect the rights of both minors and adults to receive speech. Again, 
however, the case is distinguishable. Under FDA's restrictions, adults 
will be able to continue to receive tobacco advertising without any 
obligation to take any affirmative steps. They will have to look a 
little harder because, to advance FDA's interest in protecting the 
health of minors, advertisements will generally not have images or 
color, and such advertising will not be around schools or playgrounds. 
However, the advertising should otherwise continue to be available in 
newspapers, magazines, and billboards and appear unrestricted in adult 
publications and venues. There is no indication in Project '80, Inc. v. 
City of Pocatello, that the Ninth Circuit would find in such 
restrictions an undue burden under the First Amendment.
    This review of the case law shows that FDA's effort to tailor the 
restrictions that it is adopting for cigarette and smokeless tobacco 
advertising that clearly distinguishes them from the governmental 
efforts to protect minors that have been struck down as sweeping too 
broadly and as impinging on the rights of adults. Under FDA's 
restrictions, there will still be a free flow of information to adults 
and not massive censorship as some comments allege. Thus, these 
comments do not provide a basis to conclude that FDA's restrictions 
fail the third prong of the Central Hudson test.
    (28) Several comments pointed out that the Supreme Court has stated 
on several occasions that regulations that disregard numerous and 
obvious less restrictive and more precise means of achieving the 
government's asserted objectives are not narrowly tailored. These 
comments suggested that there are several less restrictive alternatives 
to the restrictions on advertising that FDA had proposed. One 
alternative pointed to by the comments was better enforcement of laws 
prohibiting sales to minors. The comments pointed out that Congress 
passed legislation as part of the Alcohol, Drug Abuse, and Mental 
Health Administration (ADAMHA) Reorganization Act of 1992, that 
prohibits DHHS from providing block grants for the prevention and 
treatment of substance abuse unless the State prohibits the sale and 
distribution of tobacco products to persons under 18. The comments said 
that FDA should give this new law a chance to work before imposing 
restrictions on speech, particularly in light of the fact that DHHS 
itself said in its 1995 proposed rule to implement this new law that 
``[e]liminating virtually all sales [of tobacco products] to minors 
does not even present particularly difficult enforcement problems'' 
(see 58 FR 45156 at 45165, August 26, 1993).
    The other alternative, according to the comments, that exists to 
the restrictions is an educational campaign that is sponsored either by 
the Government or that is provided through voluntary counter speech by 
the tobacco industry.
    The agency recognizes that the various opinions by the Justices in 
44 Liquormart reiterate the need to consider nonspeech restrictions. 
Justice Stevens, speaking for himself and Justices Kennedy, Ginsburg, 
and Souter stated that the legislature ``cannot satisfy the requirement 
that its restriction on speech be no more extensive than necessary,'' 
given that alternative forms of regulation, such as taxation or limits 
on purchases that did not involve restrictions on speech, could achieve 
the goal of promoting temperance as well as, or better, than,

[[Page 44499]]

its ban. Moreover, Justice O'Connor in a concurrence, joined by the 
Chief Justice, and Justices Souter and Breyer stated:
     The availability of less burdensome alternatives to reach the 
stated goal signals that the fit between the legislature's ends and 
the means chosen to accomplish those ends may be too imprecise to 
withstand First Amendment scrutiny.
(116 S.Ct. at 1521)
    (29) One comment, however, argued that, for two reasons, there is 
no plausible claim that FDA has disregarded reasonable alternatives. 
First, the comment pointed out that the Federal Government has engaged 
in an incremental effort for 30 years to strike the appropriate balance 
in regulating the sale of tobacco products. This effort was successful 
in bringing down overall smoking rates, but youth smoking rates 
remained stable during the 1980's and have recently begun to rise. 
Because previous measures have failed, the comment said, it was now 
appropriate for FDA to take stricter action to reduce the use of 
tobacco products by minors. Second, the comment noted that a lack of 
narrow tailoring often manifests itself in a restraint that is either 
grossly underinclusive or overinclusive. The comment said that FDA had 
been neither here.
    In Florida Bar v. Went For It, Inc., 115 S.Ct. at 2380, the Supreme 
Court made clear that the question whether a restriction on commercial 
speech is reasonably well-tailored turns, at least in part, on the 
existence of ``numerous and obvious less burdensome alternatives to 
restrictions on commercial speech * * *.'' (See 115 S.Ct. at 2380 
(citing Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 418 n.13 
(1993)).) FDA has considered the alternatives suggested by the comments 
and finds that none of them is an appropriate alternative to the 
restrictions that FDA is adopting.
    First, the Government has engaged in a 30-year effort to eliminate 
young people's access to and use of tobacco products. The industry, 
through its voluntary code and various education programs, has 
professed to be part of the solution. However, tobacco can be easily 
obtained by young people (between 516 million and 947 million packs of 
cigarettes sold illegally per year to children (1992-1993) (60 FR 41314 
at 41315)). Moreover, although adult smoking rates have declined 
dramatically since the publication of the first Surgeon General's 
Report in 1964 (from over 42.4 percent in 1965 to 25 percent in 1993) 
(60 FR 41314 at 41317), young people's smoking rates failed to decline 
during the decade of the 1980's and began to rise in 1991. Between 1991 
and 1995, the proportion of 8th and 10th graders who reported smoking 
in the 30 days before the survey had risen by one-third, to about 19 
percent and 28 percent, respectively. Smoking among high school seniors 
had increased by more than one-fifth since 1992, with 33.5 percent 
saying that they had smoked in the 30 days before the survey. \198\ 
Thus, past efforts involving age restrictions and warning messages on 
packages and advertising have not been sufficient to reduce the demand 
for tobacco by young people. The restrictions on advertising are 
designed to affect the demand.
---------------------------------------------------------------------------

    \198\ ``Teen Smoking, Marijuana Use Increase Sharply, Study 
Shows; HHS Sees Alarming `Culturewide' Change in Progress,'' The 
Washington Times, p. A2, December 16, 1995; quoting from ``Results 
from the 1995 Monitoring the Future Survey,'' National Institute on 
Drug Abuse Briefing for Donna E. Shalala, Ph.D., Secretary of Health 
and Human Services, December 13, 1995.
---------------------------------------------------------------------------

    Second, the agency proposed a sufficiently comprehensive set of 
regulatory restrictions to address the problem of tobacco use by young 
people, to wit: (1) Provisions that restrict and prevent sales of 
tobacco products to young people; (2) provisions that reduce the appeal 
of tobacco products for young people that is created by advertising and 
promotions; and (3) a program to provide educational messages for young 
people to help them resist tobacco use. Thus, the agency has not relied 
solely on regulations that have an impact upon the speech of the 
tobacco industry but has included provisions to address the activity 
itself.
    Third, while it is true that better enforcement of laws restricting 
sales to minors is complementary to FDA's approach, it does not 
eliminate the need for this action. As DHHS recognized in its final 
rule implementing the ADAMHA Reorganization Act of 1992, DHHS's action 
under that statute and FDA's regulations both address the need to 
reduce minors' access to tobacco products. FDA's action, however, in 
addition to reducing access, attempts, through the restrictions on 
advertising, to reduce ``the powerful appeal of tobacco products to 
children and adolescents'' (61 FR 1492, January 19, 1996). \199\
---------------------------------------------------------------------------

    \199\ It is true that in its August 25, 1993, proposal (58 FR 
45156), DHHS stated, as the comments say, that eliminating virtually 
all sales to minors does not present particularly difficult 
enforcement problems. This statement did not imply, however, that 
achieving this goal would be easy, nor did it reflect consideration 
of what ancillary measures would be useful to help to achieve this 
goal. It was, rather, a statement of DHHS' view that this goal could 
be achieved.
---------------------------------------------------------------------------

    Advertising, as explained in sections VI.B. and VI.D. of this 
document, plays a role in the decision of children and adolescents to 
use cigarettes and smokeless tobacco. As long as advertising continues 
to play that role, young people will be motivated to obtain access to 
tobacco products and to attempt to circumvent any access restrictions. 
Thus, the restrictions on speech are necessary to prevent advertising 
from undermining FDA's proposed restrictions on access. First, the 
agency notes that the voluntary educational campaigns conducted by 
tobacco companies have not been effective in reducing underage tobacco 
use. This fact is evidenced by the increase in prevalence of tobacco 
use among young people. (See, e.g., 60 FR 41314 at 41315.) Second, the 
agency finds that any educational campaign is likely to be undermined 
if the young people to whom it is aimed continue to be the target of 
advertising that fosters the perception that experimentation with 
tobacco by young people is expected and accepted.
    The U.S. Court of Appeals for the Fifth Circuit considered a 
suggestion similar to that of an educational campaign in Dunagin v. 
City of Oxford, Miss. and found it not to be an alternative to 
restrictions on advertising:
     We do not believe that a less restrictive time, place, and 
manner restriction, such as a disclaimer warning of the dangers of 
alcohol, would be effective. The state's concern is not that the 
public is unaware of the dangers of alcohol * * * The concern 
instead is that advertising will unduly promote alcohol consumption 
despite known dangers.
(See 718 F.2d at 751; see also Posadas de Puerto Rico Ass'n v. Tourism 
Co. of Puerto Rico, 478 U.S. at 344.) This is exactly FDA's concern 
about the effect of advertising on underage tobacco use, and why an 
educational campaign, which may complement advertising restrictions, is 
not an alternative to them.
    Thus, the agency concludes that there are no less burdensome 
alternatives to restrictions on advertising. In this respect, this 
proceeding is distinguishable from that considered in Rubin v. Coors, 
which was cited by a number of the comments. In Rubin v. Coors, the 
Supreme Court pointed to the fact that the respondent cited several 
options that could advance the Government's asserted interest in a 
manner less intrusive to respondent's First Amendment rights than the

[[Page 44500]]

statutory provision the Government had adopted (115 S.Ct. at 1593). 
\200\ Here, as in section VI.E. of this document, there are none 
believed to be nearly as effective.
---------------------------------------------------------------------------

    \200\ One alternative that the respondents in Rubin v. Coors 
advanced was prohibiting marketing efforts emphasizing high alcohol 
strength (115 S.Ct. at 1593.) What FDA is doing here is analogous to 
that alternative. It is restricting marketing efforts that have 
particular appeal to the young.
---------------------------------------------------------------------------

    In U.S. v. Edge Broadcasting Co., 509 U.S. 418, 430 (1993), the 
Supreme Court said that ``the requirement of narrow tailoring is met if 
`the * * * regulation promotes a substantial Government interest that 
would be achieved less effectively absent the regulation,' provided 
that it did not burden substantially more speech than necessary to 
further the government's legitimate interests.''
    FDA's restrictions on cigarette and smokeless tobacco advertising 
clearly meet this test. FDA's restrictions directly and materially 
advance its compelling interest in the health of children and 
adolescents under the age of 18. The discussion of the lack of less 
restrictive alternatives demonstrates that the agency's goals would be 
achieved less effectively in the absence of these restrictions. 
Finally, as the discussion on narrow tailoring and in the review of the 
comments on each of the regulations on advertising that follows makes 
clear, FDA is restricting only those aspects of advertising that have 
particular appeal to the young. Thus, the agency has crafted the 
advertising provisions with specificity to allow unrestricted 
advertising in those venues that are not seen by or used by children 
and adolescents. Accordingly, publications with adult readership and 
adult establishments may have unlimited print advertising. Moreover, 
companies are free to offer nontobacco items and events in their 
corporate names or unbranded. Companies, thus, can reward adult usage 
by providing these incentives but may not do so in a format (with brand 
identification and imagery) which is appealing to young people.
    However, the agency has been unable to determine additional areas 
for unrestricted advertising. Thus, other than adult establishments, 
such as bars, there are no areas at other retail establishments that 
are not visible to young people. Billboards are ubiquitous and 
accessible to all ages. Nontobacco items can be restricted to 
dissemination to adults, but they would still serve as walking 
billboards. Finally, there are no adult only sponsored events--children 
are at the events or watching them on television. As described more 
fully in section VI.E.8. of this document, in the case of auto racing, 
attendance by young people is on the rise.
2. Section 897.30(a)--Permissible Forms of Labeling and Advertising
    Proposed Sec. 897.30(a) would have established the scope of 
permissible forms of labeling and advertising for cigarettes and 
smokeless tobacco. Proposed Sec. 897.30(a)(1) would have defined 
permissible forms of advertising as newspapers, magazines, periodicals, 
or other publications (whether periodic or limited distribution); 
billboards, posters, placards; and nonpoint of sale promotional 
material (including direct mail). Proposed Sec. 897.30(a)(2) would have 
defined permissible forms of labeling as point of sale promotional 
material; audio and/or video formats delivered at a point of sale; and 
entries and teams in sponsored events.
    In response to the comments, FDA has revised Sec. 897.30(a) so that 
it no longer distinguishes between advertising and labeling, deletes 
teams and entries as permissible advertising, describes the procedure 
that FDA will follow when it is informed by advertisers of their intent 
to advertise in a medium not listed in the regulation.
    In addition, the first sentence of Sec. 897.30(a), which states 
that this subpart does not apply to cigarette or smokeless tobacco 
product package labels, has been redesignated as Sec. 897.30(c).
    (30) Several comments were received addressing the issue of 
permissible advertising outlets. Comments from the tobacco and 
advertising industries opposed the 1995 proposed rule. These comments 
criticized the 1995 proposed rule for not defining the term 
``advertising'' and called the 1995 proposed rule unprecedented in the 
scope of its limitations on the forms of media, a violation of the 
First Amendment, a violation of the Administrative Procedure Act (APA), 
and beyond FDA's statutory authority. Supporters of the 1995 proposed 
rule, including health and public interest groups, stated that it is a 
reasonable measure given the effect of advertising on children and that 
it provides manufacturers with a wide variety of means for 
communicating with their customers. Some supporting comments urged that 
the prohibition of certain media, such as the Internet, be stated 
explicitly.
    Several comments from the tobacco industry expressed concern that 
FDA did not define the term ``advertising'' ``because Sec. 897.30(a)(1) 
would limit the media in which cigarettes may be `advertised,' the 
definition of `advertising' as used by FDA is crucial; yet the term is 
not defined in the proposed regulations.''
    Moreover, they expressed concern that the definition was so 
sweeping that it could literally ``include reports to shareholders or 
potential shareholders; communications among manufacturers, 
wholesalers, distributors, and retailers; or even communications to the 
news media insofar as they might be deemed a 'commercial use.'''
    Other comments requested that the agency clarify the definition to 
ban product placements in movies and commercials shown in movie 
theaters. Several comments stated that Sec. 897.30 should be extended 
to include tobacco product packages to reduce the means of a child 
expressing affinity with the image associated with a particular brand. 
One comment recommended tombstone packaging without an identifiable 
logo.
    The agency carefully considered whether it should attempt to define 
the term ``advertising'' more explicitly than it did. ``Advertising'' 
as a term is constantly evolving, as new media and new techniques of 
marketing emerge. Although its boundaries are understood (and were 
provided in the preamble to the 1995 proposed rule), there is no one 
accepted definition. FTC is the Federal agency with general 
responsibility for regulating most consumer advertising. Yet neither 
FTC nor any of its rules define the general term ``advertising.'' The 
agency agrees with the approach taken by FTC and continues to believe 
that the term ``advertising'' should not be defined any more 
specifically. Thus, FDA finds that the description of advertising in 
the preamble to the 1995 proposed rule is appropriate:
     Labeling and advertising are used throughout this subpart to 
include all commercial uses of the brand name of a product (alone or 
in conjunction with other words), logo, symbol, motto, selling 
message, or any other indicia of product identification similar or 
identical to that used for any brand of cigarette or smokeless 
tobacco product. However, labeling and advertising would exclude 
package labels, which would be covered under proposed subpart C.
(60 FR 41314 at 41334)
    The agency also agrees with comments that state that it must 
provide some context for the application of so open ended a definition. 
For example, comments contended that ``commercial use'' could be 
interpreted to include such items as trade advertising (communication 
between

[[Page 44501]]

manufacturers, wholesalers, distributors, and retailers), shareholder 
reports, and possibly even communications with the news media. This was 
not FDA's intent. This rule is a consumer based regulation; it is not 
the intention of FDA to include purely business related communications. 
Thus, noncommercial uses would not be affected. These would include 
such uses as unpaid press statements, signs on factories noting 
locations, business cards, and stockholder reports. While many of these 
uses would be ordinary and necessary business expenses, they would not 
be commercial uses in the context of the rule's restrictions on tobacco 
advertising affecting minors' tobacco use.
    Furthermore, the preamble to the 1995 proposed rule explained that 
the agency intends to permit advertising with imagery and color in 
publications that are read primarily by adults. For that reason, under 
Sec. 897.32(a), advertisements in publications (whether periodic or 
limited distribution) with primarily adult readership are not 
restricted to a text-only format. Trade advertising in trade press 
publications and trade show publications, trade catalogs, price sheets, 
and other publications for wholesalers, distributors, and retailers 
that will not be seen by consumers, including minors, are unaffected by 
the rule.
    Also, the agency does not believe that the term ``advertising'' 
needs to be defined to clarify what is not a permissible advertising 
outlet. The 1995 proposed rule clearly specifies what advertising 
outlets are included within the regulation's coverage. However, the 
agency has been persuaded to make more clear its procedures for new or 
uncovered media. These procedures are described in this section.
    The agency does not agree with comments that the rule needs to be 
clarified regarding infomercials or advertorials (program length 
commercials). Television infomercials are not allowed under the 
statutory broadcast ban, and magazine advertorials would be treated 
like any other magazine advertising. The agency recognizes that 
commercial advertising messages (videos) shown in a movie theater are 
not addressed by the 1995 proposed rule. If this becomes a desired 
medium, the companies would need to notify FDA 30 days prior to using a 
new medium. Finally, product placements in movies, music videos, and 
television, if not placed at the expense of a tobacco manufacturer, 
distributor, or retailer, would not be affected by this rule. The 
agency does not intend to regulate a film producer's artistic 
expression--i.e., what the producer chooses to display in movies.
    The agency has decided not to include restrictions on tobacco 
product packaging. The agency has attempted to narrowly tailor this 
rule and therefore has not included packaging restrictions at this 
time.
    (31) Several comments from the advertising industry expressed 
concern that the wording of Sec. 897.30(a)(1) would ban all advertising 
for tobacco products that is not expressly permitted. If so, the 
comment states, the rule would be arbitrary and capricious because the 
agency did not present evidence that these unnamed advertising 
techniques influence young people. Another comment pointed out that the 
channels available to tobacco companies for communicating with adults 
already have been severely restricted by Congress' ban on television 
and radio advertising.
    In contrast, comments from organizations of health professionals 
and a public interest group supported the scope of permissible 
advertising. One specific comment stated that, ``The media listed in 
Sec. 897.30 provide manufacturers with a wide variety of means for 
communicating with their customers.''
    The agency has determined that the scope of the permissible outlets 
for tobacco advertising in the 1995 proposed rule is reasonable. The 
permissible forms are the known current forums for tobacco labeling and 
advertising and account for the vast majority of advertising 
expenditures. While the format of much of current tobacco advertising 
is being restricted to a text-only format, almost all of the current 
media outlets being used for tobacco advertising will still be 
permissible. Legal users will continue to be able to receive 
information about cigarettes and smokeless tobacco, in a text-only 
format in most cases, in virtually all the same media currently used 
for tobacco advertising. Moreover, if an advertiser intends to use a 
new media outlet not included in the list of permissible advertising, 
its responsibility is to notify FDA and provide the agency with 
information about the media and the extent to which the advertising is 
seen by young people. FDA will review any submission and make a 
determination whether provisions of the final regulation provide 
sufficient information for the advertiser to know how to disseminate 
its advertising or whether the regulations need to be amended. 
Advertising in any new media will be subject to the text-only format 
requirement if it is a medium used by young people. Therefore, FDA has 
created a new Sec. 897.30(a)(2) to reflect this new process.
    The agency believes this approach is reasonable and is fully 
consistent with its statutory authority and with the First Amendment. 
In Central Hudson Gas & Electric Co., 447 U.S. at 571, n.13, the 
Supreme Court suggested that the Public Service Commission might 
consider a system of previewing advertising campaigns to ensure that 
they will not defeat conservation policy. The Court pointed out that 
``commercial speech is such a sturdy brand of expression that 
traditional prior restraint doctrine may not apply to it'' (Id.). Given 
the agency's significant interest in ensuring that the restrictions on 
access that it is imposing are not undermined, FDA finds that the 
requirement that firms consult with it before using a new advertising 
medium is a limited means of regulating commercial expression that is 
likely to vindicate FDA's public health interests. This approach will 
not prohibit the tobacco industry from advertising in new media but 
will protect young people by giving the agency an opportunity to review 
the problems presented by a new media and to design new regulations or 
adapt current ones.
    (32) One comment from a public interest group concerned with 
electronic media urged FDA to explicitly prohibit tobacco advertising 
over the Internet, Worldwide Web, and other on-line services and 
interactive media. The comment stated that children and adolescents are 
increasingly using on-line services with up to 4 million Americans 
under age 18 using, or with access to, on-line services. The comment 
stated further that the interactive nature of the on-line services 
gives advertisements numerous advantages over traditional print 
advertisements. The comment emphasized that a ban on tobacco 
advertising over these media is necessary because the text-only format 
would not be as effective in reducing the appeal of tobacco advertising 
to minors given the interactive nature of these media.
    One comment from an organization of health professionals stated 
that one tobacco company advertises its mail-order business through a 
Web site on the Internet and offers links to other tobacco-related 
sites. The comment wondered why this type of advertisement was not 
banned by FCC

[[Page 44502]]

since the Internet operates over telephone lines, a form of electronic 
media that is regulated by FCC and from which cigarette advertising is 
banned.
    A few comments dealt with on-line advertising and recommended that 
the rule should limit format to black text on a plain background, 
require advertisers to demonstrate that significant numbers of children 
do not access ad sites, require use of any available blocking 
technology, and define ``conspicuous'' and ``prominent'' as they 
pertain to interactive media.
    Some of these comments have suggested that advertising of tobacco 
products in on-line media should be banned under the Federal Cigarette 
Labeling and Advertising Act's (the Cigarette Act) (15 U.S.C. 1331) and 
the Comprehensive Smokeless Tobacco Health Education Act of 1996's (the 
Smokeless Act) (15 U.S.C. 4401) prohibition of advertising on any media 
subject to the jurisdiction of FCC. The agency leaves the issue of 
jurisdiction and the applicability of the broadcast ban to the 
Department of Justice, which has the appropriate jurisdiction over the 
Cigarette Act, and to FTC, which has along with the Department of 
Justice jurisdiction over the Smokeless Act. Were these agencies not to 
take action and were, tobacco advertising to continue in on-line media, 
then FDA is available to meet with advertisers regarding their 
responsibility under the final rule.
    The agency recognizes the growing importance and use of on-line 
media and the Internet for communications of all sorts, including 
tobacco sales and advertising. On-line media are not included within 
the list of permissible outlets for tobacco advertising because the 
agency does not have sufficient information on the technology to 
include regulations in the final rule. However, advertisers interested 
in advertising on the Internet should notify the agency, after the rule 
is final, and provide the agency with sufficient information about use 
by young people so that the agency can make a proper determination. 
This notification is for discussion purposes only, and is not in any 
way intended to imply, or create a need for, prior approval.
    The agency recognizes the concern expressed by one comment that a 
text-only format, without additional requirements, may not be as 
effective in protecting young people from on-line advertising as it 
would be for print advertising because of the interactive nature of on-
line media. The agency would consider the unique qualities of on-line 
media and the Internet in evaluating any requests to use these media. 
Any other statement about specific requirements for this new media or 
any other media would constitute speculation at this point. \201\
---------------------------------------------------------------------------

    \201\ In addition to the substantive changes, the following 
changes in language have been made: (1) Deletion of ``only'' in 
Sec. 897.30(a)(1); (2) substitution of (a)(2) for (b) in 897.30; and 
(3) deletion of ``and'' before ``in point of sale'' in 
Sec. 897.30(a)(1).
---------------------------------------------------------------------------

    Section 897.30(a)(1) provides a comprehensive listing of the 
permissible forms of advertising and labeling. The evidence that FDA 
has gathered in this proceeding establishes the need for and importance 
of such a comprehensive listing. In addition to the general evidence 
and support provided by expert opinion, advertising theory, studies and 
surveys, empirical studies, anecdotal evidence, industry statements, 
and two consensus reports (the IOM Report and the 1994 SGR) described 
in section VI.D.5. of this document, FDA has found specific support for 
a comprehensive listing in:
    Empirical Studies--Various economic and econometric studies of 
international and cross-country data show that restrictions on 
advertising and promotional activities can result in a decline in 
tobacco use (see section VI.D.6.a. of this document).
    Country Experience--The experience of countries, such as Norway and 
Finland, shows that comprehensive advertising restrictions can 
positively affect the smoking rates of young people over time (see 
section VI.D.6.a. of this document).
    Advertising Theory--Each separate advertising media plays a 
critical role in shaping young people's beliefs about tobacco use, and 
ultimately their use of tobacco products (see sections VI.D.3.a. 
through VI.D.3.e. of this document). Therefore, regulation of 
advertising must address each type of media. As will be described in 
the following sections of the regulation, the restrictions on each 
media are necessary to reduce the appeal of tobacco for young people 
and to prevent unrestricted tobacco advertising from undermining the 
regulation's access provisions. Moreover, as international experience 
indicates (see section VI.D.6. of this document), when regulations that 
are not comprehensive are implemented, tobacco money can migrate to 
unregulated advertising venues (e.g., if publications are prohibited, 
money expended on sponsorship will increase) and can undermine the 
force of the regulation. Thus, in order to be effective, restrictions 
must be as comprehensive as possible.
    Based on all of the foregoing, FDA concludes that the comprehensive 
listing of permissible advertising in Sec. 897.30(a)(1) will directly 
and materially advance the agency's efforts to reduce consumption of 
tobacco products by children and adolescents under the age of 18.
3. Section 897.30(b)--Billboards
    The agency proposed in Sec. 897.30(b) to prohibit outdoor 
advertising, including but not limited to billboards, posters, or 
placards, placed within 1,000 feet of any public playground or 
playground in a public park, elementary school, or secondary school. 
FDA proposed this provision because these are places where children and 
adolescents spend a great deal of time and should therefore be free of 
advertising for these products. The agency tentatively concluded that 
this was a reasonable restriction and noted that the cigarette 
industry's voluntary ``Cigarette Advertising and Promotion Code,'' (the 
Code) revised in 1990, contains a similar provision concerning schools 
and playgrounds (60 FR 41314 at 41334 through 41335).
    (33) FDA received over 2,500 comments concerning this part of the 
1995 proposed rule. Comments opposing this measure pointed out that the 
tobacco industry has established a voluntary code similar to the 
proposed provision with which advertisers already comply, and that 
therefore, there is no reason to make this measure mandatory. These 
comments also stated that outdoor advertising does not target children 
and adolescents, and that parents, siblings, and friends have a much 
greater influence than billboards and posters on a young person's 
desire to start smoking. Further, they stated that there is no evidence 
that this measure would reduce any teenager's desire to smoke.
    Most comments supported this provision, stating that children and 
adolescents should not be subjected to visual images promoting tobacco 
use around those areas where they attend school or play. The comments 
argued that children and adolescents want to be like the attractive 
models in the advertising, and, thus, the advertisements directly 
influence them to start using tobacco.
    In the Federal Register of March 20, 1996 (61 FR 11349), the agency 
reopened the comment period for the August 1995 proposed rule to place 
on the public record a memorandum that provided further explanation of 
the

[[Page 44503]]

agency's proposal to ban outdoor advertising within 1,000 feet of 
schools and playgrounds. The document provided an additional 30 days in 
which to comment on this new information. The memorandum stated that 
the agency was aware of the industry's voluntary 500-foot ban on 
advertising from schools and playgrounds but also that it was 
cognizant, based on the experience of its employees, that billboards 
can loom large in the sight of children and adolescents at that 
distance and thus would be able to capture their attention. The agency 
also noted that 1,000 feet is about 3 blocks and that signage kept that 
far away from schools and playgrounds would not loom as large, if it 
would be visible at all. Moreover, the 1,000 feet will protect children 
as they travel to and from these locations.
    In response to the comments, FDA has modified the provision to 
clarify the coverage of the provision. Thus, the final rule states that 
the 1,000-foot area is to be measured from the perimeter of the 
playground or school. Moreover, a definition of playground is included 
as well as an indication that the relevant area of a playground in a 
larger public park is limited to the play area itself. Section 
897.30(b) reads:
    No outdoor advertising for cigarettes or smokeless tobacco, 
including billboards, posters, or placards, may be placed within 
1,000 feet of the perimeter of any public playground or playground 
area in a public park (e.g., a public park with equipment such as 
swings and seesaws, baseball diamonds, or basketball courts), 
elementary school, or secondary school.
    (34) Several comments asked FDA to define what is meant by the term 
``playground.'' The comments stated that the term could be construed to 
include literally any place of outdoor recreation where children may 
play (i.e., a paved parking lot, a tennis court, or a city park), even 
places used primarily by persons 18 years of age or older. One of the 
comments noted that the industry code refers to ``children's 
playgrounds'' (i.e., playgrounds designed primarily for use by 
children), but that Sec. 897.30(b) refers to ``any playground.''
    Some comments suggested that the term ``playground'' should include 
the playgrounds of city parks, recreation facilities, theme parks 
(e.g., Disneyland), and national parks.
    The agency agrees that it needs to clarify what is meant by the 
term ``playground.'' A typical dictionary definition of ``playground'' 
states that it is: (1) An outdoor area set aside for recreation and 
play, especially one having equipment such as seesaws and swings; or 
(2) a field or area of unrestricted activity. The intent of the 
proposal was not to preclude outdoor advertising within 1,000 feet of 
any area that would fall under this broad definition, but to preclude 
cigarette and smokeless tobacco advertising around those areas where 
children and adolescents are likely to spend a lot of time. Clearly, 
areas around schools with equipment such as swings and seesaws are 
areas where children are likely to play. Public parks for family 
recreational purposes with play equipment, and facilities for 
activities such as baseball or basketball are also areas where children 
and adolescents are likely to be present for hours at a time.
    However, private enterprises, such as theme parks and recreational 
facilities, are not necessarily intended only for children and 
adolescents. Those that are, may require the presence of an adult for 
entry. There are usually entrance fees or required purchases for use of 
these areas. In addition, children and adolescents may not be present 
in these areas on any regular basis (e.g., an annual visit to a theme 
park). Therefore, the agency will not include these areas in the 
regulation. Moreover, because all outdoor advertising must be in black 
and white text, the agency sees no need to extend the prohibition 
beyond elementary and secondary schools and public playgrounds at this 
time.
    The concern expressed that a decision by private parties to build a 
playground could destroy the value of a billboard sign should no longer 
exist. Because the agency is limiting its definition of playground to 
those publicly owned playgrounds, any interested party could object to 
the establishment of the playground.
    FDA is modifying Sec. 897.30(b) to state that outdoor advertising 
is prohibited within 1,000 feet of the perimeter of any public 
playground or playground area in a public park (e.g., areas with 
equipment such as swings and seesaws, baseball diamonds, basketball 
courts), elementary school or secondary school. The agency concludes 
that this modification in Sec. 897.30(b) is adequate to clarify the 
term ``playground,'' and that a more specific definition for 
``playground'' is not necessary at this time.
    The agency notes that the definition makes clear that, when an area 
is set aside for a playground within a public park, the 1,000 feet is 
measured from the perimeter of the play area and not from the larger 
park.
    (35) Several comments contended that the regulation should specify 
that the 1,000-foot rule should be measured from the perimeter of the 
property to avoid confusion. One comment asked that the provision be 
more clear as to what types of schools would be included within the 
definition.
    The agency agrees with the first comment. The intent of the 1995 
proposed rule was that the distance would be measured from the 
perimeter of the school or playground. Any other measurement could 
defeat the purpose of the regulation. For example, measuring from the 
edge of a building or from the center of a playground could allow 
outdoor advertising to be placed closer to the perimeter where children 
may be assembled or playing. In addition, for large schools or 
playgrounds, the outdoor advertising could feasibly be near the 
perimeter of the school or playground if the distance is measured from 
somewhere other than the perimeter. Therefore, to clarify the intent of 
the provision, FDA is modifying Sec. 897.30(b) to state that no outdoor 
advertising may be placed within 1,000 feet of the perimeter of any 
playground, elementary school, or secondary school.
    However, the agency does not believe that it needs to provide a 
definition of elementary and secondary schools, as those terms, as 
commonly used, include all such schools (kindergarten through 12th 
grade) whether public, private, or parochial.
    (36) One comment stated that the tobacco industry Code of 
Advertising Practices (the Code) applies to outdoor advertising on 
billboards, and that Sec. 897.30(b) applies to all outdoor signage, 
including signage on the exterior of retail establishments that sell 
tobacco, and conceivably even to advertising on buses, taxis, and other 
vehicles that might venture within the 1,000-foot zone.
    Another comment stated that FDA should consider regulations that 
eliminate tobacco advertising via traveling vans and trailers because 
trailers and vans are mobile billboards and can be strategically placed 
to gain maximum exposure among young people.
    FDA agrees that Sec. 897.30(b) applies to more forms of advertising 
media than does the tobacco industry code (i.e., all outdoor 
advertising, not just billboards). FDA's regulation restricts all 
outdoor advertising of tobacco products, including, but not limited to, 
billboards, posters, and placards. However, the intent and purpose of 
Sec. 897.30(b) is not

[[Page 44504]]

to prohibit signage on taxis and buses that are not located in, but may 
pass through, the school or play zone. Such signage is usually 
temporary or transient and does not present the same concern of a 
permanent sign.
    (37) Several comments questioned the factual basis for the proposed 
ban on outdoor advertising of cigarettes and smokeless tobacco within 
1,000 feet of schools and playgrounds and stated that ``employee'' 
experience is not a sufficient basis. One comment argued that FDA 
should give little weight to employee experience in light of the fact 
that cigarette manufacturers submitted expert testimony that children 
and adolescents pay relatively little attention to billboard 
advertising at any distance. In addition, some comments argued that 
FDA's analysis related solely to billboards, and that it had presented 
no evidence or analysis justifying a ban on store signage. Finally, 
several comments stated that the agency failed to take into account the 
``visibility'' of the outdoor advertising. These comments suggested 
that any regulation must take into account whether obstructions exist 
(e.g., trees, winding roads, signage placed facing away from the 
prohibited area).
    The agency disagrees that it has not provided an adequate basis for 
its proposed regulation. In addition to the analysis provided by the 
agency in its March 20, 1996, Federal Register document, the agency 
received two comments during the comment period with evidence regarding 
this issue. A professor of biophysics and optometry stated that he 
believed that there was a rational and quantitative basis for deciding 
on a given distance if that distance was to be based on the visibility 
of words on a billboard. Specifically, he stated that children and 
adolescents typically have 20/15 visual acuity. Therefore, it is 
possible, using a mathematical formula using a right-angled triangle 
and the definition of the tangent trigonometric function to compute the 
distance at which words are visible. He computed the distances from 
which it would be possible to see both words 1 foot high and 2 feet 
high. In addition, he computed the distances for a ``normal'' visual 
acuity of 20/20. If one were to average these numbers, the result would 
be approximately 1,200 feet, which could be rounded to 1,000 feet.

                                Table 1a.                               
------------------------------------------------------------------------
                           1-foot high letters      2-foot high letters 
------------------------------------------------------------------------
20/15 vision             917 feet                 1,833 feet            
20/20 vision             687.8 feet               1,376                 
------------------------------------------------------------------------

    (38) Another comment reminded the agency that two separate laws 
passed by Congress had provided for a 1,000-foot zone around schools as 
a means to protect youngsters from dangerous and unsafe behavior. The 
Controlled Substances Act (21 U.S.C. 860) provides additional penalties 
for anyone distributing or manufacturing drugs within 1,000 feet of 
schools, playgrounds, and universities, and 18 U.S.C. 922 prohibited 
possession of a firearm within 1,000 feet of schools. \202\ Moreover, 
the comment contained scores of pictures of advertising billboards and 
signs within 500 and 1,000 feet of school and playgrounds as well as 
statements by children indicating that the signs are ubiquitous and 
attractive. The pictures and statements may only be anecdotal evidence 
of the proliferation of tobacco advertising near schools and 
playgrounds, but the number of children who provided pictures in such a 
short period of time indicates that the problem of advertising in 
proximity to schools and playgrounds is not isolated.
---------------------------------------------------------------------------

    \202\ Although this statute was overturned in United States v. 
Lopez, 115 S.Ct. 1624 (1995), as inappropriate under the Commerce 
Clause, the congressional determination that 1,000 feet was an 
appropriate distance was not disturbed.
---------------------------------------------------------------------------

    Moreover, the agency also disagrees that it has no basis for 
including other outdoor signage, including signs on stores, in the 
regulation. The agency provided evidence in the administrative record 
and comments refer to evidence, \203\ which showed that in a test area, 
those stores within 1,000 feet of schools had a significantly greater 
percentage of windows covered with tobacco signs than those further 
away. Moreover, the two RJR memoranda by sales representatives, 
described in section VI.D.3.d. of this document, mention the importance 
of supplying stores near high schools with ``young adult'' material.
---------------------------------------------------------------------------

    \203\ Rogers, T., E. C. Teighey, E. M. Tencoti, J. L. Butler, 
and L. Weiner, ``Community Mobilization to Reduce Point-of-Purchase 
Advertising of Tobacco,'' Health Education Quarterly, 1995, in 
press.
---------------------------------------------------------------------------

    This provides sufficient support for the agency's concern with 
signage on stores near schools. Young people are more likely to 
frequent stores near schools, especially older adolescents, and these 
venues should therefore be free of advertising for tobacco products.
    The agency also finds that it cannot address the comments' concerns 
with obstructions. It would not be possible to qualify a regulation to 
account for the fact that trees may obstruct a sign when they are in 
full bloom but not in winter, or that children may be able to see 
signage as streets wind or that face away from the school or playground 
as they walk to and from school. The line that the agency has drawn is 
narrowly tailored (see Board of Trustees of State University of New 
York v. Fox 492 U.S. at 480) and consistent with how a standard needs 
to be crafted for it to be enforceable.
    Finally, FDA finds that the expert testimony referred to in the 
industry comment that indicates that young people do not pay attention 
to billboards is contradicted by other evidence in the record. The 
Roper Starch study mentioned in section VI.D.3.d. of this document, 
submitted by RJR, reported that 51 percent of 10 to 17 year olds 
surveyed reported that they had seen or heard of Joe Camel from a 
billboard advertisement. For this reason, FDA is not accepting the 
suggestion in the comment.
    (39) A number of comments from the tobacco and outdoor advertising 
industries stated that the tobacco industry had adopted a code in 1990, 
which encouraged all billboard companies to establish and manage a 
program to prohibit alcohol and tobacco advertisements within 500 feet 
of places of worship and primary and secondary schools. They noted that 
over 16,000 billboards nationwide have been voluntarily identified as 
``off limits'' for these categories of advertising. As a consequence, 
the comments asserted that Government action is unnecessary.
    One of the comments stated that the fact that members of an 
industry have elected to submit to a code of advertising practices does 
not make it reasonable for the government to impose mandatory 
advertising restrictions backed by criminal sanctions. It stated that 
private parties may voluntarily take actions that the Constitution 
forbids the Government to mandate. The comment argued that few 
industries would risk any self-regulation if their decision to do so 
might establish a predicate for even greater Federal regulation.
    Conversely, several comments raised concerns about the voluntary 
code and cited numerous examples of violations that continued after the 
sponsors and the billboard companies had been informed of the 
violations. One

[[Page 44505]]

comment stated that a survey found that in California tobacco 
advertising is more prevalent at stores within 1,000 feet of schools 
than at stores farther from schools. The comment asserted that 
statewide findings also revealed that there is more exterior store 
advertising in areas where at least 30 percent of the neighborhood is 
18 years old or younger, and that the advertisements are placed near 
the candy or at a child's eye view (3 feet or below).
    The agency is aware that the Code of Advertising Practices has not 
been uniformly observed, as several comments pointed out. Moreover, the 
industry code is significantly less inclusive than the proposed 
regulation as it covers only billboard advertising and not other forms 
of outdoor advertising such as posters and placards. These other forms 
are likely to be placed near retail establishments and in some cases, 
according to comments, have appeared on school fences. The agency finds 
that all outdoor advertising must be included in the regulation in 
order to provide comprehensive coverage. There is little difference 
between a billboard and a large poster to a child. Both are 
advertisements, and both are visible, so that children see them as they 
go to and from school and play.
    In addition, the Code prohibits outdoor advertising only within 500 
feet of schools, an area only a block or a block and a half from the 
school (there are 10 to 12 city blocks to a mile). One block will not 
provide sufficient protection as it would not cover the areas where 
many children congregate with their friends. Moreover, a child's vision 
does not stop at one block from school. A prohibition of 1,000 feet 
will ensure the absence of signs for 2 to 3 blocks from a school or 
playground which can be seen from these locations where children spend 
a significant amount of time each day. (Several comments stated that 
FDA had misused its math to calculate block distances in its March 20, 
1996, Federal Register document (61 FR 11349).) If the misstatement 
caused any confusion, the agency regrets it but does not believe that 
the one-half block difference undermined the rationale.)
    (40) One series of comments supported FDA's 1995 proposal, stating 
that the restriction on billboards near schools should not be 
compromised, nor the distance reduced.
    A number of comments argued that the proposed regulation did not go 
far enough. One comment recommended excluding outdoor tobacco 
advertising from neighborhoods where children live. Another comment 
stated the belief that the ban on billboards should be at least double 
the proposed 1,000 feet from schools, while others argued that outdoor 
advertising should be prohibited completely.
    These comments stressed the importance of billboards and other 
outdoor advertising in creating cigarette brand awareness among 
children. For example, one comment discussed the results of a survey 
conducted for Advertising Age, which showed that 46 percent of children 
8 to 13 years old said they most often saw cigarette advertising on 
billboards, outpacing magazines. It stated that 34 percent of children 
14 to 18 years old cited billboards as the predominant advertising 
medium for tobacco products. \204\ The comment stated further that all 
billboards, regardless of placement, are seen by significant numbers of 
children, therefore, it clearly makes sense that, as a means to protect 
children from tobacco advertising, such advertisements should be 
prohibited from billboards and other outdoor advertisements. The 
comment emphasized its point by quoting from the billboard industry's 
own marketing material (``Outdoor: It's not a medium, it's a large''), 
``You can't zap it. You can't ignore it * * * It asks little time, but 
leaves a long impression.'' The comment stated that the same 
publication notes, ``Outdoor is right up there. Day and night. Lurking. 
Waiting for another ambush.''
---------------------------------------------------------------------------

    \204\ Levin, G., ``Poll Shows Camel Ads are Effective With Kids; 
Preteens Best Recognize Brand,'' Advertising Age, p. 12, April 27, 
1992.
---------------------------------------------------------------------------

    One tobacco company presented evidence of the effectiveness of 
billboards in bringing tobacco advertising to children. RJR, in its 
comment on the 1995 proposed rule, as stated in section VI.D.3.d. of 
this document, attached a study conducted for it to test children's 
recognition of advertising characters and slogans (Roper Starch study). 
This study involved 1,117 children 10 to 17 years of age, with 86 
percent of them recognizing Joe Camel using aided and unaided recall. 
When asked where they had seen Joe Camel, 51 percent said on 
billboards. \205\ That amount of recall shows that billboards represent 
a very effective advertising medium and belies the industry's assertion 
that billboards are not an effective source of advertising information 
for children.
---------------------------------------------------------------------------

    \205\ ``Advertising Character and Slogan Survey,'' pp. 10, 22.
---------------------------------------------------------------------------

    Finally, one comment from a public interest group warned that, the 
more complex a rule is, the more difficult enforcement becomes. It 
stated that spacing limitations, such as the proposed 1,000-foot zone 
around schools, begs a series of questions, for example: How is that 
distance measured, from what point to what point. It stated that these 
questions would make it virtually impossible for citizens to play an 
active role in enforcing this rule. The comment stated that without 
citizen participation, billboard control is extremely difficult, and 
that this situation has, in fact, contributed to the industry's 
disregard for local and State billboard control laws.
    The agency finds that the comments, as well as the evidence spelled 
out in the 1995 proposal, have provided ample support to establish that 
outdoor advertising has a significant impact on children and 
adolescents. While the comments have presented significant evidence in 
support of a ban on all outdoor advertising, the agency is not 
convinced that a ban or a restriction on tobacco advertising of more 
than 1,000 feet would be appropriate. As discussed elsewhere in this 
document, the agency is requiring that all permissible outdoor 
advertising be in a black and white, text-only, format. Therefore, some 
of the concerns raised by the comments requesting a complete ban on 
outdoor tobacco advertising or of expanding the ban are addressed by 
that provision. Moreover, the agency's regulations are an attempt to 
balance the rights of adults to receive information about a legal 
product with its desire to protect children from the unavoidable appeal 
of advertising. Thus, although the line could be drawn elsewhere, the 
agency finds that the 1,000 feet limitation should ensure adequate 
protection from visible advertising where children spend a significant 
amount of time but will permit adults to get information.
    (41) One comment stated that FDA's action violated the APA because 
the agency offered no evidence in support of its claim that children 
spend a great deal of time in areas as far as 1,000 feet from the 
places specified in Sec. 897.30(b). It added that the justification for 
text-only advertising undercuts FDA's justification for its 1,000-foot 
ban.
    Another comment stated that although tobacco product advertising is 
disseminated through a broad spectrum of media, outdoor advertising is 
the only such medium that is subject to additional specific 
prohibitions under the 1995 proposed rule beyond the

[[Page 44506]]

prohibitions applicable to all tobacco product advertising. It stated 
that the record does not contain evidence that would establish either 
that these prohibited outdoor advertising signs are viewed more often 
by minors than other advertising media, or that outdoor advertising in 
general has a greater impact on minors than other media. There is 
nothing, the comments argued, that indicates that the mandatory content 
restrictions and affirmative disclosure requirements imposed by the 
proposal would be less effective in outdoor advertising of tobacco 
products than when such an advertisement is placed in a rock and roll 
magazine, or in an exempt publication with 1 million adolescent 
readers.
    One of the comments stated that because the text-only requirement 
itself is intended to render the advertising unattractive to young 
people, the additional ``protection'' offered by the 1,000-foot rule 
would be wholly gratuitous.
    Several comments argued that there is no proof that this additional 
area of ban will reduce any teenager's desire to use tobacco: a desire 
that has withstood the ban of TV and radio advertisements and a massive 
educational program. The comment stated that the 1,000-foot rule seems 
particularly gratuitous in view of the fact that it would ban 
advertising that FDA, by virtue of its proposed text-only requirement, 
already has stripped of the features FDA deems make it appealing to 
young people.
    FDA disagrees with these comments. The agency's bases for the text-
only requirement for billboards and for the 1,000-foot ban are 
reasonable and supportable, and they are not in conflict. The text-only 
format requirement will reduce the appeal of cigarette and smokeless 
tobacco product advertising to persons younger than 18 years of age 
without affecting the information conveyed to adults (60 FR 41314 at 
41335). It is an attempt to narrowly tailor the restriction by 
balancing the need to restrict advertising's appeal to children with 
the preservation of the informational function of advertising for 
adults.
    The prohibition on outdoor advertising within 1,000 feet of schools 
and playgrounds is designed to address a different problem. The concern 
is not the appeal of the advertising. If the problem were only appeal, 
the 1,000-foot restriction would not be necessary because the text-only 
requirement would eliminate this concern. The concern is the nature of 
billboards themselves. Billboards near schools and playgrounds ensure 
that children are exposed to their messages for a prolonged period of 
time. As the Supreme Court recognized in Packer Corp. v. Utah, 285 U.S. 
105, 110 (1934), billboards are seen without the exercise of choice or 
volition, and viewers have the message thrust upon them by all the arts 
and devices that skill can produce. This is particularly true of 
billboards that are readily visible (i.e., within 1,000 feet) when 
children play or study at a playground or school, places where by 
design children spend a lot of time, or when children walk to and from 
a school or playground. Confronted daily and unavoidably with the 
advertised message, even in text-only, a child gets a sense of 
familiarity, normalcy and acceptability of the message and the product 
that is advertised.
    (42) Several comments stated that placing a circle with a radius of 
1,000 feet drawn from the perimeter of each school and playground would 
establish a ``forbidden zone'' that would be at least 2,000 feet in 
diameter (i.e., over one-third of a mile). They stated that in many 
communities, this would be tantamount to a de facto ban, for there 
would be virtually no outdoor location that could escape the rule's 
prohibition.
    Several comments pointed out that even if advertisers wanted to 
disseminate advertisements on billboards that complied with the FDA 
proposal, there would be virtually no locations where such outdoor 
advertising signs could be located in some cities. They submitted 
results of computer assisted surveys of nine cities showing the areas 
where outdoor advertising of tobacco products would be allowed under 
the 1995 proposal. The survey showed that outdoor tobacco advertising 
would be prohibited in 94 percent and 78 percent of the respective land 
mass of Manhattan and Boston under the proposal. The comment stated 
that this range approximates the high and low percentages that could be 
anticipated in other metropolitan areas in the United States. Moreover, 
when it correlated the data collected from the study and other data 
regarding the actual location of billboards, the comment found that, 
even under the most expansive view, not a single billboard in Manhattan 
(including the commercial corridor of Times Square), and no more than 
24 actual billboard locations in the entire city of Boston, would be 
permitted to display tobacco advertisements.
    The comment stated further that even if the rule permits a few 
locations where tobacco advertising would be allowed in a given 
municipality, there is no commercial utility in a limited number of 
outdoor advertising signs where the location of the advertisement is 
dictated by the 1,000-foot rule, rather than by market demographics and 
vehicle circulation. According to the comments, these latter factors 
are what actually control billboard placement. It concluded that, as a 
practical matter, FDA's proposed outdoor advertising restrictions would 
eliminate billboards as a medium for tobacco advertising even in those 
jurisdictions where a small number of such signs theoretically would be 
available.
    FDA has carefully considered the possibility that its restrictions 
effectively outlaw outdoor advertising in most urban areas. The agency 
has concluded, however, that if this situation comes to pass, it would 
be a consequence of the density of population in cities. FDA's intent 
in adopting Sec. 897.30(b) is to restrict the accessible and intrusive 
communication of information about cigarettes and smokeless tobacco to 
children and adolescents at school and at play. It was not to provide 
for distances that would have the effect of banning outdoor signs from 
urban areas. By limiting the restriction to 1,000 feet, FDA has tried 
to make it no more extensive than necessary to achieve its intended 
end. FDA has considered the cost of its restriction but concludes that 
a narrower restriction would not adequately advance its purpose of 
protecting young people from unavoidable advertising in settings in 
which they are essentially a captive audience.
    The 1,000-foot restriction on outdoor advertising will serve to 
remove what has been shown is an effective means for tobacco companies 
to communicate with young people in a direct and unavoidable manner. 
Eliminating such billboards will thus mean eliminating a means by which 
the industry has influenced young people to engage in tobacco use 
behavior. Therefore, the agency concludes that Sec. 897.30(b) is a 
necessary part of its effort to reduce underage use of tobacco 
products.
    Several comments from the tobacco industry and from retailers 
pointed out that Sec. 897.30(b) would prevent retail establishments 
within the 1,000-foot zone from informing potential customers that 
tobacco (or particular brands thereof) are available for purchase 
therein and at what prices. These comments stated that this restriction 
not only would hurt the retailers but would increase, in turn, the

[[Page 44507]]

search costs for adult smokers. The comments stated that retailers in 
the small slivers of a city in which outdoor advertising would continue 
to be permitted would be afforded an unfair competitive advantage.
    One comment added that convenience stores located within 1,000 feet 
of a school or playground would not even be able to put a small black 
on white placard on top of a gas pump that merely indicates the price 
of tobacco, but that a billboard across the street and located a little 
over 1,000 feet away from the same school or playground could carry the 
brand name of a tobacco product in black letters as tall as the store's 
front door. The comment urged FDA to recognize this distinction.
    The agency acknowledges that some retailers may be prohibited from 
placing advertising concerning tobacco products on or around their 
retail establishments, while others, perhaps just across the street, 
can. Any minimum distance that the agency establishes will preclude 
some retailers from outdoor advertising at their retail establishments 
but not others. However, FDA has determined that it is necessary to 
keep outdoor advertising away from areas where children are likely to 
congregate daily.
    FDA notes that the Supreme Court cases that have considered 
restrictions on speech have recognized that such restrictions may not 
be perfectly tailored, see, e.g., Board of Trustees of State University 
of NY v. Fox, 492 U.S. at 479. Thus, while in a few instances there may 
be inequities created by the line FDA has drawn, because there is a 
reasonable fit, as explained in section VI.E.1. of this document, 
between FDA's ends and the restrictions that it is adopting, these 
minor problems do not doom FDA's rule (Id. at 480).
    FDA's prohibition on signage on stores within 1,000 feet of schools 
and playgrounds will advance the agency's interest in protecting the 
health of children. Several of the studies submitted with comments 
showed that there is more signage in and around stores near schools and 
playgrounds than in stores generally. The ban on outdoor advertising 
within 1,000 feet of schools and playgrounds will ensure that signage 
near schools will be removed and thus minimize any sense of familiarity 
that would develop.
    Thus, even though the agency has carefully considered these 
comments, it concludes that it is appropriate to establish a minimum 
distance from schools and playgrounds within which all outdoor 
advertising is prohibited.
    (43) A number of comments argued that the prohibition on tobacco 
billboards within 1,000 feet of schools violates the Commerce Clause as 
recently interpreted by the Supreme Court in United States v. Lopez, 
115 S.Ct. 1624 (1995). In Lopez, the Supreme Court held that Congress 
lacked the power under the Commerce Clause to criminalize the 
possession of a gun within 1,000 feet of a school. One comment argued 
that the Congress's commerce power only permits it to regulate, for 
example, the interstate transit of advertisements, but that once the 
advertisement is within a state, it is private property and not subject 
to regulation under the Commerce Clause.
     The agency disagrees. Under the Commerce Clause, Congress may 
``regulate those activities having a substantial relation to interstate 
commerce, * * *, i.e., those activities that substantially affect 
interstate commerce.'' (See Lopez, 115 S.Ct. at 1629-30 (citation 
omitted).) As the Supreme Court noted in Lopez, ``the possession of a 
gun in a local school zone is in no sense an economic activity that 
might, through repetition elsewhere, substantially affect any sort of 
interstate commerce'' (Id. at 1634; see also id. at 1640 (Kennedy, J., 
concurring)). As all advertising is inherently commercial in that it 
proposes a sale, the placement of tobacco billboards in a local school 
zone is economic activity that does substantially affect interstate 
commerce because it affects the demand for tobacco and smokeless 
tobacco. That the advertisements are private property after 
transportation in interstate commerce does not alter this analysis. 
Indeed, ``[a]ctivities conducted within State lines do not by this fact 
alone escape the sweep of the Commerce Clause. Interstate commerce may 
be dependent upon them.'' (See United States v. Rock Royal Co-op., 
Inc., 307 U.S. 533, 569 (1939); see also Wickard v. Filburn, 317 U.S. 
111, 127-28 (1942) (holding that, under Commerce Clause, Congress could 
control farmer's production of wheat for home consumption because 
cumulative effect of such consumption by many farmers might alter 
supply and demand in interstate wheat market).) As such, regulation of 
the placement of billboards advertising tobacco products does not 
violate the Commerce Clause. \206\
---------------------------------------------------------------------------

    \206\ Moreover, cigarettes and smokeless tobacco products are 
nicotine delivery devices. Congress plainly provided for medical 
devices to be federally regulated as indicated by the provision 
allowing seizure of devices without proof of interstate shipment 
(section 304 of the act) (21 U.S.C. 334)) and by a presumption that 
devices are in interstate commerce (section 709 of the act (21 
U.S.C. 379)).
---------------------------------------------------------------------------

    (44) A number of comments argued that Sec. 897.30(b) would violate 
the First Amendment. These comments argued that, given the requirement 
for black text-only on a white background, the restriction on 
billboards within 1,000 feet of schools and playgrounds would not 
directly and materially advance a substantial government interest. The 
comments also argued that the billboard restriction could not be 
considered to be narrowly tailored. One comment from a public interest 
group, however, argued that FDA's proposal is fully constitutional 
because it is much more limited than the restrictions on billboards 
upheld in Penn Advertising v. Mayor and City Council of Baltimore, 63 
F.3d 1318 (4th Cir. 1995) vacated, remanded 64 U.S.L.W. 3868 (U.S. July 
1, 1996), and Metromedia, Inc. v. San Diego, 453 U.S. 490 (1981). The 
comment pointed out that in Metromedia, Inc., the Supreme Court held 
that the City's interest in traffic safety and aesthetics were 
sufficient to justify a ban on commercial outdoor advertising (453 U.S. 
at 551, n. 23). Here, the comment said, the interest that FDA has 
asserted is more weighty.
    FDA disagrees with the comments that argued that Sec. 897.30(b) 
violates the First Amendment. As explained, this restriction does 
advance FDA's interest beyond what is accomplished by the text-only 
restriction. As explained in sections VI.B. and VI.D. of this document, 
the regular exposure of children to tobacco advertising, even in text-
only form, builds a sense of familiarity and acceptability that, 
reports and studies say, contributes materially to the decisions of 
young people to experiment with and use tobacco products. Thus 
restrictions that eliminate such exposure will eliminate one factor 
that contributes to the process by which children and adolescents 
decide to smoke or use smokeless tobacco and, consequently, will 
directly advance FDA's interest.
    Moreover, the restriction that FDA is adopting is narrowly tailored 
to advance its interest. FDA's concern is with the advertising that can 
be seen from schools and playgrounds, the place at which children and 
adolescents spend a significant amount of time each day. Three blocks 
or 1,000 feet is about the distance at which signs are readily visible. 
Thus, FDA has restricted outdoor advertising within this distance of 
schools and playgrounds.

[[Page 44508]]

    The result of FDA's restriction is that children will not be 
confronted with tobacco advertising as they study and play, and thus 
there will be a corresponding reduction in the ability of tobacco 
advertisers to create the impression of acceptance and familiarity that 
is influential with youngsters. Consequently, there is a reasonable fit 
between FDA's interest in protecting the health of children and the 
restriction on outdoor advertising that it is adopting (see City of 
Cincinnati v. Discovery Network, Inc., 507 U.S. at 416; Board of 
Trustees of State University of New York v. Fox, 492 U.S. at 480).
    Thus, FDA concludes that, in fashioning the restriction on 
billboards, it has fully met its obligations under the First Amendment.
    In summary, FDA finds that Sec. 897.30(b) will contribute in a 
direct and material way to reducing underage tobacco use. The evidence 
establishes that billboards are one of the most effective forms of 
advertising for young people, and that their elimination near schools 
and playgrounds will directly and materially advance FDA's goals.
    Studies--A Roper Starch survey submitted by R. J. Reynolds found 
that billboards were the most mentioned source of information about Joe 
Camel for children (see section VI.D.3.d. of this document), and a 
study conducted for Advertising Age (April 27, 1992) discussed in this 
section showed that 46 percent of children 8 to 13 and 34 percent of 
children 14 to 18 said that billboards are a predominant form of 
advertising for tobacco.
    Advertising Theory--Billboards near schools and playgrounds give 
the child a sense of familiarity, normalcy, and acceptability of the 
message on the product. Therefore, regulation of the format and even 
the location of some billboards and other outdoor signs within 1,000 
feet of a school or playground, is essential. As discussed in this 
section, comments submitted in this rulemaking include photographs that 
evidence the intrusive effect of billboards and signage around schools 
and playgrounds.
    Evidence of Children's Visual Range--Data provided by a professor 
of biophysics and optometry, detailed in this section, support a 
finding that 1,000 feet is an appropriate distance to remove signage 
that would be visible and readable to students.
    Congressional Finding--As detailed in this section, Congress 
mandated a 1,000 foot drug free zone around schools and playgrounds 
(Controlled Substances Act (21 U.S.C. 860)) as an appropriate area in 
which to protect young people from drug dealing near schools and 
playgrounds.
    Finally, the agency has tailored the ban as narrowly as possible by 
defining playgrounds narrowly and, as noted above, by restricting the 
area of the ban to that consistent with children's visual range.
4. Section 897.32(a)--Text-Only Format
    Under proposed Sec. 897.32(a), cigarette and smokeless tobacco 
product labeling and advertising, as described in Sec. 897.30(a) and 
(b), would be required to use black text on a white background and 
nothing else. The agency tentatively concluded that this text-only 
requirement would reduce the appeal of cigarette and smokeless tobacco 
product labeling and advertising to persons younger than 18 years of 
age and preserve advertising's informative aspects--that is, to provide 
useful information to consumers legally able to purchase these 
products.
    In response to comments, the agency has decided to permit another 
exception to the requirement that all permissible advertising appear in 
text-only. Thus, it has created an exception for advertising in adult 
facilities that meet the criteria of Sec. 897.16(c)(2)(ii) provided the 
advertising is affixed to the wall or fixture in the facility and is 
not visible from outside the facility. FDA has added this provision, as 
paragraph (a)(1) of Sec. 897.32 and renumbered the exception for adult 
publications as Sec. 897.32(a)(2)(i) and (a)(2)(ii).
    Several comments suggested that FDA should provide an appropriate 
definition of ``text-only'' for permissible audio and video 
advertising, specifically static black text on a white background with 
no music or sounds. Therefore, proposed Sec. 897.32 has been revised in 
consideration of comments received. A new Sec. 897.32(b) has been added 
to provide guidance for audio/video advertising. Proposed 
Sec. 897.32(b) has been redesignated as (c), and proposed 
Sec. 897.32(c) and (d) have been eliminated. New Sec. 897.32(b) has 
been added to provide explicit format requirements for one form of 
permissible advertising that had been left out of the proposed 
regulation. \207\
---------------------------------------------------------------------------

    \207\ In addition to the substantive changes made to 
Sec. 897.32, the following changes in language have been made: (1) 
Addition of ``Except as provided.* * * section,'' to Sec. 897.32(a); 
(2) addition of ``any'' to Sec. 897.32(a); (3) amended language in 
Sec. 897.32(a)(2) starting with ``any publication'' and ending with 
``an adult publication'' and, in the last sentence, ``an adult 
publication,''; (4) two changes to Sec. 897.32(a)(2)(i) ``younger 
than 18 years of age'' and ``15 percent or less''; and (5) deletion 
of ``labeling'' from Sec. 897.32(c).
---------------------------------------------------------------------------

    Many comments were received specifically addressing the text-only 
proposal. That children and adolescents should not use tobacco products 
was the one point of agreement among them. However, many comments from 
adult smokers and nonsmokers, retailers, tobacco farmers, elected 
officials, and the tobacco, advertising, newspaper, and magazine 
industries strongly objected to the text-only requirement. Their major 
objections were that: (1) Cigarette advertising does not cause young 
people to start smoking; (2) the proposed advertising restrictions 
would violate the First Amendment; and (3) the restrictions would have 
the effect of a virtual ban on cigarette advertising. Some comments 
expressed the concern or suspicion that FDA was using this proposal, 
ostensibly directed at minors, as a pretext to try to ban cigarette 
advertising generally.
    In contrast, nearly three-quarters of the comments--mostly from 
parents, teenagers, public health officials, teachers, doctors, public 
interest groups, medical organizations, and some individuals in the 
advertising business--supported the proposal for text-only 
advertisements. The major reason presented for their support was the 
need to eliminate the appeal for tobacco that the advertising creates 
among children and adolescents. Some supporters urged even stronger 
action such as a total ban on all tobacco advertising. Some comments 
expressed the opinion that even though the proposed regulations may 
also affect adults, any resulting reductions in smoking by adults would 
not necessarily be bad.
    (45) A number of comments questioned the validity of the evidence 
cited by FDA as support for the proposal. Many of these comments came 
from groups representing the tobacco, advertising, and publishing 
industries. These comments argued that there is no evidence that 
advertising with color and images encourages use of tobacco by minors 
or that advertising converts nonsmokers or nonchewers into smokers or 
chewers. Moreover, these other comments argued that there is no 
evidence that limiting advertisements to text-only is essential to 
reduce youth smoking and that there is no evidence that black and white 
text will reduce underage smoking.
    In contrast, a number of supportive comments stated that the 
evidence cited by FDA, as well as studies published

[[Page 44509]]

since the proposal, demonstrate the special susceptibility of children 
and adolescents to pictures, cartoons, photographs, other graphic 
images and colors.
    Specifically, many comments observed that the appearance of Joe 
Camel in traditional advertising forums (magazines, billboards) 
attracts children and adolescents. One child wrote that his father gave 
him two sports magazines. ``There were eight smoking ads in them * * * 
the last one had two pictures of Joe Camel smoking. This can attract 
kids to start smoking.''
    Studies cited in the preamble to the 1995 proposed rule and in 
section IV.B. of this document, demonstrate the impact that images and 
colors, cartoons, and pictures and other graphic material have on 
children and adolescents. This does not mean that the same 
characteristics of advertising do not appeal to or affect adults. 
However, the effect of these techniques on children and adolescents is 
magnified because of their usual level of involvement in advertising as 
in everything else. \208\ As detailed more fully in section VI.B. of 
this document, children and adolescents respond to stimuli that 
interest them, and that provides them with information that is 
important. Young people do not have the information processing skills 
that adults possess, and as a result more often than not, the 
information that is relevant to them comes in the form of images and 
colors rather than with a lot of words. This fact provides an 
explanation why 86 percent of children and adolescents smoke the three 
most heavily advertised brands (all are promoted with attractive 
imagery), even though they are generally price sensitive. \209\ Adults 
buy generic products for price reasons or low tar brands for health 
concerns. \210\ Advertising's colorful images are not as relevant to 
them as cost. Given these factors, FDA finds that the text-only 
requirement will significantly reduce the appeal of cigarette and 
smokeless tobacco advertising to young people and reduce its influence 
on them.
---------------------------------------------------------------------------

    \208\ One such study tested the effect of different forms of 
advertising on children and found that they preferred pictures to 
text-only. (See Huang, P. P., D. Burton, H. L'Howe, and D. M. Sosin, 
``Black-White Differences in Appeal of Cigarette Advertisements 
Among Adolescents,'' Tobacco Control, vol. 1, pp. 249-255; 1992.)
    \209\ ``Changes in the Cigarette Brand Preferences of Adolescent 
Smokers--United States, 1989-1993,'' in MMWR, CDC, DHHS, vol. 43, 
pp. 577-581, 1994.
    \210\ Teinowitz, I., ``Add RJR to List of Cig Price Cuts,'' 
Advertising Age, pp. 3, 46, April 26, 1993.
---------------------------------------------------------------------------

    (46) Many comments, especially from the magazine, newspaper, 
advertising, and tobacco industries, stated that the proposal will 
operate as a virtual ban on most types of cigarette and smokeless 
tobacco advertisements. These comments argued that the text-only format 
requirement will eliminate tobacco companies' ability to attract the 
attention of potential customers and to convey brand messages and will 
render advertising invisible to adults. Therefore, tobacco advertisers 
would be far less likely to advertise in the text-only format. Also, 
not having a clear standard for when the text-only requirement applies 
(see also definition of adult publication) will cause tobacco 
advertisers to avoid more publications than may be necessary to ensure 
that they do not violate the rule. Many of these comments also argued 
that advertising would become ineffective. One comment said that 
advertising that passes unnoticed amounts to no advertising at all. 
This comment also asserted that, as a result of the text-only proposal, 
no viable alternative channels of communication would exist.
    Comments from the tobacco and advertising industry suggested that 
the advertising industry would suffer revenue, profit, and job losses 
as a result of the text-only format; employees involved in graphics 
arts would especially be affected; and suppliers providing services and 
products to advertising agencies would also be adversely affected.
    A number of comments supporting the proposal recommended a total 
ban on all tobacco advertising. Many comments stated that a ban on all 
tobacco advertising and marketing would be reasonable because the 
tobacco industry will use any available loopholes to market tobacco 
products and will test any partial ban.
    Tobacco companies will be able to continue advertising in most of 
the same forums in a text-only format. Advertising with colors, 
pictures, and graphics will still be allowed in adult publications. 
Tobacco advertisers will still be able to convey information to adults 
about taste, price, and product development using text-only 
advertising. Many current advertisements for low tar cigarettes rely 
heavily on text formats.
    The agency is not limiting fonts, font styles, or size of type 
because it believes that the tobacco industry and its advertising firms 
can use their creativity with a variety of print formats to produce 
text-only advertising that will effectively communicate their messages, 
including brand messages, to adults. However, the agency is also 
convinced that print advertising, no matter how creative, will not be 
able to provide the attractive imagery that young people look for in 
advertising to explain the importance of a product to them, e.g., what 
to wear, whom to hang out with, how to look cool (see discussion of the 
importance of color and imagery in the introduction to this section).
    Moreover, although the restriction to text-only advertisements may 
tend to solidify market position, it will not give any one company new 
competitive advantage over another since all companies must play by the 
same rules. Thus, the economic impact of the rule on the advertising 
business will be mitigated by a shifting of resources to create new 
advertising in compliance with the rule and to advertising for other 
businesses (see section XV. of this document entitled ``Analysis of 
Impacts'' for more information).
    The agency does not support a total ban on all tobacco advertising 
as was suggested by a number of comments. The agency has been able to 
tailor the restrictions that it is adopting, by requirements such as 
the text-only advertisements requirement, to eliminate the appeal of 
tobacco advertising for children and adolescents while still allowing a 
means for companies to communicate with adult tobacco users. The use of 
text-only will mean that there can be continued advertising that is 
less likely to attract young people but that can convey information to 
adults.
    (47) Several comments stated that limiting point of sale 
advertising to text-only would effectively ban point of sale 
advertising and impair retailers' ability to market tobacco products to 
adult customers.
    Many comments noted the places one sees (and placement of) Joe 
Camel at point of sale, the nature of the items on which his image 
appears, and his ubiquitousness in and around stores, as evidence of 
the intent of at least one tobacco company to try to attract young 
people. A physician commented that he:
    recently was returning from an evening [of] helping to care for 
[a] patient who was dying of emphysema [a lung ailment caused by 
cigarette smoking]. I decided to stop at a convenience store * * * I 
was confronted with no less than 14 advertisements for cigarettes. 
From the Camel Joe sign beckoning in the parking lot * * * a 
customer is bombarded with ads urging them to buy cigarettes.
    Another comment stated that ``advertisements on convenience store 
doors are placed well below adult eye-level and features such popular 
advertising cartoons as Joe and

[[Page 44510]]

Josephine Camel. It seems counter-intuitive to assume that such 
advertising is intended for adults.'' Another comment stated, ``Tobacco 
companies say they do not want to entice our children to smoke, then 
why are Joe Camel ads above the candy counters?'' One comment noted 
that at a major retailer near the commenter's neighborhood, Joe Camel 
posters are right behind an exhibit of pogs, a popular children's 
collectible toy.
    Manufacturers and retailers are not prohibited from promoting 
tobacco products at the retail level. Adult consumers looking for price 
and product information about cigarettes and smokeless tobacco will be 
able to find that information by searching even without the images to 
attract them. Text-only point of sale advertising, like magazines or 
billboards, will be effective in communicating this information. Thus, 
FDA is not banning point of sale advertising.
    While text-only point of sale advertising can be effective with 
adults, it will have less allure and be less appealing to children and 
adolescents. Children and adolescents, who are less willing to process 
print information in a leisurely setting (such as reading a magazine), 
will not find textual material appealing in the momentary time setting 
of a retail purchase.
    (48) A comment from an advertising industry association stated 
that:
     * * * FDA's prohibition on all direct mail promotion of tobacco 
products except for ``tombstone'' messages * * * is even more 
onerous than that imposed on publications, since at least some 
publications will be permitted to carry non-tombstone advertising. 
The disparate treatment of direct mail exposes the real purpose of 
the FDA to censor messages to adults, because that medium by 
definition can be addressed to a specific audience, i.e., adults, 
with little risk of inadvertent viewing by minors.
This comment also noted that this form of direct advertising is not 
insignificant to the industry and given the small likelihood of youth 
access to it, should not be severely restricted. The comment noted that 
total industry spending on direct mail advertising was $33 million in 
1993.
    Some comments from mail-order firms noted that the text-only 
requirement would adversely affect catalogs for tobacco and related 
products, making them less appealing and less effective for marketing 
to adult smokers. One comment from the owner of a small (55 employees) 
tobacco products manufacturing business said the text-only requirement 
for its catalog, along with several other aspects of the 1995 proposed 
rule, would destroy his business:
    It offends me as a good American running a clean, honest 
business that a cadre of bureaucrats in Washington, DC would propose 
a rule that could ruin my life's work. FDA has given no more thought 
to the impact on my business than I might give to swatting a 
mosquito.
    A supportive comment stated that the tobacco industry has made 
increasing use of direct mail promotions, including contests, 
questionnaires, coupons, offers, and even birthday cards. It stated 
that no company can be certain its mailing lists do not include minors. 
In a 1993 survey of 12 to 17 year olds, 7.6 percent indicated they had 
received mail personally addressed to them from a tobacco company. This 
could project out to 1.6 million persons aged 12 to 17. This comment 
noted that a major tobacco company sent free packs of cigarettes to 
people on its mailing list as a holiday present ``from the Camel 
family'' and has not changed its practice despite the fact that as many 
as 1.6 million 12 to 17 year olds could be on tobacco company mailing 
lists.
    Direct mail is a high involvement medium, that is, it requires the 
recipient to study the text in order to get the central message. In 
those circumstances, text-only can be effective with recipients who 
have an interest in the offer. There is less of a need to attract a 
consumer's attention with a direct mail promotion, including a catalog, 
than with a point of sale or magazine advertisement. A consumer opening 
a direct mail promotion he/she is interested in is in a high-
involvement mode and is prepared to read the enclosed material and 
catalog. Although the material may be more easily ignored, current 
tobacco users who want to buy by direct mail can get the information 
from textual material.
    Mailings in text-only to current customers and to other adult 
smokers are permitted under the rule. On the other hand, if a direct 
mail promotion or catalog is seen by a child, the text-only format 
would make it much less appealing and less interesting. This is 
especially important since there is evidence that as many as 1.6 
million children aged 12 to 17 receive direct mail tobacco promotions. 
Thus, text-only direct mail is important to accomplish the purpose of 
this rulemaking. Moreover, contrary to being censorship, as some 
comments stated, the text-only format for direct mail will allow 
advertisers to send adults an encyclopedia of information about any 
aspect of smoking or tobacco products while protecting children from 
the effects of advertising.
    Although direct mail catalog advertising will be less interesting, 
sales should only be minimally affected. As the final rule does not 
include a prohibition on mail-order sales, the only restriction will be 
the text-only format. In addition, this should be less of an impediment 
than a total ban to small mail order company owners such as the 
commenter.
    This compromise represents the agency's attempt to narrowly tailor 
its rule. Based on comments received from the industry, most mail-order 
customers purchase tobacco products for price, convenience, and 
uniqueness and to stockpile a long term supply. The agency believes 
that creative and effective advertising for adults can be designed in 
the text-only format for catalogs, especially for catalogs targeted to 
consumers purchasing tobacco products for these reasons. Therefore, FDA 
is not exempting direct mail promotion of tobacco products from the 
text-only requirement.
    (49) One comment suggested that FDA create an exception for direct 
mail similar to that for publications. The comment said that direct 
marketers can target mailings so that children and adolescents are 
protected to, at the very least, the same degree that the regulations 
provide for the publishing industry.
    FDA has considered this request but finds that it cannot grant it. 
The agency based the threshold for publications on the ground that 
publications with youth readership of less than 15 percent are not of 
interest to young people and thus would be unlikely to be read by them. 
The same cannot be said of direct mail advertisements that come 
addressed with the child's name on it. (As explained in this section, 
surveys show that a significant portion of tobacco direct mail 
advertising is sent directly to individuals under the age of 18.) The 
appearance of the child's name in the address will cause the child to 
look at the advertisement and thus will cause the message to be thrust 
on the child in a manner similar to messages on billboards or point of 
purchase (see Packer Corp. v. Utah, 285 U.S. 105, 110 (1934)). Thus, 
direct mail advertising is more similar in nature to billboards and 
point of purchase advertising than are publications. Consequently, as 
with the former types of advertising, FDA has concluded that to reduce 
the appeal of direct mail advertising to those youngsters who view it, 
it is appropriate

[[Page 44511]]

to require that this type of advertising be in the text-only format.
    (50) A few comments said that in the same way the agency attempted 
to carve out an exception for publications with primarily adult 
readers, it should permit a similar exception for advertising in bars, 
clubs, etc., with customers over 21 years of age.
    The agency agrees with these comments. The agency recognizes the 
need to precisely tailor its regulations and thus, has created an 
exception for advertising in adult only (18 years of age and older) 
facilities permitted to sell tobacco products from vending machines and 
self-service under Sec. 897.16(c)(2)(ii). These facilities, which are 
required to ensure that no one under the age of 18 is present, or 
permitted to enter, the facility at any time, may display permissible 
advertising, i.e., with color and imagery, provided that the 
advertising is not visible from outside the facility and is affixed to 
a wall or fixture within the facility. These conditions will ensure 
that the advertising does not become a surrogate for outdoor 
advertising and is not carried from the facility.
    (51) The agency received some comments from opponents and 
supporters of the 1995 proposed rule that stated that this provision 
might be counterproductive and result in increased demand for 
cigarettes and smokeless tobacco by minors. One comment from an 
association of advertising agencies stated that a reduction in spending 
on cigarette advertising, resulting from the proposal, could make 
cigarettes less expensive and increase demand for these products. In 
contrast, another comment from a tobacco company stated that reduced 
competition due to the text-only restrictions could lead to price 
increases for some brands which would harm the adult purchasers of 
those brands.
    Some comments stated that the health warnings in cigarette 
advertising would become less effective in the proposed text-only 
format. This consequence could result in fewer people giving up smoking 
because of information in the health warnings. Some comments argued 
that the text-only format might actually attract more attention from 
minors because these advertisements would be so different from most 
advertising.
    The agency finds that, on balance, the evidence does not support a 
conclusion that the text-only requirement will be counterproductive. 
This finding is based in part on the contradictory comments regarding 
the price of cigarettes. Some comments from the advertising industry 
argued that tobacco companies would use the savings from doing less 
advertising to reduce the price of cigarettes, which would increase 
demand especially among young people who are price sensitive. Other 
comments from the tobacco industry argued that the requirement would 
reduce competition, which could lead to higher prices for adult 
consumers. This conflict points out the speculative, and therefore 
unconvincing, nature of the claims that the restrictions will be 
counterproductive.
    Also, despite concerns expressed by the tobacco industry and others 
that the text-only format would make the Surgeon General's health 
warning less effective, there is evidence from the focus groups 
conducted by the agency that this warning is not very effective with 
young people now. \211\ The text-only format will not interfere with 
the ability of the Surgeon General's warning to warn adults of the 
health hazards of smoking. This format will, however, reduce the appeal 
to young people that advertising creates and therefore will lessen the 
need for the warning for young people.
---------------------------------------------------------------------------

    \211\ Focus group report in administrative record, December 1, 
1995, 60 FR 61670.
---------------------------------------------------------------------------

    The agency has considered the concern of some comments that the 
text-only format will be so unlike most advertising that young people 
will be attracted to it. Whatever attraction the novelty has for young 
people, the agency has concluded that it should be less than the 
attraction of the current imagery in tobacco advertising.
    (52) A number of comments, especially from the tobacco industry, 
expressed concern about the 1995 proposed rule's adverse impact on 
competition. Many comments stated that advertising is critical to 
competition, brand choice, and product innovation. Comments from the 
tobacco industry stated that the primary purposes of its advertising 
are to promote brand competition and to maintain brand loyalty. Many of 
these comments argued that the text-only format would stamp out 
competition and freeze market shares. Some comments also stated that 
the 1995 proposed rule would serve as a barrier to new and improved 
products and product innovation, especially to products like lower tar 
cigarettes.
    Although all firms will be subject to the same rules, some firms 
may still gain an advantage by dominant market position or by being 
more creative in their text-only advertising or more effective in their 
placement of advertising. Tobacco companies will still be able to 
advertise in virtually all the same forums they use now, but companies 
may gain competitive advantages by developing new marketing techniques 
aimed at adults that are within the rules. All industries have to adapt 
to changing competitive circumstances, whether caused by government 
regulations, demanded by the public, self-imposed as in professional 
sports, affected by international competition and changing 
technologies, or in reaction to changes in consumer preferences. 
Creative companies can succeed by adapting better than their 
competitors within the new framework.
    Additionally, these advertising restrictions could make it more 
difficult for a new competitive tobacco company to be formed and to 
enter the market. But, there are much greater barriers to entry for a 
new firm in terms of the nature of the tobacco business, capital 
requirements, and the existing large firms already in the business. 
Nevertheless, to the extent that the regulations do produce 
anticompetitive effects, these are outweighed by the public health 
benefits of the rule.
    Finally, information on new products and on product innovations 
need not be ``stamped out.'' This kind of information can be conveyed 
in the text-only format. One example of a new product that the tobacco 
industry claims might not have been developed if this rule had been in 
effect is the low tar cigarette. Yet advertising for low tar brands 
tends to use much more text than regular brands because the information 
is factual and specific. Therefore, the agency continues to find the 
text-only requirement to be an appropriately tailored remedy.
    (53) Comments offered differing views on the function of 
advertising. Some stated that imagery is necessary to attract and hold 
the attention of adult smokers in order to convey useful information 
about the product and to effectively differentiate brands, while others 
saw images as being too appealing to children. These latter comments 
argued that FDA's rule is seeking to regulate only the presentation of 
the advertising that attracts children (the imagery), not its content.
    One small business owner said the proposed ban on imagery would 
make established advertising logos with pictures worthless, not just 
for the major tobacco companies but also for small firms in tobacco 
related businesses. Others stated that the 1995 proposed

[[Page 44512]]

rule is not strong enough. One comment said that FDA is mistaken in 
asserting that the black and white text format removes imagery and 
emotive content from the advertisement. It said that the regulation 
should also limit the type styles, font sizes, and shapes of borders 
and letters.
    The agency continues to believe that it has created an 
appropriately tailored remedy. The tobacco and advertising industries 
argue that FDA's ban on imagery and color is overinclusive and not 
narrowly tailored. FDA disagrees, however. The restriction on the use 
of images and color preserves informational advertising because of its 
utility to adults while eliminating the aspects of advertising that are 
most attractive to young people. The agency is regulating only the 
manner in which advertising is presented, not the information contained 
in it. Also, the agency is allowing imagery in advertising in adult 
publications.
    There is undoubtedly an impact on businesses that have established 
logos, pictures, and other graphics associated with their businesses or 
products. However, all businesses are subject to the same requirements, 
and thus no one business should receive any competitive advantage.
    The agency does not agree with comments recommending restrictions 
on type styles, fonts, etc. Such a restriction on advertising is, given 
the currently available evidence, more restrictive than necessary. 
Text-only advertising should be sufficient to reduce the appeal of 
advertising based on imagery to children and adolescents, however 
creatively the text is displayed. The agency concludes that the 
elimination of imagery and color directly and materially advances its 
interest in protecting the health of young people by making tobacco 
advertising much less appealing to them and, therefore, it makes it 
less likely that they will be influenced to use tobacco products.
    (54) Several comments requested that FDA provide specific 
regulation for audio and video formats. Specifically, the comments 
requested that audio be confined to a text-only format appropriate for 
audio (words) unaccompanied by music or sound and that video be limited 
to black text on a white background only. Restrictions, such as these, 
the comments continued, would apply the spirit of the text-only format 
to these media. Finally, one comment expressed the concern that without 
these restrictions, tobacco companies might create and disseminate 
music tapes, similar to one distributed by RJR with music by ``The Hard 
Pack.'' This would, the comment stated, provide aural imagery for young 
people.
    The agency agrees that it should provide more specific guidance for 
permissible audio and video media and that this guidance should be a 
logical application of the text-only requirement. Therefore, the agency 
has amended Sec. 897.32 to add a new paragraph (b), which requires 
text-only black and white text in video advertising, which should be 
static, and text-only, no music, in audio advertisements.
    (55) Several comments challenged FDA's proposal to limit most 
advertising to the use of the text-only, black print on white 
background format on the grounds that this limitation would violate the 
First Amendment. These comments relied most heavily on three cases: 
Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), in 
which the Supreme Court struck down a restriction on the use of 
pictures in attorney advertising; Shapero v. Kentucky Bar Association, 
486 U.S. 466 (1988), in which the Supreme Court held that the State may 
not restrict lawyer solicitations to those least likely to be read by 
the recipient; and In re R. M. J., 455 U.S. 191 (1984), a case in which 
the Court struck down a requirement that lawyers use a fixed format in 
their advertising. One comment, however, argued that FDA's restriction 
is fully consistent with the First Amendment.
    In Zauderer v. Office of Disciplinary Counsel, 471 U.S. at 647, the 
Supreme Court said that ``the burden is on the State to present a 
substantial governmental interest justifying the restriction * * * and 
to demonstrate that the restriction vindicates that interest through 
[narrowly tailored] means.'' \212\ FDA will apply this test here.
---------------------------------------------------------------------------

    \212\ Zauderer actually states ``* * * through the least 
restrictive available means.'' However, in Board of Trustees of 
State University of N.Y. v. Fox, 492 U.S. at 479-481, the Court 
clarified this phrase as requiring narrowly tailored means.
---------------------------------------------------------------------------

    As explained in section VI.C.4. of this document, FDA has not 
merely a substantial, but a compelling, interest in the health of 
minors. It is this interest that led it to propose the restriction on 
the use of images and color in cigarette and smokeless tobacco 
advertising.
    Several comments argued, however, that the restriction on images 
and color do not further FDA's interest. These comments argued that 
there is no evidence that the use of color and images in advertising 
increases tobacco use among young people.
    FDA has fully addressed this assertion. The available evidence 
demonstrates that pictures and colors have particular appeal to 
children and adolescents under 18 years of age, and that they are more 
important to underage individuals than other aspects of the 
advertisement. \213\ Young people pay attention to peripheral cues in 
an advertisement, such as the models that appear in them, color, and 
scenery, and it is these components that tobacco advertisers use to 
create the images that are so important to people under the age of 18. 
Thus, the restriction on images and colors will have a particular 
effect on the appeal of advertisements to young people and make these 
advertisements a significantly less effective means of communicating to 
this group.
---------------------------------------------------------------------------

    \213\ See, e.g., Petty, R. E., and J. T. Cacioppo, Communication 
and Persuasion: Central and Peripheral Routes to Attitude Change, 
Springer-Verlag, New York, 1986.
---------------------------------------------------------------------------

    (56) Several comments also argued that FDA's restriction on the use 
of colors and images is not narrowly tailored, pointing to the fact 
that the agency proposed to eliminate the use of all visual images and 
graphic designs in cigarette and smokeless tobacco advertisements.
    These comments misinterpret the rule. FDA has not restricted all 
use of color and images. FDA has provided that these mechanisms may 
continue to be used in publications with primarily adult readership and 
in adult-only establishments. The agency has endeavored to restrict as 
little speech as possible. FDA has found, however, that it could not 
limit the appeal of cigarette and smokeless tobacco advertising to the 
young if it did not restrict the use of image and color.
    Each of the cases relied upon by the comments is fundamentally 
distinguishable from the current situation. In each of these cases, the 
body seeking to restrict the advertising in question failed to present 
any evidence that the restriction was addressing an actual harm (see 
Zauderer, 471 U.S. at 648-649; Shapero, 486 U.S. at 479-80; (see also 
Florida Bar v. Went For It, Inc., 115 S.Ct. at 2378 (``Finally, the 
State in Shapero assembled no evidence attempting to demonstrate any 
actual harm caused by targeted direct mail.''); In re R. M. J., 455 
U.S. at 206). Here, in contrast, the record fully establishes the 
reality of the harm, and that FDA's interest will be directly and 
materially advanced by the

[[Page 44513]]

restriction on colors and images. For these reasons, FDA finds no merit 
to these comments.
    In summary, FDA finds that the evidence amassed during this 
investigation and provided by comments provides ample support for its 
requirement that all forms of advertising that children see and are 
exposed to can have an effect upon their attitudes about tobacco use.
    The empirical studies and surveys, expert opinion, anecdotal 
evidence, industry statements, and consensus report described in 
section VI.D.5. of this document implicate advertising as an important 
source of information for young people's attitudes about, and use of, 
tobacco products. This evidence shows that any regulation that hopes to 
be successful must be comprehensive and include some type of 
restriction upon all forms of advertising and promotions. FDA's 
regulation provides restrictions that will contribute directly and 
materially to that end but that are tailored as narrowly as possible. 
Except in the limited case of outdoor advertising within 1,000 feet of 
schools, no informational advertising will be disturbed. However, those 
aspects of advertising that have particular appeal to young people will 
be banned.
    Color and Imagery--Color and imagery are necessary ingredients for 
advertising in conditions of ``low involvement,'' such as occurs when 
skimming a magazine or seeing a billboard (see sections VI.B.1.b. and 
VI.B.1 c. of this document).
    FDA's restriction will eliminate the color and imagery but will 
permit information to be communicated. This requirement is as important 
for in-store advertising, billboards, and direct mail, as it is for 
traditional publications. As discussed in this section, young people 
get their information and product imagery from all these sources: (1) 
Point of sale advertising confronts young people when they go to make a 
purchase. The imagery is as large as life and presents the child with 
an enticement at the time when purchase is immediately available. It 
can as effectively impart information to adults with words. (2) Direct 
mail can frequently wind up in the hands of a young person or be 
addressed personally to the child or adolescent. One study found that 
7.6 percent of children 12 to 17 years questioned had received mail 
personally addressed to them from a tobacco company (1.6 million 
teens).
    Billboards--Billboards provide a major source of information about 
tobacco for young people. One study published in Advertising Age (April 
27, 1992), found that 46 percent of children 8 to 13 years old and 34 
percent of children 14 to 18 cited billboards as the predominant 
advertising medium for tobacco products (see section VI.E.3. of this 
document). The Starch Survey conducted for R.J. Reynolds found that 51 
percent of children 10 to 17 who recognized Joe Camel as a tobacco 
mascot, reported seeing him on billboards (see section VI.D.3.d. of 
this document).
    Cross-Country and International Studies--Studies described evidence 
that regulations that are stringent and comprehensive will have a 
greater impact on overall tobacco use and young people's use than 
weaker or less comprehensive ones (see section VI.D.6.a. of this 
document). The text-only requirement, while not as stringent as a ban, 
will accomplish its purpose while preserving the informational function 
of advertising.
    Finally, the regulation is narrowly tailored. It permits adult 
publications and adult locations to display advertising with images and 
colors. The agency has attempted to define these venues with as much 
precision as possible but recognizes that there may be some 
difficulties in application. It, therefore, has made it clear that it 
will work with the industry to try to establish as clear rules as 
possible. In-store, outdoor, and direct mail advertising do not lend 
themselves to such tailoring. Nonetheless, the agency is confident that 
adults seeking information about products can be adequately informed at 
time of purchase or by mail order catalogue using text-only.
5. Section 897.32(a)--Definition of ``Adult Publication''
    The preamble to the 1995 proposed rule explained that the agency 
was interested in permitting advertising in publications that are read 
primarily by adults to continue to use imagery and color. For that 
reason, under proposed Sec. 897.32(a), advertisements in publications 
with primarily adult readership would not be restricted to a text-only 
format. The agency proposed to define such publications as those: (1) 
Whose readers age 18 or older constitute 85 percent or more of the 
publication's total readership, \214\ or (2) that are read by fewer 
than 2 million people under the age of 18, whichever method ensures the 
fewest young readers. The agency defined the readership of a 
publication as the total number of people that read any given copy of 
that publication and stated in the preamble that it should be measured 
according to industry standards and, at a minimum, by asking a 
nationally projectable survey of people what publications they read or 
looked at during any given time. The preamble to the 1995 proposed rule 
noted that a reader is one who said that he or she read the last issue 
of a publication. The 1995 proposed rule provided that before 
disseminating advertising containing images and colors, it would be the 
company's obligation to establish that the publication meets the 
criteria for a primarily adult readership.
---------------------------------------------------------------------------

    \214\ This portion of the definition was edited in the final 
rule to make the two provisions parallel. Thus, Sec. 897.32(a)(2)(i) 
now reads, ``whose readers younger than 18 years of age constitute 
15 percent or less of the total readership as measured by competent 
and reliable survey evidence.''
---------------------------------------------------------------------------

    Numerous comments were received by the agency regarding the 
exception from the text-only requirement for adult publications and the 
definition of an adult publication. Comments from the newspaper, 
magazine, and advertising industries were particularly critical of the 
readership thresholds chosen for the definition of an adult publication 
and were especially concerned about whether there would be any reliable 
and practical way to determine readership levels for most publications. 
Many comments from individuals who supported the text-only requirement 
saw this exception as a possible loophole for the tobacco industry to 
escape the text-only restrictions.
    In a notice published in the Federal Register of March 20, 1996 (61 
FR 11349), the agency reopened the comment period to place on the 
public record a memorandum that provided further explanation of the 
agency's proposal to exempt publications with primarily adult 
readership from the text-only requirement. The document provided an 
additional 30 days to comment on this new information. The memorandum 
stated that the agency had selected the 85 percent per 2-million 
threshold based on the public perception that certain magazines are 
likely to be of interest to young people under the age of 18. The 
agency extrapolated from the readership percentages for those 
publications to the proposed threshold levels. Data supporting this 
line had been placed in the administrative record for the proposed rule 
(vol. 105, document 1550) and additional readership data was

[[Page 44514]]

provided during the comment period. The agency noted additionally that 
at some point the number of underage readers is so great that the 
publication can no longer be considered to be of no interest to those 
under 18, regardless of the percentage of the readership. The agency 
selected 2,000,000 as that level. \215\
---------------------------------------------------------------------------

    \215\ See section XV. of this document, Analysis of Impacts, for 
a discussion of publications that would be affected.
---------------------------------------------------------------------------

    (57) Some comments objected to the proposed readership thresholds, 
calling them arbitrary and stating that FDA provided no basis, no 
rational justification, and no evidence for them. One tobacco industry 
comment stated that it used an FTC methodology based on readership and 
the number of pages of advertising to conclude that magazines with 
greater readership by minors tend to have less cigarette advertising 
than other publications.
    Some comments also objected to the 2 million minor readers 
threshold because it would subject some adult-oriented magazines to the 
tombstone format even though their percentage of minor readers is very 
low. One comment cited the following examples and readership figures: 
People Magazine (3,020,000 minors: 7.8 percent of all readers) and 
Better Homes and Gardens (2,042,000 minors: 5.5 percent of all 
readers); Time (1,972,000 minors; 7.66 percent of all readers) and 
Newsweek (1,911,000 minors; 8.01 percent of all readers) are also close 
to the threshold. In addition, some comments suggested that FDA's 
explanation that 2,000,000 is a large number is not adequate basis for 
regulation.
    Some comments stated that the proposed thresholds were unfair to 
the up to 85 percent, or more in some cases, of a publication's readers 
who were adults. ``Such a regulation is inconsistent with the principle 
that the government may not 'reduce the adult population * * * to 
reading only what is fit for children.'''
    In contrast, comments supporting the proposal stated that just 
because the line (i.e., thresholds) could be drawn differently was not 
important as long as FDA can rationally explain why it drew the line 
where it did. One comment suggested that FDA should require the text-
only format in the 10 most read magazines by young people in addition 
to the present proposal. Some comments recommended requiring the text-
only format for advertisements in all publications.
    One comment stated that no tobacco advertising, even text-only, 
should be allowed whatsoever in publications with youth readership, and 
adult publications should have text-only tobacco advertisements. This 
comment also said that the agency should monitor this exception to 
ensure that tobacco companies don't increase advertising in national 
adult publications that are widely read by the entire family including 
children and adolescents and to be wary of tobacco companies creating 
their own adult publications saturated with tobacco advertising.
    Other comments supporting the proposal stated that some degree of 
overinclusiveness is acceptable and expected because of the 
difficulties in fine-tuning any regulation. Other comments saw any 
exception for any publications as a potential loophole that could be 
used by tobacco companies to continue using imagery in advertising. 
They said that experience in other countries with tobacco advertising 
restrictions showed that ``the tobacco industry used all of its 
creativity to manipulate the system to take advantage of whatever 
opportunities were still available to reach their target audience, 
particularly young, impressionable individuals.''
    The comments received, especially from the magazine and newspaper 
industries, made clear that both defining an adult publication and 
determining whether a particular publication meets the definition are 
difficult issues. However, while these comments were helpful in 
pointing out the difficulty of defining an adult publication, they did 
not offer any realistic alternative definition in terms of a 
readership-by-minors threshold. Because of the concern about tobacco 
use by children and adolescents, which was voiced by virtually all 
comments pro or con, the agency believes it has sufficient evidence to 
justify a text-only requirement. However, the agency's concern is with 
advertising that affects minors and with tailoring the restrictions in 
this final rule to burden as little speech as possible. Therefore, FDA 
concludes that an exception from the text-only requirement for 
publications that are read primarily by adults is still reasonable and 
feasible.
    The agency has decided to retain the exception for adult 
publications and to retain the readership thresholds in this final 
rule. The 15 percent young readers threshold is reasonable based on 
readership data submitted with comments. The 15 percent threshold would 
require text-only advertising in the following sports and racing 
magazines: Sports Illustrated (18 percent), Car and Driver (18.3 
percent), Motor Trend (22.1), and Road & Track (20.6 percent) and in 
the following general circulation magazines: Rolling Stone (18.5 
percent), Vogue (18 percent), Mademoiselle (19.7 percent), and Glamour 
(17.1 percent). \216\ The agency's judgment is based on common public 
perception that these are the types of magazines that young people 
under the age of 18 will find of interest and read. Thus, based on 
public perceptions and inductively given the nature of the magazines 
involved, FDA finds a 15 percent cut-off to be appropriate.
---------------------------------------------------------------------------

    \216\ Barents Group, LLC, citing Publishers Information Bureau 
and Mediamark Research, Inc., pp. 53-54.
---------------------------------------------------------------------------

    The 2 million number is justified based upon the agency's concern 
for young people. The agency finds that at some point, the number of 
underage readers is so great that the magazine can no longer be 
considered to not be of interest to children and adolescents under 18 
years of age. This threshold would require text-only advertising in a 
publication like People, where the percentage of readers who are minors 
is only 7.8 percent, but where the number of readers under 18 years of 
age is 3,020,000. Publications like Time, Newsweek, Family Circle, and 
Popular Mechanics, however, would not be subject to the text-only 
format under either threshold; based on how these publications are 
affected, FDA concludes that, on balance, the thresholds are 
reasonable. \217\ The agency's concern is not with the ``intended'' 
audience of the publication because there is no magic curtain between 
the interests of young adults and adolescents. The agency's concern is 
to protect children from the appeal of advertising that they cannot 
avoid. Fifteen percent youth readership or 2 million young readers 
narrowly addresses this concern.
---------------------------------------------------------------------------

    \217\ Id.
---------------------------------------------------------------------------

    The agency does not agree with comments that the rule should be 
made more restrictive by, for example, allowing only text-only 
advertising in adult publications and no advertising at all in other 
publications. The text-only format will reduce the appeal of tobacco 
advertising to young people while allowing communication of important 
information to adults. The agency will continue to monitor the effect 
on young people of text-only advertising as well as the exception 
created for adult publications and will consider taking any additional 
action that is appropriate.

[[Page 44515]]

    Finally, the agency finds no basis to the comments' concern that 
the regulations will reduce the reading level of adults to those of 
children. The agency has crafted the exception for adult publications 
specifically to minimize the effect of the regulations on adults. 
Moreover, text-only, or the absence of color and imagery, will have 
significantly less impact on adults than on young people. As discussed 
more fully in the introduction to this section, adults generally have 
more capacity to engage in high involvement search than do young 
people. Furthermore, full information will be available to them in the 
text format. The First Amendment demands no more.
    (58) Several comments recognized that FDA made the March 20, 1996, 
Federal Register document and the associated data in the record 
publicly available to meet its obligation under the APA to provide 
interested parties with an opportunity to comment meaningfully on the 
proposed rule. These comments stated, however, that one of the 
memoranda, dated March 11, 1996, placed on the public record by the 
Federal Register document makes clear that FDA had readership numbers 
in mind when it developed the proposal, but that the agency had failed 
to disclose those numbers to the public. The comments said that these 
numbers are neither reflected in the memorandum added to the record in 
the March 20, 1996, Federal Register document nor the administrative 
record that FDA has made publicly available. The comments said that the 
memorandum in question refers to readership numbers that were in 
comments submitted by the tobacco industry, and thus these numbers 
could not have been the numbers that FDA considered in developing its 
proposal. The comments said that FDA's failure to disclose this 
information rendered the proceeding arbitrary and capricious.
    These comments are in error. FDA placed the information that it 
relied upon in developing the tentative 15-percent threshold on public 
display at approximately the time that it published the proposed rule. 
The data appear at pages 95T030074-75 of the administrative record 
(vol. 105, number 1550). (The numbers are similar but not identical to 
those supplied by the industry.) As one comment pointed out, in 
Connecticut Light and Power Co. v. Nuclear Reg Com'n., 673 F.2d 525, 
530 (D.C. Cir.), cert. denied 459 U.S. 835 (1982), the United States 
Court of Appeals for the District of Columbia Circuit stated, ``In 
order to allow for useful criticism, it is especially important for the 
agency to identify and make available technical studies and data that 
it has employed in reaching the decisions to propose particular 
rules.'' The agency fully complied with this expectation by including 
the data that it had reviewed in the material that it made publicly 
available. Thus, the agency finds the claims in the comments summarized 
here to be without any basis in fact.
    (59) Several comments asserted that the memorandum added to the 
record in the March 20, 1996, Federal Register document did not provide 
a reasoned explanation for the threshold that FDA had proposed. Several 
comments argued that there is no principle in, or discernible from, the 
memorandum that leads to the choice of 15 percent, as opposed to 49 
percent, as the ceiling for the percentage of underage readers a 
publication could have and still be considered primarily adult. One 
comment said that FDA's reasoning was circular. Other comments said 
that FDA had pointed to no facts in the March 20, 1996, Federal 
Register document or the attendant memorandum that supports its 
judgment. These comments stated that FDA merely applied an arbitrarily 
chosen 15 percent figure to readership data and concluded that it had 
hit the right number. Some comments questioned why a publication with 
84 percent adult readership was problematic, while a publication with 
86 percent adult readership was not. Of all the comments that 
criticized FDA's proposed threshold, only one provided any alternative. 
This comment cited the tobacco industry's voluntary Cigarette 
Advertising and Promotion Code, Advertising 1(a), which prohibits 
advertising in publications directed primarily to those under 21 years 
of age.
    In contrast to the foregoing comments, which were from the tobacco 
and advertising industries, a comment from a coalition of groups 
concerned about smoking and health stated that the agency's tentative 
judgment was unbiased, reasonable, and narrowly tailored to meet FDA's 
stated goal of limiting the specific forms of advertising that have the 
greatest impact on children to those publications that do not have a 
regular heavy readership of children.
    FDA has carefully reviewed these comments. Based on this review, 
FDA first considered whether its March 20, 1996, Federal Register 
document and the memorandum added to the record under that notice had 
adequately explained the basis for the proposed threshold.
    The legislative history of the APA states that agency notice must 
be sufficient to fairly apprise interested parties of the issues 
involved, so that they may present responsive data or arguments thereto 
(S. Doc. 248, 79th Cong., 2d sess. 200 (1946)). The notice must 
disclose in detail the thinking that has animated the form of the 
proposed rule and the data on which that rule is based. (See Home Box 
Office, Inc. v. FCC, 567 F.2d 9 (D.C. Cir. 1977).) In Connecticut Light 
& Power v. Nuclear Reg. Com'n, 673 F.2d at 530, the court held that a 
notice of proposed rulemaking should provide an accurate picture of the 
agency's reasoning, so that interested persons may comment meaningfully 
on the proposed rule.
    The March 20, 1996, Federal Register document and the associated 
data in the record clearly meet this standard. As stated in this 
section, FDA made clear that its tentative judgment was based on a 
review of available data (from Simons Market Research) on the 
readership profiles of various publications. By dividing the 
publications based on whether, in the FDA employees' experience, the 
publications were publicly perceived as being of interest to minors or 
not and then examining readership information on each publication, FDA 
employees found that the publications that were viewed as being of 
interest to young people had readerships that included individuals 
under the age of 18 at a level of 15 percent or higher. FDA also found 
that the information on additional publications that it received during 
the comment period produced results that were consistent with the 
pattern that emerged from its initial review. \218\
---------------------------------------------------------------------------

    \218\ See memorandum of March 11, 1996, added to the 
administrative record in the March 20, 1996, Federal Register.
---------------------------------------------------------------------------

    Thus, FDA's reasoning is not circular. FDA based the threshold on 
its tentative finding, from the work that its employees had done, that 
the publications viewed as of interest to young people had readerships 
that were more than 15 percent under 18. Significantly, while the 
comments of the tobacco and advertising industry disagreed with the 
basis for the proposed threshold in various ways, none presented any 
data showing that publications with a youth readership of 15 percent or 
more are not viewed by consumers as of interest to young people.
    It is important to keep in mind that the purpose of the threshold 
is to ensure

[[Page 44516]]

that no more speech than necessary is burdened by FDA's restriction on 
advertising. Given that FDA wants to ensure that its restriction is as 
narrowly tailored as possible, in response to the criticisms in the 
comments, FDA considered whether there was a more appropriate basis on 
which to craft the restriction. Unfortunately, the comments criticizing 
the proposal were not helpful. The only suggested alternative to the 
proposed threshold that they put forward was the provision in the Code. 
This provision is inadequate on its face, however, because it is based 
on a minimum age of 21, rather than 18, which is the minimum provided 
in the laws of all the States and section 1926 of the PHS Act. 
Moreover, the comment that suggested this alternative gave no 
indication of how the age group to which a publication is primarily 
directed would be determined.
    As a matter of common sense, FDA focused on the percentage of 
readers under the age of 18 in the general population and on comparing 
that percentage to the percentage of readers under 18 years of age for 
a particular publication. Certain conclusions can logically be drawn on 
the basis of such a comparison. If the percentage of young readers of a 
publication is greater than the percentage of young people in the 
general population, the publication can be viewed as having particular 
appeal to young readers. A publication with a youth readership 
percentage that is approximately equal to the percentage of young 
people in the general population can be viewed as one of general 
appeal, including appeal to young readers. A publication with a lower 
percentage of young readers than in the general population, however, 
would obviously be one of limited appeal to young people, and thus one 
that could appropriately be considered of interest primarily to adults.
    Given the logic of this approach, FDA turned to the U.S. census. 
What the agency found is that young people between the ages of 5 and 17 
constitute approximately 15 percent of the U.S. population. \219\ Since 
this percentage is the same as the one that FDA used in developing the 
proposal, this approach fully supports the approach that FDA proposed. 
(Although 5 and 6 year olds may not be reading magazines, utilizing 
this age group builds in a margin for error.) It ratifies the judgments 
that FDA employees made in arriving at the proposed threshold.
---------------------------------------------------------------------------

    \219\ U.S. Bureau of the Census, Population Paper Listing 21, 
1994.
---------------------------------------------------------------------------

    Some may assert that it is mere coincidence that the two approaches 
produce the same result. FDA disagrees. The congruence of the two 
approaches, the FDA employee anecdotal search and the use of the census 
data, is attributable to the basic validity of the premise underlying 
FDA's initial approach. Magazines have reputations as to the audiences 
to which they appeal, and those reputations are generally earned based 
on the nature of their contents. Thus, contrary to the assertions in 
some of the comments, the 15 percent threshold is well-supported and 
appropriate.
    As for the question as to why a publication with 84 percent adult 
readership would be problematic, while a publication with 86 percent 
adult readership would not, the agency turns to the case law on narrow 
tailoring, which is, as stated in section VI.E. of this document, what 
this exercise is about. In Board of Trustees of State University of 
N.Y. v. Fox, the Supreme Court stated:
    In sum, while we have insisted that ``the free flow of 
commercial information is valuable enough to justify would-be 
regulators the costs of distinguishing * * * the harmless from the 
harmful,'' * * * we have not gone so far as to impose upon them the 
burden of demonstrating that the distinguishment is 100% complete, 
or that the manner of restriction is absolutely the least severe 
that will achieve the desired end. What our decisions require is a 
``fit between the legislature's ends and the means to accomplish 
those ends,'' * * * --a fit that is not necessarily perfect but 
reasonable * * *.
(492 U.S. at 480 (citations omitted))
    FDA has done its best to distinguish publications that are likely 
to be read by children and adolescents from those that are not. FDA 
finds that, if its restriction on advertising is to be meaningful, it 
must be based on a line that is enforceable. While only 2 percentage 
points separate a publication with 84 percent adult readership from one 
with 86 percent (although those 2 percentage points can mean a 
difference of tens of thousands of youngsters), the underrepresentation 
of underage readers in the readership of the latter publication 
establishes its limited appeal to young readers, and thus that it is 
less likely to be read by them.
    For the foregoing reasons, FDA is adopting the 15-percent 
threshold.
    (60) Comments from an association of magazine publishers and others 
expressed a number of concerns about the adequacy of current data for 
determining whether a publication met the definition of an adult 
publication. Some comments said that current data and methodology to 
determine youth readership, while adequate for marketing purposes, are 
totally inadequate to justify their use as measuring devices for the 
imposition of criminal or civil liability on the exercise of First 
Amendment rights. These comments noted that the vast majority of 
magazines do not subscribe to either adult or youth surveys. Two 
comments stated that only about 2 percent of all magazines participate 
in the two major adult audience surveys. One comment stated that 
participation in the youth readership surveys, Simmons's STARS and 
MediaMark Research Inc.'s (MRI's) TEENMARK, is even more limited, just 
over one-half of one percent of all magazines.
    One comment noted that to comply with the 1995 proposed rule, 
publications must identify readers of all ages but that current 
audience measurement systems do not provide this comprehensive coverage 
especially for readers younger than 12 years of age. Another comment 
noted that since the survey organizations do not survey individuals on 
college campuses, in the armed services, or in institutional settings, 
adult readership would be underestimated. Several comments noted the 
difficulty in determining readership data for any one issue of a 
magazine. Another comment noted that multi-issue advertisements would 
be a problem for publications right around the threshold if the 
publication crosses back and forth.
    Several comments noted that the survey organizations would have to 
make substantial methodological changes to the surveys to meet the 1995 
proposed rule's standard. One comment said that some problems would 
include adding magazines to the surveys, and dealing with unreliable 
results. Another comment asked who would decide the research design for 
the surveys since different research methodologies could be competent 
and reliable yet result in different conclusions. Another comment said 
that it could be prohibitively expensive to increase audience samples 
to create a legally enforceable standard, and that changes to audience 
measurement procedures could undermine the usefulness of the surveys 
for their designed marketing information purpose.
    One supporting comment from an association of addiction specialists 
stated that ``the agency should require the industry to monitor with 
surveys of ad recall (correlated with tobacco use

[[Page 44517]]

and intention to use patterns) among the population under age 18 years 
to help the agency understand the extent to which image-based messages 
continue to reach the young.''
    One comment pointed out that it would be virtually impossible to 
determine a legally enforceable standard for the 15 percent youth 
readership threshold since there is substantial variation in audience 
estimates between survey organizations and over time. Several comments 
noted that FDA's definition of a reader is not consistent with the 
definition used by Simmons and MRI.
    Some comments suggested that a more realistic measure of who reads 
a publication would be who subscribes to it. Other comments opposed 
this alternative stating that the key criteria should be regular 
readership, not paid subscribers. One comment said that ``[t]his 
alteration of the proposed exemption would destroy the intent and 
purpose of the advertising limitation.''
    Several comments said that the proposal would violate due process 
by punishing publishers or advertisers who are unable to determine 
whether their conduct violates the law because the survey data are not 
sufficiently comprehensive and reliable. Several comments, including 
one from an association of newspaper publishers, expressed concern 
about who would determine readership. One comment asked whether a 
newspaper would be subject to criminal liability based on readership 
data it supplies, and whether the responsibility for ascertaining 
whether a publication qualifies as an adult publication would be on 
those running the advertisements.
    The agency recognizes the limitations of current readership data 
and the difficulties of using current readership surveys to meet the 
requirements of this rule. However, the agency concludes that the 
exception from the text-only format for adult publications is feasible 
as well as reasonable. First of all, the burden of proof for 
determining youth readership is placed by the rule on the tobacco 
company doing the advertising, not on the publication or the 
advertising agency. Under Sec. 897.32(a)(2), the tobacco company will 
need to be able to demonstrate that a publication in which it is 
running an advertisement with images and colors meets the definition of 
an adult publication. Therefore, only the tobacco company will be 
subject to any penalties for improperly placing advertisements, even if 
it used data provided by the publication as part of its determination.
    Second, either of the two methodologies can be used to measure 
readership. In addition, the agency has modified Sec. 897.32(a)(1) and 
(a)(2) to make clear that any other competent and reliable private 
sector survey evidence may be used. A tobacco company may use one of 
the two major customary and reasonable readership surveys (such as MRI 
and Simmons). The agency does not believe that there is only one 
acceptable methodology. The agency is willing to accept the standard 
methodology currently used by MRI and Simmons as evidence. Moreover, 
the agency is willing to use the age range of 12 to 17, which appears 
to be the current standard for defining youth, in determining youth 
readership.
    If a particular publication is not currently covered by one of the 
major surveys, it is the tobacco company's responsibility to develop 
the readership data necessary to justify a decision to advertise in 
that publication. The company could request a survey by one of the 
major survey firms, or it could develop an acceptable alternative. In 
either case, the agency will be available to work with the company. The 
company will always have the alternative to advertise in any 
publication in the text-only format.
    The agency also acknowledges the difficulty in determining the 
youth readership for any particular issue of a publication. Thus, data 
from a survey for the most recent issues of a publication can serve as 
proof of readership for comparable upcoming issues unless a particular 
upcoming issue is being targeted at younger readers. The survey 
schedule used by the major survey organizations would be acceptable to 
the agency. A tobacco company could utilize a more frequent survey 
schedule if it believed the readership had changed in its favor. A 
rolling average of a certain number of issues could be used, for 
example, to determine youth readership. The problem of multi-issue 
contracts for advertising could be solved by a survey for a comparable 
period of time (e.g., winter months) preceding the contract.
    The agency is willing to accept the definitions of a reader that 
are customarily used by the major survey organizations. The agency does 
not agree that using subscribers to a publication in lieu of readers is 
a better measure. Many children who read a publication will not be 
listed as subscribers (for example, Sports Illustrated has a youth 
readership of 18 to 20 percent but a youth subscriber rate of only 6.5 
or 7 percent). \220\ Also, adults are more likely to subscribe for 
their families, thereby creating an underestimation of youth exposure.
---------------------------------------------------------------------------

    \220\ Interview on ``The News Hour With Jim Lehrer,'' Public 
Broadcasting Systems, May 16, 1996.
---------------------------------------------------------------------------

    (61) Several comments assumed that the purpose of the March 20, 
1996, Federal Register document was to justify the restriction on 
advertising format that the agency had proposed for other than adult-
oriented publications. These comments argued that explaining how the 
agency arrived at the 15 percent and 2 million readership thresholds 
does not approach the factual justification necessary to restrict First 
Amendment freedoms.
    Other comments asserted that FDA's assumption that certain 
magazines were of interest to those under 18, as the starting point in 
arriving at the 15 percent threshold, shows that the limits were 
content based. These comments argued that basing restrictions on 
content violated the First Amendment.
    The comments misunderstood FDA's purpose in proposing, and in 
adopting, the 15 percent and 2 million under 18 readership thresholds 
and of the memoranda added to the public record in the March 20, 1996, 
Federal Register document that indicated how the agency tentatively 
arrived at those thresholds. As discussed in section VI.D. of this 
document, the evidence in this proceeding establishes the effect of 
cigarette and smokeless tobacco advertising on those under 18 years of 
age. This evidence fully justifies FDA's decision to restrict the 
advertising for these products.
    However, in imposing such a restriction on commercial speech, FDA 
has an obligation to ensure that the restriction is no more broad than 
necessary to serve the agency's substantial interests (Board of 
Trustees of State University of N.Y. v. Fox, 492 U.S. at 476). The 
purpose of the memorandum was to document FDA's efforts to tailor the 
restriction to ensure that it did not restrict advertising in those 
publications that were not likely to be read by children or adolescents 
and thus were not likely to have an effect on the group that FDA is 
trying to protect. Consequently, contrary to the claims of the first 
group of comments, the agency's goal in the memorandum was not to 
justify a restriction on First Amendment freedoms but to explain how it 
sought to ensure, and why its tentative decision was that, the limits 
it proposed to place on the coverage of the

[[Page 44518]]

restriction are reasonable (see Id. at 480).
    On the other hand, other comments that opposed FDA's proposed 
restriction on format said that the threshold would have different 
impacts on similar publications. One comment provided the following 
examples of publications that would be considered ``youth oriented'' or 
primarily adult under the 15 percent threshold (the comment argued that 
the effects of the 2 million readership threshold were not relevant to 
the rationality of the 15 percent threshold):

                   Table 1b.--Examples of Publications                  
------------------------------------------------------------------------
                                              Primarily Adult Oriented  
        Youth Oriented Publications                 Publications        
------------------------------------------------------------------------
Popular Science...........................  Popular Mechanics           
Soap Opera Weekly.........................  Soap Opera Digest           
Outdoor Life..............................  Field and Stream            
Cable Guide...............................  TV Guide                    
Mademoiselle..............................  Cosmopolitan                
------------------------------------------------------------------------

    The positions taken by these comments makes clear that the 
thresholds were not content based. If the thresholds were content 
based, then publications that have similar content would be subject to 
the same restriction. They are not. The reason they are not is that 
FDA's goal in arriving at the thresholds was to ensure that cigarette 
and smokeless tobacco advertisements that are likely to be seen by 
children and adolescents are the kinds of advertisements that are 
likely to appeal to them. The agency's only way of judging the 
likelihood that an advertisement that appears in a publication will be 
seen by those under the age of 18 is by considering the readership 
profile of that publication. Thus, the agency has tailored the 
threshold to either reflect the percentage of readership that are under 
18 years of age or to ensure that publications with an extensive youth 
readership are covered.
    The comments that complained about the differing impact of FDA's 
threshold on similar publications, given the purpose of the threshold, 
serve to underline its significance. The information submitted by the 
comments shows that there are significant differences in the readership 
of similar publications and thus in the likelihood that the material 
contained in these publications will be seen by young people. The 
treatment of publications under the agency's restriction reflects the 
latter fact, not the former.
    Popular Science magazine has a readership that is 6 percent more 
youthful than Popular Mechanics; Soap Opera Weekly has a 3 percent more 
youthful readership than Soap Opera Digest; and there is a 9 percent 
bigger youth audience for Outdoor Life than for Field and Stream. These 
differences are not minor or meaningless and demonstrate that, although 
the 15 percent threshold is not perfect, it will serve, as it was 
designed to, protect those under 18. TV Guide and Cosmopolitan are not 
excluded although, as mass distribution magazines the percentage of 
young readers is less than 15 percent, because they attract over 2 
million young readers--a number of young people too large to ignore. 
\221\
---------------------------------------------------------------------------

    \221\ Barents Group, LLC, citing Publishing Information Bureau 
and Mediamark Research, Inc., pp. 53-54.
---------------------------------------------------------------------------

    (62) Many comments, especially from the magazine and newspaper 
industries, expressed concerns about the impact of this proposal on 
their way of doing business. One comment stated that the proposed text-
only format would provide financial disincentives for magazines and 
newspapers to attract young readers, especially if the publication were 
near the borderline of being required to use the text-only format. This 
comment suggested that the provision would affect editorial and content 
decisions regarding young readers.
    Some comments noted that newspapers have been struggling to attract 
young readers raised on television, but that success in doing this 
might cause the loss of significant tobacco advertising revenue. One 
newspaper industry association comment stated that the rule would 
discourage newspaper programs promoting youth reading and literacy. 
Some comments stated that the loss of advertising revenue could cause 
publications to decrease content and increase prices. Some comments 
thought the result of these effects of the rule would be losses in jobs 
in the newspaper and magazine industries.
    The agency is not sure what impact the exception for adult 
publications will have on incentives for magazines and newspapers to 
attract young readers, on editorial content, and on youth literacy 
programs. The comments that raised these issues mostly speculated about 
these effects and did not provide any data as to how many of the 
thousands of newspapers and magazines in the United States carry 
tobacco advertising, or on what portion of their total advertising 
revenue comes from tobacco companies. Many business factors affect a 
publication's decisions regarding its target audience and editorial 
content, and these are likely to change for a variety of reasons. Those 
publications affected by this regulation will have to adjust just as 
they would if a major advertiser reduced its advertising. Under the 
rule, all publications could still accept text-only advertising. The 
cigarette and smokeless tobacco industries are capable of designing 
their advertising to be attractive to adult readers (see section 
VI.E.4. of this document). Thus, it seems as likely that the effects of 
the rule in these areas will be minimal and will be far outweighed by 
the overall benefits of reducing youth smoking. The effect of the rule 
on prices and jobs in the magazine and newspaper industries is 
addressed in the section on the economic impact of the rule.
    (63) Several comments argued that FDA's restrictions on the format 
of advertising, and the standard that it proposed for deciding whether 
a publication has a predominantly adult readership, interfere with the 
rights of newspapers and magazines to decide what to print. One comment 
said that some publications will not want to give up revenue from 
tobacco advertising. Therefore, the comment continued, these 
publications will base decisions about editorial content on how 
appealing a particular story would be to readers under the age of 18. 
Because of the impact of the restrictions on editorial content, the 
comment concluded, they should be subject to strict scrutiny rather 
than the more limited scrutiny given to commercial speech.
    FDA finds no merit to this argument. A similar argument was made in 
Pittsburgh Press Co. v. Pittsburgh Com'n on Human Relations, 413 U.S. 
376 (1973). The newspaper company in that case, which involved a First 
Amendment challenge to a municipal ordinance that prohibited a 
newspaper from carrying gender-designated advertising for nonexempt job 
opportunities, argued that the focus of the case must be on the 
exercise of editorial judgment by the newspaper rather than on the 
commercial nature of the ads in question.
    The Supreme Court rejected this argument. The Court said that under 
some circumstances, at least, a newspaper's editorial judgments in 
connection with an advertisement take on the character of the 
advertisement. In those cases, ``[t]he scope of the newspaper's First 
Amendment protection may be affected by the content of the 
advertisement''

[[Page 44519]]

(Pittsburgh Press Co., 413 U.S. at 386). The Court said that, at least 
under some circumstances, a commercial advertisement remains commercial 
in the hands of the media (Id. at 387). The Court found that nothing 
about the decision to accept a commercial advertisement for placement 
in a gender-designated column lifts the newspaper's actions from the 
category of commercial speech. The Court said that the ad was in 
practical effect a commercial statement (Id. at 387-88; see also United 
States v. Hunter, 459 F.2d 205, 212 (4th Cir. 1972) (``But it has been 
held that a newspaper will not be insulated from the otherwise valid 
regulation of economic activity merely because it also engages in 
constitutionally protected dissemination of ideas'')).
    Here, the question that is raised is whether or not a publication 
will decide to put itself in a position of being able to accept an 
advertisement that is particularly appealing to individuals under 18 
years of age or not. Nothing about this judgment distinguishes it from 
the commercial speech itself. Because nothing about FDA's restrictions 
would prevent the publication from carrying a cigarette or smokeless 
tobacco advertisement no matter what judgment the publication makes, 
essentially the editorial judgment comes down to the question of what 
will be the format of the advertisement that it will carry. This 
judgment clearly comes within the category of commercial speech, and 
FDA has fully justified its regulation of commercial speech under the 
Central Hudson test.
6. Advertising--Sec. 897.32 Requirements for Disclosure of Important 
Information
    a. Established name and intended use--Sec. 897.32(c). Proposed 
Sec. 897.32(b) (now renumbered as Sec. 897.32(c)) provided that each 
manufacturer, distributor, and retailer (of tobacco and smokeless 
tobacco) advertising or causing to be advertised, disseminating or 
causing to be disseminated, advertising, but not labeling, permitted 
under Sec. 897.30(a), shall include, as provided in section 502(r) of 
the act, the product's established name and a statement of its intended 
use as follows: ``Tobacco--A Nicotine Delivery Device,'' ``Cigarette 
Tobacco--A Nicotine-Delivery Device,'' or ``Loose Leaf Chewing 
Tobacco,'' ``Plug Chewing Tobacco,'' ``Twist Chewing Tobacco,'' ``Moist 
Snuff'' or ``Dry Snuff,'' whichever is appropriate for the product, 
followed by the words ``A Nicotine-Delivery Device.''
    The preamble to the 1995 proposed rule explained that section 
502(r)(1) of the act requires, for any restricted device, that all 
advertising or other descriptive printed material contain a true 
statement of the device's established name. Under section 502(r)(2) of 
the act, a restricted device is misbranded unless all advertising 
contains ``a brief statement of the intended uses of the device.'' The 
agency explained in the preamble to the 1995 proposed rule that it is 
necessary to require that the product's established name and intended 
uses be placed on all advertising, under section 520(e) of the act, as 
a measure that affirmatively identifies the products to persons reading 
the advertising (the other brief statement requirements under section 
502(r)(2) of the act are discussed in section IV.E.6.b. of this 
document).
    The agency did not receive any comments on the ``established name'' 
provision and has thus codified the provision in the final rule as 
Sec. 897.32(c). The agency has modified the ``intended use'' provision 
in this final rule to require that cigarette and smokeless tobacco 
advertising contain the statement ``A Nicotine-Delivery Device for 
Persons 18 or Older.'' For clarity, the agency has referenced subpart D 
generally rather than Sec. 897.30(a) specifically. As stated in the 
1995 proposed rule, the established name requirement applies to both 
tobacco and smokeless tobacco.
    (64) Several comments opposed the proposed ``intended use'' 
provision. One tobacco industry comment stated that FDA's proposal is 
not authorized under section 502(r) of the act because: (1) The 
``intended use'' of tobacco products is for smoking taste and pleasure, 
not a ``nicotine delivery device;'' (2) the ``intended use'' provision 
of the act does not require that manufacturers list all information 
related to all purposes for which a drug is intended; and (3) FDA is 
not free to prescribe an ``intended use'' of its own invention. The 
comment also argued that FDA's statement, which communicates only that 
a cigarette yields nicotine, is not a statement of ``intended use'' and 
is of no value to consumers who obtain more complete nicotine 
information that cigarette manufacturers already provide in 
advertising.
    The agency disagrees with the comments stating that it is not free 
to prescribe an intended use. As discussed in this section, the agency 
is required by section 502(r)(2) of the act to require a brief 
statement of intended use for all restricted devices.
    Additionally, it is within FDA's primary jurisdiction and expertise 
to determine a device's intended use. FDA has decades of experience 
evaluating the intended uses of FDA-regulated products, including 
restricted devices, prescription and over-the-counter drugs, biological 
products, and dietary supplements through its review and approval 
process for those products.
    As described in the 1996 Jurisdictional Determination annexed 
hereto, the available evidence demonstrates that manufacturers intend 
to affect the structure and function of the body by delivering 
pharmacologically active doses of nicotine to the consumer. Although 
the agency proposed that the intended use include the language 
``Nicotine Delivery Device,'' the agency has determined, based on the 
comments received, that a more accurate statement of the intended use 
would provide more value to consumers. Because cigarettes and smokeless 
tobacco products can legally be sold only to those persons 18 years of 
age and older, the agency believes the intended use statement should 
reflect the target population for which the product is intended. Often, 
the intended use statement for a drug or device includes the patient 
population by whom the product may be used. Accordingly, the intended 
use statement has been revised to require the following language on all 
advertisements for cigarette and smokeless tobacco: ``A Nicotine-
Delivery Device For Persons 18 or Older.''
    b. Section 897.32(d) Brief statement. Proposed Sec. 897.32(c) and 
(d) would have required that each manufacturer, distributor, and 
retailer of cigarettes include in all advertising, but not labeling, a 
brief statement, printed in black text on a white background that was 
readable, clear, conspicuous, prominent, and contiguous to the Surgeon 
General's warning. Because the Smokeless Act preempts other statements 
about tobacco use and health in advertising, the 1995 proposed rule 
stated that the provision only applied to cigarettes (and not smokeless 
tobacco). The 1995 proposed rule provided one brief statement as an 
example (``ABOUT 1 OUT OF 3 KIDS WHO BECOME SMOKERS WILL DIE FROM THEIR 
SMOKING'') (60 FR 41314 at 41338). The agency requested comment on what 
other information should be included in the brief statements concerning 
relevant

[[Page 44520]]

warnings, precautions, side effects, and contraindications and on how 
best to ensure that the statement will be clear, conspicuous, and 
prominently displayed. The agency also requested comment on whether it 
should require a listing of the component parts or ingredients of these 
restricted devices.
    The preamble to the 1995 proposed rule explained that the agency 
was proposing to require this brief statement under section 502(r)(2) 
of the act. The preamble stated that the act specifically excludes 
labeling from the requirements in section 502(r) of the act. The 1995 
proposed rule stated that the agency would specify the design, content, 
and format of the brief statements, in part based on focus groups with 
young people, to ensure that the information would be communicated 
effectively to young people.
    The agency received numerous comments on this brief statement, and 
about half of the comments supported the provision and half opposed it. 
Most of the comments that supported the brief statement requirement 
recommended other information to be included in the brief statement, 
and offered suggestions on how best to ensure that the statement will 
be clear, conspicuous, and prominently displayed.
    During the comment period, FDA performed extensive focus group 
testing on the brief statement to evaluate the content and various 
formats for the brief statement to determine if the information would 
be communicated effectively to young people. Those results were placed 
on the public record and made available for comment, 1 month prior to 
the close of the comment period. FDA received a few comments on the 
focus group results from the tobacco industry and concerned 
individuals.
    The final rule does not specify a particular statement to be placed 
in all cigarette advertisements, as proposed in Sec. 897.32(c), nor 
does it require the brief statement to be targeted to young people. 
Rather, the agency has concluded that the current Surgeon General's 
warnings contain important health information, concerning the risks 
related to the use of cigarettes, of the sort required under section 
502(r) of the act and, consequently, has decided not to require a 
specific, different statement. Specifically, the Surgeon General's 
warnings currently required to be included in cigarette advertisements 
and on cigarette packages contain the following information: Cigarettes 
cause lung cancer, heart disease and emphysema, may complicate 
pregnancies, and contain carbon monoxide; smoking by pregnant women may 
result in fetal injury, premature birth and low birth weight; and 
quitting reduces serious risks.
    The agency has also considered the fact that there is a heightened 
public awareness by adults of the addictiveness of cigarettes, as well 
as the serious health effects that can result from their use. Much of 
this awareness stems from: (1) The publicity of the numerous Surgeon 
General's reports that have issued in the last few decades, (2) the 
campaigns supported by health groups and State and local governments, 
as well as (3) the attention generated by the agency's investigation of 
these products.
    Under the current circumstances, the agency has determined that the 
current Surgeon General's warnings, which must be in virtually all 
advertisements, contain the type of important health information 
required under section 502(r) of the act. Accordingly, the agency has 
determined that advertisements that contain the current Surgeon 
General's warnings meet section 502(r) of the act.
    Finally, because the agency has determined that the Surgeon 
General's warnings are adequate, and those warnings must be displayed 
in a format prescribed by law, there is no longer any need for proposed 
Sec. 897.32(d), which required that the brief statement be readable, 
clear, conspicuous, prominent, and contiguous to the Surgeon General's 
warning.
    (65) One comment argued that the proposed warning requirement for 
tobacco is not a warning, nor is it part of a brief statement, as those 
terms are used in section 502(r) of the act. The comment stated that 
because FDA proposes to allow tobacco to be marketed as devices subject 
only to general controls, one of which is the brief statement 
provision, then the ``brief statement'' must be capable of providing, 
with other general controls, ``reasonable assurance of the safety and 
effectiveness'' of tobacco under the act. The comment argued that 
because FDA regards tobacco as having ``dangerous health consequences'' 
(60 FR 41314 at 41349), and does not believe that tobacco can be ``safe 
and effective'' for anyone, then FDA's proposed ``brief statement'' 
provision is not within the scope of the act. The comment stated that 
the only warning that is consistent with FDA's view would be one that 
warned against anyone using the device at all.
    The comment miscomprehends the purpose of the brief statement, 
which is to provide information about the risks and benefits regarding 
the product. This provision is not intended to serve, on its own, as a 
mechanism to provide reasonable assurance of safety for these products.
    (66) One comment argued that even if FDA could validly require a 
brief statement for tobacco as an exercise of its statutory authority, 
the imposition of a warning requirement as part of the brief statement 
is invalid because advertisements for tobacco are already required to 
bear the Surgeon General's warning under 15 U.S.C. 1333(a)(2) and 
(a)(3). In addition, the comment stated that FDA is not authorized to 
require that the information be presented ``in a lurid fashion to 
achieve an ulterior purpose'' or as ``a threat intended to scare 
people,'' and that the warning information is meant only for the 
purposes of enabling the physician or patient to make a rational risk/
benefit judgment.
    Another comment argued that the contention that the Surgeon 
General's warning is ``ineffective'' is without merit. The agency 
agrees that the current Surgeon General's warnings contain the type of 
important health information that advertisements must contain under 
section 502(r)(2) of the act. Accordingly, the agency has determined 
that advertisements that contain the current Surgeon General's warnings 
sufficiently meet the brief statement requirement of the act.
    (67) One comment stated that the brief statement provision would 
``cause so much visual clutter in tobacco advertising as to render 
effective communication nearly impossible.''
    Another comment stated that FDA will be unable to justify the 
economic burdens on communication with adults that are created by the 
brief statement requirement because, in order to include all the 
mandated statements, advertisers would be required to purchase 
additional space and thus would have to reduce, because of budgetary 
pressures, the number of advertisements they could place.
    Because the agency has determined that the current Surgeon 
General's warnings will be sufficient as a brief statement, the issue 
raised by these comments is no longer pertinent.
    (68) Several comments which supported the 1995 proposed rule 
suggested alternative statements and submitted recommended language for 
the brief statement. Many comments suggested specific types of 
information

[[Page 44521]]

for inclusion in the brief statement. Several comments provided 
recommendations on how the statement could be ``clear and 
conspicuous.'' One comment stated that messages must be carefully 
pretested on members of the target audience to ensure that labels: (1) 
Attract attention; (2) are personally relevant; and (3) do not elicit 
psychological reactance, i.e., behaviors directly counter to those 
desired due to irritation, rebellion, or misinterpretation. The comment 
recommended that messages be varied periodically to ensure that they 
remain attention-getting and pertinent.
    Several comments recommended that the rule be more specific in what 
is meant by ``readable, clear, conspicuous, prominent'' by giving 
either a detailed set of format specifications of the lettering and 
background or by giving a set of performance criteria. One comment 
enclosed an unpublished review on warnings, which recommended that 
warnings should attract attention of the target audience by using high 
contrast and color; separating warnings from other information; 
considering size (relative to other information in the display) and 
location (since people tend to scan left to right and top to bottom 
warnings should be located near the top or to the left, depending on 
the overall design of the display); and by using signal words to 
capture attention, such as ``CAUTION,'' OR ``WARNING,'' pictorials, 
rotational warnings to avoid habituation, and auditory warnings. In 
addition, the review stated that warnings should describe the hazard, 
without ``overwarning,'' and describe the nature of the injury, illness 
or property damage that could result from the hazard. The review 
recommended that written warnings should be organized with an attention 
getting icon and signal word at the top, then hazard information, then 
instructions. Finally, the review recommended that warnings should 
instruct about appropriate and inappropriate behaviors, motivate people 
to comply, be as brief as possible, and should last and be available as 
long as needed.
    One comment recommended that the relevant warnings, precautions, 
side effects, and contraindications be in a language understandable and 
appealing to even the youngest potential tobacco user. Several comments 
recommended that a minimum size should be required, expressed as a 
percentage of the advertisement (e.g., 25 percent of the 
advertisement). Several comments recommended that a border be placed 
around the brief statement and suggested other graphic enhancements to 
make the information in the brief statement more noticeable.
    The agency recognizes that there are several ways to communicate 
the requirement for ``relevant warnings, precautions, side effects, and 
contraindications'' set forth in section 502(r) of the act. In this 
case, however, the agency has determined that the current Surgeon 
General's warnings are sufficient as at least one way of complying with 
section 502(r) of the act. In addition, the agency appreciates the 
numerous suggestions on how to make the brief statement readable, 
clear, conspicuous, and prominent. However, since no additional 
information will be required at this time, and the format for the 
Surgeon General's warnings is determined by law, the agency has deleted 
proposed Sec. 897.32(d).
    (69) One comment stated that FDA's attempt to gather information 
through the focus group studies about adolescents' perceptions of the 
adequacy of the Surgeon General's warnings for use in designing its own 
additional warning underscores the direct conflict between the 
Cigarette Act and the proposed regulation.
    This comment has misinterpreted the purpose and the results of the 
focus group testing. FDA's focus groups were intended to explore how 
adolescents perceive various messages. The Surgeon General's warnings, 
as well as other warnings, were tested with the focus groups merely to 
serve as a basis for reactions to messages that currently exist in the 
public domain.
    (70) FDA received few comments concerning the focus group results. 
In general, these comments questioned the validity and usefulness of 
focus groups. Further, some comments asserted that the warnings 
preferred by the young people in the focus groups may have unintended 
consequences.
    As discussed in this section, the focus groups tested a variety of 
specific brief statements that were intended to be directed towards 
young people. However, the agency has decided that the final rule will 
not specify a particular brief statement, but will accept the current 
Surgeon General's warnings as sufficient. Moreover, section 502(r) of 
the act does not require that the brief statement be directed to young 
people, but rather that it provide ``a brief statement of the intended 
uses of the device and relevant warnings, precautions, side effects, 
and contraindications.'' This function is adequately filled by the 
intended use statements required by Sec. 897.32(c) and the Surgeon 
General's warnings. Thus, because the final rule is not based on the 
focus group results, the agency need not address the previous comments 
concerning the focus group results.
7. Section 897.34(a) and (b)--Promotions, Nontobacco Items, and 
Contests and Games of Chance
    The agency proposed in Sec. 897.34(a) to prohibit the sale or 
distribution of all nontobacco items that are identified with a 
cigarette or smokeless tobacco product brand name or other identifying 
characteristic. FDA stated in the 1995 proposal that this requirement 
is intended to reach such items as tee shirts, caps, and sporting goods 
and other items bearing tobacco brand names or other indicia of product 
identification (60 FR 41314 at 41336).
    As discussed in the preamble to the 1995 proposed rule (60 FR 41314 
at 41336), a Gallup survey found that about one-half of adolescent 
smokers, and one-quarter of all nonsmokers, own at least one 
promotional item. The IOM found that this form of advertising is 
particularly effective with young people. Young people have relatively 
little disposable income, so promotions are appealing because they 
represent a means of ``getting something for nothing.'' In many cases, 
the items--tee shirts, caps, and sporting goods--are particularly 
attractive to young people. Some items, when used or worn by young 
people, also create a new advertising medium--the ``walking 
billboard''--which can come into schools or other locations where 
advertising is usually prohibited (60 FR 41314 at 41336). Moreover, 
this form of advertising has grown in importance over the last 20 
years. The portion of annual expenditures of the cigarette industry 
devoted to these promotions rose from 2.1 percent in 1975 to 8.5 
percent in 1980. \222\
---------------------------------------------------------------------------

    \222\ IOM Report, p. 109.
---------------------------------------------------------------------------

    On the basis of the evidence before it, the agency tentatively 
concluded that the ban on nontobacco items was necessary to eliminate 
the something-for-nothing appeal of these items, as well as to prevent 
wearers or users of these items from becoming image-laden walking 
advertisements.
    FDA proposed in Sec. 897.34(b) to prohibit all proof of purchase 
transactions of nontobacco items as well as all lotteries, contests, 
and games of chance associated with a tobacco purchase. The agency 
stated that, because contests and lotteries are

[[Page 44522]]

usually conducted through the mail, it was not able to devise 
regulations that would reduce a young person's access to contests or 
lotteries.
    (71) FDA received a substantial number of comments concerning the 
1995 proposed rule to prohibit these promotional activities. Comments 
opposing these provisions argued that tobacco companies should be 
allowed to advertise in a fair manner however they wish. Many comments 
from individuals stated that they like the ``freebies.'' They contended 
that the agency does not have authority to regulate the clothes people 
wear or to ban contests and promotional activities that are only 
available to adults. A number of comments from individuals stated that 
what they did with their lives was their business.
    Comments also objected to the agency's proposed ban on contests and 
games of chance. These comments stated that existing laws and 
regulations already provide a sufficient regulatory framework.
    The majority of comments, however, supported these provisions and 
stated that children and adolescents should not be ``walking 
billboards.'' Moreover, these comments argued that even though young 
people cannot participate in the contests, they can easily get caught 
up in the excitement of promotional activities. Comments declared that 
prohibiting tobacco product-related gifts, items, contests, and games 
of chance will break the enticing connection between sports and tobacco 
use.
    The agency agrees with the comments that said that existing laws 
and regulations of lotteries, contests, and games of chance are 
sufficient. First, there appears to be little evidence about these 
practices and young people's participation in them. Secondly, current 
laws prohibit all games of chance and the like that are advertised on a 
product label or that are conditioned on the sale of the product. 
Therefore, participation, if any, by minors is not necessarily related 
to a purchase. Third, any promotional material associated with the 
advertising of the games, which is of primary concern, will be required 
to appear in text-only format. Therefore, the agency has modified this 
section to delete the ban on these practices. In addition, the agency 
has modified Sec. 897.34(a) to clarify that responsibility for 
complying with this provision rests with the manufacturer and the 
distributor of imported tobacco, but not other distributors or 
retailers.
    (72) Comments differed on whether proposed Sec. 897.34(a) is beyond 
FDA's authority under the act. The comments addressed a number and 
variety of legal issues. One comment stated that FDA has no authority 
to ban the items and services covered by Sec. 897.34(a). It stated that 
items and services (e.g., travel agencies) bearing indicia of tobacco 
product identification are not foods, drugs, cosmetics, or devices as 
defined in the act and, therefore, are outside the agency's 
jurisdiction.
    Another comment stated that nontobacco items cannot be regulated as 
advertising in the way FDA proposes because: (a) The 1995 proposed rule 
extends to goods and services provided to product users in connection 
with cigarette purchases, most of which are not displayed or 
disseminated to the general public, and thus do not constitute 
advertising (see Marcyan v. Nissen Corp., 578 F. Supp. 485, 507 (N.D. 
Ind. 1982), aff'd sub nom. Marcyan v. Marcy Gymnasium Equip. Co., 725 
F.2d 687 (7th Cir. 1983)); and (b) many of the types of items covered 
by Sec. 897.34(a) are promotional items but not advertising (e.g., a 
logo-bearing mug given away or sold by a manufacturer is not an 
advertisement).
    One comment, which favored the provision, provided support for the 
classification of promotional items as advertising. The comment 
referenced Public Citizen v. FTC, 869 F.2d 1541 at 1556 (D.C. Cir. 
1989), in which the U.S. Court of Appeals for the D.C. Circuit held 
that the Smokeless Act requirement that ``advertisements'' carry health 
warnings ``plainly covers utilitarian items [nontobacco items] that are 
distributed for promotional purposes.'' FTC defined utilitarian objects 
as items that are sold or given or caused to be sold or given by any 
manufacturer, packager, or importer to consumers for their personal use 
and that display the brand name, logo, or selling message of any 
tobacco product (16 CFR 307.3n). FDA's interpretation of what is 
covered by Sec. 897.34(a) and (b) is consistent with this definition. 
The comment also stated that as a result of that court case, FTC's 
smokeless tobacco rules now require that utilitarian items promoting 
smokeless tobacco bear specific health warnings required of all 
smokeless tobacco advertising (16 CFR 307.9). \223\
---------------------------------------------------------------------------

    \223\ The FTC comment also indicated that although nontobacco 
items are ``advertising'' under the Smokeless Act, a different 
legislative history exempts these items from the Cigarette Act. The 
comment stated that the definition of advertising under the 
Cigarette Act is understood to exempt utilitarian items because of 
legislative history expressly stating Congress's intent to preserve 
the arrangement under consent agreements entered into by the tobacco 
industry in 1972 and 1981 (Public Citizen, 869 F.2d at 1555).
---------------------------------------------------------------------------

    Another comment pointed out that the Public Citizen case provides 
ample legal precedent not only for the conclusion that promotional 
materials are advertising, but also that they have a direct impact on a 
minor's tobacco use. The court, relying on evidence compiled by the 
FTC, found that ``in the case of adolescents, utilitarian items might 
be among the most effective forms of promotion'' (869 F.2d at 1549 n. 
15). In addition, the lower court provided an additional rationale for 
restriction based upon the items' longevity and durability.
    [P]rinted advertising is customarily quickly read (if at all) 
and discarded (as, of course, are product packages) by typical 
consumers. ``Utilitarian objects,'' on the other hand * * * are 
retained, precisely because they continue to have utility. They are 
also likely to be made of durable substances: fabric, plastic, 
glass, or metal. They may be around for years. And each use of them 
brings a new reminder of the sponsor and his product * * *
(688 F. Supp. 667, 680 (D.D.C. 1988), aff'd, 869 F.2d 1541 (D.C. Cir. 
1989))
    The agency finds that the reasoning in the Public Citizen case is 
persuasive and compels the conclusion that branded nontobacco items are 
advertising. It also finds that young people acquire and use these 
products.
    Moreover, the agency finds nothing in the Marcyan v. Nissan Corp. 
case is to the contrary. In relevant parts, that case involved an 
endorsement that appeared in the front of a users' manual. The court 
held that this endorsement did not constitute ``advertising'' because 
it is not ``distributed to the general public for the purpose of 
promoting plaintiffs' products: it is a user's manual and is provided 
to a purchaser of the defendants' equipment together with the equipment 
in order to describe its proper use'' (578 F.2d at 507). Promotional 
items are distributed or sold to the general public. They are festooned 
with the product's brand name or identification, and they are intended 
to remind the user and others who see the item about the product. As 
the court in Public Citizen found, ``each use of them brings a new 
reminder of the sponsor and his product'' (688 F. Supp. at 670). 
Therefore, the comments' suggestion that these advertising items are 
beyond FDA's jurisdiction is plainly wrong.
    (73) One comment, which had argued that promotional items were not 
drugs or devices nor were they advertising, objected as well to FDA's 
alternative

[[Page 44523]]

categorization of these items as labeling. The comment stated that 
nontobacco items could constitute ``labeling'' only if there were a 
``textual relationship'' between them and the product (Kordel v. United 
States, 335 U.S. 345, 350 (1948)). The comment argued further that 
items that provide no more substantive information than a brand name, 
logo, or recognizable color or pattern of colors simply do not explain 
the use of the product, and therefore do not constitute labeling. The 
comment concluded that if the items are not advertising or labeling, 
FDA would not have authority to take the actions required by this 
provision.
    The agency agrees that these promotional items are neither devices 
nor drugs; however, this fact is not relevant to the agency's authority 
to proscribe their use. As explained earlier in this document, FDA has 
authority to impose restrictions on the access to and promotion of 
devices under section 520(e) of the act, and this authority provides 
the basis for restrictions on advertising, including those that FDA is 
imposing on promotional items. FDA also derives authority for these 
restrictions from section 502 of the act. Likewise, it is not relevant 
in this instance whether the items are described as advertising or 
labeling. The agency has the authority to restrict them because they 
promote the use of restricted devices, cigarettes and smokeless 
tobacco, by young people and thus undercut the restrictions on access 
to these products that FDA has imposed. Therefore, FDA has authority to 
regulate how these promotional items are used by manufacturers, 
distributors, and retailers of the restricted devices.
    (74) Many comments challenged FDA's evidentiary basis for this 
provision. Those opposing the provision made the point that promotional 
items do not cause young people to use tobacco, and that banning them 
will not reduce tobacco use. These comments fall into two categories: 
Those that rely on theoretical or policy arguments and those that 
provide or criticize studies or other evidence.
    a. Theoretical or policy considerations. Several comments argued 
generally that it is well-documented that the significant factors 
associated with regular underage tobacco use are peer pressure and 
smoking by friends, older siblings and parents. They noted that FDA 
cited no evidence that the use of a tobacco trademark on a nontobacco 
product, such as a lighter or jacket, has any impact on underage 
tobacco consumption, or that its removal will reduce youth tobacco use. 
Consequently, they argue, banning the use of tobacco brand names on 
nontobacco products will fail to achieve FDA's goal of curbing teen 
smoking.
    One comment maintained that people, including those under age 18, 
do not wear these items in order to advertise anything or to be 
``walking billboards.'' Rather, according to this comment, they wear 
them to make a public statement, because they find the items 
aesthetically pleasing, or for other reasons. Moreover, the comment 
argued, FDA has no authority to regulate the attire of adults, school 
students, or anyone else.
    In addition, the comment argued, the goal of these programs is to 
reinforce brand loyalty among existing customers. Their purpose is to 
expand market share among existing smokers, not to induce nonsmokers to 
start smoking. These programs are, by their very nature, aimed at 
people who already are smokers, that is, the merchandise is provided 
only to consumers who have accumulated and submitted significant 
numbers of proofs of purchase. No one would be persuaded to start 
smoking by a cents-off coupon or by the offer of a free cigarette 
lighter, but a smoker might be tempted by the offer. The comment argued 
that in the hard fought battles for market share among cigarette 
companies, discounts and premiums represent a way to promote and retain 
brand loyalty and to weaken loyalty to competitors' brands.
    Some comments bolstered their arguments with a citation to the 
decision of the Supreme Court of Canada, which, they claimed, 
invalidated a similar ban. The Canadian court concluded that there was 
no direct or indirect evidence of any causal connection between the 
objective of decreasing tobacco consumption and the absolute 
prohibition on the use of a tobacco trademark on articles other than 
tobacco products. These comments argued that FDA should follow the 
Canadian judgment (see section VI.D.3.f. of this document for a 
complete discussion of this case).
    On the other hand, one comment stated that U.S. and international 
experience provide substantial support for a ban. It stated that in the 
United States, nontobacco items were heavily used by RJR to market its 
Camel tobacco to young people.
    In addition, one comment that supported FDA's action stated that 
young people participate to a marked extent in tobacco company 
promotions. It noted that these promotions all use attractive imagery 
and prizes that are intrinsically interesting to adolescents. Other 
comments stated that these promotions are particularly effective with 
young people, who have less disposable income. The items are a way for 
young people to get something for nothing and provide added incentive 
for young people to purchase tobacco products. One comment that 
supported this provision stated that these items can become ``walking 
billboards,'' that can come into schools and other places where tobacco 
advertising is generally prohibited.
    Another comment stated that the ban serves as an important 
corollary to the advertising restrictions, specifically, it argued that 
the impact of removing tobacco product advertisements from minors' 
magazines would surely be reduced if minors themselves continued 
wearing the advertisements on their heads and bodies. The comment 
asserted that there is a correlation between participation in a 
promotion and susceptibility to tobacco use.
    b. Studies and evidence. One comment referenced a new study \224\ 
that found that participation in tobacco company promotions by 12 to 17 
year olds is more predictive of susceptibility to use tobacco products 
than smoking by those close to the individual. The measure of 
``participation'' was the possession of a catalog, the ownership of any 
promotional item, or the saving of coupons that could be redeemed for 
promotional items. The study found that catalog ownership was the most 
common form of participation in tobacco company promotions.
---------------------------------------------------------------------------

    \224\ Evans, N., et al., ``Influence of Tobacco Marketing and 
Exposure to Smokers on Adolescent Susceptibility to Smoking,'' 
Journal of the National Cancer Institute, vol. 87, pp. 1538-1545, 
1995.
---------------------------------------------------------------------------

    A comment that opposed this provision argued that FDA had cited no 
credible studies that demonstrate either that these items are 
especially appealing to young people, or that possessing these items 
causes young people to start smoking or to smoke more. It stated that 
although FDA relied on a study by Dr. John Slade \225\ that reported 
that there is an association between participating in promotions and a 
person's susceptibility to tobacco use, FDA did not describe the study 
thoroughly. The comment stated that the notion of susceptibility is 
itself problematic. It stated that even if this study is taken at face 
value, it does not support FDA's conclusions. While the study reported 
that 83.5 percent of

[[Page 44524]]

respondents age 12 to 17 were aware of at least one tobacco company 
promotion, it also reported that only 10.6 percent of respondents owned 
a nontobacco promotional item. These numbers, the comment asserted, do 
not support the theory that nontobacco items are appealing to youth or 
have a discernible impact on youth smoking rates.
---------------------------------------------------------------------------

    \225\ Slade, J., et al., ``Teenagers Participate in Tobacco 
Promotions,'' presented at the 9th World Conference on Tobacco and 
Health, October 10-14, 1994.
---------------------------------------------------------------------------

    Moreover, the comment took exception with Dr. Slade's finding that 
25.6 percent of 12 to 13 year olds and 42.7 percent of 16 to 17 year 
olds participate in promotional programs such as Camel Cash or Marlboro 
miles. The comment stated:
    the reason for these apparently high percentages is clear from 
the most cursory analysis of the data * * * [I]n this supposedly 
random survey, fully 45.7 percent of the households of 12-13 year 
olds interviewed had someone at home who smoked (37.9 percent in 
households of 16-17 year olds), and yet, in reality only 25 percent 
of the American public--half the rate of the population relied upon 
by Dr. Slade--smoke. [Thus], the unrepresentative sample population 
Dr. Slade employed created a significant bias, which distorts the 
results of this survey and renders them entirely unreliable.
    Finally, one comment stated that the primary basis for the 
provision appeared to be data \226\ that allegedly show that 44 percent 
of teenage smokers and 27 percent of teenage nonsmokers have received 
nontobacco promotional items. The comment stated that the study is 
irrelevant because it drew no conclusion as to the significance of the 
number, nor did it indicate how the teenagers received the items.
---------------------------------------------------------------------------

    \226\ ``Teenage Attitudes and Behavior Concerning Tobacco--
Report of the Findings,'' the George H. Gallup International 
Institute, Princeton, NJ, p. 59, September 1992.
---------------------------------------------------------------------------

    In response, the agency concludes that the evidence presents a 
compelling case to prohibit the sale and distribution of all nontobacco 
items that are identified with a cigarette or smokeless tobacco product 
brand name or other identifying characteristic. The evidence 
establishes that these nontobacco items are readily available to young 
people and are attractive and appealing to them with as many as 40 to 
50 percent of young smokers having at least one item (60 FR 41314 at 
41336). The imagery and the item itself create a badge product for the 
young person and permit him/her the means to portray identification.
    FDA has shown that tobacco advertising plays out over many media, 
and that any media can effectively carry the advertising message. 
Moreover, the agency recognizes that the tobacco industry has exploited 
loopholes in partial bans of advertising to move its imagery to 
different media. When advertising has been banned or severely 
restricted, the attractive imagery can be and has been replicated on 
nontobacco items that go anywhere, are seen everywhere, and are 
permanent, durable, and unavoidable. By transferring the imagery to 
nontobacco items, the companies have ``thwarted'' the attempts to 
reduce the appeal of tobacco products to children.
    In addition, items, unlike advertisements in publications and on 
billboards, have little informational value. They exist solely to 
entertain, and to provide a badge that, as the Tobacco Institute 
asserted, allows the wearer to make a statement about his ``social 
group'' for all to see. But because tobacco is not a normal consumer 
product, it should not be treated like a frivolity. Advertising that 
seeks to increase a person's identification with and enjoyment of an 
addictive deadly habit has the ability, particularly among young 
people, to undermine the restriction on access that FDA is imposing. 
For these reasons, the agency continues to find sufficient evidence to 
support a ban on these items.
    Finally, regarding the unpublished paper by Dr. Slade, the comment 
has confused the household smoking rate with the overall population 
smoking rate. The smoking rate per household can be as high as twice 
the overall adult smoking rate. For example, if the smoking rate for 
adults were 25 percent and assuming two adults per household and only 
one of the pair smokes, then the household smoking rate could be as 
high as double that of the individual rate. Therefore the range of 
possible household smoking rates would be 25 percent to 50 percent, 
with 44 percent being quite plausible.
    Lastly, the comments that state that peer pressure and smoking by 
friends and family are significant factors in influencing a young 
person's tobacco use, rather than promotional items, fail to recognize 
that if a young person is influenced by what a peer says about tobacco 
use, he or she will also likely be influenced by that same peer wearing 
a tobacco promotional item.
    (75) One comment from a small smokeless tobacco company expressed 
concern because much of the packaging used for its products also bears 
its corporate logo. Moreover, several of its brand names include words 
in its corporate logo. Thus, the comment argues that FDA might find 
that its corporate logo is an ``indicium of product identification'' 
covered by the restrictions in Sec. 897.34. The comment stated that 
promotional items are a small but important part of its advertising and 
promotional activity, and these items allow its customers to feel like 
a part of an extended family. It would be unfair, the comment argued, 
as well as harmful to the company, if FDA were to determine that a 
corporate logo may not be used on promotional items.
    One comment stated that the total merchandising and ban in 
Sec. 897.34(a) is unreasonably broad in scope. It stated that it 
virtually limits all merchandising, because all colors or patterns of 
colors are associated with some brand or another of tobacco product. 
The comment stated that the proposed regulation is so confusingly vague 
that one could argue that a ``distributor'' would be prohibited from 
using the color red in any event for any product category, brand, or 
corporation because Marlboro brand tobacco products utilize the color 
red.
    Another comment stated that because the definitions of 
``cigarette'' and ``smokeless tobacco product'' are limited to tobacco 
products with nicotine, the agency should consider the possibility that 
a tobacco company could market a nicotine-free brand extension of a 
cigarette or a smokeless tobacco product and advertise this product 
free of restrictions. The comment stated that the advertising for such 
a product could have carryover value for the nicotine containing 
versions of the product thereby undermining the intent of the 
regulations.
    The agency agrees that it needs to clarify the scope of 
Sec. 897.34(a). The regulation covers any item with indicia of the 
brand identity. If the corporate logo is not an indicium of a brand 
identity, its use would not be prohibited in nontobacco labeling or 
advertising. On the other hand, if a corporate logo includes an 
identifiable brand name or image, it must comply with the restrictions. 
Any other position would permit a company to evade the intent of this 
regulation by using a corporate logo to continue to display brand 
imagery. For example, RJR may continue to sell or distribute hats and 
tee shirts with the name ``R. J. Reynolds'' on them, but not the name 
``Camel.'' Nor can it put the Camel inside the Reynolds logo. The 
agency, therefore, has amended Sec. 897.34(a) to state that the indicia 
of product identification cannot be identical or similar to, or 
identifiable

[[Page 44525]]

with those used ``for any brand of ciagarettes or smokeless tobacco''.
    In addition, it is not the agency's intention to ban the use of 
registered or recognizable colors for all advertising. Only the owner 
or user of the brand identification is prohibited from using that color 
or pattern of colors in a manner so as to advertise tobacco or 
smokeless tobacco. For example, Philip Morris would be prohibited from 
using the distinctive red, black, and white pattern of colors which 
identify Marlboro, but neither RJR nor Joe's Garage would be prohibited 
by the regulations from using those colors.
    Finally, in response to the last comment, the agency has restricted 
the coverage of this regulation to promotions of cigarettes and 
smokeless tobacco products containing nicotine. It has no evidence 
justifying a broader coverage of the regulation to nicotine-free 
products at this time. However, a company could not give a nontobacco 
product (a nicotine free product) a tobacco brand name. This is exactly 
what this section of the final rule forbids.
    (76) Several comments argued that Sec. 897.34(a) constituted a 
restriction on symbolic expression that cannot be characterized as 
commercial speech. The comments argued that these items do not propose 
a commercial transaction. One comment argued that in Cohen v. 
California, 403 U.S. 15 (1971), the Supreme Court recognized that 
otherwise objectionable words worn on a jacket are fully protected 
speech.
    FDA finds no merit to these comments. Section 897.34(a) on its face 
is limited only to manufacturers and to distributors of imported 
cigarettes or smokeless tobacco. It does not limit the rights of 
individuals to express themselves by wearing an article of clothing 
that bears a picture of a cigarette or a logo. \227\ What it does limit 
is the ability of manufacturers and some distributors of tobacco and 
smokeless tobacco to do what is the essence of commercial speech--to 
take actions to call public attention to the products whose logo the 
items bear, so as to arouse a desire to buy those products. (See Public 
Citizen v. FTC, 869 F.2d at 1554.) Because this is what the nontobacco 
items that are the subject of Sec. 897.34(a) are designed to do, they 
share all the characteristics of the pamphlets that the Supreme Court 
in Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 66-67 (1983), 
found to be commercial speech. Consequently, FDA may regulate the 
nontobacco items as commercial speech, as long as its regulation passes 
muster under the Central Hudson test (see 463 U.S. at 68).
---------------------------------------------------------------------------

    \227\ The fact that individuals would be free to make their own 
articles of clothing with brand names of tobacco products on them 
does not make the regulations fatally underinclusive. (See U.S. v. 
Edge Broadcasting Co., 509 U.S. 434 (``Accordingly, the Government 
may be said to advance its purpose by substantially reducing lottery 
advertising, even where it is not wholly eradicated.'').)
---------------------------------------------------------------------------

    (77) Some comments challenged the constitutionality of the 
prohibition on the use of a cigarette or smokeless tobacco brand logo 
on nontobacco products under the Central Hudson test. The comments 
argued that the prohibition does not directly advance FDA's interest 
because the prohibition is unrelated to the goal of protecting 
children. The comments also argued that the prohibition is not narrowly 
tailored because it is not limited to children and not limited to 
products that are particularly attractive to children.
    Several comments disagreed and argued that the prohibition is a 
constitutionally permissible restriction on speech. One of these 
comments pointed to the finding in the IOM's Report Growing Up Tobacco 
Free of the effectiveness of this type of advertising with young 
people. The comment said that FDA would therefore be justified in 
prohibiting its use.
    FDA has carefully considered these comments. The agency concludes 
that the prohibition on the use of a cigarette or smokeless tobacco 
brand logo on nontobacco items is a permissible restriction under the 
First Amendment.
    First, this restriction will directly advance FDA's interest in 
protecting the health of people under 18 years of age. In Public 
Citizen v. FTC, 869 F.2d at 1549 n. 15, the Court of Appeals for the 
D.C. Circuit recognized that the nontobacco ``utilitarian items might 
be among the most effective forms of promotion with respect to 
adolescents.'' This judgment is consistent with much of the other 
evidence in the administrative record. A 1992 Gallup survey found that 
44 percent of all adolescent smokers and 27 percent of adolescent 
nonsmokers owned at least one promotional item from a tobacco company. 
\228\ Testing by RJR in 1988 found that nontobacco items performed best 
among young adults. \229\
---------------------------------------------------------------------------

    \228\ ``Teenage Attitudes and Behavior Concerning Tobacco--
Report of the Findings,'' The George H. Gallup International 
Institute, Princeton, NJ, pp. 17, 59, September 1992.
    \229\ Bolger, M. R., Marketing Research Report, entitled Camel 
``Big Idea'' Focus Groups-Round II, September 21, 1988.
---------------------------------------------------------------------------

    The IOM Report pointed out that the ubiquity of nontobacco items 
conveys the impression that tobacco use is the norm. \230\ As stated in 
section VI.D.3.c. of this document, this impression, that tobacco use 
is widespread and accepted, fosters experimentation with tobacco and 
smokeless tobacco by young people. This fact led the IOM to recommend 
that the use of tobacco product logos on nontobacco items be 
prohibited. \231\ The IOM said that this and several other related 
steps (including requiring the use of the text-only format) were 
necessary to eliminate those features of advertising that tend to 
encourage tobacco use by children and youths.
---------------------------------------------------------------------------

    \230\ IOM Report, p. 110.
    \231\ Id., p. 133.
---------------------------------------------------------------------------

    Thus, the prohibition on the use of these logos will directly 
advance FDA's interest. The IOM's recommendation provides significant 
evidence of this fact.
    Second, even though FDA is prohibiting the use of brand logos on 
nontobacco items, this restriction meets the requirement of narrow 
tailoring. The Supreme Court has held that a ban may satisfy this 
requirement if the agency's judgment is that it is ``perhaps the only 
effective approach'' (Board of Trustees of the State of N.Y. v. Fox, 
492 U.S. at 479). In this case, FDA has determined that a ban of these 
items is necessary for several reasons. The appeal of something for 
nothing items for youngsters is great, and the extent of the appeal 
makes it virtually impossible to distinguish among items, as suggested 
by one comment. As the IOM pointed out, these items, when worn or used 
by children, are capable of penetrating areas of a child's world that 
might be off-limits to other forms of advertising. \232\ Because they 
penetrate the young persons' world, they are very effective in creating 
the sense that tobacco use is widely accepted, which, as stated in 
section VI.D.3.c. of this document, is extremely important to children 
and adolescents. These items act like a badge that marks an individual 
as a member of a group, another attribute that makes them particularly 
attractive for young people. There is no way to limit the distribution 
of these items to adults only. The industry claims that it already is 
taking sufficient action to ensure that only adults get these items 
\233\ but as the evidence

[[Page 44526]]

indicates, a substantial number of young people have them. As noted in 
this section, almost one-half of young smokers and one-quarter of 
nonsmokers have one or more items. Moreover, even were items to be 
distributed to adults only, this would not prevent the wearers from 
becoming walking advertisements that would continue to display the 
attractive imagery.
---------------------------------------------------------------------------

    \232\ Id., p. 110.
    \233\ The Cigarette Advertising and Promotion Code, subscribed 
to by the major cigarette manufacturers, contains three provisions 
that address the necessity of preventing anyone under the age of 21 
from getting promotional items.
---------------------------------------------------------------------------

    For all these reasons, FDA finds that all nontobacco items that 
bear cigarette or smokeless tobacco brand logos are capable of playing 
a significant role in a young person's decision to engage in tobacco 
use. Because no distinction among these products is apparent, and no 
way of limiting their availability to adults is possible, FDA finds 
that the most direct and effective means of controlling their appeal to 
adolescents and children under the age of 18 is to prohibit 
manufacturers, distributors, and retailers of tobacco products from 
distributing or selling them.
    (78) One comment opposed Sec. 897.34(a) because the comment argued 
that the provision would impose restrictions on an otherwise lawful use 
of trademarks. It stated that Sec. 897.34(a) would prohibit the right 
of any trademark owner to use a trademark for the sole reason that the 
trademark is used by another party on tobacco products. The comment 
stated that Sec. 897.34(a) also would prevent large distributors and 
retailers, who handle a wide variety of both tobacco and nontobacco 
products, from distributing or selling any product which happened to 
bear the same or similar mark as that used on a tobacco product. The 
comment stated that, for example, grocery markets could not stock or 
sell Beechnut baby food or chewing gum because Beechnut also is used as 
a trademark for chewing tobacco even though the manufacturers are two 
different companies with the same name. It stated that the Lanham Act 
(15 U.S.C. 1051 (1996)) would, and in fact does, permit such 
identically branded products to coexist in the marketplace because of 
the absence of any likelihood that these products would be associated 
or confused with each other.
    FDA recognizes that Sec. 897.34(a) as proposed created unintended 
confusion and therefore will amend the provision to clarify the 
agency's meaning. Changes have been made that are intended to clarify 
Sec. 897.34(a) so that retailers and distributors of domestic tobacco 
products are not included, thus avoiding the problem identified with 
the comment and making it possible for grocers to sell Beechnut baby 
food and Beechnut tobacco products.
    (79) Several comments stated that Sec. 897.34(a) would unlawfully 
constrain the separate and distinct activity of trademark 
diversification in connection with products that are unrelated to the 
marketing of tobacco products by cigarette manufacturers. One comment 
contended that general bans on the licensing of brand logos pertaining 
to tobacco products are incompatible with long-established principles 
of international trademark law. The comment asserted that the use of 
such trademarks in a nontobacco context is not an indirect means of 
advertising or promoting tobacco products. The comment stated further 
that it is an increasingly common practice in many industries to ``spin 
off'' new products by marketing them under a trademark that has 
acquired some cachet or represents quality. It stated that such 
licensed products are not marketed in an effort to sell the ``root'' 
product, rather, the trademark has some ``detachable'' qualities that 
help build demand for the licensed goods. It stated that the same is 
true of marketing a nontobacco product under the trademark of a tobacco 
product.
    FDA cannot agree with the comments' claims. While the agency 
recognizes that the use of these trademarks on hats and tee shirts 
promotes the underlying tobacco product by continuing the extensive 
imaging in these venues. Moreover, as the court in Public Citizen, 869 
F.2d at 1549, n. 15, recognized, branded nontobacco items might be the 
most effective type of promotion to young people. Therefore, failure to 
include this form of advertising and promotion in the regulation, would 
weaken considerably FDA's efforts to reduce the appeal of these 
products to young people under 18, and would undermine the agency's 
access restrictions.
    The agency also disagrees with the comment's suggestion that 
Sec. 897.34(a) effects a taking (or deprivation of a property right) by 
prohibiting the use of tobacco trademarks to market nontobacco 
products. Section 897.34(a) clearly relates to commercial speech and 
the comment is merely attempting to cloak commercial messages with the 
issues of registrability and value of well-known trademarks. As 
discussed in section XI. of this document, the agency has determined 
that this regulation does not effect a taking compensable under the 
Fifth Amendment.
    One comment that supported FDA's proposal stated that smokeless 
tobacco makers circumvent the FTC regulation that covers the use of 
brand names of smokeless tobacco products on promotional items such as 
caps and tee-shirts. For instance, rather than stop making such items, 
U.S. Tobacco has registered Skoal Bandit Racing, Skoal--Copenhagen Pro 
Rodeo, and Skoal Music as service marks and places these names on many 
of the items it offers the public, thereby evading FTC's regulation. 
The comment stated that this experience demonstrates the need for 
regulations of this sort to be comprehensive.
    The comment stated further that there may be other relatively easy 
ways around Sec. 897.34(a). It stated that if the rights to a brand 
name were transferred to an entity that was not a manufacturer, 
distributor, or retailer that this separate entity could then license 
back the use of the brand name to the tobacco company and proceed to 
market, license, distribute, or sell other goods and services using 
that same brand name. The comment stated that one way to close this 
loophole would be to require manufacturers to own the trademarks and 
the rights to all associated symbols for each brand they produce.
    FDA disagrees with these comments and believes that the concerns 
expressed are misplaced. Section 897.34(a) prohibits all use of the 
Skoal brand name on nontobacco items, whether used alone, i.e., 
``SKOAL,'' or with other words, such as ``Skoal Racing Bandit.'' In 
addition, the provision forbids not just the use of the brand name, 
logo, etc. by the manufacturer but also the marketing, licensing, 
distributing, selling of them, or the causing of any of those 
activities; thus, effectively preventing the type of license-transfer 
arrangement described in the comment.
    (80) Several comments stated that FDA cannot ban contests and 
lotteries under section 520(e) of the act, because they are not 
devices. Moreover, the comments stated that existing laws and 
regulations provide adequate protection and to the extent that the 
participation of minors in these activities is a problem the States 
already have ample power to regulate them.
    In addition, a comment stated that FDA offered no evidence, or 
citation to studies, that contests, lotteries, or games involving 
tobacco products have particular appeal to adolescents. Moreover, the 
comment stated, that any inability to quantify participation by youth 
does not mean that the agency

[[Page 44527]]

can ban an entire form of promotion to adults.
    One comment pointed out that, by law, customers wishing to 
participate in games of chance or similar promotional activities must 
be adults. The comment stated that banning such activity bears no 
relationship to achieving FDA's stated purpose. The sole effect of 
FDA's ban would be to unjustly impair the relationship between tobacco 
manufacturers, retailers, and their adult customers.
    One comment stated that the agency should not prohibit all use of 
contests or games of chance by the tobacco industry because regulations 
already exist and are enforced by the Bureau of Alcohol, Tobacco, and 
Firearms (BATF).
    Another comment stated that the proposed rule misunderstands the 
nature of such activities, misrepresents the appeal of promotions, and 
assumes without proof that promotions induce young people to smoke. It 
stated that promotional activities are not undertaken to encourage 
people, young or old, to smoke, but rather to introduce existing 
smokers to the brand being promoted and to provide them with incentives 
to choose that brand over others. Moreover, participation in such games 
is expressly limited to smokers who are 21 years of age or older.
    Conversely, one comment provided support for the 1995 proposed 
rule. It stated that, while it is unlikely that anyone under 18 years 
of age actually has ever received any of the major prizes or offers 
from the give-aways, the award of prizes is not the point of these 
marketing tools. It stated that the consumer's participation in the 
fantasy of the prize in association with the brand being promoted is 
the reason these contests are used.
    FDA has been persuaded by the comments to modify Sec. 897.34(b) 
regarding lotteries and games of chance in connection with nontobacco 
items. Federal law already prohibits ``any certificate, coupon, or 
other device purporting to be or to represent a ticket, chance, share, 
or an interest in, or dependent on, the event of a lottery to be 
contained in, attached to, or stamped, marked, written, or printed on 
any package of tobacco products'' (26 U.S.C. 5723(C)). BATF has issued 
regulations enforcing this provision (27 CFR 270.311).
    In addition, although no Federal agency has issued specific 
restrictions on games of chance and lotteries in connection with 
advertising of tobacco products, Federal and State law prohibit games, 
contests, and lotteries if based on product purchase (18 U.S.C. 1302-
1307, 1341 (1995)). Given these existing Federal requirements, the 
agency has concluded that there is no need to add FDA regulations. 
Therefore, Sec. 897.34(b) has been modified to delete the provision 
concerning lotteries and games of chance but to continue to the 
prohibition of gifts and proof of purchase acquisitions.
    It must be understood, however, that advertising for games, 
lotteries, or contests may not contain any indicia of product 
identification other than black text on a white background, since the 
advertisement for a contest in the name of a tobacco brand, or 
identifiable as a tobacco brand, is restricted to text-only format as 
required in Sec. 897.32(a). The agency points out that, as part of the 
review of the regulation that it plans to undertake in 2 years, FDA 
intends to consider the effect of games of chance and lotteries on 
young people and determine whether additional regulations are 
necessary.
    Based on the evidence amassed during its investigation, and the 
surveys described in the preamble to the 1995 proposed rule (60 FR 
41314 at 41336) and submitted during the comment period, FDA has 
concluded that nontobacco items (identified with a tobacco brand), 
either sold, given away, or provided for proof of purchase are an 
instrumental form of advertising in affecting young people's attitudes 
towards and use of tobacco. Moreover, banning this form of advertising 
is essential to reduce tobacco consumption by young people. This form 
of advertising has grown in importance over the last 20 years. As 
discussed in this section, expenditures rose from 2.1 percent in 1975 
to 8.5 percent in 1980 (60 FR 41314).
    Studies--A Gallup survey found that about one-half of young smokers 
and one quarter of all non-smokers, own at least one promotional item 
(60 FR 41314 at 41336). Another study, detailed more fully in this 
section, found that participation in tobacco company promotions (owning 
an item, collecting coupons for gifts, or having a catalogue) by 12 to 
17 year olds is more predictive of susceptibility to use of tobacco 
products than smoking by those close to the individual. Another study, 
by Slade, found that 25.6 percent of 12 to 13 year olds and 42.7 
percent of 16 to 17 year olds participate in promotional programs such 
as Camel Cash and Marlboro miles (60 FR 41314 at 41336).
    Evidence Provided by Industry Members--Two separate studies done 
for R.J. Reynolds, and described in this section, found that tee shirts 
were a significant source of information about tobacco for some young 
people and that these items performed best among young people.
    A ban on this type of advertising will prevent the ``something for 
nothing appeal'' of give aways and proofs of purchase and will 
eliminate the walking billboard, who can enter schools and other 
locations where advertising is inappropriate. Thus, FDA concludes that 
the restriction it is adopting on this type of promotional material 
will directly advance FDA's efforts to substantially reduce consumption 
of tobacco products by children and adolescents under 18.
8. Section 897.34(c)--Sponsorship of Events
    Proposed Sec. 897.34(c) provided that ``no manufacturer, 
distributor, or retailer shall sponsor or cause to be sponsored any 
athletic, musical, artistic or other social or cultural event, in the 
brand name, logo, motto, selling message, recognizable color or pattern 
of colors, or any other indicia of a product identification similar or 
identical to those used for tobacco or smokeless tobacco products.'' 
Proposed Sec. 897.34(c) would have permitted a manufacturer, 
distributor, or retailer to sponsor or cause to be sponsored any 
athletic, musical, artistic or other social or cultural event in the 
name of the corporation that manufactures the tobacco product, provided 
that both the registered corporate name and the corporation were in 
existence before January 1, 1995.
    The preamble to the 1995 proposed rule explained that sponsorship 
by cigarette and smokeless tobacco companies associates tobacco use 
with exciting, glamorous, or fun events such as car racing and rodeos, 
and provides an opportunity for ``embedded advertising'' that actively 
creates a ``friendly familiarity'' between tobacco and sports 
enthusiasts, many of whom are children and adolescents. The preamble to 
the 1995 proposed rule cited several studies that demonstrate the 
impact of sponsorship on consumer attitudes (60 FR 41314 at 41337 
through 41338). The proposed restriction was intended to break the link 
between tobacco company-sponsored events and use of tobacco and reduce 
the ``friendly familiarity'' that sponsorship generates for a brand.
    (81) FDA received a substantial number of comments concerning the 
agency's 1995 proposal on sponsorship, including comments submitted by 
the

[[Page 44528]]

tobacco industry, motorsport industry, advertising agencies, adult 
smokers, medical professionals, public interest groups, and racecar 
drivers. Approximately 300,000 individuals submitted a form letter that 
was produced by 1 tobacco manufacturer. The form letter inaccurately 
referred to the 1995 proposal as a ``ban on tobacco sponsorship of 
events including concerts, State fairs and consumer promotions'' 
whereas the agency proposed to permit tobacco company sponsorship of 
all events to continue as long as they are in the corporate name. Other 
comments submitted by the tobacco industry, adult smokers, and 
motorsport industry strongly objected to the provision. In contrast, 
those comments submitted by public interest groups, medical 
professionals, and some racecar drivers strongly supported the 
provision.
    In response to comments, the agency has modified this provision to 
prohibit all sponsored entries and teams using the brand name in 
addition to the prohibitions that were proposed. Moreover, the final 
rule clarifies that the corporate entity that can sponsor events, teams 
and entries must not only be registered but that the registration must 
be in active use in the United States, and the corporate name cannot 
include any indicia of product identification ``that are identical or 
similar to, or identifiable with, those used for any brand of 
cigarettes or smokeless tobacco.''
    (82) Several comments addressed the issue of whether young people 
attend, or even see, sponsorship events. Some comments opposed the 
provision, arguing that sponsored events (such as motorsport events and 
seniors golf tournaments) are created for and attended by adult 
smokers, and that there is no credible evidence that these events are 
targeted at, created for, attended by, or even seen by significant 
numbers of children and adolescents. One comment stated that ``contrary 
to FDA's assertions,'' the industry takes special steps to ensure that 
material distributed at events is not attractive to minors. One comment 
stated that ``[r]ecent industry studies demonstrate that the 
overwhelming majority of fans at motorsports events are adults,'' and 
that ``for example, 97 percent of NASCAR Winston Cup Series race 
attendees are 18 years of age and older [and] [m]ore than 90 percent of 
NHRA Winston Drag Racing Series attendees are 21 years old and older.'' 
The underlying studies were not, however, cited or attached to the 
comment.
     One comment added that motorsport events are not seen by 
``significant'' numbers of children under the print media standard 
proposed by FDA (i.e., the ``15 percent/2 million benchmark''). The 
comment argued that:
    [o]n the one hand, the agency concedes that image advertising is 
permissible in publications with a primarily adult readership 
because ``the effect of such advertising on young people would be 
nominal,'' but on the other hand, it attempts to measure the impact 
of cigarette brand sponsorships * * * by using statistics on the 
viewing audience of sponsored motorsport events without recognizing 
that these figures demonstrate the fact that the vast majority of 
viewers of such events are adults.
The comment stated that:
    [I]n fact, the 64.05 million underage viewers of the 354 
motorsport broadcasts studied represents only 7 percent of the total 
viewing audience of these broadcasts. This averages out to 180,806 
underage viewers per event. These figures are far below the 15 
percent and two million readership benchmarks that are permitted for 
image advertising in print media.
    * * *
    The comment also stated that FDA made no attempt to measure the 
percentage of adolescents in the live gate of sponsored events, and 
that industry estimates indicate that the overwhelming percentage of 
fans attending motorsport events are adults.
    One comment stated that the price of a typical ticket to a stock 
car race event is expensive enough to preclude adults from taking their 
children to events and to preclude children themselves from attending 
these events.
    Other comments supported the provision, stating that tennis 
tournaments, sports car, motorcycle and powerboat racing, and rodeos 
all are aimed at sports enthusiasts, many of whom are children or 
teenagers, and that rock concerts and country music festivals are 
``magnets'' for adolescents.
    One comment stated that:
    [it] is also no coincidence that when the tobacco industry 
sponsors events where the audience is almost entirely educated 
adults, the sponsorship is in the name of the corporation (i.e., art 
exhibits, modern dance companies), but when the event fits the 
psychological image the tobacco industry needs to attract 
adolescents, the sponsorship is in the name of the brand most likely 
to appeal to those children (Virginia Slims, Marlboro, Winston, 
Skoal Bandit).
    The agency, which acknowledges the comments' reports on the number 
of young people at events, did not receive any data to support or 
refute these numbers. However, recent reports in the press indicate 
that the number of young people attending these events may be growing.
    In NASCAR we found a great kids' business. I was astounded by 
their information, statistics and demographics regarding kids. [Fred 
Siebert, president of Hanna-Barbera, Inc., explaining why the 
company is sponsoring a cartoon race car to appear in NASCAR races 
emblazoned with Fred Flintstone and other cartoons on the hood.] 
After reviewing the 1995 NASCAR season, we concluded that a sizable 
number of attendees at NASCAR events were families with kids ages 6-
11. Yet we felt NASCAR was not specifically serving that audience. 
[Gary Bechtel, owner Diamond Ridge Motorsports, who will field a 
NASCAR car and team named Cartoon Network Wacky Racing.] \234\
---------------------------------------------------------------------------

    \234\ ``Diamond Ridge Motorsports and Hanna-Barbera, Inc., to 
form Wacky Racing Team Changing Face of NASCAR; Deal Launches 
Cartoon Network Consumer Branding Initiative,'' Business Wire, 
November 10, 1995.
---------------------------------------------------------------------------

    * * * * *
    We looked at NASCAR and saw how quickly it was growing 
nationally and the fact that so many families go to the races it 
seemed like a natural fit. \235\
---------------------------------------------------------------------------

    \235\ ``Automobile Racing's Widening Appeal Gets the Flintstones 
in Sponsor Table,'' The Times Union, p. B11, March 30, 1996.
---------------------------------------------------------------------------

Moreover, the agency finds that 64.05 million underage viewers (or 
180,806 underage viewers per event) is clearly not ``insignificant.'' 
As discussed in the preamble to the 1995 proposed rule, the ``Sponsor's 
Report,'' which estimated the value of all product exposure for most 
U.S. automobile races, found that 354 motorsport broadcasts ``had a 
total viewing audience of 915 million people, of whom 64 million were 
children and adolescents.'' The preamble to the 1995 proposed rule 
stated: ``the impact of sponsoring televised events such as these 
automobile races is perhaps most apparent when one realizes that over 
10 million people attended these events, while 90 times that number 
viewed them on television'' (60 FR 41314 at 41337). In addition, recent 
news accounts indicate that televising of races has increased both in 
volume and diversity. For example, television can often support three 
major races in 1 day. The two cable ESPN channels had 150 hours of auto 
racing programming in May, 1996, including 95 hours of live races, time 
trials, qualifying and practice laps. \236\
---------------------------------------------------------------------------

    \236\ Moore, S., ``Ladies and Gentlemen, Start Your 
Televisions,'' Washington Post, May 26, 1996.
---------------------------------------------------------------------------

    The effect of sponsored events on the young people who attend or 
see these events is enormous. Advertising affects young people's 
opinion of tobacco products, first, by creating attractive and exciting 
images that can serve as a ``badge'' or identification, second, by 
utilizing multiple and prolonged exposure in a variety of media, 
thereby

[[Page 44529]]

creating an impression of prevalence and normalcy about tobacco use, 
and finally, by associating the product with varied positive events and 
images. The sponsorship of events by tobacco companies uniquely 
achieves all three objectives. Sponsorship creates an association 
between the exciting, glamorous or fun event with the sponsoring 
entity. Whether at the live gate, or on television, young people will 
repeatedly see and begin to associate the event, which they are 
enjoying, with the imagery and appeal of the product. All of the 
attendant concerns of hero worship of the sports figures and 
glamorization of the product by identification with the event are 
present, whether there are thousands or hundreds of thousands of young 
people in attendance. Race car drivers are extremely popular with young 
people and often are looked up to as heroes. According to one promoter 
of NASCAR properties, ``We've found that boys look to NASCAR drivers 
the same way they do to heroes, such as firemen, policemen, 
professional fighters, or astronauts.'' \237\
---------------------------------------------------------------------------

    \237\ Williams, S., ``NASCAR Races into Kid's Licensing, 
National Association for Stockcar Auto Racing Seeking Promotional 
Appeal and Other Products,'' Children's Business, vol. 9, No. 7, p. 
28, July 1, 1994.
---------------------------------------------------------------------------

    Furthermore, sponsorship events present a prolonged period of time 
in which to expose the audience, including young people, to the 
imagery. Sponsorship events do not provide people with a momentary 
glimpse at the imagery, but from 1 to 2 or 3 hours of constant 
attractive imagery. The audience has more than enough time to associate 
the images of the sporting event or the concert with the product.
    The agency agrees that there may be some events (such as seniors 
golf tournaments) that are primarily attended by adult audiences. The 
agency also does not claim that all sponsorship events are attended 
primarily by young people, but that the exposure (which includes 
television broadcasts) of young people to sponsored events is 
substantial. Even if a small percentage of young people attend certain 
sponsorship events, the amount of television exposure that young people 
receive is substantial.
    In addition, the agency recognizes that numbers or percentages of 
the audience less than 18 may be lower than the threshold established 
for ``adult'' publications. However, the type of exposure in these two 
media are dramatically different. Young people reading or flipping 
through a magazine may momentarily glance at advertisements if they are 
interesting or eye-catching, and as a result, the exposure, if any, to 
one particular advertisement may be brief (the average time spent 
viewing an advertisement is about 9 seconds \238\). However, young 
people who attend sponsorship events or view them on television are 
unavoidably bombarded with posters, signs, hats, t-shirts, cars, and 
the like, linked with a fun, exciting, or glamorous event that they 
enjoy for a prolonged period of time. Often, celebrities participating 
in these events are wearing clothes and hats bearing the brand name and 
attractive imagery, and young people come to associate athletes who 
they admire with tobacco products. The amount of time viewed and the 
positive association with the event are incalculable as persuasive 
messages. Thus, the agency rejects the idea of setting a minimum 
attendance threshold for brand name advertising.
---------------------------------------------------------------------------

    \238\ Fischer, P., J. Richards, and E. Berman, ``Recall and Eye 
Tracking Study of Adolescents Viewing Tobacco Advertisements,'' 
JAMA, vol. 261, pp. 84-89, 1989.
---------------------------------------------------------------------------

    (83) FDA received many comments addressing its use of the concept 
of ``friendly familiarity'' in connection with tobacco sponsorship of 
events. Several comments stated that FDA misunderstood the theory, 
\239\ arguing that sponsorships and promotions do not cause young 
people to smoke, and that FDA has failed to meet its burden of 
demonstrating that a ban of such activities will result in any decrease 
in underage smoking. In fact, according to this comment, the studies 
demonstrate that young people are most familiar with the brands of 
tobacco that are most heavily advertised.
---------------------------------------------------------------------------

    \239\ The comment stated that ``[t]he need to establish a 
`friendly familiarity' with a brand name is not about deciding to 
smoke * * * nor about deciding to use a commodity at all--the 
decision to make a category purchase within a mature product 
category is ALREADY made before advertising affects the brand choice 
within the category.''
---------------------------------------------------------------------------

    One comment asserted that since motorsport advertising and 
promotion comprises a small percentage of overall tobacco advertising 
(on the order of 4 or 5 percent of total tobacco advertising), there is 
little support for the conclusion that tobacco sponsorship of 
motorsports has any significant effect on the rate of youth smoking.
    One comment from a 26-year old ex-smoker (who began smoking at age 
10, and smoked for 13 years) and NASCAR racing fan stated:
    [M]y favorite driver is sponsored by a beer company. I don't 
drink and I'm not going to start because my favorite driver has that 
sponsor. However- if I DID drink already, I may switch brands to 
support my driver. All the advertising in the world will not sway me 
(or most-intelligent people) to do something I wouldn't do anyway.
    In contrast, several comments labeled the 1995 proposed rule a 
``reasonable measure'' and stated that ``the evidence cited by FDA in 
support of this proposal is substantial and entirely consistent with 
the best available evidence.'' One comment supported FDA's sponsorship 
restrictions because sponsorship heightens product visibility, molds 
consumer attitudes, links the product with a particular lifestyle, and 
thus increases sales.
    One comment commended FDA for drawing a ``reasonable line--one that 
allows tobacco companies to continue to sponsor events and therefore to 
reap the corporate good will that flows from sponsorship, but compels 
the companies to jettison the hard-sell message that now typifies these 
events.''
    Several comments stated that the events sponsored by tobacco 
companies have a direct and powerful impact on young people because 
they are fun, exciting, and glamorous, and events such as tennis 
tournaments (Virginia Slims), sports car (NASCAR), motorcycles and 
powerboat racing, rodeos, rock concerts, and country music festivals 
are aimed at sports and music enthusiasts, including children or 
teenagers. The comment stated that when minors view these events, 
either in-person or on the television, they are: ``inundated with 
images of the brandname or product logo (which are pasted on uniforms, 
vehicles, signs and virtually every surface imaginable), creating a 
direct and compelling association between the product and an enjoyable 
event.''
    The comment stated that children and young adults are particularly 
vulnerable to this sort of product advertising, because adolescence is 
the time of life during which identities are shaped. The comment 
further stated that there is ample evidence that demonstrates that the 
sponsorship of events leads to strong associations between the event 
and the brandname, that in turn influences the purchasing decisions of 
minors.
    One comment stated that Virginia Slims' sponsorship of tennis was 
vital to the image advertising Philip Morris used to sell Virginia 
Slims tobacco to adolescent girls, and that Marlboro sponsorship of 
racing events is no less effective with adolescent boys. The comment 
stated that sports sponsorship has a secondary impact because ``[the 
athletes who participate in the sponsored event, whether they be race

[[Page 44530]]

car drivers or tennis players, become walking advertisements and role 
models.'' The comment stated that ``[a]s reflected by the Industry's 
own Code, everyone agrees that athletes should not endorse tobacco 
products because of her potential impact on children, but being a 
spokesperson for the Virginia Slims Tennis Tournament, NASCAR racing, 
etcetera is no less effective.''
    The agency finds that the evidence regarding the effect of 
advertising and sponsorship on children's smoking behavior is 
persuasive and more than sufficient to justify this regulation. The 
preamble to the 1995 proposed rule described the available evidence and 
explained why the agency is regulating sponsored events. The evidence 
demonstrates that sponsorship of sporting events by tobacco companies 
can lead young people to associate brand names with certain life styles 
or activities and can affect their purchasing decisions (60 FR 41314 at 
41336 through 41338). The industry, in its comments, has questioned the 
relevance of the evidence but has failed to demonstrate that FDA's 
tentative views were wrong (the industry's criticisms of the individual 
studies are described below).
    Sponsorship events actively create an association between tobacco 
and event enthusiasts. People under the age of 18 are still forming 
attitudes and beliefs about tobacco use, see smoking and smokeless 
tobacco use as a coping mechanism, a gauge of maturity, a way to enter 
a new peer group, or as a means to display independence (60 FR 41314 at 
41329). This final rule is intended to break the link between tobacco 
brand-sponsored events and images and use of tobacco by young people. 
In addition, the tobacco industry itself has recognized the 
vulnerability of young people to advertising featuring sports heroes 
and other celebrities. In its 1994 Code, the cigarette industry 
promised that ``No sports or celebrity testimonials shall be used or 
those of others who would have special appeal to persons under 21 years 
of age.'' \240\ The impact of tobacco's association with the race 
driver, the car, or the event is no less powerful and no less 
persuasive.
---------------------------------------------------------------------------

    \240\ Cigarette Advertising and Promotion Code, 1990.
---------------------------------------------------------------------------

    Finally, although motorsport advertising comprises only a small 
percent of overall tobacco advertising, its effect, like that of 
magazines, or hats and tee shirts, is cumulative. Each separate 
advertising venue, in and of itself, does not produce the entire 
effect. However, taken together, the effect of each advertising 
exposure is magnified beyond each discrete exposure, to create the 
impression that cigarette and smokeless tobacco use is widespread and 
widely accepted. These impressions, as stated in section IV.D.3.c. of 
this document, are very influential to children and adolescents.
    (84) Several comments criticized in detail the studies relied on by 
FDA to show the effect that sponsorship has on young people.
    One comment stated that the studies relied on by FDA (40 FR 41331 
and 41332) do not provide scientifically valid support for the 
conclusion that there is a causal relationship between the promotional 
and sponsorship activities banned under Sec. 897.34(c) and the problem 
of underage smoking.
    The agency proposed to regulate sponsored events based upon its 
tentative finding that the best evidence supported such regulation. 
Although the comments argued that the studies are inadequate, the 
comments offered no new evidence to suggest that the conclusions are 
invalid.
    (85) One comment argued that although the conclusion reached by an 
unpublished paper by John Slade \241\ is that 7 percent of the viewing 
audiences for NASCAR races are youths, the NASCAR Demographics brochure 
states that ``NASCAR records of the age of persons who attend 
motorsport events show that only 3 percent are youths.'' The comment 
stated that this does not constitute a principled basis for outlawing 
tobacco company sponsorship of these races even if every other 
assumption FDA makes about the impact of event sponsorship were true.
---------------------------------------------------------------------------

    \241\ 60 FR 41314 at 41337, n. 225; citing Slade, J., ``Tobacco 
Product Advertising During Motorsports Broadcasts: A Quantitative 
Assessment,'' presentation at the 9th World Conference on Tobacco 
and Health, October 10-14, 1994.
---------------------------------------------------------------------------

    The agency disagrees with the comments on the paper by Dr. Slade. 
Slade's paper established that these events are attended by and seen by 
a large number of young people. The study measured its stated 
objective, it establishes the important fact that children are being 
unavoidably exposed over and over again to attractive and appealing 
images associated with tobacco products at NASCAR events. The study 
establishes that young people are present at events where a popular 
sport is associated with tobacco on signs, cars, people, etc.
    The agency also disagrees with the comment that suggested that the 
price of tickets to motorsport events was sufficiently high to preclude 
adults from taking their children to see them. In fact, some motorsport 
events allow children to attend free of charge or offer discount 
tickets for children. \242\
---------------------------------------------------------------------------

    \242\ See, e.g., Rosewater, A., ``Retirement is no Drag for 
Prudhomme,'' Plain Dealer, p. 7D, June 4, 1996; ``Fun Book 96/ This 
Spectator Sport: Easy Over,'' Newsday, p. 80, May 19, 1996; 
Schmiedel, M., ``Motor Sports World Motorcycle Trials in Exeter Next 
Weekend,'' The Providence Journal-Bulletin, p. 13D, May 19, 1996.
---------------------------------------------------------------------------

    (86) One comment stated that the study performed by Aitken, et al. 
\243\ (the Aitken study) did not attempt to gauge whether exposure to 
tobacco-sponsored events or teams engendered favorable feelings for 
tobacco products in the surveyed young people and stated that the study 
only addressed the effect of factors such as sex, age, and 
socioeconomic status on awareness of cigarette sponsorships. The 
comment also stated that the Aitken study did not test the effect of 
sponsorship activities in this country, and that FDA ignores the fact 
that tobacco companies sponsor a wider variety of more popular sports 
in the United Kingdom, such as ``snooker, cricket and darts.'' Finally, 
the comment accused FDA of ``selective reading,'' citing FDA's omission 
of a statement made by the authors when discussing past studies that 
even though minors may be aware of the sponsorships, ``[t]his of course 
does not mean that cigarette advertising plays a part in inducing 
children to start smoking.'' The comment also criticized the author of 
the study for stating that even though very few of the primary 
schoolchildren named John Player Special or Marlboro as being 
associated with racing, ``[t]his suggests that linkages or associations 
between brand names (or their visual cues) and exciting sports are 
often unconscious, or at the very least, not readily retrieved by 
consciousness (Aitken et al., p. 209).'' The comment claims ``[t]hat 
astonishingly biased hypothesis was not tested by any questions that 
attempted to probe the ``unconscious'' or the ``consciousness'' of the 
interviewees.''
---------------------------------------------------------------------------

    \243\ 60 FR 41314 at 41337, n. 226; citing Aitken, P. P., D. S. 
Leathar, and S. I. Squair, ``Children's Awareness of Cigarette Brand 
Sponsorship of Sports and Games in the UK,'' Health Education 
Research, Theory and Practice, vol. 1, pp. 203-211, 1986.
---------------------------------------------------------------------------

    The agency disagrees with the comment's criticism of the Aitken 
study. This study conducted in the United Kingdom demonstrated that 
primary schoolchildren who said that they intended to smoke when they 
were older tended to be more favorably disposed to cigarette 
advertising. Moreover, Aitken's comment that this

[[Page 44531]]

study did not mean that advertising plays a part in inducing children 
to start smoking`` is an accurate statement of the study. The purpose 
of the study was to examine the effect of sponsorship on children's 
awareness of tobacco sponsorship and brand name identification with 
that sport, not on their smoking behavior. This fact is not a flaw but 
a description of the study design and the study's limitations. The 
study, however, is quite useful in showing the effect of sponsored 
events on young people's awareness of brands.
    In addition, the comment selectively quoted a portion of the Aitken 
study (regarding linkages), while ignoring the reason the statement was 
made. The author of the study made this statement in the context of the 
finding that whereas only 9 percent of the primary schoolchildren named 
John Player Special or Marlboro as sponsoring or being associated with 
racing cars, 47 percent of primary schoolchildren chose John Player 
Special or Marlboro as being liked by ``someone who likes excitement 
and fast racing cars.'' The authors also found that linkages or 
associations between cigarette brand names (or their visual cues) and 
exciting sponsored sports can be elicited by simple advertisements, 
even among children who do not have a critical awareness of the purpose 
of commercial sponsorship. This type of linkage is the primary issue, 
rather than whether such information is ``conscious'' or 
``unconscious'' in nature.
    (87) One comment stated that the study performed by Ledworth \244\ 
(the Ledworth study), which found that even a fairly brief exposure to 
tobacco sponsored sporting events on television may increase children's 
brand awareness, failed to control for other sources of information 
that could result in brand awareness (i.e., if a family member smokes), 
and that even the author of the study stated that further investigation 
needed to be done to determine whether tobacco sports sponsorship 
persuades children to smoke. The comment also stated that FDA cannot 
extrapolate the study results to the United States because the study 
was based on foreign sponsorship and viewership practices, which differ 
significantly from those in this country. The comment stated that the 
differences are highlighted by the fact that 74 percent of the surveyed 
children watched at least part of the snooker match, and that the child 
viewership of NASCAR is ``* * * significantly more limited, at most, 
even by Slade's number, to 7 percent.''
---------------------------------------------------------------------------

    \244\ 60 FR 41314 at 41338, n. 227; citing Ledworth, F., ``Does 
Tobacco Sports Sponsorship on Television Act as Advertising to 
Children,'' Health Education Journal, vol. 43, no. 4, 1984.
---------------------------------------------------------------------------

    The agency disagrees with the comment's criticism of the Ledworth 
study. The Ledworth study demonstrates the power of association between 
an event and brand awareness among young people. The study is evidence 
of the important link formed by that association.
    (88) One comment stated that the study performed by Hock et al. 
\245\ (the Hock study), which showed that nonsmoking boys who saw a 
tobacco sponsorship advertisement had a diminished concern that tobacco 
hurt sports performance, ``has no real relevance to the issue of event 
sponsorship and suffers from obvious, significant methodological 
flaws.'' The comment explained that the video viewed by one of the 
groups contained an advertisement promoting a cigarette company's 
sponsorship of a sporting event and thus reports the effect of a 
particular advertisement, not the effects of the types of sponsorships 
at issue here. The comment also stated that American tobacco companies 
are not permitted to advertise sponsorships in this fashion under 15 
U.S.C. 1335 (the television advertising ban). The comment argued that 
the portion of the conclusion quoted by FDA overstates the results of 
the flawed research because the authors themselves emphasized that 
``nonsmokers''' general attitudes to smoking were not significantly 
affected by exposure to sponsorship events. Finally, the comment argued 
that, among the group of smokers, the authors reported that exposure to 
the sponsorship advertisement did not affect the smokers' brand 
choices, and that the authors cautioned that ``these findings do not, 
in themselves, constitute a case for legislation.''
---------------------------------------------------------------------------

    \245\ Hock, J., P. Gendall, and M. Stockdale, ``Some Effects of 
Tobacco Sponsorship Advertisements on Young Males,'' International 
Journal of Advertising, vol. 12, pp. 25-35, January 1993.
---------------------------------------------------------------------------

    The agency disagrees with the comment's criticism of the Hock 
study. Although the advertisement used in the Hock study may have been 
different than advertisements that appear in the United States, and 
only a single advertisement was tested, these factors alone do not 
render the author's conclusions invalid. Again, most importantly, the 
study provides evidence that brand sponsorship produces awareness of 
the product and the brand in young viewers. The agency also disagrees 
with the comment's assertion that FDA overstated the findings of the 
study. The agency specifically acknowledged in the preamble to the 1995 
proposed rule that exposure to the particular advertisement did not 
affect overall attitudes toward smoking (60 FR 41314 at 41338).
    Moreover, the agency disagrees with the comment regarding brand 
preferences of smokers. As the study authors noted, the study primarily 
focused on nonsmokers. Thus, the fact that there were few smokers in 
the study makes it more difficult to find significant effects on 
smokers. In addition, the authors note more than once that the effects 
of sponsorship appear to be primarily on nonsmokers.
    The important point of this study and the others cited by the 
agency is that sponsorship of events helps create a positive 
association between the event and the tobacco company. The child 
relates the event to the product and this contributes to the perception 
that tobacco use is acceptable and not dangerous. This attitude helps 
an environment that fosters experimentation with tobacco products.
    Finally, the comment asserted that FDA's reliance on the two-page 
memorandum from Nigel Gray \246\ is ``not only disingenuous, but 
demonstrates that FDA has not evaluated the data on which it purports 
to rely.'' The comment stated that ``the statistics cited in this study 
lack any explanation or support.'' The comment also states that ``[the 
conclusions stated in the memorandum are at odds with those in the 
studies by Aitken and Hock cited by FDA.'' The comment stated that the 
author cited a ``Western Australian survey'' that found that 65 percent 
of 10 to 11 year olds surveyed believed that tobacco sponsorship of 
sports is advertising for tobacco, whereas the Aitken study ``found 
that only 4 percent of 10 to 11 year olds identified advertising as a 
component of sports sponsorships by tobacco companies.'' The comment 
also argued that the study by Hock found no effect of the sponsorship 
advertisement on brand choice, whereas the memorandum by Gray revealed 
that sponsorship did effect brand choice.
---------------------------------------------------------------------------

    \246\ 60 FR 41314 at 41338, n. 228; citing memorandum from Gray, 
N., (Anti-Cancer Council of Victoria), to all members of the Federal 
Parliament, December 15, 1989.
---------------------------------------------------------------------------

    The agency recognizes that there are problems with the two-page 
memorandum from Nigel Gray because the data on which it was based have 
not been made available. Therefore, the

[[Page 44532]]

agency has placed no weight on its findings and does not rely on it in 
the final rule.
    On the other hand, the memorandum cannot be used to diminish the 
usefulness of the other studies that have been cited. A careful reading 
of the data presented by the Aitken study reveals that indeed 17 
percent of 10 to 11 year olds identified advertising as a component of 
sports sponsorship by tobacco companies. While it is true, as the 
comment indicated, that 4 percent mentioned only the advertising 
component, the comment has overlooked the fact that an additional 13 
percent of 10 to 11 year olds mentioned both advertising and economic 
components.
    In summary, these studies provide ample support that brand name 
sports sponsorship produces, for young people, memorable associations 
between the sport and the tobacco product and brand name. As shown in 
section VI.B.1. of this document, young people pay attention to and 
rely on peripheral cues such as the color and the imagery of 
advertising for some of their information about products. Tobacco 
sponsorship creates powerful images of fun and excitement to add to 
that ``information'' mix.
    (89) FDA had proposed that entries, such as racing cars, or events 
or teams that participate in events be permitted to display a brand 
name in a black and white text only format. Thus, although the Skoal 
500 would be prohibited, the Skoal Bandit racing car could participate 
in a race event.
    Several comments supported the provision's requirement for teams 
and entries but recommended that the agency go further to restrict 
labeling on entries and teams in sponsored events. One comment, which 
was submitted by a ``participant in motorsport events,'' stated that 
``even when the Marlboro name, for example, is removed from a racing 
car body, the distinctive color scheme still sends the Marlboro 
message, loud and clear.''
    One comment stated that ``under the rationale applied to the 
regulation on event sponsorship, * * * FDA would be justified in 
restricting tobacco companies from entry and team sponsorship.'' The 
comment recommended that FDA ``limit the scope of the terms `entries' 
and 'sponsored events,' for the breadth of possible entries and 
possible events is enormous.'' The comment stated that for instance, 
professional sporting events such as football, basketball, baseball, 
and hockey games, should be excluded from `sponsored events,' so that 
tobacco product brand names cannot be used as the name of a 
professional sports team.'' The comment stated that the term 
``entries'' is ambiguous because, for example, a race car competing in 
a sponsored race would qualify as an ``entry'' under the proposed rule, 
``but would the Company X Choir be considered an `entry' when it 
appears in a sponsored concert?''
    The agency has carefully considered the comments and has decided to 
delete ``entries and teams in sponsored events'' from the list of 
permissible advertising media in Sec. 897.30(a) and to specifically 
include teams and entries within the scope of the ban on sponsored 
events. The agency is persuaded that sponsored teams and entries, such 
as cars: (1) Create the same associations with sports figures and other 
``heroes,'' (2) create a linkage between a tobacco product and an 
enjoyable and exciting event when they appear as part of an event, (3) 
are displayed for a significant period of time. They have the same 
potential to create images and influence children and adolescents as 
does sponsorship of events, and (4) are able to leave the event and be 
seen at fairs and malls and other places frequented by young people.
    The agency appreciates the comment's suggestions that color and 
imagery are as problematic as the brand name but advises that the 
comment has misinterpreted the 1995 proposed rule. Proposed 
Sec. 897.34(c) stated that sponsorship would be prohibited in ``the 
brand name, logo, motto, selling message, recognizable color or pattern 
of colors, or any other indicia of a product identification similar or 
identical to those used for tobacco or smokeless tobacco products.'' 
Thus, a car sponsored by Philip Morris may not be named after the 
Marlboro brand nor be painted in the distinctive tri-color pattern.
    (90) Some comments addressed the issue of whether sponsorship is 
advertising. One comment argued that the International Events Group's 
(IEG) ``IEG Complete Guide to Sponsorship'' states that sponsorship is 
not advertising, and that the guide explains that advertising involves 
the delivery of messages about specific product attributes, while 
sponsorship merely shapes the consumer's image of the brand. Moreover, 
to the extent the IEG is identifying sponsorship as advertising, the 
comment asserted that the IEG guide is a publication by an organization 
that depends on sponsored events for its existence, and is not in the 
business of conducting objective, statistically sound studies on the 
effects of sponsorship. Thus, the comment asserted, FDA has not cited 
any scientific study supporting the theory that sponsorship is 
advertising.
    The comment argued that the position that sponsorship and 
advertising are one and the same is inconsistent with pronouncements 
from Congress and from the FTC. The comment argued that both Congress 
and the FTC have recognized that advertising includes messages about 
product attributes or appealing visual imagery, and the use of a brand 
name to identify an event includes neither. The comment asserted that 
``nothing in the [FTC]'s findings suggests a rationale that would apply 
to the mere display of a logo, trademark, or other product identifier 
when divorced from a selling message.'' The comment asserted that 
Congress has never classified sponsorship of events using brand names 
as advertising, and that the few times it has addressed this issue, 
Congress has issued laws that distinguish advertising from other forms 
of promotion that do not have the same impact as advertising.
    The comment referred to an FTC order In the Matter of Lorillard 
Tobacco, 80 FTC 455, 457 (1972), which the comment argues defines 
``advertising'' to include only those practices that typically contain 
a selling message; and United States v. R.J. Reynolds Tobacco Company, 
No. 76-Civ-814 (JMC) (SDNY 1981), which the comment argued confirms the 
Government's view that the selling message in advertising, not the mere 
display of a logo, was the focus of its concern.
    In addition, the comment argued that another Federal agency agrees 
with this interpretation. The comment stated that the FCC, expressly 
permits ``logos or logograms'' as long as such announcements do not 
contain ``comparative or qualitative descriptions, price information, 
calls to action, or inducements to buy, sell, rent or lease.''
    In contrast, some comments supported the assertion that sponsorship 
is very effective advertising. One comment included in its appendices 
the transcript of an ABC News Day One story broadcast August 10, 1995, 
that reported on the commercial value of sponsorship. The comment also 
included a recent story in Winston Cup Scene (October 19, 1995) which 
describes the advertising value that sponsors expect to receive from 
their sponsorships.

[[Page 44533]]

    Contrary to the comments cited, the FTC asserted, in its comment, 
that sponsorship is advertising, citing its 1992 consent order 
involving the Pinkerton Tobacco Co., (Consent Order) C-3364 (1992).
    The comment also stated that in 1995, the Department of Justice 
announced consent decrees resolving allegations that Philip Morris, 
Inc., and the owners of Madison Square Garden in New York City violated 
the Cigarette Act's ban prohibiting advertising for tobacco on 
television and other media regulated by FCC through the display of 
cigarette brand names and logos at live sporting events that were 
broadcast on television (United States v. Madison Square Garden, L. P., 
No. 95-2228 (S.D.N.Y., April 7, 1995); United States v. Philip Morris, 
Inc., No. 95-1077 (D.D.C. June 6, 1995)). The consent decrees prohibit 
Philip Morris and Madison Square Garden from placing cigarette 
advertising in places regularly in the camera's focus where they might 
be seen on television.
    The agency finds that sponsorship is advertising within the scope 
of this regulation. The claim by the comments that the Lorillard and 
Reynolds Tobacco consent orders demonstrate that the FTC does not find 
sponsorship to be advertising is incorrect. The two cited cases are 
consent orders that did not provide a definition of advertising but 
limited the coverage of the consent order to the specific types of 
advertising mentioned in the order. The two orders clearly excluded 
categories of obvious advertising from the coverage of the order (see, 
e.g., point of sale advertisements less than 36 square inches).
    Although the agency acknowledges that the ``IEG Complete Guide to 
Sponsorship'' (IEG guide) states that sponsorship is not advertising, 
IEG is creating a semantical distinction between one form of 
advertising (traditional media advertising) from other types of 
advertising (e.g., promotional items, sponsorship). The IEG guide 
states that ``[w]hat sponsorship generally accomplishes better 
[emphasis added] than advertising is establishing qualitative 
attributes, such as shaping consumers' image of a brand, increasing 
favorability ratings, and generating awareness.'' In addition, the IEG 
guide states that sponsorship is more effective than advertising in 
increasing ``propensity to purchase.'' This latter description of 
sponsorship falls within the courts definition of advertising in Public 
Citizen v. FTC, 869 F.2d at 1554, as ``any action to call attention to 
a product so as to arouse a desire to buy.''
    The agency finds for all these reasons that sponsorship can be 
regulated as advertising under the act.
    (91) Several comments argued that FDA does not have the authority 
to restrict sponsorship events. One comment stated that FDA has no 
authority to regulate cigarette advertising to ``break the link'' 
between sponsored events and use of tobacco, and reduce the ``friendly 
familiarity'' that sponsorships generate among young people. The 
comment stated that FDA can prohibit only false or misleading 
restricted device advertising and cannot prohibit advertising that 
simply links a name to a product. One comment stated that it is 
difficult to understand how the sponsorship of the IndyCar Marlboro 500 
or the National Hot Rod Association Winston Drag Racing Series, 
promotional activities that would be prohibited under the 1995 proposed 
rule, involve the ``misbranding'' of tobacco products.
    Several comments addressed the issue of whether FDA's proposed ban 
on brand name sponsorship violates the First Amendment. Several 
comments argued that the proposed restrictions on advertising and 
promotional activities are overly broad and violate the First Amendment 
because the 1995 proposed rule would prohibit virtually all forms of 
tobacco sponsorship and advertising at motorsport events, and FDA made 
no attempt to limit the restrictions to advertisements directed at 
minors. One comment argued that the provision would not directly and 
materially advance the government's interest, because there is no 
reasonable basis for asserting that sponsorship causes youth tobacco 
use. The comment stated that FDA did not attempt to differentiate 
between those events that attract children and adolescents and those 
that attract adults. Thus, according to the comment, a ban on tobacco 
sponsorship of an event that few or no children or adolescents attend 
will not directly and materially advance a reduction in underage 
tobacco use.
    In contrast, one comment which supported the provision stated that 
sponsored events have a direct and powerful impact on young people, and 
thus there is a ``reasonable fit'' under the final two prongs of the 
Central Hudson test. The comment argued that the 1995 proposed rule is 
narrowly tailored because ``FDA has selected the approach that best 
effectuates its goal of reducing tobacco consumption by minors, without 
needlessly restricting the industry's ability to sponsor events and 
garner the good will that flows from such sponsorship.''
    FDA concludes that sponsorship of events and sponsored teams and 
events is an advertising medium that is effective in influencing young 
people's decision to engage in smoking behavior and tobacco use.
    As explained in this section, the agency has authority to restrict 
advertising of restricted devices like tobacco and smokeless tobacco 
under sections 520(e) and 502(q) of the act. As the studies described 
in this section \247\ demonstrate, sponsorship associates the 
advertised brand with the event and thus shapes the image of the brand 
and the individual's image of tobacco use. Sponsorship of rodeos and 
car racing, for example, associates the product with events where risks 
are high but socially approved and are taken by individuals who brave 
the odds. \248\ This type of situation fits in very well with the image 
concerns of adolescent males described in section VI.D.4.a. of this 
document.
---------------------------------------------------------------------------

    \247\ See e.g., Aitken, P. P., D. S. Leathar, and S. I. Squair, 
``Children's Awareness of Cigarette Brand Sponsorship of Sports and 
Games in the U.K.,'' Health Education Research, vol. 1, pp. 203-211, 
1986.
    \248\ IOM Report, p. 112.
---------------------------------------------------------------------------

    Youths who attend the sponsored event are directly and unavoidably 
confronted with messages for the sponsoring product. This exposure 
creates a sense of familiarity and acceptance similar to that created 
by billboards near schools and playgrounds.
    In addition, the sponsored events are televised. As a result of 
this fact, through mention of the sponsor and camera shots that pan the 
place where the event is held, awareness of the brand is created, along 
with the associations described above.
    Given these factors, a restriction on sponsorship will be effective 
in limiting the influences on children and adolescents to use tobacco 
products and thus in protecting their health. Moreover, there is a 
reasonable fit between the restriction and FDA's interest. The 
restriction focuses on the use of the brand because of the association 
between the brand and tobacco use. \249\ By building associations with 
the brand, sponsorship and the advertising displayed at the event 
creates a desirable image for young people that contributes to a 
positive feeling about the product that sponsors

[[Page 44534]]

the event. This positive image not only provides a brand that the young 
person might select but also adds to the young person's positive 
feelings about using the product. It is the creation of this 
association that FDA will prevent by restricting sponsorship.
---------------------------------------------------------------------------

    \249\ Hock, J., P. Gendall, and M. Stockdale, ``Some Effects of 
Tobacco Sponsorship Advertisements on Young Males,'' International 
Journal of Advertising, vol. 12, No. 1, January 1993.
---------------------------------------------------------------------------

    FDA is not aware of any way to limit the restriction to events that 
are attended by young people. However, FDA has no desire to restrict 
manufacturers' abilities to contribute to the community by sponsoring 
athletic, cultural, or other events. Thus, the agency has narrowly 
tailored the restriction on sponsorship to use of brand identification 
because it presents the harm that FDA is trying to eliminate. For these 
reasons, FDA concludes that its restrictions on sponsorship are 
consistent with its legal authority and with the First Amendment.
    (92) Several comments (including one from a participant in 
motorsport events) argued that allowing tobacco companies to place 
brand names and logos at highly visible locations during broadcast 
sporting events has afforded tobacco companies the opportunity to 
circumvent the Cigarette Act, which prohibited broadcast advertising of 
cigarettes. One comment stated that tobacco companies receive millions 
of dollars of free brand name television and radio exposure during 
these events and use messages in these advertisements that are 
particularly effective with children. One comment stated that ``the 
degree to which sponsoring events gives tobacco companies television 
time is staggering,'' and ``[j]ust in the televising of the Indiana 500 
[sic], Marlboro received almost 3\1/2\ hours of television exposure and 
146 mentions of its brand name.'' The comment cited cases where 
Congress and the courts have already recognized and upheld the 
importance and the constitutionality of keeping tobacco advertising off 
the airwaves (Capital Broadcasting Co. v. Mitchell, 333 F. Supp. 582 
(D.D.C. 1971), aff'd sub nom. Capital Broadcasting Co. v. Acting 
Attorney General, 405 U.S. 1000 (1972)), and concluded that a reviewing 
court would likely sustain the provision regarding event sponsorship 
simply because it has become a pervasive tool used by the tobacco 
industry to evade the restriction on television advertising.
    The agency finds that there is adequate support for its ban on 
brand name sponsorship of events. As stated in the preamble to the 1995 
proposed rule and in response to an earlier comment, ``[t]he amount and 
financial value of television exposure gained by a firm can be 
substantial.'' The preamble to the 1995 proposed rule cited two studies 
which discussed the impact of sponsoring televised events and concluded 
that:
    [t]he impact of sponsoring televised events such as these 
automobile races is perhaps most apparent when one realizes that 
over 10 million people attended these events, while 90 times that 
number viewed them on television.
(60 FR 41314 at 41337)
    By restricting brand name sponsorship of events, the final rule 
will eliminate those brand name sponsored events that continue to 
permit tobacco product brand names to appear on television.
    (93) Several comments expressed concern that the 1995 proposed rule 
was not sufficiently inclusive; specifically, it did not prohibit the 
incorporation of an event in a brand name by someone other than the 
tobacco company and did not explicitly ban the use of the name of a 
foreign tobacco company in U.S. sport events. Some comments stated that 
restricting sponsorship of entertainment and sporting events to 
corporate name only for corporate sponsors that had been in existence 
prior to January 1, 1995, ``leaves open many shadow entities 
incorporated under tobacco brand names because tobacco transnationals 
have been creating these front groups for years to escape promotion 
restrictions in other countries.''
    One comment stated that Canada, after it had banned brand name 
sponsorship, found that industry used new ``corporations'' such as 
Camel Racing PLC to continue sponsoring in a brand name. Thus, the 
comments recommended that the regulation ensure that corporate 
sponsorship of events be allowed only if the corporate name is the name 
of the manufacturing entity and that the name has no similarity to a 
brand name of any of that manufacturer's tobacco products.
    Several comments expressed concern about a recent trend among U.S. 
manufacturers to develop brands that are made by a corporate entity. 
For example, one comment stated that RJR has developed a series of 
brands with an art deco style of pack design and is selling them 
through a wholly owned subsidiary named Moonlight Tobacco.
    Another comment stated that Philip Morris has been test marketing a 
brand called ``Dave's,'' which it produces through a boutique company 
named ``Dave's Tobacco Company.'' These comments stated that the agency 
should amend the 1995 proposed rule to prohibit any corporate name or 
logo that had a brand name or product identification within it.
    Finally, a comment stated that there are many other existing brand 
names that are also corporate names, such as ``Rothmans'' and 
``Sampoerna'' (a brand of clove cigarette (Kretek) imported from 
Indonesia) that are manufactured overseas. This comment argued that 
non-U.S. corporate names must also be included in the final rules 
proscription.
    The agency recognizes the concern expressed by the comments. As 
stated in the preamble to the 1995 proposed rule, the requirement that 
the corporation be in existence on January 1, 1995, is intended to 
prevent manufacturers from circumventing this restriction by 
incorporating separately each brand that they manufacture for use in 
sponsorship (60 FR 41314 at 41336). The comments have suggested that 
manufacturers may circumvent this restriction by the use of shadow 
entities, many of which have already been incorporated under tobacco 
brand names in other countries (or have been incorporated as events). 
The agency agrees that the proposed restrictions do not prevent this 
type of circumvention.
    Thus, in response to the comments' suggestions, the agency has 
modified the proposed regulations to reflect that the registered 
corporate name and corporation must have been in existence and 
registered in the United States and have been in active use in this 
country before January 1, 1995. Thus, FDA has modified Sec. 897.34(c) 
to state: ``Nothing in this paragraph prevents a manufacturer, 
distributor, or retailer from sponsoring or causing to be sponsored any 
athletic, musical, artistic, or other social or cultural event, or team 
or entry, in the name of the corporation which manufactures the tobacco 
product, provided that both the corporate name and the corporation were 
registered, and in use in the United States prior to January 1, 1995, * 
* *.'' This provision makes clear that manufacturers are free to 
sponsor events in their corporate name but contains language that will 
prevent the type of circumvention of the restriction that was posited 
by the comments.
    The agency also agrees with the comments that suggest that 
manufacturers may also attempt to circumvent this restriction by 
placing within the corporate name or logo elements of brand 
identification such as names (Smokin' Joe), colors (the tricolor 
decoration), etc. Tobacco products can be promoted using more than just 
the brand name. In fact, the name may be less important than the 
attractive

[[Page 44535]]

imagery, recognizable colors and patterns of colors (Marlboro), 
characters and heroes (Joe Camel racecar drivers) all of which provide 
the user with a desired image. A yellow motorcross bike with a head of 
a Camel conveys the image of Joe Camel without the name of the product. 
Therefore, it is necessary in order to break the link between the event 
and the product to restrict the images in addition to the name. Thus, 
FDA has modified Sec. 897.34(c) so that it concludes with the following 
statement:
    ``* * * and that the corporate name does not include any brand 
name (alone or in conjunction with any other word), logo, symbol, 
motto, selling message, recognizable color or pattern of colors, or 
any other indicia of product identification identical or similar to, 
or identifiable with, those used for any brand of cigarettes or 
smokeless tobacco products.
    The agency also recognizes that at some time in the future, 
corporate entities may be formed to sell tobacco products, which are 
new to the tobacco business and in no way associated with current 
manufacturers. Should those entities desire to sponsor events, they 
would be precluded by the language of Sec. 897.34(c) from doing so. The 
agency envisions that such entities could petition the agency, under 21 
CFR part 10, for an exemption from this provision.
    (94) One comment stated that FDA's proposed ban on brand-name 
sponsorship is an unjustified limitation on the right of private 
individuals to select their own sponsors.
    This comment has misinterpreted the 1995 proposed rule. The rule 
does not limit the ``right'' of private individuals to select sponsors. 
Individuals are free to select any sponsor they choose. The rule, 
however, prohibits the event from including any brand name, logo, 
symbols, motto, selling message, or any other indicia of product 
identification similar or identical to those used for any brand of 
cigarette or smokeless tobacco. However, the final rule does not 
prevent corporate sponsors that were in existence and registered in the 
United States before January 1, 1995, from advertising in their 
registered corporate names.
    (95) Several comments stated that sponsorship restrictions would 
have a negative impact on sports events. Approximately 300,000 copies 
of one form letter were submitted as comments. All included the 
statement: ``I am 21 years of age or older and oppose the new 
regulations proposed by the Food and Drug Administration (Docket No. 
95N-0253) that would prohibit tobacco company sponsorship of 
entertainment and sporting events.'' The form letter also stated that 
``If FDA gets control of tobacco and bans tobacco sponsorships, ticket 
prices could rise as well. And there might be fewer events. All this 
adds up to consumers being the big losers.''
    One comment stated ``I oppose any attempt by President or FDA to 
deny RJR the right to sponsor the Winston Cup Racing Series!'' One 
comment stated ``[b]y banning the sponsorship of NASCAR, the races 
won't get any money, and if they have to stop racing, that will make me 
mad, and I am too old to be getting mad--75 years [old].''
    One comment stated that because of the potential loss of economic 
support, many events will not be viable if cigarette company 
sponsorship is no longer available. Several comments argued that FDA's 
proposed ban on sponsorship, promotional programs, and contests would 
eliminate events enjoyed primarily by adults. One comment stated that 
``[w]e believe that we and millions of other middle class fans like us, 
will no longer be able to afford the NASCAR we love.'' One comment 
stated that the provision ``will adversely affect the economy of the 
tobacco industry and that affects many people in many States, not just 
the racing industry and communities.''
    One comment stated that the loss of sponsorship revenue to race 
track owners, operators, and promoters would negatively affect the 
motorsports industry because racing fans will suffer in the form of 
increased ticket prices or decreased services at motorsports events, 
and increased ticket prices will decrease attendance at race events, 
forcing racetrack operators to cut jobs and other employee benefits, 
further depressing the economies of hundreds of communities around the 
nation. The comment also stated that since motorsports injects hundreds 
of millions of dollars into local and regional economies, particularly 
in rural and suburban communities that have been the hardest hit by 
recession and job losses, FDA's proposed regulation would have a 
substantial impact on local and regional economies across the country 
and hurt the future of motorsports.
    In contrast, one comment that supported the proposal was from a 
``dedicated car racer,'' and stated that ``the truth is that car racing 
will do just fine without tying its wonderful image to the interest of 
the cancer promoters.'' The comment stated that:
    in Europe where racing cars run without any cigarette 
advertising whatsoever, people camp out for days trying to get into 
the events, and that the recent Formula One European Grand Prix was 
run in cold miserable, weather with packed stands and not a single 
cigarette logo in sight.
    The comment stated that ``I hope [FDA] will look out for the rest 
of us and stand firm in favor of a ban on tobacco advertising at all 
sporting events.''
    One comment stated that ``many of the millions of dollars spent on 
these promotions are available to the cigarette industry only because 
3,000 children start smoking each day,'' and ``[t]his situation can be 
viewed as an industry demanding a bounty of 3,000 lives per day in 
exchange for its financial support of the sports, music, and other 
entertainment appealing to children and youth.''
    One comment stated that:
    the abundance of other sponsors indicates that auto racing would 
not fail if tobacco products are not allowed to be event sponsors 
and if teams sponsored by tobacco products are restricted to black 
and white uniform and car designs. Similar fears were expressed when 
cigarette commercials were banned from electronic media, but they 
proved groundless.
    The comment stated that sponsors do not make a sport such as auto 
racing or rodeo popular because auto racing and rodeo are ``compelling, 
popular spectator sports in their own right.'' The comment stated that 
``popular sports attract sponsors who want to advertise.'' The comment 
stated that ``[t]he Olympics would remain a premier sporting event 
without Coca-Cola or Kodak'' and ``NASCAR stock car racing is among the 
most popular spectator sports to thrive.'' The comment stated that 
``the audience is not there because of tobacco: tobacco is there 
because of the audience.''
    The agency advises that the concerns expressed by some of these 
comments have misinterpreted the rule. The rule does not ``prohibit 
tobacco company sponsorship of entertainment and sporting events'' or 
``ban tobacco sponsorships, promotional programs, and contests.'' The 
rule prohibits a sponsored event from being identified with a cigarette 
or smokeless tobacco product brand name or any other cigarette or 
smokeless tobacco brand identifying characteristic. All athletic, 
musical, artistic, or other social or cultural events would be 
permitted to be sponsored in the name of the tobacco company as long as 
the other conditions in Sec. 897.34(c) are met.
    In addition, the tobacco industry accounts for only 4 percent of 
all sponsored events. This rule does not prohibit the other 96 percent 
of

[[Page 44536]]

nontobacco forms of sponsorship (60 FR 41314 at 41337). Thus, even if 
the restriction on sponsorship of tobacco products resulted in a 
decrease of tobacco company sponsored events, the events will still 
exist through the support of the nontobacco forms of sponsorship. The 
agency agrees with the comment that ``auto racing would not fail if 
tobacco products are not allowed to be event sponsors.'' Thus, 
restricting tobacco product brand name sponsorship clearly will not 
``ban all sponsorship events.''
    Finally, recent news stories quote persons knowledgeable about car 
racing saying racing would survive without tobacco sponsorship, for 
example, one quote: ``If this happened 10 years ago, it would have been 
crushing to the racing industry. Now people are lining up to take 
Winston's place.'' \250\
---------------------------------------------------------------------------

    \250\ Quoting Ardy Arani, a director of the Atlanta-based 
Championship Group, a sports marketing agency in Jacobsen, G., 
``Mass Merchandisers Jostle With Tobacco Companies to Cash in on the 
Auto Racing Craze,'' The New York Times, p. D71, February 21, 1996.
---------------------------------------------------------------------------

    In conclusion, FDA finds that sponsorship of events (such as car 
races, tennis matches, and rodeos) and entries in those events (race 
cars and drivers, tennis players) can have a profound effect on young 
people's attitude about and use of tobacco by providing multiple and 
prolonged exposure to the brand name and logo in a variety of media, 
thereby creating an impression of prevalence and normalcy about tobacco 
use (see section VI.D.3.c. of this document), by associating the 
product with varied positive events, images, and heroes, and by 
creating attractive and exciting images that can serve as a ``badge'' 
or an identification (see section VI.D.4.a. of this document). The 
industry itself recognizes the concern that sports figures as endorsers 
can create problems of hero worship and emulation; its Code promises 
not to employ sports or celebrity testimonials or those of others ``who 
would have special appeal to persons under 21 years of age.'' 
Sponsorship creates no less of an association than an endorsement. 
Moreover, FDA finds that restrictions on sponsorship identified with a 
tobacco brand are necessary to reduce tobacco use by young people. 
These findings are based on studies and recent reports that the number 
of young people who attend these events or see them on television is 
significant and growing.
    Studies--Four different studies, one each by Slade, Aitken, 
Ledworth, and Hock (60 FR 41314 at 41337 and 41338) and described 
further in this section, provide evidence that sponsored events of all 
types are attended, and seen on television, by a substantial number of 
young people, and that the effect of the exposure is to increase brand 
awareness and association between the brand and the event. This 
attitude contributes to a sense of friendly familiarity about tobacco 
use and a perception that tobacco use is acceptable and common place.
    Surveys on attendance and TV audience, described further in this 
section, establish that attendance by children at events and viewership 
by children and adolescents on television are significant. The preamble 
to the proposed rule used the number 64 million as an annual 
approximation of underage viewers of motorsport events in addition to 
those at the event (60 FR 41314 at 41337). In addition, newspaper 
articles detailed in this section describe the increasing importance of 
young people to sponsored events as a growing part of the live 
audience. Moreover, although less data is available on other types of 
sponsored events, comments received by the agency in response to the 
proposed rule, and described further in this section, state that many 
children and teenagers watch tennis, motorcycle and powerboat racing, 
and rodeos on television and attend and watch on television rock 
concerts and country music festivals.
    Finally, the agency has tailored the restriction narrowly. The 
agency recognizes the importance of corporate sponsorship in 
engendering goodwill for a company with its customers and in providing 
support to sports, the arts, and music. Therefore, the agency has 
crafted the regulation to not interfere with this aspect of sponsorship 
but has merely denied the companies the right to use brand and product 
identification, which are most appealing to young people.
9. Proposed Sec. 897.36--False or Misleading Statements
    The agency proposed in Sec. 897.36 that labeling or advertising of 
any cigarette or smokeless tobacco product:
    is false or misleading if the labeling or advertising contains 
any express or implied false, deceptive, or misleading statement, 
omits important information, lacks fair balance, or lacks 
substantial evidence to support any claims made of the product.
This provision would have explicitly implemented sections 201(n), 
501(a) (21 U.S.C. 351), and 502(q)(1) of the act. Section 897.36 was 
meant to be illustrative rather than exhaustive.
    The agency stated in the 1995 proposed rule that its regulations 
concerning prescription drug advertising provide great specificity as 
to what constitutes violative advertising (part 202 (21 CFR part 202)) 
but that this same degree of specificity is not practical in the case 
of a widely used consumer product like tobacco because the advertising 
for it contains an unlimited variety of claims that make categorization 
difficult. Therefore, the agency tentatively concluded that it would 
provide general guidance for the types of advertising claims that will 
be considered violative, rather than to attempt to identify every 
possible type of false and misleading claim (60 FR 41314 at 41339 and 
41340).
    (96) Several comments objected to various portions of the 
definition, for example the phrases ``omits important information'' and 
``lacks fair balance.'' They asserted that the phrases expand the 
definition of what constitutes ``misleading'' advertising, are 
subjective, and make compliance burdensome because the phrases are not 
defined. Moreover, the comment complained that neither ``fair balance'' 
nor ``substantial evidence'' were appropriately included in the 
definition of false and misleading.
    Additionally, the comments argued that laws regarding false and 
misleading advertising are well established, and that false and 
misleading advertising is subject to the jurisdiction of the FTC. The 
comment stated that it was, therefore, inappropriate for FDA to 
establish vague and overreaching parameters of ``unfair and deceptive'' 
advertising.
    One comment stated that what ``information'' is important is 
undefined. It stated that there is always information that someone may 
consider ``important'' (e.g., price, availability, freshness, taste 
research), and that it would be unreasonable to allow FDA, or any 
regulatory organization or entity, to review tobacco advertising in the 
capacity of determining information that should have been included. 
This comment argued that the legal precedent defining deceptive 
advertising is already established and should not be changed by FDA.
    One comment stated that by introducing the word ``important'' into 
the proposed standard for misbranding of tobacco, FDA has impermissibly 
gone beyond the ``materiality'' test for misbranding set forth by 
Congress in section 201(n) of the act, acted arbitrarily and 
capriciously, and proposed a new standard that is unconstitutionally 
vague.

[[Page 44537]]

    One comment stated that FDA also proposes that labeling or 
advertising would be false or misleading if it ``lacks fair balance.'' 
It stated that FDA has obviously borrowed this concept from the 
prescription drug regulations (Sec. 202.1(e)(5)(ii)), but it is 
inapplicable to tobacco. The comment stated that, first, the ``fair 
balance'' requirement for drugs is based not on the section 502 ``false 
or misleading'' prohibition but rather on section 502(n)(3), which 
requires that prescription drug advertising contain a ``true 
statement'' relating to ``side effects, contraindications, and 
effectiveness.''
    The comment stated that, second, as the drug regulation makes 
clear, the ``fair balance'' required is between information about a 
product's therapeutic benefits and information about its adverse 
effects when used. It stated that because no therapeutic claims are 
made for tobacco, the ``fair balance'' concept is simply inapplicable.
    One comment, however, stated that, under this regulation, 
advertising for cigarettes and smokeless tobacco will be considered 
false or misleading if it ``omits important information.'' It stated 
that this is a reasonable rule, and that it should be part of the final 
rule, but it is one that may be difficult for manufacturers to comply 
with absent guidance from FDA.
    FDA has been persuaded that the proposed general guidance in 
proposed Sec. 897.36 on what might constitute false and misleading 
advertising has created unintended confusion. Under section 502(a) and 
(q)(1) of the act, any restricted device is misbranded if its 
advertising or labeling is false or misleading in any particular. 
Section 201(n) of the act states that:
    If an article is alleged to be misbranded because the labeling 
or advertising is misleading, then in determining whether the 
labeling or advertising is misleading there shall be taken into 
account (among other things) not only representations made or 
suggested by statement, word, design, device, or any combination 
thereof, but also the extent to which the labeling or advertising 
fails to reveal facts material in the light of such representations 
or material with respect to consequences which may result from the 
use of the article to which the labeling or advertising relates 
under the conditions of use prescribed in the labeling or 
advertising thereof or under such conditions of use as are customary 
or usual.
    After review of the applicable provisions of the act concerning 
labeling and advertising, the agency has determined that those 
provisions are adequate and that the definition in proposed Sec. 897.36 
is unnecessary. Because cigarette and smokeless tobacco advertising 
remains subject to regulatory action if it is false or misleading in 
any particular, FDA has decided to delete Sec. 897.36 from the final 
rule.
    (97) Some comments supporting proposed Sec. 897.36 recommended that 
specific restrictions be placed on advertising that emphasizes tar and 
nicotine levels and implies a weight benefit to tobacco products.
    Other comments suggested requiring the disclosure of ingredients. 
These comments argued that consumers do not know the ingredients of 
these products or the functions that these ingredients serve. It added 
that consumers do not know the doses of nicotine and other critical 
materials that they ingest with these products. The comment stated that 
terms such as ``light'' and ``low tar'' have little meaning in view of 
the tendency of consumers to smoke cigarettes differently depending 
upon the way nicotine delivery has been engineered. A comment from a 
tobacco company opposed disclosure of ingredients fearing loss of 
valuable trade secret information.
    The agency has decided that these comments fall outside the scope 
of this rulemaking. The agency did not propose labeling or advertising 
restrictions concerning the levels of tar, nicotine, or other 
components of cigarettes or smokeless tobacco, or perceived benefits of 
tobacco products, only that labeling or advertising not be false or 
misleading. It did not receive comments sufficient to warrant 
restrictions addressing these issues. Consequently, advertising and 
labeling claims will be evaluated on a case by case basis for 
compliance with sections 201(n), 502(a), (q), and (r), 510(j) (21 
U.S.C. 360(j)), and 520(e) of the act. Therefore, FDA is not modifying 
part 897 to address these concerns at this time.

F. Additional First Amendment Issues

    Finally, several general issues were raised by commenters 
concerning the nature of the protection afforded commercial speech by 
the First Amendment.
    (98) One comment argued that the original understanding of the 
First Amendment was that truthful commercial messages are fully 
protected.
    In response to this comment, FDA points out that the Supreme Court 
took the position that the First Amendment does not protect commercial 
speech (see Valentine v. Chrestensen, 316 U.S. 52 (1942)), until it 
repudiated that position in Virginia State Bd. of Pharmacy v. Virginia 
Citizens Consumer Council, Inc., 425 U.S. 748 (1976). Since 1976, the 
Court has decided numerous cases, most recently Rubin v. Coors, Florida 
Bar v. Went For It, Inc., and 44 Liquormart Inc. v. Rhode Island, that 
address the level of protection afforded commercial speech by the First 
Amendment. FDA has followed that case law in its development of this 
final rule. Therefore, FDA has developed this final rule in accordance 
with the applicable law.
    (99) A comment filed by an association of advertising agencies 
warned that the proposed regulations ``establish a dangerous precedent 
that could open the floodgates to dramatic government intrusion into 
the process of communication * * * and [are] a dangerous blueprint for 
government censorship of other kinds of advertising.'' The comment 
expressed concern that regulations of advertising for tobacco products 
will permit, in fact will encourage, the future regulation of other 
``controversial products.''
    Tobacco products are not ``controversial'' products as these 
comments contend. They represent the single most preventable cause of 
death in the United States (1989 Report to the Surgeon General at p. 
i). Not only is the harm caused by tobacco use real (the comment refers 
to ``imagined harm''), but the product that produces the disease and 
death is addictive. Moreover, tobacco use begins among young people, 
who may be able to describe the risks of tobacco use, but who do not 
personalize that risk to themselves. These young people begin to use 
tobacco before they can adequately weigh the consequences of use and 
thus, become addicted and subject to the real long term harms caused by 
tobacco use. That is why all 50 States and the District of Columbia 
outlaw the sale of tobacco products to those under 18 years of age. 
Finally, as discussed in section VI.D. of this document, advertising 
does affect young people's decision to use tobacco products in a 
significant and material way. This is not an ``assertion'' made out of 
whole cloth but a reality. Thus, regulation of tobacco advertising may 
set a precedent for future government action, but it sets a high 
threshold for such regulation.
    The Supreme Court has granted ample protection to commercial 
speech, but the Court has also stressed, nothing in the First Amendment 
prevents the Government from ensuring ``that the stream of commercial 
information flows cleanly as well as freely.'' (See Edenfield

[[Page 44538]]

v. Fane, 506 U.S. 761, 768.) One comment noted: ``This concern takes on 
special force where, as here, crucial public health concerns are 
implicated, and where a particularly powerful seller * * * has used its 
virtually limitless resources to saturate the marketplace with its 
promotional messages.''
    The Government's interest in protecting the health of children and 
teenagers through measures designed to prevent them from beginning a 
lifetime of addiction and disease is of the highest order and is 
sufficient justification for the restrictions finalized here.

VII. Education Campaign

    In the Federal Register of August 11, 1995 (60 FR 41314), the Food 
and Drug Administration (FDA) proposed to require that tobacco 
companies establish a national education program, using television as 
its predominant medium, to discourage children and adolescents from 
using cigarettes and smokeless tobacco (the 1995 proposed rule). The 
agency received more than 1,500 comments concerning the program, nearly 
three-quarters of which favored going forward with it. The comments 
raised many issues concerning the program as proposed, including 
whether the proposed funding would be either equitable or sufficient, 
whether industry's level of involvement would jeopardize its 
effectiveness, whether current industry educational programs are 
sufficient, about the design of the educational programs, the 
manufacturer's obligations to carry them out, the agency's statutory 
authority to require an education campaign under section 520(e) of the 
Federal Food, Drug, and Cosmetic Act (the act)(21 U.S.C. 360j(e)), and 
the constitutionality of the campaign as proposed.
    The agency has reexamined its statutory authority for requiring an 
education campaign and believes that section 518(a) of the act (21 
U.S.C. 360h(a)) is more appropriate and practicable than the restricted 
device authority in section 520(e) of the act under which FDA had 
proposed the education campaign. Under section 518(a) of the act, if 
the agency finds that a device presents an unreasonable risk of 
substantial harm to the public health, that notification is necessary 
to eliminate this risk, and that no more practicable means is available 
under the act, then, after consultation with device manufacturers, the 
agency may issue a notification order that requires them to notify the 
appropriate persons in a form appropriate to eliminate the risk. The 
agency has used section 518(a)'s separate, affirmative grant of 
statutory authority on a number of occasions to compel medical device 
manufacturers to provide notice to users or potential users of their 
products about risks presented by their use or misuse.
    The agency believes that, with respect to cigarettes and smokeless 
tobacco, it could make the findings required by section 518(a) of the 
act and so could order tobacco manufacturers to notify young people 
about the substantial health risks that tobacco products present in a 
form appropriate to eliminate the risk. That is, the agency believes 
that it could find that cigarettes and smokeless tobacco present an 
unreasonable risk of substantial harm to the public health, that 
notification is necessary to eliminate this risk, and that no more 
practicable means is available under the act.
    The agency has concluded, therefore, that it will not require an 
education campaign as part of this tobacco rule. The agency intends, 
however, to send letters that indicate that the agency believes that it 
could make the statutory findings necessary to issue notification 
orders under section 518(a) of the act to cigarette and smokeless 
tobacco manufacturers. As section 518(a) of the act requires, these 
consultation letters will offer tobacco companies an opportunity to 
consult with the agency about the necessity for, and specific 
requirements of, any notification orders before the agency issues any 
orders to the companies.
    Because the education campaign will not be a requirement of this 
final rule, the agency need not respond to the many comments that it 
received concerning the proposed campaign. Nevertheless, because the 
agency intends to pursue implementation of an education campaign using 
the notification provision of section 518(a) of the act, the agency 
will respond briefly to comments that questioned the effectiveness and 
design of the proposed education campaign.
    (1) The agency received comments questioning the effectiveness of 
other educational campaigns and the agency's use of these campaigns to 
support the position that a national educational campaign would be 
effective in helping reduce tobacco use among young people. Comments 
from the tobacco industry argued that studies cited by FDA are 
scientifically flawed and therefore that the agency overstated the 
likely effects of the provision. One industry comment argued that FDA 
misinterpreted a study by Simonich \251\ (the Simonich study), cited in 
the preamble to the 1995 proposed rule to demonstrate that the media 
campaign conducted under the Fairness Doctrine (FD) reduced cigarette 
consumption by 6.2 percent (60 FR 41314 at 41327). The comment 
concluded that the data from the Simonich study indicated that the 
overall effect of the Fairness Doctrine was merely a 0.4 percent 
decline in per capita consumption.
---------------------------------------------------------------------------

    \251\ Simonich, W. L., ``Government Antismoking Policies,'' 
Peter Lang Publishing, Inc., 1991.
---------------------------------------------------------------------------

    FDA disagrees with the industry's interpretation of the Simonich 
study. The agency believes that the Simonich study results, correctly 
interpreted, indicate that the FD education campaign reduced per capita 
cigarette consumption an average of 4.5 percent, \252\ that is, a 4.5 
percent reduction in consumption over the period of time over which the 
FD was in effect for entire quarters. Thus, the FD education campaign 
did play an important role in reducing per capita cigarette 
consumption.
---------------------------------------------------------------------------

    \252\ Simonich modeled the effect of the FD as: %  
Consumption = -0.063(Xt + .46416Xt-1 + 
.464162Xt-2 + .464163Xt-3) where Xt 
represents antismoking advertising expenditures in quarter t and -
0.063 is the coefficient for the FD stock variable obtained from the 
analysis (Id., p. 153). FDA used Simonich's model and his 
``Estimated Fairness Doctrine Real Advertising Expenditure per 
Capita 14+'' data series (Id., pp. 250, and 259-260) to calculate 
the quarterly percent reduction in per capita cigarette consumption 
from March 1967 through April 1970. The average percent reduction in 
consumption for this period was 4.5 percent.
---------------------------------------------------------------------------

    (2) Comments also questioned the effectiveness of education 
programs cited by the agency. The tobacco industry's comment argued 
that California's $26 million multi-year media campaign actually 
confirmed that televised education campaigns do not influence youth 
smoking. Further, the comment stated that it was not possible to say 
what impact, if any, a national media campaign's introduction or 
termination had on consumption in Greece because Greece's educational 
television and radio advertising campaign was only one element of an 
overall education campaign.
    With regard to the California media campaign, FDA notes that this 
campaign was directed to adults, not young people. Moreover, the media 
campaign was countered by increased per capita spending by the tobacco 
industry in the types of imagery-based advertising that influences 
children and adolescents. Therefore, the agency would have expected the 
media campaign to have had a greater negative impact on tobacco use by 
adults than by children and

[[Page 44539]]

adolescents. FDA continues to believe that California's efforts 
indicate that education campaigns, over time, can counter and reduce 
the impact of prosmoking efforts.
    Further, while the comment correctly notes that Greece's national 
effort to reduce smoking included posters, booklets, and similar 
educational materials distributed through schools, health centers, and 
other channels, the primary and most significant element of its program 
consisted of antismoking messages broadcast on television and radio. 
FDA continues to believe the Greek experience indicates, as stated in 
the preamble to the 1995 proposed rule, that intensive education and 
media messages about the health risks associated with tobacco use can 
be effective.
    (3) Many comments from the tobacco and media industries and from 
adult smokers argued that an education campaign is unnecessary because 
cigarette manufacturers, individually and through the Tobacco 
Institute, have undertaken voluntarily a variety of educational 
programs aimed at discouraging underage smoking, and because 
antismoking lessons are taught in schools.
    By contrast, other comments questioned industry's commitment to 
reduce underage use of tobacco products. For example, several comments 
emphasized that a voluntary program run by industry in the mid 1980's 
failed to acknowledge that tobacco is addictive or causes disease.
    FDA agrees with comments that the tobacco industry has failed to 
include in its voluntary youth educational programs important 
information, such as the addictive nature of tobacco and the 
association between tobacco use and disease. FDA further agrees that 
this lack of complete information about tobacco products makes it 
necessary to require that messages about the risks of tobacco use be 
directed to children and adolescents. The recently observed decline in 
the proportion of youth who see smoking as dangerous, despite the 
widespread dissemination through schools of information about the 
health hazards associated with tobacco use, supports the need for an 
immediate response to this problem. Moreover, recent evidence suggests 
that school-based education programs most effectively reduce underage 
smoking when used in conjunction with media messages.

VIII. Additional Regulatory Requirements

    Subpart E of part 897 in the Food and Drug Administration's (FDA's) 
August 11, 1995, proposed rule (60 FR 41314) would have consisted of 
three provisions: Sec. 897.40 would have required manufacturers to 
submit certain reports and would have required manufacturers, 
distributors, and retailers to make records available to FDA upon 
inspection; Sec. 897.42 would have instructed manufacturers, 
distributors, and retailers to comply with any more stringent State or 
local requirements relating to the sale, distribution, labeling, 
advertising, or use of cigarettes and smokeless tobacco and would have 
notified State and local governments how to request an advisory opinion 
concerning the preemptive effect of part 897 on any particular State or 
local requirement; and Sec. 897.44 would have required the agency to 
take additional regulatory measures if, 7 years after the date of 
publication of the final rule, the percentage of people under age 18 
who smoke cigarettes had not decreased by 50 percent since 1994 and/or 
the percentage of males under 18 who use smokeless tobacco had not 
decreased by 50 percent since 1994.
    Proposed Sec. 897.40 Records and Reports, would have implemented 
sections 510(j) and 704(a) of the act (21 U.S.C. 360(j) and 374(a)) 
with respect to cigarettes and smokeless tobacco. Section 510(j) of the 
act requires the submission of labels, labeling, and a representative 
sampling of advertising to FDA, and section 704(a) of the act gives the 
agency inspection authority, which also includes the authority to 
examine records, files, papers, processes, controls, and facilities:
    bearing on whether * * * restricted devices which are 
adulterated or misbranded within the meaning of this Act, or which 
may not be manufactured, introduced into interstate commerce, or 
sold, or offered for sale by reason of any provision of this Act, 
have been or are being manufactured, processed, packed, transported, 
or held in any such place, or otherwise bearing on violation of this 
Act.
    Proposed Sec. 897.42 Preemption of State and Local Requirements and 
Requests for Advisory Opinions, was intended to reflect the preemption 
provision in section 521(a) of the act (21 U.S.C. 360k(a)); that 
section states, in relevant part, that:
    no State or political subdivision of a State may establish or 
continue in effect with respect to a device intended for human use 
any requirement--(1) which is different from, or in addition to, any 
requirement applicable under this Act to the device, and (2) which 
relates to the safety or effectiveness of the device or to any other 
matter included in a requirement applicable to the device under this 
Act.
Proposed Sec. 897.42 was also intended to recognize that many States 
and local governments have enacted innovative and effective laws and 
regulations pertaining to cigarettes and smokeless tobacco and to 
encourage further activity in these areas (60 FR 41314 at 41340).
    In proposed Sec. 897.44 Additional Regulatory Measures, FDA 
recognized that many different factors influence a young person's 
decision to start smoking or to use smokeless tobacco and that the 
affected industries have historically shown their ability to find new 
ways of promoting their products whenever restrictions were imposed (60 
FR 41314 at 41341). Consequently, to guard against the possibility that 
its comprehensive regulations might be circumvented and to give firms 
an incentive to take appropriate actions to discourage cigarette and 
smokeless tobacco sales to people under 18, the agency proposed to 
require additional regulatory measures if the outcome-based objectives 
specified in proposed Sec. 897.44 were not met.
    In response to comments and upon further examination of existing 
statutory and regulatory requirements, the agency has deleted 
Secs. 897.40, 897.42, and 897.44 from the final rule.
Sec. 897.40--Records and Reports
    Proposed Sec. 897.40(a) would have required each manufacturer to 
submit, on an annual basis, copies of all labels (or a representative 
sample of labels if the labels would be similar for multiple products), 
copies of all labeling, and a representative sample of advertising. 
Proposed Sec. 897.40(b) would have provided an address for such 
materials.
    (1) The agency received a number of comments from distributors, 
wholesalers, and retailers stating that it would be too costly and 
time-consuming, and thus too burdensome for small businesses to submit 
the information required by proposed Sec. 897.40(a) and further, that 
the information collected would not be useful in prohibiting young 
people from using tobacco products.
    These comments misread proposed Sec. 897.40(a) by interpreting the 
section to apply to distributors of tobacco products. By its terms, 
this provision only applied to manufacturers of cigarettes and 
smokeless tobacco. FDA agrees with the comments that it is unnecessary 
for the agency to receive labels, labeling, and a representative

[[Page 44540]]

sampling of advertising for cigarettes and smokeless tobacco handled by 
distributors. In order to clarify this point further, FDA has deleted 
proposed Sec. 897.40(a) and (b), and is explicitly exempting 
distributors of cigarettes and smokeless tobacco from the registration 
requirement in section 510 of the act. Exempting distributors from the 
registration requirement results in their exemption from the record 
submission requirements in section 510(j) of the act. The agency has 
amended the existing device registration and listing regulations in 
part 807 by adding a new provision, at Sec. 807.65(j), to reflect this 
exemption.
    FDA is authorized, under section 510(g)(4) of the act, to exempt 
persons from the requirement of registering under section 510 of the 
act. The agency agrees with the comments discussed above that stated 
that reporting by distributors would be too burdensome and would not 
result in any useful information. FDA believes that it will receive all 
the information it needs from manufacturers, who are required to list 
information with FDA under section 510 of the act. Further, there was 
virtually no public comment supporting a registration and listing 
requirement for distributors. Based on these considerations, FDA finds 
that it is appropriate to exempt distributors of cigarettes and 
smokeless tobacco, as defined in Sec. 897.3(c), from the registration 
requirement in section 510 of the act as originally proposed because 
compliance with section 510 of the act by distributors ``is not 
necessary for the protection of the public health.''
    A comment from the cigarette industry argued that Sec. 897.40(a) 
was inconsistent with the recordkeeping requirements in part 807 (21 
CFR part 807) (the device registration and listing regulations) by 
requiring annual submissions. A comment from a public health 
organization supported proposed Sec. 897.40, and stated that the 
reporting requirements were the same as those faced by other 
manufacturers of drug delivery devices.
    Cigarette and smokeless tobacco manufacturers are required to 
register and list under section 510 of the act. Upon consideration of 
the industry comment, the agency believes it is more appropriate for 
manufacturers to comply with the existing device registration and 
listing requirements in part 807 than to create new requirements in 
this regulation. Therefore, as stated earlier, FDA has deleted proposed 
Sec. 897.40(a) and (b) from the rule.
    (2) A comment from the country's largest association of health 
professionals supported proposed Sec. 897.40, but suggested that FDA 
expand the reporting requirements to have each manufacturer monitor 
brand-specific uptake by children and adolescents. The comment 
suggested that these data could be used to supplement information from 
the Monitoring the Future project and other surveys that do not 
currently contain brand-specific data. The comment also stated that 
cigar and loose-leaf tobacco manufacturers should be required to 
monitor and report on use of their products by people under 18.
    The agency declines to accept the comment's suggestions. FDA 
believes it is not necessary to obtain such data at this time. Rather, 
it is more appropriate to allow the provisions of the final rule to 
become effective and to monitor the effectiveness of the program before 
considering the addition of new requirements. FDA also notes that it is 
not asserting jurisdiction over cigars; cigar manufacturers are not 
subject to the requirements of this rule.
    Proposed Sec. 897.40(c) would have required manufacturers, 
distributors, and retailers to make records and other information 
available to FDA inspectors for purposes of inspection, review, 
copying, or any other use related to the enforcement of the act.
    (3) An industry comment argued that proposed Sec. 897.40(c)--which 
required manufacturers, distributors, and retailers to ``make all 
records and other information collected under this part and all records 
and other information related to the events and persons identified in 
such records'' available to FDA officials--so exceeds FDA's authority 
that it fails the test set out in United States v. Morton Salt Co., 338 
U.S. 632, 652 (1950), and, therefore, violates the Fourth and Fifth 
Amendments to the Constitution. The comment argued that Sec. 897.40(c) 
may require the release, for example, of marketing strategies, sales 
figures, profits, personnel data, and proprietary information.
    FDA disagrees with this comment, but nevertheless, the agency has 
deleted Sec. 897.40(c). Part 897 does not add records requirements 
beyond those applicable to devices generally under existing 
regulations, e.g., part 803 (21 CFR part 803) (medical device 
reporting), part 804 (21 CFR part 804) (medical device distributor 
reporting), part 807 (registration and listing), and part 820 (21 CFR 
part 820) (good manufacturing practice). Section 897.40(c), as 
proposed, is therefore unnecessary, since FDA retains the records, 
reports, and inspection authority with respect to cigarettes and 
smokeless tobacco that it has with respect to other restricted devices. 
This authority is found, for example, in sections 510, 519, 702, 703, 
and 704 of the act (21 U.S.C. 360, 360i, 372, 373, and 374). In 
particular, section 704 of the act explicitly authorizes the agency to 
inspect records regarding restricted devices, including records and 
reports (and the related research) required under section 519 of the 
act, shipment data, and data as to the qualifications of technical and 
professional personnel performing functions subject to the act, except 
that such inspections may not extend to financial, sales, pricing, or 
other personnel and research data.
    Warrantless inspections of drug and device manufacturers authorized 
by section 704 of the act are ``reasonable'' and therefore consistent 
with the Fourth Amendment, in part because section 704 delineates the 
scope of inspections with respect to prescription drugs and restricted 
devices. (See United States v. Jamieson-McKames Pharmaceuticals, 651 
F.2d 532, 538 and n.9 (8th Cir.), cert. denied, 455 U.S. 1016 (1981).)
    In particular, section 704 of the act meets the test established by 
the Supreme Court, and cited in the comment, that is applied to 
scrutinize administrative subpoenas under the Fourth Amendment's 
proscription of unreasonable searches and seizures and the Fifth 
Amendment's Due Process Clause: ``the inquiry is within the authority 
of the agency, the demand is not too indefinite and the information 
sought is reasonably relevant'' (Morton Salt, 338 U.S. at 652 
(regarding order requiring report about compliance with earlier agency 
order); see also EEOC v. Shell Oil Co., 466 U.S. 54, 72 n.26 (1984) 
(citing Morton Salt regarding administrative subpeona); Reich v. 
Montana Sulphur and Chem. Co., 32 F.3d 440, 448 (9th Cir. 1994) (same), 
cert. denied, 115 S.Ct 1355 (1995); Resolution Trust Corp. v. Walde, 18 
F.3d 943, 946 (D.C. Cir. 1994) (same)).
    The comment stressed that Sec. 897.40(c) as proposed failed to 
satisfy the first part of the Morton Salt test because the act does not 
grant FDA authority to regulate tobacco products and because Congress 
has repeatedly refused to give FDA such authority. As discussed in 
detail in the 1996 Jurisdictional Determination annexed hereto, FDA is 
extending jurisdiction over tobacco products by a lawful application of 
the act. Moreover, the records, reports, and

[[Page 44541]]

inspection provisions in sections 510, 519, 702, 703, and, in 
particular, section 704 of the act, clearly specify the agency's 
authority to inspect regarding restricted devices, including records 
and reports required pursuant to section 519 of the act. An inspection 
of records from manufacturers, distributors, or retailers regarding 
tobacco products--which are restricted devices and which pursuant to 
this rule are subject to the reporting requirements of parts 803 and 
804--is therefore ``within the authority of the agency'' as required by 
the Supreme Court in Morton Salt (338 U.S. at 652). Moreover, because 
sections 704 and 519 of the act define the scope of such requests, by 
their terms, such requests would meet the second and third parts of the 
Morton Salt test, since they would not be ``too indefinite and the 
information sought [would be] reasonably relevant'' to enforcement of 
the provisions of part 897 (Id.).
    Even in the absence of proposed Sec. 897.40(c), manufacturers, 
distributors, and retailers of cigarettes and smokeless tobacco are 
subject to the same records access and inspection requirements as are 
any manufacturers, distributors, and retailers of restricted medical 
devices. As discussed in this section, these requirements are fully 
consistent with the Fourth and Fifth Amendments.
    (4) Several comments from distributors and retailers asserted that 
the recordkeeping requirements in proposed Sec. 897.40(c) would be 
expensive and especially hard on small businesses. A few comments also 
claimed that proposed Sec. 897.40(c) would not affect sales to children 
and adolescents, but would instead result in lost business as 
distributors or retailers would have to take the time to prepare and to 
maintain records. A small number of comments simply opposed proposed 
Sec. 897.40(c) without providing any reason or said it was 
``offensive,'' ``intrusive,'' or would not produce any useful 
information during an inspection.
    As stated previously in this section, FDA has revised the rule to 
delete Sec. 897.40(c) entirely. The agency believes that the existing 
reporting requirements in other regulations (such as part 803 for 
medical device reporting (as amended by this rule), part 804 for 
medical device distributor reporting (as amended by this rule), part 
807 for registration and listing (as amended, to exclude distributors 
of cigarettes and smokeless tobacco), and part 820 for good 
manufacturing practices) make proposed Sec. 897.40(c) unnecessary. The 
agency has also amended the rule to exempt distributors of cigarettes 
and smokeless tobacco from part 807. Thus, distributors are only 
expected to comply with the medical device distributor reporting 
requirements in part 804.
    Retailers have no recordkeeping or reporting requirements under 
part 897.
    Notwithstanding these changes to the rule, FDA believes that the 
comments misunderstand the purpose of recordkeeping and reporting. The 
records and reports that were described in the 1995 proposed rule were 
never intended to have a direct role in reducing illegal sales to 
children and adolescents. Neither were they intended to divert 
distributor or retailer staff to ministerial functions or to intrude 
into business activities. To the contrary, records and reports can help 
firms and FDA ensure compliance with the regulations. For 
manufacturers, distributors, and retailers, records and reports 
demonstrate whether they have complied with a particular requirement. 
Records are especially valuable in this respect because FDA's 
enforcement strategy relies heavily on site inspections to determine 
whether a party has complied with a statutory or regulatory 
requirement, and records can show or help an agency inspector determine 
whether a firm has a good compliance history. Firms that have good 
compliance histories usually are inspected less frequently than others, 
whereas firms with poor compliance histories may be inspected more 
frequently or more rigorously.
    Inspections have other important benefits for firms. Inspections 
can reveal areas where firms can improve their operations. Inspections 
also apply to firms equally, regardless of their size, so firms that 
manufacture, distribute, or sell the same or similar products meet the 
same conditions or requirements. Furthermore, inspections, and FDA 
enforcement generally, give consumers greater assurance in the products 
they purchase because those products are held to the same standards or 
requirements.
    For FDA, records and reports can provide information on current 
industry practices and trends, help identify potential problems in a 
regulatory program or in a firm's or industry's practice, and even 
conserve agency resources by letting the agency concentrate its 
inspection efforts on firms with poor compliance histories.
    Thus, for these reasons, FDA disagrees with those comments 
suggesting that recordkeeping and reporting requirements or FDA 
inspections will have no useful purpose.
Sec. 897.42--Preemption of State and Local Requirements and Requests 
for Advisory Opinions
    (5) FDA received several comments that opposed proposed 
Sec. 897.42, claiming that it was inconsistent with the process for 
requesting exemptions from the preemption requirement in section 521 of 
the act. The agency also received some comments supporting proposed 
Sec. 897.42 precisely because it would have recognized and would have 
preserved more stringent State and local requirements.
    After careful consideration and closer review of the act, the 
agency has deleted proposed Sec. 897.42 from the rule. This issue is 
addressed in greater detail in section X. of this document.
    Under Sec. 897.44 of the 1995 proposed rule, FDA would have 
established goals of a 50-percent reduction in cigarette use by 
individuals under the age of 18 years; a 50-percent reduction in 
smokeless tobacco use by males under the age of 18 years; and no 
increase in smokeless tobacco use by females under the age of 18 years. 
The agency stated it would take additional regulatory measures if these 
goals were not met 7 years after the publication date of the final 
rule.
    FDA derived its outcome-based goals from the ``Healthy People 
2000'' objectives. ``Healthy People 2000'' sets national health 
promotion and disease prevention objectives for Americans. The report 
was a joint effort by the U.S. Public Health Service (PHS), the 
Institute of Medicine (IOM) at the National Academy of Sciences (NAS), 
almost 300 national membership organizations such as the American 
Medical Association (AMA), the American Academy of Pediatrics (AAP), 
and the Blue Cross and Blue Shield Association, and all State health 
departments. ``Healthy People 2000'' established a basic goal to reduce 
by half the initiation of cigarette smoking by children and youth by 
the year 2000.
    The agency proposed measuring progress toward the stated goals by 
use of an objective, scientifically valid, and generally accepted 
survey, such as the Monitoring the Future Project (MTFP). MTFP, funded 
by the National Institute on Drug Abuse (NIDA) and administered by the 
Institute for Social Research at the University of Michigan, has 
collected data on daily smoking by 12th graders every year since 1976 
and on smokeless tobacco use by 12th graders for the years 1986 to 1989 
and 1992 to 1995.
    The agency did not include any specific additional requirements in 
the

[[Page 44542]]

1995 proposed rule, but stated that FDA would propose specific 
additional measures when it publishes a final rule and invited public 
comment on what additional requirements should be considered.
    The agency received a number of comments arguing that the agency 
should wait until it knows specifically what progress has been made 
toward the goals before proposing additional regulatory measures. This 
approach would allow the agency to identify specific barriers to 
achieving the goals and to tailor any additional requirements to these 
barriers. Other comments argued that FDA must provide the public an 
opportunity to comment on specific additional regulatory measures 
before they would take effect. FDA has decided that there is merit to 
these comments. At this time, therefore, the agency is not proposing 
additional regulatory measures beyond the restrictions in this 
regulation and the requirements under section 518 of the Federal Food, 
Drug, and Cosmetic Act (the act) (21 U.S.C. 360h). The agency instead 
plans to monitor industry compliance with the agency's requirements as 
well as the progress made toward meeting the stated goals of reducing 
the use of tobacco products by individuals under the age of 18 within 7 
years. In the event that additional measures are necessary to achieve 
the goals, the agency retains the authority to propose and issue 
additional regulatory requirements in a future rulemaking proceeding.
    FDA received approximately 60 individual comments related to this 
provision, about evenly divided in support and opposition. Opposition 
came primarily from the tobacco manufacturing and advertising 
industries and from tobacco retailers. Comments from several State 
legislators also opposed additional measures, as did one from a State 
department of agriculture. Some comments maintained the provision was 
invalid and unconstitutional; others objected that ``when regulations 
fail, the answer is not more regulations.''
    Support for the measure came from national health organizations, 
State health departments, and individuals who identified themselves as 
parents, public health professionals, educators, and former smokers. 
Supporters stressed the importance of effective measures to improve the 
health of current and future generations.
    (6) One comment opposing the proposed provision contended that 
imposing additional regulatory measures at the time that the final rule 
is published would be unreasonable because it would not permit a 
flexible response to future circumstances. It argued, for example, that 
the same additional regulatory measures ``apparently would be triggered 
at the specified date regardless of whether the reduction in the next 7 
years is 49.8 percent or 2 percent.''
    Several comments in support of the provision also advocated greater 
flexibility, but for different reasons. Because of the serious adverse 
health effects linked to the use of tobacco products, these comments 
urged the agency not to wait 7 years to evaluate progress and institute 
corrective measures. Instead, they recommended interim or ongoing 
review of compliance with the regulations and progress toward achieving 
the goals.
    FDA agrees it is useful to put in place a system that will allow 
flexibility in responding to future circumstances. Therefore, the 
agency has decided to review on an ongoing basis the effectiveness of 
specific provisions. It will rely on data from the MTFP and other 
surveys recognized as using sound methodology to help measure 
compliance with the provisions, detect loopholes, and evaluate progress 
in achieving the goals. This will permit FDA to identify problem areas 
in a timely manner and seek public comment on whether additional 
measures should be considered.
    (7) Some comments objected to any further restrictions. Others 
argued specifically against further advertising restrictions, saying it 
is illogical to impose such additional measures without first 
considering and attacking other causes for continued smoking among 
youth. A few comments were concerned that the proposed provision would 
inevitably result in a complete ban of all tobacco products, with a few 
of those charging that this was FDA's true intent.
    One comment objected to the agency announcing as part of a final 
rule specific measures it will impose, rather than simply propose, some 
time in the future, maintaining that `` * * * the agency will have 
failed to provide meaningful notice and opportunity to comment.''
    Many comments supported additional regulatory measures, if needed, 
to achieve the desired reductions in tobacco use by young people. Some 
advocated further restrictions on advertising, including: (1) 
Eliminating all tobacco product advertising except for point-of-
purchase announcements of product availability limited to black and 
white text only; (2) prohibiting all point of purchase advertising; (3) 
eliminating direct mail marketing for cigarettes and smokeless tobacco; 
(4) prohibiting all outdoor advertising; (5) prohibiting advertising in 
publications marketed to youths, and possibly revising the definition 
of ``adult publications''; and (6) outlawing all marketing of 
cigarettes and smokeless tobacco. One comment recommended plain 
packaging of cigarettes, and one suggested broadening the proposed 
education program.
    Comments also proposed additional sales restrictions on tobacco 
products, including stringent licensing requirements, increasing the 
age of sale to 19, and selling cigarettes in cartons only.
    FDA rejects the comments suggesting that the agency intends to 
eventually ban all tobacco products, as the agency has repeatedly 
stated that such an outcome is not the appropriate public health 
response under the act. FDA is not proposing the additional 
restrictions on advertising or access suggested in the comments because 
FDA does not anticipate at this time that these additional measures 
will be required.

IX. Implementation Dates

    The Food and Drug Administration (FDA) has concluded that the 
provisions of this rule should become effective 1 year after its date 
of publication in the Federal Register, with three exceptions. A 6-
month effective date is established for the requirements in 
Sec. 897.14(a) and (b) prohibiting retailers from selling cigarettes or 
smokeless tobacco to persons under age 18 and requiring retailers to 
check photographic identification of young purchasers for proof of age. 
The requirement in Sec. 897.34(c) prohibiting sponsorships using 
cigarette or smokeless tobacco brand names or other indicia of product 
identification will be effective 2 years from the date of publication 
of this final rule. Finally, manufacturers will be required to comply 
with the registration and listing requirements in part 807, and the 
good manufacturing practice requirements in part 820, 2 years from the 
date of publication of this final rule.
     Although the agency specifically requested comment on when the 
various provisions in the proposed rule should become effective, FDA 
received relatively few comments on this subject.
    (1) One comment that opposed the rule argued that FDA should give 
industry an opportunity in a hearing to challenge the ``factual 
underpinnings''

[[Page 44543]]

of the rule before proceeding to implementation. In contrast, a 
supporting comment strongly favored immediate action to implement the 
rule, and a second comment stated that postponing implementation by 
even a year ``means that another 500,000 young people will become 
regular users of tobacco products.'' Another supporting comment 
recommended that the effective date for provisions that prohibit sales 
to persons under 18 be no more than 90 days from the date the final 
regulations are issued, and that the effective date for provisions 
affecting advertising and labeling be 6 months from the date the final 
regulations are issued.
    FDA is not persuaded that a hearing is needed on the ``factual 
underpinnings'' of the rule. In the preamble to the 1995 proposed rule, 
the agency provided its rationale and evidentiary basis for each 
provision of the regulation; interested persons have had a full 
opportunity to submit their comments and any factual supporting data 
for the agency to consider. Informal notice and comment rulemaking does 
not require more. Moreover, the agency believes that there would be 
little to gain from holding such a hearing, and that this step would 
needlessly delay implementation of the final rule. Full responses to 
the challenges made by this and other comments on the factual bases for 
the rule are provided in this document.
    Because FDA has found that thousands of children purchase 
cigarettes every day, the agency agrees with the supporting comments 
that restrictions on such sales should be put into effect as soon as 
possible. FDA recognizes, however, that the States also have laws 
restricting youth access to tobacco products, some of which may be 
preempted under section 521 of the act by this final regulation. The 
agency intends to allow sufficient time for applications for exemption 
from preemption to be requested, considered by the agency, and acted 
upon. Therefore, FDA has determined that Sec. 897.14(a) and (b), which 
prohibit the sale of tobacco products to individuals under the age of 
18 and require retailers to examine a photographic identification to 
ensure that the purchaser is at least 18 years of age, and is basic to 
the goals of this final rule, will become effective 6 months from the 
date of publication of this final rule in the Federal Register. This 
should allow adequate time for the agency to process the applications 
for exemption from preemption while not unduly delaying the 
implementation of a very important part of the regulation.
    (2) As for the recommendation by one comment that the advertising 
and labeling provisions of the rule become effective 6 months after the 
final rule is issued, FDA believes that this period of time is not 
consistent with the agency's policy of allowing sufficient time for 
affected entities to learn about and comply with new regulatory 
requirements. Instead, based on its own experience and that of other 
Government agencies in regulating product advertising and labeling, FDA 
has arrived at a period of 1 year from the date of publication of this 
final rule in the Federal Register for manufacturers, distributors, and 
retailers to meet most of the requirements of the rule. In reaching 
this conclusion, FDA has taken into consideration the time needed to 
comply with all the requirements of the rule, including time for 
designing new labeling and advertising, for printing or filming these 
new materials, for affixing new product labels and disseminating new 
advertising materials, and for using up existing inventories of 
products, supplies of promotional materials, and coupons that do not 
comply with the new requirements.
    Examples of activities that will become violative and must cease 1 
year from the date of publication of this rule in the Federal Register 
include vending machine sales of cigarettes and smokeless tobacco and 
sales from self-service displays (except in the narrowly-defined 
locations that are exempted), sales of single cigarettes from opened 
packages (``loosies''), sales of packages with fewer than 20 
cigarettes, mail-order redemption of coupons for tobacco products, 
distribution of free tobacco samples, and the sale or distribution of 
nontobacco items showing the brand name (alone or in conjunction with 
any other word), logo, symbol, motto, selling message, recognizable 
color or pattern or colors, or any other indicia of product 
identification identical or similar to, or identifiable with, those 
used for any brand of cigarettes or smokeless tobacco. Examples of 
additional requirements that must be met 1 year from the date of 
publication include all advertising requirements (except as noted 
below), and the requirement that manufacturers not use a trade or brand 
name of a nontobacco product on a cigarette or smokeless tobacco 
product except as specified in Sec. 897.16(a).
    The agency is excepting from the 1-year implementation period the 
requirement that manufacturers comply with the existing registration 
and listing requirements, found in part 807. The agency recognizes that 
manufacturers are not accustomed to complying with these recordkeeping 
and reporting requirements and will require additional time in which to 
develop appropriate compliance procedures. Therefore, FDA is granting 
manufacturers 2 years from the date of publication of this final rule 
to begin complying with the requirements under part 807. The same 
reasoning has led the agency to allow manufacturers the same 2-year-
period to prepare before they are required to comply with the good 
manufacturing practice requirements in part 820.
    Finally, the agency is also excepting from the 1-year 
implementation period the prohibitions in Sec. 897.34 (c) of 
sponsorship using cigarette or smokeless tobacco brand names or other 
indicia of product identification. The agency recognizes that 
sponsorship of events is often arranged well in advance and that some 
event promoters may be disadvantaged if they are not allowed adequate 
time to replace tobacco sponsors who elect to cease sponsoring the 
event, rather than switch to their corporate name. Accordingly, this 
final rule provides that Sec. 897.34(c) will become effective 2 years 
from the date of publication of this final rule.

X. Relationship Between the Rule and Other Federal and State Laws

    This section of the document discusses issues concerning the 
relationship between this rule and other Federal and State laws. More 
specifically, sections X.A. and X.B. of this document analyze comments 
that addressed the potential effect upon this rule of other Federal 
statutes that contain express provisions that restrict some areas of 
Federal regulation of tobacco products. Section X.C. of this document 
analyzes comments that raised the issue of whether this rule conflicts 
with the congressional purpose behind the current regulatory scheme for 
tobacco products. Section X.D. of this document analyzes comments that 
addressed the issue of whether Congress intended for the current 
regulatory scheme for tobacco products to be exclusive, such that this 
rule might be foreclosed. Finally, sections X.E. and X.F. of this 
document analyze comments that addressed the preemptive effect under 
the Federal Food, Drug, and Cosmetic Act (the act) that the Food and 
Drug Administration's (FDA's) regulation of tobacco products as drug 
delivery devices will have upon

[[Page 44544]]

State and local requirements and upon State product liability claims.

A. The Federal Cigarette Labeling and Advertising Act

    (1) A number of comments argued that FDA's August 11, 1995, 
proposed rule (60 FR 41314) (the 1995 proposed rule) is precluded by 
section 5 of the Federal Cigarette Labeling and Advertising Act (the 
Cigarette Act (15 U.S.C. 1334)). Other comments expressed the opposite 
view, stating that 15 U.S.C. 1334 did not preclude the 1995 proposed 
rule. Some of the comments that found no preclusion noted that the 
scope of 15 U.S.C. 1334 is narrow, and applies only to cigarette 
packages, thereby allowing for regulation of cigarette advertising and 
promotion as contemplated by the 1995 proposed rule. After considering 
all of the comments, FDA has concluded that none of the rule's 
provisions, as embodied in the final rule, is expressly precluded by 
the Cigarette Act. The following analysis explains this conclusion.
    The Cigarette Act contains the following provisions pertaining to 
regulation of cigarettes:
     (a) No statement relating to smoking and health, other than the 
statement required by [15 U.S.C. 1333], shall be required on any 
cigarette package.
    (b) No requirement or prohibition based on smoking and health 
shall be imposed under State law with respect to the advertising or 
promotion of any cigarettes the packages of which are labeled in 
conformity with the provisions of this chapter.
(15 U.S.C. 1334 (emphasis added))
    15 U.S.C. 1334(b) is expressly limited to requirements or 
prohibitions imposed under State law, that relate to advertising or 
promotion of cigarettes. Thus, 15 U.S.C. 1334(b) is inapplicable to 
FDA's regulation under part 897 and does not foreclose FDA from 
regulating cigarette advertising or promotion.
    15 U.S.C. 1334(a), which applies to statements on the cigarette 
package, extends to both Federal and State regulation. However, the 
scope of 15 U.S.C. 1334(a) is narrow, precluding Federal and State 
regulation of cigarettes only to the extent that such regulation would 
require any statement (other than the statement required by 15 U.S.C. 
1333) ``relating to smoking and health'' to appear on the cigarette 
package.
    There are two types of information that the final rule requires on 
cigarette packages. The first is the ``established name,'' such as 
``Cigarettes,'' which is required by section 502(e)(2) of the act (21 
U.S.C. 352(e)(2)), and which the agency is implementing under 
Sec. 897.24. The established name requirement is applicable to all 
devices regulated under the act, and it serves merely to aid consumers 
in the identification of the product.
    The second type of information that the final rule requires on 
cigarette packages is the statement of intended use and age restriction 
required under Sec. 897.25. This statement informs consumers about the 
products' intended uses and that the products may not be sold to 
persons under the age of 18.
    Neither the established name nor the statement of intended use and 
age restriction is ``relat[ed] to smoking and health.'' Any indirect 
relationship these requirements might have to smoking and health is 
incidental and would be too ``tenuous, remote, or peripheral'' to 
trigger preclusion under 15 U.S.C. 1334(a). (See District of Columbia 
v. Greater Washington Bd. of Trade, 113 S. Ct. 580, 583 n.1 (1992) 
(``Pre-emption does not occur * * * if the [law at issue] has only a 
`tenuous, remote, or peripheral' connection with [the subject to which 
preemption is applicable], as is the case with many laws of general 
applicability'') (citations omitted).) To find otherwise could render 
the limiting language of 15 U.S.C. 1334(a) meaningless. (See New York 
State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. 
Co., 115 S. Ct. 1671, 1677 (1995) (finding that overly broad 
construction of the phrase ``relate to'' ``would * * * read Congress's 
words of limitation as mere sham, and [would] read the presumption 
against pre-emption out of the law whenever Congress speaks to the 
matter with generality'').)
    The agency notes that the established name requirement under 
Sec. 897.24 is analogous to requirements imposed by the Bureau of 
Alcohol, Tobacco and Firearms (BATF) on cigarette packages. Under 26 
U.S.C. 5723(b), ``[e]very package of tobacco products * * * shall * * * 
bear the marks, labels, and notices, if any, that the Secretary by 
regulation prescribes.'' Under this statutory provision, BATF has 
issued regulations requiring, for instance, that ``[e]very package of 
cigarettes shall * * * have adequately imprinted thereon, or on a label 
securely affixed thereto, the designation `cigarettes', the quantity of 
such product contained therein, and the classification for tax 
purposes, i.e., for small cigarettes, either `small' or `Class A', and 
for large cigarettes, either `large' or `Class B'.'' (See 27 CFR 
270.215.) In the same way that the requirement under 27 CFR 270.215 
does not run afoul of 15 U.S.C. 1334 because it does not relate to 
smoking and health, the established name requirement under Sec.  897.24 
is also not precluded.
    Further guidance on the scope of preclusion under the Cigarette Act 
can be found in the legislative history and purpose behind the 
Cigarette Act. The history and purpose make clear that Congress 
intended 15 U.S.C. 1334 to preclude only those ``statements'' that 
constituted warning or cautionary statements on cigarette packages. 
(See Cipollone v. Liggett Group, Inc., 112 S. Ct. 2608, 2618-19 (1992) 
(finding that ``no statement relating to smoking and health'' language 
in 1965 version of the Cigarette Act referred to the sort of warning 
provided for in section 4 of that statute).) \253\ (See also H. Rept. 
449, 89th Cong., 1st sess. (1965), reprinted in 1965 U.S. Code Cong. & 
Admin. News 2350, 2350 (the Cigarette Act prohibits ``the requirement 
of any other caution statement on the labeling of cigarettes under laws 
administered by any Federal, State, or local authority'').)
---------------------------------------------------------------------------

    \253\ Some of the comments take issue with FDA's application of 
Federal-State preemption law, pointing out that the Supremacy Clause 
and Tenth Amendment upon which this law is based have no application 
in determining the relationship between different Federal statutes. 
FDA is fully aware that Federal-State preemption law, as well as 
those cases such as Cipollone that apply it, do not directly govern 
the present situation concerning preclusion of Federal regulations 
by Federal law. However, the principles contained in Federal-State 
preemption law provide some general guidance for determining the 
scope of preclusion intended by Congress, regardless of whether that 
preclusion is directed at State or Federal law.
---------------------------------------------------------------------------

    Clearly, neither Sec. 897.24 nor Sec. 897.25 is a warning or 
cautionary statement of the type Congress intended to preclude under 15 
U.S.C. 1334. Accordingly, the requirements under these sections of the 
final rule are not foreclosed by the Cigarette Act.

B. The Comprehensive Smokeless Tobacco Health Education Act

    (2) Several comments noted that the 1995 proposed rule would 
prohibit advertisements for smokeless tobacco from appearing in certain 
locations and media. One comment stated that any prohibition on 
advertising under the 1995 proposed rule amounts to a ``compelled 
absence of advertising,'' and is as much a ``statement relating to the 
use of smokeless tobacco and health'' as is an explicit message 
requirement. Thus, the comment asserted that such restrictions are 
expressly precluded by the Comprehensive Smokeless Tobacco Health 
Education Act (the Smokeless Act).

[[Page 44545]]

    Another comment stated that FDA's proposed restrictions on the 
advertising of smokeless tobacco are foreclosed because they directly 
affect such advertising in a manner that is ``so nearly identical'' 
``in purpose and effect'' to the advertising requirements mandated by 
the Smokeless Act that they fall within that statute's express 
prohibition of any other Federal ``statement'' related to smoking and 
health. In contrast, some comments stated the position that the 1995 
proposed rule is not expressly precluded by the Smokeless Act.
    After considering all comments, FDA has concluded that none of the 
1995 proposed rule's provisions, with one exception, is expressly 
precluded by the Smokeless Act. The following analysis explains this 
conclusion.
    The Smokeless Act contains the following provision pertaining to 
regulation of smokeless tobacco:
    No statement relating to the use of smokeless tobacco and 
health, other than the statements required by [15 U.S.C. 4402], 
shall be required by any Federal agency to appear on any package or 
in any advertisement (unless the advertisement is an outdoor 
billboard advertisement) of a smokeless tobacco product.
(15 U.S.C. 4406(a) (emphasis added))
    15 U.S.C. 4406(a) precludes only ``statement[s].'' Most 
requirements under the final rule, such as those that limit the 
locations or media in which smokeless tobacco may be advertised, do not 
constitute ``statements'' within the meaning of 15 U.S.C. 4406(a). (See 
Banzhaf v. Federal Communications Commission, 405 F.2d 1082 (D.C. Cir. 
1968) (holding that the FCC ruling was not precluded by the Cigarette 
Act because the ruling did not require inclusion of any ``statement * * 
* in the advertising of any cigarettes''), cert. denied, 396 U.S. 842 
(1969).) Thus, those sections of the final rule that limit the location 
or media in which smokeless tobacco may be advertised, as well as other 
requirements in the final rule that do not actually mandate an 
affirmative statement, are not expressly precluded by the Smokeless 
Act.
    Only three sections of the final rule actually require inclusion of 
a ``statement'' on the packaging or in the advertising of smokeless 
tobacco. These sections are Secs. 897.24, 897.25, and 897.32(c). In 
addition, proposed Sec. 897.36, which is being omitted from the final 
rule for reasons discussed later in this section, would have required 
such a statement.
    As with cigarettes, Sec. 897.24 requires that packages of smokeless 
tobacco bear the products' established names. Section 897.25 mandates, 
in part, that packages of smokeless tobacco bear a statement of the 
products' intended uses and age restriction. Section 897.32(c) requires 
that advertising for smokeless tobacco include the products' 
established names and statements of their intended uses. (See section 
502(r)(1) and (r)(2) of the act.)
    For reasons similar to those discussed with regard to the Cigarette 
Act, none of the statements required under Secs. 897.24, 897.25, and 
897.32(c) are precluded under 15 U.S.C. 4406(a). (See section X.A. of 
this document.) First, the required statements do not directly 
``relat[e] to the use of smokeless tobacco and health.'' Second, the 
required statements are not ``statements'' of the sort precluded by 15 
U.S.C. 4406(a) because they do not convey any type of cautionary 
message or warning of the sort Congress intended to foreclose. 
Accordingly, the statements are not precluded by 15 U.S.C. 4406(a).
    Proposed Sec. 897.36 would have declared the labeling or 
advertising of cigarettes and smokeless tobacco to be false or 
misleading if it contained ``any express or implied false, deceptive, 
or misleading statement, omit[ted] important information, lack[ed] fair 
balance, or lack[ed] substantial evidence to support any claims made 
for the product.'' Upon review of the comments and reconsideration of 
this provision, FDA believes that, in some instances, manufacturers of 
smokeless tobacco might have been required under FDA's proposed rule to 
incorporate a statement relating to the use of smokeless tobacco and 
health on the package or in the advertising of a smokeless tobacco 
product in order to correct an omission of important information or a 
lack of fair balance. Similarly, cigarette manufacturers might have 
been required to include a statement relating to smoking and health on 
the cigarette package. Such requirements would be precluded under the 
Smokeless Act or the Cigarette Act. Thus, FDA has omitted Sec. 897.36 
from the final rule.
    The agency notes, however, that tobacco products, like other 
products regulated under the act, are still subject to section 502(a) 
of the act, which provides, in part, that a device shall be deemed to 
be misbranded ``[i]f its labeling is false or misleading in any 
particular.'' Any requirement imposed under section 502(a) of the act 
upon tobacco products is limited, however, to the extent that it is 
precluded by the Smokeless Act or the Cigarette Act.

C. Conflict With Congressional Purpose Behind Current Regulatory Scheme 
For Tobacco Products

    A number of comments asserted that the 1995 proposed rule conflicts 
with other Federal statutes that regulate tobacco products. These 
comments focused on three specific statutes: The Cigarette Act, the 
Smokeless Act, and the Public Health Service Act (the PHS Act)
1. The Cigarette Act and The Smokeless Act
    (3) A number of comments argued that the 1995 proposed rule would 
conflict with, and would nullify, some of the congressional objectives 
behind the Cigarette Act and the Smokeless Act. Based on the alleged 
conflict, some of the comments asserted that the general provisions of 
the act must give way to the specific provisions of the Cigarette Act 
and the Smokeless Act.
    FDA disagrees. As explained in sections X.A. and X.B. of this 
document, FDA regulation of tobacco products under the authority of the 
act does not conflict with the Cigarette Act or the Smokeless Act, and 
thus such regulation is clearly capable of coexisting with these 
statutes. (See Connecticut National Bank v. Germain, 112 S. Ct. 1146, 
1149 (1992) (``so long as there is no `positive repugnancy' between two 
laws, a court must give effect to both'') (citation omitted); Morton v. 
Mancari, 417 U.S. 535, 551 (1974) (``The courts are not at liberty to 
pick and choose among congressional enactments, and when two statutes 
are capable of coexistence, it is the duty of the courts, absent a 
clearly expressed congressional intention to the contrary, to regard 
each as effective'').)
    The comments asserted a number of areas in which the 1995 proposed 
rule would allegedly conflict with Federal law and congressional 
intent:
    (4) Numerous comments argued that the 1995 proposed rule is 
precluded because Congress, through enactment of the Cigarette Act and 
the Smokeless Act, intended to foreclose all Federal agencies other 
than the Federal Trade Commission (FTC) and the Federal Communications 
Commission (FCC) from regulating the labeling and advertising of 
tobacco products. Some of the comments criticized the 1995 proposed 
rule, asserting that it would cause tobacco product manufacturers to be 
held to separate and conflicting standards of conduct by different 
agencies, thus conflicting with congressional intent to prevent 
``diverse, nonuniform, and confusing cigarette

[[Page 44546]]

labeling and advertising regulations.'' As a specific example of 
potential separate and conflicting Federal standards, some of the 
comments noted that proposed Sec. 897.34 would completely prohibit the 
use of some promotional items that are exempted by FTC from the 
congressionally mandated warning under the Cigarette Act.
    FDA disagrees with these comments. When Congress enacted the 
Cigarette Act and the Smokeless Act, it very carefully considered the 
proper scope of preclusion applicable to Federal agencies in the 
regulation of tobacco products. The express terms of 15 U.S.C. 1334(a) 
and 15 U.S.C. 4406(a) clearly reflect the full scope of preclusion of 
Federal agencies intended by Congress.
    Had Congress believed more preclusion to be necessary, it could 
have easily expanded the express scope of 15 U.S.C. 1334(a) and 15 
U.S.C. 4406(a). (See Banzhaf, 405 F.2d at 1089 (Had Congress intended 
to foreclose other types of Federal regulation, ``it might reasonably 
be expected to have said so directly--especially where it was careful 
to include a section entitled `Preemption' specifically forbidding 
designated types of regulatory action''); Central Bank of Denver v. 
First Interstate Bank, 114 S. Ct. 1439, 1448 (1994) (Congress knows how 
to enact legislation expressly).) Indeed, Congress took this very 
approach with respect to the scope of preemption applicable to States 
under the Cigarette Act when it drafted 15 U.S.C. 1334(b) in a broad 
manner to encompass ``requirement[s]'' and ``prohibition[s].''
    The discrepancy in Congress' choice of words with regard to the 
scope of 15 U.S.C. 1334(a) and (b) is significant in its implications. 
By not including ``requirement or prohibition'' in 15 U.S.C. 1334(a) 
and expressly foreclosing only ``statements'' relating to smoking and 
health, Congress clearly intended to narrowly limit the scope of 
foreclosure of regulation applicable to Federal agencies. (See Brown v. 
Gardner, 115 S. Ct. 552, 556 (1994) (```[w]here Congress includes 
particular language in one section of a statute but omits it in another 
section of the same Act, it is generally presumed that Congress acts 
intentionally and purposely in the disparate inclusion or exclusion''') 
(citation omitted).) In a similar fashion, Congress demonstrated an 
intent to restrict the scope of Federal preclusion under 15 U.S.C. 
4406(a) by narrowly tailoring the language of that subsection.
    Thus, given the narrow scope of 15 U.S.C. 1334(a) and 15 U.S.C. 
4406(a), the Cigarette Act and the Smokeless Act do not foreclose 
``separate'' Federal requirements, other than cautionary health-based 
statements as discussed in sections X.A. and X.B. of this document. 
Although the final rule imposes requirements on tobacco product 
manufacturers, these requirements do not conflict with the Cigarette 
Act or the Smokeless Act and, consequently, are not precluded by those 
statutes. Moreover, that FTC might allow certain actions under its 
statutory mandate does not preclude FDA from prohibiting such actions 
under a different statutory mandate. (See New York Shipping Ass'n v. 
Federal Maritime Comm'n, 854 F.2d 1338, 1367 (D.C. Cir. 1988) (``there 
is no anomaly if conduct privileged under one statute is nonetheless 
condemned by another''), cert. denied, 488 U.S. 1041 (1989).)
    (5) Some of the comments asserted that Congress intended that the 
sole health-based restraints that were to be imposed on the commerce of 
tobacco products were to be those provided in the Cigarette Act and the 
Smokeless Act.
    FDA disagrees with this assertion. First, FDA clearly may exercise 
legal authority to regulate tobacco products when the evidence 
establishes that the products have intended uses that fall within the 
act's definition of a ``drug.'' Indeed, the agency has done so in 
several instances. (See, e.g., United States v. 354 Bulk Cartons * * * 
Trim Reducing-Aid Cigarettes, 178 F. Supp. 847, 851 (D.N.J. 1959) 
(cigarettes claimed to reduce weight were drugs because they were 
intended to affect the structure or function of the body); United 
States v. 46 Cartons, More or Less, Containing Fairfax Cigarettes, 113 
F. Supp. 336, 338-39 (D.N.J. 1953) (cigarettes claimed to prevent 
respiratory diseases were drugs because they were intended to treat or 
prevent disease).) Moreover, the comments' assertion that health-based 
constraints can be imposed upon tobacco products only under the 
Cigarette Act and the Smokeless Act necessarily leads to the erroneous 
conclusion that much Federal and State regulation, such as health-based 
workplace smoking restrictions and health-based age limits on access, 
is foreclosed. As other comments recognized, Congress obviously did not 
intend for such broad preclusion to be the case. (See Banzhaf, 405 F.2d 
at 1089 (finding that ``[n]othing in the [Cigarette Act] indicates that 
Congress had any intent at all with respect to other types of 
regulation by other agencies--much less that it specifically meant to 
foreclose all such regulation'').)
    (6) Some comments asserted that FDA's proposed restrictions on 
certain advertising for tobacco products are at odds with congressional 
intent to allow the continued use of advertising for these products in 
conjunction with the statutorily required warnings.
    FDA disagrees. As discussed in sections X.A. and X.B. of this 
document, preclusion of Federal regulation of advertising for tobacco 
products is very narrow in scope and does not encompass FDA's final 
rule. Moreover, as one court has noted:
    [T]here is no anomaly if conduct privileged under one statute is 
nonetheless condemned by another; we expect persons in a complex 
regulatory state to conform their behavior to the dictates of many 
laws, each serving its own special purpose.
(New York Shipping Ass'n, 854 F.2d at 1367)
Thus, the mere fact that certain advertising for tobacco products is 
permitted under the current regulatory scheme for those products does 
not preclude FDA from placing restrictions on such advertising.
    (7) Some comments alleged that the 1995 proposed rule would 
conflict with Federal law and congressional intent because it would 
have an impact on the commerce of tobacco products.
    FDA disagrees. Any proscriptive regulation of tobacco products 
inevitably imposes economic burdens upon commerce of those products. 
Thus, following the comments' line of argument, all proscriptive 
regulation of cigarettes is foreclosed by the Cigarette Act and the 
Smokeless Act. As explained in this section, however, by enacting 15 
U.S.C. 1334(a) and 15 U.S.C. 4406(a), Congress chose the proper level 
of limitation on Federal regulations that it concluded was necessary to 
protect the commerce of tobacco products from being unduly economically 
burdened. Because requirements contained in the final rule are not 
precluded under those provisions, the fact that the requirements will 
have economic consequences upon the commerce of tobacco does not mean 
those requirements are foreclosed.
    (8) One comment argued that the 1995 proposed rule is precluded 
because Congress could not have intended for any agency to have the 
authority to prohibit the sale of cigarettes. The comment derived this 
``intent'' from pieces of legislation enacted by Congress that provide 
for the regulation of specific aspects of cigarettes but do not 
prohibit their sale.
    FDA disagrees. Enactment of legislation giving other agencies 
authority over particular aspects of

[[Page 44547]]

cigarettes means only that Congress has decided to take those 
particular actions; it does not imply that Congress has determined that 
other Federal regulation is prohibited. Congress can implement policy 
in only one way: passage of a bill by the House and the Senate that is 
either signed by the President or approved by an overridden veto. (INS 
v. Chadha, 462 U.S. 919, 954-58 (1983); Central Bank, 114 S. Ct. at 
1453.) Because Congress has not adopted any legislation that 
specifically prohibits FDA from regulating tobacco products, the final 
rule is not precluded.
    In summary, FDA's final rule has been narrowly tailored so that it 
does not conflict with the existing statutory scheme governing tobacco 
products, and the final rule is not precluded.
2. The PHS Act
    Section 1926 of the PHS Act conditions a State's receipt of the 
full amount of Federal block grants (to be used for prevention and 
treatment of substance abuse) upon the recipient State having in effect 
a law that makes it ``unlawful for any manufacturer, retailer, or 
distributor of tobacco products to sell or distribute any such product 
to any individual under the age of 18'' (42 U.S.C. 300x-26(a)(1)).
    (9) Some of the comments argued that section 1926 of the PHS Act 
demonstrates an intent on the part of Congress to preserve, and 
encourage enforcement of, State youth access restrictions. The comments 
asserted that because FDA regulation of youth access to tobacco 
products would have a preemptive effect upon some State regulation in 
this area, the 1995 proposed rule conflicts with this congressional 
intent. Accordingly, argued the comments, section 1926 of the PHS Act 
precludes FDA from regulating youth access.
    While FDA agrees that section 1926 of the PHS Act indicates a 
congressional intent to encourage States to establish age limits on the 
purchase of tobacco products, neither the statute's language nor its 
legislative history prohibits Federal regulation of youth access. The 
restrictions in the final rule regarding the sale and distribution of 
tobacco products do not conflict with section 1926 of the PHS Act, and, 
in fact, facilitate the end result that Congress sought--reducing youth 
smoking--by ``reducing the appeal of cigarettes and smokeless tobacco 
to, and limiting access by, persons under 18 years of age.'' (See 60 FR 
41314 at 41321.) Accordingly, FDA's regulation of youth access is not 
precluded by the existence of section 1926 of the PHS Act. (See 61 FR 
1492, January 19, 1996.)
    (10) One comment asserted that the 1995 proposed rule is precluded 
by section 1926 of the PHS Act because, ``in the legislative process 
that led to enactment of [section 1926], Congress considered and 
rejected a variety of specific requirements of the very type that FDA 
now proposes.'' The Supreme Court, however, has made clear that courts 
are ```reluctant to draw inferences from Congress' failure to act.''' 
(Brecht v. Abrahamson, 113 S. Ct. 1710, 1719 (1993) (citations 
omitted).) The mere fact that Congress, in enacting section 1926 of the 
PHS Act, did not incorporate requirements of the type FDA is now 
imposing in no way precludes FDA's final rule which was issued under 
the agency's regulatory authority under the act.

D. Occupation of the Field

    (11) Numerous comments asserted that the 1995 proposed rule is 
impliedly precluded by the comprehensiveness of existing legislation 
relating to regulation of tobacco products. Several comments argued 
that Congress has specifically reserved the power to regulate tobacco 
for itself, and thereby has occupied the field. A number of comments 
asserted that the present system of congressional control over tobacco 
products precludes FDA regulation absent a new mandate from Congress.
    FDA disagrees with these comments. The statutes enacted by Congress 
for regulation of tobacco products do not amount to a comprehensive 
scheme. Rather, they address only a few specific aspects relating to 
regulation of tobacco products. Moreover, even if Congress' actions in 
this area were ``comprehensive,'' Congress clearly did not intend for 
regulation under the Cigarette Act and the Smokeless Act to be 
exclusive. (See Banzhaf, 405 F.2d at 1089 (finding that Congress did 
not intend to foreclose Federal regulation of cigarettes outside the 
narrow scope of preclusion contemplated by the Cigarette Act).) As 
explained in greater detail in sections X.A., X.B., and X.C. of this 
document, the statutes that the comments cite, whether viewed 
individually or collectively, do not preclude FDA from regulating 
tobacco products.
    First, as some comments noted, Congress has not taken action to 
exclude from FDA's jurisdiction tobacco products that fall within the 
act's definitions of ``drug'' and ``device.'' The face of the statute 
is the first place that a court must look to determine whether Congress 
has spoken to a particular issue and whether congressional intent in 
regard to that issue is clear. (Kofa v. INS, 60 F.3d 1084, 1088 (4th 
Cir. 1995); Metropolitan Stevedore Co. v. Rambo, 115 S. Ct. 2144, 2147 
(1995).) Under the act, FDA has jurisdiction over products that are 
intended to address disease or to affect the structure or any function 
of the body. (See section 201(g) and (h) of the act, 21 U.S.C. 321(g) 
and (h); 60 FR 41314 at 41463.) Thus, the relevant language of the 
act--``intended to affect the structure or any function of the body''--
does not on its face exclude tobacco products.
    Congress is able to exclude and has excluded specific products, 
including tobacco products, from a statute's reach when it wishes to do 
so. For example, Congress has expressly excluded other products from 
FDA's jurisdiction under the act. (See, e.g., section 201(i) of the act 
(21 U.S.C. 321(i)) (excluding ``soap'' from definition of 
``cosmetic''); section 201(s) of the act (excluding ``color additive'' 
from definition of ``food additive'').) Moreover, Congress has 
expressly excluded tobacco products from the reach of other regulatory 
statutes. (See, e.g., 15 U.S.C. 2052(a)(1)(B) (Consumer Product Safety 
Act); 15 U.S.C. 1261(f)(2) (Federal Hazardous Substances Act); 15 
U.S.C. 2602(2)(B)(iii) (Toxic Substances Control Act); 21 U.S.C. 802(6) 
(Controlled Substances Act); 15 U.S.C. 1459(a)(1) (Fair Packaging and 
Labeling Act).) Indeed, tobacco is excluded from the definition of 
``dietary supplement'' under the act, but no similar exclusion appears 
in the definition of ``drug'' or ``device.'' See section 201(g), (h), 
and (ff) of the act (21 U.S.C. 321(g), (h), and (ff)). The absence of 
an express exclusion for tobacco products from the act's definitions of 
``drug'' and ``device'' eviscerates the contention that Congress 
clearly intended to preclude FDA from regulating tobacco products.
    Second, as recognized by some comments, the fact that statutes such 
as the Cigarette Act and the Smokeless Act delegate some regulatory 
authority over tobacco products to other Federal agencies does not 
preclude FDA's rule. Numerous Federal agencies have overlapping and 
complementary jurisdiction that arises from their differing missions 
and expertise. (See, e.g., Rueth v. EPA, 13 F.3d 227, 228 (7th Cir. 
1993) (EPA and Army Corps of Engineers have concurrent jurisdiction 
under the Clean Water Act); Public Utility Dist. No. 1 v. Bonneville 
Power Admin., 947 F.2d 386, 395 (9th Cir. 1991) (FERC has concurrent 
jurisdiction

[[Page 44548]]

with other Federal agencies as well as States over hydroelectric 
projects), cert. denied, 112 S. Ct. 1759 (1992); United Packinghouse, 
Food and Allied Workers Int'l Union v. NLRB, 416 F.2d 1126, 1133-34 
n.11 (D.C. Cir.) (NLRB and EEOC have concurrent jurisdiction over 
racial discrimination claims), cert. denied, 396 U.S. 903 (1969).) As 
discussed in section X.C. of this document, the fact that several 
agencies are already charged with regulating certain aspects of tobacco 
does not preclude FDA from asserting jurisdiction for different 
purposes. (See Banzhaf, 405 F.2d at 1089 (``Nothing in the [Cigarette 
Act] indicates that Congress had any intent at all with respect to 
other types of regulation by other agencies--much less that it 
specifically meant to foreclose all such regulation'').)
    In conclusion, FDA's final rule is not precluded by the existing 
regulatory scheme for tobacco products.

E. Preemption of State and Local Requirements Under Section 521(a) of 
the Act

    Under proposed Sec. 897.42, State or local requirements that are 
more stringent than, and do not conflict with, requirements imposed 
under FDA's final rule would not have been preempted under section 521 
of the act (21 U.S.C. 360k).
    (12) Several comments supported the intended exclusion from 
preemption under proposed Sec. 897.42, noting that it is essential that 
State and local officials retain the ability to enact and enforce laws 
which they believe are most effective when actively enforced at the 
local level.
    In contrast, several comments took issue with the proposed 
exclusion and asserted that regulation of tobacco products by FDA as 
drug delivery devices would result in the preemption of State and local 
laws. The comments characterized the ``blanket'' exclusion from 
preemption under proposed Sec. 897.42 as being at odds with the 
statutory preemption established by section 521(a) of the act and with 
the exemption procedures established by section 521(b) and by FDA's 
regulations.
    Several comments argued that proposed Sec. 897.42 would conflict 
with congressional intent behind the act. One comment noted that 
preemption under section 521(a) of the act was intended to establish 
national uniformity in medical device regulation, protecting such 
products from onerous burdens on interstate commerce created by a 
patchwork of State and local requirements. The comment argued that the 
proposed exclusion from preemption would cause uniform Federal 
standards to become displaced by diverse State and local requirements. 
Another comment asserted that, by allowing more stringent State and 
local requirements, proposed Sec. 897.42 was at odds with the act 
because Congress did not intend for FDA's device regulations to be 
minimum standards; rather, it intended for those regulations to be the 
governing standards unless local circumstances justified an exception.
    Finally, one comment pointed out that the 1995 proposed rule would 
permit only those State and local requirements that are at least as 
``stringent'' as the requirements imposed under FDA's rule. The comment 
asserted that FDA may not preempt any State laws, however, without 
first showing a ``clear and manifest congressional intent'' to 
authorize preemption of those State laws.
    As a preliminary matter, two points of clarification are necessary. 
First, proposed Sec. 897.42 would not have caused State and local laws 
to become Federal requirements, as one of the comments anticipated. 
Rather, the 1995 proposed rule would have allowed State and local laws 
to remain in force subject solely to State or local enforcement.
    Second, proposed Sec. 897.42 would not have ``resuscitated'' State 
and local laws that would otherwise be preempted by the Cigarette Act 
or the Smokeless Act, as some of the comments anticipated. Instead, the 
exclusion from preemption in proposed Sec. 897.42 would have applied 
only to preemption under section 521 of the act.
    Upon consideration of all of the comments relating to proposed 
Sec. 897.42, the agency recognizes that significant concerns have been 
raised with regard to the validity of FDA's proposed preemption 
exclusion for all more stringent State and local legislative 
enactments. Most notably, the agency concurs that the notice and 
comment process of the current rulemaking does not provide the type of 
opportunity for an oral hearing contemplated under section 521(b) of 
the act. In light of this concern, FDA has deleted proposed 
Sec. 897.42.
    The agency's 1995 proposed rule to exclude all more stringent State 
and local requirements from any preemptive effect under this rule was 
based on a recognition of the pioneering and continuing role in the 
area of regulation of youth access to tobacco products that States have 
played, particularly certain active tobacco-control States. Federal 
cooperation with, and continued reliance upon, innovative and 
aggressive State and local enforcement efforts is essential.
    FDA believes the requirements it is establishing in this final rule 
set an appropriate floor for regulation of youth access to tobacco 
products but do not, as a policy matter, reflect a judgment that more 
stringent State or local requirements are inappropriate. For example, 
FDA chose 18 as the age below which cigarettes and smokeless tobacco 
may not be marketed to children and adolescents. This choice reflected 
a finding that all but four States have a comparable restriction which 
addresses the most vulnerable population. However, many comments argued 
that a higher age would be more effective. While FDA has decided not to 
establish an age above 18 in the final rule, the agency may, under the 
exemption process established under section 521(b) of the act, defer to 
those States that conclude that a higher age is more effective and that 
apply for an exemption.
    In implementing section 521 of the act, FDA has historically 
interpreted that provision narrowly and found it to have preemptive 
effect only for those State and local requirements that in fact clearly 
impose specific requirements with respect to specific devices that are 
manifestly in addition to analogous Federal requirements. (See 
Sec. 808.1(d) (21 CFR 808.1(d)).) Moreover, section 521 of the act 
``does not preempt State or local requirements that are equal to, or 
substantially identical to, requirements imposed by or under the act'' 
(Sec. 808.1(d)(2)).
    The agency's assertion of jurisdiction over tobacco products does 
not preclude any State or local requirements other than those expressly 
preempted by section 521(a) of the act. Moreover, consistent with FDA's 
interpretation of section 521(a) of the act, only a limited number of 
State and local requirements are preempted and even those may qualify 
for exemption from preemption under section 521(b) of the act.
    Examples of State and local laws FDA believes are preempted, 
consistent with its longstanding approach to implementing section 521 
of the act, are the following:
 More stringent age restrictions--Three States restrict 
cigarette sales to anyone under 19 years of age, and one State has 21 
years as the minimum age. These restrictions are preempted because they 
are more stringent than the final rule, which prohibits sales only to 
individuals under age 18.

[[Page 44549]]

 Restrictions on the distribution of free samples of tobacco 
products--Approximately 40 States, the District of Columbia, and many 
local governments restrict the distribution of free samples of tobacco 
products. For example, Nebraska bans samples, coupons, and rebate 
offers for smokeless tobacco. Oklahoma and several other States 
prohibit the free distribution of tobacco to individuals under 18 and 
within 500 feet of schools, playgrounds, or other locations used 
primarily by individuals under 18. Approximately 12 States restrict 
where free samples may be distributed. These restrictions are preempted 
to the extent that they are different from, or in addition to, the 
final rule, which prohibits any distribution of free samples.
 Restrictions on placement of vending machines--Most States, 
the District of Columbia, and several local governments impose 
restrictions on the placement of vending machines. These restrictions 
are preempted to the extent that they are different from, or in 
addition to, the final rule, which prohibits the use of vending 
machines except in certain locations and under certain conditions.
 Restrictions on outdoor advertising--Restrictions on outdoor 
advertising are preempted to the extent that they are different from, 
or in addition to, the final rule, which restricts the location, 
format, and content of such advertising. For example, Ordinance 307, 
which was enacted by the Mayor and City Council of Baltimore, MD, 
prohibits the placement of any sign that ``advertises cigarettes in a 
publicly visible location,'' i.e., on ``outdoor billboards, sides of 
building[s], and free standing signboards.'' This ordinance was upheld 
by the Fourth Circuit in the face of a challenge based on preemption 
under the Cigarette Act and on First Amendment grounds. (See Penn 
Advertising of Baltimore, Inc. v. Mayor and City Council of Baltimore, 
63 F.3d 1318 (4th Cir. 1995), vacated and remanded, 116 S. Ct. 2574 
(1996).) Subsequently, the Supreme Court vacated judgment in Penn 
Advertising and remanded the case to the United States Court of Appeals 
for the Fourth Circuit for further consideration in light of 44 
Liquormart, Inc. v. Rhode Island, 116 S. Ct. 1697 (1996). If Ordinance 
307 is ultimately upheld in its present form, it will be preempted 
under section 521 of the act to the extent that it is different from, 
or in addition to, the final rule.
 Prohibitions and restrictions relating to free-standing 
displays--Prohibitions and restrictions relating to free-standing 
displays are preempted to the extent that they are different from, or 
in addition to, the final rule, which allows free-standing displays but 
restricts the location, format, and content of such displays.
 Requirements relating to identification checks for purposes of 
age verification--Requirements relating to identification checks for 
purposes of age verification are preempted to the extent that they are 
different from, or in addition to, the final rule, which requires 
identification checks for anyone under the age of 26.
    Examples of State or local laws or regulations that are not 
preempted include:
 Equivalent age restrictions--Most States establish 18 years as 
the minimum age for purchasing cigarettes or smokeless tobacco. These 
restrictions are not preempted because they are equal to, or 
substantially identical to, requirements imposed under the final rule. 
(See Sec. 808.1(d)(2).)
 Restrictions on the sale or distribution of tobacco products--
Several local governments restrict the locations (such as public parks, 
public buildings, etc.) at which tobacco products may be sold or 
distributed. These restrictions are not preempted because the final 
rule does not establish specific counterpart regulations or other 
specific requirements relating to the locations at which tobacco 
products may be sold or distributed.
 Restrictions on smoking in public places--Approximately 48 
states, the District of Columbia, and many local governments have some 
restrictions on smoking in public places. These restrictions are not 
preempted because the final rule does not establish specific 
counterpart regulations or other specific requirements relating to 
restrictions on smoking in public places.
 Penalties on underage persons who purchase tobacco products--
These penalties are not preempted because the final rule does not 
establish specific counterpart regulations or other specific 
requirements relating to penalties on underage persons who purchase 
tobacco products.
 Prohibition on use or possession of tobacco products by 
underage persons--These prohibitions are not preempted because the 
final rule does not establish specific counterpart regulations or other 
specific requirements relating to prohibitions on the use or possession 
of tobacco products by underage persons.
 Age restrictions on persons who sell tobacco products--Some 
local governments have statutes or regulations that establish a minimum 
age for persons selling tobacco products. These restrictions are not 
preempted because the final rule does not establish specific 
counterpart regulations or other specific requirements relating to age 
restrictions on persons who sell tobacco products.
 Tobacco excise taxes--All 50 States and the District of 
Columbia have excise taxes on cigarettes, and 42 States have excise 
taxes on smokeless tobacco. These excise taxes are not preempted 
because they are not ``requirements applicable to a device'' within the 
meaning of section 521(a) of the act. (See Sec. 808.1(d)(8).)
 Access-control mechanism requirements for vending machines--
Approximately six States and some local governments require access-
control mechanisms on vending machines, such as locking devices or 
token acceptors. These requirements are not preempted because the final 
rule does not establish specific counterpart regulations or other 
specific requirements relating to access-control mechanisms for vending 
machines.
 Posting of signs--Approximately 24 States have statutes 
requiring certain parties to post signs at vending machines stating 
that sales to underage persons are prohibited. One State requires 
owners or operators of vending machines to post signs warning of the 
dangers of cigarette use during pregnancy. In addition, many local 
governments require that signs be posted in areas in which smoking is 
prohibited by law. These requirements are not preempted because the 
final rule does not establish specific counterpart regulations or other 
specific requirements relating to the posting of signs.
 License requirements--Some local governments impose license 
requirements upon retailers of tobacco products. These requirements are 
not preempted because they are not ``requirements applicable to a 
device'' within the meaning of section 521(a) of the act. (Cf. 
Sec. 808.1(d)(3).)
    The examples set forth above reflect the types of State or local 
requirements of which the agency is currently aware. \254\ There may be 
other State or local requirements pertaining to cigarettes and 
smokeless tobacco. With regard to particular State or local 
requirements that are not described above, any State, political 
subdivision, or other interested party may, in accordance with 
Sec. 808.5 (21 CFR 808.5),

[[Page 44550]]

request an advisory opinion from the agency as to whether such State or 
local requirements are preempted.
---------------------------------------------------------------------------

    \254\ State Legislated Actions on Tobacco Issues, Coalition on 
Smoking OR Health, Bartelt, J., ed., December 31, 1995.
---------------------------------------------------------------------------

    State and local requirements that are preempted by the requirements 
of FDA's final rule may be exempted from preemption in accordance with 
section 521(b) of the act and its implementing regulation, part 808 (21 
CFR part 808). Section 521(b) of the act and part 808 provide that FDA 
may, by regulation issued after notice and an opportunity for an oral 
hearing, exempt a State or local device requirement from preemption 
under such conditions as the Commissioner of Food and Drugs (the 
Commissioner), may prescribe if the requirement is: (1) More stringent 
than Federal requirements applicable to the device under the act; or 
(2) required by compelling local conditions, and compliance with the 
State or local requirement would not cause the device to be in 
violation of any requirement applicable under the act.
    By a separate document to be published in the Federal Register, FDA 
will be informing all State and local governments that they may submit 
applications to exempt from preemption under section 521(b) of the act 
those State and local requirements pertaining to cigarettes and 
smokeless tobacco that are preempted by the final rule. A State or 
local requirement will be exempted from preemption under section 521(b) 
of the act if the State or local requirement: meets the exemption 
requirements established under that section and is consistent with the 
goals in the final rule. Exemptions from preemption that FDA grants 
apply only to preemption under section 521 of the act.
    Because the issues raised by these applications for exemption will 
be similar or related, the Commissioner has determined that it would be 
advantageous for all concerned to propose a single regulation granting 
or denying exemptions for each particular State or local requirement, 
and, if necessary, to hold a single hearing covering all applications 
for exemption from preemption for requirements pertaining to cigarettes 
and smokeless tobacco. Although each application will be considered as 
part of a single proceeding, each individual application will be 
evaluated on its merits and the circumstances applicable to the 
particular submitting jurisdiction.

F. Preemption of State Product Liability Claims Under Section 521(a) of 
the Act

    (13) Several comments asserted that, under section 521(a) of the 
act, State product liability claims would be preempted if FDA asserts 
jurisdiction over tobacco products as drug delivery devices.
    Based on FDA's understanding of the theories of recovery advanced 
in tobacco product liability cases, and the nature of the Federal 
requirements being established in the final rule, FDA does not expect 
any of these Federal requirements to preempt any tort claims relating 
to tobacco products. The following analysis explains this conclusion.
    The Supreme Court recently held that the scope of preemption under 
section 521(a) with regard to State product liability claims is very 
narrow. Indeed, a plurality of the Court noted that ``few, if any, 
common-law duties have been pre-empted by [section 521(a)].'' 
Medtronic, Inc. v. Lohr, 64 U.S.L.W. 4625, 4634 (U.S. June 26, 1996) 
(Nos. 95-754 and 95-886) (plurality opinion).
    Preemption occurs ``only where a particular state requirement 
threatens to interfere with a specific federal interest.'' Medtronic, 
64 U.S.L.W. at 4634. Thus, State requirements of ``general 
applicability'' such as State product liability claims are not 
preempted, except where they have ``the effect of establishing a 
substantive requirement for a specific device'' that is ``different 
from, or in addition to,'' a specific requirement imposed under the act 
(Sec. 808.1(d); Medtronic, 64 U.S.L.W. at 4633-34). Moreover, Federal 
requirements must be ``applicable to the device'' in question, and they 
preempt State product liability claims only if the Federal requirements 
are ``specific counterpart regulations'' or ``specific'' to a 
``particular device'' (Sec. 808.1(d); Medtronic, 64 U.S.L.W. at 4634).
    In summary, FDA is aware of no tort claims against tobacco products 
that will be preempted by the Federal requirements being established in 
the final rule.

XI. Miscellaneous Constitutional Issues

A. Takings Under the Fifth Amendment

    (1) Several industry, retail, and individual comments argued that 
parts of the regulations effect takings compensable under the Fifth 
Amendment's Takings Clause (the Takings Clause), which provides that 
``private property [shall not] be taken for public use, without just 
compensation.'' For example, comments argued that proposed Sec. 897.34 
will restrict or even prohibit tobacco manufacturers' use of their 
trademarks and copyrighted property, or that it will deprive industry 
members both of the goodwill generated by their sponsorship of sports 
and cultural events and of valuable tobacco trademarks. Comments argued 
that Sec. 897.16(a) effects a taking of intellectual property because 
it prohibits the use of nontobacco trademarks (with grandfathered 
exceptions) to market tobacco products. Several comments argued that 
Sec. 897.16(c) effects a taking of vending machines and self-service 
displays, as well as contractual rights to place tobacco vending 
machines on other people's property. Comments argued that the 
requirement that advertising use only black text on white background in 
Sec. 897.32(a) effects a taking because nonconforming signs--for buses 
and on billboards, for example--will have to be destroyed, as would 
tobacco advertisements on billboards and signs within 1,000 feet of 
schools and public playgrounds under Sec. 897.30(b).
    Comments also argued that the proposed ban on mail-order sales of 
tobacco products would effect a taking of mail-order businesses. Mail-
order sales, however, are not prohibited under the final rule. Many 
retailers argued that the prohibition of self-service displays and the 
corresponding requirement that tobacco products be shelved behind sales 
counters violate the Fifth Amendment.
    The Food and Drug Administration (FDA) disagrees that any of these 
provisions effects a taking in violation of the Fifth Amendment.
    In its final form, Sec. 897.16(a) prohibits manufacturers from 
using the trade or brand name of a nontobacco product as the trade or 
brand name of a cigarette or smokeless tobacco product, with the 
exception of those names on both tobacco and nontobacco products that 
were sold in the United States on January 1, 1995. In its final form, 
Sec. 897.16(c) prohibits the use of vending machines and self-service 
displays to sell cigarettes and smokeless tobacco, except that vending 
machines (including those that sell packaged, single cigarettes) and 
self-service displays may be used to sell these tobacco products in 
adult-only establishments. (As proposed in the 1995 proposed rule, 
Sec. 897.16(c) would have prohibited their use entirely.)
    In its final form, Sec. 897.30(b) prohibits tobacco product 
advertisements within 1,000 feet of a public playground or a secondary 
or elementary school. In its final form, Sec. 897.32(a) permits only 
advertising that uses black text on a white background (except in adult 
publications and in facilities where persons under 18 are not present 
or permitted). In its final form, Sec. 897.34(a)

[[Page 44551]]

prohibits the sale of nontobacco items or services that bear the brand 
names or other indicia of identification for cigarettes or smokeless 
tobacco. In its final form, Sec. 897.34(c) prohibits the sponsorship of 
athletic, musical, cultural, or other social or cultural events in the 
brand names or other indicia of identification for cigarettes or 
smokeless tobacco.
    A takings analysis begins with a determination of what interest a 
person has in the thing that is allegedly taken--in this case, in 
vending machines and self-service displays, copyrighted material, and 
trademarks and goodwill--and whether that interest ``can be considered 
property for the purposes of the Taking Clause of the Fifth 
Amendment.'' (See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001 
(1984).) If a cognizable property interest is identified, the Supreme 
Court has developed three factors for courts to consider in assessing 
whether a regulatory taking has occurred: (1) The character of the 
governmental action; (2) its economic impact; and (3) its interference 
with reasonable investment-backed expectations (Id. at 1005).
1. The Interests at Issue
    Some of the interests affected by the final rule--vending machines, 
self-service displays, and existing nonconforming advertising on signs 
and billboards, for example--is tangible property, whereas contract 
rights, trademarks and goodwill, and copyrighted material (e.g., the 
nonconforming copyrighted material on signs and billboards) affected by 
these provisions are intangible property interests.
    Tangible personal property--such as vending machines, self-service 
displays, and signs and billboards advertising tobacco products--is 
property for purposes of the Takings Clause (see United States v. 
General Motors Corp., 323 U.S. 373, 383-84 (1945)), although personal 
commercial property is afforded less protection than real property 
under the Takings Clause (see, e.g., Lucas v. South Carolina Coastal 
Council, 112 S. Ct. 2886, 2899 (1992)).
    Intangible interests may be compensable under the Takings Clause as 
well. For example, in Ruckelshaus, the Supreme Court determined that 
trade secret information--which is intangible--was property compensable 
under the Takings Clause. The Court noted that the extent of the 
property right in trade secret information ``is defined by the extent 
to which the owner of the secret protects his interest from disclosure 
to others,'' (that is, it is property only insofar as others are 
excluded from its use) and that it has ``many of the characteristics of 
more tangible forms of property''--for example, trade secret 
information is assignable, it can form the res of a trust, and it 
passes to a trustee in bankruptcy (Ruckelshaus, 467 U.S. at 1002).
    Vending machine owners may have contracts that give them exclusive 
rights to sell tobacco products at a particular location. These 
contract rights would typically be assignable, they may form the res of 
a trust (see, e.g., Wadsworth v. Bank of California, 777 P.2d 975, 978 
(Or. Ct. App. 1989)), and rights of action based upon them can become 
part of a bankruptcy estate (e.g., In re Ryerson, 739 F.2d 1423, 1425 
(9th Cir. 1984)). (See also U.C.C. 9-106.) Such vending machine owners' 
contracts may therefore create contract rights that would be 
compensable property under the Takings Clause.
    Material can be copyrighted if it is an original work of 
authorship--such as written, musical, pictorial, or graphic work--that 
is fixed in a tangible medium of expression from which the work can be 
reproduced (17 U.S.C. 102(a)). By Federal statute a copyright is 
assignable (17 U.S.C. 201), and there are rights to exclusive use (17 
U.S.C. 106), subject to certain limitations (17 U.S.C. 107-20) and 
enforceable through infringement actions (e.g., 17 U.S.C. 501). A 
copyright can form the res of a trust (Bartok v. Boosey & Hawkes, Inc., 
523 F.2d 941, 948 (2d Cir. 1975)) and it can become property of an 
estate in bankruptcy (United States v. Inslaw, Inc., 932 F.2d 1467, 
1471 (D.C. Cir. 1991), cert. denied, 502 U.S. 1048 (1992)). Sharing 
many of the characteristics of more tangible property, a copyright is 
also compensable property under the Takings Clause.
    Trademarks are words, names, symbols, devices, or combinations 
thereof that a person uses, or intends to use and has applied to 
register, to identify or distinguish his or her goods from others on 
the market and to identify their source (15 U.S.C. 1127). The primary 
purpose of trademarks is to protect consumers by preventing deceitful 
marketing of one product or service as another. As the Supreme Court 
has stated,
    [t]he law of unfair competition has its roots in the common-law 
tort of deceit: its general concern is with protecting consumers 
from confusion as to source. While that concern may result in the 
creation of ``quasi-property rights'' in communicative symbols, the 
focus is on the protection of consumers, not the protection of 
producers as an incentive to product innovation.
(Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 157 
(1989))
    When associated with goodwill, trademarks also share--with trade 
secret information and copyrights--the features of more tangible 
property. For example, the Lanham Act (15 U.S.C. 1053 et seq.) allows 
assignment of a trademark only ``with the goodwill of the business in 
which the mark is used or with that part of the goodwill of the 
business connected with the use of and symbolized by the mark'' (15 
U.S.C. 1060). Indeed, when Congress amended the Lanham Act in 1988 to 
allow intent-to-use applications for registration of trademarks, it 
prohibited assignment of such applications to be ``consistent with the 
principle that a mark may be validly assigned only with the business or 
goodwill attached to the use of the mark'' (S. Rept. 515, 100th Cong., 
2d sess. 31 (1988), reprinted in 1988 U.S.C.C.A.N. 5577, 5593-5594).
    Owners of trademarks also have rights of exclusive use of marks--
that is, against infringement--because ``[b]y applying a trademark to 
goods produced by one other than the trademark's owner, the infringer 
deprives the owner of the goodwill which he spent energy, time, and 
money to obtain'' (Inwood Laboratories, Inc. v. Ives Laboratories, 
Inc., 456 U.S. 844, 854 n.14 (1982)). ``Registration bestows upon the 
owner of the mark the limited right to protect his goodwill from 
possible harm by those uses of another as may engender a belief in the 
mind of the public that the product identified by the infringing mark 
is made or sponsored by the owner of the mark'' (Societe Comptoir de 
L'Industrie Cotonniere Etablissements Boussac v. Alexander's Dep't 
Stores, Inc., 299 F.2d 33, 36 (2d Cir. 1962)). Like trade secret 
information, a trademark can be the res of a trust (see Coca-Cola 
Bottling Co. v. Coca-Cola Co., 988 F.2d 414, 430-432 (3d Cir. 1993)) 
and it can pass to the trustee in bankruptcy (Inslaw, 932 F.2d at 
1471).
    The agency notes that a trademark itself, unaccompanied by 
goodwill, lacks these characteristics of property. The agency therefore 
believes that a trademark itself is not property cognizable under the 
Takings Clause. Based on the foregoing analysis, however, the agency 
believes that a trademark and the accompanying goodwill together are 
property cognizable under the Takings Clause. These conclusions are 
consonant with the recognition that a trademark has

[[Page 44552]]

value as property for the owner ``only in the sense that a man's right 
to the continued enjoyment of his trade reputation and the good will 
that flows from it, free from unwarranted interference by others, is a 
property right, for the protection of which a trademark is an 
instrumentality'' (Hanover Star Milling Co. v. Metcalf, 240 U.S. 403, 
413 (1916); see also S. Rept. 1333, 79th Cong., 2d sess. (1946), 
reprinted in 1946 U.S. Code Cong. & Admin. News 1274, 1277 (``the 
protection of trade-marks is merely protection to goodwill'')).
    Nevertheless, this conclusion must be reconciled with Supreme Court 
precedent on takings of goodwill. In particular, the comments cited 
Kimball Laundry Co. v. United States, 338 U.S. 1 (1949), for the 
proposition that the Takings Clause requires compensation for a 
regulatory taking of goodwill. The general rule is that the Takings 
Clause does not require compensation for goodwill when the Government 
takes a place of business because the business's goodwill may be 
transferred to a new place of business (338 U.S. at 11-12 and 15; see 
also General Motors, 323 U.S. at 379 (when Government permanently takes 
land, ``compensation for that interest does not include * * * [even] 
the loss of goodwill which inheres in the location of the land'')). In 
Kimball, however, the Court allowed compensation for loss of a laundry 
business's goodwill, or going-concern value, incident to the physical 
taking of the laundry. It did so because the Government intended to 
operate the laundry temporarily during wartime, after which the laundry 
would revert to the business; the business could not invest in a new 
laundry because it would someday be the owner of two laundries, neither 
of which it could then operate profitably (338 U.S. at 14-15). The 
Court therefore likened the situation to those in which the Government 
takes a utility with the intention of operating it itself; the going-
concern value of the utility is taken in those cases and is therefore 
compensable (Id. at 12-13).
    Kimball and General Motors therefore indicate that goodwill is 
compensable under the Takings Clause only when no business remains 
after a taking to whose benefit the goodwill may inure. (See also 
District of Columbia v. 13 Parcels of Land, 534 F.2d 337, 349 & n.7 
(D.C. Cir. 1976).) With respect to goodwill associated with a 
trademark, use of which is limited by a regulation, these cases 
indicate that the property interest may be compensable only if the 
regulation allows no goodwill to inure to the benefit of the owner.
    For purposes of the following analysis of whether the regulations 
effect a taking, the agency assumes that copyrighted material, the 
interests in trademarks and associated goodwill, contracts, self-
service displays, vending machines, and tobacco advertising on signs 
and billboards are property interests that may be compensable under the 
Takings Clause if taken.
2. The Takings Analysis
    [W]hat constitutes a ``taking'' for purposes of the Fifth 
Amendment has proved to be a problem of considerable difficulty. 
While this Court has recognized that the ``Fifth Amendment's 
guarantee * * * [is] designed to bar Government from forcing some 
people alone to bear public burdens which, in all fairness and 
justice, should be borne by the public as a whole,'' this Court, 
quite simply, has been unable to develop any ``set formula'' for 
determining when ``justice and fairness'' require that economic 
injuries caused by public action be compensated by the government, 
rather than remain disproportionately concentrated on a few persons.
(Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 123-24 
(1978) (citation omitted) (alterations and deletions in original); 
Ruckelshaus, 467 U.S. at 1005)
Still, the Supreme Court has identified three factors for courts to 
consider in assessing whether a regulatory taking has occurred: (1) The 
character of the governmental action; (2) its economic impact; and (3) 
its interference with reasonable investment-backed expectations 
(Ruckelshaus, 467 U.S. at 1005; Penn Central, 438 U.S. at 124).
    The force of any one of these factors may be ``so overwhelming * * 
* that it disposes of the taking question'' (Ruckelshaus, 467 U.S. at 
1005 (finding interference with reasonable investment-backed 
expectations by use of trade secret information in pesticide approval 
process to be decisive)). So, for example, if the economic impact is to 
rob real property of ``all economically beneficial uses,'' the 
regulation effects a taking (Lucas, 505 U.S. at 1019 (emphasis in 
original); see also id. at 1027-1028 (limiting holding to real 
property)). When examined in light of these three factors, FDA's 
proposed regulations do not effect a compensable taking under the Fifth 
Amendment of the Constitution.
3. The Character of the Governmental Action
    With respect to the first factor, courts are more likely to find a 
taking when the interference with property can be characterized as a 
physical invasion by the Government (e.g., United States v. Causby, 328 
U.S. 256, 261-62 (1946) (characterizing Government's use of flight path 
just over property as physical invasion)) than when the interference is 
caused by a regulatory program that ``adjust[s] the benefits and 
burdens of economic life to promote the common good'' (Penn Central, 
438 U.S. at 124). Courts have accorded particular deference to 
governmental action taken to protect the public interest in health, 
safety, and welfare. (See Keystone Bituminous Coal Ass'n v. 
DeBenedictis, 480 U.S. 470, 488 (1987); Penn Central, 438 U.S. at 125-
26; Atlas Corp. v. United States, 895 F.2d 745, 757-58 (Fed. Cir.), 
cert. denied, 498 U.S. 811 (1990).) In addition, the Supreme Court has 
repeatedly rejected compensation claims when the Government has 
regulated in order to prevent harmful activity:
    The power which the States have of prohibiting such use by 
individuals of their property as will be prejudicial to the health, 
the morals, or the safety of the public, is not--and, consistently 
with the existence and safety of organized society, cannot be--
burdened with the condition that the State must compensate such 
individual owners for pecuniary losses they may sustain, by reason 
of their not being permitted, by noxious use of their property, to 
inflict injury upon the community.
(Mugler v. Kansas, 123 U.S. 623, 669 (1887) (holding that State law 
prohibiting manufacture or sale of alcohol effected no taking of 
brewery even though law entirely destroyed brewery's beneficial use); 
see also Keystone, 480 U.S. 470 (1987) (no taking by law prohibiting 
mining of coal); Goldblatt v. Town of Hempstead, 369 U.S. 590 (1962) 
(no taking effected by regulation that closed gravel pit); Miller v. 
Schoene, 276 U.S. 272 (1928) (no taking effected by State-ordered 
felling of cedar trees); Hadacheck v. Sebastian, 239 U.S. 394 (1915) 
(no taking effected by ordinance prohibiting operation of brickyard in 
residential area); Reinman v. City of Little Rock, 237 U.S. 171 (1915) 
(no taking effected by ordinance prohibiting stable in residential 
area); Powell v. Pennsylvania, 127 U.S. 678 (1888) (no taking effected 
by law preventing manufacture of margarine)).
    First, the final rule's interference with property interests cannot 
be characterized as a physical invasion of property. The final rule 
prohibits some uses of some types of property, but the Government is 
neither using nor acquiring property under the regulations (Penn 
Central, 438 U.S. at 128). For example, certain uses of vending

[[Page 44553]]

machines, self-service displays, and signs and billboards are 
prohibited, but the Government is itself neither using nor acquiring 
them. The same is true of the intangible property at issue, contracts, 
copyrights, and trademarks and the associated goodwill: The agency is 
prohibiting certain uses--indeed, all uses of tobacco trademarks on 
nontobacco items, including when tobacco companies have also registered 
the tobacco mark as a mark for nontobacco products or services--but the 
Government is not itself using these contract rights, copyrights, or 
trademarks (and thereby tobacco companies' goodwill). It ``has taken 
nothing for its own use'' (Connolly v. Pension Benefit Guar. Corp., 475 
U.S. 211, 224 (1986)).
    Second, these final regulations seek to promote the public health 
by limiting access to tobacco products by consumers in the age group 
most likely to become addicted to them: Those under the age of 18. The 
regulations are intended to help reduce significantly the harms that 
use of tobacco products among this age group causes. They do so by 
prohibiting the sale of tobacco products to persons under the age of 
18; that is, the regulations require modes of sale through which the 
retailer can verify the age of the purchaser or to which only those 18 
or over will have access. In particular, the final rule permits vending 
machines and self-service displays and accompanying advertising only in 
places to which young people do not have access.
    The final regulations also limit promotion of tobacco products to 
persons under the age of 18. They do so by prohibiting certain venues 
for tobacco advertising, namely, within 1,000 feet of schools and 
public playgrounds. They also require black text/white background 
advertisements in remaining venues with the exception of adult 
newspapers, magazines, periodicals, and other publications, and in 
adult-only establishments. They also prohibit use of tobacco trademarks 
on nontobacco products and in the sponsorship of events. As a 
consequence, use of tobacco industry trademarks, copyrights, and 
advertising techniques is limited, although not ended. Nonconforming 
signs and billboards will be prohibited, thereby reducing the remaining 
useful life of those currently in use when the regulations become 
effective. Use of nontobacco trademarks is limited only by prohibiting 
their use on tobacco products (except for nontobacco trademarks used on 
tobacco products in the United States on January 1, 1995).
    These regulations substantially advance, and are rationally related 
to, FDA's legitimate interest in promoting the public health and 
reducing harm by limiting both youth access to tobacco products and, as 
discussed in the context of the First Amendment, their promotion to 
youth. (See Keystone, 480 U.S. at 485; see also Pace Resources, Inc. v. 
Shrewsbury Township, 808 F.2d 1023, 1030 (3d Cir.) (``[T]he 
governmental action is entitled to a presumption that it does advance 
the public interest.''), cert. denied, 482 U.S. 906 (1987).) Moreover, 
they are directed at stopping activity that is illegal in every State: 
Sales of tobacco products to those under the age of 18 (Keystone, 480 
U.S. at 492 n.22). This factor of the takings analysis indicates that 
these regulations effect no takings.
4. The Economic Impact of the Governmental Action
    The second factor to consider is the economic impact of the 
governmental action. ``There is no fixed formula to determine how much 
diminution in market value is allowable without the fifth amendment 
coming into play'' (Florida Rock Indus., Inc. v. United States, 791 
F.2d 893, 901 (Fed. Cir. 1986), cert. denied, 479 U.S. 1053 (1987)). It 
is clear, however, that a regulation's economic impact may be great 
without rising to the level of a taking. (See Pace Resources, 808 F.2d 
at 1031 (citing Hadacheck v. Sebastian, 239 U.S. 394 (1915)) (no taking 
even given reduction in value from $800,000 to $60,000); Village of 
Euclid v. Ambler Realty Co., 272 U.S. 365 (1926) (no taking despite 75 
percent diminution in value).) Mere denial of the most profitable or 
beneficial use of property does not require a finding that a taking has 
occurred. (See Florida Rock, 791 F.2d at 901; see also Andrus v. 
Allard, 444 U.S. 51, 66 (1979).) Rather, courts look for drastic 
interference with a property's possible uses. (See Pace Resources, 808 
F.2d at 1031.)
    In assessing whether a regulation effects a taking, the Supreme 
Court has considered whether the regulation denies an owner the 
``economically viable use'' of his property. (See, e.g., Keystone, 480 
U.S. at 499.) Courts focus on the remaining uses permitted and the 
residual value of the property. (See Pace Resources, 808 F.2d at 1031.)
    Although certain uses of copyrights and copyrighted material 
developed by tobacco companies and of tobacco and nontobacco trademarks 
will be prohibited or curtailed, other uses will remain once the final 
rule takes effect. That is, under Sec. 897.16(a), nontobacco trademarks 
may not be used to market tobacco products (with the exception of 
trademarks that had such uses before January 1, 1995) and so they may 
lose the (speculative) value of such licensing arrangements, but they 
retain the vast bulk of their value as trademarks for the product or 
brand for which they were originally developed, and they retain the 
value of their potential use to market all legal, nontobacco products. 
Under Secs. 897.30(b) and 897.32(a), some copyrighted advertising 
material that appears on billboards or signs within 1,000 feet of a 
school or playground or that is not black text/white background may be 
rendered useless when the rule becomes effective (the copyrighted 
design itself may be used in other venues, such as adult publications 
or in adult-only establishments). Under Sec. 897.34(a), tobacco product 
brand names and logos may be used only to market tobacco products; they 
therefore lose the value of any use on nontobacco products and, under 
Sec. 897.34(c), they lose the value of any use to sponsor events when 
the rule becomes effective. By and large, however, tobacco copyrights 
and trademarks will retain significant, economically viable uses when 
the rule becomes effective.
    Tobacco companies have, however, registered some of their tobacco 
trademarks (e.g., Skoal Bandit on a race car as an entertainment 
service mark, Marlboro on tennis caps), or marks that incorporate a 
tobacco trademark (e.g., The Marlboro Country Store on, for example, 
hats and boots; Skoal Pro Rodeo promoting and sponsoring rodeos; 
Winston West promoting and sponsoring auto racing events), as marks for 
nontobacco products, services, or events. Under Sec. 897.34, all use of 
these registered nontobacco marks will be prohibited when the rule 
becomes effective. With respect to these registered nontobacco 
trademarks, and indeed with respect to all tobacco company trademarks, 
their associated goodwill will remain with the tobacco companies and 
will inure to their benefit in the sale of tobacco products. 
Accordingly, this factor of the takings analysis indicates that the 
final rule effects no taking of these interests.
    Section 897.16(c) prohibits the use of tobacco product vending 
machines and self-service displays except in adult-only establishments 
(where graphic advertisements will also be permitted). This restricted 
use may limit the number of venues in which these

[[Page 44554]]

vending machines and self-service displays may be used and may exclude 
venues where their use is most profitable. The value of vending 
machines and self-service displays may therefore drop. But diminutions 
in property value do not establish a taking. (See Penn Central, 438 
U.S. at 131.) Indeed, ``[g]overnment hardly could go on if to some 
extent values incident to property could not be diminished without 
paying for every such change in the general law'' (Pennsylvania Coal 
Co. v. Mahon, 260 U.S. 393, 413 (1922)). Vending machines and self-
service displays may have to be moved from currently legal venues to 
adult-only establishments or to warehouses, or they may need to be 
retrofitted for use with other products if retrofitting is possible. 
Although compliance may require vending machine and self-service 
display owners to spend money, ``[r]equiring money to be spent is not a 
taking of property'' (Atlas Corp., 895 F.2d at 756 (discussing 
regulatory requirement that mining corporations reclaim uranium and 
thorium tailings and decommission mills)). Finally, if there are not 
sufficient numbers of adult-only establishments, some vending machines 
and self-service displays may have no economically viable use because 
of the final regulation, but a regulation that makes personal 
commercial property ``economically worthless'' does not effect a per se 
taking, as it would with real property. (See Lucas, 505 U.S. at 1027-
1028.) Contracts to offer exclusively tobacco products in vending 
machines at nonadult-only establishments may also become ``economically 
worthless'' once the regulation becomes effective. Likewise, although 
Secs. 897.32(a) and 897.30(b) may shorten the useful life of 
advertising materials on placards and billboards that are not black 
text/white background or that are near schools and playgrounds (albeit 
with a grace period of at least the delayed effective date) and such 
materials may be ``economically worthless'' as a result, this does not 
effect a taking per se.
    In summary, examination of the economic impact factor of the 
takings analysis suggests that the regulations, when they finally 
become effective, will effect no takings of trademarks and goodwill, 
copyrights, and many vending machines and self-service displays. It 
leaves open the possibility, however, that the rule may effect a taking 
of some vending machines and contracts, and of some self-service 
displays and of nonconforming signs and billboards.
5. Interference with Reasonable Investment-backed Expectations
    The final factor to consider is whether a company has a reasonable 
investment-backed expectation in continuing to use the property at 
issue, whether it be vending machines, self-service displays, 
nonconforming signs and billboards, copyrighted material, or trademarks 
and goodwill. To be reasonable, expectations must take into account the 
power of the State to regulate in the public interest. (See Pace 
Resources, 808 F.2d at 1033.) Reasonable expectations must also take 
into account the regulatory environment, including the foreseeability 
of changes in the regulatory scheme. ``In an industry that long has 
been the focus of great public concern and significant government 
regulation,'' Monsanto, 467 U.S. at 1008, the possibility is 
substantial that there will be additional regulatory requirements. 
``Those who do business in the regulated field cannot object if the 
legislative scheme is buttressed by subsequent amendments to achieve 
the legislative end'' (Connolly, 475 U.S. at 227 (citation omitted)). 
Given a long history of Government regulation of an industry, its 
members are ``on notice that [they] might be subjected to different 
regulatory burdens over time'' (California Hous. Sec., Inc. v. United 
States, 959 F.2d 955, 959 (Fed. Cir.), cert. denied, 506 U.S. 916 
(1992)).
    Commerce in tobacco products has been regulated for years on the 
Federal, State, and local levels. For example, States first began 
restricting tobacco sales to minors, distribution of free samples, and 
vending machine sales in the 1970's. By 1994 all 50 States prohibited 
tobacco sales to young people, 38 States restricted the distribution of 
free tobacco products, and 28 States imposed restrictions on vending 
machine sales (``State Legislated Actions on Tobacco Issues,'' 
Coalition on Smoking OR Health (Washington, DC 1994)). Tobacco 
manufacturers as well as distributors and retailers who have chosen to 
distribute or sell tobacco products have therefore had reasonable 
notice that the regulatory scheme to limit use of tobacco products by 
minors might change.
    Moreover, the particular restrictions on access and on promotion 
adopted in these regulations, or variations thereof, have been proposed 
or considered for several years by Government bodies, including 
Congress, the States, and public health agencies. (See, e.g., H. Rept. 
5041, 101st Cong., 2d sess. (1990); H. Rept. 1250, 101st Cong., 1st 
sess. (1989).) For example, on at least two occasions a tobacco 
industry representative testified before Congress that pending 
legislation would, like several previous legislative proposals, 
effectively ban advertisements for tobacco products (``Tobacco Control 
and Marketing: Hearings on H. Rept. 5041 Before the Subcommittee on 
Health and the Environment of the House Committee on Energy and 
Commerce,'' 101st Cong., 2d sess. 491-494 (1990) (statement of Charles 
O. Whitley on behalf of The Tobacco Institute); ``Tobacco Issues: 
Hearings on H. Rept. 1250 Before the Subcomm. on Transp. and Hazardous 
Materials of the House Comm. on Energy and Commerce,'' 101st Cong., 1st 
sess. 302 (1989) (statement of Charles O. Whitley on behalf of The 
Tobacco Institute)), making for far more restrictive limits on 
advertisements and promotion than those imposed by this rule. Given 
these facts, a reasonable person should have expected the possibility 
of regulations such as these. In addition, when sales to young people 
are illegal, investments in promotions designed to appeal to young 
people cannot be considered reasonable (see discussion of R. J. 
Reynolds' use of promotional materials in the Joe Camel Campaign in 
section VI. of this document). In any case, once the agency gave notice 
of its proposed rulemaking with respect to tobacco, tobacco 
manufacturers, distributors, and retailers had notice that certain 
investments were risky, and they will enjoy the economic benefit of 
those investments and of investments that they had previously made 
until the rule is finally effective.
    As discussed in section IV. of this document, the number of tobacco 
product vending machines fell by half between 1988 and 1993 and, since 
1990, virtually no new tobacco product vending machines have been 
manufactured (60 FR 41314 at 41325); because the market in tobacco 
product vending machines is declining, investment-backed expectations 
in both vending machines and vending machine contracts are not 
reasonable. Moreover, many self-service displays were given to 
retailers by tobacco manufacturers (see 60 FR 41314 at 41323); to that 
extent, the retailers have no investment-backed expectation in them.
    Finally, the Supreme Court has stated that it is unreasonable to 
have high investment-backed expectations in personal property:
    [I]n the case of personal property, by reason of the State's 
traditionally high degree of control over commercial dealings, [the

[[Page 44555]]

property owner] ought to be aware of the possibility that new 
regulation might even render his property economically worthless (at 
least if the property's only economically productive use is sale or 
manufacture for sale).
(Lucas, 505 U.S. at 1027-1028)
    Since all of the property at issue here--vending machines, self-
service displays, the advertising material on signs and billboards, 
contract rights, copyrights, and trademarks and associated goodwill--is 
personal property, there can be no reasonable investment-backed 
expectation that regulation will not render them economically 
worthless. Consideration of this factor of the takings analysis 
indicates that the final rule effects no takings of any property.
6. Summary
    With respect to trademarks and goodwill and copyrights, the three 
factors in a takings analysis indicate that these regulations will 
effect no takings. Only the economic impact of the rule on advertising 
materials on signs and billboards and on some vending machines and 
related contract rights and some self-service displays leaves open the 
possibility that a taking may occur, but the impossibility of 
reasonable investment-backed expectations with respect to personal 
property used for sale strongly counters this factor, as stated by the 
Supreme Court in Lucas, as does the harm-prevention character of this 
regulation. Analysis of the three factors considered together shows 
that these final regulations do not effect a taking of vending 
machines, self-service displays, signs and billboards advertising 
tobacco products, contract rights, or copyrights and trademarks and 
goodwill. The agency concludes that the comments that argued that the 
regulation effects takings are, for the above-stated reasons, 
unpersuasive.

B. Substantive Due Process, Equal Protection, and Restrictions on Use 
of Trade Names

    (2) Comments argued that Sec. 897.16(a) (which restricts the use of 
nontobacco trade or brand names as the trade or brand name of 
cigarettes or smokeless tobacco) and Sec. 897.34(a) (which prohibits 
the marketing of nontobacco items and services that bear tobacco brand 
names and other symbols of cigarettes and smokeless tobacco) violate 
the Due Process Clause of the Fifth Amendment to the Constitution and 
the Equal Protection Clause of the Fourteenth Amendment. One comment 
asserted that each of these provisions prevents companies from entering 
a completely legal business using their own trade names but provided no 
further explanation of its reasoning; FDA therefore understands it to 
suggest that these provisions classify companies as either tobacco or 
nontobacco companies, that this classification violates equal 
protection, and that these provisions violate due process in that they 
infringe on property interests in trade names by prohibiting companies 
from entering legal businesses using their own trade names. Another 
comment echoed this latter point and argued that the agency was denying 
tobacco companies due process because it has no authority to prohibit 
the lawful use of tobacco trademarks on other products.
    The agency disagrees with these comments. The Fifth Amendment Due 
Process Clause states that ``[n]o person shall * * * be deprived of 
life, liberty, or property, without due process of law.'' Under due 
process as applied to economic regulation, ``[i]t is enough that there 
is an evil at hand for correction, and that it might be thought that 
the particular legislative measure was a rational way to correct it'' 
(Williamson v. Lee Optical of Oklahoma, Inc., 348 U.S. 483, 488 
(1955)). (The agency has addressed why it has the statutory authority 
to issue this rule in section II. of this document.)
    The Fourteenth Amendment's Equal Protection Clause states that 
``[n]o State shall * * * deny to any person the equal protection of the 
laws.'' By its terms, the Fourteenth Amendment does not apply to action 
by the Federal Government, as it is directed at the States. But the 
Supreme Court has held that the Fifth Amendment's Due Process Clause 
includes an equal protection component equivalent to the Fourteenth 
Amendment's Equal Protection Clause. (See Bolling v. Sharpe, 347 U.S. 
497 (1954); see also Buckley v. Valeo, 424 U.S. 1, 93 (1976) (per 
curiam) (``Equal protection analysis in the Fifth Amendment area is the 
same as that under the Fourteenth Amendment'').) Under equal protection 
review, an economic regulation is valid as long as the classification 
that it makes is ``rationally related to a legitimate state interest'' 
(City of New Orleans v. Dukes, 427 U.S. 297, 303 (1976)).
    Sections 897.16(a) and 897.34(a) easily pass muster under the 
requirements of both due process and equal protection. FDA's interest 
in the health and well-being of children and adolescents is certainly 
legitimate (indeed, it is a compelling interest). (See New York v. 
Ferber, 458 U.S. 747, 757-58 and n.9 (1982).) Moreover, because they 
limit trade and brand name uses that enhance the appeal and promote the 
use of cigarettes and smokeless tobacco to young people, the provisions 
are rationally related to this interest and are a rational way to 
reduce addiction to tobacco products and the health consequences that 
follow.

C. Procedural Due Process Under the Fifth Amendment

    (3) An industry comment asserted that the regulation of tobacco 
manufacturers' use of their copyrights and trademarks affects a 
property interest so as to require an adjudication; put another way, 
the comment argued that use of rulemaking to adopt a regulation 
effecting these property interests violates the Fifth Amendment Due 
Process Clause, which states that ``[n]o person shall * * * be deprived 
of life, liberty, or property, without due process of law.''
    The agency disagrees. The agency has issued this final rule under 
its ``authority to promulgate regulations for the efficient enforcement 
of the Act'' under section 701(a) of the Federal Food, Drug, and 
Cosmetic Act (the act) (21 U.S.C. 371(a)) and its authority under 
section 520(e) of the act (21 U.S.C. 360j(e)) to issue regulations to 
restrict the sale, distribution, or use of a device. The agency issues 
such regulations under the rulemaking procedures established by the 
Administrative Procedure Act (APA) in 5 U.S.C. 553 and its own 
regulations in part 10 (21 CFR part 10), in particular Sec. 10.40. 
Neither the act, the APA, nor the agency's regulations require a 
hearing for a rulemaking under sections 701(a) and 520(e) of the act.
    The comment nevertheless contended that due process requires that 
tobacco manufacturers be provided the opportunity for a formal hearing 
(i.e., more than just an opportunity to provide written comments). A 
formal hearing is required, according to the comment, because FDA is 
asserting jurisdiction over cigarettes and smokeless tobacco based upon 
a determination of the intent of all tobacco manufacturers, but it is 
relying on evidence of intent with regard to only a subset of tobacco 
manufacturers.
    As discussed in the 1996 Jurisdictional Determination annexed 
hereto, the evidence shows that cigarettes and smokeless tobacco are 
highly addictive, cause other psychoactive effects (such as relaxation 
and stimulation), and affect weight

[[Page 44556]]

regulation, and that these effects are widely accepted in the 
scientific community. Based on this evidence, it is foreseeable to any 
reasonable manufacturer that consumers will use such products for their 
addictive, psychoactive, and other pharmacological effects. The 
evidence also shows that actual consumer use of these products for 
their pharmacological effects is predominant and, in fact, nearly 
exclusive. Based on this evidence of the foreseeable and actual 
consumer use of these products for their pharmacological effects, the 
agency has concluded that all cigarette and smokeless tobacco 
manufacturers ``intend'' their products to affect the structure or 
function of the body, and that these products are, therefore, nicotine 
delivery devices under the act. In addition, the agency collected 
evidence of the tobacco industry's statements, actions, and research 
demonstrating awareness of the addictive and other pharmacological 
effects of these products, the industry's knowledge that consumers use 
these products for these effects, and the industry's deliberate 
manipulation of levels of nicotine in these products to ensure that 
adequate amounts of nicotine are delivered to consumers. These internal 
documents are further evidence in support of the conclusion that 
cigarette and smokeless tobacco manufacturers intend their products to 
be drug delivery devices, but they are not necessary for that 
conclusion. The agency, therefore, has not inferred the intent of one 
company based exclusively on the internal documents of another. 
Moreover, assuming that copyrights and trademarks are property 
protected by the Fifth Amendment's Due Process Clause, due process does 
not require that FDA provide tobacco manufacturers with a hearing 
beyond the opportunity for notice and comment that it has already 
provided. The Supreme Court has stated that the APA established ``the 
maximum procedural requirements'' that the courts can impose upon 
agencies in conducting rulemaking procedures and that the circumstances 
in which courts may require additional procedures, ``if they exist, are 
extremely rare'' (Vermont Yankee Nuclear Power Corp. v. Natural 
Resources Defense Council, 435 U.S. 519, 524 (1978)). The Court further 
stated that due process may ``in some circumstances'' require 
``additional procedures'' beyond those required by the APA ``when an 
agency is making a `quasi-judicial' determination by which a very small 
number of persons are `exceptionally affected, in each case upon 
individual grounds''' (Id. at 542 (quoting United States v. Florida 
East Coast Ry., 410 U.S. 224, 242-245 (1973))).
    By this test, due process does not require that the agency provide 
tobacco manufacturers with a hearing. Simply put, the agency is not 
making ``a quasi-judicial determination by which a very small number of 
persons are exceptionally affected, in each case upon individual 
grounds'' (Vermont Yankee, 435 U.S. at 542 (quotations omitted)). The 
final rule at issue here prospectively limits the sale and promotion of 
cigarettes and smokeless tobacco to individuals under the age of 18; it 
imposes conditions on all manufacturers, distributors, and retailers of 
tobacco products and will affect the access to tobacco products of 
millions of individuals under the age of 18. The final rule is 
therefore ``an agency statement of general * * * applicability and 
future effect designed to implement, interpret, or prescribe law or 
policy'' (5 U.S.C. 551(4)); in other words, it is a rule under the APA, 
and the agency followed APA rulemaking in formulating it (5 U.S.C. 
551(5)). Like the nuclear fuel cycle rulemaking in Vermont Yankee, 435 
U.S. at 528-530, and the rulemaking about ambient air quality standards 
for lead in Lead Indus. Ass'n v. Environmental Protection Agency, 647 
F.2d 1130, 1136-1144 (D.C. Cir.), cert. denied, 449 U.S. 1042 (1980), 
this process is ``a rulemaking proceeding in its purest form,'' and not 
a ``quasi-judicial determination'' to which due process requirements 
beyond the requirements of the APA might apply. (See Vermont Yankee, 
435 U.S. at 542 n.16; Lead Indus. Ass'n, 647 F.2d at 1171 n.119.)
    In any case, manufacturers have had ample opportunity during the 
comment period for this rulemaking to submit evidence--including other 
internal tobacco industry documents or affidavits from their 
employees--that contradicts any evidence, including internal tobacco 
industry documents, that the agency has placed in the administrative 
record. And they have submitted voluminous comments with supporting 
documentation to the agency. The manufacturers have therefore been 
``afforded a meaningful opportunity to be heard and to controvert the 
evidence. Fairness demands no more'' (Lead Indus. Ass'n, 647 F.2d at 
1170 (quotations omitted)).
    In summary, due process does not require that FDA provide 
manufacturers with an adjudicative hearing. The notice and opportunity 
for comment provided in this rulemaking are all that fairness and due 
process require here. And, as discussed in greater detail in section 
XII. of this document, this rulemaking meets all the requirements of 
the APA for informal rulemaking.

XII. Procedural Issues

A. Introduction

    The Food and Drug Administration (FDA) went to great lengths to 
involve the public in this proceeding. On February 25, 1994, David A. 
Kessler, Commissioner of Food and Drugs (the Commissioner) wrote to 
Scott Ballin, chairman of the Coalition on Smoking OR Health, regarding 
the possibility of FDA regulation of cigarettes in response to certain 
petitions that had been filed with the agency. The Commissioner 
explained:
    [T]he agency has examined the current data and information on 
the effects of nicotine in cigarettes * * *. Evidence brought to our 
attention is accumulating that suggests that cigarette manufacturers 
may intend that their products contain nicotine to satisfy an 
addiction on the part of some of their customers * * *. This 
evidence * * * suggests that cigarette vendors intend the obvious--
that many people buy cigarettes to satisfy their nicotine addiction. 
Should the agency make this finding based on an appropriate record 
or be able to prove these facts in court, it would have a legal 
basis on which to regulate these products * * *.
    In the months that followed, the Commissioner testified twice 
before Congress regarding the accumulating evidence relating to the 
intended use of cigarettes. \255\ That testimony was extensive and 
detailed.
---------------------------------------------------------------------------

    \255\ Statement by the Commissioner on Nicotine-Containing 
Cigarettes, before the Subcommittee on Health and the Environment, 
Committee on Energy and Commerce, U.S. House of Representatives 
(Mar. 25, 1994); Statement by the Commissioner on the Control and 
Manipulation of Nicotine in Cigarettes, before the Subcommittee on 
Health and the Environment, Committee on Energy and Commerce, U.S. 
House of Representatives (June 21, 1994).
---------------------------------------------------------------------------

    In July and August of that year, FDA Associate Commissioner for 
Regulatory Affairs, Ronald G. Chesemore wrote to the major cigarette 
and smokeless tobacco companies requesting all documents relating to 
``all research on nicotine * * *, including their pharmacological 
effects, and all documents relevant to the nicotine'' in their 
products. On August 1, 1994, FDA held a Drug Abuse Advisory Committee 
meeting that was fully open to the public on the subject of the abuse 
potential of nicotine.
    On August 11, 1995, FDA provided the public with an extensive 
Federal Register document setting forth its

[[Page 44557]]

rationale for proposing to restrict the sale of cigarettes and 
smokeless tobacco in a 60 page discussion supported by 442 endnotes 
(the 1995 proposed rule) (60 FR 41314 to 41375). The agency carefully 
documented each of the essential propositions offered in support of its 
reasoning. Indeed, most of the 442 endnotes in the 1995 proposed rule 
contain multiple authorities for the agency's position and, in all 
cases, the agency provided the reader with specific page references to 
the numerous studies, reports, and industry documents on which it 
relied.
    In the same issue of the Federal Register in a document entitled 
``Analysis Regarding The Food and Drug Administration's Jurisdiction 
Over Nicotine-Containing Cigarettes and Smokeless Tobacco Products,'' 
FDA also provided an analysis of the agency's authority to assert 
jurisdiction over cigarettes and smokeless tobacco based on the 
evidence before the agency at that time (the 1995 Jurisdictional 
Analysis) (60 FR 41453 to 41787). In the text of the 1995 
Jurisdictional Analysis, the agency supported its reasoning with 
appropriate citations to case law, statutes, and regulations. In 
addition, the 1995 Jurisdictional Analysis was supported by over 600 
footnotes, each of which provided the factual context for the agency's 
legal position.
    On August 16, 1995, the agency placed on public display some 20,000 
pages of materials that it cited in the 1995 proposed rule and in the 
1995 Jurisdictional Analysis. With the exception of three documents, 
which the agency referenced only in the 1995 Jurisdictional Analysis, 
the agency made available to the public all of the materials on which 
it was relying on as of that time for support.
    On September 29, 1995, the agency supplemented the administrative 
record by putting on public display approximately 13,000 documents 
comprising some 190,000 pages of factual and analytical materials the 
agency considered in the course of issuing the 1995 proposed rule and 
the 1995 Jurisdictional Analysis. Although it was under no legal 
obligation to do so, the agency made these additional materials 
available because of the importance of this proceeding.
    The agency also made two other significant additions to the public 
record. On December 1, 1995, the agency announced the findings of focus 
group studies concerning possible brief statements to be included on 
all cigarette advertising (60 FR 61670), and added to the record for 
the rulemaking proceeding a report of these findings and approximately 
1,500 pages of supporting documentation. Second, in the Federal 
Register of March 20, 1996 (61 FR 11349), the agency published notice 
of an additional 30 day comment period limited to specific documents 
the agency added to the proposed rulemaking docket, and to the docket 
in support of the agency's analysis of its jurisdiction (61 FR 11419). 
These materials consisted of two declarations and a report from three 
former tobacco industry employees, as well as FDA memoranda to the 
record regarding adult publications and billboards.
    In addition, the agency has added to the final record of this 
proceeding a comparatively small number of documents that expand upon 
or confirm information made available in the 1995 proposed rule or the 
1995 Jurisdictional Analysis, or that address alleged deficiencies in 
the agency's initial record.
    The administrative record now also includes the comments received 
from the public. The agency received over 700,000 comments, some 
directed to the 1995 Jurisdictional Analysis, some directed to the 1995 
proposed rule, and many with overlapping discussions. Though many 
comments consisted of form letters, the agency received over 95,000 
distinct or unique sets of comments. Five major cigarette manufacturers 
jointly submitted 2,000 pages of comments and 45,000 pages of exhibits. 
The major smokeless tobacco manufacturers jointly submitted 474 pages 
of comments and 3,372 pages of exhibits. The initial comment period 
remained open for 144 days.
    (1) Despite the agency's extraordinary efforts to involve the 
public in this proceeding, FDA received several comments regarding the 
procedures the agency followed in providing notice of the 1995 proposed 
rule and in publishing the 1995 Jurisdictional Analysis. Some of these 
comments complained that the agency designated certain documents in the 
administrative record as ``confidential,'' and that the shielding of 
these documents denied the public a meaningful opportunity to 
participate in the rulemaking process. One of these comments also 
contended that FDA refused to disclose certain nonconfidential 
information on which the agency had relied. Some comments also argued 
that FDA failed to set forth a balanced view of the issues presented by 
the 1995 proposed rule, thereby rendering the notice inadequate and 
``misleading'' under the Administrative Procedure Act (the APA). In 
their view, FDA concealed certain issues in order to deny the public 
the right to participate in the rulemaking process. Finally, at least 
one interested person maintained that the comment period for the 1995 
proposed rule was so short as to be arbitrary and capricious.
    As the discussion that follows in this section of the document 
demonstrates, the agency's notice, the public availability of the 
information the agency relied upon at the notice stage of this 
proceeding, and the opportunity for comment, went well beyond the 
requirements of the APA, well beyond what is required by case law 
construing the APA, and well beyond the agency's own procedural 
requirements for informal rulemaking.

B. Adequacy of the Record

    (2) Several industry comments complained about the adequacy of the 
record in support of the 1995 proposed rule. They contended that the 
agency violated the APA, 5 U.S.C. 553(b) and (c), and the Due Process 
Clause of the Fifth Amendment to the Constitution, by failing to 
disclose all of the information the agency ``considered or relied upon 
in the proceeding.'' \256\ In particular, these comments complained 
that the public was deprived of the opportunity to comment meaningfully 
because, according to these comments, the agency relied on confidential 
documents and on substantial amounts of undisclosed data. One comment 
went so far as to claim that ``a substantial portion'' of the material 
FDA relied upon was not made available for public scrutiny.
---------------------------------------------------------------------------

    \256\ Because the APA in this context provides the public at 
least as much protection as the Due Process Clause of the 
Constitution, the agency will address these procedural objections 
solely under the APA. See Forester v. Consumer Prod. Safety Comm'n, 
559 F.2d 774, 787 (D.C. Cir. 1977); Ass'n of Nat'l Advertisers, 
Inc., v. Federal Trade Comm'n, 627 F.2d 1151, 1166 (D.C. Cir. 1979), 
cert. denied, 447 U.S. 921 (1980).
---------------------------------------------------------------------------

    The record in support of the 1995 proposed rule provided the public 
not only with a ``reasonable opportunity'' for comment, but with an 
extraordinary opportunity to examine the agency's position. The claim 
that the agency withheld ``a substantial portion'' of the materials on 
which it relied is simply unfounded.
1. The Administrative Record
    In an informal rulemaking proceeding, the APA itself requires only 
that the ``notice of proposed rule making'' include a statement of the 
time, place, and nature of the proceeding, ``reference to the legal

[[Page 44558]]

authority under which the rule is proposed,'' and ``either the terms or 
substance of the proposed rule or a description of the subjects and 
issues involved'' (5 U.S.C. 553(b)). The APA, thus, does not expressly 
require disclosure of the information on which the agency relies in 
proposing a regulation.
    Nevertheless, courts have implied under the APA a requirement that 
an agency give notice of the information on which it actually relies to 
support a proposed rule, and make that information available to the 
extent it is not readily accessible to the public. (See Davis, K. and 
R. Pierce, Jr., Administrative Law Treatise, vol. 3, section 7.3 at 
305-09 (3d ed. 1994) (discussing one of the seminal cases on disclosure 
of data relied on to support a rulemaking proceeding, Portland Cement 
Ass'n v. Ruckelshaus, 486 F.2d 375 (D.C. Cir. 1973), cert. denied, 417 
U.S. 921 (1974)).) No court, however, has required the degree of public 
disclosure at the notice stage of a rulemaking proceeding that FDA 
undertook here.
    Indeed, the primary cases cited by the comments, namely, Portland 
Cement Ass'n, supra, United States v. Nova Scotia Food Products Corp., 
568 F.2d 240 (2d Cir. 1977), and United States Lines, Inc. v. Federal 
Maritime Comm'n, 584 F.2d 519 (D.C. Cir. 1978), address agency conduct 
that bears little resemblance to FDA's efforts in this proceeding. 
While FDA has provided a remarkable degree of factual support and 
procedural openness, these cases involved instances in which agencies 
provided the public with no information whatsoever or otherwise 
excluded a study that was critical to the administrative proceeding. In 
Portland Cement, the Environmental Protection Agency altogether failed 
to provide the public an opportunity to comment on the test results and 
procedures on which the agency relied as the critical'' basis for the 
emission control level adopted by the agency. That is, the agency set 
very specific pollution control limits, but failed to make public until 
after the close of the comment period the details of crucial tests 
relied upon to determine these limits (486 F.2d at 392).
    In Nova Scotia Food Prods., ``all the scientific research was 
collected by the agency, and none of it was disclosed to interested 
parties as the material upon which the proposed rule would be 
fashioned'' (568 F.2d at 251) (emphasis added). And in United States 
Lines, where a common carrier challenged an order of the Federal 
Maritime Commission amending a contract between two competitors, the 
court found that the Commission had made ``critical findings'' on the 
basis of data which was neither identified in its decision nor included 
in the administrative record. Rather, the Commission based its decision 
on ``reliable data reposing in the files of the Commission'' (584 F.2d 
at 533). The reviewing court simply had no idea of the factors or data 
on which the Commission had relied (Id.).
    Thus, at best, the case law requires agencies to disclose studies 
and data actually relied upon by the agency. Even then, the cases that 
have struck down agency rulemaking are generally confined to instances 
in which the agency provided woefully inadequate information to the 
public or failed to disclose a critical piece of information. (See, 
e.g., Kennecott Corp. v. Environmental Protection Agency, 684 F.2d 
1007, 1018-19 (D.C. Cir. 1982) (agency acted arbitrarily and 
capriciously when it failed to include in the public docket during the 
comment period any documents supporting a particular proposed 
regulation); compare Personal Watercraft Indus. Ass'n v. Department of 
Commerce, 48 F.3d 540, 544-45 (D.C. Cir. 1995) (while agency must 
disclose information critical to its decision to regulate a particular 
activity, absent prejudice an agency may rely on studies developed 
after close of comment period that are not critical to the underlying 
proposal).)
    Finally, FDA's own procedural regulations require that the agency 
include with the notice of proposed rulemaking, among other things, 
``references to all information on which the Commissioner relies for 
the proposal * * *'' (Sec. 10.40(b)(vii) (21 CFR 10.40(b)(vii)) 
(emphasis added); see 21 CFR 10.3 (defining the term ``administrative 
record'' to mean the materials on which the agency ``relies to support 
the action''). Thus, even under the agency's own procedural 
regulations, FDA is required--when it initiates informal rulemaking--to 
supply the public only with the materials the agency is relying upon to 
support the proposed action.
    Here, the materials the agency relied on are the materials the 
agency cited in the 1995 proposed rule and the 1995 Jurisdictional 
Analysis. Not only did the agency provide these materials to the 
public, but it also provided the roughly 190,000 pages of factual and 
analytical materials the agency considered but did not rely upon in 
either the 1995 proposed rule or the 1995 Jurisdictional Analysis. 
Moreover, the agency provided over 1,000 endnotes and footnotes 
directing readers to each and every document, including every study, 
Government report, journal article, industry document, and agency 
record on which FDA relied to support the 1995 proposed rule and the 
1995 Jurisdictional Analysis.
    Out of all this material, the only nonpublic materials on which the 
agency relied were two confidential documents \257\ and two lines of 
text the agency redacted from a document the agency placed on the 
public record. \258\ The agency relied on this material only in the 
context of the agency's 1995 Jurisdictional Analysis. None of these 
documents is pivotal to the analysis of jurisdiction in that none 
provides the sole or principal basis for the agency's conclusion that 
cigarettes and smokeless tobacco are drug delivery devices under the 
Federal Food, Drug, and Cosmetic Act (the act). Further, as discussed 
in the 1996 Jurisdictional Determination annexed hereto, the decision 
to keep these materials confidential did not in any way undermine the 
quality of the public participation in this proceeding. In sum, the 
procedures the agency followed in assembling a public record in this 
proceeding simply are not in line with the facts described in cases 
like Portland Cement, Nova Scotia Food Products, and United States 
Lines.
---------------------------------------------------------------------------

    \257\ The two confidential documents the agency directly 
referenced are the 1991 Handbook on Leaf Blending and Product 
Development (Confidential Document 75) and the unredacted summary of 
notes of FDA trip visits (Confidential Document 74). The summary was 
compiled from notes and handouts that are also designated as 
confidential (Confidential Documents 69, 70, 71, 72, and 73). The 
agency views the summary as a stand-alone document to the extent it 
distills a large volume of disparate handwritten notes and handouts. 
Also, the agency cited only to the summary itself. Nevertheless, 
even if the summary were counted as five documents rather than one, 
the agency at most relied on six confidential documents. The 
agency's basis for relying on these documents in the 1995 
Jurisdictional Analysis is discussed in detail in the 1996 
Jurisdictional Determination, annexed hereto.
    \258\ On page 255 of the 1995 Jurisdictional Analysis (60 FR 
41453, 41716), the agency redacted several lines of text along with 
a footnote that identified the sources for the redacted text. The 
footnote consisted of references to two sources, both of which 
appeared on the agency's public docket for the 1995 Jurisdictional 
Analysis: J. E. Kiefer, ``Cigarette Filters for Altering the 
Nicotine Content of Smoke'' (Report No. 71 5003 7), Tennesee Eastman 
Co., pp. 1-2; August 18, 1971, and J. G. Curran, Jr., and E. G. 
Miller, ``Factors Influencing the Elution of High Boiling Components 
of Cigarette Smoke from Filters,'' Beitr. Tabakforsch, pp. 5 and 67, 
1969. The Kiefer document appeared on the public docket with certain 
trade secret information redacted from the document. The Curran 
document was made available to the public in full.

---------------------------------------------------------------------------

[[Page 44559]]

2. The Agency's Use of Confidential Documents
    a. Confidential documents on which the agency did not rely. The 
agency placed in a confidential docket 75 documents from the 
approximately 210,000 pages of materials the agency made available at 
the opening of this proceeding. The agency identified each of these 75 
documents for the public in an index filed on September 29, 1995, on 
the public docket. (See 60 FR 66981 at 66982, December 27, 1995.) Of 
these 75 documents, 73 were not even relied upon by the agency to 
support either the 1995 proposed rule or the 1995 Jurisdictional 
Analysis.
    Sixty-one of these 73 confidential documents consisted either of 
commercial information and trade secrets that the industry urged FDA to 
keep confidential (Confidential Documents 1-12, 16-21, and 62-73), or 
unpublished manuscripts for which the agency lacked the authors' 
permission, as of September 29, 1995, to make them available for 
widespread dissemination (Confidential Documents 22-52). The remaining 
12 documents were either proprietary reports and other copyrighted 
information--such as financial reports generated by Dun and 
Bradstreet--which the agency lacked permission to reprint (Confidential 
Documents 13-15, and 53-58), or confidential documents that supported a 
pending new drug application (Confidential Documents 59-61).
    Again, the agency did not rely on any of these 73 documents as 
support for the 1995 proposed rule. Therefore, the agency was not even 
required to include these documents in the administrative record of the 
notice of proposed rulemaking. (See 21 CFR 10.40(b)(vii).) It likewise 
follows that because the agency did not rely upon these documents, the 
decision to protect them cannot be said to have unfairly interfered 
with the public's ability to question the agency's rationale for the 
rule. (See Mid-Tex Electric Coop., Inc. v. Federal Energy Regulatory 
Comm'n, 773 F.2d 327, 344 (D.C. Cir. 1985) (agency's failure to 
disclose two studies was ``manifestly harmless'' because the agency did 
not rely on the studies to support any finding or conclusion); 
Conference of State Bank Supervisors v. Office of Thrift Supervision, 
792 F. Supp. 837, 843 (D.D.C. 1992) (there is no violation of the APA's 
notice requirements where the agency has declined to disclose materials 
on which it did not rely in proposing the rule); B.F. Goodrich Co. v. 
Department of Transp., 541 F.2d 1178, 1184 (6th Cir. 1976) (only the 
basic data ``upon which the agency relied in formulating the 
regulation'' must be published for public comment), cert. denied, 430 
U.S. 930 (1977); K. Davis, Administrative Law Treatise, section 7.3 at 
307 (3d ed. 1994) (``If an agency does not attempt to support its final 
rule by reference to an undisclosed study, it seems apparent that the 
agency was not required to make the study available to potential 
commentators.'').) The agency went well beyond existing requirements to 
make publicly available thousands of additional documents for public 
review--in recognition of the uniqueness and public importance of this 
proceeding. This effort by the agency should not be used now as a basis 
for suggesting that the agency was required to publish all information 
that it had on hand.
    Finally, at the close of this rulemaking proceeding and with the 
publication of the annexed 1996 Jurisdictional Determination, the 
agency will supplement the public docket with copies of those 
confidential items for which the agency previously lacked permission to 
publish, but for which permission has now been granted. Most of the 
unpublished manuscripts in the confidential docket--none of which were 
relied upon by the agency to support the rule--will be available 
through this addition to the public record.
    b. Confidential documents on which the agency relied. In support of 
the 1995 Jurisdictional Analysis, FDA relied on only 2 of the 75 
documents designated as confidential: A summary of notes taken by FDA 
investigators during site visits to manufacturing plants run by Brown 
and Williamson, Philip Morris, and R. J. Reynolds (Confidential 
Document 74); and a 1991 Brown and Williamson handbook on leaf blending 
and product development (Confidential Document 75). \259\ In addition, 
the agency relied in its 1995 Jurisdictional Analysis on two lines of 
text that were redacted from a document that appeared on the public 
docket. \260\ The 1995 proposed rule itself did not rely on any of 
these documents. \261\ A thorough discussion of these three documents, 
and the agency's basis for relying on them to support its analysis of 
jurisdiction, is provided in section VI. of the 1996 Jurisdictional 
Determination, annexed hereto.
---------------------------------------------------------------------------

    \259\ The agency did not acknowledge ownership of the handbook 
in the 1995 Jurisdictional Analysis, or in the September 29, 1995, 
index to the administrative record. However, in a set of comments 
filed by Brown & Williamson, the company itself acknowledged 
publicly its ownership of the handbook. (See Brown & Williamson 
Tobacco Corp., Comment (Jan. 2, 1996), pp. 37-38).
    \260\ Kiefer, J. E., ``Cigarette Filters for Altering the 
Nicotine Content of Smoke,'' Tennessee Eastman Co., Report No.71 
5003 7, pp. 1-2, August 18, 1971.
    \261\ One comment noted that the agency relied in the 1995 
proposed rule on undisclosed information gathered from former 
industry sales representatives and managers. (See 60 FR 41314 at 
41323.) The reference in the rule to interviews with former sales 
representatives and managers appears in the discussion of proposed 
Sec. 897.12 Additional Responsibilities of Manufacturers. The agency 
used the information gathered from these individuals to support the 
proposition that manufacturers direct their sales representatives to 
police retailers' cigarette and smokeless tobacco displays. 
Accordingly, the agency proposed to require sales representatives to 
be responsible for removing violative visual displays and 
advertising used in retail outlets. In light of comments received, 
the agency has decided to revise Sec. 897.12 to eliminate this 
requirement. Because manufacturer sales representatives will no 
longer be held responsible for maintaining retailers' fixtures, the 
agency's reliance on the interviews in the 1995 proposed rule, and 
the issue of whether the agency should have made more information on 
this matter available to the public, is moot. Davis, K. C., and R. 
J. Pierce, Jr., Administrative Law Treatise, vol. 1, section 7.3 at 
p. 307 (3d ed. 1994) (``If an agency does not attempt to support its 
final rule by reference to an undisclosed study, it seems apparent 
that the agency was not required to make the study available to 
potential commentators''). Finally, as the agency explained in its 
December 27, 1995, Federal Register notice, the agency has not made 
such information available to the public because of the need to 
protect the identity of individuals who came forward during the 
agency's investigation and who might not otherwise have come forward 
(see 60 FR 66981, 66982). As discussed in section VI. of the 1996 
Jurisdictional Determination, FDA believes there are circumstances 
in which an agency may rely on confidential information in a 
rulemaking proceeding, and that there are ways in which an agency 
may present such information in order to preserve the public's right 
to a reasonable opportunity to participate in the proceeding (60 FR 
66981). The agency, however, has not relied on any such material in 
this final rulemaking.
---------------------------------------------------------------------------

3. The Claim that FDA Relied on ``Unknown'' Undisclosed Data
    (3) An association representing the tobacco industry also claimed 
that the agency withheld certain data and calculations used to 
construct a series of charts showing that nicotine and tar levels in 
smoke have risen steadily from 1982 to 1991. (See 60 FR 41453 at 41728 
to 41731.) These charts appeared only in the context of the agency's 
1995 Jurisdictional Analysis. A thorough discussion of how the agency 
constructed these charts, and on what data the agency relied, is 
provided in sections II. and VI. of the 1996 Jurisdictional 
Determination, annexed hereto.

[[Page 44560]]

4. The Claim that FDA Failed to Include in the Record New Drug 
Application (NDA) Data on Which it Relied
    (4) One comment claimed that the agency relied on studies in seven 
NDA's for the proposition that a high proportion of smokers are 
addicted to nicotine, but failed to make adequate disclosure of these 
NDA's. In particular, this comment stated that the agency failed to 
include any information in the public docket for NDA 18-612 (Nicorette 
gum, 2 milligrams (mg)) and NDA 20-385 (Nicotine nasal spray), and 
included only summaries for five other NDA's the agency cited. To the 
extent the agency relied on any of these NDA's, it did so only in the 
context of the 1995 Jurisdictional Analysis. A comprehensive discussion 
of the agency's reliance on this material is provided in section VI. of 
the 1996 Jurisdictional Determination, annexed hereto.
5. The Agency's Reliance in the Final Rulemaking on New Materials
    In an FDA informal rulemaking proceeding, the final administrative 
record must contain the proposed rule, including all information that 
the Commissioner identifies or files with the proposal, all comments 
received on the proposal, including all information submitted as part 
of the comments, and the notice issuing the final regulation, including 
all information that the Commissioner identifies or files with the 
final regulation (Sec. 10.40(g)). An agency may rely on information and 
data that were not included at the proposal stage that expands on or 
confirms information in the proposal or addresses alleged deficiencies 
in the preexisting data, provided that no prejudice is shown. \262\ 
Otherwise, ``[r]ulemaking proceedings would never end if an agency's 
response to comments must always be made the subject of additional 
comments'' (Community Nutrition Inst. v. Block, 749 F.2d 50, at 58). 
Accordingly, the agency has cited in this preamble and in the 1996 
Jurisdictional Determination annexed hereto, a small amount of 
information that is needed to respond fully to the comments or that 
otherwise supplements the information contained in or filed with the 
1995 proposed rule. These documents include published scientific 
articles, reference texts, letters to tobacco industry counsel, an 
abstract that the tobacco industry asked to include in the record, 
three publicly released tobacco company documents, Congressional 
hearing transcripts, and newspaper articles. The agency has placed this 
cited information in the administrative record.
---------------------------------------------------------------------------

    \262\ See, e.g., Personal Watercraft v. Department of Commerce, 
48 F.3d 540, 544 (D.C. Cir. 1995) (``Agencies may develop additional 
information in response to public comments and rely on that 
information without starting anew unless prejudice is shown.''); 
Solite Corp. v. Environmental Protection Agency, 952 F.2d 473, 484 
(D.C. Cir. 1991) (``[C]onsistent with the APA, an agency may use 
`supplementary' data, unavailable during the notice and comment 
period, that expands on and confirms information contained in the 
proposed rulemaking and addresses alleged deficiencies in the 
preexisting data, so long as no prejudice is shown.''); Community 
Nutrition Inst. v. Block, 749 F.2d 50, 57-58 (D.C. Cir. 1984) 
(agency may rely on information that ``expanded on and confirmed'' 
information in the 1995 proposed rule and addressed alleged 
deficiencies in the record); see also Davis, K. C. and R. J. Pierce, 
Jr., Administrative Law Treatise, section 7.3 (3d ed. 1994).
---------------------------------------------------------------------------

C. Adequacy of the Notice

    (5) Two industry comments argued that the public's participation in 
the rulemaking process has been frustrated because the agency presented 
a ``one-sided'' view in its 1995 notice of proposed rulemaking. They 
claimed that FDA failed to satisfy the APA's notice requirement for 
informal rulemaking because the agency neither disclosed nor discussed 
the supposedly ``large body'' of information that is ``inconsistent 
with, or otherwise not supportive of, the proposed rule.'' Further, the 
agency did not, in their view, provide a ``reasoned explanation'' for 
departing from past precedent on the issue of whether FDA should 
regulate all cigarettes and smokeless tobacco.
    These comments provided no legal authority to support the 
proposition that, at the notice stage of a proceeding, the agency is 
required to anticipate all challenges to its reasoning, and must 
attempt to answer those challenges. Rather, at the notice stage of a 
rulemaking proceeding, the agency's obligation is to include sufficient 
detail on the content of the rule, and on the basis in law and fact for 
the rule, to allow for meaningful and informed comment. (See American 
Medical Ass'n v. Reno, 57 F.3d 1129, 1132 (D.C. Cir. 1995); Home Box 
Office, Inc. v. Federal Communications Comm'n, 567 F.2d 9, 35-36 (D.C. 
Cir.), cert. denied, 434 U.S. 829 (1977).)
    More specifically, in an informal rulemaking proceeding, the APA 
requires public notice of an agency's intention to issue a regulation 
(5 U.S.C. 553(b)). The notice must include ``reference to the legal 
authority under which the rule is proposed,'' and ``either the terms or 
substance of the proposed rule or a description of the subjects and 
issues involved'' (5 U.S.C. 553(b)(2) and (b)(3)). FDA's own 
regulations require that a notice of proposed rulemaking include ``a 
preamble that summarizes the proposal and the facts and policy 
underlying it, * * * all information on which the Commissioner relies 
for the proposal, * * * and cites the authority under which the 
regulation is proposed'' (21 CFR 10.40(b)(vii)).
    Under case law construing section 553 of the APA, notice of 
informal rulemaking must be ``sufficiently descriptive of the 'subjects 
and issues involved' so that interested parties may offer informed 
criticism and comments'' (Ethyl Corp. v. Environmental Protection 
Agency, 541 F.2d 1, 48 (D.C. Cir.) (en banc), cert. denied 426 U.S. 941 
(1976)). Notice is sufficient under the APA ``if it affords interested 
parties a reasonable opportunity to participate in the rulemaking 
process'' (Forester, 559 F.2d at 787; accord State of South Carolina ex 
rel. Tindal v. Block, 717 F.2d 874, 885 (4th Cir. 1983), cert. denied, 
465 U. S. 1080 (1984)). And, insofar as the 1995 proposed rule relied 
on a technical study or specific data essential to an understanding of 
the rule, the notice should have disclosed this information to the 
extent needed to allow for ``meaningful commentary'' (Connecticut Light 
and Power Co. v. Nuclear Regulatory Comm'n, 673 F.2d 525, 530-31 (D.C. 
Cir.), cert. denied, 459 U. S. 835 (1982)).
    In this instance, the 1995 proposed rule met both the APA's notice 
requirements (as interpreted by prevailing case law), as well as FDA's 
own procedural requirements. The agency by any standard ``fulfilled its 
obligation to make its views known to the public in a concrete and 
focused form so as to make criticism or formulation of alternatives 
possible'' (Air Transport Ass'n of America v. Civil Aeronautics Board, 
732 F.2d 219, 225 (D.C. Cir. 1984) (quoting Home Box Office, Inc., 567 
F.2d at 36)).
1. The Agency Provided Adequate Notice of the Key Legal and Factual 
Issues
    Although the APA's notice requirements could have been met by a far 
briefer presentation, the agency chose to supply the public with a 
notice that explored in full the wide range of factual and legal issues 
presented. In doing so, the agency discussed the most significant 
issues that the two industry comments claimed were missing from the 
notice.
    (6) The comments contended that the agency failed to discuss past 
instances

[[Page 44561]]

in which it declined to exercise jurisdiction over cigarettes and 
smokeless tobacco, including FDA's response to a 1977 citizen petition. 
One comment in particular insisted that such a discussion would have 
alerted the public to the idea that Congress enacted preemptive 
legislation in reliance on FDA's past pronouncements, legislation which 
the comments argue bars FDA from regulating these products.
    The agency acknowledged in the 1995 Jurisdictional Analysis, 
published in conjunction with the 1995 proposed rule, that it has in 
the past refrained from exercising jurisdiction generally over all 
cigarettes and smokeless tobacco (unless claims were made for the 
product) (60 FR 41453 at 41482 n. 5). Among other things, the agency 
referred readers to the published decision in Action on Smoking and 
Health [ASH] v. Harris, 655 F.2d 236 (D.C. Cir. 1980). That decision 
discussed, and indeed arose from, the 1977 citizen petition which, as 
one comment claimed, the agency ``conscientiously avoid[ed]'' in order 
to ``mislead[]'' the public. Not only does the ASH opinion discuss the 
petition and the agency's position at that time with respect to 
exercising jurisdiction generally over cigarettes, it also recounts for 
the reader the agency's historical position on the issue (Id. at 237-
241). Moreover, the agency placed in the administrative record copies 
of documents in which FDA declined to exercise jurisdiction, including 
FDA's response to ASH's 1977 citizen petition. \263\
---------------------------------------------------------------------------

    \263\ Letter from D. Kennedy (FDA) to J. Banzhaf (ASH) of Dec. 
5, 1977, (denial of 1977 petition); Letter from J. E. Goyan (FDA) to 
J. Banzhaf (ASH) of Nov. 25, 1980; Public Health Cigarette 
Amendments of 1971, Hearings Before the Consumer Subcommittee of the 
Committee on Commerce, U.S. Senate, 92d Cong., 2d sess., pp. 239-
246.
---------------------------------------------------------------------------

    In addition, the agency attached as part of an appendix to its 1995 
Jurisdictional Analysis copies of the Commissioner's testimony before 
the House Subcommittee on Health and the Environment of the Committee 
on Energy and Commerce on March 25, 1994 (Appendix 7). At the outset, 
the Commissioner stated:
    Although FDA has long recognized that the nicotine in tobacco 
products produces drug-like effects, we never stepped in to regulate 
most tobacco products as drugs. One of the obstacles has been a 
legal one. A product is subject to regulation as a drug based 
primarily on its intended use. * * * With certain exceptions, we 
have not had sufficient evidence of such intent with regard to 
nicotine in tobacco products. * * *
    Mr. Chairman, we now have cause to reconsider this historical 
view. * * * This question arises today because of an accumulation of 
information in recent months and years. In my testimony today, I 
will describe some of that information.
(Appendix 7 at 1-2 (footnote omitted)) This testimony, like the 
reference to the ASH decision, adequately put the public on notice of 
FDA's past position. \264\
---------------------------------------------------------------------------

    \264\ As discussed in section IV. of the 1996 Jurisdictional 
Determination, the agency's decision not to include a prolonged 
discussion of past agency decisions is based on the fact that the 
agency is now operating under a different set of facts. The agency 
did not commit a procedural error by failing to chronicle 
exhaustively decisions it made in a factually distinguishable 
context. Moreover, one of the comments faulted the agency for 
failing to give notice of the ``several'' citizen petitions filed 
since 1977 that requested that the agency regulate cigarettes. In 
fact, the agency incorporated by reference into the opening docket 
for the 1995 Jurisdictional Analysis all significant dockets opened 
since the conclusion of the ASH litigation that relate to the 
agency's jurisdiction over cigarettes and other nicotine delivery 
systems. The index the agency provided to the public on September 
29, 1995, in conjunction with the public display of the 
administrative record (as of that date), included a description of 
nine dockets the agency incorporated by reference into the record 
supporting the 1995 Jurisdictional Analysis.
---------------------------------------------------------------------------

    Nor does FDA agree with the comment's argument that Congress, in 
reliance on past FDA pronouncements, enacted legislation precluding FDA 
from regulating tobacco products under the act. As discussed in detail 
in sections IV. and V. of the annexed 1996 Jurisdictional 
Determination, the agency has never categorically disclaimed 
jurisdiction over tobacco products and Congress has never expressly 
forbidden FDA from asserting jurisdiction over these products. The 
agency has no affirmative obligation to posit in its notice of proposed 
rulemaking arguments it believes are legally infirm. (Cf. Florida Power 
and Light Co. v. United States, 846 F.2d 765, 771 (D.C. Cir. 1988), 
cert. denied, 490 U.S. 1045 (1989).)
    Two tobacco industry comments also claimed that the agency unfairly 
underplayed the complexity of issues such as ``intended use,'' product 
categorization, regulatory authority over combination products, and the 
applicability of the medical device provisions of the act to cigarettes 
and smokeless tobacco. Instead, one of these comments asserted that all 
the agency had done was publish ``a tendentious anti-tobacco, pro-FDA-
regulation manifesto'' and, as such, the agency's notice was 
``fraudulent.'' The agency disagrees with this characterization. More 
to the point, the agency disagrees with the argument that the agency 
somehow deprived the public of fair notice.
    Again, to satisfy the APA's notice requirement, the agency must 
specify with particularity the legal authority on which its proposal is 
based (K. C. Davis & R. J. Pierce, Jr., Administrative Law Treatise 
(vol. 1, 3d ed. 1994) section 7.3 at 299). Notice must be 
``informative'' and must ``fairly apprise'' interested persons (Id. at 
299 and 300). The agency need not, however, unravel for the public each 
and every theoretical step in the analysis. (See Chemical Waste 
Management, Inc. v. Environmental Protection Agency, 869 F.2d 1526, 
1535 (D.C. Cir. 1989) (even where agency statement in notice of 
rulemaking assumes rather than invites comments on an issue, notice is 
sufficient if it provides interested parties ``with a clear indication 
of the agency's intended course of action * * *.''); Center for Auto 
Safety v. Peck, 751 F.2d 1336, 1361 (D.C. Cir. 1985) (``It is simply 
not the case, however, that all of the essential postulates for an 
agency rule must be contained in the record.'')).
    Nevertheless, the agency provided the public a detailed explanation 
of why it regards cigarettes and smokeless tobacco as drug/device 
combination products, and why it believes the device provisions of the 
act may, and should, be used to regulate these products. The agency set 
forth its rationale for regulating these products as devices in both 
the August 11, 1995, proposed rule (see 60 FR 41314 at 41348 to 41350) 
and again in the August 11, 1995 Jurisdictional Analysis (see 60 FR 
41453 at 41521 to 41525). Further, the agency identified the precise 
statutory provisions under which it proposed to regulate these products 
(see 60 FR 41314 at 41346 to 41352, and 41372).
    The agency also put the public on notice, by referencing the 
Intercenter Agreement between the Center for Drug Evaluation and 
Research and the Center for Devices and Radiological Health, that 
preloaded drug delivery systems are often regulated using the drug 
authorities under the act. The agency adequately explained--for notice 
purposes--why in this instance it proposed a different approach (60 FR 
41314 at 41348 to 41350).
    With respect to the application of the concept of ``intended use,'' 
the lengthy discussion in Part II of the 1995 Jurisdictional Analysis 
provided the public with full disclosure of the agency's rationale for 
regulating cigarettes and smokeless tobacco based on the ``intended 
use'' of these products. The core facts and precedents on which

[[Page 44562]]

the agency relied were displayed in a manner the agency believes 
invited maximum public scrutiny. The agency even provided the public 
with 11 different examples (9 from the 1980's and 1990's) of the 
application of the intended use concept to the determination of whether 
a product, absent express claims, may be regulated as a drug or a 
device (60 FR 41453 at 41527 to 41531). This level of explanation more 
than satisfied the notice requirements of the APA as interpreted by the 
relevant case law.
    Finally, the quantity and quality of comments the agency received 
on the 1995 proposed rule and the 1995 Jurisdictional Analysis suggest 
that, in fact, the public was adequately notified of the relevant 
issues. The agency received more comments in this proceeding than it 
has ever received on any other subject, with over 700,000 comments 
(including form letters) and over 95,000 distinct or unique sets of 
comments. More important, the agency received hundreds of pages of 
comments on the very issues the agency is said to have hidden from the 
public. Indeed, the two industry comments who complained most 
vigorously about the supposed deficiencies in the agency's notice of 
proposed rulemaking themselves filed volumes of comments on the issues 
they claim the agency concealed. \265\ Even the comments of interested 
nonindustry persons evidenced fair notice of the agency's reasoning for 
applying the device provisions of the act to cigarettes and smokeless 
tobacco. \266\
---------------------------------------------------------------------------

    \265\ See, e.g., Joint Comments of the Smokeless Tobacco 
Manufacturers, Comment (January 2, 1996), at 43 to 73 (discussing 
the agency's historical position on agency jurisdiction over tobacco 
products), at 99-258 (discussing the agency's application of the 
concept of intended use to tobacco products), and at 259-307 
(analyzing the agency's position that cigarettes and smokeless 
tobacco are combination products that may be regulated as restricted 
devices); Joint Comments of Cigarette Manufacturers at, among other 
places, Vol. I (discussing FDA's historical position on 
jurisdiction), Vol. II (discussing the concept of intended use), and 
Vol. V (discussing the regulation of cigarettes as medical devices).
    \266\ See, e.g., Public Citizen Litigation Group, comment 
(January 2, 1996); American Heart Association, comment (December 26, 
1995).
---------------------------------------------------------------------------

    In Chemical Waste Management, the plaintiff complained that the 
Environmental Protection Agency's (EPA) notice of proposed rulemaking 
treated a certain controversial issue ``as an accomplished fact'' (869 
F.2d at 1535). Like two of the comments here, the plaintiff in Chemical 
Waste Management argued that the APA required the agency to highlight 
the fact that its position was subject to debate and to solicit 
comments on the issue. The United States Court of Appeals for the 
District of Columbia rejected this argument because EPA had provided 
notice of its intended course and because the agency in fact received 
numerous comments on the issue (869 F.2d at 1535). (See also Shell Oil 
Co. v. EPA, 950 F.2d 741, 757 (D.C. Cir. 1991) (recognition of a 
certain issue in comments may be used to infer that adequate notice of 
the issue was given); Haralson v. Federal Home Loan Bank Board, 678 F. 
Supp. 925, 926 (D.D.C. 1987) (same).)
    As in cases such as Chemical Waste Management, the comments FDA 
received demonstrate that there is no serious claim to be made that the 
agency has concealed issues from the public. Interested persons 
representing both sides in this controversial proceeding commented on 
the very issues the agency supposedly underplayed in its notice of 
proposed rulemaking. \267\
---------------------------------------------------------------------------

    \267\ The agency also received a comment criticizing the agency 
for failing to discuss the June 1994 Federal Trade Commission's 
(FTC) decision regarding the ``Joe Camel'' advertising campaign. In 
section VI. of this document, the agency discusses the FTC's 
decision, showing that the FTC's decision in 1994 with respect to 
the ``Joe Camel'' campaign was neither relevant to, nor 
contradicted, FDA's discussion of the campaign in the 1995 proposed 
rule.
---------------------------------------------------------------------------

    The comments that challenge the adequacy of the agency's notice 
confuse the merits of the issue with procedure. The supposed 
deficiencies in FDA's legal reasoning, and the supposed failure to 
discuss contrary authorities, raise substantive issues to be resolved 
during the comment and response-to-comment phase of the proceeding. The 
possibility that some of the agency's legal conclusions may be subject 
to debate does not render the notice inadequate. (See Chemical Waste 
Management, Inc., 869 F.2d at 1535; Natural Resources Defense Council, 
Inc. v. Hodel, 618 F. Supp. 848, 864-65 (E.D. Cal. 1985).)
2. The Agency Provided a ``Reasoned Explanation'' for its Current 
Position
    Several tobacco industry comments also claimed that the agency 
violated the APA's notice provisions by failing to include a ``reasoned 
explanation'' for departing from past precedent on the issue of whether 
to regulate all cigarettes and smokeless tobacco. In their view, the 
1995 proposed rule and the 1995 Jurisdictional Analysis were 
procedurally infirm because the agency did not adequately explain its 
basis for past decisions not to regulate these products, and did not 
distinguish those decisions from its present position. One of these 
comments likewise asserted that the agency was required to include in 
the administrative record each and every document ``that formed the 
basis for, or was an expression or reflection of, FDA's consistent 
position over more than 80 years that it does not have jurisdiction to 
regulate cigarettes.'' The absence of this material, according to the 
comment, demonstrates that the agency failed to consider ``obviously 
relevant'' contrary information in proposing to regulate these 
products.
    The authorities cited in the comments at best require that, by the 
close of an administrative proceeding, the agency must provide a 
``reasoned explanation'' to the extent the agency has departed from a 
prior formal position. (See, e.g., RKO Gen., Inc. v. FCC, 670 F.2d 215 
(D.C. Cir. 1980) cert. denied, 456 U.S. 927 (1982) (challenge to final 
order of Federal Communications Commission denying renewal of 
television license); Baltimore and Annapolis R. R. v. Washington Metro. 
Area Transit Comm'n, 642 F.2d 1365 (D.C. Cir. 1980) (challenge to final 
order of transit commission); Greyhound Corp. v. ICC, 551 F.2d 414 
(D.C. Cir. 1977) (challenge to final decision of the labor board); 
International Union, United Auto Workers v. NLRB, 459 F.2d 1329 (D.C. 
Cir. 1972) (challenge to final decision of labor board); see also Motor 
Vehicle Mfrs. Assoc. v. State Farm Mutual Auto Ins., 463 U.S. 29, 43 
(1983) (challenge to final rule rescinding passive restraint seatbelt 
requirement contained in a Department of Transportation standard).) 
None of these cases, which involved challenges to final agency orders 
and final rules, holds that at the notice stage of a proceeding, when 
an agency is proposing to depart from a prior position, the agency must 
provide a comprehensive ``reasoned explanation.''
    The agency nevertheless agrees that the rulemaking proceeding, 
taken as a whole, should clearly and rationally justify changes in 
existing policies. Thus, FDA included in its notice of proposed 
rulemaking and 1995 Jurisdictional Analysis ample reference to its 
prior policy and a more than ample discussion of the agency's rationale 
for changing its policy. Indeed, the very intent of the 1995 
Jurisdictional Analysis, and the 622 footnotes supporting the analysis, 
was to provide the public with a full view of the evidence that 
supports the need for the agency to take a different approach to the 
regulation of these products.

[[Page 44563]]

    As FDA made clear at the outset of its 1995 Jurisdictional 
Analysis, its decision to propose to regulate these products, when in 
the past it chose not to (except where claims were made), is based on 
the fact that ``[t]he quality, quantity, and scope of the evidence 
available to FDA today is far greater than any other time when FDA has 
considered regulation of cigarettes and smokeless products.'' (60 FR 
41453 at 41464, n. 1.) Footnote 5 of the 1995 Jurisdictional Analysis, 
in particular, made clear that: (1) The agency in the past had declined 
to exercise jurisdiction generally over these products; and (2) the 
reason for taking a different position today is that the evidence 
before the agency regarding the intended use of these products ``has 
changed dramatically.'' (60 FR 41453 at 41482, n. 5). In addition, the 
agency repeatedly stated that its analysis was based on ``evidence now 
available to the agency'' (60 FR 41453 at 41464), ``current evidence'' 
(60 FR 41466), evidence accumulated since 1980 (60 FR 41482, n. 5), and 
evidence that has emerged since 1980 or was not widely known until 
recently (60 FR 41453 at 41483 to 41484, and 41539).
    Neither the APA nor the case law cited in the comments requires an 
agency to provide a thorough ``reasoned explanation'' for departing 
from precedent at the notice stage of a proceeding. Rather, the APA at 
best requires that the agency give notice of its proposal to take a 
different position or view, and give enough information to allow the 
public a reasonable opportunity to comment. Not until the close of the 
proceeding, after public comment has been received, must the agency 
ensure that it has provided a ``reasoned explanation.'' The agency 
believes in this instance that its discussion at the notice stage met 
the standard that courts ordinarily do not impose until the close of an 
administrative proceeding. Nonetheless, the agency has provided a 
detailed discussion of the legal and factual bases for taking its 
current position in section IV. of the 1996 Jurisdictional 
Determination, annexed hereto.
    Finally, the agency does not agree that it was required to include 
in the record, at the notice stage of the proceeding, each and every 
prior agency ``decision, statement, and finding.'' Rather, the agency 
appropriately included in the record enough documentation to give the 
public notice of the agency's prior position, and notice of the 
agency's prior reasoning for declining to exercise jurisdiction 
generally over these products (absent express claims). For example, the 
agency incorporated by reference into the administrative record 
supporting the 1995 Jurisdictional Analysis all significant dockets 
opened since the conclusion of the 1977 ASH litigation that relate to 
the agency's jurisdiction over these products. In addition, the agency 
included in the record in support of its 1995 Jurisdictional Analysis 
its response to the original ASH citizen petition. The response to the 
ASH petition outlines in detail the ``contrary'' view the agency 
allegedly concealed, including full discussions of the agency's 
enforcement history with respect to tobacco products and the agency's 
significant past pronouncements on the subject. In any case, the 
tobacco industry itself, through its comments, has introduced many of 
the agency's earlier statements into the administrative record for this 
proceeding. Thus, unlike the facts presented in cases such as Public 
Citizen v. Heckler, 653 F. Supp. 1229 (D.D.C. 1986) or Walter O. 
Boswell Memorial Hospital v. Heckler, 749 F.2d 788 (D.C. Cir. 1984), as 
referenced in the comment, the administrative record for this 
proceeding already contains the ``adverse'' information claimed to be 
lacking, by virtue of the agency's inclusion of documents in the record 
and the comments received by the agency.

D. Adequacy of the Comment Period

    FDA received at least one comment urging that the comment period 
was unreasonably short in light of the complexity of the proposed rule, 
the number of materials the agency put on public display, and the 
possible impact of the rule on the tobacco industry. This comment 
argued that the agency acted arbitrarily and capriciously in deciding 
to ``limit'' the comment period to 144 days from the publication of the 
August 11, 1995, proposal and 95 days from the public release of the 
documents FDA considered but did not rely upon.
    Far from having ``limited'' the comment period, FDA provided more 
than twice as much time for comment as the agency's regulations 
require. (See 60 FR 53560, October 16, 1995 (extending comment period 
for the proposed rule); 60 FR 53620, October 16, 1995 (extending 
comment period on Jurisdictional Analysis).)
    The APA requires only that an agency ``give interested persons an 
opportunity to participate in the rule making through submission of 
written data, views, or arguments * * *.'' (5 U.S.C. 553(c).) This is 
all the APA requires; there is no statutory requirement concerning how 
many days an agency must allow, nor is there a requirement that an 
agency must extend the period at the request of an interested person. 
(See Phillips Petroleum Co. v. EPA, 803 F.2d 545, 559 (10th Cir. 
1986).)
    FDA's own regulations generally afford the public 60 days to 
comment on a proposed rule, unless the Commissioner shortens or 
lengthens the period for good cause (21 CFR 10.40(b)(2)). Executive 
Order 12889 implementing the North American Free Trade Agreement 
prescribes a minimum comment period of 75 days on certain proposed 
rules, except when good cause is shown for a shorter comment period. 
(See 58 FR 69681, December 30, 1993.)
    Here, the agency provided the public with 144 days from the 
publication of the notice, 139 days from the release of the documents 
the agency cited in support of the rule and the 1995 Jurisdictional 
Analysis (on August 16, 1995), and 95 days from the release of the 
materials the agency considered but did not directly rely upon (on 
September 29, 1995). Thus, even when counting from the date the agency 
released additional documents of no direct relevance to the 1995 
proposed rule, the agency provided much more time for comment on the 
notice of proposed rulemaking than its regulations, or the Executive 
Order, require.
    Further, on March 20, 1996, the Federal Register published a notice 
providing an additional 30-day comment period limited to specific 
documents the agency added to the proposed rulemaking docket (see 61 FR 
11349, March 20, 1996) and to the docket in support of the agency's 
analysis of its jurisdiction (see 61 FR 11419, March 20, 1996). 
Although the agency expressly limited the scope of the matters on which 
interested persons could comment, the March 20, 1996, action did 
provide the public with yet another 30 days on which to comment on 
issues related to such core subjects as the manipulation of the 
nicotine content of cigarettes and smokeless tobacco. The March 20, 
1996, action also reopened the comment period with respect to the 
record in support of the agency's proposal to regulate the advertising 
of these products in ``adult publications'' and billboard advertising.
    The agency is not persuaded that any interested person has been 
unfairly prejudiced by the length of the comment period. First, FDA 
considers requests to extend the comment period on a case-by-case 
basis. Here, on the one hand, the

[[Page 44564]]

authors of the comment (the Tobacco Institute together with five major 
tobacco companies) presented in their request for additional time no 
compelling reasons to extend the period (such as a new, material 
study). On the other hand, FDA is faced with a matter raising serious 
public health concerns. For those reasons, the agency denied the 
request to extend the period for as long as had been requested (see 60 
FR 53560).
    Second, each of the five tobacco companies who submitted this joint 
comment complaining about the length of the comment period also filed 
suit against FDA 1 day before the Federal Register published FDA's 
notice of proposed rulemaking. The timing appears to indicate that 
these firms had been preparing to respond to an FDA proposal to 
regulate cigarettes and smokeless tobacco for some time. In any case, 
they were able, jointly, to submit 2,000 pages of comments and 45,000 
pages of exhibits within the time allotted for commenting on the 
Jurisdictional Analysis and the proposed rule. Their submissions far 
outweigh any others. The agency, therefore, is not persuaded that these 
interested persons suffered prejudice as a result of FDA's allowing 
twice as much time as the agency's regulations require. (See Conference 
of State Bank Supervisors v. Office of Thrift Supervision, 792 F. Supp. 
837, 844 (D.D.C. 1992) (in light of the comments received, court 
declined to find that 30-day comment period was insufficient to allow 
opportunity for meaningful public participation); Phillips Petroleum 
Co., 803 F.2d at 559 (citing cases in which courts have upheld notice 
periods of 45 days or less).)
    In sum, the agency believes it provided ample additional time for 
comments--nearly 90 days more than is provided for in the agency's own 
procedural regulation. Given that it received over 95,000 distinct sets 
of comments, the agency is not persuaded that the length of the comment 
period unfairly hampered the quality of the public debate on this 
matter.

E. Conclusion

    Because of the importance of the issues involved in this 
proceeding, the agency compiled the most extensive administrative 
record in support of a proposed rulemaking in its history. FDA employed 
procedures that exceeded all legal requirements in giving the public a 
reasonable opportunity to participate in this matter.

XIII. Executive Orders

A. Executive Order 12606: The Family

    Executive Order 12606 (E.O. 12606) directs Federal agencies to 
determine whether policies and regulations may have a significant 
impact on family formation, maintenance, and general well-being. The 
preamble to the 1995 proposed rule stated that the rule would have ``no 
potential negative impact on family formation, maintenance, and general 
well-being.'' Specifically, the Food and Drug Administration (FDA) said 
that the rule would not affect family stability or marital commitments, 
would not have a significant impact on family earnings, and would not 
impede parental authority and rights in the education, nurture, or 
supervision of children. To the contrary, the preamble to the 1995 
proposed rule said that the rule would ``help the significant majority 
of American families that seek to discourage their children from using 
cigarettes and smokeless tobacco'' because ``[t]he pervasive promotion 
and easy availability of these products * * * severely hinder the 
individual family from carrying out this function by itself'' (60 FR 
41314 at 41356).
    In the Federal Register of August 11, 1995, the preamble to the 
proposed rule (60 FR 41314) (the 1995 proposed rule) also stated that, 
under section 1(g) of the Executive Order (which instructs agencies to 
ask about a rule's ``message'' to young people concerning their 
behavior, their personal responsibility, and societal norms), the rule 
would ``help reduce the conflict between the anti-smoking messages 
issued by Federal and State authorities and the pro-tobacco messages 
seen in advertising'' that are attractive to children. This would 
enable young people ``to understand how prevalent tobacco use is in 
society and also appreciate how their decisions regarding cigarette and 
smokeless tobacco use can affect their health'' (60 FR 41314 at 41356).
    In the 1995 proposed rule, FDA invited comments and suggestions on 
the rule's effect on the family.
    FDA received several comments that disagreed with FDA's analysis.
    (1) One comment said that the rule would have a significant 
economic effect on family earnings through increased costs (in order to 
comply with the rule) or the possible loss of jobs. Another comment 
said that the rule would destroy some family businesses, especially 
those dependent on vending machines selling cigarettes or on 
sponsorships by cigarette or smokeless tobacco manufacturers.
    The agency disagrees with the comments. FDA reiterates that the 
rule does not affect sales to adults. It is narrowly drawn to reduce 
young people's access to cigarettes and smokeless tobacco and to reduce 
the appeal of those products to young people. In short, the rule is 
intended to prevent illegal sales to young people, and the agency has 
no evidence to suggest that a significant number of families depend on 
such sales.
    FDA also notes that the final rule, as amended, permits vending 
machines in facilities that are inaccessible to young people and also 
permits sponsorships under certain restrictions. These changes to the 
rule should reduce the potential economic impact on families dependent 
on vending machine earnings or sponsorships or enable them to adjust 
their affairs to maintain family earnings.
    (2) Several comments said that the rule interferes with parents' 
ability to raise their children, but did not elaborate on how the rule 
supposedly interfered in child-rearing.
    The agency disagrees with the comments. The rule does not direct 
parents to educate or raise their children in any particular manner 
and, insofar as adults are concerned, does not regulate the use of 
cigarettes or smokeless tobacco by adults. It does reduce both their 
access and appeal to young people and, as a result, should help those 
parents who are trying to prevent their children from becoming regular 
users of these products. Thus, the rule does not interfere with 
parental authority or the manner in which parents educate, nurture, or 
supervise their children.
    FDA, therefore, reiterates that the rule does not have a negative 
impact on family formation, maintenance, and general well-being and is 
consistent with Executive Order 12606.

B. Executive Order 12612: Federalism

    Executive Order 12612 (E.O. 12612) requires Federal agencies to 
carefully examine regulatory actions to determine if they have a 
significant impact on the States, on the relationship between the 
States and the Federal government, and on the distribution of power and 
responsibilities among the various levels of government. E.O. 12612 
directs Federal agencies that are formulating and implementing policies 
to be guided by certain federalism principles, such as encouraging a 
``healthy diversity in the public policies adopted by the people of the 
several States according to their own

[[Page 44565]]

conditions, needs, and desires'' (section 2 of E.O. 12612).
    Although Sec. 897.42 of the 1995 proposed rule would have excluded 
from preemption under section 521 of the act more stringent State and 
local requirements that do not conflict with requirements imposed under 
FDA's final rule, FDA has deleted Sec. 897.42 from the final rule 
because of significant concerns with regard to the validity of that 
section's proposed preemption exclusion. See discussion in section X. 
of this document. Thus, under the express provisions of section 521(a) 
of the act, FDA regulation of cigarettes and smokeless tobacco as 
nicotine-delivery devices will result in preemption of State and local 
requirements governing the sale and distribution of cigarettes and 
smokeless tobacco when such requirements are different from, or in 
addition to, the requirements under FDA's final rule.
    FDA received many comments on the 1995 proposed rule regarding its 
possible impact on State and local governments. Most comments came from 
individual State legislators in over 15 States (often using the same 
text or paragraphs). FDA also received comments from United States 
Senators and Representatives, four State governors, three lieutenant 
governors, as well as a number of State and local health departments, 
substance abuse programs, and law enforcement agencies. In addition, 
FDA received comments from industry trade associations and individual 
retailers. After careful consideration of these comments, FDA has 
assessed the rule's impact on the States, on the relationship between 
the States and the Federal government, and on the distribution of power 
and responsibilities among the various levels of government. As 
discussed below in this section, the agency concludes that the 
preemptive effects of the final rule are consistent with E.O. 12612.
    (3) Many comments, including several from legislators, expressed 
opposition to the 1995 proposed rule on the grounds that the rule 
adversely affected State sovereignty by infringing on States' rights to 
regulate tobacco products, to protect their citizens, and to regulate 
businesses within the State. Some comments from State legislators 
criticized the rule, interpreting it as a statement that the State are 
``unable to care for [their] own children,'' while other comments said 
that legislators, not FDA, should address issues affecting private 
citizens because legislators are elected officials who can be held 
politically accountable by their constituents.
    Some comments asserted that the 1995 proposed rule would prevent 
States from experimenting with or trying different local approaches to 
reduce the accessibility and appeal of cigarettes and smokeless tobacco 
products. Some of these comments argued that their State laws were 
either adequate or superior to the 1995 proposed rule, citing, for 
example, State vending machine restrictions, State laws prohibiting 
distribution of tobacco products to minors, and State proof-of-age 
requirements. Moreover, some comments argued that FDA has failed to 
show that youth access to, and use of, tobacco products is a national 
(rather than State) concern warranting Federal action.
    In contrast, several comments from State departments of health and 
State attorneys general noted that tobacco regulation is not solely a 
State issue. Moreover, some of the comments supported the rule for its 
potential impact on public health and on illegal sales of tobacco 
products to young people.
    FDA recognizes the pioneering and continuing role in the area of 
regulation of youth access to tobacco products that States have played, 
particularly certain active tobacco-control States. Federal cooperation 
with, and continued reliance upon, innovative and aggressive State and 
local enforcement efforts is essential.
    As explicitly recognized in E.O. 12612, however, Federal action 
limiting the discretion of State and local governments is appropriate 
``where constitutional authority for the action is clear and certain 
and the national activity is necessitated by the presence of a problem 
of national scope'' (section 3(b) of E.O. 12612). The final rule meets 
both of these conditions. First, the constitutional authority for the 
final rule is clearly rooted in the act which was enacted by Congress 
under the authority of the Commerce Clause of the Constitution, art. I, 
section 8, cl. 3. Second, youth access to cigarettes and smokeless 
tobacco is a problem of national scope that necessitates the provisions 
established by the final rule.
    As discussed in the preamble to the 1995 proposed rule, 
approximately 3 million children under the age of 18 are daily smokers 
(60 FR 41314 at 41317). Moreover, every day, approximately another 
3,000 young people become regular smokers (Id.). Children annually 
consume hundreds of millions of cigarettes, with the estimates ranging 
from 516 million to 947 million packages (Id.). Although most segments 
of the American adult population have decreased their use of 
cigarettes, smoking among young people has recently begun to rise (60 
FR 41314 at 41315). With regard to smokeless tobacco, similar 
statistics demonstrate the extent of the problem in this area--an 
estimated 1 million adolescent males use smokeless tobacco (60 FR 
41314). These figures clearly demonstrate a serious problem which 
exists at a national level. The health effects associated with 
cigarettes and smokeless tobacco are well established and have national 
social and health implications that warrant Federal attention.
    As discussed in section X. of this document, FDA believes the 
requirements it is establishing in this final rule set an appropriate 
floor for regulation of youth access to tobacco products but do not, as 
a policy matter, reflect a judgement that more stringent State or local 
requirements are inappropriate. Indeed, State and local governments may 
apply for exemption from preemption under section 521(b) of the act 
with regard to State and local requirements governing the sale and 
distribution of cigarettes and smokeless tobacco. A State or local 
requirement will be exempted from preemption under section 521(b) of 
the act if the State or local requirement: meets the exemption 
requirements established under that section, and is consistent with the 
goals in the final rule. The availability of exemptions from preemption 
established under section 521(b) of the act enables State and local 
governments to preserve or enact more stringent requirements governing 
the sale and distribution of cigarettes and smokeless tobacco.
    (4) Several comments asserted that States should be free to decide 
how to allocate their resources, including decisions as to whether any 
resources should be spent on tobacco control. Other comments expressed 
concern as to the rule's possible impact on State resources, explaining 
that States lacked resources to enforce the rule or predicting that FDA 
would lack sufficient resources to enforce the rule and, as a result, 
would have States handle enforcement matters.
    FDA believes that these concerns are unfounded. First, because FDA 
is responsible for enforcing this rule, the rule should not require the 
expenditure of State resources for its enforcement. Second, with regard 
to State tobacco control, State and local governments will retain 
flexibility to choose the

[[Page 44566]]

appropriate allocation of their resources in this area through the 
availability of exemptions from preemption under section 521(b) of the 
act.
    (5) Several comments also expressed strong concern regarding the 
rule's possible impact on the State economies, particularly with 
respect to farmers, manufacturers, distributors, and retailers. A 
detailed analysis of the rule's economic impact can be found in section 
XV. of this document.
    Section 3(d)(3) of E.O. 12612 directs Federal departments and 
agencies to consult with appropriate officials and organizations 
representing the States in developing those standards. Similarly, 
section 4(d) of E.O. 12612 instructs Federal departments and agencies 
to consult, to the extent practicable, with State officials and 
organizations when the Federal department or agency ``foresees the 
possibility of a conflict between State law and federally protected 
interests within its area of regulatory responsibility.'' Moreover, 
section 4(e) of E.O. 12612 requires Federal departments and agencies to 
``provide all affected States notice and an opportunity for appropriate 
participation in the proceedings'' when the Federal department or 
agency proposes to act through rulemaking to preempt State law.
    The proposed rule published in the Federal Register of August 11, 
1995, notified States and local governments of the Federal interest in 
regulating the sale and distribution of cigarettes and smokeless 
tobacco in order to protect children and adolescents. FDA, through the 
comment period on the proposed rule, gave State and local governments 
notice and an opportunity to participate in the rulemaking process, as 
required by E.O. 12612. This final rule, as well as the exemption 
document, which appears elsewhere in this issue of the Federal 
Register, provide additional notice to State and local governments. 
Further opportunity for participation is provided by the availability 
of exemptions from preemption set forth in section 521(b) of the act.
    In conclusion, FDA has determined that the preemptive effects of 
the final rule are consistent with E.O. 12612.

C. Executive Order 12630: Governmental Actions and Interference with 
Constitutionally Protected Property Rights

    Executive Order 12630 (E. O. 12630) directs Federal agencies to 
``be sensitive to, anticipate, and account for, the obligations imposed 
by the Just Compensation Clause of the Fifth Amendment in planning and 
carrying out governmental actions so they do not result in the 
imposition of unanticipated or undue additional burdens on the public 
fisc'' (Section 3(a)). Section 3(c) of the order states that actions 
taken to protect the public health and safety ``should be undertaken 
only in response to real and substantial threats to public health and 
safety, be designed to advance significantly the health and safety 
purpose, and be no greater than is necessary to achieve the health and 
safety purpose.'' Additionally, section 4(d) of E.O. 12630 requires, as 
a prerequisite to any proposed action regulating private property use 
for the protection of public health and safety, each agency to: (1) 
Clearly identify the public health or safety risk created by the 
private property use that is the subject of the proposed action; (2) 
establish that the proposed action substantially advances the purpose 
of protecting the public health and safety against the identified risk; 
(3) establish, to the extent possible, that the restrictions imposed on 
private property are not disproportionate to the extent to which the 
use contributes to the overall risk; and (4) estimate, to the extent 
possible, the potential cost to the Government should a court later 
determine that the action constitutes a taking.
    The agency, in the preamble to the 1995 proposed rule, considered 
whether the rule would result in a ``taking'' of private property and 
concluded that, while some requirements might affect private property, 
the rule did not result in a ``taking'' of that property. (See 60 FR 
41314 at 41357 through 41359.) In brief, the preamble to the 1995 
proposed rule noted that the proposal would prohibit the use of a 
nontobacco product trade name on a tobacco product, eliminate vending 
machines and self-service displays, restrict outdoor advertising from 
being placed within 1,000 feet of any elementary or secondary school or 
playground, prohibit all brand identifiable nontobacco items (such as 
hats and tee-shirts), and require established names and a brief 
statement on labels, labeling, and/or advertising. Sponsorship, under 
the 1995 proposed rule, would be limited to the corporate name. The 
preamble to the 1995 proposed rule explained that the rule did not 
result in a ``taking'' because the rule would not require the 
Government to physically invade or occupy private property and would 
not deny all economically viable uses of property. For example, the 
preamble to the 1995 proposed rule also stated that some items, such as 
vending machines, self-service displays, and nontobacco items, could be 
adapted to other uses. The preamble to the 1995 proposed rule also 
found that the rule substantially advanced the purpose of protecting 
the public health and that the restrictions were not disproportionate 
to the extent to which the use of the private property contributed to 
the public health risk (60 FR 41314 at 41357 through 41359). FDA also 
invited interested persons to submit information to enable the agency 
to determine the potential cost to the Government if a court found that 
the actions described in the 1995 proposed rule constituted a taking.
    The final rule, as amended, prohibits the use of a trade name of a 
nontobacco item for any tobacco product, restricts the placement of 
vending machines and self-service displays, restricts outdoor 
advertising from being placed within 1,000 feet of any elementary or 
secondary school or playground, prohibits all brand identifiable 
nontobacco items, such as hats and tee-shirts and requires established 
names on labels, labeling, and/or advertising, and places certain 
restrictions on sponsorship. Thus, the final rule, in many respects, is 
more lenient than the 1995 proposed rule. For example, the 1995 
proposed rule would have eliminated the use of vending machines; the 
final rule permits vending machine sales to occur in locations that are 
inaccessible to young people. The 1995 proposed rule would have 
eliminated mail-order sales; the final rule permits such sales to 
continue. So, given that the 1995 proposed rule did not result in a 
``taking,'' the final rule, being more lenient than the 1995 proposed 
rule, also should not result in a ``taking.''
    Nevertheless, FDA received several comments asserting that the rule 
would effect a ``taking'' of private property. Most comments did not 
assign a specific monetary value to the private property which they 
felt would be ``taken'' or, instead, gave values or figures applicable 
to the entire industry rather than values or figures that would apply 
to the market (which, in this case, would be sales to people under age 
18) affected by the rule.
    (6) Several comments, particularly from retailers, claimed that the 
1995 proposed rule's restrictions on self-service displays constituted 
a ``taking.'' A few comments explained that, for self-service displays, 
requiring the displays to be moved behind the counter would be 
analogous to a Government requiring an easement on real property and, 
as a

[[Page 44567]]

result, would violate the Fifth Amendment. FDA also received a small 
number of comments from firms that manufacture displays; these firms 
argued that the rule would essentially force them out of business and 
represent a ``taking'' of the business.
    FDA disagrees with the comments. The final rule, as amended, 
permits self-service displays (merchandisers only) in facilities that 
are totally inaccessible to young people. Thus, in those facilities 
where merchandisers will be permitted, the rule will not require the 
merchandisers to be removed, and firms that manufacture merchandisers 
will continue to have a market for their merchandisers.
    Retailers might be able to avoid or reduce the rule's impact on 
some merchandisers if those merchandisers could be adapted to other 
uses. For example, a merchandiser that consisted of bare shelves could 
be used to display products other than cigarettes and smokeless 
tobacco. Other merchandisers could be moved and, as a result, would 
retain their utility; for example, a counter display that stands near a 
cash register could be moved behind the counter and still be used for 
cigarettes and smokeless tobacco.
    Additionally, as explained in greater detail in section XI. of this 
document, reductions in personal property's value, even prohibitions on 
all economically viable uses, and financial expenditures to comply with 
a regulatory requirement do not necessarily establish a taking.
    (7) Several comments asserted that the rule would eliminate the use 
of vending machines. In the preamble to the 1995 proposed rule, FDA 
cited an article from a vending machine publication to suggest that 
vending machines could be converted to sell other products and so, 
while the 1995 proposed rule would prohibit the use of vending machines 
for cigarettes and smokeless tobacco, the ability to convert a vending 
machine to other uses reduced the likelihood of a ``taking'' (60 FR 
41314 at 41358). However, FDA received several comments explaining that 
some cigarette vending machines, particularly older models, cannot be 
adapted to other uses so that the 1995 proposed rule would destroy the 
value of those older vending machines.
    As discussed earlier in this document, the final rule permits 
vending machines in facilities that are totally inaccessible to young 
people. While this may limit the number of places where vending 
machines may be used, may exclude vending machines from places where 
they were used most profitably, or, for those vending machines that 
cannot be moved, may compel the vending machine owner to convert the 
machine to other uses, if possible, the final rule's restrictions do 
not constitute a taking. Reductions in personal property's value, even 
prohibitions on all economically viable uses, and financial 
expenditures to comply with a regulatory requirement do not necessarily 
establish a taking.
    (8) Several comments asserted that the rule would reduce sales or 
tax revenues, prompt companies to terminate employees, or suspend 
sponsorship of events, thereby depriving States of revenues associated 
with those sponsored events or eliminating the event itself. For 
example, one State legislator claimed that the rule would adversely 
affect automobile racing events in the State, leading to a loss of 8 
million dollars in revenue and adversely affecting the State's tourism 
department. Another State legislator asserted that the rule's 
sponsorship restrictions would end rodeo events in the State.
    FDA disagrees with the comments. While the rule's economic impacts 
may be significant, those impacts do not necessarily result in a 
taking. For example, the final rule does not require firms to terminate 
employees or to stop sponsoring events. In fact, the final rule 
expressly permits sponsorships in the corporate name. The concerns 
expressed by the comments are also speculative and, to the extent that 
they do occur, would result from decisions made by third parties rather 
than by FDA. The Fifth Amendment requires just compensation for a 
governmental taking of private property; it does not require 
compensation for the consequential damages resulting from the exercise 
of a lawful Government regulation on that property.
    Indeed, as noted in the preamble to the 1995 proposed rule, courts 
have generally required either a physical invasion of the property or a 
denial of all economically beneficial or productive use of the property 
and examined the degree to which the governmental action serves the 
public good, the economic impact of that action, and whether the action 
has interfered with ``reasonable investment-backed expectations'' (60 
FR 41314 at 41357 through 41358). The preamble to the 1995 proposed 
rule noted that deprivation of the most beneficial use of property does 
not constitute a taking and that Government regulation often involves 
adjustment of rights for the public good. If every Government 
regulation resulted in a taking, then the Government would be 
effectively required to ``regulate by purchase'' (60 FR 41314 at 41358 
(citing Andrus v. Allard, 444 U.S. 51, 65 (1979)). Here, the agency is 
not directing retailers to terminate staff, taking revenue belonging to 
retailers, or ending sponsored events. It is only issuing regulations 
to reduce illegal cigarette and smokeless tobacco to young people and 
the appeal of such products to young people. Retailers would still 
receive revenues from legal sales to adults; sponsorships in the 
corporate name could occur.
    Other cases support the notion that lawful regulatory action does 
not constitute a taking merely because the Government action diminishes 
the value of private property, reduces profits, or prevents the most 
beneficial use of property (see Carlin Communications, Inc. v. Federal 
Communications Comm'n, 837 F.2d 546, 557-558 n. 5 (2d Cir.), cert. 
denied, 488 U.S. 924 (1988) (FCC regulation of ``dial-a-porn'' services 
to protect minors did not constitute a taking); Galloway Farms, Inc. v. 
United States, 834 F.2d 998 (Fed. Cir. 1987) (trade embargo, while 
closing off certain markets, did not eliminate all economic value so no 
taking occurred); Minnesota Ass'n of Health Care Facilities, Inc. v. 
Minnesota Dep't of Public Welfare, 742 F.2d 442, 446 (8th Cir. 1984), 
cert. denied, 469 U.S. 1215 (1985) (nursing home's decision to 
participate in Medicaid program was voluntary and so a statute 
pertaining to Medicaid rates did not constitute a taking); Carruth v. 
United States, 627 F.2d 1068, 1081 (Ct. Cl. 1980) (regulation affecting 
contaminated peanuts, while reducing their value, did not constitute a 
taking); Warner-Lambert Co. v. Federal Trade Comm'n, 562 F.2d 749, 759 
n. 45 (D.C. Cir. 1977), cert. denied, 435 U.S. 950 (1978) (FTC order 
requiring corrective advertising did not constitute a taking)).
    Furthermore, courts have generally declined to require compensation 
for the loss of contracts that could not be completed following the 
enactment of a new statute or regulation or action by the Government 
and have not required compensation for the loss of future or 
anticipated profits. In Omnia Commercial Co. v. United States, 261 U.S. 
502 (1923), the Supreme Court had to decide whether the Government's 
acquisition of a steel company's entire production of steel plate 
constituted a taking of a firm's contract for a large quantity of steel 
plate from the same steel company. The Court wrote that, ``There are 
many laws and governmental

[[Page 44568]]

operations which injuriously affect the value of or destroy property--
for example, restrictions upon the height or character of buildings, 
destruction of diseased cattle, trees, etc., to prevent contagion--but 
for which no remedy is afforded. Contracts in this respect do not 
differ from other kinds of property'' (Id. at pp. 508 through 509). The 
Court reviewed earlier decisions and stated that:
    The conclusion to be drawn * * * is, that for consequential loss 
or injury resulting from lawful governmental action, the law affords 
no remedy. The character of the power exercised is not material. * * 
* If, under any power, a contract or other property is taken for 
public use, the Government is liable; but, if injured or destroyed 
by lawful action, without a taking, the Government is not liable.
(Id. at p. 510)
The Court held that while the Government took the steel, it did not 
take the contract itself and that ``[f]rustration and appropriation are 
essentially different things'' (Id. at p. 513). (See also Louisville & 
Nashville R.R. Co. v. Mottley, 219 U.S. 467, 484 (1911); NL Industries, 
Inc. v. United States, 839 F.2d 1578, 1579 (Fed. Cir.), cert. denied, 
488 U.S. 820 (1988) (``frustration of a business by loss of a customer 
was not a taking''); Carruth, 627 F.2d at 1081 (``[I]n cases where 
there has been no direct appropriation of property by governmental 
agencies, consequential damages resulting from the exercise of lawful 
regulations are not compensable takings within the purview of the Fifth 
Amendment'').)
    Thus, FDA disagrees with the comments suggesting that the rule will 
result in a taking of jobs or future revenues associated with sponsored 
events.
    (9) Several comments said that the 1995 proposed rule's 
restrictions on the use of trade names constitute a taking of trade 
names or the goodwill associated with a tradename or asserted that one 
has a ``right'' to use a brand name in any manner.
    As discussed in section XI. of this document, the agency disagrees 
that any provision in this rule effects a taking of trademarks and 
goodwill.

XIV. Environmental Impact

    In the Federal Register of August 11, 1995 (60 FR 41314), the 
preamble to the proposed rule stated that FDA had determined under 
Sec. 25.24(a)(8), (a)(11), and (e)(6) that the proposed action was of a 
type that does not individually or cumulatively have a significant 
impact on the human environment. No new information or comments have 
been received that would affect the agency's previous determination 
that this action has no significant impact on the human environment, 
and that neither an environmental assessment nor an environmental 
impact statement is required.

XV. Analysis of Impacts

A. Introduction and Summary

    The Food and Drug Administration (FDA) has examined the impacts of 
the final rule under Executive Order 12866, under the Regulatory 
Flexibility Act (5 U.S.C. 601-612), and under the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4). Executive Order 12866 directs 
agencies to assess all costs and benefits of available regulatory 
alternatives and, when regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety, and other advantages; and 
distributive impacts and equity). If a rule has a significant economic 
impact on a substantial number of small entities, the Regulatory 
Flexibility Act requires agencies to analyze regulatory options that 
would minimize any significant impact of such rule on small entities. 
Section 202 of the Unfunded Mandates Reform Act requires that agencies 
prepare an assessment of anticipated costs and benefits before 
proposing any rule that may result in an expenditure by State, local 
and tribal governments, in the aggregate, or by the private sector, of 
$100,000,000 (adjusted annually for inflation) in any year. Section 205 
of the Unfunded Mandates Reform Act also requires that the agency 
identify and consider a reasonable number of regulatory alternatives 
and from those alternatives select the least costly, most cost-
effective, or least burdensome alternative that achieves the objective 
of the rule. The following analysis, in conjunction with the remainder 
of this preamble, demonstrates that this rule is consistent with the 
principles set forth in the Executive Order and in these two statutes.
    FDA published its preliminary economic analysis in the preamble to 
its 1995 proposed regulation. In response, the agency received 
thousands of comments raising economic issues or concerns. 
Representatives of affected industry sectors emphasized burdens in 
excess of those estimated in the preliminary economic analysis. Other 
comments stressed the considerable economic value of the expected 
public health benefits. Although few comments provided quantifiable 
data on projected economic impacts, whether benefits or burdens, a 
report prepared by the Barents Group and presented as Volume 11 of the 
Tobacco Institute submission provided a comprehensive critique of the 
methodology, assumptions, and cost estimates presented in FDA's 
preliminary economic analysis and developed alternative estimates of 
regulatory costs. Other comments addressed selected economic issues. 
FDA carefully examined and evaluated the reasoning and data presented 
in these comments, accepted those that were persuasive, and presents 
this revised analysis of the final rule.
    In its preliminary analysis, FDA based the benefits of the 1995 
proposed rule on a finding that compliance could help to achieve the 
Department's ``Healthy People 2000'' goal of reducing underage tobacco 
use by one-half. Comments received in response to the proposal have 
reinforced the agency's conviction that this goal can be realized, 
although it will require the active support and participation of State 
and local governments and civic and community organizations, as well as 
manufacturers and retail dispensers of tobacco products. In the Federal 
Register of January 19, 1996 (61 FR 1492), the Substance Abuse and 
Mental Health Services Administration (SAMHSA) issued a regulation 
governing a program of State-operated enforcement activities to 
restrict the sale or distribution of tobacco products to individuals 
under the age of 18. SAMHSA predicted that its rule would cut the rate 
of underage tobacco consumption by between one-tenth and one-third. FDA 
can not separately quantify the incremental benefits of the respective 
agency programs, due to the substantial interdependencies and 
uncertainties regarding future compliance with these rules; but finds 
that its final rule and the SAMHSA regulation are fully complementary 
and, working together, will produce results that would more than equal 
the sum of their independent efforts.
    Each year, an estimated 1 million adolescents under the age of 18 
begin to smoke cigarettes. The Centers for Disease Control and 
Prevention (CDC) estimate that approximately one in three of these 
adolescents will die of smoking-related diseases, and FDA has concluded 
that this projection provides the best estimate of the excess fatality 
rate. FDA finds that even overly conservative projections indicate that 
achieving the ``Healthy People 2000'' goal of reducing underage tobacco 
use by one-half would prevent well over

[[Page 44569]]

60,000 early deaths, gaining over 900,000 future life-years for each 
year's cohort of teenagers who would otherwise begin to smoke. The 
monetary value of these health benefits (at a 3 percent discount rate) 
is estimated to total $28 to $43 billion per year and includes $2.6 
billion in medical cost savings, $900 million in productivity gains 
from reduced morbidity, and $24.6 to $39.7 billion per year in 
willingness-to-pay values for averting premature fatalities. (Because 
of the long periods involved, a 7 percent discount rate reduces the 
total benefits to about $9.2 to $10.4 billion per year). If the 
agency's goal were exceeded, these benefits would be even larger. 
Moreover, if even a fraction of the goal were achieved, the benefits 
would substantially outweigh the costs of the rule. As shown in Table 
1c, halting the onset of smoking for only 1/20 of the 1 million 
adolescents who become new smokers each year would provide annual 
benefits valued at from $2.8 to $4.3 billion a year. In addition, 
although FDA has not quantified the benefits of reducing the number of 
serious illnesses attributable to the use of smokeless tobacco by 
youngsters under the age of 18, the agency is convinced that these 
benefits also will be substantial.

                                      TABLE 1c.--ANNUAL ILLNESS-RELATED BENEFITS OF ALTERNATIVE EFFECTIVENESS RATES                                     
                                       (UNDISCOUNTED LIVES AND LIFE-YEARS; 3% DISCOUNT RATE FOR MONETARY VALUES)1                                       
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               Fewer                                                            Mortality-Related      Total Benefits   
                                             Teenagers      Smoking                              Morbidity-    Willingness-to-Pay  ---------------------
                                             who will       Related     Life-Years    Medical      Related   ----------------------                     
   Fraction of Teenage Cohort Deterred       Smoke as       Deaths      Saved (No.)   Savings   Productivity  Life-Yrs.    Deaths      Low        High  
                                              Adults3       Averted                   ($bils.)     Savings      Saved     Averted    ($bils.)   ($bils.)
                                               (No.)         (No.)                                ($bils.)     ($bils.)   ($bils.)                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
1/22                                         250,000        60,200       905,300          2.6        0.9          24.6       39.7       28.1       43.2 
1/3                                          167,000        40,100       603,600          1.8        0.6          16.4       26.4       18.7       28.8 
1/5                                          100,000        24,100       362,100          1.1        0.4           9.8       15.9       11.2       17.3 
1/10                                          50,000        12,000       181,100          0.5        0.2           4.9        7.9        5.6        8.6 
1/20                                          25,000         6,000        90,500          0.3        0.1           2.5        4.0        2.8        4.3 
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Totals may not add due to rounding.                                                                                                                 
\2\ Estimate used in analysis.                                                                                                                          
\3\ Assumes 50% of adolescents who are deterred from smoking continue to refrain as adults.                                                             

    In its evaluation of the economic impact on industry, FDA also 
includes those costs that might be attributable to the SAMHSA program, 
as the rules of both agencies work collectively to reduce youth access 
to tobacco products. As a result, the overall estimated compliance 
costs of the rules range from $174 million to $187 million in one-time 
costs and from $149 million to $185 million in annual operating costs 
(see Table 2). Manufacturers of tobacco products will incur one-time 
costs ranging from $78 million to $91 million, primarily for removing 
prohibited point-of-sale promotional items and self-service displays, 
and for changing package labels. As the responsibility for removing the 
prohibited point-of-sale promotional and display items resides with the 
owner, manufacturers and retailers may ultimately share the costs of 
removal and replacement. FDA's cost estimates assume that manufacturers 
will pay for most removal and installation activities and retailers 
will pay for most replacement items. (If, in fact, retailers assume 
most removal responsibilities, the estimated manufacturer costs fall by 
about $47 million).

[[Page 44570]]



                            TABLE 2.--COSTS OF FDA AND SAMHSA REGULATIONS ($ mils.)1                            
----------------------------------------------------------------------------------------------------------------
                    Requirements By Sector                           One-Time Costs       Annual Operating Costs
----------------------------------------------------------------------------------------------------------------
Tobacco Manufacturers                                                             78-91                        2
  Point-of-Sale Advertising                                                          30                         
  Self-Service Ban                                                                   40                         
  Label Changes                                                                    4-17                         
  Paperwork Requirements                                                                                     1.2
  Training                                                                          1.5                      0.2
  Readership Surveys                                                                  2                        1
----------------------------------------------------------------------------------------------------------------
Retail Establishments                                                                96                       78
  Training                                                                           34                       20
  I.D. Checks                                                                                                 43
  Self-Service Ban                                                                   57                       11
  Point-of-Sale Advertising                                                           5                         
  Vending Machines                                                                                           3.5
----------------------------------------------------------------------------------------------------------------
Consumers                                                                                                  41-50
  I.D. Checks                                                                                              41-50
----------------------------------------------------------------------------------------------------------------
Government                                                                                                 28-55
  States (SAMHSA)                                                                                          25-50
  FDA                                                                                                        3-5
----------------------------------------------------------------------------------------------------------------
TOTAL                                                                           174-187                  149-185
----------------------------------------------------------------------------------------------------------------
\1\ Assumes manufacturers remove prohibited retail display. If retailers bear full burden, manufacturer one-time
  costs fall by about $47 million and retailer one-time costs rise by about $17 million. Advertising            
  restrictions are considered under distributional effects. Excludes costs of short-term resource dislocation   
  and educational programs.                                                                                     

    Retail establishments will incur an estimated $96 million in one-
time costs. About $57 million of these costs are due to the self-
service restriction, primarily for replacing display cases and other 
functional promotional items. (If retailers rather than manufacturers 
remove the prohibited point-of-sale advertising and display items, the 
estimated retailer costs rise by about $17 million). The retail sector 
will also incur about $78 million in annual costs. In addition to new 
labor costs attributable to the self-service restrictions, both the FDA 
and SAMHSA rules impose costs for training employees to verify customer 
ages, for routinely checking I.D.'s of young purchasers, and for 
foregoing profits due to reduced vending machine sales. Consumers will 
bear costs of up to $50 million annually for incurring some delay in 
checkout lines. Finally, enforcement of these rules may cost the FDA 
from $3 million to $5 million per year and State governments from $25 
million to $50 million per year for administering various SAMHSA 
enforcement programs.
    FDA could not, however, quantify every regulatory cost. For 
example, the agency may require certain tobacco manufacturers to 
broadcast educational messages under the agency's notification process. 
Cost estimates for these activities will be developed in parallel with 
the program elements. In addition, a number of commercial sectors will 
experience costs for short-term dislocations of current business 
activities. Neither FDA nor any of the industry comments on the 
agency's proposal projected the magnitude of these costs, but they 
would be mitigated for those businesses that anticipate the adjustments 
in long-term business plans.
    In addition to the costs described previously, the rule will create 
significant distributional and transitional effects. Some industry 
comments asserted that FDA had neglected the cost of lost sales 
revenues in its preliminary economic analysis and one industry study 
estimated these ``Illustrative Costs'' at from $1.3 billion to $3.3 
billion per year. In fact, FDA had considered these sector-specific 
revenue reductions, but described the impacts as distributional 
effects, rather than as net societal costs. For example, any lost sales 
experienced by suppliers of advertising were considered distributional 
impacts, because dollars not spent on advertising will not be lost to 
the U.S. economy, but will be spent on other goods and services. As 
acknowledged by the authors of one of the economic impact analyses 
commissioned by the tobacco manufacturing industry:
     * * * when tobacco product manufacturers decrease their 
advertising expenditures, the money not spent translates into 
increased profits for the industry. The increased profits ultimately 
end up in the hands of the companies' owners (shareholders) either 
as direct payouts or as investments on their behalf in other lines 
of business. In general, these profits are ultimately recycled into 
increased consumption and investment by the owners of the companies.

Similarly, the anticipated slow but persistent decline in tobacco 
product sales revenues are not societal costs, because the dollars not 
spent on tobacco-related items will be spent on other goods or 
services.
    Nevertheless, FDA is aware that many tobacco-related industry 
sectors will be adversely affected by this rule. Tobacco manufacturers 
and suppliers will face increasingly smaller sales, because reduced 
tobacco consumption by youth will lead, over time, to reduced tobacco 
consumption by adults. The impact of this trend on industry revenues, 
however, will be extremely gradual, requiring over a decade to reach an 
annual decrease of even 4 percent. Also, if State and Federal excise 
tax rates on tobacco products remain at current levels, tax revenues 
would decrease slowly over time, falling by about $231 million and $196 
million, respectively, by the 10th year following compliance with the 
regulation.
    Tobacco manufacturers spent $6.2 billion on advertising, 
promotional, and marketing programs in 1993, and about 30 percent may 
be substantially altered to reflect the various ``text only''

[[Page 44571]]

restrictions or other prohibitions. If tobacco companies choose to 
reduce advertising and promotional activities due to the FDA 
restrictions, the sectors affected would include advertising agencies 
and communications media, owners of retail and outdoor advertising 
space, and recipients of corporate brand-name sponsorships (especially 
auto racing). These businesses would need to attract new revenues to 
maintain current levels of profitability. Similarly, vending machine 
operators will need to find substitute products to replace up to 3 
percent of their sales revenues.
    In summary, FDA finds that compliance with this rule will bring 
significant health benefits to the U.S. population. The rule will also 
exact long-term revenue losses on the tobacco industry and short-term 
costs on various affiliated industry sectors. With regard to small 
businesses, many near-term impacts will be small or transitory, but 
some business will be adversely affected. For a small retail 
convenience store not currently complying with this rule, the 
additional first year costs could average $400. For those convenience 
stores that already check customer identification, these costs average 
$137, largely to relocate tobacco product displays. Moreover, the rule 
will not produce significant economic problems at the national level, 
as the long-term displacement within tobacco-related sectors will be 
offset by increased output in other areas. Thus, under the Unfunded 
Mandates Act, FDA concludes that the substantial benefits of this 
regulation will greatly exceed the compliance costs that it imposes on 
the U.S. economy. In addition, the agency has considered other 
alternatives and determined that the current rule is the least 
burdensome and most cost-effective alternative that would meet the 
objectives of this rule.

B. Statement of Need for Action

    The need for action stems from the agency's determination to 
ameliorate the enormous toll on the public health that is directly 
attributable to the consumption by adolescents of cigarettes and 
smokeless tobacco. According to the nation's most knowledgeable health 
experts, tobacco use is the most important preventable cause of 
morbidity and premature mortality in the United States, accounting each 
year for over 400,000 deaths (approximately 20 percent of all deaths). 
Moreover, these morbidity and mortality burdens do not spare middle 
aged adults--with the average smoking-related death responsible for the 
loss of up to 15 life-years. \268\
---------------------------------------------------------------------------

    \268\ Statement of Clyde Behney and Maria Hewitt on Smoking-
Related Deaths and Financial Costs: Office of Technology Assessment 
Estimates for 1990 Before the Senate Finance Committee, pp. 1-2, 
April 28, 1994.
---------------------------------------------------------------------------

    In its guidelines for the preparation of Economic Impact Analyses, 
OMB asks that Federal regulatory agencies determine whether a market 
failure exists and if so, whether that market failure could be resolved 
by measures other than Federal regulation. The basis for this request 
derives from standard economic welfare theory, which by assuming that 
each individual is the best judge of his/her own welfare, concludes 
that perfectly competitive private markets provide the most efficient 
use of societal resources. Accordingly, the lack of perfectly 
competitive private markets (market failure) is frequently used to 
justify the need for Government intervention. Common causes of such 
market failures include monopoly power, inadequate information, and 
market externalities or spillover effects.
    While FDA agrees that various elements of market failure are 
relevant to the problem of teenage use and tobacco addiction, the 
agency also believes that this regulatory action would be justified 
even in the absence of a traditional market failure. As noted 
previously, the implications of the market failure logic are rooted in 
a basic premise of the standard economic welfare model--that each 
individual is the best judge of his/her own welfare. FDA, however, is 
convinced that this principle does not apply to children and 
adolescents. Even steadfast defenders of individual choice acknowledge 
the difficulty of applying the ``market failure'' criterion to non 
adults. Littlechild, for example, adds a footnote to the title of his 
chapter on ``Smoking and Market Failure'' \269\ to note that ``[t]he 
economic analysis of market failure deals with choice by adults.'' 
Although both Beales \270\ and Viscusi find that young persons balance 
risks and rewards in making decisions on whether or not to smoke, 
Viscusi explains that:
---------------------------------------------------------------------------

    \269\ Littlechild, S. C., ``Smoking and Market Failure,'' in 
``Smoking and Society: Toward a More Balanced Assessment,'' edited 
by R. D. Tollison, Lexington Books, p. 271, 1986.
    \270\ Beales III, J. Howard, ``Advertising and the Determinants 
of Teenage Smoking Behavior,'' p. 44, 1993.
---------------------------------------------------------------------------

    [n]evertheless, there are some classes of choices that have 
major consequences, and for that reason society may wish to reserve 
the privilege of making these choices until a particular age is 
reached. These limits should, however, be set according to the age 
at which individuals are believed to be capable of making reasonable 
long-term decisions regarding their welfare, rather than some 
arbitrary date independent of the choice context. The emerging 
consensus of smoking restriction policies has focused age 18 as the 
minimum age for the purchase of cigarettes. \271\

    \271\ Viscusi, W. K., ``Smoking: Making the Risky Decision,'' 
Oxford University Press, New York, p. 149, 1992.
---------------------------------------------------------------------------

FDA concludes, therefore, that even if some children do make rational 
choices, the agency's regulatory determinations must reflect the 
societal conviction that children under the age of legal consent cannot 
be assumed to act in their own best interest. \272\
---------------------------------------------------------------------------

    \272\ Goodin, R. E., ``No Smoking: The Ethical Issues,'' 
University of Chicago Press, pp. 30-32, 1989.
---------------------------------------------------------------------------

    In particular, FDA finds that the pervasiveness and imagery used in 
industry advertising and promotional programs often obscure adolescent 
perceptions of the significance of the associated health risks and the 
strength of the addictive power of tobacco products. Section VI. of 
this document describes numerous studies on the shortcomings of the 
risk perceptions held by children. Health economist Victor R. Fuchs 
describes the typical sequence:
    There is considerable evidence that the [time discount] rate 
falls as children mature. Infants and young children tend to live 
very much for the present; the prospect of something only a week in 
the future usually has little influence over their behavior. As 
children get older their time horizons lengthen, but once adult 
status is reached there seems to be little correlation between time 
discount and age. \273\

    \273\ Fuchs, V. R., ``How We Live,'' Harvard University Press, 
Cambridge, MA, pp. 228-229, 1983.+
---------------------------------------------------------------------------

Thus, although most youngsters acknowledge the existence of tobacco-
related health risks, the agency finds that the abridged time horizons 
of youth make them exceptionally vulnerable to the powerful imagery 
advanced through targeted industry advertising and promotional 
campaigns. In effect, these conditions constitute an implicit market 
failure not adequately remedied by existing government action.
    Moreover, the agency does not view these results as inconsistent 
with the growing economic literature based on the Becker and Murphy 
models of ``rational addiction.'' \274\ Although several empirical 
studies have

[[Page 44572]]

demonstrated that, for the general population, cigarette consumption is 
``rationally addictive'' in the sense that current consumption is 
affected by both past and future consumption, \275\ Chaloupka notes 
that this ``rationality'' does not hold for younger or less educated 
persons, for whom past but not future consumption maintains a 
significant effect on current consumption. He concludes, ``[t]he strong 
effects of past consumption and weak effects of future consumption 
among younger or less educated individuals support the a priori 
expectation that these groups behave myopically.'' \276\
---------------------------------------------------------------------------

    \274\ Becker, G. S., and K. M. Murphy, ``A Theory of Rational 
Addiction,'' Journal of Political Economy, vol. 96, No. 4, pp. 675-
700, 1988.
    \275\ Becker, G. S., M. Grossman, and K. M. Murphy, ``An 
Empirical Analysis of Cigarette Addiction,'' The American Economic 
Review, vol. 84, No. 3, pp. 396-418, June 1994; Chaloupka, F., 
``Rational Addictive Behavior and Cigarette Smoking,'' Journal of 
Political Economy, vol. 99, No. 4, pp. 722-742, 1991; Keeler, T. E., 
T. W. Hu, P. G. Barnett, and W. G. Manning, ``Taxation, Regulation, 
and Addiction: A Demand Function for Cigarettes Based on Time-Series 
Evidence,'' Journal of Health Economics, vol. 12, pp. 1-18, 1993.
    \276\ Chaloupka, F., ``Rational Addictive Behavior and Cigarette 
Smoking,'' Journal of Political Economy, vol. 99, No. 4, p. 740, 
1991.
---------------------------------------------------------------------------

    FDA's justification of this regulation relies on the total costs 
associated with childhood addiction to tobacco, rather than on the 
external or spillover costs to nonusers. Nevertheless, a further market 
failure would exist if the use of tobacco imposed such costs on 
nonusers. Many studies have attempted to calculate the societal costs 
of smoking, but few have addressed these externalities. The most 
detailed research on the issue of whether smokers pay their own way is 
the 1991 study by Manning, et al., \277\ which develops estimates of 
the present value of the lifetime external costs attributable to 
smoking. This study examines differences in costs of collectively 
financed programs for smokers and nonsmokers, while simultaneously 
controlling for other personal characteristics that could affect these 
costs (e.g., age, sex, income, education, and other health habits, 
etc.). The authors found that nonsmokers subsidize smokers' medical 
care, but smokers (who die at earlier ages) subsidize nonsmokers' 
pensions. On balance, they calculated that, before accounting for 
excise taxes, smoking creates net external costs of about $0.15 per 
pack of cigarettes in 1986 dollars ($0.33 per pack adjusted to 1995 
dollars by the medical services price index). While acknowledging that 
these estimates ignored external costs associated with lives lost due 
to passive smoking, perinatal deaths due to smoking during pregnancy, 
and deaths and injuries caused by smoking-related fires, the authors 
concluded that there is no net externality, because the sum of all 
smoking-related externalities is probably less than the added payments 
imposed on smokers through current Federal and State cigarette excise 
taxes. A Congressional Research Service Report to Congress concurred 
with the study's conclusion, \278\ although many uncertainties remain 
regarding the potential magnitude of the omitted cost elements.
---------------------------------------------------------------------------

    \277\ Manning, W. G., E. B. Keeler, J. P. Newhouse, E. M. Sloss, 
and J. Wasserman, ``The Costs of Poor Health Habits, A RAND Study,'' 
Harvard University Press, Cambridge, MA, 1991.
    \278\ Gravelle, J. G., and D. Zimmerman, ``CRS Report for 
Congress: Cigarette Taxes to Fund Health Care Reform: An Economic 
Analysis,'' Congressional Research Service, p. 1, March 8, 1994.
---------------------------------------------------------------------------

C. Regulatory Benefits

1. Prevalence-Based Studies
    The benefits of the regulation include the costs that would be 
avoided by reducing the adverse health effects associated with the 
consumption of tobacco products. Most research on the costs of smoking-
related illness has concentrated on the medical costs and productivity 
losses associated with the prevalence of death and illness in a given 
year. These prevalence-based studies typically measure three 
components: (1) The contribution of smoking to annual levels of illness 
and death, (2) the direct costs of providing extra medical care, and 
(3) the indirect costs, or earnings foregone due to smoking-related 
illness or death. \279\
---------------------------------------------------------------------------

    \279\ See ``Smoking and Health in the Americas: A 1992 Report of 
the Surgeon General in collaboration with the Pan American Health 
Organization,'' Department of Health and Human Services (DHHS), 
Public Health Service (PHS), CDC, National Center for Chronic 
Disease Prevention and Health Promotion (NCCDPHP), Office on Smoking 
and Health (OSH), pp. 105-112, 1992, (hereinafter referred to as 
``1992 SGR'') for a full summary of these methodologies and 
findings.
---------------------------------------------------------------------------

    In a recent statement, the former U.S. Office of Technology 
Assessment (OTA) declared that ``the greatest 'costs' of smoking are 
immeasurable insofar as they are related to dying prematurely and 
living with debilitating smoking-related chronic illness with attendant 
poor quality of life.'' Nonetheless, OTA calculated that in 1990 the 
national cost of smoking-related illness and death amounted to $68 
billion and included $20.8 billion in direct health care costs, $6.9 
billion in indirect morbidity costs, and $40.3 billion in lost future 
earnings from premature death. \280\ More recently, the CDC estimated 
the 1993 smoking-attributable costs for medical care, alone, at $50 
billion. \281\ Unfortunately, these prevalence-based studies do not 
answer many of the most important questions related to changes in 
regulatory policy, because they present the aggregate cost of smoking-
related illness in a single year, rather than the lifetime cost of 
illness for an individual smoker. As noted in the 1992 Report of the 
Surgeon General, most prevalence-based studies fail to consider issues 
concerning ``the economic impact of decreased prevalence of cigarette 
smoking, the length of time before economic effects are realized, the 
economic benefits of not smoking, and a comparison of the lifetime 
illness costs of smokers with those of nonsmokers.'' \282\ In effect, 
although these studies are designed to measure the smoking-related draw 
on societal resources, they are not well-suited for analyzing the 
consequences of regulation-induced changes in smoking behavior.
---------------------------------------------------------------------------

    \280\ Statement of Clyde Behney and Maria Hewitt on Smoking-
Related Deaths and Financial Costs: Office of Technology Assessment 
Estimates for 1990 Before the Senate Finance Committee, p. 2, April 
28, 1994.
    \281\ ``Medical-Care Expenditures Attributable to Cigarette 
Smoking--United States, 1993,'' in Morbidity and Mortality Weekly 
Reports (MMWR), CDC, DHHS, vol. 43, No. 26, pp. 469-472, July 8, 
1994.
    \282\ 1992 SGR, p. 111.
---------------------------------------------------------------------------

2. FDA's Methodology
    An alternative methodology, termed incidence-based research, 
compares the lifetime survival probabilities and expenditure patterns 
for smokers and nonsmokers. As this approach models the individual 
life-cycle consequences of tobacco consumption, FDA relied on these 
incidence-based studies for its original analysis of the proposed rule 
to value the beneficial effects of the rule over the lifetime of each 
new cohort of potential smokers. The methodology incorporates the 
following steps:
 A projection of the extent to which the rule will reduce the 
incidence, or the annual number, of new adolescent users of tobacco 
products;
 A projection of the extent to which the reduced rates of 
adolescent tobacco consumption will translate to reduced rates of 
lifetime tobacco consumption;
 A projection of the extent to which the reduced rates of 
lifetime tobacco consumption will decrease the number of premature 
deaths and lost life-years; and
 An exploration of various means of estimating the monetary 
value of the expected health improvements.

[[Page 44573]]

    The annual benefits of the 1995 proposed rule were measured as the 
present value of the lifetime benefits gained by those youngsters, who 
in the absence of the proposed regulation, would have become new 
smokers. Upon review of the public comments, FDA found none that would 
persuade the agency to revise its projections. In general, the relevant 
comments expressed no objection to the basic methodology or model, but 
some disputed the accuracy of the specific data estimates. The 
following paragraphs describe the FDA assumptions that underlie these 
benefit estimates and present the agency's response to the applicable 
public comments.
3. Reduced Incidence of New Young Smokers
    FDA's preliminary analysis assumed that 1 million youngsters become 
new smokers each year. One trade association comment questioned this 
figure, asserting that the relevant studies included individuals over 
the age of 18. However, the 1985 National Health Interview Survey 
reported 1.08 million 20-year old smokers, and the Combined National 
Health Interview Surveys for 1987-1988 found that 92 percent of 20-year 
old smokers had started smoking by age 18. Taking 92 percent of 1.08 
million yields 993,600 new underage smokers per year. This figure is 
supported by parallel estimates of the SAMHSA. Based on data from the 
1994 National Household Survey on Drug Abuse, SAMHSA estimated that 
1.29 million persons under age 20 became daily smokers in 1993, and 
that 1.1 million of these persons were under the age of 18. As a 
result, FDA retains confidence in its original estimate of 1 million 
new smokers per year.
    The regulation targets youngsters by restricting youth access to 
tobacco products and by limiting advertising activities that affect 
adolescents. Several communities have demonstrated that access 
restrictions are extremely effective when vigorously applied at the 
local level. Woodridge, IL, for example, achieved a compliance rate of 
over 95 percent. Moreover, 2 years after that law was enacted, a survey 
of 12- to 14-year-old students indicated that overall smoking rates 
were down by over 50 percent (over 2/3 for regular smokers). \283\
---------------------------------------------------------------------------

    \283\ Jason, L. A., P. Y. Ji, M. D. Anes, and S. H. Birkhead, 
``Active Enforcement of Cigarette Control Laws in the Prevention of 
Cigarette Sales to Minors,'' The Journal of the Amercian Medical 
Association (JAMA), vol. 266, No. 22, p. 3159, December 11, 1991.
---------------------------------------------------------------------------

    Advertising and promotional restrictions will augment these efforts 
to limit the attractiveness of tobacco products to underage consumers. 
As discussed in detail in section VI. of this document, no one study 
has definitively quantified the precise impact of advertising or of 
advertising restrictions. Nevertheless, much of the relevant research 
indicates that advertising restrictions will reduce consumer demand. 
For example, according to the 1989 report of the Surgeon General, ``The 
most comprehensive review of both the direct and indirect mechanisms 
concluded that the collective empirical, experiential, and logical 
evidence makes it more likely than not that advertising and promotional 
activities do stimulate cigarette consumption.'' \284\ Similarly, after 
a careful examination of available studies, Clive Smee, Chief Economic 
Adviser to the United Kingdom Department of Health determined that, 
``the balance of evidence thus supports the conclusion that advertising 
does have a positive effect on consumption.'' \285\ A detailed 
evaluation of the effects of advertising on youth consumption of 
tobacco products is provided in section VI. of this document.
---------------------------------------------------------------------------

    \284\ DHHS, ``Reducing the Health Consequences of Smoking: 25 
Years of Progress,'' A Report of the Surgeon General, U.S. 
Department of Health and Human Services, Public Health Service, 
Centers for Disease Control, National Center for Chronic Disease 
Prevention and Health Promotion, Office on Smoking and Health, DHHS 
publication No. (CDC) 89-8411, p. 517, 1989 (the 1989 SGR).
    \285\ Leaney, K., ``Effect of Tobacco Advertising on Tobacco 
Consumption: A Discussion Document Reviewing the Evidence,'' 
Economics and Operational Research Division, Department of Health, 
London, p. 22, October 1992.
---------------------------------------------------------------------------

    In Northern California, 24 cities and unincorporated areas in 5 
counties adopted local youth tobacco access ordinances that prohibit 
self-service merchandising and point-of-sale tobacco promotional 
products in retail stores. Survey measures of the impact of these 
ordinances by the Stop Tobacco Access for Minor Project (STAMP) found 
that, on average, tobacco sales to minors dropped by 40 to 80 percent. 
\286\
---------------------------------------------------------------------------

    \286\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to 
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring only Vendor-Assisted Tobacco 
Sales,'' North Bay Health Resources Center, Stop Tobacco Access to 
Minors Program (STAMP), Petaluma, CA, p. 4, November 3, 1994.
---------------------------------------------------------------------------

    In its analysis of the 1995 proposed rule, FDA argued that, while 
quantitative estimates of the effectiveness of its regulation cannot be 
made with certainty, comprehensive programs designed to discourage 
youthful tobacco consumption could reasonably achieve the ``Healthy 
People 2000'' goal of halting the onset of smoking for at least half, 
or 500,000, of the 1,000,000 youngsters who presently start to smoke 
each year. In the Federal Register of January 19, 1996 (61 FR 1492) 
SAMHSA published a regulation governing a program of State-operated 
enforcement activities that would restrict the sale or distribution of 
tobacco products to individuals under 18 years of age. SAMHSA had 
originally estimated that its program would reduce tobacco consumption 
by youth and children by from one-third to two-thirds, but subsequently 
determined that reductions of between one-tenth and one-third would be 
``more realistic given the uncertainties implicit in varying levels of 
State enforcement and the absence of meaningful controls on tobacco 
advertising and promotion.'' \287\ While strongly supporting the 
objectives of the SAMHSA program, FDA finds that achieving the 
``Healthy People 2000'' goal will demand a full arsenal of controls to 
complement and fortify the new State inspectional programs, including 
restrictions on industry advertising and promotions and quite possibly 
educational messages to counter the influence of ongoing marketing 
activities.
---------------------------------------------------------------------------

    \287\ 61 FR 1502, January 19, 1996.
---------------------------------------------------------------------------

    Numerous public comments to the 1995 proposal addressed the issue 
of the effectiveness of the regulation. Many argued that tobacco 
advertising does not increase tobacco use, or that the enforcement of 
existing or forthcoming State laws, alone, could accomplish reasonable 
goals. In contrast, many others supported a comprehensive regulation, 
contending that only vigorous enforcement of new restrictions would 
bring significant results. As outlined earlier in the preamble in this 
document, FDA has determined, based on a full examination of the 
evidence, that the combined effect of the regulations (restricting 
advertising and promotion, prohibiting self-service sales, providing 
new labeling information, and imposing age verification obligations) 
and educational programs will significantly diminish the allure as well 
as the access to tobacco products by youth. The agency acknowledges the 
imposing size of the required effort, but is confident that its goals 
are reasonable and presents regulatory benefits based on the 
presumption that the ``Healthy People 2000'' goals will be met.

[[Page 44574]]

    FDA agrees, however, that these projections are uncertain and 
therefore also presents estimates of benefits at effectiveness levels 
that are considerably smaller. The agency conducted this exercise not 
because its estimates are excessively speculative or arbitrary, as 
suggested by one comment, but because sensitivity analyses are part of 
generally accepted ``best practice'' for the conduct of cost-benefit 
analysis and are recommended by OMB guidance. These results demonstrate 
that even if the rule were only modestly effective in reducing tobacco 
use, it yields justifiable benefits.
    One comment urged the agency to demonstrate the effectiveness of 
tobacco marketing restrictions over and above those for access 
restrictions or public information campaigns. FDA is unable to forecast 
the independent results of each regulatory provision, due to the high 
degree of interdependence among the various requirements, but notes 
that SAMHSA concluded that its access restrictions, alone, would reduce 
underage tobacco consumption by one-tenth to one-third. If so, 
accomplishing the ``Healthy People 2000'' goal implies that the FDA 
rule would generate incremental tobacco use reductions of between 17 
and 40 percent for youngsters under 18 years of age.
4. Reduced Number of Adult Smokers
    The major beneficiaries of the rule are those individuals who would 
otherwise begin using tobacco early in life and who, accordingly, are 
unlikely to start using tobacco products as an adult. Evidence suggests 
that this percentage will be high, as over half of adult smokers had 
become daily cigarette smokers before the age of 18. Moreover, the 1994 
Surgeon General's Report indicates that 82 percent of persons (aged 30 
to 39) who ever smoked daily began to smoke before the age of 18. That 
report concludes that ``if adolescents can be kept tobacco-free, most 
will never start using tobacco.'' \288\ Although some comments 
disagreed with that conclusion, FDA believes that the Surgeon General's 
Report is correct. Nonetheless, to account for the possibility that 
some would-be smokers who are prevented from smoking until they are age 
18 may eventually start smoking as adults, FDA uses the more 
conservative assumption that these rules will lead to a tobacco free 
adult life for only one-half of the estimated 500,000 youngsters who 
will be deterred from starting to smoke each year. Accordingly, FDA 
calculates the annual benefits from the lifetime health gains 
associated with preventing 250,000 adolescents from ever smoking as an 
adult. Further, in response to comments that challenge this estimate, 
FDA presents sensitivity analysis showing results using a wide range of 
alternative rates.
---------------------------------------------------------------------------

    \288\ 1994 SGR, pp. 5 and 65.
---------------------------------------------------------------------------

5. Lives Saved
    Based largely on data from Peto, et al., who found that about half 
of all adolescents who continue to smoke regularly throughout their 
lives will eventually die from a smoking-related disease, \289\ CDC 
estimates that about one in three adolescent smokers will die 
prematurely. \290\ Although the CDC projection provides the best 
estimate of this excess fatality rate, it does not provide a 
distribution of the smoking-related fatalities over time. Consequently, 
FDA derived this distribution by comparing age-specific differences in 
the probability of survival for smokers and nonsmokers. The probability 
of survival data for the agency's estimate are derived from the 
American Cancer Society's Cancer Prevention Study II, as shown in Table 
3.
---------------------------------------------------------------------------

    \289\ Peto, R., A. D. Lopez, J. Boreham, M. Thun, and C. Heath, 
Jr., ``Mortality from Smoking in Developing Countries, 1950-2000,'' 
Oxford University Press, p. A10, 1994. Indirect estimates from 
national vital statistics.
    \290\ Memorandum from Michael P. Eriksen (CDC) to Catherine 
Lorraine (FDA) August 7, 1995 and CDC Fact Sheet; citing Pierce, J. 
P., M. C. Fiore, T. E. Novotny, E. J. Hatziandreu, and R. M. Davis, 
``Trends in Cigarette Smoking in the United States: Projections to 
the Year 2000,'' JAMA, vol. 261, pp. 61-65, 1989; Unpublished data 
from the 1986 National Mortality Followback Survey, CDC, OSH; Peto, 
R., A. D. Lopez, J. Boreham, M. Thun, and C. Heath, ``Mortality from 
Smoking in Developed Countries, 1950-2000: Indirect Estimates from 
national Vital Statistics,'' Oxford University Press, Oxford, 1994.

    TABLE 3.--PROBABILITY OF SURVIVAL BY AGE, SEX, AND SMOKING STATUS   
         (Probabilities of a 17-year-old surviving to age shown)        
------------------------------------------------------------------------
                                                                 Female 
    Age (Years)          Male        Male All       Female        All   
                     Neversmokers     Smokers    Neversmokers   Smokers 
------------------------------------------------------------------------
35................            1             1             1            1
45................        0.986         0.966         0.988        0.984
55................        0.951         0.893         0.962        0.939
65................        0.867         0.733         0.901        0.831
75................        0.689         0.466         0.760        0.630
85................        0.336         0.159         0.453        0.289
------------------------------------------------------------------------
Source: Thomas Hodgson, ``Cigarette Smoking and Lifetime Medical        
  Expenditures,'' The Milbank Quarterly, vol. 70, No. 1, 1992, p. 91.   
  Based on data from the American Cancer Society's Cancer Prevention    
  Study II.                                                             

    FDA initially multiplied differences in the probabilities of death 
for smokers versus nonsmokers within each 10-year period by the number 
of smokers remaining at the start of each 10-year period. Assuming an 
equal number of males and females, the excess deaths among smokers in 
all age groups totaled almost 28 percent of the 250,000 cohort. FDA 
recognizes that this methodology probably understates the current risk 
of smoking, because it arbitrarily assumes that the smoking-related 
risks for females will continue to be smaller than for males, even 
though female smoking patterns are presently comparable to those of 
males. Nevertheless, FDA used this model to support its proposed 
regulation and maintains the calculation to demonstrate the robustness 
of the results. Moreover, because some comments suggested that these 
data may not account for all potentially confounding variables, such as 
alcohol consumption or other lifestyle differences, FDA further 
adjusted the mortality estimate to 24 percent to reflect findings by 
Manning et al., that such nontobacco versus tobacco lifestyle factors 
may account for 13 percent of excess medical care expenditures. Thus, 
the benefits projections presented below conservatively rely on the 
probabilities

[[Page 44575]]

shown in Table 3, corrected by the 13 percent lifestyle influence 
adjustment. In sum, they indicate that achieving the ``Healthy People 
2000'' performance goal will prevent about 60,200 smoking-related 
fatalities among each year's cohort of potential new smokers.
    The economic assessment of health-related variables requires 
discounting the value of future events to make them commensurate with 
the value of present events. For this analysis, a 3 percent discount 
rate is used to calculate the present value of the projections. (This 
rate was recommended by the Panel on Cost-Effectiveness in Health and 
Medicine, a nonfederal multidisciplinary group of experts in cost-
effectiveness analysis, convened by the Office of the Assistant 
Secretary for Health in 1993. \291\ Since the Office of Management and 
Budget (OMB) Circular A-94 recommends the use of 7 percent as a base 
case, FDA presents summary estimates below for discount rates of both 3 
percent and 7 percent.) On the assumption that it would be roughly 20 
years for each year's cohort of new adults to reach the midpoint of the 
35 to 45 age bracket and 60 years to reach the 75 to 85 age bracket, 
these calculations indicate that the present value of these benefits 
equate to 15,863 lives per year.
---------------------------------------------------------------------------

    \291\ Gold, M. R., J. E. Siegel, L. B. Russell, and M. C. 
Weinstein, ``Cost-effectiveness in Health and Medicine,'' Oxford 
University Press, p. 232, 1996.
---------------------------------------------------------------------------

6. Life-Years Saved
    The number of life-years that will be saved by preventing each 
year's cohort of 250,000 adolescents from acquiring a smoking addiction 
was calculated from the same age-specific survival differences between 
smokers and nonsmokers. In each 10-year life span, the number of years 
lived for each cohort of persons who would have been smokers but who 
were deterred was compared to the number of years that would have been 
lived by that same cohort if they had been smokers. The difference 
between these two measures is the life-years saved for that 10-year 
period. \292\ Deducting the 13-percent lifestyle adjustment indicates 
that, over the full lifetime of each cohort, the regulations will gain 
an estimated 905,000 life-years, which translates to almost 4 years per 
smoker and 15 years per life saved. \293\ The present value of these 
additional life-years equates to 211,391 life-years annually.
---------------------------------------------------------------------------

    \292\ For each 10-year age interval, the number of life-years is 
calculated as the number of people in each cohort (250,000) times 
the probability of surviving until the end of that age interval 
times 10 years of life, plus the number expected to die in that 
interval times an assumed 5 years of life.
    \293\ The calculation procedure probably understates total life-
years saved, because it misses smoking related-fatalities that occur 
within the same 10-year age interval. However, because more of these 
misses involve fatalities that, if avoided, would add few life-
years, the resulting 15-year average life-years saved may be high. 
FDA's benefit estimates, however, remain understated because they 
are based on total life-years saved, not average life-years saved.
---------------------------------------------------------------------------

7. Monetized Benefits of Reduced Tobacco Use
    There is no fully appropriate means of assigning a dollar figure to 
represent the attendant benefits of averting thousands of tobacco-
induced illnesses and fatalities. However, to quantify important 
components of the expected economic gains, FDA developed estimates of 
the value of the reduced medical costs and the increased worker 
productivity that will result from fewer tobacco-related illnesses. In 
addition, since productivity measures do not adequately address the 
avoidance of premature death, FDA adopted a willingness-to-pay approach 
to value the benefits of reduced tobacco-related fatalities.
8. Reduced Medical Costs
    On average, at any given age, smokers incur higher medical costs 
than nonsmokers. However, nonsmokers live longer and therefore continue 
to incur medical costs over more years. Several analysts have reported 
conflicting estimates of the net outcome of these factors, but the most 
recent research is the incidence-based study by Hodgson, \294\ who 
found that lifetime medical costs for male smokers were 32 percent 
higher than for male neversmokers and lifetime medical costs for female 
smokers were 24 percent higher than for female neversmokers. Hodgson 
determined that the present value of the lifetime excess costs were 
about $9,400 in 1990 dollars (future costs discounted at 3 percent). 
\295\ As noted earlier, the incidence-based study by Manning, et al., 
implies that about 13 percent of the excess medical costs were 
attributable to factors other than smoking. Accounting for this 
reduction and adjusting by the consumer price index for medical care 
raises the present value of Hodgson's excess medical cost per new 
smoker to $10,590 in 1994 dollars. Thus, those 1,000,000 young people 
under the age of 18, who currently become new smokers each year, are 
responsible for excess lifetime medical costs measured at a present 
value of $10.6 billion (1,000,000 x $10,590). Because FDA projects that 
achieving the ``Healthy People 2000'' goals will prevent 250,000 of 
these individuals from smoking as adults, the medical cost savings are 
estimated at $2.6 billion per year.
---------------------------------------------------------------------------

    \294\ Hodgson, T. A., ``Cigarette Smoking and Lifetime Medical 
Expenditures,'' The Milbank Quarterly, vol. 70, No. 1, p. 97, 1992. 
(Based on data from the American Cancer Society's Cancer Prevention 
Study II).
    \295\ Id. (Using the average of the male and female totals).
---------------------------------------------------------------------------

9. Reduced Morbidity Costs
    An important cost of tobacco-related illness is the value of the 
economic output that is lost while individuals are unable to work. 
Thus, any future reduction in such lost work days contributes to the 
economic benefits of the regulation. Several studies have calculated 
prevalence-based estimates of U.S. productivity losses due to smoking-
related morbidity, but FDA knows of no incidence-based estimates. 
Hodgson, however, has shown that, in certain situations, incidence 
measures can be derived from available prevalence measures. For 
example, he demonstrates that in a steady-state model the only 
difference between prevalence and incidence-based costs is due to 
discounting. \296\ Accordingly, FDA has adopted Hodgson's method to 
develop a rough approximation of incidence-based costs from an 
available prevalence-based estimate of morbidity costs.
---------------------------------------------------------------------------

    \296\ Hodgson, T. A., ``Annual Costs of Illness Versus Lifetime 
Costs of Illness and Implications of Structural Change,'' Drug 
Information Journal, vol. 22, No. 3, p. 329, 1988.
---------------------------------------------------------------------------

    Rice, et al., \297\ found that lost wages due to tobacco-related 
work absences in the United States amounted to $9.3 billion in 1984. 
This equates to $12.3 billion in 1994 dollars when adjusted by the 
percentage change in average employee earnings since 1984. Although FDA 
does not have a precise estimate of the life-cycle timing of these 
morbidity effects, the relevant latency periods would certainly be 
shorter than for mortality effects. Thus, to account for the deferred 
manifestation of smoking-related morbidity effects, FDA assumed that 
they would occur over a time horizon equal to 80 percent of that 
previously measured for mortality effects. Although one comment 
mistakenly assumed that FDA had made no adjustment for lifestyle 
differentials between smokers and nonsmokers, in fact, these estimates 
were further

[[Page 44576]]

reduced by 13 percent to reflect the Manning, et al., findings. 
Finally, because the long-term decline in smoking prevalence has 
exceeded the growth in population, FDA reduced the incidence-based 
costs by another 20 percent. At a 3 percent discount rate, this 
methodology implies that the incidence-based cost of smoking-related 
morbidity, or the present value of the future costs to 1 year's cohort 
of 1,000,000 new smokers, is about $3.5 billion. Thus, the estimated 
annual morbidity-related savings associated with preventing 250,000 new 
youths per year from smoking as adults is estimated at about $879 
million.
---------------------------------------------------------------------------

    \297\ Rice, D. P., et al., ``The Economic Costs of the Health 
Effects of Smoking, 1984,'' The Milbank Quarterly, vol. 64, No. 4, 
p. 526, 1986.
---------------------------------------------------------------------------

10. Benefits of Reduced Mortality Rates
    From a societal welfare perspective, OMB guidance advises that the 
best means of valuing benefits of reduced fatalities is to measure the 
affected group's willingness-to-pay to avoid fatal risks. 
Unfortunately, the specific willingness-to-pay of smokers is unknown, 
because institutional arrangements in the markets for medical care 
obscure direct measurement techniques. \298\ Nevertheless, many studies 
have examined the public's willingness-to-pay to avoid other kinds of 
life-threatening risks, especially workplace and transportation 
hazards. An EPA-supported study \299\ found that most empirical results 
support a range of $1.6 to $8.5 million (in 1986 dollars) per 
statistical life saved, which translates to $2.2 to $11.6 million in 
1994 dollars. However, the uncertainty surrounding such estimates is 
substantial. Moreover, Viscusi has shown that smokers, on average, may 
be willing to accept greater risks than nonsmokers. For example, 
smokers may accept about one-half the average compensation paid to face 
on-the-job-injury risks. \300\ FDA therefore has conservatively used 
$2.5 million per statistical life, which is towards the low end of the 
research findings, to estimate society's willingness-to-pay to avert a 
fatal smoking-related illness. Thus, the annual benefits of avoiding 
the discounted number of 15,863 premature fatalities would be $39.7 
billion.
---------------------------------------------------------------------------

    \298\ Schelling, T. C., ``Economics and Cigarettes,'' Preventive 
Medicine, vol. 15, pp. 549-560, 1986.
    \299\ Fisher, A., L. G. Chestnut, and D. M. Violette, ``The 
Value of Reducing Risks of Death: A Note on New Evidence,'' Journal 
of Policy Analysis and Management, vol. 8, No. 1, pp. 88-100, 1989.
    \300\ Viscusi, W. K., ``Fatal Tradeoffs: Public and Private 
Responsibilities for Risk,'' Oxford University Press, p. 24, 1992.
---------------------------------------------------------------------------

    An alternative method of measuring willingness-to-pay is to 
calculate a value for each life-year saved. This approach is 
intuitively appealing because it places a greater value on the 
avoidance of death at a younger than at an older age and is the 
traditional means of assessing the cost-effectiveness of medical 
interventions. Nevertheless, there have been few attempts to determine 
the appropriate value of a life-year saved. OMB suggests several 
methodologies, including annualizing with an appropriate discount rate 
the estimated value of a statistical life over the average expected 
life-years remaining. For example, at a 3-percent discount rate, a $2.5 
million value per statistical life for an individual with 35 years of 
remaining life-expectancy converts to about $116,500 per life year. 
Since achieving the agency's goals were estimated to save 211,391 
discounted life-years annually, this calculation yields annual benefits 
of $24.6 billion.
    FDA notes that even these values understate the full value of the 
health impact, because they fail to quantify any reduction in either 
the adverse effects attributable to passive smoking or the infant and 
child fatalities caused by mothers' smoking. Moreover, these totals may 
not capture the heavy toll of psychic loss to surviving family members, 
or the corresponding economic losses among family members for the 
mental health care of grief-related depression and other conditions 
that often follow the premature death of middle aged adults. \301\
---------------------------------------------------------------------------

    \301\ Harris, M., ``The Loss That is Forever The Lifelong Impact 
of the Early Death of a Mother or Father,'' Penguin Books, 1995.
---------------------------------------------------------------------------

11. Reduced Fire Costs
    Every year lighted tobacco products are responsible for starting 
fires which cause millions of dollars in property damage and thousands 
of casualties. In 1992, fires started by lighted tobacco products 
caused 1,075 deaths and $318 million in direct property damage. \302\ A 
reduction in the number of smokers, and the corresponding number of 
cigarettes smoked, will result in a drop in the number of future fires. 
In the 1995 proposal, FDA estimated that if the number of fires falls 
by the same percentage as the expected reduction in cigarette sales, 
this implies present value savings of $203 million for the value of 
lives saved and $24 million for the value of averted property damage, 
totaling $227 million annually over a 40-year period.
---------------------------------------------------------------------------

    \302\ Miller, A. L., ``The U.S. Smoking-Material Fire Problem 
Through 1992: The Role of Lighted Tobacco Products in Fire,'' 
National Fire Protection Association, p. 2, 1994.
---------------------------------------------------------------------------

    One comment denied the existence of any association between fires 
and cigarette consumption. FDA acknowledges that the relationship may 
be nonlinear, but finds the asserted lack of a positive correlation 
implausible. This comment further stated that residential fires caused 
by smoking and deaths from residential fires caused by smoking 
decreased from 1983 to 1992 by 39 percent and 40 percent, respectively, 
or about 5.5 percent annually. Accounting for this trend would lower 
FDA's fire cost estimate to a present value savings of $145 million for 
the value of lives saved and $17 million for the value of averted 
property damage, totaling $162 million annually over a 40-year period. 
Even these estimated savings significantly underestimate the potential 
benefits, however, because they exclude both nonfatal injuries and the 
need for temporary housing.
12. Smokeless Tobacco
    The Smokeless Tobacco Council, Inc., remarked that FDA had not 
attempted to measure the benefits that would result from the decreased 
use of smokeless tobacco products by underage youths. The introduction 
to the 1995 proposed regulation, however, explained that the use of 
smokeless tobacco causes severe health effects. While data are not 
available on age-specific differences in the probability of survival 
for smokeless tobacco users as compared to nonusers, the 1994 Surgeon 
General Report indicates that the ``primary health consequences during 
adolescence include leukoplakia, gum recession, nicotine addiction, and 
increased risk of becoming a cigarette smoker. Leukoplakia and/or gum 
recession occur in 40 to 60 percent of smokeless tobacco users.'' \303\ 
Oral leukoplakias have a 5-percent chance of becoming malignancies in 5 
years. \304\ Cancers of the nasal cavity, pharynx, larynx, esophagus, 
stomach, urinary tract and pancreas have also been linked to smokeless 
tobacco use. \305\ Other effects include discoloration of teeth, 
periodontal disease and excessive tooth wear and decay. \306\ One study 
of female snuff users showed that it increased one's risk of developing 
oral and

[[Page 44577]]

pharyngeal cancer between 1.5 to 4.2 times. \307\
---------------------------------------------------------------------------

    \303\ 1994 SGR, p.39.
    \304\ Id.
    \305\ Goolsby, M. J., ``Smokeless Tobacco: The Health 
Consequences of Snuff and Chewing Tobacco'', Nurse Practitioner, 
vol. 17, No. 1, p. 31, January 1992.
    \306\ Id.
    \307\ Winn, D. M., W. J. Blot, C. M. Shy, L. W. Pickle, A. 
Toledo, and J. F. Fraumeni, ``Snuff Dipping and Oral Cancer Among 
Women in the Southern United States,'' The New England Journal of 
Medicine, vol. 304, No. 13, pp. 745-749, Table 2, March 26, 1981.
---------------------------------------------------------------------------

    If the provisions pertaining to smokeless tobacco are as effective 
as those pertaining to cigarettes, the rule will prevent about 36,500 
youths from becoming adult users of smokeless tobacco. This projection 
assumes that the number of underage users will decrease by 50 percent 
and one-half of those youths will remain nonusers after reaching 18 
years of age. The estimate also assumes that the ratio of new underage 
users to total underage users parallels that of cigarette users (i.e., 
approximately one-third) and that about 440,000 youths under the age of 
18 are current users of smokeless tobacco products. \308\
---------------------------------------------------------------------------

    \308\ Estimates of youth smokeless usage vary. This projection 
relies on a conservative estimate of total youth (ages 12-17) usage 
calculated from data in the Statistical Abstract of the U.S. 1995, 
115th edition, Tables 16 and 218.
---------------------------------------------------------------------------

    Leukoplakia and/or gum recession are estimated to occur in 40 to 60 
percent of smokeless users. \309\ If even 50 percent of these cases 
were caused by smokeless tobacco use, the previous assumptions imply 
that these regulations will prevent from 7,300 to 11,000 cases of 
leukoplakia and/or gum recessions per year. Although FDA can not 
estimate the number of oral or other cancers prevented, the realized 
number will be substantial.
---------------------------------------------------------------------------

    \309\ 1994 SGR, p.39.
---------------------------------------------------------------------------

13. Summary of Benefits
    The discussion above demonstrates the formidable magnitude of the 
economic benefits available from smoking reduction efforts. As 
described, FDA forecasts annual net medical cost savings of $2.6 
billion and annual morbidity-related productivity savings of $900 
million. From a willingness-to-pay perspective, the annual benefits of 
reduced smoking-related disease mortality range from $24.6 to $39.7 
billion. As a result, the value of the annual disease-related benefits 
of achieving the ``Healthy People 2000'' goal is projected to range 
from $28.1 to $43.2 billion. (Following Hodgson, this analysis uses a 
3-percent discount rate. A 7-percent rate reduces these benefits to a 
range of $9.2 to $10.4 billion). These totals do not include the 
benefits expected from fewer fires (over $160 million annually), 
reduced passive smoking, or infant death and morbidity associated with 
mothers' smoking. Moreover, while FDA believes these effectiveness 
projections are plausible, much lower rates still yield impressive 
results. Table 1c of this section summarizes the disease-related health 
benefits and illustrates that youth deterrence rates as small as 1/20, 
which would prevent the adult addiction of at least 25,000 of each 
year's cohort of 1,000,000 new adolescent smokers, would provide annual 
benefit values measured in the billions of dollars. Moreover, the 
higher risk estimates suggested by Peto, et al., could significantly 
increase these values. In addition, while FDA could not quantify the 
benefits that will result from the projected decline in the use of 
smokeless tobacco, they would be considerable.

D. Regulatory Costs

    A recently issued guideline for conducting economic analysis of 
Federal regulations, prepared under the auspices of OMB, states that:
    [T]he preferred measure of cost is the ``opportunity cost'' of 
the resources used or the benefits foregone as a result of the 
regulatory action. Opportunity costs include, but are not limited 
to, private-sector compliance costs and government administrative 
costs. Opportunity costs also include losses in consumers' or 
producers' surpluses, discomfort or inconvenience, and loss of time 
* * *. An important, but sometimes difficult, problem in cost 
estimation is to distinguish between real costs and transfer 
payments. Transfer payments are not social costs but rather are 
payments that reflect a redistribution of wealth. While transfers 
should not be included in the [Economic Analyses'] estimates of the 
benefits and costs of a regulation, they may be important for 
describing the distributional effects of a regulation. \310\
---------------------------------------------------------------------------

    \310\ Economic Analysis of Federal Regulations Under Executive 
Order 12866, January 11, 1996. Prepared by interagency group 
convened by OMB and co-chaired by a Member of the Council of 
Economic Advisers.
---------------------------------------------------------------------------

    Accordingly, FDA finds that the final rule will impose new cost 
burdens on manufacturers, retailers, consumers, and Government 
regulators of tobacco products. In addition, certain industry sectors 
will experience lost sales and employment, but these revenue losses 
will be at least partly offset by gains to other sectors, as discussed 
in the ``Distributional Effects'' section of this document. \311\ While 
a number of industry comments argued that the agency's preliminary 
analysis was deficient for not including these lost revenues in its 
cost-benefit assessment, FDA finds that the revenue losses suggested by 
these comments do not meet the previous definition of ``opportunity 
cost;'' because they fail to provide the changes in net costs that are 
necessary to estimate producer surplus, conventionally defined as sales 
minus variable costs. This rule will affect producer surplus in several 
industries and only net changes in these surplus' are social costs. 
Calculating such changes would require a multi-market model of economic 
changes over many years. Such general equilibrium models have not been 
used by Federal agencies for regulatory analyses, are not specifically 
recommended by the OMB guidance, and would be impractical to use, 
especially where major markets are dominated by few firms.
---------------------------------------------------------------------------

    \311\ This analysis evaluates the regulation following the 
Kaldor-Hicks criteria for societal welfare maximization.
---------------------------------------------------------------------------

    The most comprehensive critique of FDA's preliminary economic 
analysis was prepared by the Barents Group, economic consultants to the 
Tobacco Institute. While the Barents Group developed independent 
estimates of economic costs, in many instances its methodology was 
consistent with FDA's analysis of its 1995 proposal. Often, however, 
the Barents Group had access to more recent data, or to additional data 
provided by the affected industries. FDA's revised cost estimates rely 
extensively on these new data, but as described below, the agency's 
final cost estimates are far smaller than those presented by the 
Barents Group.
1. Number of Affected Retail Establishments
    A critical variable underlying the agency's cost estimates is the 
number of retail outlets currently selling over-the-counter (OTC) 
tobacco products. A major confounding factor is that the U.S. Census 
publishes product line data only for establishments with payroll. For 
its original estimate of the number of retail establishments selling 
tobacco products, FDA relied on 1987 Census data to count the number of 
affected payroll establishments and very conservatively included every 
nonpayroll establishment in those categories that traditionally sell 
tobacco products (general merchandise stores, grocery stores, service 
stations, eating and drinking places, drug stores, and liquor stores). 
FDA estimated that the number of establishments selling tobacco 
products OTC included 275,000 payroll establishments and 215,000 
nonpayroll establishments, for a total of 490,000 retail 
establishments. To account for all other business categories that might 
sell

[[Page 44578]]

OTC tobacco products, FDA estimated a total upper bound range of 
600,000 establishments. FDA did not know how many locations currently 
served by cigarette vending machines would convert to OTC operations 
following implementation of the regulation, but estimated the number at 
100,000, raising the upper bound total to 700,000 future 
establishments.
    FDA still has no definitive estimate of the number of retail 
outlets selling tobacco products. For their economic analysis, the 
Barents Group used 1992 U.S. Census estimates for the number of 
affected retail establishments with payroll, but adopted an alternative 
methodology to estimate the number of affected establishments without 
payroll. The Barents Group subdivided retail businesses into 10 
categories: General merchandise stores, supermarket/grocery stores, 
convenience stores without gas, convenience stores with gas, gasoline 
service stations, eating places, drinking places, drug and proprietary 
stores, specialty tobacco stores, and miscellaneous retail stores. 
Within each category, the Barents Group assumed that the percentage of 
nonpayroll establishments selling tobacco products would be the same as 
the percentage of payroll establishments selling tobacco products. As a 
result, they concluded that the number of retail payroll establishments 
selling tobacco products OTC is approximately 283,000, and the number 
of retail nonpayroll establishments selling tobacco products OTC is 
about 107,000, for a total of 390,000 retail outlets. The Barents 
Group's subsequent calculations are less clear and not documented in 
their appendix on methodology. Noting that FDA had estimated an upper 
bound of 600,000 establishments selling OTC tobacco products, they 
assumed the existence of an additional 100,000 to 200,000 nonretail 
establishments, such as operations within manufacturing or service 
businesses, that sell OTC tobacco products. Finally, the Barents Group 
accepted FDA's estimate that about 100,000 current vending machine 
locations would convert to OTC sales for tobacco products and proposed 
total lower and upper bound estimates of from 500,000 to 700,000 
establishments.
    For this final economic analysis, FDA adopts the apparent mid-point 
of the Barents Group's forecast of the number of establishments that 
will sell tobacco products, or about 500,000 current establishments and 
a total of 600,000 future establishments. FDA estimates by business 
category are displayed in Table 4 and follow closely the methodology 
presented by the Barents Group, except for slight adjustments to 
eliminate nonstore outlets. Because Census data on the number of 
establishments without payroll were not reported separately for 
convenience stores, convenience stores with gas, or specialty tobacco 
stores, these outlets are counted with the higher level outlet 
categories.
2. Removing Self-Service and Other Prohibited Retail Displays
    The 1995 proposed regulation restricted all point of purchase 
advertising to ``text only'' and banned the use of all self-service 
displays by requiring vendors to physically provide the regulated 
tobacco product to purchasers. In its original analysis, FDA explained 
that the proposed ban on self-service displays would affect many retail 
stores selling tobacco products, although shoplifting concerns had 
already caused a large number of these stores to place tobacco products 
in areas not directly accessible to customers. Those retailers that 
discontinued self-service displays typically modified their stores by 
either: (1) Placing tobacco products behind or above store cashiers or 
in locked cases located within close reach of store cashiers, (2) 
placing tobacco products behind only one or two checkout lines, similar 
to the ``cash only'' or ``less than 10 items'' lines commonly found in 
supermarkets, (3) dispensing tobacco products from a controlled area of 
the store, where store employees also conduct other administrative or 
customer-service tasks, or (4) installing a signaling system, whereby 
assigned store clerks bring requested tobacco products to individual 
checkout stations. Each store's physical configuration dictates the 
most cost-effective approach, but at least one regional survey found 
that retail outlets readily complied with comparable local ordinances 
without architectural remodeling or substantial refitting of checkout 
counters or store aisles. \312\
---------------------------------------------------------------------------

    \312\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to 
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring only Vendor-Assisted Tobacco 
Sales,'' North Bay Health Resources Center, Stop Tobacco Access for 
Minors Project (STAMP), Petaluma, CA, p. 5, November 3, 1994.

[[Page 44579]]



                                                TABLE 4.--ESTIMATED NUMBER OF ESTABLISHMENTS CURRENTLY SELLING TOBACCO PRODUCTS OVER-THE-COUNTER                                                
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Percentage of Retail       Number of Retail                                Estimated Number of       Estimated Total of  
                                                Number of Retail       Establishments with      Establishments with     Total Number of Retail   Retail Establishments    Establishments Selling
             Kind of Business                 Establishments with    Payroll Selling Tobacco  Payroll Selling Tobacco   Establishments without  without Payroll Selling   Tobacco Products Over-
                                                    Payroll                  Products                 Products                 Payroll            Tobacco Products(j)         the-Counter(k)    
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                (1)                      (2)                      (3)                      (4)                      (5)                      (6)
Retail Establishments:                                                                                                                                                                          
  General Merchandise                                        34,606                   35.01%                   12,117               28,010 (f)                    9,807                   21,924
  Supermarket/Grocery                                    126,785(a)                   56.19%                   71,240                97,061(g)                   54,538                  125,778
  Convenience Stores                                         30,748                   95.62%                   29,400                    - (h)                        -                   29,400
  Convenience Stores with Gas                             57,033(b)                   91.02%                   51,913                    - (h)                        -                   51,913
  Service Stations                                        71,336(c)                   53.21%                   37,958                   14,248                    7,581                   45,539
  Eating Places                                          377,760(d)                    3.17%                   11,992                   96,538                    3,065                   15,057
  Drinking Places                                            55,848                   19.24%                   10,745                   27,733                    5,336                   16,081
  Drug Stores                                                48,142                   60.33%                   29,046                    3,031                    1,829                   30,875
  Tobacco Stores                                              1,477                  100.00%                    1,477                    - (h)                        -                    1,477
  Miscellaneous Retail Stores                            273,256(e)                    9.15%                   24,995               490,633(i)                   44,879                   69,874
Other Establishments                                              -                        -                        -                        -                        -                  100,000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total                                                     1,076,991                                           280,883                  757,254                  127,035                  507,918
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(a) Category contains food stores (SIC 54) with payroll, excluding convenience food stores (SIC 541 pt) and convenience food/gasoline stores (SIC 541 pt).                                      
(b) Category contains convenience food/gasoline stores (SIC 541 pt) and gasoline/convenience food stores (SIC 554 pt).                                                                          
(c) Category excludes gasoline/convenience food stores (SIC 554 pt).                                                                                                                            
(d) Category contains eating and drinking places (SIC 58), excluding drinking places (SIC 5813).                                                                                                
(e) Category contains miscellaneous retail stores (SIC 59 ex. 591), excluding nonstore retailers (SIC 596) and tobacco stores and stands (SIC 5993).                                            
(f) 1992 Nonemployer Statistics Series only provides data on variety and miscellaneous general merchandise establishments without payroll.                                                      
(g) 1992 Nonemployer Statistics Series only provides data on grocery stores, retail bakeries, and other food stores without payroll.                                                            
(h) 1992 Nonemployer Statistics Series does not provide data on establishments without payroll for these categories.                                                                            
(i) Category contains miscellaneous retail stores (SIC 59 ex. 591), excluding nonstore retailers (SIC 596).                                                                                     
(j) Column (2) times Column (4).                                                                                                                                                                
(k) Column (3) plus Column (5).                                                                                                                                                                 
Source: Columns (1)-(4) from U.S. Census of Retail Trade Merchandise Line Sales and Nonemployer Statistics Series; Columns (5) and (6) projections according to Barents Group LLC Appendix I    
  methodology.                                                                                                                                                                                  


[[Page 44580]]


    Because prevailing business practice is for tobacco manufacturers 
to assist and even pay for most product display equipment, \313\ FDA 
had assumed that manufacturers would share with retailers any expense 
of relocating displays and that the majority of the costs would be to 
relocate self-service displays for cartons. FDA estimated one-time 
costs of $22 million to be shared by manufacturers and retailers and 
additional annual operating costs of $14 million to be incurred by 
retailers (all in 1994 dollars). In stark contrast, the Barents Group 
projected one-time costs of from $558 to $780 million in 1996 dollars 
($520 to $728 million in current dollars), with 62 percent attributed 
to the replacement of display items by retailers and the remaining 38 
percent to manufacturers due to ``time costs involved in removing 
banned display and promotional items, whether the work would be 
performed directly by a manufacturer's employee or subcontracted out to 
a display distributor.'' As explained below, FDA finds that many 
aspects of the Barents Group's estimates are seriously flawed. 
Nevertheless, the agency has adopted the basic framework of that 
analysis and its revised estimates reflect the Barents Group's 
methodology and data, unless specifically modified as discussed below.
---------------------------------------------------------------------------

    \313\ Id.
---------------------------------------------------------------------------

    a. The Barents Group's methodology. The Barents Group's cost 
projections were based on estimates of an average outlet cost for each 
of seven outlet categories. Each average outlet cost was multiplied by 
the total number of outlets of that category in the United States to 
produce national cost estimates. The actual outlet cost data were 
collected by A. T. Kearney, Inc., still another business consulting 
firm. The Barents Group explained that:
    [O]ur estimates are based on a compliance audit study conducted 
especially for this purpose by A. T. Kearney, Inc. A. T. Kearney 
performed an in-depth study of the actions and efforts that would be 
required of tobacco manufacturers' representatives, of point-of-sale 
display item distributors, and of tobacco retailers in order to 
bring stores into compliance with the proposed regulations. Detailed 
surveys were conducted of seven categories of retail outlets in five 
U.S. metropolitan areas, for a total of 88 retail outlets. Surveyors 
performed a detailed inventory of the many types of tobacco product 
displays and promotional materials which are currently found in 
stores. The surveyors noted which items would need to be modified or 
replaced.
    A. T. Kearney reportedly completed a comprehensive on site 
compliance protocol checklist at 88 establishments randomly selected in 
5 general regions of the United States. The individual display items 
were grouped into 41 discrete item categories and a lengthy discussion 
of the methodology and results are presented as a Technical Appendix to 
the Barents Group's comments.
    b. The Barents Groups's miscalculations. To evaluate these results, 
FDA carefully reviewed the A. T. Kearney survey data and the Barents 
Group's extrapolation procedures and attempted to replicate the 
aggregate estimates. In doing so, numerous computational discrepancies 
were identified. For example, in calculating retailer time costs, the 
Barents Group intended to use an estimated retail employee wage of 
$9.51, but in fact used the estimated wage for a manufacturer's sales 
representative of $25.70. (See Appendix Table ``Initial Compliance 
Effort Costs per Retail Store.'') Also, the Barents Group's 
calculations relied on incorrectly transposed data for the average 
number of disposable displays per store and miscalculated compliance 
effort costs for five of the seven types of business. Further, A. T. 
Kearney reported that only one-third of the lighted signs and clocks 
would need to be replaced by retailers, but the Barents Group's 
calculations assumed that all would be replaced. Finally, A. T. Kearney 
reported that retailers would not replace most promotional posters, 
signs and displays, but the Barents Group's calculations assigned each 
$85 in replacement costs. Correcting these errors reduces the Barents 
Group's low and high cost estimates by $77 and $108 million, 
respectively.
    Even more important, in aggregating the unit costs for ``Compliance 
Activity No. 19--Remove and replace interior newsstands and shopping 
basket racks and baskets and shopping carts,'' A. T. Kearney committed 
a major error that dominates the aggregated cost totals. In discussing 
the costs for this item, A. T. Kearney focused on the need to replace 
shopping basket racks, which ``* * * are free-standing units and 
contain about 20 shopping baskets, that also contain the name or logo 
of the cigarette manufacturer.'' Although it seems probable that the 
logos or brand names affixed to these items could be either removed or 
obscured, the survey data indicate that six supermarket/grocery stores, 
three convenience stores, two tobacco stores and one convenience store 
with gas would replace shopping basket racks. The detailed survey data 
for supermarket/grocery stores, however, reveal that one store 
supposedly possessed 71 racks, two stores 50 racks, and the remaining 
three stores 41, 32, and 10 racks, respectively. Even a casual review 
of these data suggests that individual hand-held shopping baskets 
rather than basket racks were counted. Indeed, an FDA contractor 
visited the five Washington, DC area outlets in which A. T. Kearney 
observed the largest number of racks and found scores of plastic hand-
held baskets adorned with simple advertising stickers, but only a few 
basket racks. \314\
---------------------------------------------------------------------------

    \314\ Buck, E., ``Site Visit Report,'' April 24, 1996.
---------------------------------------------------------------------------

    Although the advertising on these plastic baskets could easily be 
removed or covered, or new plastic baskets purchased quite 
inexpensively, the Barents Group's calculations inadvertently assumed 
that a distribution services contractor would be hired to remove each 
plastic hand-held shopping basket at a fee of $45 apiece and that a 
retailer would spend 30 minutes plus an additional $89 replacement fee 
for each plastic hand-held shopping basket in its possession. Thus, the 
estimated cost attributed to each hand-held basket was $138 and the 
cost for just the one outlet reporting 71 shopping baskets totaled 
$9,850. Extrapolating to each outlet category, the A. T. Kearney 
results implied that removing and replacing plastic hand-held baskets 
would cost, on average, over $1,300 for each supermarket/grocery store 
and $300 for each convenience store in the United States. Its projected 
costs for removing and replacing the hand-held shopping baskets in all 
supermarket/grocery stores in the United States ranged from $163 
million to $229 million. For all outlet types, costs for these hand-
held baskets were estimated at $194 to $271 million, or 43 percent of 
the national point-of-sale costs estimated by the Barents Group.
    Based on site visits, FDA modified Kearney's field data for the 
correct number of shopping basket racks in the Washington, DC area 
establishments. Furthermore, FDA contractors determined that the hand-
held shopping baskets could easily be modified by a marketing 
representative, who would take, at most, 5 minutes to affix new 
stickers on each basket or rack. For a rack of 20 baskets, this task 
was estimated to take a total of 105 minutes, plus about $42 for 
stickers. These adjustments reduce the Barents Group's estimated one-
time costs by $180 to $252 million.

[[Page 44581]]

    c. The Barents Group's extrapolation procedure. The Barents Group 
contributed still another bias by their method of extrapolating these 
survey results to the assumed range of 500,000 to 700,000 retail 
establishments. A. T. Kearney surveyed stores in only seven business 
categories: General Merchandise, Supermarket/Grocery, Tobacco 
Specialty, Convenience Store without Gas, Convenience Store with Gas, 
Service Station, and Drug Store. To represent all affected outlets, the 
Barents Group apportioned the full upper and lower bounds for their 
estimated number of establishments (500,000 and 700,000) among 10 
business categories ``based on the fractions they represent in the 
Census sample of with-payroll retail stores selling tobacco products.'' 
(Eating Places, Drinking Places, and Miscellaneous Retailers were added 
for this outlet allocation, but were assigned no costs because they are 
not ``* * * the types of retail outlets where the vast majority (more 
than 90 percent) of tobacco product sales occur and where promotional 
items are most prevalent.'' That is, the Barents Group used a 
proportional adjustment to raise each establishment category count so 
that the lower and upper bound totals sum to 500,000 and 700,000, 
respectively. The estimated number of establishments in each category 
was then multiplied by the average cost for each business category 
using data from the A. T. Kearney site visits.
    The implications of these inappropriate establishment number 
extrapolations are considerable. For example, A. T. Kearney surveyed a 
sample of 10 outlets from its first business category--General 
Merchandise Stores. These 10 outlets, which include three K-Mart and 
two Wal-Mart stores, averaged over 84,000 square feet of space, with 
the smallest store measuring 40,000 square feet. The U.S. Census 
reports only 12,117 such establishments with payroll. The Barents 
Group's proportional adjustment automatically expanded this outlet type 
count to between 21,299 and 29,818. (See Barents Group's Appendix 
Table.) Thus, to generate a national estimate of costs, the Barents 
Group applied the cost per establishment for its sample of very large 
general merchandise stores to roughly double the number reported in the 
U.S. Census for such establishments with payroll. This methodology 
inappropriately bases the per outlet cost for thousands of small 
nonpayroll and nonretail outlets on the per outlet cost reported for 
very large general merchandise stores.
    The identical problem holds for the Barents Group's projection of 
the A. T. Kearney survey sample of 27 Supermarket/Grocery stores. 
Although this sample includes a few moderately sized establishments (1 
less than 1,000 square feet and 4 less than 5,000 square feet), 21 of 
the establishments exceed 10,000 square feet and the average sized 
facility is almost 35,000 square feet. Nevertheless, the Barents 
Group's apportionment procedure inflates the number of establishments 
in this category from the U.S. Census estimate of 71,240 with payroll 
to 125,222 and 175,311, on the dubious assumption that thousands of 
small nonpayroll or other nonretail establishments are best represented 
by the A. T. Kearney sample of mostly large supermarkets/grocery 
stores.
    FDA's fundamental concern is not with the Barents Group's estimate 
of 500,000 to 700,000 affected establishments (although the upper bound 
of this estimate should be 600,000, because there would be no display 
relocation costs for the additional 100,000 outlets assumed to be 
established at existing vending machine locations), but with the 
allocation of the small establishments among the largest business 
categories surveyed by A. T. Kearney. To offset this bias, FDA 
reallocated the number of establishments in the business categories 
used to extrapolate the outlet cost estimates. As shown, in Table 5, 
FDA takes the number of establishments in the first two business 
categories--General Merchandise and Supermarket/Grocery stores--
directly from the U.S. Census number of establishments with payroll, 
because there would be very few nonpayroll or nonretail establishments 
equivalent to those surveyed. For outlet extrapolation purposes, FDA 
assigns its estimated number of nonpayroll establishments in these two 
business categories to the Convenience Store category, on the 
assumption that this category is most representative of the small 
establishments excluded from the Census product line data. Although the 
Barents Group omitted all costs for Eating Places, Drinking Places, and 
Miscellaneous Retail Stores, FDA groups these outlets under Other 
Establishments and assumes certain minimal costs, as explained below. 
This redistribution of the establishment category groupings reduces the 
Barents Group's low cost estimate by $65 million and its high cost 
estimate by $170 million.

     TABLE 5.--ESTIMATED NUMBER OF ESTABLISHMENTS REMOVING SELF-SERVICE AND OTHER PROHIBITED RETAIL DISPLAYS    
----------------------------------------------------------------------------------------------------------------
                                           Number of Retail       Estimated Number of     Estimated Total Number
                                         Establishments with     Retail Establishments      of Establishments   
           Kind of Business            Payroll Selling Tobacco  without Payroll Selling      Selling Tobacco    
                                          Products Over-the-     Tobacco Products Over-     Products Over-the-  
                                               Counter                the-Counter                Counter        
----------------------------------------------------------------------------------------------------------------
A. T. Kearney Categories:                                                                                       
  General Merchandise                                   12,117                    - (A)                   12,117
  Supermarket/Grocery                                   71,240                    - (B)                   71,240
  Convenience Stores                                    29,400               64,345 (C)                   93,745
  Convenience Stores with Gas                           51,913                    - (D)                   51,913
  Service Stations                                      37,958                    7,581                   45,539
  Drug Stores                                           29,046                    1,829                   30,875
  Tobacco Stores                                         1,477                    - (E)                    1,477
Other Establishments                                         -                        -              201,012 (F)
----------------------------------------------------------------------------------------------------------------
Total                                                  233,151                   73,755                  507,918
----------------------------------------------------------------------------------------------------------------
(A) Variety and miscellaneous general merchandise stores are tallied as convenience stores.                     
(B) Food stores are tallied as convenience stores.                                                              

[[Page 44582]]

                                                                                                                
(C) This category includes food, variety, and miscellaneous general merchandise stores. The 1992 Nonemployer    
  Statistics Series does not provide information about convenience stores without payroll.                      
(D) The 1992 Nonemployer Statistics Series does not provide information about establishments without payroll for
  this category.                                                                                                
(E) The 1992 Nonemployer Statistics Series does not provide information about establishments without payroll for
  this category.                                                                                                
(F) Includes retail establishments excluded from the Kearney field audit and other establishments selling       
  tobacco products over-the-counter.                                                                            

    d. Further modifications. The Barents Group faulted FDA for not 
including costs for the removal of banned display items or for the 
replacement of banned point-of-sale promotional materials. Their 
estimates assumed that manufacturers alone would bear these costs, 
since the proposed regulation required that manufacturers remove all 
prohibited advertising displays. The final regulation, however, places 
this responsibility on the owners of the displays, which may frequently 
be the retail establishments. FDA cannot forecast the ultimate 
distribution of display ownership, but in view of current business 
practices, assumes that the manufacturer representatives will at least 
participate in the removal process. Nevertheless, this change in 
regulatory responsibility is likely to shift a greater share of the 
cost burden to retailers.
    On the other hand, the Barents Group assumed that retailers alone 
would replace those promotional items having a utilitarian function, 
including display cases, signs, shopping carts or baskets, newspaper 
racks, ash trays, and clocks. FDA believes that this assumption is 
unfounded, because many retailers will modify rather than replace these 
items and many manufacturers will share the replacement burden with 
retailers. For example, one report describing the results of a local 
self-service ban indicated that, ``tobacco distributors and tobacco 
company sales representatives furnished behind-the-counter shelving and 
locking cases for tobacco products to retailers at no charge in order 
to assist retailers comply with self-service/vendor-assisted 
regulations.'' \315\ Again, however, the future allocation of these 
costs among manufacturers and retailers is unknown. For its initial 
estimates, except as explained below, FDA maintains the Barents Group's 
assumptions that removal costs are primarily borne by the manufacturer 
and replacement costs by the retailer. In fact, both cost categories 
will be shared and the implications of these assumptions are 
illustrated below through sensitivity analysis.
---------------------------------------------------------------------------

    \315\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to 
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring only Vendor-Assisted Tobacco 
Sales,'' North Bay Health Resources Center, Stop Tobacco Access for 
Minors Project (STAMP), Petaluma, CA, p. 5, November 3, 1994.
---------------------------------------------------------------------------

    In February 1996, economic consultants to FDA attempted to 
replicate the A. T. Kearney field audit in Boston (the Eastern Research 
Group, Inc. (ERG),) \316\ and in Washington, DC (an independent 
contractor). While most observations of the number of affected display 
cases were reasonably consistent with the A. T. Kearney findings, the 
observed number of exterior and interior promotional materials deviated 
significantly from the A. T. Kearney audit data. One explanation may be 
that the seasonal items available at the end of November had been 
removed by the following February. As a result, FDA has not adjusted 
its calculations to account for these discrepancies (except for the 
cost of basket racks in the Washington, DC stores), but used certain 
insights from these visits to revise the Barents Group's unit cost 
assumptions, as follows:
---------------------------------------------------------------------------

    \316\ ``ERG's Review of Docket Materials Concerning FDA's 
Proposed Regulations Covering Tobacco Products: Final Site Visit 
Report,'' Eastern Research Group, April 22, 1996.
---------------------------------------------------------------------------

    (i) The agency rejects the Barents Group's assumption that 
retailers rather than manufacturers will bear the costs of replacing 
promotional unattached counter displays. Because many of these items 
will be moved to visible locations behind counters, it is far more 
likely that manufacturers, not retailers, would pay for replacements. 
For its revised estimate, therefore, FDA assumes that manufacturers 
will pay replacement costs for unattached counter displays. Although 
total costs are unchanged, this assumption increases the costs for 
manufacturers by $17 million and decreases the costs for retailers by 
an equal amount.
    (ii) A. T. Kearney and the Barents Group contradict themselves on 
the cost of removing disposable display cases. A. T. Kearney describes 
these units as temporary displays ``frequently found in association 
with promotional offerings, sales, or seasonal themes,'' but assumes 
that retailers will replace them with permanent self-standing retail 
pack cases at $250 each. In contrast, the Barents Group calculations 
imply that a distribution services company will remove each display for 
a fee of $150 and retailers will replace each item for $50. FDA agrees 
with the Barents Group that retailers will not replace temporary units 
with permanent retail pack cases. Moreover, if a marketing 
representative can throw away free-standing ash trays filled with sand, 
as noted by A. T. Kearney, then a marketing representative can also 
dismantle and throw away disposable displays made of cardboard and 
plastic. FDA estimates, therefore, that instead of hiring a 
distribution services company, the manufacturer's representative will 
take no more than 15 minutes to remove each disposable unit, install a 
new unattached counter display and restock any excess inventory in a 
nonself-service area. This assumption decreases the estimated one-time 
costs by $7 million.
    (iii) The A. T. Kearney cost-estimating methodology for the self-
service ban implies that store modifications take place in a sequential 
pattern, with no allowances for economies of scale. For example, the 
outlet cost for hiring a distribution services contractor to relocate 
or replace display cases was calculated as a fixed multiple of the 
number of cases to be removed, even though many establishments must 
remove several display cases. This approach overstates costs by 
ignoring the significant scale economies achievable by performing all 
compliance activities at one time. Thus, FDA modified A. T. Kearney's 
distribution services costs for the removal, relocation and 
installation of small attached, retail pack, and carton self-service 
display cases by assuming that the first display unit in an outlet 
would be removed at a unit charge of $90, $150, or $185, respectively, 
but that each additional unit would be removed at one-half of these 
costs. For those stores with different sizes of display cases, the 
first unit was assumed to be the most expensive to remove (e.g., a 
carton display would be considered the first item when there is also a 
retail pack display or a small attached display). Adjusting for these 
scale economies reduces the estimated total costs by $15 million.
    (iv) A. T. Kearney assumed that many promotional items, such as 
signs and clocks, would be removed by a distribution services company 
hired by the manufacturer. FDA's consultants, however, found that 
almost all of the promotional material observed could be easily removed 
or modified by retail personnel or marketing representatives.

[[Page 44583]]

For example, rather than needing a contractor to remove the lighted 
sign in one of the sampled outlets, ERG found that the front panel was 
easily removable and could be quickly replaced by an acceptable panel. 
Although a few signs may require substantial time to dismantle, most of 
these items will take just a few minutes to remove. To account for this 
range, FDA assumes that a manufacturer's representative will take 15 
minutes to remove and dispose of the various exterior signs, banners, 
clocks and news stand displays, as well as the interior lighted signs 
and clocks, lowering total costs by $27 million.
    (v) A. T. Kearney assumed that many display cases located in 
nonself-service areas would be removed and replaced, because of 
improper advertising. They assumed that the manufacturer would pay for 
the removal of the old case and the installation of the new case, but 
that the retailer would purchase the new display case. Contrary to this 
finding, FDA consultants found no sites in the Boston or Washington, DC 
regions where it was necessary to replace nonself-service displays. 
Because in each instance, all visible advertising could be altered or 
obscured, retailers would almost always opt to cover impermissible 
advertising rather than to purchase new display cases costing up to 
$300. Accordingly, FDA estimated that it would take 15 minutes and $5 
worth of stickers to cover each small attached display; 25 minutes and 
$10 worth of stickers to cover each retail pack display; and 35 minutes 
and $15 worth of stickers to cover each carton display. This 
modification decreases total costs by $20 million.
    (vi) Even though the A. T. Kearney audit identified a number of 
self-service display cases that did not fit in the nonself-service area 
but could be retrofitted with locks, the Barents Group did not include 
cost estimates for these items. FDA estimates that it would take 30 
minutes of retailer time and cost about $10 for materials to add a lock 
to these display cases, increasing the total one-time costs by $1.5 
million.
    (vii) In its analysis of the 1995 proposed regulation, FDA 
acknowledged that the required reconfiguration of tobacco displays may 
also impose added labor costs for some purchase transactions, 
especially for those stores that move inventory to areas located away 
from employee work stations. On the assumption that the ban on self-
service tobacco displays would require 10 seconds of additional labor 
time for 75 percent of all retail transactions involving cartons, FDA 
had estimated costs of about $14 million per year. Although a few 
comments indicated that the self-service ban would increase labor 
costs, the Barents Group did not include such costs in its assessment. 
Nevertheless, FDA believes that some establishments, particularly those 
selling a substantial number of cigarette cartons that could not be 
stored within easy reach of a checkout station, could experience 
increased annual labor costs. Thus, FDA recalculated its estimate based 
on the updated retail employee compensation rate of $9.51 suggested by 
the Barents Group and the new site visit data from the A. T. Kearney 
study, which imply that only about 40 percent of cigarette cartons are 
purchased at establishments that sell cigarette cartons from self-
service areas. These adjustments project additional annual labor costs 
of about $10.9 million per year. \317\
---------------------------------------------------------------------------

    \317\ Derived from assumption that 10 percent of carton 
transactions are for multiple (2) cartons, and that cartons 
constitute 85 percent of tobacco sales at supermarket/grocery 
stores, general merchandise stores, drug stores, and tobacco stores, 
and 10 percent of tobacco sales at other outlets. Tobacco sales data 
from 1992 Census of Retail Trade, pp. 3-31. Kearney site visits 
found that 80 percent of general merchandise stores, 33 percent of 
supermarket/grocery stores, 25 percent of convenience stores, 17 
percent of service stations, 30 percent of drug stores, 42 percent 
of tobacco stores had self-service carton display cases.
---------------------------------------------------------------------------

    Except for those adjustments, FDA used the information found in the 
A. T. Kearney field audit to develop its revised estimate. For 
comparison, the original Barents Group estimates of the number of 
establishments and one-time point-of-sale costs (corrected for 
miscalculations as described above) are shown in Table 6 and FDA 
estimates of one-time costs in Table 7. Detailed summaries of the FDA 
one-time cost estimates are presented in Table 8 and Table 9 and 
indicate that costs related to self-service display cases comprise 73 
percent of the total, followed by 18 percent for promotional materials 
and 9 percent for nonself-service display cases. As explained above, 
these estimates assume that manufacturers will bear the cost of 
removing all promotional items and retailers will bear the cost of 
replacing most functional items. Because the regulation places the 
removal responsibility on owners of the materials, FDA does not know 
how these obligations will be divided. However, if retail outlets, 
rather than manufacturers, must remove these items, the overall cost to 
manufacturers falls by about $47 million and the cost to retailers 
increases by about $17 million. (Retail compensation rates are about 
one-third of manufacturer rates, according to the Barents Group data). 
The following discussion describes specific compliance costs for each 
outlet category.

BILLING CODE 4160-01-F

[[Page 44584]]



                                                        TABLE 6.--BARENTS GROUP LLC ESTIMATE OF ONE-TIME POINT-OF-SALE REGULATORY COSTS 1                                                       
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Estimated Number of                     Estimated Point-of-Sale Costs (Lower)     Estimated Point-of-Sale Costs (Upper) 
                                                                          Establishments        Average Cost -----------------------------------------------------------------------------------
                         Kind of Business                          ---------------------------- per Facility  Retail Costs  Manufacturer   Total Costs  Retail Costs  Manufacturer   Total Costs
                                                                        Lower         Upper          ($)           ($)        Costs ($)        ($)           ($)        Costs ($)        ($)    
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
General Merchandise                                                       21,299        29,818         1,067    13,268,172     9,449,404    22,717,576    18,575,066    13,228,900    31,803,966
Supermarket/Grocery                                                      125,222       175,311         2,356   182,028,407   112,960,223   294,988,630   254,840,061   158,144,493   412,984,554
Convenience Stores                                                        51,678        72,349           925    24,408,368    23,382,610    47,790,978    34,171,621    32,735,564    66,907,185
Convenience Stores with Gas                                               91,250       127,750           515    21,656,668    25,294,382    46,951,050    30,319,336    35,412,134    65,731,470
Service Stations                                                          66,721        93,409           217     4,894,902     9,616,053    14,510,955     6,852,833    13,462,416    20,315,250
Drug Stores                                                               51,056        71,478           167     4,472,540     4,054,323     8,526,863     6,261,520     5,676,020    11,937,541
Tobacco Stores                                                             2,596         3,635         2,940     4,486,055     3,147,456     7,633,511     6,281,514     4,407,166    10,688,680
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total                                                                    409,822       573,750                 255,215,112   187,904,451   443,119,563   357,301,952   263,066,694   620,368,645
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Totals may not add due to rounding.                                                                                                                                                         


                                            TABLE 7.--FDA ESTIMATE OF ONE-TIME POINT-OF-SALE REGULATORY COSTS                                           
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Estimated Point-of-Sale Costs2                    
        Kind of Business            Estimated Number of      Average Cost Per    -----------------------------------------------------------------------
                                      Establishments1          Facility ($)          Retail Costs ($)     Manufacturer Costs ($)      Total Costs ($)   
--------------------------------------------------------------------------------------------------------------------------------------------------------
General Merchandise                    12,117                     919               7,874,058               3,263,894              11,137,952           
Supermarket/Grocery                    71,240                     810              32,655,560              25,067,316              57,722,876           
Convenience Stores                     93,745                     364              12,271,061              21,879,370              34,150,431           
Convenience Stores with Gas            51,913                     213               1,397,066               9,644,359              11,041,425           
Service Stations                       45,539                     122               2,560,164               2,974,000               5,534,164           
Drug Stores                            30,875                     160               2,978,007               1,966,563               4,944,570           
Tobacco Stores                          1,477                   2,175               2,165,591               1,046,163               3,211,753           
Other Establishments                  210,012                      19                 522,765               3,384,741               3,907,506           
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total                                 507,918                                      62,424,273              69,226,404             131,650,677           
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Number of establishments from Table 5.                                                                                                              
\2\ Totals may not add due to rounding.                                                                                                                 


[[Page 44585]]

[GRAPHIC] [TIFF OMITTED] TR28AU96.001



[[Page 44586]]

[GRAPHIC] [TIFF OMITTED] TR28AU96.002



[[Page 44587]]

[GRAPHIC] [TIFF OMITTED] TR28AU96.003



[[Page 44588]]

[GRAPHIC] [TIFF OMITTED] TR28AU96.004



BILLING CODE 4160-01-C

[[Page 44589]]

    e. General merchandise stores. None of the general merchandise 
stores in the A. T. Kearney sample had exterior promotional materials 
and only a few had interior promotional materials. Eighty percent of 
the stores had only self-service displays, with carton displays more 
numerous than pack displays at these locations. The average per 
facility one-time costs estimated by FDA were $919. Overall, 97 percent 
of the outlet costs related to the replacement of self-service display 
cases, although in some general merchandise stores, tobacco products 
were stocked on shelves rather than in special display cases, which 
suggests that the costs for this business category may be overstated.
    f. Supermarket/grocery. Unlike general merchandise stores, 
supermarkets had significant promotional materials. While both packs 
and cartons were sold at most locations, over 75 percent of the stores 
already had nonself-service display areas. FDA estimates per facility 
costs at $810. Self-service display case removal and replacement amount 
to 85 percent of the total cost, whereas promotional materials account 
for 14 percent. Commenting on the feasibility of the proposed FDA self-
service ban, the Food Marketing Institute argued that most retail food 
stores do not have adequate space at checkout lines for tobacco 
products and rejected the practicability of alternative procedures. 
They suggested that the only option available to many food retailers 
would be to remodel and set-up a controlled area for the sale of 
tobacco products, costing up to $50,000 per store. The A. T. Kearney 
audit, however, found that a majority of supermarket/grocery stores 
have already installed nonself-service areas for tobacco products and 
would not need to reconfigure their stores. While some establishments 
will incur costs above the average, the A. T. Kearney site visit data 
suggest that most stores could comply by either moving inventory to 
nonself-service areas or by purchasing new displays that are compatible 
with existing store configurations.
    g. Convenience stores. Stores in this category exhibited numerous 
interior and exterior promotional items. All of the convenience stores 
surveyed had nonself-service display cases and 50 percent had carton 
displays. FDA estimates per facility costs of $364. Costs for removing 
and replacing self-service display cases made up 59 percent of the 
total, while costs for promotional materials and nonself-service 
display cases were 28 percent and 14 percent, respectively.
    The National Association of Convenience Stores (NACS) faulted FDA 
on its assumption that the main cost of the self-service ban would be 
to relocate tobacco product inventory, contending that their members 
would incur thousands of dollars in reconfiguration costs. According to 
NACS:
    [i]t is largely irrelevant that retailers already keep packs 
behind the counter. Many NACS members keep large quantities of packs 
and cartons in self-service displays and would have to reconfigure 
their stores to comply with the ban on self-service sales.
Based on an estimate from one member with a high volume of self-service 
cigarette sales, NACS suggested it could cost $4,320 and $10,120, 
respectively, to reconfigure a newer and older convenience store.
    Based on other evidence, however, FDA does not believe that a large 
number of stores will be forced to undergo extensive modifications and 
finds that most convenience stores can adequately adapt space either 
behind or above checkout counters. As noted earlier, one regional 
survey reported that retail outlets readily complied with local self-
service restrictions without architectural remodeling or substantial 
refitting of checkout counters or store aisles. \318\ Space above 
counters is typically available for display cases either by suspending 
a case from the ceiling or by supporting a case on beams from the 
counter. In its survey, A. T. Kearney found at least some tobacco 
products sold from nonself-service space in every convenience store. 
Although it is possible that stores might incur added inventory 
handling costs if this space were smaller than optimal, FDA concludes 
that major reconfiguration would rarely be required and relies on the 
A. T. Kearney survey data, as adjusted, to project average costs for 
this sector.
---------------------------------------------------------------------------

    \318\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to 
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco 
Sales,'' North Bay Health Resources Center, Stop Tobacco Access for 
Minors Project (STAMP), Petaluma, CA, p. 5, November 3, 1994.
---------------------------------------------------------------------------

    h. Convenience stores with gas. Like convenience stores without 
gas, these establishments had numerous interior and exterior 
promotional materials. About 89 percent of the stores surveyed had 
nonself-service display cases. FDA estimates per facility costs of 
$213. Consistent with the findings of the Barents Group, the average 
outlet cost for this sector is about one-half that of convenience 
stores without gas.
    In comments to the 1995 proposed rule, the Society of Independent 
Gasoline Marketers of America (SIGMA) did not present specific data on 
the cost to their members, but indicated that many members would be 
required to reconfigure their stores. They stated that:
    [m]any SIGMA members keep large quantities of packs and cartons 
in self-service displays and would have to reconfigure their stores 
to comply with the ban on self-service sales. At a minimum, these 
members would have to install new cabinets to accommodate tobacco 
products behind the counter. Many members would have to enlarge the 
counter area to make room for the new cabinets.
In contrast, the A. T. Kearney field audit found few convenience stores 
with gas that have self-service displays, other than unattached 
promotional counter displays. Costs to remove or replace promotional 
counter displays will be borne primarily by manufacturers, not 
retailers. In sum, the costs for self-service display cases amount to 
about 31 percent of the total, promotional material 30 percent, and 
nonself-service display cases 39 percent.
    i. Service stations. These establishments had both interior and 
exterior promotional material. Seventy-five percent of the locations 
surveyed had only nonself-service display cases and one-fourth had 
carton displays. FDA estimates the per facility cost at $122.
    j. Drug stores. Drug store outlets had few exterior and interior 
promotional materials. As in general merchandise stores, tobacco 
products were stocked on shelves in some locations. Ninety percent of 
the stores surveyed by A. T. Kearney already had nonself-service 
displays and approximately 70 percent had carton displays. FDA 
estimated $160 cost per facility for this category of business. About 
93 percent of the total one-time costs are for replacement of self-
service display cases.
    k. Tobacco stores. These stores had substantial promotional 
materials and multiple display cases. FDA estimates per facility costs 
of $2,175. About 94 percent of the costs are for self-service display 
cases, with promotional materials and nonself-service display cases 
dividing the remaining 6 percent. While not reflected in the cost 
totals, these establishments may choose to operate as ``adult only'' 
restricted areas to avoid replacing self-service display cases.
    l. Other establishments. This category includes eating/drinking 
establishments and miscellaneous retail stores, which

[[Page 44590]]

were excluded from the A. T. Kearney audit, plus the estimated 100,000 
nonretail establishments that sell tobacco products OTC, such as 
hotels, factories and sporting facilities. Due to the low volume of 
tobacco product sales at these establishments, FDA assumed that only a 
small quantity of packs and no cartons would be sold. Lacking detailed 
data, FDA assigned costs of $19 per outlet, based on the costs of 
removing promotional materials and relocating and replacing small 
attached display cases, as reported for drug stores.
3. Label Changes
    The final regulation requires that the tobacco product package 
contain the established name of the tobacco product in a specified 
size. FDA estimated the compliance costs for printing new labels in its 
earlier analysis of the proposed regulation and has received no 
comments that improve those original estimates.
    Approximately 933 varieties of cigarettes are currently produced in 
the United States. \319\ FDA does not have information on the number of 
smokeless tobacco varieties, but assumes that the total number of 
cigarette and smokeless tobacco varieties is roughly 1,000. Because 
most varieties of cigarettes are packaged in both single packs and 
cartons, the total number of labels is assumed to number about 2,000.
---------------------------------------------------------------------------

    \319\ ``Tar, Nicotine, and Carbon Monoxide of the Smoke of 933 
Varieties of Domestic Cigarettes,'' Federal Trade Commission, 1994.
---------------------------------------------------------------------------

    FDA used two approaches to estimate the cost to industry of 
changing these labels. The first approach relied on information 
compiled by The Research Triangle Institute (RTI) for its report to FDA 
on the cost of changing food labels. \320\ RTI reported a cost of about 
$700 for a 1-color change in a lithographic printing process. FDA 
multiplied this figure by 4 to account for a 2-color change on the 
actual warning labels and an additional 2 colors for modifications to 
the existing label to make room for the warning label. This calculation 
yielded incremental printing costs of about $2,800 per label, or $5.6 
million for all 2,000 varieties of affected tobacco products. Adjusting 
this figure downward by RTI's methodology to account for the current 
frequency of label redesign predicts that the total one-time cost of 
completing these label changes within a 1-year compliance period would 
be approximately $4 million.
---------------------------------------------------------------------------

    \320\ French, M. T., D. M. Neighbors, L. K. Carswell, K. B. 
Heller, and G. L. McDougal, ``Compliance Costs of Food Labeling 
Regulations,'' Final Report, RTI Project Number 233U-3972-02 DFR, 
January 1991.
---------------------------------------------------------------------------

    The second approach was to use cost information provided in the 
regulatory impact analysis of a roughly comparable Canadian regulation. 
\321\ The Canadian Government estimated a cost of $30 million to change 
labels for about 300 cigarette varieties. Most Canadian cigarettes are 
likewise sold in two sizes, but about 20 percent are also sold in flip 
top packages. \322\ Canadian labels, however, are typically printed 
using a gravure method; which, according to RTI, is about 3.5 times as 
expensive as the lithography process used in the United States. 
Adjusting the Canadian estimate upward, to account for the larger 
number of cigarette and smokeless tobacco varieties in the United 
States; and downward, for the smaller number of packages per variety 
and the smaller cost of the lithography printing process, provides a 
$17 million estimate for the total cost of these label changes.
---------------------------------------------------------------------------

    \321\ Department of National Health and Welfare, ``Tobacco 
Products Control Regulations, amendment,'' Canada Gazette, Part II, 
vol. 127, No. 16, pp. 3277-3294, August 11, 1993.
    \322\ Kaiserman, M., Department of National Health and Welfare, 
Canadian Government, personal communication, February 1, 1995.
---------------------------------------------------------------------------

4. Educational Program
    FDA may issue notification orders under section 518(a) of the 
Federal Food, Drug, and Cosmetic Act (the act) (21 U.S.C.360h(a)) to 
require manufacturers of cigarettes and smokeless tobacco products to 
fund consumer educational programs. While the precise details of these 
orders are still under development, these orders may involve the 
achievement of specific performance objectives by directing 
manufacturers to initiate informational programs designed to transmit 
messages that will reach the majority of young people. The 1995 
proposed regulation directed manufacturers to spend at least $150 
million annually on this program. While industry comments were 
critical, many other comments suggested that this figure was too low. 
One comment noted that $150 million is equivalent to about one week of 
pro-tobacco expenditures and another that the industry gained $221 
million in profits from underage sales. Still another pointed out that 
the current dollar value of the informational advertising that was 
conducted under the Fairness Doctrine would amount to about $300 
million per year. One study appears to indicate that 75 percent of 
adolescents aged 12 to 17 could have been reached in 1985 to 1986 with 
multiple messages at a cost of about $17 million a year. \323\ FDA is 
still evaluating various types of informational programs, with respect 
to both effectiveness and practicality. Before a final decision is 
reached, the agency will determine the costs of selected alternatives.
---------------------------------------------------------------------------

    \323\ Bauman, K. E., J. D. Brown, E. S. Bryan, L. A. Fisher, C. 
A. Padgett, and J. M. Sweeney, ``Three Mass Media Campaigns to 
Prevent Adolescent Cigarette Smoking,'' Preventive Medicine, vol. 
17, pp. 510-530, 1988.
---------------------------------------------------------------------------

5. Restricted Advertising and Promotional Activities
    a. Tobacco industry. The determination of the societal costs 
attributable to the restrictions on tobacco product advertising and 
promotion is complex. While there is no doubt that individual 
manufacturers realize enhanced goodwill asset values from advertising 
programs, the industry has long held that advertising prompts brand-
switching, but does not increase aggregate sales. Of course, if this 
were true, advertising would be unprofitable from the standpoint of the 
industry as a whole and reduced levels would increase rather than 
decrease aggregate industry profits. In addition, if the primary 
motivation for tobacco advertising is to promote brand-switching, then, 
as long as all firms are equally restricted from advertising, the above 
mentioned loss in goodwill value will be substantially reduced.
    In its comments, the tobacco industry claimed that tobacco 
advertising and promotion have virtually no effect on youth 
consumption. Although FDA does not accept this claim, the agency does 
not consider the expected voluntary reduction in the consumption of 
tobacco products to be a societal cost. Although industry sales will 
fall, they will reflect new consumer preferences and consumer dollars 
no longer used on tobacco products will be redirected to other more 
highly valued areas. Thus, for the most part, the resulting reduction 
in industry sales are not net costs and the potential magnitude of this 
revenue transfer is discussed below under the heading of Distributional 
Effects. Moreover, as shown in that discussion, any short-term 
frictional or relocation impacts will be significantly moderated by the 
gradual phase-in of the economic effects.
    b. Advertising industries. In its original analysis, FDA argued 
that advertising and promotional restrictions will impose no long term 
net costs on society. The Barents Group's study found that the various 
suppliers of

[[Page 44591]]

industry advertising will incur substantial regulatory costs. It 
estimated that illustrative annual costs for this sector could reach 
$722 million to $2.17 billion, or up to one-half of its estimate of the 
total costs of the FDA proposal.
    Upon review, FDA remains firmly convinced that its original 
position was correct. That is, from the standpoint of assessing 
societal costs and benefits, reduced revenues from tobacco advertising 
and promotional activities are not net costs and are appropriately 
considered a distributional impact. Indeed, FDA believes that a strong 
argument can be made that, even irrespective of health benefits, these 
advertising restrictions will decrease net societal costs by freeing 
productive resources for alternative uses. This does not imply that no 
individual business entities will be negatively impacted. Many of the 
companies that currently benefit from tobacco promotions (e.g., 
advertising agencies, publishers, sporting event promoters) will suffer 
lost revenues and those firms that specialize in those activities may 
lose a substantial part of their business. Nevertheless, from a 
societal perspective, these losses will be counterbalanced by an 
increase in demand for other consumption and investment goods, so that 
nontobacco-related entities will gain sales. Although overlooked in 
most industry comments, this result is acknowledged within the comments 
submitted for the Tobacco Institute by the Barents Group:
    A key assumption in the simulations is that, when tobacco 
product manufacturers decrease their advertising expenditures, the 
money not spent translates into increased profits for the industry. 
The increased profits ultimately end up in the hands of the 
companies' owners (shareholders) either as direct payouts or as 
investments on their behalf in other lines of business. In general, 
these profits are ultimately recycled into increased consumption and 
investment by the owners of the companies.
That report also reveals the underlying distributional nature of the 
impacts by explaining that its modeling incorporates the assumption 
that:
     * * * in the long run economic losses in one sector of the 
economy will be redistributed to other sectors of the economy, i.e., 
winners and losers will generally balance out for the economy as a 
whole.
Further discussion of the impact of these revenue transfers is included 
below under the section on ``Distributional Effects.''
    c. Retail sector. In addition to the previously estimated direct 
costs associated with the removal of prohibited point-of-purchase 
advertising, promotional restrictions will impact the retail sector 
because they will lead to a long-term decline in tobacco products sales 
and a potential fall in promotional allowances (slotting fees) from 
manufacturers. Once again, these impacts are not net societal costs, 
since reduced tobacco product sales will be counterbalanced by 
increased sales for other products or services; and smaller promotional 
allowances, if they occur, are gains to tobacco manufacturers that 
would be used for other purchases. Consequently, these impacts also are 
examined below under ``Distributional Effects.''
    d. Consumers. Advertising restrictions may impose costs on society 
if they disrupt the dissemination of relevant information to consumers. 
Firms engage in advertising to inform potential customers about their 
product (informative advertising) or to persuade customers that a 
product is desirable (persuasive advertising). According to the FTC's 
Bureau of Economics, the benefits of advertising derive from:
     * * * its role in increasing the flow and reducing the cost of 
information to consumers * * * First, advertising provides 
information about product characteristics that enables consumers to 
make better choices among available goods * * * Second, theoretical 
arguments and empirical studies indicate that advertising increases 
new entry and price competition and hence reduces market power and 
prices in at least some industries * * *. Third, advertising 
facilitates the development of brand reputations. A reputation, in 
turn, gives a firm an incentive to provide products that are of 
consistently high quality, that live up to claims that are made for 
them, and that satisfy consumers. \324\
---------------------------------------------------------------------------

    \324\ Recommendations of the Staff of the Federal Trade 
Commission, ``Omnibus Petition for Regulation of Unfair and 
Deceptive Alcoholic Beverage Advertising and Marketing Practices,'' 
Appendix A, pp. 3-4, March 1985.
---------------------------------------------------------------------------

    FDA has considered each of these issues. First, while agreeing that 
many forms of advertising offer substantial benefits to consumers, the 
agency nevertheless believes that consumers will lose little utility 
from these particular advertising restrictions. The regulation does not 
prohibit factual, written advertising. Thus, the rule will not impede 
the dissemination of important information to most consumers. In its 
preliminary analysis, the agency concluded that, ``[w]hile imagery and 
promotional activities may be important determinants of consumer 
perceptions and sales, they typically provide little meaningful 
information on essential distinctions among competing tobacco 
products'' (60 FR 41314 at 41368).
    One industry comment strongly opposed this position, arguing that 
advertising is important for product improvement and that past 
restrictions on the advertising of ``low tar'' products retarded 
product innovation. The crux of the argument is that color and/or 
imagery are prerequisites for disseminating relevant quality 
information and that, in its absence, consumers could not be adequately 
informed about the merits of new products. FDA, however, is not 
persuaded that manufacturers will be unable to convey vital 
information. The agency finds that true product improvements in this 
industry are rare, but where they exist, manufacturers could rely on 
traditional ads in adult-oriented publications and on ``text only'' 
advertising elsewhere. Moreover, FDA and other public health agencies 
would likely coordinate with companies in disseminating truly important 
consumer safety information.
    The implications of FTC's second point, which addresses the effect 
of advertising restrictions on market power and prices, are less 
certain, as various empirical studies have reached conflicting 
conclusions. One industry comment insisted that FDA's regulation will 
deprive consumers of the benefits of competition, stating that, 
``[u]ndoubtedly the clearest measure of consumer benefit is the effect 
of advertising on price.'' To support this view, the comment references 
several studies that demonstrate the ability of advertising to reduce 
product prices. The comment also contended that the ``[e]limination of 
advertising will predictably consolidate the market as marginal brands 
are abandoned and fewer brands are introduced'' and that, ``[o]ver time 
this can also reduce the number of players, as companies with dominant 
brands drive out others.''
    FDA agrees that advertising can often lead to decreased product 
prices, but notes that the other industries referenced (e.g., 
eyeglasses and pharmaceuticals) are much more competitive than tobacco 
products. Moreover, economists have found that advertising can also 
serve as a barrier to entry in oligopolistic industries. One author, 
for example, determined that ready-to-eat breakfast foods companies 
used advertising programs to support brand proliferation strategies in 
order to dominate retail shelf space. \325\ These programs helped to 
keep new firms out and prices high without necessarily

[[Page 44592]]

embodying improved quality. Thus, in certain circumstances, 
oligopolistic firms can use extensive advertising to create barriers 
for suppressing innovation and competition. FDA cannot determine 
whether tobacco advertising restrictions would ultimately increase or 
decrease product prices.
---------------------------------------------------------------------------

    \325\ Sutton, J., ``Sunk Costs and Market Structure,'' The MIT 
Press, Cambridge, Massachusetts, pp. 229-247, 1991.
---------------------------------------------------------------------------

    Finally, FTC's third point, which emphasizes the positive aspects 
of advertising in supporting brand reputations, is more relevant for 
long-lived items, such as consumer durables, where purchases are 
infrequent or personal experience is inadequate. Advertising is less 
likely to play a key role in assuring high quality levels for tobacco 
products, where consumer search costs are low and a brand's reputation 
for quality is tested by consumers every day. For these products, high 
quality will remain a prerequisite of commercial success irrespective 
of advertising strategies.
    Other analysts suggest still other potential attributes of product 
advertising. For example, according to F. M. Scherer, author of a 
widely read text on industrial organization:
    Advertising is art, and some of it is good art, with cultural or 
entertainment value in its own right. In addition, it can be argued 
that consumers derive pleasure from the image advertising imparts to 
products, above and beyond the satisfaction flowing in some organic 
sense from the physical attributes of the products. There is no 
simple case in logic for distinguishing between the utility people 
obtain from what they think they are getting and what they actually 
receive. As Galbraith observed, ``The New York housewife who was 
forced to do without Macy's advertising would have a sense of loss 
second only to that from doing without Macy's.'' \326\
---------------------------------------------------------------------------

    \326\ Scherer, F. M., Industrial Market Structure and Economic 
Performance, 2nd edition, Rand McNally College Publishing Co., 
Chicago, IL, p. 380, 1980.
---------------------------------------------------------------------------

    Similarly, Becker and Murphy have argued that advertisements should 
be considered ``goods'' if people are willing to pay for them and as 
``bads'' if people must be paid to accept them. \327\ They explain 
that, in general, the more easily the advertisements can be ignored, 
the more likely it is that the ads themselves provide utility to 
consumers. Newspaper and magazine advertisements, for example, must 
provide positive consumer utility or they would be ignored by readers. 
This final rule allows such advertisements to continue, some in their 
current form, others in a text-only format. (In fact, industry outlays 
for newspaper and magazine advertisements have dropped sharply in 
recent years and currently constitute less than 5 percent of the 
industry's total advertising and promotion budget). \328\ Conversely, 
the extraordinary growth in industry advertising and promotion has 
occurred in areas that are typically bundled with other products, or 
placed in prominent public settings that are difficult to ignore. Thus, 
there is considerable question about the contribution of these programs 
to consumer utility.
---------------------------------------------------------------------------

    \327\ Becker, G. S., and K. M. Murphy, ``A Simple Theory of 
Advertising as a Good or Bad,'' Quarterly Journal of Economics, vol. 
108, p. 941, November 1993.
    \328\ Federal Trade Commission Report to Congress for 1993: 
Pursuant to the Federal Cigarette Labeling and Advertising Act, 
issued 1995.
---------------------------------------------------------------------------

6. Training
    a. Retailers. The final regulation does not explicitly require 
retail employees who sell tobacco products to be trained in checking 
customer I.D.'s. FDA understands, however, that some training is 
essential to effective performance. In its analysis of the proposed 
regulation, FDA estimated total annual costs of $10 million for 
employee training at retail outlets. This estimate assumed that an 
average of 12 employees per store at 467,000 retail stores (assuming 1/
3 of 700,000 stores already conducted training) would receive 15 
minutes of training at a compensation rate of $7.41/hour. The Barents 
Group commented that FDA's analysis did not account for many individual 
cost elements, resulting in a significant underestimate of total 
training costs. It estimated one-time training costs of $184 to $257 
million and recurring annual training costs of $48 to $67 million.
    Specifically, the Barents Group stated that FDA relied on outdated 
compensation data. FDA had obtained these data from a 1992 report 
prepared by Price Waterhouse for the Tobacco Institute, but agrees that 
more recent data are available and employs the suggested compensation 
rate of $9.51 for its revised estimate. The Barents Group also claimed 
that FDA failed to consider recurring training costs due to annual 
employee turnover and annual updating, focusing instead on one-time 
training costs only. This criticism is not valid. Table 2 of the 
original analysis (60 FR 41314 at 41360) clearly lists training costs 
for retail establishments as an annual operating cost and the text (60 
FR 41314 at 41367) refers to a ``per year'' cost. Because employees 
would be trained when first hired, this estimate implied a 100 percent 
employee turnover rate.
    To refine its analysis, however, FDA has disaggregated the cost 
elements. Although the Barents Group accepted FDA's preliminary 
estimate of 12 employees per retail store, FDA now believes that this 
figure is accurate only for retail stores with payroll. Stores without 
payroll constitute a significant percentage of the stores selling 
tobacco products and, on average, are much smaller. As explained above, 
FDA estimates that about 600,000 establishments will sell over-the-
counter tobacco products, including the 100,000 that replace those 
vending machines that are removed. Table 10 presents the data that 
underlie FDA's revised estimates of the number of employees who will be 
trained. For existing retail establishments with payroll, FDA assumes 
that training will be needed for all employees in the affected outlets, 
except in General Merchandise and Supermarket/Grocery stores, where 
one-third of the employees will be trained. For establishments without 
payroll, nonretail establishments, and new establishments replacing 
vending machines, Census data on the number of employees is not 
available, but FDA assumes that an average of six employees will be 
trained. As shown in Table 10, these calculations indicate that 
training will be required for a total of 4.2 million workers.
    The Barents Group further faulted FDA for underestimating the 
training time that would be required to educate retail sales clerks 
about recognizing proper forms of identification and handling related 
customer service problems. It assumed that 2 hours of training would be 
necessary. FDA, however, reviewed the time needed to present the 
training materials from several corporate entities and finds that they 
need not exceed one hour. For example, one large convenience store 
corporation uses a 45 minute training videotape that covers the sale of 
tobacco products, but also covers the sale of alcohol and possible 
inhalants, including means for recognizing inebriated or drugged 
individuals. Moreover, many establishments, especially small stores, 
will provide no formal training, but will provide instruction during 
the work day with minimal lost time. Thus, FDA believes that average 
costs are reasonably based on a 1-hour training program.

[[Page 44593]]



                                                      TABLE 10.--NUMBER OF EMPLOYEES TO BE TRAINED                                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Payroll Establishments                     Nonpayroll Establishments              
                                                  ------------------------------------------------------------------------------------------            
                                                                                                                Establishments                  Total   
                 Kind of Business                    Establishments    Employees Per    Percent       No. of        Selling        No. of     Employees 
                                                    Selling Tobacco        Store        Trained     Employees       Tobacco      Employees     Trained  
                                                        Products                                     Trained       Products       Trained1              
--------------------------------------------------------------------------------------------------------------------------------------------------------
General Merchandise                                           12,117            60.1          33%      242,593          9,807        58,842      301,435
Supermarket/Grocery                                           71,240            20.9          33%      497,253         54,538       327,228      824,481
Convenience Store/no gas                                      29,400             5.6         100%      164,718            ---           ---      164,718
Convience Store/gas                                           51,913             6.8         100%      353,868            ---           ---      353,868
Gas Station                                                   37,958             6.0         100%      228,002          7,581        45,486      273,488
Eating Place                                                  11,992            16.5         100%      198,212          3,065        18,390      216,602
Drinking Place                                                10,745             5.4         100%       58,498          5,336        32,016       90,514
Drug/Proprietary Store                                        29,046            12.2         100%      354,730          1,829        10,974      365,704
Specialty Tobacco                                              1,477             3.7         100%        5,530            ---           ---        5,530
Miscellaneous                                                 24,995             5.2         100%      130,253         44,879       269,274      399,527
--------------------------------------------------------------------------------------------------------------------------------------------------------
Retail Subtotal                                              280,883                                 2,233,656        127,035       762,210    2,995,867
 Nonretail2                                                                                                                                      600,000
Converted Vending Machines2                                                                                                                      600,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total                                                                                                                                          4,195,867
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Assumes 6 employees per establishment.                                                                                                               
\2\Assumes 100,000 outlets with 6 employees to be trained.                                                                                              
Sources: Table 4 for description of establishment data; 1992 Census of Retail Trade, Subject Series: Establishment and Firm Size (Table 1) for          
  employment data; FDA estimates for percent trained.                                                                                                   

    Adopting FDA's original estimate that about one-third of all 
affected establishments already provide employee training (also assumed 
by the Barents Group), implies one-time employee training costs of 
$26.6 million (4.2 million employees x 2/3 x $9.51). The Barents Group 
suggested, however, that even employees who currently receive training 
would need 5 extra minutes on the new regulations, which adds about 
$1.0 million to the cost estimate. Next, the Barents Group included 
costs for time spent by trainers, assuming that the training would be 
provided by an outside source. FDA believes that a more typical 
approach would have a store supervisor provide the training. Using 
$13.64 as the compensation rate for a retail manager, as suggested by 
the Barents Group, and adjusting for the assumed one-third current 
compliance rate in existing establishments, yields a one-time cost for 
trainer time of $6 million. Thus, FDA projects total one-time training 
costs of about $33.5 million.
    In addition, FDA estimates that employee turnover, using the 
Barents Group suggested rate of 42 percent, will add annually recurring 
training costs of about $11.2 million. Also, new employees will receive 
I.D. check training as part of their initial orientation activities. 
Since stores may provide this to several new employees at once, using 
either written or video training materials, FDA estimates that retail 
managers, on average, would spend about 1 additional hour per year 
providing this training. This adds $6.0 million to the annual training 
costs. The Barents Group also recommended annual reinforcement 
training. An annual 10-minute reinforcement training period for 
employees of those establishments that do not already have a training 
program will cost about $2.9 million. In sum, these annual recurring 
training costs total about $20 million.
    The Barents Group also assumed that retail managers would need 
extensive training to understand the new regulations. FDA estimated in 
its 1995 proposal that manufacturers' representatives would need about 
8 hours of training on their new responsibilities and the Barents Group 
assumed that retail managers would need a similar duration of training. 
FDA rejects this estimate, however, as the final provisions affecting 
retailers are straight-forward and will be routinely communicated 
through traditional industry channels.
    b. Manufacturers representatives. In its preliminary economic 
analysis, FDA estimated that 7,300 manufacturer representatives would 
be trained for 8 hours at a cost of $25.00 per hour. After noting FDA's 
``undocumented'' cost estimate, the Barents Group proceeded to apply 
the identical number of training hours to their ``documented'' cost 
estimate of $25.70 per hour. They also suggested a 15 percent labor 
turnover premium, giving a total cost of $1.5 million. As the final 
rule eliminates the monitoring burden for these employees, this 
training cost should be correspondingly smaller. Nevertheless, these 
manufacturer employees will still need to determine the types of 
displays that remain permissible. FDA therefore accepts the $1.5 
million cost estimate.
7. Access Restrictions
    a. Manufacturers. Although voluntary decreases in the sale of 
consumer products do not impose long-term net societal costs, mandatory 
restraints on the access of consumers to desired products may imply 
economic costs. Economists typically measure producer-related 
inefficiencies attributable to product bans by calculating lost 
``producers' surplus,'' which is a technical term for describing the 
difference between the amount a producer is paid for each unit of a 
good and the minimum amount the producer would accept to supply each 
unit, or the area between the price and supply curve. Data derived from 
Cummings, et al., indicate that youngsters under the age of 18 consume 
316 million packs of cigarettes per year, leading to industry profits 
of $118 million. \329\ On the assumption that the regulation would 
reduce teenage smoking by one-half, these profits would fall by about 
$59

[[Page 44594]]

million. However, because most of this profit stems from illegal sales 
to youths, FDA has not counted this figure as a societal cost.
---------------------------------------------------------------------------

    \329\ Cummings, K. M., T. Pechacek, and D. Shopland, ``The 
Illegal Sale of Cigarettes to U.S. Minors: Estimates by State,'' 
American Journal of Public Health, vol. 84, No. 2, p. 301, February 
1994, (derived by subtracting sales to 18-years-olds from the 
reported 516 million packs consumed).
---------------------------------------------------------------------------

    b. Consumers. Consumer surplus is a concept that represents the 
amount by which the utility or enjoyment associated with a product 
exceeds the price charged for the product. Because it reflects the 
difference between the price the consumer is willing to pay and the 
actual market price, it is used by economists to measure consumer 
welfare losses imposed by product bans. However, FDA's rule imposes no 
access restrictions on adults, who will be free to consume tobacco 
products if they so desire. Thus, FDA has not included any value for 
lost consumer surplus in its estimate of the societal costs of these 
access restrictions.
8. I.D. Checks
    a. Retailers. For the 1995 proposed regulation, FDA estimated that 
retail establishments would bear annual compliance costs of $28 million 
for consumer identification checks. This figure was derived by 
multiplying the estimated retail employee compensation rate by the 
extra time that might be needed to complete purchase transactions. The 
estimate measured the cost to retailers for either increasing the 
number of working hours of existing staff or for hiring new staff to 
handle the added workload. The Barents Group commented on numerous 
aspects of this compliance cost estimation, accepting several key FDA 
assumptions, but rejecting others in deriving its estimate of $142 
million per year.
    In its preliminary analysis, FDA estimated the number of tobacco 
product transactions for the 18 to 26 year-old age group based on data 
that reflected the tobacco consumption of cigarette smokers 5 to 6 
years after high school \330\ and the annual per capita consumption of 
smokeless tobacco. \331\ The Barents Group faulted FDA for limiting 
these transactions to 18 to 26 year-olds, asserting that the standard 
practice for alcohol sales is to request identification for anyone who 
appears to be 30 years old or younger. The Barents Group calculations 
actually estimated compliance costs on the assumption that customers up 
to age 34 would be asked for identification, because some older 
consumers would appear to be only 30 years old.
---------------------------------------------------------------------------

    \330\ 1994 SGR, p. 85.
    \331\ U.S. Department of Commerce, Statistical Abstract of the 
United States 1993, 113th edition, p. 137, 1993; DHHS, Office of 
Inspector General, Spit Tobacco and Youth; Additional Analysis, June 
1993.
---------------------------------------------------------------------------

    FDA has not accepted this Barents Group assumption for several 
reasons. First, the legal age of purchase for alcohol in all 50 States 
is 21 years, whereas the rule for cigarettes and smokeless tobacco sets 
18 as the legal age of purchase. This 3-year difference implies that 
comparable cigarette and smokeless identification checks would be 
expected only up through age 27. Also, the current policy and practice 
of many retail stores is to request identification from tobacco 
consumers only up to age 26. Requiring proof of age for anyone who 
appears younger than 26 years of age was also recommended by a working 
group of 26 State Attorneys General. \332\ Finally, the Barents Group's 
use of age 34 to provide a margin of safety for identifying those under 
the age of 30 is illogical, since the FDA rule requires retail stores 
to identify consumers who are under the age of 26, not 30.
---------------------------------------------------------------------------

    \332\ ``No Sale: Youth Tobacco and Responsible Retailing,'' 
Findings and Recommendations of Working Group of State Attorneys 
General, p. 28, December 1994.
---------------------------------------------------------------------------

    The Barents Group accepted the FDA assumption that an I.D. check 
would take an average of 10 seconds, but referenced a study by A. T. 
Kearney that found that the actual time needed to verify a photo I.D. 
for a tobacco product sale averaged 8.3 seconds. Because FDA has no 
better data, the agency adopts 8.3 seconds as the average time needed 
to conduct an I.D. check. The Barents Group further commented that FDA 
used outdated employee compensation data in its calculations. FDA's 
revised totals use the Barents Group's employee compensation estimate 
of $9.51/hour (1994 dollars) as the time value for retail sales 
employees.
    FDA originally assumed that only 75 percent of all retail 
transactions for the 18 to 26 year-old age group would be extended due 
to I.D. checks. The Barents Group argued that the correct percentage 
should be 100 percent, as the rule would apply to all sales to the 
relevant age group. FDA continues to believe that this assumption leads 
to an over-estimate of the probable costs. First, not every moment of a 
clerk's time is effectively utilized and a few seconds more per 
transaction will not always result in lost labor productivity. Second, 
many smokers patronize the same retail store almost daily and are well-
known to clerks. I.D. checks for these customers will take little extra 
time. Finally, many customers will take less time to produce an I.D., 
once they realize that identification checks have become routine. 
Nevertheless, FDA adopts the Barents Group's 100-percent assumption to 
assure a full accounting of the relevant costs.
    One comment claimed that FDA failed to include the cost of hiring 
additional sales clerks. As noted above, the FDA calculation does 
reflect the cost of the additional labor time that might be needed. The 
Barents Group also inexplicably asserts that FDA failed to consider 
I.D. checking costs as annual costs, instead listing them as a one-time 
cost. Table 2 of the original analysis (60 FR 41314 at 41360), clearly 
lists the $28 million identification check cost as an annual operating 
cost and the accompanying text (60 FR 41314 at 41367) refers to the 
figure as a ``per year'' cost. The Barents Group further faulted FDA 
for not taking into account the cost of checking I.D.'s for those 
youths under age 18, who will still attempt to buy cigarettes. While a 
small percentage of underage smokers may opt for this course of action, 
few would return to complying outlets. Thus, FDA believes that any 
plausible estimate of the associated costs would be less than $1 
million annually.
    FDA originally estimated the number of tobacco product transactions 
for the 18 to 26 year-old age group at 2.2 billion, but has updated its 
estimate to 2.5 billion. \333\ Also, the 80-percent current 
noncompliance rate that had been assumed for the 1995 proposal may be 
too high, as the Surgeon General estimated that minors are unable to 
make an OTC purchase of tobacco products about one-third of the time. 
\334\ Nevertheless, FDA retains this assumption to calculate a cost to

[[Page 44595]]

retailers for I.D. checks of $43 million per year (2.5 billion 
transactions x 8.3 seconds/transaction x $9.51/hour  3600 
seconds/hour x 80 percent noncompliance rate). This revised estimate 
exceeds FDA's original $28 million figure, but remains far below the 
$142 million estimate of the Barents Group.
---------------------------------------------------------------------------

    \333\ 1994 Population data for 18 to 26 year-olds from 1995 
Statistical Abstract, Table 16. Cigarettes: Number of smokers for 
age group calculated from Table 217 (1993 data). Average packs/yr. 
and total packs/yr. for smokers aged 18 to 26 calculated from data 
in Table 20, 1994 SGR, p. 85. (Those smoking 1 to 5 cigarettes/day 
assumed to smoke 3, those smoking 20+ cigarettes/day assumed to 
smoke 25). The resulting number of packs smoked by 18 to 26 yr.-olds 
totals about 2.5 billion. If even 1 percent of these transactions 
were for cartons, this number falls to about 2.3 billion. Smokeless: 
Total units of smokeless products sold calculated from data in Spit 
Tobacco and Youth: Additional Analysis, Dept. of Health and Human 
Services, June 1993, Excise Tax calculations, Option 4; Units 
consumed by youths from the Institute of Medicine Report (the IOM 
Report) ``Growing Up Tobacco Free: Preventing Nicotine Addiction in 
Children and Youths'', p. 8. 1994, Usage data and total units (cans 
or pouches) consumed for age group for those aged 18 to 26 from 
``Use of Smokeless Tobacco Among Adults-U.S., 1991'' in ``MMWR'', 
CDC, DHHS, volume 42, No. 14, p. 264, 1993. The number of containers 
sold for 18 to 26 yr. old age group totals about 0.2 billion.
    \334\ IOM Report, p. 202.
---------------------------------------------------------------------------

    b. Consumers. The Barents Group also criticized FDA for not 
quantifying the costs to consumers for the extra time needed to undergo 
I.D. verifications. They estimated this cost at $282 million a year. 
FDA agrees that consumers would incur time costs and, for its revised 
estimates, adopts the analytical framework suggested by the Barents 
Group, which counts only the time lost by young customers. (The Barents 
Group suggests that older consumers also would experience delays, but 
FDA's estimates already account for the cost of additional clerk time 
that would offset longer checkout lines. Younger customers, however, 
must wait while their age is verified, even when additional checkout 
clerks are available.) To estimate the time cost, FDA applies the same 
methodology that was used to estimate the time cost for retail 
employees. That is, 2.5 billion transactions taking an extra 8.3 
seconds each for the 18 to 26 year-old age group, adjusted for a 20 
percent current compliance rate. The Barents Group used an average 
hourly private sector compensation rate ($15.13/hour) as the basis of 
its consumer time cost estimate, but FDA finds this average rate too 
high for young consumers and estimates a range of $9 to $11 per hour. 
\335\ As a result, FDA's estimate of the cost to consumers for lost 
time cost amounts to between $41 and $50 million per year.
---------------------------------------------------------------------------

    \335\ Data from the 1995 Statistical Abstract of the United 
States, Table 677 lists weekly earnings for full time wage and 
salary workers for the group ``16 to 24 year-olds'' in 1994. Table 
682 lists median hourly earnings for workers paid hourly rates for 
the same group in 1994. Assuming a 40 percent increase for benefits, 
the compensation rates for these two tables for 16 to 24 year-olds 
are $9.98/hour and $7.87/hour, respectively.
    Using these figures will result in a low estimate for the 18 to 
26 year-old group because 25 and 26 year-olds earn more than 16 and 
17 year-olds. Conversely, using a benefits/wage ratio of 40 percent 
for 18 to 26 year-olds will overstate the costs because lower paid 
workers (hourly and part-time workers, college students) are more 
likely to have less generous benefits packages (little or none of 
the following: paid vacation, sick leave, employer-paid health 
insurance). FDA increased the estimated compensation rates to $9 to 
$11/hour to assure it does not underestimate the true compensation 
rate.
---------------------------------------------------------------------------

9. Vending Machines
    In its comments on the costs of FDA's proposed vending machine ban, 
the Barents Group reports that automatic vending machine operators will 
lose $403 million in annual revenues. They then subtract an estimated 
$281 million offset for future over-the-counter sales (calculated by 
assuming an equal number of future packs sold and an $.80 price premium 
for vending machine packs) to project a net $122 million of regulatory 
costs to the retail sector. Although not acknowledged, this methodology 
implicitly assumes that a redistribution of revenues (from vending 
machine owners to over-the-counter sellers) does not generate added 
societal costs. Elsewhere, the Barents Group includes distributional 
impacts in cost totals. Nevertheless, even this $122 million estimate 
is far too high.
    The fundamental problem is that changes in revenue, as discussed 
above, do not measure economic costs. The relevant economic measure of 
regulatory costs to an industry is the change in producer surplus that 
a firm makes from selling a good or service. Because producer surplus' 
are difficult to measure, accounting profits are sometimes used as a 
proxy. By examining only lost revenues, the Barents Group ignores the 
difference in the operating costs of the alternative sales channel, 
despite its recognition that ``[i]n general terms, the extra margin at 
vending machines reflects the costs to vending machine owners of 
operating these machines, in addition to a return on their labor effort 
and capital investments.'' In other words, the reason that cigarettes 
purchased from a vending machine are more expensive is that it costs 
more to sell a pack of cigarettes by vending machine. Consequently, if 
cigarette sales shift from more expensive-to-operate vending machines 
to OTC, the loss of industry profits is much smaller than the loss of 
industry revenues.
    An approximate assessment of the net impact on retail profits 
requires a comparison of the pretax profit margins for vending machine 
operations as compared to OTC sales. The Barents Group cited survey 
results from the National Automatic Merchandising Association (NAMA) 
showing an average pretax profit margin of 3.8 percent in 1993 and 2.0 
percent in 1992, for an average 2.9 percent for vending machine 
operations. Because cigarette vending machine sales have decreased in 
recent years, current profit margins might be even smaller. 
Coincidentally, the Barents Group reports that the estimated average 
industry profit margin for convenience stores is also 2.9 percent. If 
this rate applies to cigarette sales at convenience stores and if all 
lost vending machine cigarette sales were transferred to convenience 
stores, the net pretax cost to the industry would be $3.5 million, not 
$122 million ($403 million to $281 million) x 2.9 percent). Moreover, 
NAMA reports that over 50 percent of all vending machines are located 
in bars and taverns and many others in business establishments 
frequented only by adults. The final rule permits vending machines in 
those places where the owner can ensure that no young people under age 
18 are present at any time. FDA does not know how many vending machines 
will be moved to restricted areas in compliance with this rule, but the 
number will further reduce this annual cost.
10. Readership Surveys
    The Barents Group reported that 101 leading national magazines had 
advertisements for tobacco products in 1994. In addition, Barents 
obtained youth and adult readership data for 1994 from MediaMark 
Research, Inc. (MediaMark), for 41 of these 101 magazines. Applying the 
regulatory threshold of 2 million readers or 15 percent of total 
readership below the age of 18, Barents projected that advertisements 
in 32 of the 41 magazines (78 percent) would be restricted to ``text 
only'' by the proposed regulation. In comparison, FDA examined 
copyrighted youth and adult readership data from the Simmons Marketing 
Bureau, Inc. (Simmons), another major marketing research firm, and 
found that only 13 of the 27 magazines with tobacco ads (48 percent) 
had youth readership over the threshold. A comparison of youth 
readership levels from MediaMark and Simmons for magazines that had 
tobacco advertisements in 1992 is shown in Table 11. \336\
---------------------------------------------------------------------------

    \336\ Tobacco industry spending on magazine advertising was 
calculated using tobacco advertising share data from Barents and 
advertising revenues from Advertising Age. Advertising revenue was 
unavailable for five small publications that accounted for less than 
one percent of tobacco magazine advertising spending in 1994. To 
estimate tobacco advertising expenditures in these five 
publications, FDA assumed total advertising revenues for each 
publication equal to $14,388, which is the lowest total revenue 
reported in Advertising Age for 1994.

[[Page 44596]]



                                               TABLE 11.--AVAILABLE YOUTH READERSHIP DATA FOR PUBLICATIONS                                              
                                                           WITH TOBACCO ADVERTISEMENTS IN 1994                                                          
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Estimated          MediaMark Research Inc. (1994     Simmons Market Research Bureau, Inc.
                                                             Percentage of              readership data)                   (1994 readership data)       
                                                              1994 Tobacco   ---------------------------------------------------------------------------
    Publications with Youth and Adult Readership Data      Industry Spending                         Percent of                            Percent of   
                                                              on Magazine     Number of Readers   Readers Under 18  Number of Readers   Readers Under 18
                                                             Advertisements     Under 18 (000)          (%)           Under 18 (000)          (%)       
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sports Illustrated1,2                                                   10.0              5,201               18.0              4,614               17.1
People1,2                                                                9.8              3,020                7.8              2,465                8.0
TV Guide1,2                                                              6.5              6,739               13.2              7,102               15.6
Time                                                                     4.1              1,972                7.7                n/a                n/a
Parade2                                                                  3.7                n/a                n/a              6,059                6.9
Cosmopolitan1                                                            3.1              2,279               12.8              1,410               11.4
Woman's Day                                                              3.0              1,202                4.8                n/a                n/a
Entertainment Weekly2                                                    2.9                n/a                n/a                674               15.3
Better Homes & Gardens1                                                  2.4              2,042                5.5                785                3.4
Newsweek                                                                 2.4              1,911                8.0                n/a                n/a
Family Circle                                                            2.1              1,210                4.2                646                3.5
Field & Stream                                                           2.1              1,760               11.1                815                7.9
Glamour1,2                                                               2.0              2,216               17.1              1,540               17.4
Rolling Stone1,2                                                         2.0              1,869               18.5              1,506               20.1
Ladies' Home Journal                                                     1.7                838                4.4                n/a                n/a
McCall's                                                                 1.7              1,274                6.7                506                3.7
Redbook                                                                  1.7              1,153                7.8                565                5.4
Car & Driver1                                                            1.6              1,465               18.3                n/a                n/a
Life1                                                                    1.6              2,665               12.9                n/a                n/a
Popular Mechanics                                                        1.5              1,617               14.5                744               10.3
Outdoor Life1                                                            1.3              1,579               18.0                569                8.8
Us                                                                       1.2                814               13.8                n/a                n/a
New Woman                                                                1.1                685               14.0                n/a                n/a
Road & Track1                                                            1.1              1,234               20.6                n/a                n/a
Soap Opera Digest                                                        1.1              1,299               14.4                853               12.6
Mademoiselle1,2                                                          1.0              1,369               19.7                959               18.5
Vogue1,2                                                                 1.0              2,237               18.0              1,300               17.4
Hot Rod1                                                                 0.8              2,295               28.0                n/a                n/a
Ebony1                                                                   0.7              2,111               15.8              1,046                9.4
Gentlemen's Quarterly1                                                   0.7              1,037               15.1                n/a                n/a
Motor Trend1                                                             0.7              1,393               22.1                n/a                n/a
Premiere1                                                                0.7                617               25.8                n/a                n/a
Sport1,2                                                                 0.7              2,274               33.8              1,132               24.0
Elle1                                                                    0.6                819               17.8                409               14.4
Essence1                                                                 0.6              1,251               16.9                537                9.4
Sports Afield                                                            0.6                n/a                n/a                  0                0.0
True Story                                                               0.5                740               14.8                n/a                n/a
Jet1                                                                     0.4              1,724               16.7              1,169               12.2
Popular Science1,2                                                       0.4              1,906               20.8                874               16.1
Self1                                                                    0.4                786               16.2                n/a                n/a
Harper's Bazaar1                                                         0.3                718               18.2                n/a                n/a
The Sporting News1,2                                                     0.3              1,394               27.8                666               15.7
Cable Guide1                                                             0.2              3,358               22.6                n/a                n/a
Ski1,2                                                                   0.0                827               26.4                584               24.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\MediaMark youth readership exceeds regulatory threshold.                                                                                             
\2\Simmons youth readership exceeds regulatory threshold.                                                                                               
Source: Barents Group LLC Tables IV-1 and A-2; Simmons Market Research Bureau, Inc.; R. Craig Endicott, ``The Ad Age 300,'' Advertising Age, June 19,   
  1995.                                                                                                                                                 

    The final regulation requires that specific youth and adult 
readership data be available for any magazine that displays a tobacco 
advertisement with color or imagery. Simmons currently conducts 
interviews with adults in approximately 20,000 households annually and 
subsequently returns to about 3,000 of these households to interview 
their youth members. In general, however, marketing research firms 
collect data on youth readership only for those magazines commonly read 
by this age group. Thus, although 78 percent and 48 percent of the 
magazines in the two youth readership samples described above exceeded 
the regulatory readership threshold, these sample results likely 
overestimate the percentage of magazines with current tobacco ads that 
exceed the threshold.
    Simmons now collects adult readership data for about 230 magazines 
and youth readership for about 65 magazines. Because tobacco 
manufacturers currently advertise in about 100 magazines, the industry 
could often add magazines that are currently part of an ongoing adult 
readership survey to a youth survey, saving approximately 60 percent of 
the cost of collecting both adult and youth data.

[[Page 44597]]

Because FDA does not know how tobacco manufacturers will adapt their 
marketing strategies to the new regulatory thresholds, it is difficult 
to predict the number of new readership surveys that may be initiated. 
It seems likely, however, that tobacco companies will both increase the 
frequency of advertising in ``adult'' magazines that already carry 
tobacco advertisements and find suitable ``adult'' magazines to replace 
many of the other magazines.
    One plausible scenario is that approximately one-half, or 50, of 
the magazines with current tobacco ads would not qualify as ``adult'' 
publications, because they exceed the youth readership threshold; and 
that the tobacco industry would choose to advertise in 50 other 
``adult'' publications that do not currently carry tobacco ads. To 
identify these 50 additional ``adult'' magazines, the industry might 
need to collect new youth readership data for up to 100 magazines. In 
addition, as noted above, of the original 100 magazines with current 
tobacco advertising, youth readership data is now available for at 
least 40. Thus, the tobacco industry may initially need to obtain new 
youth readership data for the remaining 60 magazines. In total, 
therefore, the tobacco industry might opt to obtain youth readership 
data for an additional 160 publications in the first year that the rule 
becomes effective. In subsequent years, this number might fall to about 
100 surveys, as the industry would concentrate its survey efforts on 
publications very likely to qualify.
    If a marketing research firm collects youth readership data, the 
cost may depend on the particular characteristics of the magazines 
being surveyed. The tobacco industry could choose, however, to hire a 
survey firm to develop and administer a questionnaire solely to gather 
readership data for magazines with tobacco advertising. While FDA is 
uncertain about which approach the industry would take, the agency 
estimates that such new surveys might cost approximately $2 million in 
one-time costs and $1 million in annual costs, based on an average cost 
of about $650 and $350 per sample household.
11. Records and Reports
    Manufacturers will need to comply with device regulations governing 
submissions of representative labels and advertising, medical device 
reporting (MDR's), establishment registration and product listing, and 
current good manufacturing practices (CGMP's).
    a. Labels and advertising. The rule requires that each manufacturer 
annually submit to FDA copies of representative samples of labels and 
advertising. While the agency expects about 1,000 product labels, FDA 
has no direct evidence on the number of advertisements that will be 
submitted. An approximate estimate, however, can be derived from the 
number of advertising samples submitted by the pharmaceutical industry. 
First, FDA calculated that of the $6.1 billion in advertising and 
promotional outlays reported to the FTC by the tobacco industry, only 
about $1.2 billion is spent on printed advertisements. (Derived by 
subtracting categories for ``Coupons/Value Added,'' ``Promotional 
Allowances,'' ``Specialties Items,'' and ``Free Samples'' from the 
total $6.1 billion).
    The pharmaceutical industry spends an estimated 22.5 percent of 
sales on marketing, of which about one-quarter may be allocated to 
advertising ethical pharmaceuticals. \337\ The approximately $50 
million in annual sales of pharmaceutical manufacturers, therefore, 
implies a $2.5 billion annual advertising budget. FDA estimates that it 
currently receives about 25,000 pieces of pharmaceutical advertising 
per year. As the pharmaceutical budget is roughly twice the size of the 
$1.2 billion tobacco industry figure derived above, the agency might 
receive half as many documents. Alternatively, reduced promotional 
activities may prompt an increase in the number of printed 
advertisements prepared by tobacco companies, although the Barents 
Group assumed this number would decline. Therefore, FDA projects that 
it will receive the same number of advertisements for tobacco products 
as it currently receives for pharmaceutical products, or about 25,000 
per year, plus about 1,000 labels.
---------------------------------------------------------------------------

    \337\ U.S. Congress, Office of Technology Assessment, 
``Pharmaceutical R&D: Costs, Risks and Rewards,'' OTA-H-522 
Washington, DC: U.S. Government Printing Office, pp. 303-304, 
February 1993.
---------------------------------------------------------------------------

    Estimates of the time burden of these paperwork submissions ranged 
from 20 minutes (The Barents Group) to 1 hour and estimates of the 
hourly cost ranged from $25.00 (Tobacco Institute) to $45.26 (the 
Barents Group). Using the high end of both ranges provides an upper 
bound cost estimate of $1.2 million. This figure is significantly lower 
than either the original FDA estimate, or the Barents Group estimate of 
$55 to $57 million, largely because the final rule imposes no specific 
paperwork requirements on retail establishments.
    b. MDR's. The final rule will require MDR's for serious unexpected 
incidents. FDA assumes that 31 manufacturing companies \338\ and 1,365 
distributors \339\ will bear total one-time costs of $21,000 and 
$231,000, respectively, for establishing and documenting procedures for 
MDR reporting. These costs include 32 hours of effort per manufacturing 
firm and 8 hours per distributor. Based on estimates previously 
developed for the Medical Device User Facility and Manufacturer 
Reporting Final Rule, these activities were distributed over wage rates 
averaging $21.17. Annual costs for MDR reporting requirements are more 
difficult to predict, because they depend on the number of adverse 
event reports that will be submitted. FDA projects, however, that 
followup investigation and reporting of a single event takes about 8 
hours of labor and costs about $218. Thus, if 50 adverse event reports 
were filed annually, the annual cost would be about $11,000. In 
addition, if each manufacturing company submits a single baseline 
report and annual updates, these costs would be about $2,100 annually, 
based on unit costs of $54 and $14 per report, respectively. Annual 
certification is necessary, but is typically a formality in terms of 
data collection and reporting and is estimated to cost about $800 for 
all manufacturers and $35,000 for all distributors assuming 1 hour of 
professional and clerical time at $25.80 per hour.
---------------------------------------------------------------------------

    \338\ 1992 U.S. Census of Manufactures, Industry Series, Tobacco 
Products, Table 1a. A few U.S. agents designated to represent 
foreign manufacturers would also need to file forms, but these costs 
should be minimal.
    \339\ Special Census Tabulation prepared by U.S. Bureau of 
Census for U.S. Small Business Administration, Table 3--United 
States (unpublished data).
---------------------------------------------------------------------------

    c. Registration and listing. Registration and listing duties are 
estimated to take 41 manufacturing establishments 2 hours each to 
prepare at a unit cost of $42, totaling about $1,700 per year for the 
industry.
    d. CGMP's. The Tobacco Institute asserted that cigarette 
manufacturers would need substantial time to comply with CGMP's as the 
industry ``would need to adopt major new systems * * * [and] make major 
changes to their procedures just to accommodate the recordkeeping 
required.'' Conversely, the economics study prepared by the Barents 
Group for the Tobacco Institute showed no additional costs for this 
requirement. FDA agrees that these costs

[[Page 44598]]

should be minimal for facilities with good quality assurance programs. 
Its CGMP's do not specify a specific format, but encompass a wide 
variety of broad requirements for documenting operating procedures. 
Contrary to the Tobacco Institute's claim that ``even a well-run 
cigarette manufacturing facility would need to adopt major new 
systems,'' CGMP's are, in fact, based on the activities of well-run 
operations. Moreover, device CGMP's are currently under revision to 
bring them even closer to ISO 9001, the generally recognized 
international standard for quality assurance systems. Thus, while FDA 
has little experience with day-to-day tobacco manufacturing procedures, 
the agency does not anticipate the need for substantial quality system 
redesign. Wholesalers and distributors also submitted comments 
contending that the CGMP's would create added paperwork burdens, but 
the agency has exempted these sectors from the CGMP requirements.
12. Government Enforcement
    FDA estimates of internal costs for administering and enforcing 
this regulation are extremely uncertain, as they will depend on the 
working relationships to be established with State tobacco control 
programs. As a best estimate, however, FDA projects that between 30 to 
50 full-time employees (FTE's) will be needed to implement the rule. 
Fully loaded employee costs vary with the type of employee (e.g., field 
inspectors versus administrative), but an average of $100,000 per FTE 
places the dollar cost at between $3 and $5 million per year. SAMHSA 
has estimated that State programs will need between $25 and $50 million 
annually to administer and enforce appropriate State operations.
13. Comparison of Benefits to Costs
    FDA expects the net societal benefits of the rule to far exceed the 
regulatory costs. Based on the analysis presented above, the estimated 
one-time costs of the combined FDA and SAMHSA rules are $174 to $187 
million and the estimated annual costs are $149 to $185 million. Taking 
the midpoint of the ranges and annualizing the one-time costs at 3 and 
7 percent, respectively, yields total annualized costs of $172 million 
and $180 million. In contrast, the agency's best estimate of the 
monetized regulatory benefits that would follow a 50 percent reduction 
in underage tobacco use ranges from $28.1 to $43.2 billion at a 3 
percent discount rate and from $9.2 to $10.4 billion at a 7 percent 
discount rate. Thus, as shown in Table 12, the net benefits (benefits 
minus costs) of a total effectiveness rate of 25 percent range from 
$27.9 to $43 billion at a 3 percent discount rate and from $9.0 to 
$10.2 billion at a 7 percent rate. Table 13 indicates that those 
figures imply a cost per life-year saved of from $800 to $4,700 and a 
cost per death avoided of from $11,000 to $52,000. As noted earlier, 
these benefits are exclusive of the substantial health improvements 
expected to result from the reduced consumption of smokeless tobacco.
    The substantial differential between these estimated costs and 
benefits withstands rigorous sensitivity analysis (see Table 12). For 
example, SAMHSA estimated that its rule would reduce underage tobacco 
use by from one-third to one-tenth. The approximate midpoint of that 
estimate (20 percent) constitutes about 40 percent of the regulatory 
benefit of reducing underage tobacco use by one-half. If, for 
illustrative purposes, these results, as well as a proportional 
fraction of the relevant costs, \340\ are attributed to SAMHSA, the 
incremental net benefits of the FDA rule still range from $16.8 to 
$25.8 billion at a 3 percent discount rate, and from $5.4 to $6.2 
billion at a 7 percent discount rate.
---------------------------------------------------------------------------

    \340\ Costs include 100 percent of SAMHSA's state enforcement 
costs, plus 40 percent of retail training costs, vending machine 
costs, and retail and consumer I.D. check costs.
---------------------------------------------------------------------------

    Moreover, FDA assumed that reaching the ``Healthy People 2000'' 
goal would deter about one-quarter of the 1 million youth under age 18 
who currently begin to smoke each year from ever smoking as an adult. 
Thus, this goal implies a 25 percent overall effectiveness rate. If, 
however, these rules prevent smoking as an adult for even 5 percent of 
the teenagers who would otherwise become adult smokers, they would 
produce estimated annual net benefits of from $5.4 billion to $8.5 
billion at a 3 percent discount rate and from $1.7 billion to $1.9 
billion at a 7 percent discount rate. Even if this latter scenario 
attributed 40 percent of the benefits and relevant costs to SAMHSA, the 
annual net benefits of the FDA rule would still range from $3.3 billion 
to $5.1 billion at a 3 percent discount rate and from $1.0 billion to 
$1.2 billion at a 7-percent discount rate. This last example implies a 
cost per life-year saved of $3,500 to $21,100 and a cost per death 
avoided of $47,000 to $234,246. These figures are well within the range 
of values for health interventions typically considered cost-effective.

                                                                 TABLE 12.--NET BENEFITS                                                                
                                                                      ($ Billions)                                                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Effectiveness Rates                                                           
             -------------------------------------------------------------------------------------------------------------------------------------------
  Discount                25%                         15%                         10%                         5%                         2.5%           
    Rate     -------------------------------------------------------------------------------------------------------------------------------------------
                   Low          High           Low          High           Low          High           Low          High           Low          High    
--------------------------------------------------------------------------------------------------------------------------------------------------------
3%..........       27.9          43.0          16.7          25.7          11.1          17.1           5.4           8.5           2.6           4.1   
7%..........        9.0          10.2           5.3           6.1           3.5           4.0           1.7           1.9           0.74          0.86  
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Illustrative Incremental Net Benefits\1\                                                        
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                        
3%..........       16.8          25.8          10.0          15.5           6.7          10.3           3.3           5.1           1.6           2.5   
7%..........        5.4           6.2           3.2           3.7           2.1           2.4           1.0           1.2           0.45          0.53  
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Attributes 40% of benefits and associated costs to SAMHSA                                                                                           


[[Page 44599]]



                                                              TABLE 13.--COST EFFECTIVENESS                                                             
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Effectiveness Rates                                                           
             -------------------------------------------------------------------------------------------------------------------------------------------
                          25%                         15%                         10%                         5%                         2.5%           
  Discount   -------------------------------------------------------------------------------------------------------------------------------------------
    Rate       Cost/Life-                  Cost/Life-                  Cost/Life-                  Cost/Life-                  Cost/Life-               
               Year Saved    Cost/Death    Year Saved    Cost/Death    Year Saved    Cost/Death    Year Saved    Cost/Death    Year Saved    Cost/Death 
                   ($)       Avoided ($)       ($)       Avoided ($)       ($)       Avoided ($)       ($)       Avoided ($)       ($)       Avoided ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3%..........       815        10,862         1,358        18,103         2,038        27,155         4,075        54,310         8,151       108,621    
7%..........     4,722        52,423         7,870        87,372        11,804       131,059        23,609       262,117        47,218       524,235    
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Illustrative Incremental Cost-effectiveness\1\                                                     
--------------------------------------------------------------------------------------------------------------------------------------------------------
3%..........       706         9,413         1,177        15,689         1,766        23,533         3,532        47,067         7,064        94,134    
7%..........     4,220        46,849         7,033        78,082        10,549       117,123        21,098       234,246        42,197       468,492    
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Attributes 40% of benefits and associated costs to SAMHSA                                                                                           

E. Distributional Effects

    These regulations will impose a variety of sector-specific 
distributional effects. Those sectors affiliated with tobacco and 
tobacco products will lose sales revenues and these losses will grow 
over time. Businesses engaged in the provision of tobacco product 
advertising may also face reduced revenues. Simultaneously, nontobacco-
related industries will gain sales, because dollars not spent for 
tobacco products will be spent on other commodities.
1. Tobacco Manufacturers and Distributors
    For its calculation of regulatory benefits, FDA estimates that 
implementation of the regulations may reduce the cigarette consumption 
of underage smokers by one-half within 7 years. As discussed earlier in 
this section, based on data presented in Cummings, et al., FDA finds 
that teenage smokers under the age of 18 consumed about 316 million 
packs of cigarettes in 1994. A 50-percent cut in sales would drop the 
number of packs sold by 158 million. Moreover, FDA has assumed that at 
least one-half of those 500,000 teenagers who would be deterred from 
starting to smoke each year would refrain from smoking as adults, 
decreasing the number of adult smokers by 250,000 per year. Because 
each adult smoker consumes about 500 packs per year, about 124 million 
fewer packs would be sold per year.
    Thus, achieving the agency's goal would reduce cigarette 
consumption by 158 million packs in the first year (while only 
teenagers are affected), 158 million plus 124 million packs in the 
second year, 158 million plus 2 times 124 million packs in the third 
year, and so on. Since 1994 cigarette shipments totaled 36.3 billion 
packs, \341\ cigarette consumption would fall by about 0.4 percent in 
the first year, 1.8 percent in the fifth year, and 3.5 percent in the 
tenth year following implementation. (In fact, these reductions may 
take even longer, because it may be several years before the 50-percent 
effectiveness level is achieved, and because young adults smoke fewer 
packs than older adults).
---------------------------------------------------------------------------

    \341\ ``Tobacco Situation and Outlook Report,'' U.S.D.A., 
Economic Research Service, p. 4, April 1995.
---------------------------------------------------------------------------

    Hence, annual tobacco revenues will decline slowly over time. The 
U.S. Bureau of the Census estimates 1994 revenues for cigarette and 
smokeless tobacco manufacturers at about $25.9 billion. \342\ Assuming 
comparable reductions in smokeless tobacco, these calculations imply 
that tobacco manufacturer revenues will fall by $128 million in the 
first year (0.5 percent), $501 million in the fifth year (1.9 percent), 
and $966 million in the tenth year (3.7 percent). While these 
reductions are significant, the gradual phasing of the impacts will 
significantly dissipate any associated economic disruption.
---------------------------------------------------------------------------

    \342\ ``1994 Annual Survey of Manufactures: Value of Product 
Shipments,'' U.S. Department of Commerce , Bureau of the Census, 
Table 1, p. 210. ASM does not report data below the 5-digit SIC Code 
Level. FDA assumed chewing tobacco represented the same percentage 
of SIC Code 2131 (Chewing and Smoking Tobacco) in 1994 as it did in 
1992 when it was classified at a 6-digit SIC code in the Census of 
Manufacturers.
---------------------------------------------------------------------------

    In a 1992 report prepared for the Tobacco Institute, Price 
Waterhouse estimated that the tobacco manufacturing, warehousing and 
wholesale trade sectors employed about 107,000 full-time workers. \343\ 
Thus, a constant production-to-employment ratio projects that a 3.7-
percent reduction in sales over a 10-year period would result in the 
displacement of about 4,000 jobs, or 400 jobs annually among 
manufacturers, warehousers, and wholesalers. Alternatively, a 
University of Virginia study concluded that ``the Price Waterhouse 
study for the Tobacco Institute provides estimates of tobacco's impact 
that are high compared to other measures.'' \344\ That study referenced 
a recent U.S. Department of Agriculture analysis by Gale that found 
that manufacturing and wholesale trade activities employ only 83,000 
full-time equivalent workers. \345\ If true, this finding reduces these 
job loss estimates to about 3,000 jobs, or 300 annually.
---------------------------------------------------------------------------

    \343\ ``The Economic Impact of the Tobacco Industry on the 
United States in 1990,'' Price Waterhouse, p. ES-3, October 1992.
    \344\ Knapp, J. L., ``Tobacco in Virginia,'' Weldon Cooper 
Center for Public Service, University of Virginia, p. 5, December 
1995.
    \345\ Gale, F., ``What Tobacco Farming Means to Local 
Economies,'' U.S. Department of Agriculture, Economic Research 
Service, Agriculture Economic Report Number 694, p. 5, September 
1994.
---------------------------------------------------------------------------

    The smaller job loss estimate is generally confirmed by a recent 
study by Warner, et al., who applied a computer simulation model to 
forecast the regional impact of reductions in tobacco use. \346\ The 
authors used ``a state-of-the-art macroeconomic model to simulate what 
would happen if consumers reduced their tobacco expenditures, with the 
same level of spending redistributed to other goods and services * * 
*.'' One scenario assumed that tobacco control activities would reduce 
the expected rate of tobacco purchases by 2.06 percent per year, or 
roughly 5 times the estimated effect of the FDA rule. While this 
scenario does not present direct impacts to the tobacco industry alone, 
it forecasts job losses after 8 years of 6,401 for all U.S. wholesalers 
and 5,957 for Southeast Tobacco Region

[[Page 44600]]

manufacturers. Accounting for the multiple of 5, comparable job losses 
attributable to the FDA rule would total about 2,600 after 8 years, or 
about 325 annually.
---------------------------------------------------------------------------

    \346\ Warner, K. E., G. A. Fulton, P. Nicolas, and D. R. Grimes, 
``Employment Implications of Declining Tobacco Product Sales for the 
Regional Economies of the United States,'' JAMA, pp. 1241-1246, 
April 24, 1996.
---------------------------------------------------------------------------

    The Barents Group did not address the long-term gradual decline in 
tobacco use projected by FDA. Nevertheless, it claimed that the agency 
underestimated the economic impact on industry by failing to account 
for the lost sales to adults that would result from the proposed ban on 
vending machines and self-service displays and the required checking of 
customer I.D.'s. The Barents Group argued that the added consumer 
inconvenience imposed by these provisions was tantamount to an increase 
in the effective price of tobacco products, which would rapidly 
decrease the consumption of tobacco by adults. Relying on 
``hypothetical scenarios'' that assume demand declines of 5 and 10 
percent, the Barents Group forecast that the tobacco manufacturing 
industry would lose from 1,800 to 3,700 jobs due to this increased 
consumer inconvenience.
    FDA believes these Barents projections are substantially 
overstated. Impacts associated with cigarette consumption declines of 5 
to 10 percent cannot possibly be attributed to the loss of vending 
machines, because vending machine purchases make up less than 1 percent 
of all cigarette purchases. Further, according to NAMA, there are only 
141,000 cigarette vending machines currently in use (and that number is 
falling rapidly), and the cost analysis prepared by the Barents Group 
predicted that 100,000 of these machines would be replaced by new OTC 
establishments. Thus, the Barents Group's own analysis eliminates any 
added consumer inconvenience from three-quarters of the existing 
inventory of machines. Moreover, the near-term impact on adult tobacco 
consumption will be further moderated both because the final rule 
allows vending machines in ``adult'' facilities, and because the added 
inconvenience cost will be partially offset by the lower price of the 
OTC product. These factors together make it extremely unlikely that 
fewer vending machines will lead to a substantial near-term fall in 
tobacco industry sales revenues.
    The likelihood that tobacco sales will decline significantly due to 
inconvenience imposed on adult customers by the self-service 
restriction is similarly remote. While some purchasers would need more 
time to complete a transaction, other purchasers would save time by no 
longer having to search and retrieve a desired product. In the absence 
of empirical evidence, the result is indeterminate; but FDA has seen no 
convincing evidence or arguments to demonstrate that any delays caused 
by the self-service restriction will significantly curtail adult 
tobacco use.
    Finally, although FDA calculated above that increased delays due to 
I.D. checking could cost young adult consumers under the age of 26 up 
to $50 million per year, even this cost would not lead to significant 
consumption declines. As described, the increased checkout waiting time 
for young purchasers was estimated to average about 8.3 seconds, which 
translates to a cost of about 2.3 cents per transaction, or 1.35 
percent of the cost of a pack of cigarettes. According to the Barents 
Group, representative estimates of demand elasticities for cigarettes 
range from -0.6 to -1.0. Young adults under the age of 26, however, 
purchase only about 10 percent of all tobacco products. Thus, the fall 
in total tobacco sales would be, at most, 0.1 percent, not the 5 to 10 
percent assumed by the Barents Group. Moreover, even the 0.1 percent 
figure is an overestimate, because those consumers irritated by the 
delay will increase the volume of tobacco products purchased per 
transaction. As a result, the number of cartons sold will rise, but the 
decline in tobacco product sales revenues attributable to the 
inconvenience effects of I.D. checks will be negligible.
2. Tobacco Growers
    As explained above, total cigarette and chewing tobacco consumption 
is expected to decrease by 0.5 percent in the first year, 1.9 percent 
by the fifth year, and 3.7 percent by the tenth year, following 
compliance with the regulation. Price Waterhouse estimated that, on a 
full-time equivalent basis, about 153,000 farmers grew tobacco in 1990. 
Based on these figures, constant production-to-employment ratios imply 
employment losses among tobacco growers of about 5,700 after 10 years, 
or about 570 annually. Alternatively, the Gale study for the U.S. 
Department of Agriculture (USDA) \347\ estimated the number of full-
time equivalent tobacco farmers to be only 65,400, which would reduce 
the job loss estimate to about 2,500 by the tenth year, or 250 
annually.
---------------------------------------------------------------------------

    \347\ Gale, F., ``What Tobacco Farming Means to Local 
Economics,'' USDA, Economic Research Service, Agriculture Economic 
Report Number 64, p. 5, September 1994.
---------------------------------------------------------------------------

    This latter figure also closely fits the findings of Warner, et 
al., who, as described above, used a ``state-of-the-art'' macroeconomic 
simulation model to project the employment effects of declining tobacco 
consumption. \348\ Assuming domestic tobacco consumption decreases of 
2.06 percent per year, Warner, et al. predicted about 7,500 job losses 
within an 8-year period for ``Southeast Tobacco Region'' farmers. As 
this fall in tobacco use is roughly five times that projected by FDA, 
the analogous job loss estimate would be about 1,500 over the 8-year 
period, or about 190 per year.
---------------------------------------------------------------------------

    \348\ Warner, K. E., G. A. Fulton, and D. R. Grimes, 
``Employment Implications of Declining Tobacco Product Sales for the 
Regional Economies of the United States,'' JAMA, pp. 1241-1246, 
April 24, 1996.
---------------------------------------------------------------------------

    According to the USDA study by Gale, ``[f]or most farms, tobacco 
growing is a part-time, seasonal enterprise, and production per farm is 
usually small. About two-thirds of tobacco farmers work off-farm.'' 
\349\ Citing 1987 Census of Agriculture data, Gale notes that only 65 
percent of the farms growing tobacco in the United States reported 
earning more than half of their receipts from tobacco, and of those 
farms, approximately 80 percent had total farm sales under $20,000. He 
explains that the availability of alternative land uses will dictate 
the economic results:
---------------------------------------------------------------------------

    \349\ Gale, F., ``What Tobacco Farming Means to Local 
Economies,'' USDA, Economic Research Service, Agriculture Economic 
Report Number 64, p. 1, September 1994.
---------------------------------------------------------------------------

    The key factor in adjustment to a smaller tobacco industry is 
the alternative uses available for land, labor, and capital used in 
tobacco production * * * For the most part, concern is focused on 
rural areas where tobacco is grown because this stage of production 
has the most specialized resources with fewer attractive alternative 
uses. In many areas, small farms that are unviable without tobacco 
profits would cease production and their land would be absorbed into 
larger neighboring farms or converted to other uses * * * In 
marginal farming areas * * * much of the land devoted to tobacco 
would be converted to residential, commercial, industrial, or 
forestry uses, in which case it would still generate income for the 
local economy * * * This land is already being converted to nonfarm 
uses in rapidly growing areas like southern Maryland and Raleigh-
Durham, North Carolina. \350\
---------------------------------------------------------------------------

    \350\ Id., p. iii.
---------------------------------------------------------------------------

FDA notes that the economic consequences of these trends will be 
substantially mitigated by the very moderate pace of the projected 
changes.
3. Vending Machine Operators
    The final regulation prohibits all vending machine sales of 
regulated tobacco products except for those machines located in a 
facility where

[[Page 44601]]

persons under the age of 18 are not present at any time. In recent 
years, cigarette vending sales have dropped precipitously, due to 
numerous restrictive State and local ordinances. According to the NAMA:
    [t]he 1986 cigarette location survey mirrored an industry with 
about 700,000 cigarette vending machines on location. In 1994, the 
vending industry was estimated to have between 141,000 and 400,000 
cigarette machines. This represents a decline in the number of 
cigarette vending machines on location of between 43 percent and 80 
percent.
    The U.S. Department of Commerce \351\ reports that 1992 sales of 
tobacco products by automatic merchandising machine operators were 
about $452 million, or 7.1 percent of that sector's total sales, but a 
NAMA fact sheet shows this rate continuing to fall, dropping from 8.5 
percent in 1990 to 2.7 percent in 1994. One trade magazine explains 
that, ``[c]igarette vending, once an industry mainstay, is now a niche 
business increasingly conducted by specialized enterprises.'' \352\
---------------------------------------------------------------------------

    \351\ U.S. Department of Commerce, ``Merchandise Line Sales,'' 
1992 Census of Retail Trade, RC92-S-3RV, pp. 3-27, 3-31.
    \352\ Vending Times, Census of the Industry Issue, p. 36-D, 
1995.
---------------------------------------------------------------------------

    Referring to 1992 Census data, NAMA declared that over 3,000 
vending machine operators supply cigarettes, not including the bars, 
restaurants, hotels, and bowling alleys that own their own machines. On 
average, these mostly small firms receive 10 percent of their revenues 
from cigarette sales, although some firms are even more dependent. 
While some vending machines can be converted to sell other products, 
one large cigarette machine manufacturer maintained that more than 85 
percent of the existing machines can be converted only for new products 
with packaging similar in dimension and form to cigarette packages.
    While vending operators will need to develop new markets to replace 
the already dwindling sales revenues from cigarette vending machines, 
the overall economic impact will be mitigated somewhat by FDA's 
decision to exempt ``adult only'' locations from the ban. According to 
a 1995 NAMA survey, 58 percent of cigarette vending machines are 
located in bars and cocktail lounges, 11 percent in factory/plant 
locations, and 3 percent in business offices. \353\ Those locations 
that do not permit the entry of youngsters under the age of 18 will be 
exempted from the cigarette vending machine restriction.
---------------------------------------------------------------------------

    \353\ National Automatic Merchandising Association, Cigarette 
Vending Machine Location Study, conducted August 31, 1995.
---------------------------------------------------------------------------

4. Advertising Sector
    In annual reports to FTC, manufacturers of cigarettes and smokeless 
tobacco reported 1993 advertising and promotional/marketing 
expenditures of $6.0 billion and $119 million, respectively (see Table 
14). About $2.6 billion (43 percent) of these outlays went to consumers 
as financial incentives to induce further sales (e.g., coupons, cents-
off, buy-one-get one free, free samples), and $1.6 billion (26 percent) 
to retailers to enhance the sale of their product. The remaining $1.9 
billion (31 percent) were related to consumer advertising activities 
that will be significantly modified by the ``text only'' restrictions.

         TABLE 14.--TOBACCO ADVERTISING/PROMOTIONAL EXPENDITURES        
                       1993 (Millions of Dollars)1                      
------------------------------------------------------------------------
          Promotion Type            Cigarettes   Smokeless      Total   
------------------------------------------------------------------------
Coupons/Value Added                   2,559           32        2,591   
Promotional Allowances                1,558           13        1,571   
Point of Sale                           401           13          414   
Specialties Items                       756            4          760   
Outdoor                                 231            1          232   
Magazines                               235            7          242   
Public Entertainment                     84           23          107   
Free Samples                             40           16           56   
Transit                                  39            0           39   
Newspapers                               36            1           37   
Direct Mail                              31            1           32   
Endorsements                              0            0            0   
All Others                               64            7           71   
------------------------------------------------------------------------
Total                                 6,035          119        6,154   
------------------------------------------------------------------------
\1\ Totals may not add due to rounding.                                 
Source: U.S. Federal Trade Commission                                   

    FDA cannot project the ultimate industry response to these 
advertising restrictions. On the one hand, the effectiveness of many 
advertisements will fall. On the other hand, many alternative marketing 
promotional activities will be prohibited or constrained even more 
stringently, raising the relative desirability of the remaining 
advertising options. Moreover, as described above, FDA may require new 
informational programs that would generate a substantial increase in 
advertising industry revenues. Nevertheless, if tobacco outlays fall, 
there will be short-term dislocations as industry resources are 
redirected to other uses. One firm that depends heavily on tobacco 
advertising warned of severe economic burdens, pointing to income and 
job losses for many of its employees and suppliers. Most advertising 
suppliers, however, are not overly specialized with respect to 
particular consumer products and would redirect resources to other 
advertising purchasers, albeit at some revenue loss. While FDA is aware 
that such demand shifts cause short-term disruption, the U.S. economy 
creates and discards thousands of products each day. For most 
advertising media, the ability to respond rapidly to

[[Page 44602]]

changing markets is a mainstay of economic survival.
    a. Print media. The final regulation requires that advertising of 
cigarettes or smokeless tobacco be restricted to black text on a white 
background in those publications where youthful readers constitute more 
than 15 percent of total readership or number more than 2 million. FDA 
cannot reasonably forecast the future marketing strategies of tobacco 
manufacturers, but foresees a possible fall in the $242 million worth 
of magazine advertising and the $37 million worth of newspaper 
advertising that tobacco manufacturers reported to the FTC in 1993. 
These advertising revenues comprised about 1.1 percent and 0.1 percent 
of the 1992 value of shipments for periodicals and newspapers, 
respectively. \354\ The Barents Group identified 32 leading magazines 
with tobacco advertising in 1994 that have youth readership levels 
exceeding the regulatory threshold and found that these publications 
received, on average, 7.3 percent of their total advertising revenues 
from tobacco in 1994. They also predicted, based on the sharp downward 
trend of these advertising outlays, a 21-percent drop in magazine 
advertising and a 45-percent drop in newspaper advertising for tobacco 
products by 1996, irrespective of the FDA regulation.
---------------------------------------------------------------------------

    \354\ Statistical Abstract of the United States, p. 750, 1995.
---------------------------------------------------------------------------

    The impact of these restrictions on the various advertising media 
and agencies is difficult to determine. The Barents Group contended 
that FDA had argued in its original analysis that ``regulations for 
print media will have little or no adverse impact.'' In fact, FDA made 
no such projection, although the agency did present several historical 
examples of advertising bans (e.g., the broadcast ban on tobacco 
products) where advertising revenues rebounded in spite of new legal 
restrictions. The Barents Group also faulted FDA for not comparing 
actual revenues after the broadcast ban to revenues ``that would have 
been expected in the absence of the ban.'' FDA, however, does not 
believe that this ``counter factual'' logic for estimating costs 
precludes the agency from suggesting that income and employment would 
not necessarily fall in the wake of new advertising restrictions.
    Several comments declared that advertising outlays would fall 
sharply and subscription prices rise. According to the Barents Group, 
imagery is a prerequisite for effective promotion and, in its absence, 
magazine and newspaper advertising revenues would fall by 25 to 75 
percent. It also predicted that the reduced revenues would, in turn, 
force publication subscription prices to rise.
    FDA agrees that there will be adverse impacts on certain 
publications, but notes that the tobacco industry is currently shifting 
its advertising budget away from print media and that only 6 of the 32 
affected magazines identified by the Barents Group received over 10 
percent of their revenues from tobacco products. Moreover, as noted 
earlier, while FDA cannot project the tobacco industry's marketing 
strategies, the agency suggests that restricted promotion alternatives 
could reestablish print advertising as a relatively attractive option 
for conveying product information to adult readers; thereby slowing or 
even reversing the recent slide in this type of tobacco advertising.
    The Barents Group also asserted that the commercial printing 
industry, as well as other industry sectors, would be harmed by 
restrictions on coupons and ``retail value added'' promotions. These 
expenditures, which account for $2.6 billion, or 42 percent of the 
total tobacco advertising and promotional outlays reported to FTC in 
1993, include outlays associated with cents-off coupons and multiple 
pack promotions, such as ``buy one, get one free'' or ``buy two, get 
one free;'' as well as other give-away promotions, such as ``buy 
cigarettes and get a free promotional item.'' The former activity will 
be permitted but the latter prohibited under the final regulation. 
Although a comment submitted by the Tobacco Institute noted that, 
``[a]nalytically, such spending is more akin to a price cut than to 
advertising,'' \355\ the Barents Group, nonetheless, concluded that, 
``[a] considerable part of this spending would likely be eliminated by 
the proposed regulations.'' FDA, however, does not agree that the 
printing industry will be significantly affected by changes in 
``coupons and value added'' outlays. Cents-off coupons and multiple 
pack promotions are the principal components of these promotions and 
will continue to be available under the final rule.
---------------------------------------------------------------------------

    \355\ Beales, J. H., ``Advertising and the Determinants of 
Teenage Smoking Behavior,'' vol. 44, p. 13, 1993.
---------------------------------------------------------------------------

    b. Advertising agencies and other suppliers. Advertising agency 
revenues are directly tied to the level of advertising expenditures by 
product manufacturers. If tobacco manufacturers reduce advertising 
outlays, these agencies will lose income. The Barents Group found that, 
in 1993, tobacco companies routed almost $1 billion through ad agencies 
(less than 1 percent of the reported $131.3 billion spent on U.S. media 
advertising in 1992). \356\ Assuming agency fees of 10 percent (while 
overlooking the proposed $150 million educational campaign), it 
suggested that advertising declines of 25 to 75 percent would decrease 
agency annual revenues by $25 million to $77 million. Assuming a 50 
percent drop ($140 million) in magazine and newspaper advertising, the 
Barents Group next applied a simulation model to predict that supplier 
firms among advertising agencies, government, business and professional 
services, and commercial printers businesses would lose revenues of 
from $12 to $23 million. While acknowledging that, ``* * * there will 
be eventual offsetting revenue gains in other industries not shown * * 
*,'' these other sectors were not identified and the offsetting 
revenues not explicitly quantified. The Barents Group correctly noted 
that the adjustments will involve short-term costs to the affected 
sectors, but did not estimate the expected magnitude of these 
adjustment costs.
---------------------------------------------------------------------------

    \356\ Endicott, R. C., ``Top Advertisers Rebound, Spending to 
$36 Billion,'' Advertising Age, vol. 64, No. 41, p. 1, September 29, 
1993.
---------------------------------------------------------------------------

    c. Outdoor advertising industry and public transit authorities. The 
final rule restricts tobacco billboards and public transit advertising 
to black text on a white background and bans all stationary outdoor 
tobacco ads within a 1,000-foot radius of any school or public 
playground. The Barents Group predicted that almost all urban areas 
would be covered by the ban and expected almost no new outdoor tobacco 
advertising ``even in permitted areas due to the relative 
ineffectiveness of black-and-white text as an advertising medium.'' 
Further, explaining that the $232 million spent on outdoor advertising 
in 1993 accounts for about 14 percent of all outdoor advertising in the 
United States, the Barents Group found it unlikely that the industry 
could find new means of maintaining its current revenues.
    In fact, the billboard industry and public transit districts will 
have to find replacements irrespective of this regulation. According to 
the Barents Group projections, spending on outdoor advertising by 
tobacco companies will fall by almost 40 percent between 1988 and 1996 
(Appendix Table). One billboard trade source notes that, ``almost 60 
percent of the industry's 1979 revenues were derived from

[[Page 44603]]

tobacco and alcohol advertisers. Today that number is down to 13 
percent, replaced by retail, business and consumer services, 
entertainment, and travel advertisers.'' \357\ Similarly, FDA's 
preliminary economic analysis had recognized that Canada's billboard 
industry had rapidly adjusted to a recently imposed advertising ban and 
``quickly replaced $20 million in lost cigarette revenues with ads for 
food, soap, toothpaste and beer.'' \358\
---------------------------------------------------------------------------

    \357\ Burns, K., ``Driving Into the Future with New 
Technology,'' Outdoor Advertising Magazine, p. 5, January/February 
1995.
    \358\ Wolfson, A., ``Canada's Ad Ban Puts Cigarettes Out of 
Sight,'' The Courier-Journal, pp. A1, A4, August 1, 1994.
---------------------------------------------------------------------------

    In 1993, tobacco industry spending on public transit ads ($39.1 
million) contributed less than 1 percent to total public transit 
revenues, having declined by 35 percent from 1990 to 1993. 
Acknowledging that these expenditures would continue to fall, 
irrespective of this rule, the Barents Group argued that since 
relatively few transit authorities accept tobacco ads, the impact of 
the regulation would be significant for those few.
    d. Specialty item suppliers. The prohibition of nontobacco 
specialty items bearing the name or logo of tobacco products will 
affect a substantial number of specialty manufacturers. In earlier 
comments to FTC, \359\ the Specialty Advertising Association 
International noted that it ``represents 4,400 firms that manufacture 
or sell utilitarian objects imprinted with advertising * * * 
predominantly small businesses.'' It is likely that some of these firms 
would, at least initially, lose part of this $760 million market and 
would experience short-term costs while exploring other business 
options.
---------------------------------------------------------------------------

    \359\ 56 FR 11661 (March 20, 1991).
---------------------------------------------------------------------------

    The Barents Group projected that manufacturer outlays for these 
promotional items, in the absence of the FDA rule, would triple between 
1993 and 1996, rising from $760 million to $2.2 billion, assumed that 
the rule would cause revenue decreases of 25 to 75 percent, and modeled 
the impacts among other affected industry sectors (e.g., miscellaneous 
manufacturers producing matches and matchbooks, cigarette lighters, 
pens and pencils, sporting goods, etc.). The revenue and employment 
losses, therefore, were measured from a baseline that assumed a 
tripling of future industry revenues. While these growth projections 
may be optimistic, they demonstrate the rapid swings that typify the 
market for many of these industries. Indeed, the Barents Group's 
forecasts imply that even if the FDA rule were to reduce the 1996 level 
of tobacco industry advertising on specialty items by 50 percent, these 
outlays would still exceed the 1995 level.
    In any case, FDA believes that the Barents Group's forecasted 
impacts may be overestimated, as they primarily reflect static 
outcomes, whereas firms supplying such products are constantly 
adjusting production in response to rapidly shifting patterns of 
demand. While these regulatory changes will impose short-term 
dislocation costs, these costs will be significantly mitigated in view 
of the extensive lead time provided. Again, the Barents Group noted 
that FDA had not quantified these transitory costs, but it also 
provided no estimate.
    e. Sponsorship recipients. According to reports submitted to FTC, 
U.S. tobacco companies spent $107 million on public entertainment, 
primarily sporting events, in 1993. \360\ In comparison, total spending 
on corporate sponsorships for sports, arts, and other entertainment by 
all North American companies is estimated to reach $5.4 billion in 
1996. \361\ FDA received numerous public comments asserting that the 
loss of sponsorship revenues for sporting events would increase ticket 
prices and, in turn, reduce spectator attendance. In particular, 
comments pointed to the potential loss of jobs, employee benefits, and 
business revenues associated with race track events.
---------------------------------------------------------------------------

    \360\ Federal Trade Commission Report to Congress for 1993: 
Pursuant to the Federal Cigarette Labeling and Advertising Act, p. 
18, 1995; Federal Trade Commission Report to Congress: Pursuant to 
the Comprehensive Smokeless Tobacco Health Education Act of 1986, p. 
24, 1995.
    \361\ EPM Communications, Inc. ``Entertainment Marketing 
Letter,'' February 1, 1996. Based on IEG Sponsorship Report.
---------------------------------------------------------------------------

    The Barents Group contended that a substantial part of the payments 
made by tobacco manufacturers would be eliminated by a ban on tobacco 
brand sponsorships, because few sponsors would agree to continue 
sponsorships under corporate names. Acknowledging the lack of reliable 
information on economic impacts; it, nonetheless, referenced several 
studies showing that lost sponsorship dollars decrease revenues and 
temporary jobs for local economies. The Barents Group predicted that, 
as tobacco companies eliminate payments, other advertisers would 
replace the major sponsorships, but leave reduced or no funding for the 
less popular events. On this basis, it projected a 25 to 75 percent 
reduction in sponsorship dollars, calculated to result in revenue 
losses of $27 to $80 million.
    Among the affected U.S. sporting events, the auto racing industry 
receives the greatest amount of tobacco sponsorship revenues. The 
Barents Group relied on various editions of the IEG Intelligence 
Reports (IEG) to list these sponsorships. In reviewing the IEG data and 
other sources, FDA found that about $29 million worth of 1995 tobacco 
sponsorship revenues were designated for the National Association for 
Stock Car Auto Racing (NASCAR); \362\ which amounted to about 8.3 
percent of estimated NASCAR sponsorship revenues \363\ and about 1.4 
percent of estimated NASCAR total revenues. \364\ The IEG data listed 
Indy Car tobacco sponsorships totaling only about $13 million, although 
these data did not cover all events.
---------------------------------------------------------------------------

    \362\ 1995 IEG Intelligence Report lists $26.7 million in 
tobacco sponsorships of NASCAR. Two tobacco-sponsored events did not 
list the sponsorship fees, which FDA estimates at about $1 million 
apiece.
    \363\ Koenig, B., ``NASCAR takes Lead in Race for Sponsors: 
Stock-car Racing Gains Corporate Funds as CART and IRL Lag in Money 
and Ratings'', The Indianapolis Star, March 8, 1996, Business p. 
F01.; MacCrae, M., ``Ricky Craven Collectibles Boost Intensive Fan 
Interest in Driver'', Bangor Daily News, May 2, 1996.
    \364\ Oliver, S., ``A Fan-Friendly Sport,'' Forbes, p. 70, July 
3, 1995; Horovitz, B., ''Fine-Tuning an Image-New Sponsors Race to 
NASCAR,'' USA Today, Final Edition, p. 1B, April 5, 1996.
---------------------------------------------------------------------------

    As the majority of the NASCAR tobacco sponsorship revenues were 
directed to the Winston Cup or other lead series, FDA agrees that a 
major effect of the ban will be to decrease the price of sponsorships, 
permitting smaller sponsors to ``trade up'' to the more prestigious 
sponsorships left vacant by tobacco companies. Although new company 
sponsors will be attracted by the lower overall sponsorship costs, this 
``ripple effect'' will impose shortfalls for some smaller or lower 
profile events. This economic impact will be somewhat mitigated, 
however, by the rapid growth in nontobacco sponsorships. According to 
IEG estimates, over the past year, motorsport sponsorship spending rose 
by about 17 percent \365\ and total North American corporate 
sponsorship spending by about 15 percent. \366\
---------------------------------------------------------------------------

    \365\ MacCrae, M., ``Ricky Craven Collectibles Boost Intensive 
Fan Interest in Driver,'' Bangor Daily News, May 2, 1996.
    \366\ IEG's Complete Guide to Sponsorship, p. 3, 1995.

---------------------------------------------------------------------------

[[Page 44604]]

5. Retail Sector
    In addition to incurring the economic costs described earlier, 
certain segments of the retail industry will experience adverse 
distributional impacts to the extent that they receive smaller 
promotional allowances (slotting fees) from manufacturers. In 1993, 
industry promotional allowances totaled $1.6 billion dollars. According 
to FTC:
    Promotional allowances are designed to encourage wholesalers and 
retailers to stock and promote a company's products, including such 
things as trade allowances and slotting allowances. Trade allowances 
provide deals to cigarette wholesalers, dealers and merchants in the 
form of free goods or price reductions in return for the purchase of 
specific quantities of goods. Slotting allowances include fees that 
the cigarette manufacturers pay retailers to encourage them to carry 
a new product or to allocate premium shelf space to a product. Trade 
contests and incentives, training programs, and trade shows may also 
be counted as promotional allowances.
One major convenience store association, estimating that its members 
currently receive about $5,000 per store, remarked that convenience 
stores would ``bear a disproportionate burden should such allowances be 
eliminated as a result of the ban on self-service displays.'' Other 
retailers expressed similar concerns over the prohibition of self-
service displays and promotional advertising, fearing it would lead to 
the elimination of these revenues.
    The Barents Group argued that there were strong reasons to believe 
that promotional allowances would fall sharply as ``tobacco products 
are withdrawn to inaccessible areas of the store, [and] the products 
taking their place will offer lower allowances.'' While acknowledging 
that, ``[t]he possibility of promotional payments continuing may depend 
on whether the proposed regulations would allow the tobacco packages 
and cartons to be displayed from behind the check-out counter or from 
some other secured location in the stores,'' they nonetheless presented 
``illustrative'' revenue reductions of from 25 to 50 percent and 
projected total revenue losses to the retail sector of $556 to $1,112 
million. Using the higher percentage, their analysis implies that 
pretax profit margins would fall 12.4 percent for the average sized 
convenience store and even more for smaller stores. Moreover, they 
predicted that about 2 percent of currently profitable convenience 
stores would thereafter incur losses.
    FDA suspects that many of these concerns are unwarranted as tobacco 
manufacturers will continue to place significant value on having their 
products situated in highly visible locations. Although desirable 
locations behind counters or in locked display cases will be more 
limited, there is little reason to believe that manufacturers would 
stop competing for the best display space available. One comment 
indicated that following a self-service ban in a local area of Northern 
California, some retailers:
    * * * reported losses of tobacco industry-paid slotting fees * * 
* because of the removal of self-service promotional tobacco 
displays, racks and kiosks; * * * other retailers reported they did 
not loose [sic] tobacco industry-paid slotting fees if tobacco 
displays, racks or kiosks are relocated behind the counter or if 
they are replaced by locking cases * * * [There were] no reported 
losses of other tobacco industry-paid advertising fees, promotional 
allowances or other financial incentives paid to retailers for 
advertising, promoting and marketing tobacco products in their 
stores. \367\
---------------------------------------------------------------------------

    \367\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to 
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco 
Sales,'' North Bay Health Resources Center, Stop Tobacco Access for 
Minors Program (STAMP), Petaluma, CA, pp. 2-3, November 3, 1994.
---------------------------------------------------------------------------

Because of the regional aspects of this ban, it was a ``worst case'' 
situation for retail stores. If self-service displays were a 
prerequisite for promotional allowances, tobacco manufacturers would 
have quickly transferred them to other near-by localities, where self-
service was permitted. The fact that this did not generally occur 
demonstrates that factors other than self-service displays can support 
manufacturer promotional payments to retailers.
    Another comment noted that, ``[i]n at least some areas, cigarette 
companies have continued payments to retailers for favored display 
space. For instance, Philip Morris has provided clear, plastic cases 
for the display of cigarette packs and cartons in some stores. These 
cases are placed on a checkout counter but only accessed from the 
clerk's side. This arrangement permits prominent display of cigarette 
packs to customers who are thereby offered cigarettes at close range 
while being unable to pick up packs or cartons themselves.'' In 
discussing the effects of the Canadian advertising ban, a Canadian 
study \368\ suggested that, ``[i]n the absence of advertising and 
promotion outlets * * * the cigarette industry may be expected to 
provide greater incentives to retailers to provide more and better 
shelf space for their brands in order to provide availability to the 
buyer in the store.'' Moreover, because FDA has not banned all point-
of-purchase tobacco advertising, ``text only'' advertising at retail 
stores will be extremely important to tobacco product marketers.
---------------------------------------------------------------------------

    \368\ ``When Packages Can't Speak: Possible impacts of plain and 
generic packaging of tobacco products,'' Expert Panel Report, 
Prepared at the request of Health Canada, p. 140, March 1995.
---------------------------------------------------------------------------

    In addition, alternative opportunities for point of purchase (POP) 
advertising have climbed briskly, as POP experts ``cite in-store 
advertising as the fastest growing segment of the media industry.'' 
\369\ That same Northern California study expressly noted the 
``[r]eplacement of self-service tobacco displays, racks and kiosks with 
* * * non-tobacco products such as candy, gum and soft drinks for which 
the retailer receives slotting fees from the manufacturers of these 
products.'' \370\
---------------------------------------------------------------------------

    \369\ ``P-O-P Scores with Marketers,'' Advertising Age, p. 2, 
September 26, 1994.
    \370\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to 
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco 
Sales,'' North Bay Health Resources Center, Stop Tobacco Access for 
Minors Project (STAMP), Petaluma, CA, pp. 2-3, November 3, 1994.
---------------------------------------------------------------------------

    In sum, FDA cannot predict with certainty the direction of future 
payments by product manufacturers to retailers. The agency points out, 
however, that this rule would affect neither the trade allowances that 
are commonly paid to both wholesalers and retailers, nor the slotting 
allowances paid to retailers to encourage them to carry a new product 
or to assure the availability of a particular brand in a retail outlet. 
Further, while many current promotional activities will be prohibited, 
a substantial number will remain available. As the competitive 
pressures that drive promotional allowances are unlikely to abate, 
manufacturers will continue to compete vigorously through programs 
involving both ``text only'' promotions and select product placements.
6. Other Private Sectors
    FDA is aware of several recent studies that address the 
contribution of tobacco to the U.S. economy; or alternatively, the 
losses to the U.S. economy that would follow a decline in tobacco-
related expenditures. The Tobacco Institute's Price Waterhouse report 
\371\ purports to measure the induced effect on the national economy of 
spending by the tobacco core and supplier sector employees and their 
families. That

[[Page 44605]]

report concluded that the induced or multiplier effects support 2.4 
jobs for every 1 job in the core and supplier sectors combined, and 
over $3 in compensation for every $1 in the other two sectors. However, 
a review of that report, by Arthur Andersen Economic Consulting, 
explained that such multipliers lead to ``massive and unrealistic 
estimates.'' \372\ That review further emphasized that ``money now 
being spent on tobacco would not disappear if demand for tobacco were 
to fall,'' though the Price Waterhouse report implicitly made that 
assumption. The Arthur Andersen review concluded that these multipliers 
``provide no basis by themselves for predicting how many jobs would be 
lost by a reduction in tobacco spending.'' FDA strongly supports this 
latter view.
---------------------------------------------------------------------------

    \371\ ``The Economic Impact of the Tobacco Industry on the 
United States in 1990,'' Price Waterhouse, October 1992.
    \372\ ``A Review of the Price Waterhouse Economic Impact Report 
and Tobacco Institute Estimates of `Economic Losses from Increasing 
the Federal Excise Tax','' Arthur Andersen Economic Consulting, p. 
93, October 6, 1993.
---------------------------------------------------------------------------

    The American Economics Group (AEG), in a new study submitted by the 
Tobacco Institute, employed a national input-output model to project 
broad sectoral and regional estimates of ``the induced impact of the 
FDA proposed regulations nationwide.'' Applying the low and high 
illustrative costs estimated by the Barents Group, AEG predicted job 
losses of between 32,000 and 92,500. In addition to the printing and 
publishing industries, significant employment cutbacks were found for 
food, apparel and textiles, paper, metals, motor vehicles, and other 
miscellaneous manufacturers.
    FDA is skeptical of the results of this AEG study. First, the 
input-output methodology employs an inherently static approach for 
estimating economic impacts. Indeed, the Barents Group, in its second 
report for the Tobacco Institute, explained that input-output models 
will not capture changing economic conditions, because they fail to 
account for changing market prices. Thus, ``the input-output approach 
fails to measure the effects of reallocating displaced workers and 
resources to other parts of the economy.'' Furthermore, the AEG study 
suffers from the same fundamental problem as the earlier Price 
Waterhouse analysis: It assumes that all reduced industry revenues are 
lost to the economy. This methodology is simply inappropriate. Finally, 
the AEG study is based upon the illustrative cost estimates of the 
Barents Group. As described in detail above, these cost estimates are 
unreasonably high. Although some tobacco advertising may decrease, a 
significant portion will be redirected towards the remaining 
permissible promotional activities.
    In a second report, the Barents Group presented the results of 
using its own cost estimates in a general equilibrium model to simulate 
the impacts of the estimated reductions in advertising and promotional 
spending on revenue and employment for 56 sectors of the U.S. economy. 
This model predicted 21,000 to 44,000 U.S. job losses, largely among 
wholesale and retail businesses, but also within advertising, printing, 
apparel and miscellaneous manufacturing industries. FDA finds, however, 
that this study also is subject to several serious deficiencies. In 
particular, the Barents Group relies on its own illustrative cost 
estimates as model inputs. As noted above, FDA believes these estimates 
are far too high. Next, the study focuses solely on those industry 
sectors predicted to lose jobs, while ignoring those sectors expected 
to gain jobs. In fact, the study explicitly acknowledges that the 
underlying model assumes that:
    the aggregate level of employment is not changed in the long run 
as a result of implementing the new regulations. In other words, 
though particular jobs in particular industries are expected to 
disappear permanently, the number of man-hours worked per year in 
the economy as a whole is assumed not to change in the long run * * 
*
The Barents Group selectively shows changes in revenue and employment 
for the losers only.
    Other analysts concluded that such models should not be used to 
assess longer term national economic impacts, because resources 
diverted from one use would be reallocated to the production of other 
goods and services. As one economist explained ``[i]f the focus is 
longer term, involving a period of, say, more than 2 years, then the 
induced effect should not be included in the measure because money not 
spent in one industry would find another outlet with equal 
(undistinguishable) induced effects.'' \373\
---------------------------------------------------------------------------

    \373\ Gray, H. P., and I. Walter, ``The Economic Contribution of 
the Tobacco Industry,'' in Smoking and Society: Toward a More 
Balanced Assessment, edited by R. D. Tollison, Lexington Books, p. 
248, 1986.
---------------------------------------------------------------------------

    Some comments addressed regional issues, pointing to the importance 
of tobacco products to the economies of several states. Comments noted, 
for example, that about 177,000 North Carolinians were employed by 
tobacco and that Price Waterhouse estimated that the economic activity 
of these workers supported total State employment of 260,000. FDA is 
aware that tobacco growing states will experience some adverse economic 
effects. Nevertheless, as discussed above, the agency finds that the 
income and employment impacts associated with reduced tobacco 
consumption will be extremely gradual. Moreover, reduced tobacco 
consumption will minimally affect or even boost the economies of 
nontobacco states. For example, a recent economic simulation of the 
regional impacts of spending on tobacco products by Warner, et al., 
found that after 8 years, a 2 percent per year fall in tobacco 
consumption (which substantially exceeds the FDA forecast for this 
regulation) would cause the loss of 36,600 jobs for the Southeast 
Tobacco region of the United States (0.2 percent of regional 
employment); whereas the nontobacco regions of the United States would 
gain 56,300 jobs. \374\ That study concluded that ``[t]he primary 
concern about tobacco should be the enormity of its toll on health and 
not its impact on employment.''
---------------------------------------------------------------------------

    \374\ Warner, K. E., G. A. Fulton, P. Nicolas, and D. R. Grimes, 
``Employment Implications of Declining Tobacco Product Sales for the 
Regional Economies of the United States,'' JAMA, April 24, 1996.
---------------------------------------------------------------------------

7. Excise Tax Revenues
    The rule will decrease State and Federal tobacco tax revenues as 
fewer youths will become addicted to tobacco products. These excise tax 
losses will increase as more youths become nonsmoking adults. According 
to the Tobacco Institute, State cigarette excise taxes totaled $6.2 
billion for the year ending June 30, 1993. \375\ As State excise taxes 
on other tobacco products (including smokeless tobacco) are reported at 
$226 million, FDA assumes that the value of all State excise taxes 
affected by this regulation is about $6.4 billion annually. Federal 
excise taxes on cigarettes totaled $5.5 billion for the year ending 
June 30, 1993. Federal excise taxes on smokeless tobacco are expected 
to be about $27 million, according to the Smokeless Tobacco Council. As 
described above, FDA estimates that compliance will reduce tobacco 
product sales by a gradually increasing rate over time; tobacco sales 
will fall by 0.5 percent in the 1st year, 1.9 percent in the 5th year, 
and 3.7 percent in the 10th year. Thus, the rule will decrease State 
excise taxes on affected tobacco products by from $30 million in the 
1st year to $231 million in the 10th year and Federal tobacco

[[Page 44606]]

taxes by from $25 million in the 1st year to $196 million in the 10th 
year.
---------------------------------------------------------------------------

    \375\ The Tobacco Institute, ``The Tax Burden on Tobacco,'' vol. 
28, p. 4, 1993.
---------------------------------------------------------------------------

    Since tobacco taxes represented less than 1 percent of total 
revenues on both the State and Federal level in 1992, \376\ even the 
estimated tenth year impact measures only 0.03 percent of all State tax 
revenues and less than 0.02 percent of all Federal revenues. 
Nonetheless, if necessary, governments could raise tobacco product 
excise rates to offset these revenue losses. A full evaluation of the 
fiscal consequences, however, would involve a variety of public health 
ramifications. For example, State Medicaid programs will benefit from 
reduced tobacco-related medical care expenditures, but will need to 
finance additional nursing home expenditures associated with increased 
life expectancy.
---------------------------------------------------------------------------

    \376\ U.S. Department of Commerce, Statistical Abstract of the 
United States 1994, 114th edition, No. 464, p. 298, 1994.
---------------------------------------------------------------------------

F. Small Business Impacts

    The Regulatory Flexibility Act requires agencies to prepare a final 
regulatory flexibility analysis if a rule will have a significant 
economic impact on a substantial number of small entities. Analyses in 
this section, as well as in other sections of this preamble, constitute 
the agency's compliance with this requirement. According to the 
Regulatory Flexibility Act, the final regulatory flexibility analysis 
must contain ``a succinct statement of the need for, and objectives of, 
the rule.'' Section XV.B. of this document explains that the need for 
action stems from the enormous toll on the public health that is 
directly attributable to the consumption of tobacco by children and 
adolescents under the age of 18. As described, the primary objective of 
the regulation is to achieve the ``Healthy People 2000'' goal of 
reducing by one-half the number of youngsters who use tobacco.
    The final regulatory flexibility analysis must also provide ``a 
summary of the significant issues raised by the public comments in 
response to the initial regulatory flexibility analysis, a summary of 
the assessment of the agency of such issues, and a statement of any 
changes made in the proposed rule as a result of such comments.'' The 
analyses presented previously in this section addressed the first two 
of these elements.
    With respect to the changes made in the proposed rule as a result 
of public comments, the agency has reconsidered several of its earlier 
decisions, at least partly due to their projected effect on small 
businesses. The preamble above describes these changes and presents the 
agency's rationale for each modification. For example, the proposed 
regulation banned all vending machine sales of tobacco products. In 
response to public comment, the final regulation exempts from the ban 
those vending machines in ``adult only'' locations. FDA does not know 
how many small businesses will be able to take advantage of this 
exemption, but it will maintain at least one line of sales for small 
vending machine operators without jeopardizing the protection of young 
people.
    In addition, the proposed regulation prohibited direct mail-order 
sales of tobacco products. The public comments, however, indicated that 
many adults, especially those who are elderly or who have limited 
mobility, would be substantially inconvenienced and several small 
businesses would be adversely affected by this ban. Even more 
importantly, studies suggest that teenagers purchase cigarettes from 
vending machines or retail merchants rather than from nonretail 
channels. FDA took these considerations into account and the final 
regulation does not prohibit mail-order sales of cigarettes.
    The final regulatory flexibility analysis must also include ``a 
description of and an estimate of the number of small entities to which 
the rule will apply or an explanation of why no such estimate is 
available.'' U.S. Census data for 1993 indicate that most cigarette 
manufacturers are large businesses, with only 4 employing fewer than 
500 employees. \377\ The small business size standard established by 
the U.S. Small Business Administration (SBA) for this industry is 1,000 
employees. \378\ The Federal Trade Commission (FTC) provided a list of 
52 cigarette importers and small cigarette manufacturers filing plans 
with that agency, but could not distinguish manufacturers from 
importers. \379\ The 1993 Census data show that 14 of the 20 firms 
manufacturing chewing and smoking tobacco employ fewer than 500 
employees, the SBA size standard for this sector. \380\ Also, most of 
the nation's 124,000 tobacco farms are small; almost 99 percent of the 
farms growing tobacco in 1992 had total farm sales under the SBA small 
business size standard of $500,000, and almost 91 percent had total 
farm sales under $50,000. \381\ Further, 1993 Census data show that 
1,332 of 1,365 tobacco wholesale trade firms (98 percent) employ fewer 
than the 100-employee threshold that constitutes a small business 
according to the SBA. \382\ As noted above, the effect of the 
regulation on tobacco manufacturing, growing, and wholesale trade 
operations will be very gradual, taking over 10 years to reach a 4 
percent reduction.
---------------------------------------------------------------------------

    \377\ Special Census Tabulation prepared by U.S. Bureau of 
Census for U.S. Small Business Administration, Table 3--United 
States p. 68.
    \378\ U.S. Small Business Administration, ``Table of Size 
Standards,'' March 1, 1996.
    \379\ Federal Trade Commission, ``Cigarette Importers and Small 
Manufacturers Plans Filed, May 26, 1993-October 14, 1994.''
    \380\ Special Census Tabulation prepared by U.S. Bureau of 
Census for U.S. Small Business Administration, Table 3--United 
States p. 69.
    \381\ 1992 Census of Agriculture, U.S., vol. 1, excerpts from 
pp. 109-110, 125-126.
    \382\ Special Census Tabulation prepared by U. S. Bureau of 
Census for U.S. Small Business Administration, Table 3--United 
States.
---------------------------------------------------------------------------

    The regulation will affect numerous retail establishments, 
including food stores, small general merchandise stores, small tobacco 
stores and small gasoline stations. Table 15 displays the relative 
share of the tobacco market for the major types of tobacco-dispensing 
outlets with payroll in 1992. As shown, food stores and service 
stations received about 75 percent of all tobacco sales revenue and 
tobacco products comprised 5 to 7 percent of the total sales of many of 
these establishments. Table 16 indicates that the great majority of all 
retail outlets in these sectors are small businesses.

[[Page 44607]]



                    TABLE 15.--SALES OF TOBACCO PRODUCTS AS A PERCENTAGE OF TOTAL SALES--1992                   
                                       (Establishments with Payroll Only)                                       
----------------------------------------------------------------------------------------------------------------
                                                                Tobacco Sales            % of Total Sales       
                                                           -----------------------------------------------------
                    Establishment Type                                            Establishments                
                                                             ($ Mils)     (%)        Handling           All     
                                                                                      Tobacco     Establishments
----------------------------------------------------------------------------------------------------------------
All                                                         30,559        100             4.5             2.9   
Food Stores                                                 16,132         52             4.5             4.4   
Service Stations                                             7,136         23             7.1             5.3   
Drug and Proprietary                                         2,235          7             3.7             2.9   
General Merchandise                                          3,182         10             2.4             1.3   
Liquor Stores                                                1,045          3             8.0             5.1   
Eating and Drinking                                            219          1             3.0             0.1   
Tobacco Stores & Stands                                        610          2            78.1            78.1   
----------------------------------------------------------------------------------------------------------------
Source: 1992 Census of Retail Trade, Merchandise Line Sales                                                     


[[Page 44608]]



                                                      TABLE 16.--NUMBER OF SMALL RETAIL BUSINESSES                                                      
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                              Firms With Payroll                                                                        
      Establishment Type      ----------------------------------------------------------------------------------      Establishments Without Payroll    
                                                Total                                    Small1                                                         
--------------------------------------------------------------------------------------------------------------------------------------------------------
All                                                            588,505                                  473,668                                  275,432
Food Stores                                                    127,575                                 104,5412                                   97,061
Service Stations                                                62,585                                  53,2883                                   14,248
Drug and Proprietary                                            28,606                                   25,396                                    3,031
General Merchandise                                             10,264                                    8,176                                   28,010
Liquor Stores                                                   26,565                                   22,859                                    8,811
Eating and Drinking                                            331,703                                  258,381                                  124,271
Tobacco Stores & Stands                                          1,207                                    1,027                                     n.a.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Assumes Small Business Administration size standard of $20 million in annual sales for food stores, $6.5 million for service stations and $5 million
  for all others.                                                                                                                                       
\2\ Due to data limitations, includes firms with annual sales up to $25 million.                                                                        
\3\ Due to data limitations, includes firms with annual sales up to $10 million.                                                                        
Source: 1992 Census of Retail Trade, Establishment and Firm Size, 1992 Census of Retail Trade, Summary.                                                 


[[Page 44609]]


    To illustrate the effects of this proposal on a typical small 
retail store, FDA separately utilized Census data to estimate that the 
average-sized convenience store sells 177 packages of tobacco products 
daily, of which about 25 might be purchased by young adults aged 18 to 
26. \383\ Based on the cost assumptions described previously, the 
outlet's first year costs would total about $400, with the largest 
single cost, $199, the labor cost for checking identification. For 
those stores that already verify the age of young customers of tobacco 
products, the additional costs fall to $137.
---------------------------------------------------------------------------

    \383\ Based on data form the 1994 SGR, p. 85, and the ``Tobacco 
Situation and Outlook Report'' April, 1995, p. 4, FDA estimates that 
smokers aged 18 to 26 account for about 10 percent of all cigarettes 
smoked. Alternatively, data from the Statistical Abstract, tables 16 
and 218, show that smokers aged 18 to 26 comprise 18 percent of all 
smokers. FDA used the midpoint of the 10 to 18 percent range to 
avoid underestimating the cost to small retailers. In addition, data 
from the 1996 Census of Retail Trade, Subject Series-Merchandise 
Line Sales, pp. 3-9 on the number of convenience stores with payroll 
and their total tobacco sales, and the average price per pack, were 
used to estimate the average number of packs sold daily at 
convenience stores to smokers aged 18 to 26.
---------------------------------------------------------------------------

    This estimate does not account for the possible reduction in 
promotional allowances, as FDA believes that competitive pressures will 
continue to lead manufacturers to rely on promotional allowances to 
compete for the best shelf space available for their products. Because 
FDA rejected the idea of prohibiting any visible display of tobacco 
products, retailers can retain slotting fees by choosing to display 
tobacco products either behind counters or in transparent locked 
display cases. Nevertheless, some small establishments might experience 
reduced promotional payments following a ban on self-service marketing.
    Census data for 1992 indicate that almost 4,000 of 4,800 
merchandising machine operator businesses (83 percent) reported annual 
receipts below the SBA size standard of $5 million. \384\ One trade 
association noted that almost three quarters of all vending machine 
operators had annual sales of less than $1 million. \385\ As explained 
earlier, prohibiting all cigarette vending machines would initially 
reduce the revenues of vending machine operators by an average of 2.8 
percent. Because only about one-half of the merchandising machine 
establishments sell cigarettes, some businesses specializing in 
cigarette sales would experience greater revenue declines; although 
this effect will be moderated to the extent that cigarette vending 
machines are placed in areas restricted to adults, which would not be 
prohibited by the final rule.
---------------------------------------------------------------------------

    \384\ 1992 Census of Retail Trade, ``Establishment and Firm 
Size,'' Table 4 p. 1-99.
    \385\ ``1993: Industry Posts Best Growth in Four Years,'' 
Automatic Merchandiser, p. A2, August 1994.
---------------------------------------------------------------------------

    The rule would also affect the distribution of specialty items 
showing a tobacco product logo or name. Industry comments do not 
provide precise data on the size distribution of these firms, but as 
noted above, the Specialty Advertising Association International 
indicates that 80 percent of the manufacturers and 95 percent of the 
distributors in this industry have annual sales below $2 million. While 
the marketplace in which these firms traditionally compete demands a 
quick response to shifting consumer trends, this rule would have at 
least short-term impact on some small firms.
    FDA has received no data that would allow it to estimate the number 
of small firms that are currently involved with some aspect of tobacco 
advertising or the fraction of these firms that will be affected. In 
1992, 861 of 904 year-round outdoor advertising firms (95 percent) 
reported sales revenues of less than the SBA size standard of $5 
million. \386\ The impact of this rule, however, is difficult to assess 
without knowing how the tobacco industry will alter its advertising 
strategies. Indeed, one of the largest outdoor advertising firms 
recently decided to reject all tobacco business, potentially increasing 
sales to the smaller firms. \387\
---------------------------------------------------------------------------

    \386\ 1992 Census of Service Industries, pp. 1-145 and 1-195.
    \387\ Collins, G., ``Major Advertising Company to Bar Billboard 
Ads for Tobacco,'' New York Times, A15, May 3, 1996.
---------------------------------------------------------------------------

    The regulation restricts tobacco advertising to ``text only'' in 
magazines with youth readership above the regulatory threshold. Of the 
identified 101 magazines with tobacco ads in 1994, 79 were published by 
large firms (over 500 employees). Less than 3 percent of the total 
revenue of the remaining 22 publications (which include, Inc., Rolling 
Stone and Penthouse) was derived from tobacco ads. \388\ It is likely, 
moreover, that many of these magazines could avoid the ``text only'' 
restriction for tobacco advertising by demonstrating a low youth 
readership.
---------------------------------------------------------------------------

    \388\ 1996 Directory of Corporate Affiliations U.S. Private 
Companies, New Providence, NJ; Reed Elsevier, Inc.; ``Company 
Profiles'' database, Information Access Co., Foster City, CA.
---------------------------------------------------------------------------

    The regulation will also affect a substantial number of small race 
tracks, although FDA does not know how many small tracks currently 
receive significant revenues from tobacco sponsors. As discussed 
previously, some small operations will likely lose promotional revenues 
from tobacco companies, but the sport is growing rapidly and other 
product manufacturers should make up a substantial part of the 
shortfall.
    The final regulatory flexibility analysis must include ``a 
description of the projected reporting, recordkeeping and other 
compliance requirements of the rule, including an estimate of the 
classes of small entities which will be subject to the requirement and 
the type of professional skills necessary for preparation of the report 
or record.'' A full description of the requirements and classes of 
affected small entities has been provided earlier in this section and a 
quantitative review of the paperwork burdens imposed by the rule is 
provided in section XVI. of this document. No special professional 
skills will be required to prepare the reports or records required by 
the regulation.
    The final regulatory flexibility analysis must also include ``a 
description of the steps the agency has taken to minimize the 
significant economic impact on small entities consistent with the 
stated objectives of applicable statutes, including a statement of the 
factual, policy, and legal reasons for selecting the alternative 
adopted in the final rule and why each one of the other significant 
alternatives to the rule considered by the agency which affect the 
impact on small entities was rejected.''
    The earlier sections of this document provide a full explanation of 
the agency's basis for selecting each provision of the final rule. In 
each instance, FDA evaluated the implications of each reasonable 
regulatory alternative and selected only those requirements that were 
absolutely necessary to satisfy the agency's statutory goals. As 
described, FDA found that its objectives for reducing the use of 
tobacco by young people could not be achieved with a partial or one-
dimensional approach, but required a comprehensive set of regulatory 
restrictions. Thus, the final set of selected provisions reflect a 
careful examination of the relevant facts presented to the rulemaking 
record, the agency's objective of curtailing the use of tobacco by 
youngsters without creating unnecessary economic burdens, and a full 
assessment of the agency's legal authorities. Because the rejected 
alternatives would either provide less protection of public health, or 
achieve

[[Page 44610]]

only minimal improvements at unwarranted cost, the agency found that 
the approach selected for the final rule best fit its statutory 
mandate.
    As noted, earlier sections of the preamble fully describe the 
agency's rationale for selecting each provision of the final rule and 
for rejecting each alternative approach. Although many alternatives 
were considered, specific exemptions based solely on business size were 
not adopted, because FDA believes that children would too frequently 
exploit such opportunities. Unlike certain other regulations where 
restrictions on large firms alone might be acceptable, tobacco products 
are purchased easily from small, as well as large firms. An exemption 
for small retailers, for instance, would shift underage sales to those 
locations, lessening or eliminating the benefits of the remaining 
access restrictions. The following discussion summarizes the agency's 
consideration of several other regulatory alternatives.

G. Other Alternatives

    One regulatory alternative would have banned all tobacco 
advertising; or alternatively, all tobacco advertising in selected 
media, such as all written publications, or all outdoor billboards. FDA 
rejected this approach in order to focus on those media and aspects of 
advertising that children are routinely exposed to and that have the 
greatest effect on youngsters. For example, the final rule permits 
black and white ``text only'' tobacco advertising in all written 
publications and color and imagery in magazines with fewer than 2 
million youthful readers if youth constitute less than 15 percent of 
the publication's readership. Billboards are permitted to show black 
and white ``text only'' ads if located at least 1,000 feet from schools 
or public playgrounds. Thus, the rule leaves the informational aspects 
of advertising largely untouched.
    Another suggested alternative was to combat underage tobacco use by 
relying on either voluntary compliance or on better enforcement of laws 
prohibiting sales to minors. As discussed earlier in this document, the 
tobacco industry's voluntary advertising code has failed to stop 
illegal sales to underage buyers. FDA agrees that these approaches can 
be partially effective, but finds that they inadequately counter the 
appeal of tobacco products for young people that is created by 
advertising and promotions. Thus, the agency concludes that there is no 
less burdensome alternative for achieving its goals that would exclude 
appropriately tailored restrictions on tobacco advertising.
    One alternative considered by the agency was a far more 
prescriptive monitoring requirement for tobacco manufacturers. Under 
this rule, each manufacturer of tobacco products would have been 
required to adopt a system for monitoring the sales and distributions 
of retail establishments. These monitoring systems were to: (1) Include 
signed written agreements with each retailer, (2) contain adequate 
organizational structure and personnel to monitor the labeling, 
advertising, and sale of tobacco products at each retail distribution 
point, and (3) establish, implement, and maintain procedures for 
receiving and investigating reports regarding any improper labeling, 
advertising, or distribution. The additional costs for this monitoring 
were estimated at about $85 million per year. FDA rejected this 
alternative, because it decided that the industry might employ its 
resources more efficiently if permitted to choose among alternative 
compliance modes.
    Another suggested alternative would have required package inserts 
containing educational information in cigarette and smokeless tobacco. 
FDA had incomplete data to estimate the additional cost of this 
requirement, but based on comments submitted by industry in response to 
a Canadian proposal, tentatively projected one-time costs of about $490 
million and annual operating costs of about $54 million. This 
alternative was not selected because the agency was not certain that 
the benefits of this provision would justify the compliance costs.
    FDA also considered setting the permissible age for purchase at 19 
rather than 18, because many 18-year-old adolescents are still in high 
school and can easily purchase tobacco products for younger classmates. 
This alternative would have added costs of about $34 million annually, 
mostly due to lost producer profits. The final regulation restricts 
access to regulated tobacco products for persons under the age of 18, 
because most adult smokers have already become smokers by the age of 
18, and because that age limit is already consistent with most State 
and local laws.

H. Unfunded Mandates Reform Act of 1995

    On the basis of the preceding discussion, under the Unfunded 
Mandates Act, FDA concludes that the substantial benefits of this 
regulation will greatly exceed the compliance costs that it imposes on 
the U.S. economy. In addition, the agency has considered other 
alternatives as discussed in section XV.G. of this document and 
determined that the current rule is the least burdensome and the most 
cost effective alternative that would meet the objectives of this rule.

XVI. Paperwork Reduction Act of 1995

    The 1995 proposed rule would have collected information from 
manufacturers, distributors, and retailers of cigarettes and smokeless 
tobacco. Proposed Sec. 897.24 would have required such persons to use 
established names for cigarettes and smokeless tobacco. Proposed 
Sec. 897.29 would have required manufacturers to establish and maintain 
educational programs. Proposed Sec. 897.32 would have required 
manufacturers, distributors, and retailers to observe certain format 
and content requirements for labeling and advertising. Proposed 
Sec. 897.40 would have required manufacturers to submit labels, 
labeling, and advertising to FDA.
    The preamble to the 1995 proposed rule, in discussing the Paperwork 
Reduction Act, also invited comments on four questions: (1) The 
necessity and utility of the proposed information collection for the 
proper performance of the agency's functions; (2) the accuracy of the 
estimated burden; (3) ways to enhance the quality, utility, and clarity 
of the information to be collected; and (4) the use of automated 
collection techniques or other forms of information technology to 
minimize the information collection burden (60 FR 41314 at 41356).

A. Comments on the Paperwork Reduction Act Statement

    A small number of comments, primarily from a trade association 
representing cigarette manufacturers and from distributors, addressed 
FDA's Paperwork Reduction Act statement. In general, these comments 
asserted that FDA's figures were incorrect or that the rule would 
duplicate existing reporting requirements. Few comments provided any 
figures or evidence to justify using different estimates.
    (1) One comment, submitted by a trade association representing 
major cigarette manufacturers, said FDA's Paperwork Reduction Act 
statement underestimated the paperwork burden due to the exclusion of 
burden on retailers. The comment asserted that FDA did not explain how 
it calculated the number of respondents and burden hours for these 
sections and that the absence of an explanation made it difficult to 
assess the agency's estimate.

[[Page 44611]]

The comment explained that the agency's Paperwork Reduction Act 
estimate said there would be 200,000 respondents for proposed 
Sec. 897.40, but that the agency's analysis of impacts estimated that 
700,000 retail stores sell tobacco products. The comment also asserted 
that the average burden per response, under proposed Secs. 897.32 and 
897.40, should be 1 hour instead of 20 minutes. Thus, the comment 
concluded that if all 700,000 outlets spend only 60 minutes annually to 
comply with all recordkeeping requirements, at a cost of $10 per hour, 
retailers, alone, would spend 700,000 hours and $7 million to comply 
with the recordkeeping requirements in Secs. 897.32 and 897.40.
    The agency believes that the comment misinterprets the figures in 
the proposed rule's Paperwork Reduction Act statement. To begin with, 
the comment mistakenly equates the Paperwork Reduction Act statement's 
reference to ``annual number of responses'' with the annual numbers of 
people or firms that might be affected. The annual number of responses 
simply refers to the annual number of things, whether those things are 
pieces of labeling, labels, advertisements, or other items, that the 
agency might receive under that particular regulatory requirement. So, 
for example, if the agency expected to receive only 500 labels, the 
``annual number of responses'' would be 500, regardless of whether the 
number of firms who might be affected by the rule was greater or less 
than 500.
    Focusing on Secs. 897.32 and 897.40 (the provisions cited by the 
comment), proposed Sec. 897.32 would have established specific format 
and content requirements for labeling and advertising. For example, 
proposed Sec. 897.32(a) would have required labeling and advertising to 
use only black text on a white background; the only exception would be 
advertising appearing in ``adult'' periodicals. Proposed Sec. 897.32(b) 
would have required advertising to carry the product's established name 
and a statement of intended use, and specified those names and the 
statement of intended use. Proposed Sec. 897.32(c) would have required 
advertising to carry a specific brief statement. The agency believed 
that these proposed requirements and specific statements were so 
precise that manufacturers, distributors, or retailers could determine 
their regulatory obligations quickly. For example, it should be quite 
simple to determine whether an advertisement uses black text on a white 
background.
    Proposed Sec. 897.40(a) would have required manufacturers to 
provide copies of labels, labeling, and a representative sampling of 
advertising to FDA. This, too, would not appear to be an extremely 
time-consuming task, particularly when the rule permits manufacturers 
to provide a representative sampling of advertising.
    To estimate the time required to comply with proposed Secs. 897.32 
and 897.40, the agency tried to examine other large-scale labeling and 
reporting programs. FDA found that one Federal department conducts a 
large-scale labeling program that receives approximately 200,000 labels 
annually and that each label requires a maximum of 20 minutes to 
review. Consequently, the 1995 proposed rule adopted the 200,000 figure 
as the estimated number of responses. In the absence of better data, 
the proposed rule assigned the maximum review time (20 minutes) to its 
estimates for average burden per response.
    FDA, however, has revised the 200,000 figure and now estimates that 
approximately 25,000 pieces of labeling or advertising will be affected 
by Sec. 897.32. (The agency has deleted Sec. 897.40 from the rule in 
favor of other, preexisting regulations.) As described in greater 
detail elsewhere in this document, the agency derived these figures by 
using advertising expenditures by the cigarette and smokeless tobacco 
industries and by the pharmaceutical industry, applying the ratio of 
such expenditures against the 25,000 pieces of advertising that the 
agency receives from the pharmaceutical industry, and projecting that 
printed advertisements may increase due to the rule's effect on 
promotional activities. Consequently, FDA now estimates that 25,000 
pieces of labeling and advertising will be affected.
    Thus, the agency does not agree that the estimated number of 
responses should be 700,000 or more because the response rate is not 
determined by the number of retailers. However, because the comment 
estimated that firms would require 1 hour to comply, the agency will 
use the 1 hour figure and has adjusted its paperwork estimates 
accordingly.
    (2) The same comment also asserted that FDA's recordkeeping 
estimate was incorrect for manufacturers. The comment stated that FDA 
did not explain how it calculated the burden hour response for 
manufacturers under proposed Sec. 897.40 and asserted that 
manufacturers would need 40 hours to document compliance with the 
educational program requirements in proposed Sec. 897.29 alone. The 
comment estimated that the recordkeeping costs for the manufacturers' 
educational programs would be $25 per hour, for a total cost between 
$55 and 57 million annually. The comment explained that the costs may 
be even higher because highly skilled persons would be needed to comply 
with the rule.
    The comment misinterprets the agency's Paperwork Reduction Act 
burden estimate. For Sec. 897.29, FDA estimated that 1,000 hours would 
be needed to comply with the educational program requirements; this 
estimate included all functions related to the development of an 
educational program, including recordkeeping. Section 897.40(b), would 
have required manufacturers, distributors, and retailers to make 
records (including records on a manufacturer's educational program 
efforts) available to FDA on inspection. Because the estimate for 
proposed Sec. 897.29 included time spent on recordkeeping associated 
with the educational program, the agency's estimates for proposed 
Sec. 897.40 properly excluded time spent on maintaining educational 
program records. Otherwise, this time would have been counted twice. In 
any event, the comment is moot because FDA has deleted Sec. 897.29 and 
Sec. 897.40 from the final rule.
    (3) FDA received several comments from distributors, claiming that 
the 1995 proposed rule would result in substantial paperwork and 
provide duplicative information. The comments stated that the device 
listing provisions of part 807 require each medical device wholesaler 
to prepare and file reports of all regulated products. If each brand 
and package style of cigarettes and smokeless tobacco are considered a 
separate device, this would substantially increase paperwork and 
duplicative reporting.
    The comment correctly notes that part 807, as currently written, 
requires distributors to register and list devices (21 CFR 807.20). 
However, FDA has amended part 807 to exempt distributors of cigarettes 
and smokeless tobacco. Thus, distributors do not have to comply with 
part 807, nor do they have to comply with Sec. 897.40 because FDA has 
deleted Sec. 897.40 from the final rule.
    (4) Several comments, primarily from small businesses and 
convenience stores, said that the 1995 proposed rule would have no 
impact and that adding paperwork would not curb underage smoking.

[[Page 44612]]

    The agency disagrees with the comments. The final rule restricts 
young people's access to cigarettes and smokeless tobacco and reduces 
their appeal to young people. FDA believes that the final rule, in 
conjunction with State and local government efforts, will prevent large 
numbers of young people from using or experimenting with these 
products. Yet, insofar as any information collection burden is 
concerned, FDA points out that the rule's paperwork requirements are a 
function of the act and are being imposed to further the purposes of 
the act and of this final rule, not in any attempt to curb underage 
smoking by simply adding paperwork for paperwork's sake.
    (5) One comment said that FDA could reduce the information 
collection burden in proposed Sec. 897.29 (the educational program) by 
requiring manufacturers to contribute to an educational fund that an 
independent agency, such as FDA, CDC, or NIH, could use. The comment 
said that this would create a positive incentive for companies to 
change their marketing practices and would reduce the need for 
extensive recordkeeping and regulatory oversight of manufacturers.
    The agency has deleted the educational program provision from the 
final rule. Consequently, the information collection burden associated 
with proposed Sec. 897.29 no longer exists.
    (6) In response to comments, FDA has amended the final rule to 
include a medical device reporting requirement for manufacturers and 
distributors at Secs. 803.19 and 804.25. For manufacturers, these 
reports are limited to adverse events (resulting from product 
contamination, a change in ingredient or in any manufacturing process, 
or serious adverse events that are not well-known or well-documented by 
the scientific community. For distributors, these reports are limited 
to adverse events related to contamination. FDA estimates that it will 
receive 50 reports and each report will require 8 hours to prepare. The 
agency has amended the information collection burden to reflect these 
changes to the rule.
    (7) FDA has also revised the information collection figures for 
Sec. 897.24 which requires an established name on labels. The revision 
changes the number of respondents from 1,000 to 2,000 to reflect the 
agency's position that there are 1,000 varieties of cigarettes and 
smokeless tobacco products and that each variety has 2 labels, thus 
resulting in 2,000 affected labels.
    (8) FDA has also revised the information collection figures for 
Sec. 897.32 to account for the survey evidence that is needed to 
establish that a magazine, newspaper, or other periodical is an 
``adult'' publication that is exempt from the requirement of black text 
on a white background. The agency estimates that such surveys will 
result in a capital cost of $2 million, with annual costs of $1 
million. FDA estimates that 31 recordkeepers would be affected at a 
total burden hour figure of 100,000 hours.

 B. Information Collection Provisions in the Final Rule

    This final rule contains information collection provisions that are 
subject to review by the Office of Management and Budget (OMB) under 
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The title, 
description, and respondent description of the information collection 
requirements are shown below with the estimate of the annual reporting 
and recordkeeping burden. Included in the estimate is the time for 
reviewing instructions, searching existing data sources, gathering and 
maintaining the data needed, and completing and reviewing the 
collection of information.
    Title: Regulations Restricting the Sale and Distribution of 
Cigarettes and Smokeless Tobacco Products to Protect Children and 
Adolescents.
    Description: The final rule requires the collection of information 
regarding cigarettes and smokeless tobacco. The final rule requires 
manufacturers, importers, and distributors to report certain adverse 
events to FDA and requires manufacturers to use established names for 
cigarettes and smokeless tobacco. The final rule also requires 
manufacturers, distributors, and retailers to observe certain format 
and content requirements for labeling and advertising, and requires 
manufacturers, distributors, and retailers to notify FDA if they intend 
to use an advertising medium that is not listed in the regulations.
    Description of Respondents: Businesses.

[[Page 44613]]



                                               Table 17.--Estimated Annual Reporting and Disclosure Burden                                              
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Annual                                                                                                         
21 CFR Section   No. of Respondents     Frequency       Total Annual        Hours per        Total Hours       Total Capital Costs    Total Operating & 
                                      per Response        Responses         Response                                                  Maintenance Costs 
--------------------------------------------------------------------------------------------------------------------------------------------------------
803.19                  49                 1                49                 8               392                21,000                13,680          
804.25                   1                 1                 1                 8                 8               231,000                35,220          
897.24               2,000                 1             2,000                40            80,000            17,000,000                     0          
897.30                   1                 1                 1                 1                 1                     0                     0          
897.32              25,000                 1            25,000                 1            25,000                     0                     0          
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Burden                                                                               105,401            17,250,000                48,900          
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 44614]]



                                                    Table 18.--Estimated Annual Recordkeeping Burden                                                    
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Annual                                                                                                         
   21 CFR Section         No. of     Frequency per  Total Annual        Hours per            Total Hours       Total Capital Costs    Total Operating & 
                      Recordkeepers  Recordkeeping     Records        Recordkeeper                                                    Maintenance Costs 
--------------------------------------------------------------------------------------------------------------------------------------------------------
897.32                     31              1            31             3,226               100,000             2,000,000             1,000,000          
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Burden                                                                               100,000             2,000,000             1,000,000          
--------------------------------------------------------------------------------------------------------------------------------------------------------





[[Page 44615]]


    The 1995 proposed rule provided a 90-day comment period (extended 
to 144 days in the Federal Register of October 16, 1995, 60 FR 53560). 
As discussed previously, the revised burden hour estimates in the final 
rule are based partially on comments received.
    The information collection provisions in the proposed rule were 
approved under OMB no. 0910-0312. Because of changes made since the 
proposed rule, FDA has submitted the information collection provisions 
of the final rule to OMB for review. Prior to the effective date of 
this final rule, FDA will publish a notice in the Federal Register of 
OMB's decision to approve, modify, or disapprove the information 
collection provisions in the final rule.

XVII. Congressional Review

    This final rule has been determined to be a major rule for purposes 
of 5 U.S.C. 801 et seq., Subtitle E of the Small Business Regulatory 
Enforcement Fairness Act of 1996 (Pub. L. 104-121). FDA is submitting 
the information and reports as required by that statute.

List of Subjects

21 CFR Part 801

    Labeling, Medical devices, Reporting and recordkeeping 
requirements.

21 CFR Part 803

    Imports, Medical devices, Reporting and recordkeeping requirements.

21 CFR Part 804

    Imports, Medical devices, Reporting and recordkeeping requirements.

21 CFR Part 807

    Confidential business information, Imports, Medical devices, 
Reporting and recordkeeping requirements.

21 CFR Part 820

    Medical devices, Reporting and recordkeeping requirements.

21 CFR Part 897

    Advertising, Cigarettes, Labeling, Sale and distribution, Smokeless 
tobacco.
    Therefore, under the Federal Food, Drug, and Cosmetic Act and under 
authority delegated to the Commissioner of Food and Drugs, 21 CFR parts 
801, 803, 804, 807, and 820 are amended and a new part 897 is added as 
follows:

PART 801--LABELING

    1. The authority citation for 21 CFR part 801 continues to read as 
follows:

    Authority: Secs. 201, 301, 501, 502, 507, 519, 520, 701, 704 of 
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 331, 351, 
352, 357, 360i, 360j, 371, 374).

    2. Section 801.126 is added to subpart D to read as follows:


Sec. 801.126  Exemptions for cigarettes and smokeless tobacco.

    Cigarettes and smokeless tobacco as defined in part 897 of this 
chapter are exempt from section 502(f)(1) of the Federal Food, Drug, 
and Cosmetic Act.

PART 803--MEDICAL DEVICE REPORTING

    3. The authority citation for 21 CFR part 803 continues to read as 
follows:

    Authority: Secs. 502, 510, 519, 520, 701, 704 of the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 352, 360, 360i, 360j, 371, 
374).

    4. Section 803.19 is amended by adding new paragraphs (f) and (g) 
to read as follows:

Sec. 803.19  Exemptions, variances, and alternative reporting 
requirements.

* * * * *
    (f) Manufacturers as defined in part 897 of this chapter shall 
submit medical device reports concerning cigarettes and smokeless 
tobacco under this part only for serious adverse events that are not 
well-known or well-documented by the scientific community, including 
events related to contamination, or a change in any ingredient or any 
manufacturing process.
    (g) User facilities are exempt from submitting medical device 
reports concerning cigarettes and smokeless tobacco under this part.

PART 804--MEDICAL DEVICE DISTRIBUTOR REPORTING

    5. The authority citation for 21 CFR part 804 continues to read as 
follows:

    Authority: Secs. 502, 510, 519, 520, 701, 704 of the Federal 
Food, Drug, and Cosmetic Act (21 U.S.C. 352, 360, 360i, 360j, 371, 
374).

    6. Section 804.25 is amended by adding a new paragraph (c) to read 
as follows:

Sec. 804.25  Reports by distributors.

* * * * *
    (c) Distributors as defined in part 897 of this chapter shall 
submit medical device reports concerning cigarettes and smokeless 
tobacco under this part only for adverse events related to 
contamination.

PART 807--ESTABLISHMENT REGISTRATION AND DEVICE LISTING FOR 
MANUFACTURERS AND DISTRIBUTORS OF DEVICES

    7. The authority citation for 21 CFR part 807 continues to read as 
follows:

    Authority: Secs. 301, 501, 502, 510, 513, 515, 519, 520, 701, 
704 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 331, 351, 
352, 360, 360c, 360e, 360i, 360j, 371, 374).

    8. Section 807.65 is amended by adding a new paragraph (j) to read 
as follows:

Sec. 807.65  Exemptions for device establishments.

* * * * *
    (j) Distributors of cigarettes or smokeless tobacco as defined in 
part 897 of this chapter.

PART 820--GOOD MANUFACTURING PRACTICE FOR MEDICAL DEVICES: GENERAL

    9. The authority citation for 21 CFR part 820 continues to read as 
follows:

    Authority: Secs. 501, 502, 515, 518, 519, 520, 701, 704 of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 351, 352, 360e, 
360h, 360i, 360j, 371, 374).

    10. Section 820.1 is amended by adding and reserving new paragraph 
(e) and adding new paragraph (f) to read as follows:

Sec. 820.1  Scope.

* * * * *
    (e) [Reserved]
    (f) This part does not apply to distributors of cigarettes or 
smokeless tobacco as defined in part 897 of this chapter.
    11. New part 897 is added to read as follows:

PART 897--CIGARETTES AND SMOKELESS TOBACCO

Subpart A--General Provisions

Sec.
897.1  Scope.
897.2  Purpose.
897.3  Definitions.

Subpart B--Prohibition of Sale and Distribution to Persons Younger Than 
18 Years of Age

897.10  General responsibilities of manufacturers, distributors, and 
retailers.
897.12  Additional responsibilities of manufacturers.
897.14  Additional responsibilities of retailers.
897.16  Conditions of manufacture, sale, and distribution.


[[Page 44616]]



Subpart C--Labels

897.24  Established names for cigarettes and smokeless tobacco.
897.25  Statement of intended use and age restriction.

Subpart D--Labeling and Advertising

897.30  Scope of permissible forms of labeling and advertising.
897.32  Format and content requirements for labeling and 
advertising.
897.34  Sale and distribution of nontobacco items and services, 
gifts, and sponsorship of events.

    Authority: Secs. 502, 510, 518, 519, 520, 701, 704, 903 of the 
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 352, 360, 360h, 
360i, 360j, 371, 374, 393).

Subpart A--General Provisions


Sec. 897.1  Scope.

    (a) This part sets out the restrictions under the Federal Food, 
Drug, and Cosmetic Act (the act) on the sale, distribution, and use of 
cigarettes and smokeless tobacco that contain nicotine.
    (b) The failure to comply with any applicable provision in this 
part in the sale, distribution, and use of cigarettes and smokeless 
tobacco renders the product misbranded under the act.
    (c) References in this part to regulatory sections of the Code of 
Federal Regulations are to chapter I of Title 21, unless otherwise 
noted.


Sec. 897.2  Purpose.

    The purpose of this part is to establish restrictions on the sale, 
distribution, and use of cigarettes and smokeless tobacco in order to 
reduce the number of children and adolescents who use these products, 
and to reduce the life-threatening consequences associated with tobacco 
use.


Sec. 897.3  Definitions.

    (a) Cigarette means any product which contains nicotine, is 
intended to be burned under ordinary conditions of use, and consists 
of:
    (1) Any roll of tobacco wrapped in paper or in any substance not 
containing tobacco; or
    (2) Any roll of tobacco wrapped in any substance containing tobacco 
which, because of its appearance, the type of tobacco used in the 
filler, or its packaging and labeling, is likely to be offered to, or 
purchased by, consumers as a cigarette described in paragraph (a)(1) of 
this section.
    (b) Cigarette tobacco means any product that consists of loose 
tobacco that contains or delivers nicotine and is intended for use by 
consumers in a cigarette. Unless otherwise stated, the requirements 
pertaining to cigarettes shall also apply to cigarette tobacco.
    (c) Distributor means any person who furthers the distribution of 
cigarettes or smokeless tobacco, whether domestic or imported, at any 
point from the original place of manufacture to the person who sells or 
distributes the product to individuals for personal consumption. Common 
carriers are not considered distributors for the purposes of this part.
    (d) Manufacturer means any person, including any repacker and/or 
relabeler, who manufactures, fabricates, assembles, processes, or 
labels a finished cigarette or smokeless tobacco product.
    (e) Nicotine means the chemical substance named 3-(1-Methyl-2-
pyrrolidinyl)pyridine or C10H14N2, including any salt or 
complex of nicotine.
    (f) Package means a pack, box, carton, or container of any kind in 
which cigarettes or smokeless tobacco are offered for sale, sold, or 
otherwise distributed to consumers.
    (g) Point of sale means any location at which a consumer can 
purchase or otherwise obtain cigarettes or smokeless tobacco for 
personal consumption.
    (h) Retailer means any person who sells cigarettes or smokeless 
tobacco to individuals for personal consumption, or who operates a 
facility where vending machines or self-service displays are permitted 
under this part.
    (i) Smokeless tobacco means any product that consists of cut, 
ground, powdered, or leaf tobacco that contains nicotine and that is 
intended to be placed in the oral cavity.

Subpart B--Prohibition of Sale and Distribution to Persons Younger 
Than 18 Years of Age


Sec. 897.10  General responsibilities of manufacturers, distributors, 
and retailers.

    Each manufacturer, distributor, and retailer is responsible for 
ensuring that the cigarettes or smokeless tobacco it manufactures, 
labels, advertises, packages, distributes, sells, or otherwise holds 
for sale comply with all applicable requirements under this part.


Sec. 897.12  Additional responsibilities of manufacturers.

    In addition to the other responsibilities under this part, each 
manufacturer shall remove from each point of sale all self-service 
displays, advertising, labeling, and other items that the manufacturer 
owns that do not comply with the requirements under this part.


Sec. 897.14  Additional responsibilities of retailers.

    In addition to the other requirements under this part, each 
retailer is responsible for ensuring that all sales of cigarettes or 
smokeless tobacco to any person comply with the following requirements:
    (a) No retailer may sell cigarettes or smokeless tobacco to any 
person younger than 18 years of age;
    (b)(1) Except as otherwise provided in Sec. 897.16(c)(2)(i) and in 
paragraph (b)(2) of this section, each retailer shall verify by means 
of photographic identification containing the bearer's date of birth 
that no person purchasing the product is younger than 18 years of age;
    (2) No such verification is required for any person over the age of 
26;
    (c) Except as otherwise provided in Sec. 897.16(c)(2)(ii), a 
retailer may sell cigarettes or smokeless tobacco only in a direct, 
face-to-face exchange without the assistance of any electronic or 
mechanical device (such as a vending machine);
    (d) No retailer may break or otherwise open any cigarette or 
smokeless tobacco package to sell or distribute individual cigarettes 
or a number of unpackaged cigarettes that is smaller than the quantity 
in the minimum cigarette package size defined in Sec. 897.16(b), or any 
quantity of cigarette tobacco or smokeless tobacco that is smaller than 
the smallest package distributed by the manufacturer for individual 
consumer use; and
    (e) Each retailer shall ensure that all self-service displays, 
advertising, labeling, and other items, that are located in the 
retailer's establishment and that do not comply with the requirements 
of this part, are removed or are brought into compliance with the 
requirements under this part.


Sec. 897.16  Conditions of manufacture, sale, and distribution.

    (a) Restriction on product names. A manufacturer shall not use a 
trade or brand name of a nontobacco product as the trade or brand name 
for a cigarette or smokeless tobacco product, except for a tobacco 
product whose trade or brand name was on both a tobacco product and a 
nontobacco product that were sold in the United States on January 1, 
1995.
    (b) Minimum cigarette package size. Except as otherwise provided 
under this section, no manufacturer, distributor, or retailer may sell 
or cause to be sold, or distribute or cause to be distributed, any 
cigarette package that contains fewer than 20 cigarettes.

[[Page 44617]]

    (c) Vending machines, self-service displays, mail-order sales, and 
other ``impersonal'' modes of sale. (1) Except as otherwise provided 
under this section, a retailer may sell cigarettes and smokeless 
tobacco only in a direct, face-to-face exchange between the retailer 
and the consumer. Examples of methods of sale that are not permitted 
include vending machines and self-service displays.
    (2) Exceptions. The following methods of sale are permitted:
    (i) Mail-order sales, excluding mail-order redemption of coupons 
and distribution of free samples through the mail; and
    (ii) Vending machines (including vending machines that sell 
packaged, single cigarettes) and self-service displays that are located 
in facilities where the retailer ensures that no person younger than 18 
years of age is present, or permitted to enter, at any time.
    (d) Free samples. No manufacturer, distributor, or retailer may 
distribute or cause to be distributed any free samples of cigarettes or 
smokeless tobacco.
    (e) Restrictions on labels, labeling, and advertising. No 
manufacturer, distributor, or retailer may sell or distribute, or cause 
to be sold or distributed, cigarettes or smokeless tobacco with labels, 
labeling, or advertising not in compliance with subparts C and D of 
this part, and other applicable requirements.

Subpart C--Labels


Sec. 897.24  Established names for cigarettes and smokeless tobacco.

    Each cigarette or smokeless tobacco package shall bear, as provided 
in section 502 of the act, the following established name: 
``Cigarettes'', ``Cigarette Tobacco'', ``Loose Leaf Chewing Tobacco'', 
``Plug Chewing Tobacco'', ``Twist Chewing Tobacco'', ``Moist Snuff'', 
or ``Dry Snuff'', whichever name is appropriate.


Sec. 897.25  Statement of intended use and age restriction.

    Each cigarette or smokeless tobacco package, that is offered for 
sale, sold, or otherwise distributed shall bear the following 
statement: ``Nicotine-Delivery Device for Persons 18 or Older''.

Subpart D--Labeling and Advertising


Sec. 897.30  Scope of permissible forms of labeling and advertising.

    (a)(1) A manufacturer, distributor, or retailer may, in accordance 
with this subpart D, disseminate or cause to be disseminated 
advertising or labeling which bears a cigarette or smokeless tobacco 
brand name (alone or in conjunction with any other word) or any other 
indicia of tobacco product identification, in newspapers; in magazines; 
in periodicals or other publications (whether periodic or limited 
distribution); on billboards, posters, and placards; in nonpoint-of-
sale promotional material (including direct mail); in point-of-sale 
promotional material; and in audio or video formats delivered at a 
point-of-sale.
    (2) A manufacturer, distributor, or retailer intending to 
disseminate, or to cause to be disseminated, advertising or labeling 
for cigarettes or smokeless tobacco in a medium that is not listed in 
paragraph (a)(1) of this section, shall notify the agency 30 days prior 
to the use of such medium. The notice shall describe the medium and 
discuss the extent to which the advertising or labeling may be seen by 
persons younger than 18 years of age. The manufacturer, distributor, or 
retailer shall send this notice to the Division of Drug Marketing, 
Advertising, and Communications, 5600 Fishers Lane (HFD-40), rm. 17B-
20, Rockville, MD 20857.
    (b) No outdoor advertising for cigarettes or smokeless tobacco, 
including billboards, posters, or placards, may be placed within 1,000 
feet of the perimeter of any public playground or playground area in a 
public park (e.g., a public park with equipment such as swings and 
seesaws, baseball diamonds, or basketball courts), elementary school, 
or secondary school.
    (c) This subpart D does not apply to cigarette or smokeless tobacco 
package labels.


Sec. 897.32  Format and content requirements for labeling and 
advertising.

    (a) Except as provided in paragraph (b) of this section, each 
manufacturer, distributor, and retailer advertising or causing to be 
advertised, disseminating or causing to be disseminated, any labeling 
or advertising for cigarettes or smokeless tobacco shall use only black 
text on a white background. This section does not apply to advertising:
    (1) In any facility where vending machines and self- service 
displays are permitted under this part, provided that the advertising 
is not visible from outside the facility and that it is affixed to a 
wall or fixture in the facility; or
    (2) Appearing in any publication (whether periodic or limited 
distribution) that the manufacturer, distributor, or retailer 
demonstrates is an adult publication. For the purposes of this section, 
an adult publication is a newspaper, magazine, periodical, or other 
publication:
    (i) Whose readers younger than 18 years of age constitute 15 
percent or less of the total readership as measured by competent and 
reliable survey evidence; and
    (ii) That is read by fewer than 2 million persons younger than 18 
years of age as measured by competent and reliable survey evidence.
    (b) Labeling and advertising in an audio or video format shall be 
limited as follows:
    (1) Audio format shall be limited to words only with no music or 
sound effects.
    (2) Video formats shall be limited to static black text only on a 
white background. Any audio with the video shall be limited to words 
only with no music or sound effects.
    (c) Each manufacturer, distributor, and retailer advertising or 
causing to be advertised, disseminating or causing to be disseminated, 
advertising permitted under this subpart D, shall include, as provided 
in section 502 of the act, the product's established name and a 
statement of its intended use as follows: ``Cigarettes--A Nicotine-
Delivery Device for Persons 18 or Older'', ``Cigarette Tobacco--A 
Nicotine-Delivery Device for Persons 18 or Older'', or ``Loose Leaf 
Chewing Tobacco'', ``Plug Chewing Tobacco'', ``Twist Chewing Tobacco'', 
``Moist Snuff'' or ``Dry Snuff'', whichever is appropriate for the 
product, followed by the words ``A Nicotine-Delivery Device for Persons 
18 or Older''.


Sec. 897.34  Sale and distribution of nontobacco items and services, 
gifts, and sponsorship of events.

    (a) No manufacturer and no distributor of imported cigarettes or 
smokeless tobacco may market, license, distribute, sell, or cause to be 
marketed, licensed, distributed, or sold any item (other than 
cigarettes or smokeless tobacco) or service, which bears the brand name 
(alone or in conjunction with any other word), logo, symbol, motto, 
selling message, recognizable color or pattern of colors, or any other 
indicia of product identification identical or similar to, or 
identifiable with, those used for any brand of cigarettes or smokeless 
tobacco.
    (b) No manufacturer, distributor, or retailer may offer or cause to 
be offered any gift or item (other then cigarettes or smokeless 
tobacco) to any person

[[Page 44618]]

purchasing cigarettes or smokeless tobacco in consideration of the 
purchase thereof, or to any person in consideration of furnishing 
evidence, such as credits, proofs-of-purchase, or coupons, of such a 
purchase.
    (c) No manufacturer, distributor, or retailer may sponsor or cause 
to be sponsored any athletic, musical, artistic, or other social or 
cultural event, or any entry or team in any event, in the brand name 
(alone or in conjunction with any other word), logo, symbol, motto, 
selling message, recognizable color or pattern of colors, or any other 
indicia of product identification identical or similar to, or 
identifiable with, those used for any brand of cigarettes or smokeless 
tobacco. Nothing in this paragraph prevents a manufacturer, 
distributor, or retailer from sponsoring or causing to be sponsored any 
athletic, musical, artistic, or other social or cultural event, or team 
or entry, in the name of the corporation which manufactures the tobacco 
product, provided that both the corporate name and the corporation were 
registered and in use in the United States prior to January 1, 1995, 
and that the corporate name does not include any brand name (alone or 
in conjunction with any other word), logo, symbol, motto, selling 
message, recognizable color or pattern of colors, or any other indicia 
of product identification identical or similar to, or identifiable 
with, those used for any brand of cigarettes or smokeless tobacco.

    Dated: August 22, 1996.
William B. Schultz,
Deputy Commissioner for Policy.

David A. Kessler,
Commissioner of Food and Drugs.

Donna E. Shalala,
Secretary of Health and Human Services.
    NOTE: The following Annex will not appear in the Code of Federal 
Regulations.
BILLING CODE 4160-01-F