[Federal Register Volume 61, Number 170 (Friday, August 30, 1996)]
[Rules and Regulations]
[Pages 45883-45886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22221]


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FEDERAL TRADE COMMISSION

16 CFR Part 307


Regulations Under the Comprehensive Smokeless Tobacco Health 
Education Act of 1986

AGENCY: Federal Trade Commission.

ACTION: Final rule.

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SUMMARY: The Comprehensive Smokeless Tobacco Health Education Act of 
1986 (``Smokeless Tobacco Act'') requires that all packaging and 
advertising for smokeless tobacco products display one of three health 
warnings in rotating sequence. On January 16, 1993, the Commission 
published a Notice of Proposed Rulemaking seeking public comment on a 
method for rotating the health warnings on promotional materials based 
on the date of dissemination of the materials. On February 14, 1995, 
the Commission published another Notice of Proposed Rulemaking seeking 
public comment on a proposal to permit rotation of warnings on 
utilitarian items based on either the date of order or the date of 
dissemination of the items, provided the production of such items is 
carried out in a manner consistent with customary business practices.
    Having considered all of the issues raised during the two public 
comment periods, the Commission is now amending the regulations 
governing utilitarian items and the regulations governing promotional 
materials to permit rotation based on either the date of order or the 
date of dissemination, provided the production of such items or 
materials is carried out in a manner consistent with customary business 
practices. This document contains the statement of basis and purpose 
and the text of the final regulations.

EFFECTIVE DATE: The effective date of these regulations will be 
September 30, 1996.

ADDRESSES: Requests for copies of the regulations and the statement of 
basis and purpose should be sent to Public Reference Branch, Room 130, 
Federal Trade Commission, 6th & Pennsylvania Ave. NW, Washington, DC 
20580.

FOR FURTHER INFORMATION CONTACT: Phillip S. Priesman, Attorney, 
Division of Advertising Practices, Federal Trade

[[Page 45884]]

Commission, 6th & Pennsylvania Ave. NW, Washington, DC 20580. (202) 
326-2484.

SUPPLEMENTARY INFORMATION:

Statement of Basis and Purpose

I. Introduction

    Congress enacted the Comprehensive Smokeless Tobacco Health 
Education Act of 1986 for the express purpose of educating the public 
about the health consequences of using smokeless tobacco products. 
(Public Law No. 99-252, 100 Stat. 30 (1986), 15 U.S.C. 4401 et seq.). 
To achieve this end, the Act required the random display of three 
warnings on the packaging and the rotation of these warnings in the 
advertising of smokeless tobacco products.
    Specifically, the Smokeless Tobacco Act mandated that one of the 
following three health warnings appear in the labeling and advertising 
(with the exception of outdoor billboard advertising) of smokeless 
tobacco products:

Warning: This product may cause mouth cancer.
Warning: This product may cause gum disease and tooth loss.
Warning: This product is not a safe alternative to cigarettes.

    The Commission's original regulations applying the Act to 
promotional materials provided that ``[a] satisfactory plan for point-
of-sale and non-point-of-sale promotional materials * * * could provide 
for rotation according to the time that the material is scheduled to be 
disseminated or the order date for the material.'' 51 Fed. Reg. 40005, 
40023 (1986). Point-of-sale materials include shelf-talkers (a card or 
brochure attached to the shelf where the product is located in a retail 
outlet), rack header cards (cards identifying a particular smokeless 
brand on semi-circular racks displaying cans of snuff), and tear pads. 
Non-point-of-sale materials include direct mail circulars, coupons, 
leaflets and pamphlets.
    The Commission's original regulations exempted utilitarian items 
from the regulations governing the rotation and display of the health 
warnings. The exemption for utilitarian items was challenged in court, 
and the court ultimately ordered the Commission to delete the 
exemption.1 Accordingly, in 1991, the Commission issued final 
regulations setting out requirements for the rotation and display of 
health warnings on utilitarian items. During its consideration of the 
1991 rulemaking proceeding, the Commission became concerned that 
companies could order a year's supply of utilitarian items at one time, 
and thereby display only one warning over an entire year. The 
Commission also was concerned that this apparent loophole could 
likewise apply to promotional materials. Thus, the Commission amended 
its regulations governing rotation of both promotional objects and 
utilitarian objects, and called for ``rotation according to the date 
the materials or objects are disseminated.'' The Commission noted, 
however, that this could impose a hardship on a company that was unable 
to foresee its distribution schedule when placing the order. To 
alleviate this hardship, the rule also permitted rotational plans 
whereby each warning would be displayed on an equal number of objects 
comprising any given order. Under this option, for promotions lasting 
one year or longer, the company could distribute promotional materials 
or utilitarian items bearing the same warning for four months, and then 
switch to another warning. If the promotion was scheduled to last less 
than one year, the materials or items bearing the various warnings 
could be distributed randomly.
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    \1\ Public Citizen v. FTC, 869 F.2d 1541 (D.C. Cir. 1989), 
aff'g, 588 F. Supp. 667 (D.D.C. 1988).
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    With regard to promotional materials, the Commission published this 
rule for additional public comment on January 16, 1993. The initial 
comment period was to expire on February 16, 1993, but the Commission 
extended the deadline until March 23, 1993. During this time, the 
Commission received five comments. Four of the comments were from 
manufacturers of smokeless tobacco products, and one was from a trade 
association representing the manufacturers.
    On February 14, 1995, the Commission published a Notice of Proposed 
Rulemaking seeking comment on whether the requirements for rotating the 
health warnings on utilitarian items should be amended. The proposed 
rule permitted the rotation of warnings on utilitarian items according 
to either the date the item is ordered or the date of dissemination, 
provided that the production of the materials is carried out consistent 
with customary business practices. The Commission received four 
comments, all of which supported the proposed rule. All four comments 
were from manufacturers of smokeless tobacco products.

II. The Regulations

    The Commission's original regulations were written, for the most 
part, as creating safe harbors rather than imposing mandatory 
requirements for compliance with the Smokeless Tobacco Act. The 
regulations issued in 1991 with respect to utilitarian items and 
promotional materials and those proposed again in 1993 regarding 
promotional materials removed the safe harbor provisions, and specified 
that the appropriate warning would be determined by the date the 
materials were scheduled for dissemination, with a limited option for 
random display. The comments the Commission received indicated that 
requiring rotation based on date of dissemination, even with the 
limited option for random display, was likely to impose additional, 
possibly significant, costs on smokeless tobacco manufacturers and 
their suppliers. Both the date of dissemination requirement and the 
more flexible date of order safe harbor appear likely to meet the chief 
benefit intended by the regulations: Providing a system for the 
rotation of health warnings as required by the Smokeless Tobacco Act. 
Consequently, the Commission is returning to the previous more flexible 
approach and specifying safe harbors for complying with the Smokeless 
Tobacco Act's warning requirements by amending the regulation governing 
utilitarian items, and retaining the present rotation schedule for 
promotional materials except for the amendment that such materials be 
produced in accordance with customary business practices. With these 
amendments, the regulations governing the rotation of warnings for 
utilitarian items will mirror those for promotional materials.
    Given the practical constraints associated with the production and 
dissemination of utilitarian items and those for promotional materials, 
the Commission believes that the industry should be given some 
flexibility in conforming the rotation requirements to these types of 
advertising, while at the same time ensuring that the warnings rotate 
as required by the Smokeless Tobacco Act. If, however, there is a 
pattern of abuse or confusion suggesting that the safe harbors do not 
provide for adequate rotation of the warnings, the Commission will 
reconsider whether it is necessary to promulgate regulations providing 
less flexibility and more specificity. In particular, the Commission 
may reconsider whether to impose the mandatory date of dissemination 
requirement for the rotation of both utilitarian items and promotional 
materials.
A. Comments Regarding the Rotation of Utilitarian Items
    The comments indicate that producing utilitarian items that comply 
with a rotation standard based upon

[[Page 45885]]

date of dissemination is expensive and imposes burdens on the smokeless 
tobacco manufacturers. According to one comment, the date of 
dissemination requirement is burdensome due to the difficulty of 
predicting the demand for any item in advance. This comment notes that 
such prediction is difficult both because methods of forecasting demand 
are imprecise and because premium promotions offering utilitarian items 
often change during the course of the promotion due to competitive 
conditions.2 Several comments state that the date of dissemination 
requirement requires companies to order an excess supply of utilitarian 
items to ensure that the supply is not exhausted before the promotion 
ends.3 These comments likewise state that the need to order an 
excess supply of items adds both warehousing and inventory costs (both 
in terms of manpower and facilities).4 And, as inventory costs 
increase, so do freight costs, according to these comments. Another 
comment states that its inability to accurately forecast demand as well 
as the lead time needed to order items adds planning and administrative 
costs, including added costs of coordinating with suppliers, 
warehousing inventory, tracking inventory, and distributing 
items.5
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    \2\ Comment of Pinkerton at 5 (April 17, 1995).
    \3\ Comments of Conwood at 3 (April 17, 1995); Pinkerton at 6 
(April 17, 1995).
    \4\ Comment of Pinkerton at 6 (April 17, 1995).
    \5\ Comment of United States Tobacco Co. at 9 (April 11, 1995).
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B. Comments Regarding the Rotation of Promotional Materials
    The comments from the smokeless tobacco manufacturers are similar 
to those for utilitarian items. The comments state that the companies 
exercise very little control over the actual rate or date of 
dissemination of promotional materials.6 In addition, to comply 
with the proposed date of dissemination requirement, manufacturers 
would need to produce most of their materials in significantly larger 
quantities to ensure an adequate supply of materials with each of the 
warnings. This would increase their production expenses, as well as the 
cost of shipping, warehousing, and distributing the materials.7 
Several companies might also need to hire additional employees to 
handle the increased workload.8 Further, much of the additional 
burden would fall on the businesses that produce and supply the 
materials to the tobacco companies. While these businesses would likely 
pass on their increased costs to their customers, some of these 
suppliers might lack the resources to meet the increased production 
requirements, thus forcing them to lose a significant portion of their 
business.
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    \6\ Comments of Conwood at 2-3 (April 17, 1993); Smokeless 
Tobacco Council at 3 (March 18, 1993); Pinkerton at 5 (March 17, 
1993).
    \7\ Comments of Helme at 2 (March 5, 1993); United States 
Tobacco Co. at 10-11 (March 18, 1993); Pinkerton at 3-4 (March 17, 
1993).
    \8\ Comments of Smokeless Tobacco Council at 6 (March 18, 1993); 
United States Tobacco Co. at 18-20 (March 18, 1993); Conwood at 5 
(March 16, 1993); Pinkerton at 4 (March 17, 1993); Helme at 2 (March 
5, 1993).
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    According to some of the comments, the proposed regulations would 
also raise environmental issues by increasing the amount of waste 
generated in producing materials.9 To comply with the proposed 
requirements, manufacturers of smokeless tobacco would need to order 
greater quantities of materials displaying each different warning 
label. Rather than being able to exhaust the existing supply of 
materials before re-ordering, companies would need to switch to 
materials printed with a different warning on the specified date, and 
throw out or otherwise destroy all of the remaining materials with the 
outdated warning. According to the comments, this would only add to the 
nation's growing environmental concerns.10
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    \9\ Comment of Conwood at 6 (March 16, 1993).
    \10\ Id.
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C. Commission Conclusions
    Based on its review of these comments, the Commission believes it 
is appropriate to adopt a rotation method that allows rotation to be 
based on either the date of order or the date of dissemination, as long 
as ``the production of such materials is carried out in a manner 
consistent with customary business practices.'' Such a method will 
fulfill the purpose of the Smokeless Tobacco Act and prevent 
manufacturers from circumventing the rotation requirement without 
imposing a substantial hardship on the manufacturers and their 
suppliers. Almost all of the members of the industry have demonstrated 
their ability to comply with a rotation requirement based on the date 
of order by submitting rotational plans that follow this schedule. 
Moreover, the addition of the requirement that production be based upon 
business considerations will ensure that permitting rotation based on 
date of order will not frustrate the Act's requirement that the 
warnings rotate. The inclusion of this ``caveat'' is intended to 
inhibit bulk-ordering by companies to avoid any one particular 
warning.11
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    \11\ Such bulk-ordering was raised as a concern during the 
Commission's 1991 rulemaking regarding the rotation of warnings on 
smokeless tobacco utilitarian items. 56 FR 11653, 11659 (1991).
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    Some comments suggest that the Commission could lessen the burden 
on the smokeless tobacco manufacturers by allowing for the random 
simultaneous display of the various warnings on promotional materials. 
The Smokeless Tobacco Act and the Commission's regulations specifically 
permit random simultaneous display for packaging. However, the 
Smokeless Tobacco Act expressly provided for different methods of 
assuring the rotation of the three warnings for packaging and 
advertising. On packaging, the Act specifies that the warnings be 
displayed randomly in as equal a number of times as possible. In 
advertising, however, the Act mandates the rotation of the three 
warnings in alternating sequence every four months. While random 
simultaneous display may meet the Act's directives applicable to 
packaging, it generally would not appear to satisfy the prescribed 
rotation in alternating sequence in advertising. The Commission, 
therefore, concludes that the regulations should not provide for random 
simultaneous display of either utilitarian items or promotional 
materials.12
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    \12\ In 1985, the Commission reached a similar conclusion with 
respect to the rotation of warnings on cigarette packaging. The 
Comprehensive Smoking Education Act (``Cigarette Act'') specified 
that the four statutory health warnings had to rotate quarterly. 15 
U.S.C. 1331(c). Pursuant to the Cigarette Act, the cigarette 
companies submitted a rotational warning plan that called for the 
random simultaneous display of the warnings on cigarette packages. 
The Commission rejected this proposal, notifying the companies and 
the relevant committees of Congress of its action. Subsequently, the 
Congress amended the rotational warning requirements of the 
Cigarette Act to allow simultaneous rotation on packaging only for 
those cigarette companies that sold less than one-fourth of one 
percent of all cigarettes sold in the United States. The Nurse 
Education Amendments of 1985, Pub. L. 99-92, 99 Stat. 393, 402-403 
(1985). The same Congress later enacted the Smokeless Tobacco Act, 
with its different rotational warning schemes for smokeless tobacco 
packages and for smokeless tobacco advertisements.
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    Thus, the Commission's final regulations provide that the rotation 
of the health warnings on utilitarian items and promotional materials 
may be based upon either the date of order or the date of dissemination 
of the materials, provided that the items or materials are produced in 
accordance with customary business practices.

III. Regulatory Flexibility Act

    When the Commission first promulgated the smokeless tobacco 
regulations, the agency certified that the Regulatory Flexibility Act's 
requirement for regulatory analysis was not applicable because the 
regulation did

[[Page 45886]]

not appear to have a significant economic impact on a substantial 
number of small entities. 51 FR 40005, 40014 (1986). In its subsequent 
Notice, the Commission noted that the proposed amendments did not 
change the regulations sufficient to alter its previous ``no impact'' 
determination; nonetheless, to ensure that no substantial impact was 
being overlooked, the Commission requested public comment on the effect 
of the proposed regulations on costs, profitability, competitiveness, 
and employment in small entities. 54 FR 31541 (1989).
    Two of the comments received during the comment period for 
promotional materials discussed the effect that regulations requiring 
rotation based upon date of dissemination would have on small 
businesses. The Smokeless Tobacco Council noted that smaller smokeless 
tobacco manufacturers may be unable to absorb any additional production 
costs, and may eliminate their promotional programs. The Smokeless 
Tobacco Council and Conwood Tobacco Company noted that small suppliers 
may be unable to make the necessary adjustments. No other comments on 
burden were received during the 1993 comment period for promotional 
materials and no comments on burden were received during the 1995 
comment period for utilitarian items. By permitting rotation based upon 
date of order or date of dissemination, the final regulations will 
avoid any of these potential burdens on small entities. Thus, the 
Commission certifies that the amendments will not have a significant 
economic impact on a substantial number of small entities. 5 U.S.C. 
Sec. 605(b) (1982).

IV. Effective Date

    During the comment period concerning the proposed regulations for 
promotional items, the Commission received two comments requesting that 
if the Commission adopts a requirement that promotional items rotate 
according to the date of dissemination, the Commission include a 
grandfather clause delaying the effective date of the rule for at least 
two years from publication of the final rule, to enable companies to 
use up their existing inventory of materials, and to allow suppliers 
time to make the necessary adjustments.13 The Commission, however, 
does not believe that any grandfather period is necessary given the 
flexibility permitted by the amended regulations. In addition, the 
Commission notes that the major smokeless tobacco manufacturers have 
all previously filed plans calling for rotation based on date of order, 
one of the permitted methods of rotation under the amended regulations. 
However, the Commission will provide thirty (30) days for companies to 
come into compliance with these amendments. Thus, the effective date 
for the regulations governing the date that serves as the basis for 
rotating warnings on promotional materials is thirty (30) days from the 
date of publication of the final rule.
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    \13\ Comments of Smokeless Tobacco Council at 7 (March 18, 
1993); United States Tobacco Co. at 23 (March 18, 1993).
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List of Subjects in 16 CFR Part 307

    Health warnings, Smokeless tobacco, Trade practices.

    Accordingly, Part 307 of 16 CFR Chapter I is amended as follows:

PART 307--REGULATIONS UNDER THE COMPREHENSIVE SMOKELESS TOBACCO 
HEALTH EDUCATION ACT OF 1986

    1. The authority for Part 307 continues to read as follows:

    Authority: 15 U.S.C. 4401 et seq.

    2. Section 307.12(b) is revised to read as follows:


Sec. 307.12  Rotation, display, and dissemination of warning statements 
in smokeless tobacco advertising.

* * * * *
    (b) Each manufacturer, packager, or importer of a smokeless tobacco 
product must submit a plan to the Commission or its designated 
representative that ensures that the three warning statements are 
rotated every four (4) months in alternating sequence. There may be 
more than one system, however, that complies with the Act and these 
regulations. For example, a plan may require all brands to display the 
same warning during each four-month period or require each brand to 
display a different warning during a given four-month period. A plan 
shall describe the method of rotation and shall include a list of the 
designated warnings for each four-month period during the first year 
for each brand. A plan shall describe the method that will be used to 
ensure the proper rotation in different advertising media in sufficient 
detail to ensure compliance with the Act and these regulations, 
although a number of different methods may satisfy these requirements. 
For example, a satisfactory plan for advertising in newspapers, 
magazines, or other periodicals could provide for rotation according to 
either the cover or closing date of the publication. A satisfactory 
plan for posters and placards, other than billboard advertising, could 
provide for rotation according to either the scheduled or the actual 
appearance of the advertising. A satisfactory plan for point-of-sale 
and non-point-of-sale promotional materials such as leaflets, 
pamphlets, coupons, direct mail circulars, paperback book inserts, or 
non-print items, or for utilitarian objects, could provide for rotation 
according to the date the materials or objects are ordered by the 
smokeless tobacco manufacturer, or the date the objects or materials 
are scheduled to be disseminated, provided that the production of such 
materials or objects is carried out in a manner consistent with 
customary business practices.
* * * * *
    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 96-22221 Filed 8-29-96; 8:45 am]
BILLING CODE 6750-01-P