[Federal Register Volume 61, Number 250 (Friday, December 27, 1996)]
[Rules and Regulations]
[Pages 68143-68144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33016]


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FEDERAL TRADE COMMISSION

16 CFR Part 419


Trade Regulation Rule Concerning Games of Chance in the Food 
Retailing and Gasoline Industries

AGENCY: Federal Trade Commission.

ACTION: Repeal of rule.

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SUMMARY: The Federal Trade Commission announces the repeal of the Trade 
Regulation Rule concerning Games of Chance in the Food Retailing and 
Gasoline Industries. The Commission has reviewed the rulemaking record 
and determined that due to changes in industry practices, the Rule no 
longer serves the public interest and should be repealed. This notice 
contains a Statement of Basis and Purpose for repeal of the Rule.

EFFECTIVE DATE: December 26, 1996.

ADDRESSES: Requests for copies of the Statement of Basis and Purpose 
should be sent to Public Reference Branch, Room 130, Federal Trade 
Commission, 6th Street and Pennsylvania Avenue N.W., Washington, D.C. 
20580.

FOR FURTHER INFORMATION CONTACT: John M. Mendenhall, Federal Trade 
Commission, Cleveland Regional Office, Suite 520A, 668 Euclid Avenue, 
Cleveland, Ohio 44114, (216) 522-4210.

SUPPLEMENTARY INFORMATION:

Statement of Basis and Purpose

I. Background

    The Commission promulgated the Trade Regulation Rule concerning 
Games of Chance in the Food Retailing and Gasoline Industries (Games of 
Chance Rule), 16 CFR Part 419, on August 16, 1969 (34 FR 13302). The 
purpose of the Rule was to address abuses that were uncovered during 
Commission and Congressional investigation into the use of games of 
chance for promotional purposes in the food retailing and gasoline 
industries. In both industries, it appeared that the winning game 
pieces were being distributed in a manner not determined by chance but 
calculated to have maximum promotional impact. In order to prevent 
future abuses, the Rule required various pending-game and post-game 
disclosures, as well as certain procedures for operating a game of 
chance.
    Pending-game disclosures included: (1) The number of prizes in each 
``category or denomination;'' (2) the odds-of-winning each prize; (3) 
the number of retail outlets participating in the game; (4) the 
geographic area covered by the game; and (5) the end date. If the game 
extended beyond 30 days, the Rule required weekly updating of 
disclosures of the odds-of-winning and the number of prizes. Post-game 
disclosures included: (1) The list of winners and the amount or value 
of each prize; (2) the total number of game pieces distributed; (3) the 
number of prizes in each ``category or denomination'' that were made 
available; and (4) the number of prizes actually awarded. Procedural 
requirements included a hiatus between games; a prohibition against 
terminating a game prior to distribution of all game pieces; a 
prohibition against replenishing of game pieces or prizes during a 
game; and a three-year record-keeping requirement.
    The Commission amended the Rule once in 1981. The amendments 
alleviated some reporting requirements, dropped certain requirements of 
the ``winners list'' provision, and shortened the required hiatus 
between games.1
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     1  16 CFR 419.1(e), -(f) (1995); 46 FR 36840 (July 16, 1981).
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    After the 1981 amendments, advertising and broadcasting trade 
associations filed a petition seeking exemption from the disclosure 
requirements for broadcast advertising of games. The petition asserted 
that games of chance could not be advertised in the broadcast media if 
full disclosures regarding prizes and odds of winning were required. In 
response to the petition, the Commission granted a temporary exemption 
from disclosure requirements for broadcast advertising.2
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     2  48 FR 1046 (Jan. 10, 1983).
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    In a related action, the Commission issued an Advance Notice of 
Proposed Rulemaking (ANPR) to request comments about whether the 
Commission should make the exemption permanent and whether to revise 
other aspects of the Rule.3 The commenters who responded to the 
ANPR consisted of members of the supermarket, gasoline, advertising, 
game promotion, and broadcasting industries, and lawyers with 
experience in representing such industries.
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     3  48 FR 265 (Jan. 4, 1983).
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    Based upon comments received in response to the ANPR and the 
staff's analysis, the Commission published its Notice of Proposed 
Rulemaking (NPR).4 The major proposals of the NPR were to amend 
the Rule to: (1) drop certain disclosures in advertising and 
promotional materials; (2) raise the threshold for winners lists 
disclosures to prizes of $50.00 and over; (3) permit replenishment of 
prize game pieces; and (4) drop the waiting period required between 
games. In 1995, the Presiding Officer re-opened the record for 
additional comments, particularly regarding whether there was a 
continuing need for this Rule.5
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     4  53 FR 39103 (Oct. 5, 1988).
     5  60 FR 38474 (July 26, 1995).
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    The Commission received seven comments in response to the NPR and 
seven in response to the 1995 request for additional comments. These 
commenters included members of the advertising, broadcasting, game 
promotion, and game user industries.6 A number of these commenters 
urged rescission of the Rule, stating that it discriminated unfairly 
against certain types of retailers and that there was no record of 
abuse to justify retaining the Rule.7 Others urged retention of a 
modified Rule in order to protect consumers from possible 
deception.8 Finally, some commenters stated that if the Commission 
were to retain the Rule, it should be expanded to include other

[[Page 68144]]

industries in order to remove the discriminatory effect against grocery 
stores and gasoline stations.9 As with the response to the ANPR, 
the Commission received no comments from any public interest groups, 
government agencies or consumers.
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     6  Those filing comments on the NPR included: The 
Promotion Marketing Association of America, Inc.; CBS; Leo Burnett 
Company, Inc.; Association of Retail Marketing Services; Incentive 
Federation, Inc.; Producers Alliance on Rulemaking; and the Food 
Marketing Institute. No prospective witness filed a request to 
testify at a hearing, and the Presiding Officer therefore issued a 
Notification of Cancellation of Public Hearings and Rebuttal Period. 
53 FR 39103 (1988). Parties responding to the 1995 notice re-opening 
the record included: the Food Marketing Institute; the Minnesota 
Service Station and Convenience Store Association; the National 
Association of Broadcasters; the National Association of Convenience 
Stores; The Promotion Marketing Association of America, Inc.; 
Society of Independent Gasoline Marketers of America; and Triplex 
Marketing, Inc.
     7  Those urging rescission included: the Food Marketing 
Institute; the National Association of Convenience Stores; Society 
of Independent Gasoline Marketers of America; and The Promotion 
Marketing Association of America, Inc.
     8  Producer's Alliance on Rulemaking; Triplex Marketing, 
Inc.; and the Minnesota Service Station and Convenience Store 
Association.
     9  E.g., the Food Marketing Institute.
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    The Final Staff Report 10 and the Presiding Officer's Report 
11 on the proposed rulemaking both recommended rescission of the 
Rule. The reports were placed on the public record and public comments 
were invited.12 No public comments were received on the reports 
and their joint recommendation to the Commission to rescind the Games 
of Chance Rule. The reasons for repeal of the Rule, as set forth in 
these two reports, are summarized below.
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     10  Federal Trade Commission Staff, Final Staff Report to 
the Federal Trade Commission, Games of Chance in the Food Retailing 
and Gasoline Industries (1996).
     11  Federal Trade Commission Presiding Officer, Report of 
the Presiding Officer on a Trade Regulation Rule Proceeding: 
Proposed Amendment of the Games of Chance Trade Regulation Rule 
(1996).
     12  61 FR 29039 (June 7, 1996).
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II. Basis for Repeal of Rule

    The Commission has determined to repeal the Games of Chance Rule 
based on an analysis of the rulemaking record. The Commission bases its 
rescission on the following reasons:
    1. In the 27 years since the Rule was promulgated, there have been 
no enforcement actions for violations of the Rule. It appears that the 
abuses that prompted adoption of this Rule have largely disappeared.
    2. The Rule has become outdated. It covers only a limited sector of 
retail businesses that use games of chance in their promotions. During 
the 1960s, grocery stores and gasoline stations were the primary users 
of games. Today, however, businesses not covered by the Rule, such as 
fast food restaurants and soft drink bottlers, use games of chance as 
much as, or even more often than, those that are covered by the Rule. 
Generally, even businesses that are not covered voluntarily make some 
of the more important required disclosures, such as the prizes offered 
and the odds of winning them.
    3. The Rule may have an adverse effect on businesses that must 
comply with all of the Rule's requirements, but are competing with 
other firms that are not regulated by the Rule. In recent years, the 
distinctions between types of retailers have become blurred. Many 
stores other than traditional grocery stores now sell food items, and 
grocery stores often sell prepared food like restaurants. Thus, 
although various retailers sell food, only grocery stores must incur 
costs to comply with the Rule. This disparity in treatment could be 
addressed by expanding the Rule to cover all retailers using games of 
chance. There is, however, no evidentiary basis in the record for 
expansion.
    4. The states are in a good position to control the activities of 
retailers operating games of chance because such retailers have a 
physical presence in the states where they do business. Many states 
traditionally have been involved in the oversight of games of chance 
and sweepstakes, particularly where such games may violate a state's 
public policy against commercial lotteries.
    5. This rulemaking has generated very little interest, indicating a 
lack of importance of this Rule in today's marketplace.13 
Significantly, no comments were filed in response to the recommendation 
of the Presiding Officer's Report and the Final Staff Report that the 
Commission repeal the Games of Chance Rule.
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     13  In fact, a survey conducted for the rulemaking staff 
by Opinion Research Corporation showed that generally consumers do 
not base shopping decisions on the use of games of chance by 
retailers. Opinion Research Corporation, Survey to Assess the 
Effectiveness of the Games of Chance Trade Regulation Rule (1987).
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    All of these reasons indicate that the Rule is outdated and no 
longer necessary to protect consumers. It appears that the costs of the 
Rule now outweigh its benefits. Should abuses recur in the future, both 
the Commission and the states can use case-by-case law enforcement to 
prosecute those engaging in unfair or deceptive practices in the use of 
games of chance.

III. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA), 5 U.S.C. 601-12, requires 
that the agency conduct an analysis of the anticipated impact of the 
repeal of the Rule on small businesses.14 The purpose of a 
regulatory flexibility analysis is to ensure that the agency considers 
the impact of a regulatory action on small entities and examines 
regulatory alternatives that could achieve the regulatory purpose while 
minimizing burdens on small entities. However, Section 605 of the RFA, 
5 U.S.C. 605, provides that such an analysis is not required if the 
agency head certifies that the regulatory action will not have a 
significant economic impact on a substantial number of small entities.
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     14  The RFA addresses the impact of rules on ``small 
entities,'' defined as ``small businesses,'' ``small governmental 
entities,'' and ``small [not-for-profit] organizations,'' 5 U.S.C. 
601. The Games of Chance Rule does not apply to the latter two types 
of entities.
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    Because the Games of Chance Rule covers retail food stores and 
gasoline stations, it may affect a substantial number of small 
entities. However, repeal of the Rule will not have a significant 
economic impact upon such entities. Disclosures and record-keeping 
requirements that are eliminated may involve a small cost savings to 
such retailers, but the effect will not be significant. Grocery stores 
and gasoline stations using games of chance, however, will be able to 
continue making those disclosures deemed most important to their 
customers or that are required by state law. Moreover, the Commission 
is not aware of any existing federal laws or regulations that would 
conflict with repeal of the Rule. Therefore, based on available 
information, the Commission certifies that repeal of the Games of 
Chance Rule will not have a significant economic impact on a 
substantial number of small entities.

IV. Paperwork Reduction Act

    The Games of Chance Rule imposes third-party disclosure and record-
keeping requirements that constitute information collection 
requirements for which the Commission has obtained clearance under the 
Paperwork Reduction Act, 44 U.S.C. 3501 et seq., Office of Management 
and Budget (OMB) Control Number 2084-0067. Accordingly, repeal of the 
Rule would eliminate any burdens on the public imposed by these 
disclosure and recordkeeping requirements.

List of Subjects in 16 CFR Part 419

    Advertising, Foods, Gambling, Gasoline, Trade practices.

PART 419--[REMOVED]

    The Commission, under authority of Section 18 of the Federal Trade 
Commission Act, 15 U.S.C. 57a, amends chapter I of title 16 of the Code 
of Federal Regulations by removing Part 419.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 96-33016 Filed 12-26-96; 8:45 am]
BILLING CODE 6750-01-P