[Federal Register Volume 65, Number 131 (Friday, July 7, 2000)]
[Notices]
[Pages 41998-42000]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17221]


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FEDERAL TRADE COMMISSION

[File Nos. 002-3199; 002-3200; 002-3201; 002-3202; 002-3203; 002-3204; 
and 002-3205]


Swisher International, Inc.; Consolidated Cigar Corporation; 
Swedish Match North America, Inc.; General Cigar Holdings, Inc.; Lane 
Limited; Havatampa, Inc.; and John Middleton, Inc.; Analysis To Aid 
Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreements.

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SUMMARY: The consent agreements in these seven matters settle alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaints that accompany the consent agreements and the terms of the 
consent orders--embodied in the consent agreements--that would settle 
these allegations.

DATES: Comments must be received on or before July 26, 2000.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 600 Pennsylvania Ave., NW, Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT: C. Lee Peeler or Mamie Kresses, FTC/S-
4002, 600 Pennsylvania Ave., NW, Washington, D.C. 20580. (202) 326-3090 
or 326-2070.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of 
the Commission's Rules of Practice (16 CFR 2.34), notice is hereby 
given that the above-captioned consent agreements containing consent 
orders to cease and desist, having been filed with and accepted, 
subject to final approval, by the Commission, have been placed on the 
public record for a period of thirty (30) days. The following Analysis 
to Aid Public Comment describes the terms of the consent agreements, 
and the allegations in the complaints. An electronic copy of the full 
text of the consent agreements package can be obtained from the FTC 
Home Page (for June 26, 2000), on the World Wide Web, at ``http://

[[Page 41999]]

www.ftc.gov/ftc/formal.htm.'' A paper copy can be obtained from the FTC 
Public Reference Room, Room H-130, 600 Pennsylvania Avenue, NW, 
Washington, D.C. 20580, either in person or by calling (202) 326-3627.
    Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW, 
Washington, D.C. 20580. Two paper copies of each comment should be 
filed, and should be accompanied, if possible, by a 3\1/2\ inch 
diskette containing an electronic copy of the comment. Such comments or 
views will be considered by the Commission and will be available for 
inspection and copying at its principal office in accordance with 
Section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 
4.9(b)(6)(ii)).

Analysis of Proposed Consent Orders To Aid Public Comment

    The Federal Trade Commission has accepted, subject to final 
approval, agreements containing consent orders from the following cigar 
manufacturers, importers or marketers: Swisher International, Inc. 
(Matter No. 002-3199); Consolidated Cigar Corporation (Matter No. 002-
3200); Havatampa, Inc. (Matter No. 002-3204); General Cigar Holdings, 
Inc. (Matter No. 002-3202); John Middleton, Inc. (Matter No. 002-3205); 
Lane Limited (Matter No. 002-3203); and Swedish Match North America, 
Inc. (Matter No. 002-3201).
    The proposed consent orders have been placed on the public record 
for thirty (30) days for the receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
agreements and comments received and will decide whether it should 
withdraw from the agreements and take appropriate action or make final 
the agreements' proposed orders.

Background

    In July 1999, the Federal Trade Commission provided a Report to 
Congress, entitled Cigar Sales and Advertising and Promotional 
Expenditures for Calendar Years 1996 and 1997 (``Commission Report''). 
The Commission Report recommended that, given the significant increase 
in cigar smoking prevalence in recent years and the serious health 
risks posed by cigar smoking,\1\ cigars should be regulated in a manner 
consistent with the current regulation of cigarettes and smokeless 
tobacco. See Federal Cigarette Labeling and Advertising Act, 15 U.S.C. 
1331 et seq.; Comprehensive Smokeless Tobacco Health Education Act of 
1986, 15 U.S.C. 4401 et seq. The Commission Report recommended that 
Congress either enact legislation to require federal health warnings on 
cigar labeling and advertising or direct the Commission to use its 
existing authority, under Section 5 of the Federal Trade Commission 
Act, to require cigar health warnings.
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    \1\ See U.S. Department of Health and Human Services, National 
Cancer Institute, Smoking and Tobacco Control Monograph No. 9 
Cigars: Health Effects and Trends (1998), NIH publication no. 98-
4302 (``Cigar Monograph'').
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    In November 1999, in the Joint Explanatory Note of the Conferees to 
H.R. 3421 Appropriations Bill, the Congressional Appropriations 
Committees responded to the Commission Report by directing the FTC to 
report back to the Committees on Commission plans to establish 
``uniform Federal health warning label[s].'' \2\
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    \2\ 145 Cong. Rec. H12230-02 (daily ed. Nov. 17, 1999).
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    After consideration of the National Cancer Institute's findings in 
its Cigar Monograph on the serious health risks of regular cigar use, 
and the failure of cigar advertising and labeling to disclose these 
health risks, the Commission negotiated consent agreements with the 
seven largest cigar companies to implement health warnings on cigar 
labeling and advertising nationwide.\3\
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    \3\ Like all FTC consent orders, these orders are for settlement 
purposes only and do not constitute an admission by the cigar 
manufacturers of any law violation.
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The Proposed Complaints and Orders

    The proposed complaints each allege that the failure to disclose 
that regular cigar smoking can cause serious adverse health effects is 
both unfair and deceptive in violation of Section 5 of the FTC Act. 
Part I of the proposed orders requires the respondents to make a clear 
and conspicuous disclosure of the following warning statements on cigar 
labels and in advertising:

SURGEON GENERAL WARNING: Cigar Smoking Can Cause Cancers Of The Mouth 
And Throat, Even If You Do Not Inhale.

SURGEON GENERAL WARNING: Cigar Smoking Can Cause Lung Cancer And Heart 
Disease.

SURGEON GENERAL WARNING: Cigars Are Not A Safe Alternative To 
Cigarettes.

SURGEON GENERAL WARNING: Tobacco Use Increases The Risk Of Infertility, 
Stillbirth, And Low Birth Weight.

SURGEON GENERAL WARNING: Tobacco Smoke Increases The Risk Of Lung 
Cancer And Heart Disease, Even In Nonsmokers.

    Part II of the proposed orders sets out specific format 
requirements for the warnings, which are designed to ensure that the 
warnings are visible and readable. Part II also requires that the 
warning statements on labeling and advertising be printed in black 
print on a solid white background, and be capitalized and punctuated as 
set forth in Part I.
    Part III specifies the location and size requirements for the 
disclosure of the health warnings on cigar labels. The orders require 
that the warning be displayed on the principal display panel of the 
package. For the majority of cigar boxes, the orders define the 
principal display panel to be the larger of the top or front panel of 
the package, thus ensuring that the warning is in the most noticeable 
location. The orders make an exception for boxes of premium (hand-
rolled) cigars, providing that the warning can appear on the top or 
front of the box, depending upon which panel is more likely to be seen 
by consumers.
    Part IV sets forth the specific format and size requirements for 
the disclosure of the health warnings on cigar advertising. The orders 
provide that the warning shall be in black print on a white background 
and be centered in a black ruled rectangular box. Part IV specifies how 
to calculate the size of the warning and where to place the warning in 
various types of advertising, including periodicals, merchandisers, 
functional items, catalogues and cigar packages that also function as 
point-of-sale displays.
    Part V specifies how to make the required disclosures in audio and 
video advertisements, including radio, television, the Internet, tapes 
and films. The orders require that in interactive media, such as the 
Internet, the warnings must be displayed in an unavoidable manner on 
every Web page.
    Part VI of the proposed orders addresses requirements for the 
disclosure of the warnings on utilitarian items. Utilitarian items are 
treated like other advertising, and the warning statements must appear 
in a rectangular box form, in a size based upon the item's total 
advertising display area.
    Part VII provides that cooperative advertisements paid for in whole 
or in part by a respondent must include the warnings, with the 
exception of very small print advertisements containing only brand name 
and price information.
    Part VIII sets forth the specific requirements for the rotation, 
display and distribution of the warning statements on cigar packages. 
For each

[[Page 42000]]

cigar brand, respondents must display each of the five required warning 
statements randomly in as equal a number of times as possible, and must 
distribute the packages randomly in all parts of the U.S.A. in which 
they are marketed.
    Part IX provides that, on most types of advertising, the five 
warning statements shall be rotated in an alternating sequence every 
three months. Part IX provides for equal simultaneous display of the 
warning statements on merchandisers, cigar boxes that can function as 
open package displays and utilitarian items. Parts VIII and IX of the 
proposed orders also require the companies to submit to the Commission 
for approval plans for the display of the warnings on cigar packages 
and advertisements, and to comply with the plans as approved.
    Part X of the proposed orders states that the Commission will 
consider state or local requirements for different health warnings on 
any cigar labeling or advertising that is required to display the FTC 
warning to be in conflict with the orders.
    Part XI provides a safe harbor in the event the companies have 
taken reasonable steps to assure compliance; in the event of labels or 
advertisements that do not comply with the order, the proposed 
respondents will bear the burden of establishing that reasonable steps 
were taken to comply with the order. This same safe harbor provision is 
included in the Commission's smokeless tobacco regulations.
    Part XII of the proposed orders states that the warning 
requirements shall become effective one hundred and eighty (180) days 
after issuance of the order.
    Part XIII provides that in the event the Federal Cigarette Labeling 
and Advertising Act or the Comprehensive Smokeless Tobacco Health 
Education Act or the Commission's Smokeless Tobacco Regulations are 
amended or modified to change the size or format of the warnings for 
cigarettes or smokeless tobacco, the cigar orders may be reopened to 
determine whether the size or format of the warnings for cigars should 
be modified to conform to such changes.
    Parts XIV through XVI of the proposed orders contain standard 
recordkeeping, reporting and compliance requirements.
    The proposed orders do not contain a sunset provision due to the 
importance of the health warnings required therein.

Objectives of the Proposed Orders

    The Commission's intent in obtaining the proposed consent orders is 
to provide a uniform national system of health warnings on cigar 
labeling and advertising. National health warnings that are clear and 
conspicuous benefit consumers. Here, the cigar warnings will prevent 
future deception and unfairness by providing important information with 
which consumers nationwide can make more informed choices.\4\
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    \4\ Uniform national health warnings likewise benefit national 
competition. Multiple different warnings can raise costs and 
regulatory burdens for national marketers such as the proposed 
respondents.
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    Each of the five warnings conveys a simple and specific message 
about health risks associated with cigar use. the orders' requirements 
for display of the warnings on packaging and advertising will provide 
sufficient repetition of each warning statement to contribute to long-
term recall of each message, while decreasing the likelihood that any 
one message will become so familiar and overexposed that its 
effectiveness will ``wear out.'' Together, the five warnings provide a 
comprehensive warning scheme that provides necessary and important 
information to consumers nationwide.
    Because the proposed respondents' cigar packaging and advertising 
is disseminated in the national marketplace, a comprehensive national 
system of simple and direct warnings will provide the greatest benefits 
to consumers. Moreover, multiple, and potentially inconsistent, 
warnings on individual packages or advertisements could neutralize or 
negate those benefits. Such multiple warnings may be confusing to 
consumers and undercut the saliency of the warnings required by these 
consent orders. Further, they are likely to have the unintended effect 
of making it more difficult for consumers to process the warning 
messages required here. And, while diminished effectiveness could 
result when one state mandates additional warnings on packages or 
advertisements bearing the Commission warnings, the problem will be 
exacerbated if more than one state imposes requirements applicable to a 
single package or advertisement.
    In light of the important benefits from a national warning system, 
Part X of the Commission's orders preempts state or local requirements 
for different health warnings on any cigar labeling or advertising that 
is required to display the FTC warnings. At the same time, the 
Commission recognizes the critically important role that states play in 
consumer protection and tobacco control. The provision does not affect 
other state or local requirements. For example, required warnings for 
types of advertising that are not covered by the proposed orders (such 
as shelf talkers under a certain size), or state or local restrictions 
on advertising placement or youth access to tobacco products are not 
affected. It is the Commission's intent that this provision apply only 
to state requirements for different health warnings by companies who 
have entered into the FTC consent orders, and only to packages and 
advertising required to contain the federally-mandated warnings.
    The purpose of the analysis is to facilitate public comment on the 
proposed order, and it is not intended to constitute an official 
interpretation of the agreement and proposed order or to modify in any 
way the terms therein.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 00-17221 Filed 7-6-00; 8:45 am]
BILLING CODE 6750-01-M