[Federal Register Volume 87, Number 216 (Wednesday, November 9, 2022)]
[Proposed Rules]
[Pages 67612-67615]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-24435]


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DEPARTMENT OF THE TREASURY

Alcohol and Tobacco Tax and Trade Bureau

27 CFR Parts 6, 8, 10, and 11

[Docket No. TTB-2022-0011; Notice No. 216]
RIN 1513-AC92


Consideration of Updates to Trade Practice Regulations

AGENCY: Alcohol and Tobacco Tax and Trade Bureau, Treasury.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Alcohol and Tobacco Tax and Trade Bureau (TTB) is seeking 
public comment on TTB's trade practice regulations related to the 
Federal Alcohol Administration Act's exclusive outlet, tied house, 
commercial bribery, and consignment sales prohibitions. President 
Biden's Executive Order 14036 (``Promoting Competition in the American 
Economy''), the Department of the Treasury's related February 2022 
report (``Competition in the Markets for Beer, Wine, and Spirits''), 
and public comments related to that report have raised questions about 
whether these regulations could be improved. To assist the agency in 
formulating potential proposals to amend the regulations, TTB invites 
comments on the issues described in this document.

DATES: Comments must be received on or before March 9, 2023.

ADDRESSES: You may electronically submit comments to TTB on this 
advance notice of proposed rulemaking, and view copies of this 
document, its supporting materials, and any comments TTB receives on it 
within Docket No. TTB-2022-0011 as posted at https://www.regulations.gov. A direct link to that docket is available on the 
TTB website at https://www.ttb.gov/laws-and-regulations/all-rulemaking 
under Notice No. 216. Alternatively, you may submit comments via postal 
mail to the Director, Regulations and Rulings Division, Alcohol and 
Tobacco Tax and Trade Bureau, 1310 G Street NW, Box 12, Washington, DC 
20005. Please see the Public Participation section of this document for 
further information on the comments requested regarding this advance 
notice of proposed rulemaking and on the submission, confidentiality, 
and public disclosure of comments.

FOR FURTHER INFORMATION CONTACT: Christopher Forster-Smith, Regulations 
and Rulings Division, Alcohol and Tobacco Tax and Trade Bureau, 1310 G 
Street NW, Box 12, Washington, DC 20005; telephone 202-453-1039 ext. 
150.

SUPPLEMENTARY INFORMATION:

Background

TTB Authority

    Section 105 of the Federal Alcohol Administration Act (FAA Act) 
prohibits producers, wholesalers, and importers of distilled spirits, 
wine, or malt beverages (i.e., industry members) from engaging in 
certain practices (collectively referred to as ``trade practices'') 
that threaten the independence of retailers and/or give the industry 
members an unfair advantage over their competitors. See 27 U.S.C. 205. 
Apart from labeling and advertising (27 U.S.C. 205(e) & (f)), which are 
outside the scope of this document, section 105's prohibited trade 
practices are:
    A. Exclusive outlet. It is unlawful for any industry member to 
require, by agreement or otherwise, that any retailer purchase alcohol 
beverages from the industry member to the exclusion, in whole or in 
part, of alcohol beverages sold or offered for sale by other persons. 
See 27 U.S.C. 205(a).
    B. Tied house. It is unlawful for any industry member to induce any 
retailer to purchase alcohol beverages from the industry member to the 
exclusion, in whole or in part, of alcohol beverages sold or offered 
for sale by others, through any of the following means: (1) by 
acquiring or holding any interest in any license with respect to the 
premises of the retailer; (2) by acquiring any interest in the real or 
personal property owned, occupied, or used by the retailer in the 
conduct of its business; (3) by furnishing, giving, renting, lending, 
or selling to the retailer, any equipment, fixtures, signs, supplies, 
money, services or other thing of value, subject to exceptions 
prescribed by regulations; (4) by paying or crediting the retailer for 
any advertising, display, or distribution service; (5) by guaranteeing 
any loan or the repayment of any financial obligation of the retailer; 
(6) by extending to the retailer credit for a period in excess of the 
credit period usual and customary to the industry for the particular 
class of transactions as prescribed by regulations; or (7) by requiring 
the retailer to take and dispose of a certain quota of any alcohol 
beverages. See 27 U.S.C. 205(b).
    C. Commercial bribery. It is unlawful for any industry member to 
induce any retailer or wholesaler to purchase alcohol beverages from 
the industry member to the exclusion, in whole or in part, of alcohol 
beverages sold or offered for sale by others, though the following 
means: (1) by commercial bribery; or (2) by offering or giving any 
bonus, premium, or compensation to any officer, employee, or 
representative of the retailer or wholesaler. See 27 U.S.C. 205(c).
    D. Consignment sales. It is unlawful for any industry member to 
sell, offer for sale, or contract to sell alcohol beverages to any 
retailer or wholesaler, or for any retailer or wholesaler to purchase, 
offer to purchase, or contract to purchase any alcohol beverages on 
consignment or under conditional sale or with the privilege of return 
or on any basis otherwise than a bona fide sale, or where any part of 
such transaction involves, directly or indirectly, the acquisition by 
such person, from the retailer or wholesaler, of other distilled

[[Page 67613]]

spirits, wine, or malt beverages. See 27 U.S.C. 205(d).
    TTB administers these FAA Act provisions pursuant to section 
1111(d) of the Homeland Security Act of 2002, as codified at 6 U.S.C. 
531(d). In addition, the Secretary of the Treasury (the Secretary) has 
delegated certain administrative and enforcement authorities to TTB 
through Treasury Order 120-01.
    TTB has promulgated regulations at 27 CFR part 6 (``Tied-House'') 
specifying the practices that are means to induce under section 105(b) 
of the FAA Act, criteria for determining whether a practice is a 
violation of section 105(b) of the FAA Act, and exceptions to section 
105(b)(3) of the FAA Act. TTB has promulgated regulations at 27 CFR 
part 8 (``Exclusive Outlets'') specifying arrangements which are 
exclusive outlets under section 105(a) of the FAA Act and criteria for 
determining whether a practice is a violation of section 105(a) of the 
FAA Act. TTB has promulgated regulations at 27 CFR part 10 
(``Commercial Bribery'') specifying practices which may result in 
violations of section 105(c) of the FAA Act and criteria for 
determining whether a practice is a violation of section 105(c) of the 
FAA Act. TTB has promulgated regulations at 27 CFR part 11 
(``Consignment Sales'') specifying arrangements which are consignment 
sales under section 105(d) of the FAA Act and containing guidelines 
concerning returns or exchanges of distilled spirits, wine and malt 
beverages from a retailer or wholesaler.

Executive Order 14036

    On July 9, 2021, President Biden issued an Executive Order titled 
``Promoting Competition in the American Economy.'' See E.O. 14036, 86 
FR 36987 (July 14, 2021). Section 5(j) directed the Secretary, in 
consultation with the Attorney General and the Chair of the Federal 
Trade Commission (FTC), to submit a report within 120 days ``assessing 
the current market structure and conditions of competition [for beer, 
wine, and spirits], including an assessment of any threats to 
competition and barriers to new entrants[.]'' The Order provided that 
the report should address unlawful trade practices that hinder smaller 
and independent businesses or new entrants from distributing their 
products; patterns of consolidation in production, distribution, or 
retail markets; and ``any unnecessary trade practice regulations of 
matters such as bottle sizes, permitting, or labeling that may 
unnecessarily inhibit competition[.]''
    Further, section 5(k) of the Order directed the Secretary, through 
the TTB Administrator, to consider within 240 days: (1) Initiating a 
rulemaking to update TTB's trade practice regulations; (2) revising or 
rescinding any regulations that ``unnecessarily inhibit competition;'' 
and (3) ``reducing any barriers that impede market access for smaller 
and independent brewers, winemakers, and distilleries.''

Treasury Request for Information

    On July 28, 2021, the Department of the Treasury (Treasury) issued 
a Request for Information (RFI) soliciting input from the public and 
industry regarding the current market structure and conditions of 
competition in the American markets for beer, wine, and spirits, 
including an assessment of any threats to competition and barriers to 
new entrants. See Notice No. 204, 86 FR 40678. Treasury received 827 
public comments in response to this RFI (RFI Comments), including 
numerous comments addressing the exclusive outlet, tied house, 
commercial bribery, and consignment sales prohibitions.

Treasury Report on Competition in the Markets for Beer, Wine, and 
Spirits

    On February 9, 2022, Treasury, in consultation with the U.S. 
Department of Justice and the Federal Trade Commission, released a 
report titled ``Competition in the Markets for Beer, Wine, and 
Spirits'' (Report). The Report analyzes the markets for beer, wine, and 
spirits and, while finding significant growth over the last several 
decades in the number of small and ``craft'' producers of beer, wine, 
and spirits, the Report also finds significant concentration in certain 
markets. In addition, the Report analyzes the burden that complex 
regulations place on small businesses and new market entrants. To help 
address the competitive challenges in the beer, wine, and spirits 
marketplace, the Report identifies several recommendations, including 
evaluating trade practice enforcement policies, and reform of post-
Prohibition era regulations that hinder small firms and new entrants 
from accessing the marketplace. The Report also recommends that TTB 
consider rulemaking to update its trade practice regulations under the 
FAA Act with an eye to giving a green light to practices that are 
essentially harmless and inherently procompetitive.

Comments Requested

    TTB has not revised the trade practice regulations in over 20 years 
and recognizes that the regulations may not take into account current 
marketplace realities. Accordingly, in this advance notice of proposed 
rulemaking, TTB invites comments on updating the trade practice 
regulations listed in the Background section above (i.e., 27 CFR parts 
6, 8, 10 and 11). To assist TTB in determining whether to proceed with 
developing specific regulatory proposals, TTB particularly invites 
comments on the following:

General Questions

    1. Update trade practice regulations. How might TTB update the 
trade practice regulations to clarify and/or modernize the categories 
of conduct that may result in exclusion or threaten retailer 
independence? How might TTB update the trade practice regulations to 
clarify and/or modernize any exceptions to those categories? Is there 
exclusionary conduct the current trade practice regulations overlook?
    2. Trade practice regulations and competition. How might TTB update 
the trade practice regulations to authorize more practices that would 
not result in exclusion or threaten retailer independence, including 
any limits on those practices? How might TTB update the trade practice 
regulations to focus more on practices that have greater effect on the 
market?
    3. Digital marketplace. How might TTB update the trade practice 
regulations to take into account current marketplace realities, 
especially in light of the rise of digital marketing strategies (e.g., 
digital coupons, instant rebate coupons, and virtual retail shelf space 
in digital retail storefronts where products may be purchased online)?

Specific Topics of Interest

    1. Category management. The Report and the RFI Comments both raised 
concerns about the threat that category management activities pose to 
retailer independence. One specific concern is that industry members, 
acting as category managers or captains for retailers, are either 
making the buying decisions for retailers or strongly influencing the 
retailers' buying decisions in a way that threatens retailer 
independence. How might TTB update the trade practice regulations to 
more thoroughly define and address category management activities to 
ensure that those activities do not lead to exclusion?
    2. Shelf plans. Should TTB remove the exception which allows 
industry members to provide retailers with shelf plans and shelf 
schematics? See 27 CFR 6.99(b). Is providing shelf plans and shelf 
schematics a practice that places or has the potential to place 
retailer independence at risk? What additional

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services, whether furnished in conjunction with providing shelf plans 
or schematics or otherwise, place or have the potential to place a 
retailer's independence at risk?
    3. Slotting allowances (slotting fee) arrangements. The TTB 
regulations provide that paying or crediting a retailer for any 
advertising, display, or distribution service is an inducement. The RFI 
Comments identified slotting fees as a major issue in the marketplace. 
TTB regulations do not expressly define slotting fees. TTB invites 
comments on whether TTB should update the trade practice regulations to 
include a definition of slotting fees, and, specifically, the extent to 
which such a definition should account for display space in the retail 
premises (e.g., shelves, designated high-visibility areas behind the 
bar, tap lines, well/rail placement, prominent placement on menus, or 
in featured drinks) as well as virtual display space (e.g., digital 
retail storefront, associated digital ad campaigns where products may 
be purchased online). TTB also seeks comments on whether the slotting 
fee definition should include free or subsidized equipment that is, by 
agreement or design, only able to display or dispense the furnishing 
industry member's products.
    4. Interest in a retail license or property. TTB seeks comments on 
whether TTB should amend the tied house regulations to address 
crowdfunding and/or minority interest in a retail license/property as 
being an interest that would not result in an inducement. TTB also 
invites comments on whether TTB should define a level of ownership 
interest that would not result in exclusion and, if so, what that 
interest should be.
    5. Third party companies. Although TTB's tied house regulations 
apply to inducements furnished directly, indirectly, or through an 
affiliate, there may be some confusion pertaining to inducements made 
through third party companies. How might TTB amend the regulations to 
better address such inducements? How might TTB amend the regulations to 
address third party delivery/fulfillment services?
    6. Consumer specialty items and point of sale advertising 
materials. Within certain limitations, TTB's tied house regulations 
allow industry members to provide retailers certain consumer specialty 
items and point of sale advertising. See 27 CFR 6.84. Some of these 
items, especially ``alcoholic beverage lists or menus,'' have been used 
to provide hidden inducements to retailers. How might TTB update the 
list of specialty items and point of sale advertising materials allowed 
under the regulations to discourage their use for illicit purposes? 
Should TTB update the regulations to place monetary caps on these 
items?
    7. Tied House payment terms. The tied house regulations currently 
allow for a 30-day extension of credit for retailers that would not 
result in an inducement. See 27 CFR 6.65. Should TTB consider allowing 
for longer payment terms for retailers? If so, what should those 
payment terms be?
    8. Consignment sales payment terms safe harbor. TTB recently issued 
TTB Industry Circular 2022-1, ``Payment Terms Under Consignment Sales 
Provisions,'' announcing a safe-harbor for 30-day payment terms, which 
the Circular deemed unlikely to result in a consignment sale 
arrangement. TTB seeks comments on whether it should amend the 
regulations to add specific safe harbor payment terms and, if so, what 
any such terms should be.
    9. Definition of trade buyer. The FAA Act defines a ``trade buyer'' 
as ``any person who is a wholesaler or retailer.'' Similarly, TTB's 
commercial bribery and consignment sales regulations define a ``trade 
buyer'' as ``any person who is a wholesaler or retailer of distilled 
spirits, wine or malt beverages.'' See 27 CFR 10.11 and 11.11. There 
has been some confusion about how such definitions apply to importers 
that wholesale (purchase for resale at wholesale) the products they 
import but are not required to obtain a separate wholesale basic permit 
pursuant to 27 U.S.C. 203(a)(2). TTB seeks comments on whether it 
should amend the regulations to clarify that trade buyers include 
persons engaged in wholesaling or retailing alcohol beverage products, 
regardless of permit status.
    10. Private label arrangements. A number of RFI Comments expressed 
concerns about private label arrangements and how many of those 
arrangements may run afoul of the TTB trade practice regulations. 
Private label arrangements may involve an industry member contracting 
with a retailer to produce products on the retailer's behalf creating 
the potential for exclusive outlet or tied house violations. TTB seeks 
comments on how its tied house and/or exclusive outlet regulations 
might address private label arrangements.
    11. Brand sharing with retail establishments. Some industry members 
have directly or indirectly entered into arrangements whereby retailers 
are permitted or required to use an industry member's brand name as 
part of the name of the retail establishment. TTB seeks comments on 
whether it should amend the regulations to specifically address brand 
sharing arrangements.
    12. Sponsorships. A number of RFI Comments identified exclusionary 
concerns with sponsorships at ballparks, concert venues, and other 
events. How might TTB amend the regulations to clarify when this 
conduct may be exclusionary?
    13. Activities which result in exclusion or place retailer 
independence at risk. Under the tied house, exclusive outlet, and 
commercial bribery regulations (27 CFR parts 6, 8, and 10, 
respectively), an inducement or requirement to purchase an industry 
member's products violates the FAA Act if such activity resulted in 
exclusion. See 27 CFR 6.21, 8.21, and 10.21. Exclusion occurs when (1) 
a practice of the industry member, whether directly or indirectly, 
places (or has the potential to place) retailer (or trade buyer with 
respect to commercial bribery) independence at risk by means of a tie 
or link between the parties or any other means of industry member 
control over the retailer or trade buyer; and (2) such practice results 
in the retailer or trade buyer purchasing less than it would have of a 
competitor's product. See 27 CFR 6.151, 8.51, and 10.51. The tied house 
and commercial bribery regulations specify certain practices deemed to 
place a retailer's or trade buyer's independence at risk. See 27 CFR 
6.152 and 10.52. The exclusive outlet regulations specify certain 
practices that result in exclusion and other practices that do not 
result in exclusion. See 27 CFR 8.52 and 8.53.
    TTB invites comments as to how it might update the regulations with 
respect to which practices place or have the potential to place 
retailer independence at risk, as well as which activities would result 
in exclusion under these parts. TTB also invites comments on whether it 
should clarify or alter the definition of exclusion in terms of 
``purchasing less'' of a competitor's product, as provided in the 
regulations. See, e.g., 27 CFR 6.151(a)(2); 8.51(a)(2); 10.51(a)(2). 
For example, new retail establishments may have never purchased from 
competing industry members that did not induce or require such 
purchases. Should the regulations explicitly address that situation, 
and, if so, how? Should TTB modify the regulations to establish and 
clarify levels of proof that would be deemed sufficient or insufficient 
to demonstrate exclusion?
    14. Criteria for determining a risk to retailer independence. The 
tied house, exclusive outlet, and commercial bribery regulations 
provide specific criteria that indicate that a particular

[[Page 67615]]

practice, other than those specifically listed in Sec. Sec.  6.152, 
8.52, 8.53, and 10.52, places retailer or trade buyer independence at 
risk. See 27 CFR 6.153, 8.54 and 10.54. TTB invites comments on how TTB 
might amend the regulations to provide additional clarity as to when a 
wholesaler or retailer's independence is at risk.
    15. Third party contracts. The exclusive outlet regulations provide 
that contracts between an industry member and retailer, which require 
the retailer to purchase products from that industry member and 
expressly restrict purchase of such products from another industry 
member, are practices which result in exclusion. See 27 CFR 8.52. How 
might TTB clarify that such contracts between an industry member and a 
third party, where the third party controls the retailer, would also 
result in exclusion?
    16. Sales competitions. A number of RFI Comments expressed concern 
that large industry members are engaging in commercial bribery 
activities by offering incentives, including, but not limited to, cash, 
airline tickets to tropical getaways, tickets to sporting events, flat 
screen televisions, and vacations for trade buyer sales representatives 
to push sales of the industry member's products. Current regulations 
provide that such inducements threaten trade buyer independence if 
provided to sales representatives in secret. TTB seeks comment on 
whether any such inducements threaten trade buyer independence 
regardless of whether they are provided in secret.
    In addition to the specific requests for comments above, TTB is 
interested in receiving comments on any other issue or concern related 
to TTB's trade practice regulations.
    As noted above, Treasury requested comments on, among other topics, 
the issue of trade practices in its recently published RFI regarding 
the current market structure and conditions of competition in the 
American markets for beer, wine, and spirits. Treasury received a 
number of comments on trade practices in response to that RFI, and TTB 
will consider those comments for the purposes of this advance notice of 
proposed rulemaking as well.

Public Participation

Comments Invited

    TTB requests comments from industry members, consumers, and anyone 
interested in whether TTB should proceed with regulatory initiatives 
concerning the issues described above in this document. Please submit 
your comments by the closing date shown above in this document.

Submitting Comments

    You may submit comments on this proposal as an individual or on 
behalf of a business or other organization via the Regulations.gov 
website or via postal mail, as described in the ADDRESSES section of 
this document. Your comment must reference Notice No. 216 and must be 
submitted or postmarked by the closing date shown in the DATES section 
of this document. You may upload or include attachments with your 
comment.

Confidentiality and Disclosure of Comments

    All submitted comments and attachments are part of the rulemaking 
record and are subject to public disclosure. Do not enclose any 
material in your comments that you consider confidential or that is 
inappropriate for disclosure.
    TTB will post, and you may view, copies of this document, its 
supporting materials, and any comments TTB receives about this proposal 
within the related Regulations.gov docket. In general, TTB will post 
comments as submitted, and it will not redact any identifying or 
contact information from the body of a comment or attachment.
    Please contact TTB's Regulations and Rulings Division by email 
using the web form available at https://www.ttb.gov/contact-rrd, or by 
telephone at 202-453-2265, if you have any questions regarding how to 
comment on this proposal or to request copies of this document, its 
supporting materials, or the comments received in response.

Drafting Information

    Christopher Forster-Smith of the Regulations and Rulings Division 
drafted this advanced notice of proposed rulemaking. Other TTB staff 
also participated in its development.

    Signed: November 3, 2022.
Mary G. Ryan,
Administrator.
    Approved: November 3, 2022.
Thomas C. West, Jr.,
Deputy Assistant Secretary (Tax Policy).
[FR Doc. 2022-24435 Filed 11-8-22; 8:45 am]
BILLING CODE 4810-31-P