Unfair Trade Practices Under the Federal Alcohol Administration Act (93F-003P)

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco and Firearms

27 CFR Parts 6, 8, 10 and 11

[T.D. ATF-364, Re: Notice No. 794 and Notice No. 796]

RIN 1512-AB10

Unfair Trade Practices Under the Federal Alcohol Administration

Act (93F-003P)

AGENCY: Bureau of Alcohol, Tobacco and Firearms (ATF), Treasury.

ACTION: Final rule, Treasury decision.

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SUMMARY: The Bureau of Alcohol, Tobacco and Firearms (ATF) is amending

trade practice regulations under the Federal Alcohol Administration

(FAA) Act on tied-house, exclusive outlets, commercial bribery, and

consignment sales by adding standards for enforcing the ``exclusion''

element where appropriate. Under the FAA Act, ``exclusion, in whole or

in part, of distilled spirits, wine, or malt beverages, sold or offered

for sale by other persons'' is a necessary element of a violation of

the tied-house, exclusive outlets or commercial bribery provisions. In

this final rule, ATF promulgates a framework for establishing

``exclusion,'' identifies promotional practices which result in control

of a retailer or in exclusion under the Act, identifies factors which

will apply in evaluating exclusion, and identifies those practices for

which there is no likelihood that exclusion will result and for which

the Bureau will not take action (safe harbors). Other regulatory

amendments are also made as a result of an ATF review of the

regulations and an industry petition submitted in 1992.

EFFECTIVE DATE: May 26, 1995.

FOR FURTHER INFORMATION CONTACT: James R. Crandall, Coordinator, Market

Compliance Branch, 650 Massachusetts Avenue, NW, Washington, DC 20226;

telephone (202) 927-8100.

SUPPLEMENTARY INFORMATION:

Background

The Federal Alcohol Administration Act

The Federal Alcohol Administration Act (hereinafter referred to as

FAA Act [[Page 20403]] or Act) provides for Federal regulation of the

alcoholic beverage industry. The FAA Act contains particular

restrictions that are unique to the alcoholic beverage industry and

reflects Congress' concern with a variety of trade practices and abuses

that took place before, during and immediately after Prohibition. This

final rule amends regulations under four parts of the statute,

Exclusive Outlet (27 U.S.C. 205(a)), Tied-House (27 U.S.C. 205(b)),

Commercial Bribery (27 U.S.C. 205(c)), and Consignment Sales (27 U.S.C.

205(d)). The supplementary information is divided into two sections.

The first section deals with the subject of exclusion, and the second

section covers other changes implemented as a result of an internal

review of trade practice regulations and an industry petition.

Exclusion

One element which is necessary for these practices (other than

consignment sales) to result in violation of Federal law is

``exclusion, in whole or in part, of distilled spirits, wine, or malt

beverages, sold or offered for sale by other persons.''

Although exclusion is not defined in the FAA Act or in the current

implementing regulations at 27 CFR Parts 6, 8 and 10, ATF has, in the

past, held that ``exclusion in part'' includes simply causing retailers

to purchase less of a competing brand than they otherwise would have

bought.

In Fedway Associates, Inc., et al. v. United States Treasury,

Bureau of Alcohol, Tobacco and Firearms, 976 F.2d 1416 (DC Cir. 1992)

(Fedway), however, the United States Court of Appeals for the District

of Columbia Circuit held that Congress had intended something more than

just a retailer purchasing less of a competing brand than it otherwise

would have. For a violation to occur there must also be a tie or link

between a supplier and retailer that at least threatens the retailer's

independence (that is, in addition to affecting the retailer's

purchasing pattern).

The court based this conclusion on several points. The court said

``exclusion'' means to exclude a rival product from the marketplace by

some direct action of the violator. Merely taking some action which

influences a retailer not to purchase a rival product is not exclusion

under the Act if the retailer's response is the result of a free

economic choice. This interpretation of exclusion as meaning the

shutting out or expelling of a rival's product, according to the court,

is consistent with conduct addressed by the Act such as tied-house,

commercial bribery and exclusive outlets. Any broader interpretation

would, in the view of the court, likely result in restriction of pro-

competitive activities.

The Fedway court was concerned that ATF enforcement actions could

hinder legitimate competitive activities. Consequently, the opinion

states that if ATF suspects a particular practice places retailer

independence at risk then the agency must provide substantial support

backing up its suspicion. The court recognized the utility of the

rulemaking process to provide evidence which substantially supports the

conclusion that a particular practice either actually or potentially

threatens retailer independence.

Factual or substantive proof is necessary, the court stated, to

ensure that the Government does not take an overly-broad enforcement

posture in its efforts to prevent potential threats to retailer

independence and risk outlawing conduct that fosters a competitive

alcohol market. In the Fedway proceeding, the court held this factual

basis was not met because the only datum or evidence presented was the

fact that certain retailers purchased less of a rival product.

In summary, the court offered the following guidance about this

statutory element:

Congress, we are satisfied, used ``exclusion'' to indicate

placement of retailer independence at risk by means of a ``tie'' or

``link'' between the wholesaler and the retailer or by any other

means of wholesaler control.

[We demand] a factual showing that retailer independence is

potentially threatened * * *.

[ATF should] take reasonable account of both policy interests

underlying the [trade practice] provisions * * * that the alcohol

industry requires special oversight and regulation * * * and the

value of pro-competitive wholesale promotions. This value derives

not only from the traditional benefits of competition in terms of

lower prices and improved quality, but also * * * from the fact that

a competitive alcohol market helps deter the formation of a corrupt

black market.

Finally, in arriving at a reasonable interpretation of

``exclusion'' * * * the Bureau must take care to distinguish

rationally between those promotions it decides are lawful and those

it decides are not.

Notice of Proposed Rulemaking

On April 26, 1994, ATF published Notice No. 794 (59 FR 21698),

proposing amendments to the trade practice regulations to address the

concerns of the Fedway court and to make other changes suggested by its

internal review and the industry petition. Notice No. 794 solicited

comments on these proposed changes by June 27, 1994. The comment due

date was extended to July 27, 1994 by Notice No. 796 (59 FR 29215).

ATF emphasizes that the revision of the trade practices regulations

is an ongoing process. Any interested person may petition ATF under 27

CFR 71.41(c) for a rule change.

Comments on Notice of Proposed Rulemaking

ATF received 1,347 letters of comment on Notice No. 794, containing

a total of 1,593 signatures. Comments were submitted by alcoholic

beverage producers, importers, wholesalers, retailers, trade

associations, related businesses, consumers and government agencies.

National trade associations who commented on trade practices

include:

American Brandy Association

American Vintners Association (AVA)

Beer Institute

Brewers' Association of America (BAA)

Distilled Spirits Council of the United States (DISCUS)

Institute for Brewing Studies

National Alcohol Beverage Control Association (NABCA)

National Association of Beverage Importers (NABI)

National Association of Beverage Retailers (NABR)

National Association of Convenience Stores (NACS)

National Beer Wholesalers Association (NBWA)

Presidents' Forum of the Beverage Alcohol Industry (the Forum)

The National Wine Coalition

Wine and Spirits Wholesalers of America (WSWA)

Wine Institute

Summary of Proposals, Comments and Changes Incorporated in this Final

Rule

The following paragraphs provide a summary of ATF's original

proposals, the comments received on each as a result of Notice No. 794,

and an explanation of ATF's decision concerning each issue. Proposals

which concern a general topic will be addressed first, followed by

discussion of proposals concerning individual sections of the

regulations.

Proposed New Subparts on Exclusion

ATF proposed amendments and additions to the regulations on the

subject of exclusion which follow a framework which ATF believes is

consistent with the statutory interpretation of exclusion adopted by

the Fedway court as well as similar concerns previously raised in

Foremost Sales Promotions, Inc. v. Director, [[Page 20404]] Bureau of

Alcohol, Tobacco and Firearms, 860 F.2d 229 (7th Cir., 1988)

(Foremost). The courts in both Fedway and Foremost found that

``exclusion'' as used in the FAA Act cannot occur without a

relationship or arrangement between the industry member and the

retailer which actually or potentially threatens the retailer's

independence.

ATF proposed to amend regulatory parts of Title 27 CFR relating to

exclusive outlet (Part 8), tied-house (Part 6), and commercial bribery

(Part 10), by adding new subparts on exclusion. Even though the

exclusive outlet provision was not involved in the Fedway or Foremost

decisions, the provision is impacted by the decisions since the

provision requires the showing of exclusion in order for a violation to

arise.

ATF proposed a two-step framework to describe exclusion, in whole

or in part, of distilled spirits, wine or malt beverages sold or

offered for sale by others as occurring (1) when a practice places

retailer independence at risk by means of a tie or link between the

industry member and retailer or by any other means of industry control

over the retailer, and (2) such a practice by an industry member,

whether direct, indirect, or through an affiliate, results in the

retailer purchasing less than it otherwise would have of a competitor's

product. The proposed regulations included a set of criteria by which

ATF will determine the existence of the first element. These criteria

include the duration of the practice or promotion, the degree to which

a practice involves an industry member in the day-to-day operations of

a retailer, and, in some cases, the non-discrimination feature of the

practice where it is available to all retailers. Exclusion under the

Act will exist when ATF can establish the presence of both of these

elements.

General Comments on Exclusion

While some commenters expressed support for the approach ATF took

in the proposed rule, others objected to certain areas of the

proposals. For example, NABI stated it was ``disappointed to see BATF

reassert the so-called `hair trigger' or `one bottle less' test for

determining exclusion. Proposed section 6.152(a)(2) was pointedly

rejected by the court in Fedway, yet BATF drags up this albatross once

again.'' Secondly, NABI quoted the Fedway decision which said the ``* *

* definition of the `exclusion' criterion must also recognize

adequately--as the agency's current definition does not--the value of

pro-competitive wholesale promotion.'' The DISCUS comment stated

similar concerns and asked that the second element, relating to

retailer purchases, be deleted.

ATF disagrees with the DISCUS/NABI comment about the second part of

ATF's two-step framework of exclusion (Secs. 6.151(a)(2), 8.51(a)(2),

and 10.51(a)(2)) where ATF states that a practice must result in a

retailer or trade buyer purchasing less than it would have of

competitor's product for exclusion to occur. On this subject, the

Fedway court stated:

The Bureau explains that the phrase means that the inducement in

question must be successful, i.e., it must in fact cause retailers

to buy comparatively less from competitors--a minimal requirement,

to be sure, but not a meaningless one.

It was the showing of this minimal requirement in conjunction with

evidence that a particular practice threatens retailer independence

that the court held is exclusion under the Act. Under the two-step

framework, exclusion is present only if both parts or elements of the

framework are established. If ATF were to drop the second element as

requested by NABI and DISCUS, then ATF could prove exclusion under the

Act without ever showing that a competing industry member's products

were actually excluded in whole or in part. While this would ease ATF's

burden in proving a violation it would ignore the statutory requirement

of ``exclusion, in whole or in part'' which by its terms requires some

impact on a retailer's purchases.

Regarding NABI's second observation, ATF's goal in airing these

proposals and soliciting interested persons' response was to develop a

public record showing why certain practices are anticompetitive, in

that they threaten retailer independence, and why other practices do

not threaten retailer independence. (In the context of commercial

bribery, the trade buyer's independence is evaluated.) Relying on all

of the comments received, ATF has made adjustments to its original

proposals and developed a final rule which it believes does, as Fedway

directed, ``distinguish rationally between those promotions it decides

are lawful and those it decides are not.''

The Federal Trade Commission (FTC) staff (rather than the

Commission or Commissioners) submitted comments on the general approach

to exclusion. While the staff concurs that the threat to retailer

independence analysis is consistent with promoting a competitive

market, they recommend that ATF adopt more of a market share or

``market power'' approach.

Before responding to the particular FTC staff comments, ATF feels

it is necessary to point out that the FAA Act is concerned with the

impact of a particular marketing practice on an individual retailer and

not on the entire retail market in any particular locality (e.g.,

``relevant market''). The latter market focus is the concern of the

antitrust laws enforced by the FTC and explains why the vertical

restraint framework applied by the FTC is not relevant to an FAA Act

analysis. Congress deemed the general antitrust laws insufficient to

address the unique unfair trade practice problems in the alcoholic

beverage industry. This is why the FAA Act itself does not contain the

term ``competitive'' unlike the general antitrust laws: an absence

acknowledged by the FTC staff. Instead, the Act focuses on the

transactions between an industry member and ``any retailer'' or ``any

trade buyer.''

The FTC staff comments implicitly recognize this difference when

they state that the FAA Act speaks in terms of supplier power over

retailers rather than simply a supplier's market share or power. If the

proper focus of the FAA Act were market share or power, then the Act

would be identical to the general antitrust laws rather than merely

``analogous'' as Congress intended.

Turning to the particular comments, the staff objects to the second

part of the general approach to exclusion that requires ATF to show the

retailer purchased less of a competitor's product than it would have,

as a result of a supplier's promotional practices. The FTC staff

suggests that this is ``ambiguous'' since there may be many legitimate

reasons explaining a decrease in a retailer's purchases. The FTC staff

also suggests that the FAA Act does not require the fact of reduced

purchases as an element of a statutory violation.

In promulgating the regulation on the exclusion approach, ATF is

not concluding that a mere reduction in purchases results in a

violation. ATF has deliberately taken a narrow approach to ensure that

legitimate competition is not hindered. The fact of reduced purchases

is only relevant when that fact results from a supplier practice that

creates a tie or link (or other method of control) that threatens

retailer independence. By requiring this nexus, ATF is ensuring that

reduced purchase situations resulting from free economic choice or pro-

competitive marketing practices are not pursued as a violation.

ATF believes that the FAA Act mandates a consideration of whether

the retailer's purchases have been impacted by a practice because the

statute speaks of ``exclusion, in whole or in part'' of a competing

supplier's products as a [[Page 20405]] result of a transaction between

the industry member and any retailer. As noted above, the Fedway court

recognized this impact as ``a minimal requirement, to be sure, but not

a meaningless one.'' (The FTC staff also commented on the criteria used

to evaluate exclusion, and those comments will be discussed in that

section.)

Finally, E. & J. Gallo Winery, in its comment, noted that the

Fedway court did not ``question ATF's authority to strike at threats to

retailer independence in their incipiency, before harm occurred.''

Their comment quoted the Fedway court's demand that ATF make a

``factual showing that retailer independence is potentially

threatened.'' The Wine Institute also noted the Fedway court demanded

only ``a factual showing that retailer independence is potentially

threatened.'' These comments caused ATF to review its proposed rule and

amend the discussion of exclusion, in general, to address this

potential threat by adding ``places (or has the potential to place)

retailer independence at risk'' in each subpart on exclusion. This

revision is consistent with the discussion of the exclusion standard in

both the Fedway and Foremost decisions, since those decisions refer to

potential threats.

Practices Which Place Retailer or Trade Buyer Independence at Risk and

Practices Not Resulting in Exclusion

In each part, ATF proposed to identify certain practices which the

rulemaking record and judicial precedent indicate place retailer

independence at risk by their very existence. When such practices are

undertaken, ATF would determine through the course of an investigation

whether the other part of the exclusion element relating to the actual

impact on a retailer's purchases is present. In the exclusive outlet

and commercial bribery regulations, ATF also proposed sections for

discussion of practices not resulting in exclusion. In the tied-house

regulations, ATF proposed to revise and expand the Subpart D exceptions

to provide safe harbors.

Exclusive Outlet

Section 105(a) of the FAA Act makes it unlawful for an industry

member to require, by agreement or otherwise, any retailer engaged in

the sale of alcoholic beverages to purchase any such product from such

person to the exclusion in whole or in part of alcoholic beverages sold

or offered for sale by other persons in interstate or foreign commerce,

provided one of the three interstate or foreign commerce jurisdictional

clauses is met.

Retailer independence is threatened in an exclusive outlet

arrangement when the ability of the retailer to decide which brands of

alcoholic beverages to purchase is restricted or impeded. In the Fedway

context, the question is whether any restriction negates the retailer's

free economic choice or has been utilized by the industry member to

restrict such choice.

In that regard, ATF proposed adding a new section 8.52 to identify

two practices that clearly result in exclusion under section 105(a) of

the Act. The first practice involves purchases of distilled spirits,

wine, or malt beverages by a retailer as a result, directly or

indirectly, of a threat or act of physical or economic harm by the

selling industry member. The second practice involves contracts between

an industry member and a retailer which require the retailer to

purchase distilled spirits, wine or malt beverages from that industry

member and expressly restrict the retailer from purchasing, in whole or

in part, such products from another industry member. In both

situations, exclusion of a competitor's products results directly from

the arrangement or the contract without any action by the retailer.

Further, ATF has always viewed an exclusive outlet arrangement as

including a situation where the retailer offers exclusivity privileges

and the industry member accepts that offer. In other words, it does not

matter whether the requirement originates with the industry member or

the retailer; rather, the requirement is within the exclusive outlet

prohibition so long as it is understood as part of the bargain. This

position was enunciated in Industry Circulars 75-20 and 76-18,

concerning sales to the U.S. military or other trade buyers. By

availing itself of the requirement offer, the industry member has, in

effect, specifically conditioned the promotional arrangement on this

understanding.

ATF also proposed to add a new section 8.53 to describe practices

not resulting in exclusion. Only one practice was identified in the

proposed rule, a supply contract for one year or less, under which an

industry member agrees to sell alcoholic beverage products to a

retailer on an ``as needed'' basis provided that the retailer is not

required to purchase any minimum quantity of such products. Commenters

Hinman & Carmichael expressed concern that retailers' private label

wine supply contracts would not be within this safe harbor, since they

often last for more than a year. The commenters state there are

legitimate business reasons for the longer duration of the contract,

such as the time needed for product development and promotion and wine

production. After consideration, ATF believes the one year duration is

appropriate since the supply contracts which ATF has reviewed have

involved that timeframe. ATF is concerned that supply contracts for

three years involve a continuing relationship that has a potential,

under certain circumstances, for tying that retailer to the industry

member. Nevertheless, the fact that longer contracts are outside this

safe harbor does not foreclose their use; it only means that ATF will

apply the criteria in section 8.54 to these situations. Sections 8.52

and 8.53 are adopted without change in the final rule.

Part 6--``Tied-House''

Section 105(b) of the FAA Act makes it unlawful for an industry

member to induce through any of the following means, any retailer

engaged in the sale of alcoholic beverages to purchase any such

products from such person to the exclusion in whole or in part of

alcoholic beverages sold or offered for sale by other persons in

interstate or foreign commerce, provided one of the three

jurisdictional clauses is met:

(1) By acquiring or holding any interest in any license with

respect to the premises of the retailer; or

(2) By acquiring any interest in real or personal property owned,

occupied, or used by the retailer in the conduct of the business; or

(3) By furnishing, giving, renting, lending, or selling to the

retailer, any equipment, fixtures, signs, supplies, money, or other

things of value, subject to the exceptions prescribed by regulations,

having due regard to public health, the quantity and value of articles

involved, established trade customs not contrary to the public interest

and the purposes of the subsection; or

(4) By paying or crediting the retailer for any advertising,

display, or distribution service; or

(5) By guaranteeing any loan or repayment of any financial

obligation of the retailer; or

(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 ascertained by the Secretary and

prescribed by regulation; or

(7) By requiring the retailer to take and dispose of a certain

quota of any of such products.

Retailer independence can be threatened in a tied-house arrangement

between an industry member and a [[Page 20406]] retailer when the

arrangement involves a continuing business relationship which restricts

the retailer's ability to make free economic choices on which brands of

products to purchase. In effect, competition is restricted because the

retailer who is dependent on or tied to an industry member cannot make

free and rational business choices on whether to make a current

purchase from another industry member based on current business

considerations such as consumer demand or lower prices offered by the

competition.

The proposed regulations identified threats to a retailer's

independence which include: a wholesaler's partial ownership of a

retailer, sales where the wholesaler conditions the purchase of one

distilled spirits product on the retailer purchasing another distilled

spirits product at the same time, and wholesaler control over the

retailer through controlling the resetting of the products on a

retailer's premises.

Commenters on the other practices listed in Sec. 6.152 requested

several amendments to these practices. The law firm of Schreiber,

Simmons, MacKnight & Tweedy, commenting on behalf of an Asian brewer,

expressed concern that because of the way paragraph (c) is worded, it

appears that partial ownership of a retailer by an industry member is

automatically deemed to put retailer independence at risk. E. & J.

Gallo Winery also commented on this section, recommending that ATF

allow industry members to own small amounts of stock in publicly traded

retailers. ATF revised the wording of this section to show use of the

ownership of a less than 100 percent interest in a retailer to

influence the retailer's purchases is the act deemed to put retailer

independence at risk, not partial ownership alone.

With respect to all the practices listed in proposed Sec. 6.152,

ATF will also be required to determine whether the practice results in

the retailer purchasing less than it otherwise would have of a

competitor's product.

ATF also proposed to revise and consolidate several of the

provisions contained in Subpart D of Part 6 of the current regulations

which find that certain practices will not result in exclusion under

the tied-house provisions (that is, safe harbors).

The classification of these practices in Subpart D of Part 6 is

intended to provide guidance to the regulated industry so that

legitimate product marketing programs can be developed without the

uncertainty of a potential Federal enforcement action. Legitimate

product marketing encourages competition, by large and small businesses

alike, on the basis of price, product quality and service. (Proposed

revisions to these regulatory exceptions and related comments are

examined in detail in the discussion of changes to individual sections,

below.)

Commercial Bribery

Section 105(c) of the FAA Act makes it unlawful for an industry

member to induce through any of the following means, any trade buyer

engaged in the sale of alcoholic beverages, to purchase any such

products from such person to the exclusion in whole or in part of

alcoholic beverages sold or offered for sale by other persons in

interstate or foreign commerce, provided one of the three

jurisdictional clauses is met:

(1) By commercial bribery; or

(2) By offering or giving any bonus, premium, or compensation to

any officer, or employee, or representative of the trade buyer.

Commercial bribery situations involve the receipt of money or a

premium by an officer, employee, or representative of the trade buyer.

Payments made directly to business entities (i.e., the corporation,

partnership, or individual owning the business) for the use of the

business do not constitute a commercial bribe. The independence of the

trade buyer is threatened in a commercial bribery situation because the

officer, employee, or representative of the trade buyer is making a

purchasing decision as a result of the money or premium received

personally and not based on business or marketing factors which further

the interests of the trade buyer itself.

Proposed section 10.52 identifies promotional conduct by an

industry member that involves the payment of money or another premium

to an employee or representative of a trade buyer without the knowledge

of the trade buyer as practices under the Act that place trade buyer

independence at risk. The Fedway court noted that previous case law

upheld as actionable these types of payments. These payments were

viewed as anti-competitive because one competitor gained a competitive

advantage over another competitor by reason of a ``secret and corrupt

dealing with employees or agents of prospective purchasers.'' See,

American Distilling Co. v. Wisconsin Liquor Co., 104 F.2d 582 (7th Cir.

1939). Even where such practices exist, ATF would still be required to

demonstrate that they affect the trade buyer's purchases in order to

establish exclusion. With respect to those practices not mentioned

herein, ATF would be required to demonstrate the existence of both of

the elements of exclusion set forth above.

ATF also proposed adding a new section 10.53 to discuss practices

which do not place trade buyer independence at risk, but proposed no

specific examples.

These two sections were adopted in the final rule without any

changes.

Criteria for Determining Retailer or Trade Buyer Independence

ATF proposed adding Secs. 6.153, 8.54 and 10.54 to list criteria by

which ATF would evaluate whether or not a particular practice places

retailer or trade buyer independence at risk. Elements which have

repeatedly been mentioned in court cases are degree of control

exercised over trade buyers' purchasing decisions, duration of the

practice, indiscriminateness and contractual or other enforceable

requirements. The goal of regulating trade practices in the alcoholic

beverage industry has been identified as healthy competition in order

to insure the best possible price, quality and selection for the

consumer and to prevent formation of a corrupt black market.

The proposed criteria are indications that a particular practice,

other than those in sections 6.152 and 8.52, places retailer

independence at risk. A practice need not meet all of the criteria

specified in order to place retailer independence at risk. The proposed

criteria are:

(a) The practice restricts or hampers the free economic choice of a

retailer to decide which products to purchase and the quantity in which

to purchase them for sale to consumers.

(b) The industry member obligates the retailer to participate in

the promotion to obtain the industry member's product.

(c) The retailer has a continuing obligation to purchase or

otherwise promote the industry member's product.

(d) The retailer has a commitment not to terminate its relationship

with the industry member with respect to purchase of the industry

member's products.

(e) The practice involves the industry member in the day-to-day

operations of the retailer. For example, the industry member controls

the retailer's decisions on which brand of products to purchase, the

pricing of products, or the manner in which the products will be

displayed on the retailer's premises.

(f) The practice is discriminatory in that it is not offered to all

retailers in the local market on the same terms without business

reasons present to justify the difference in treatment. [[Page 20407]]

In the case of commercial bribery, the risk to the wholesale or

retail trade buyer's independence is evaluated using similar criteria

in section 10.54. A number of commenters expressed concern that ATF's

application of these criteria to wholesaler trade buyers was overly

broad and could disrupt legitimate franchise arrangements or

``promotional partnerships'' between industry members and their

wholesaler trade buyers. In response, ATF wishes to emphasize that the

only ``practices'' being evaluated in section 10.54 are commercial

bribery or the offering or giving of a bonus, premium, or compensation

to any individual officer, or employee, or representative of the trade

buyer. Transactions with the trade buyer entity are not in question

here, unless circumstances indicate the trade buyer entity is merely a

conduit between the industry member and the individual.

In their comment, DISCUS proposed an alternative to these criteria,

which they called ``guidelines for evaluating exclusion.'' To some

extent, these guidelines paraphrased the general principles enunciated

in proposed Secs. 6.152, 8.52 and 10.52, but stated them in terms that

narrow their application to specific factual situations. The final rule

retains the general principles in its criteria rather than the more

limited guidelines proposed in the DISCUS comment, since the industry

is provided clearer guidance by the use of principles of general

application rather than more narrow factual characterizations.

The FTC staff also addressed the criteria ATF will apply in

evaluating a promotional practice not otherwise covered in another

regulation. In general, the FTC staff criticized the criteria since

they feel that each one of the criteria could be a feature of a normal

commercial relationship under the right circumstances. Rather than

recommend different criteria, the FTC staff again returns to their view

that the factor of market share or ``market power'' is the proper

approach.

For the reasons discussed under ``Exclusion, in general'' above, a

market share or ``market power'' approach is not consistent with the

statutory language of the FAA Act or Congress' intent in enacting the

unfair trade practice provisions. Rather, ATF has developed these

criteria based on the factors stressed by the various Federal courts

that have addressed violations of the unfair trade practice provisions.

No one factor is determinative. To the extent that applying a

particular factor in a particular case will result in restricting a

pro-competitive practice, the factor will not be applied in evaluating

that practice. This is clearly a case-by-case determination. However,

the FTC staff suggestion that a criterion does not in all cases

demonstrate a tie or link that threatens retailer independence does not

render the factor irrelevant in those cases where it is evidence of

such a tie or link.

After reviewing the FTC staff comments, ATF determined, for reasons

of clarity, that criterion (a) in Secs. 6.153, 8.54 and 10.54 should

read ``which products or what quantity'' (the proposed rule read

``which products and what quantity''). ATF has changed the final rule

accordingly.

Slotting Fees

In Notice No. 794, ATF proposed adding slotting fees to two areas

of the regulations: first, as an example of a practice which has the

potential to threaten a retailer's independence (proposed section

6.152), and second, as ``other than a bona fide sale'' (proposed

section 11.24). Slotting fees were described in Notice No. 794 as fees

paid to a retailer in order to obtain premium shelf space. ATF sought

comments on whether slotting fees should be addressed in tied-house

and/or consignment sale regulations. In the notice, ATF requested data

and information on the effect of such fees, rather than solely

statements of preference by a particular commenter.

Slotting fees, also referred to as slotting allowances, are not

specifically addressed in the current FAA Act regulations. In the past,

ATF interpreted such fees as ``things of value'' given to retailers or

as ``paying or crediting the retailer for any advertising, display or

distribution service'' and investigated slotting fee arrangements as

potential violations of the tied-house provisions of the FAA Act, 27

U.S.C. 205(b)(3) or 205(b)(4).

ATF received 1,347 letters of comment on Notice No. 794, containing

a total of 1,593 signatures; of these, 1,309 letters (1,554

signatures), expressed support for ATF's stated position on slotting

fees. Several trade associations who supported ATF's proposed treatment

of slotting allowances enclosed substantive and detailed analyses on

the subject by authorities outside the alcoholic beverage industry in

addition to their own comments. The Wine Institute submitted a

statement prepared by Paul N. Bloom, Professor of Marketing at the

University of North Carolina at Chapel Hill (``Bloom''). The Beer

Institute submitted statements prepared by David P. Kaplan, President

of Capital Economics, a Washington, D.C., economic research and

consulting firm (``Kaplan'') and Robert Goodale, Deputy Secretary of

Commerce for the State of North Carolina (``Goodale''). The Brewers

Association of America submitted a statement by Gregory T. Gundlach, of

the College of Business Administration , University of Notre Dame

(``Gundlach''). Most other commenters who supported the ATF proposal

commented with conclusory statements that slotting fees are anti-

competitive, but submitted no accompanying data in support of these

conclusions.

The commenters supporting the proposed rule did so from a number of

different perspectives. Approximately 1,130 of the letters written in

support of ATF's proposed rules on slotting addressed only that issue.

Most of these letters came from beer wholesalers, and many stated

simply that slotting fees should continue to be considered a potential

violation in both the tied-house and consignment sales regulations. The

reasons given included the statements that slotting fees will hurt

competition, reduce consumer choice, discriminate against small

businesses and raise costs in an already tight market. However, no

supporting evidence was furnished in most of these letters. A few of

these commenters went on to describe likely costs in terms of money,

lost jobs, or product failures from their experience with soft drinks

or snacks.

Of the commenters who wrote only about slotting, 71 requested that

ATF expand its definition of slotting to encompass ``purchasing,

renting or maintaining display and storage space as well as shelf

space.''

ATF also received four comments from individual consumers who

expressed concern that slotting allowances may have the effect of

dampening innovation, especially in the fledgling domestic craft

brewing industry, by making the cost of introducing a new product

prohibitively high.

In identical letters, six commenters identifying themselves as

small retailers expressed concern that ``slotting fees would give giant

retailers more money to drive me out of business.''

Five commenters argued in favor of a change in ATF's proposed

treatment of slotting fees. These commenters were the National

Association of Convenience Stores (NACS), the Minnesota Licensed

Beverage Association, Inc. (MLBA), The Kansas Retail Liquor Dealers

Association, Inc., the Circle K Corporation, which owns and operates

convenience stores, and The Chapter House, a brewpub. NACS

[[Page 20408]] and the Circle K corporation both argued that slotting

fees are simply reimbursement for the expenses incurred by a retailer

when it stocks a new product or moves a product already in stock to a

more prominent location, including rearranging warehouses, changing

accounting and inventory control systems, and planning new displays and

shelf arrangements. No specific examples or data were submitted. NACS

cited the high number of new products introduced each year and argued

that slotting fees enable the products to be available to consumers at

the retail premises. However, no marketing data or studies were

submitted in support of this purported effect. MLBA and the Chapter

House both noted that consumers, by their purchases, ultimately control

the retailer's purchasing decisions, whether or not slotting fees are

paid.

Evaluation of Comments on Slotting Fees

In examining slotting allowances or fees, also called ``display

fees,'' ``introductory allowances,'' ``pay-to-stay fees,'' ``stocking

allowances,'' ``annual renewal fees,'' ``up front fees,'' ``maintenance

fees,'' ``push money,'' and ``failure fees,'' ATF has relied heavily

upon the aforementioned statements by Bloom, Kaplan, Goodale and

Gundlach, since so little objective data was submitted with the other

comments. Where material from these statements is cited, ATF will

include a reference to the author and page number.

In his statement, Bloom (page 15) notes that slotting fees ``have

become entrenched, with both grocery manufacturers and retailers

expecting these fees to be a part of every transaction involving a new

product.'' Since these fees have become so commonplace in other

industries and are not being treated as illegal in those industries, it

is appropriate to review ATF's reasons for believing they should

continue to be prohibited in the alcoholic beverage industry.

Fedway directed ATF to consider the benefits of legitimate

competitive practices in evaluating whether a practice is exclusionary.

Several of the statements addressed this aspect of slotting fees. One

expected benefit of fair competition is that it will result in better

quality, selection or prices for consumers. Goodale (page 8) says

slotting allowances ``do not benefit consumers. Retailers do not pass

on the proceeds from slotting allowances in the form of lower prices

for the favored products. Moreover, competition by slotting allowances

may actually tend to displace competition in other forms more likely to

be passed on to consumers, such as lower prices to retailers, special

promotions, or coupons. To the extent that they reduce the availability

or visibility of competing products, slotting allowances also reduce

consumer choice.''

Many commenters expressed concern that allocation of shelf space to

products under slotting fee agreements is not based on perceived

consumer demand, but on money factors. These concerns appear to be

borne out by the expert statements and the published material attached

to them. Several made the distinction between ``pull'' marketing, in

which the supplier uses advertising, coupons, and other means to create

consumer demand, and ``push'' marketing, in which the supplier

essentially pays the retailer to ``push'' the product by guaranteeing

its availability and prominence at retail outlets. Slotting fees,

sometimes called ``push money'' fall into this latter category. In

Fedway, the court acknowledged the ``general belief that cheap and

plentiful alcohol is not an unmitigated social good (as opposed, say,

to cheap and plentiful home heating oil or shoes) suggest[s] that the

alcohol industry requires special oversight and regulation.'' There is

at least a perceived danger in allowing slotting fees in the alcoholic

beverage industry that heavily promoted products would be

overrepresented or ``pushed'' at the retail level.

Bloom (pages 4 through 6 and page 23) points out that ``the

channels of distribution through which an industry member may market

its beverages are far more limited than those faced by a manufacturer

of other beverages or of other unregulated consumer products.''

Availability of retail outlets for alcoholic beverages is ``restricted

in number and location, by state licensing requirements'' and

``manufacturers in this industry may not sell their goods through mail

order in many states.'' Bloom states the argument that there are

alternative retail outlets (that is, that a supplier barred from

selling to one customer may sell to others) does not apply in the

alcoholic beverage industry because of these factors.

One of ATF's proposed criteria for determining retailer

independence, that is, whether the practice has a discriminatory

aspect, also has a bearing on the evaluation of the impact of this

rulemaking on small businesses under the Regulatory Flexibility Act.

Bloom (page 11) states that ``some argue that slotting fees may be

beneficial to small business, by offering the opportunity for an

untested product to `buy' its way into a retailer. I consider this view

somewhat naive, since, even if such an opportunity exists in theory, it

is not a realistic or practical one for most small or start-up

businesses. These are precisely the companies that cannot win the

bidding war for retail space because they do not have the funding to

pay hundreds of thousands of dollars in up-front fees. It is highly

relevant that small food manufacturers have been among the most vocal

opponents of slotting fees.'' Bloom further notes ``since slotting fees

usually bear little relation to the costs of a retailer or wholesaler,

often causing manufacturers to pay different amounts to different

resellers to stock the same item, such fees can adversely affect small

retailers as well.'' (page 25--emphasis in original.) Goodale (page 6)

makes a similar observation: ``Individual stores and smaller chains

have considerably less or no leverage and consequently receive

disproportionately less in 'slotting allowances,' if any at all.''

Kaplan (pages 18 and 19) discusses competition and performance in

the beer and wine industries. ``By any standard, both industries have

exhibited healthy competition and excellent performance under a

regulatory regime in which slotting allowances were clearly prohibited.

The healthy level of industry performance strongly suggests that

material alterations to the regulatory treatment of slotting allowances

and other long-prohibited trade practices should be approached

cautiously.'' Bloom (pages 5 and 6) also notes, despite ``the vigor of

competition in the industry, however, the * * * regulatory structure,

by directing competition and creating entry barriers, can sometimes

make it more difficult to market products in the alcoholic beverage

industry than in others. Accordingly, marketing practices which may be

benign in other industries may have severe adverse consequences in this

one.''

Kaplan (pages 4 and 5) performs a comparison between ATF's criteria

to determine whether a practice places retailer independence at risk

and the characteristics of slotting allowances. Kaplan states, ``[i]n

my opinion, the payment of a slotting allowance by a supplier restricts

or hampers the retailer's choice of which products to purchase (during

the time period in which the shelf space has been purchased or rented),

represents a continuing obligation on behalf of the retailer to

purchase and stock the supplier's product, represents a commitment by

the retailer not to terminate its relationship with the supplier with

respect to purchase of the supplier's products, reduces the amount

[[Page 20409]] of shelf space available for competing products, and

generally results in a reduction in the sales of the displaced

products.'' Goodale (pages 6 and 7) performs a similar analysis, with

similar findings. He adds that ``[s]lotting allowances involve

manufacturers in the day-to-day decisions of the retailer regarding

what products the retailer will purchase and how products will be

displayed in the store. Payment of slotting allowances is almost always

discriminatory among retailers in any given area.''

With particular reference to the continuing character of the

obligation, and the danger of a tie or link between the industry member

and the retailer, Bloom (page 7) states that ``manufacturers often make

continuing payments to retailers and wholesalers either to keep a

product on the shelves or in the warehouse when the product does not

sell in the volume expected by the retailers, or to obtain preferential

display space. In other words, manufacturers may be required to make

ongoing payments even after they have paid the entry fee and even if

the product sells well. These are referred to as `pay-to-stay' fees.

``Goodale (page 6) noted ``Manufacturers pay slotting allowances

only with the agreement of retailers to provide their products some

benefit or favorable treatment. A slotting allowance is part of a

mutually binding contract between manufacturer and retailer. Thus, a

retailer that accepts a slotting allowance is obligated to fulfill the

terms of its agreement with the paying manufacturer. Moreover,

retailers do not treat this obligation lightly. A retailer that did not

fulfill its part of a slotting allowance agreement would quickly

acquire a reputation as a `welcher' that would damage its ability to

collect slotting allowances in the future. Thus, retailers have a

strong incentive to honor their commitment to favor the paying

manufacturer's product.'' Bearing out this notion of an incentive to

favor a supplier who pays slotting fees, Bloom attached an article from

Journal of Public Policy and Marketing by Joseph P. Cannon and Paul N.

Bloom, called ``Are Slotting Allowances Legal Under the Antitrust

Laws?'' The article noted:

Whether slotting allowances have served as anticompetitive

weapons or insurance fees, grocery chains have benefited from their

existence. Historically, profits rarely exceeded 1 percent of sales,

but the last several years have seen profits in the 2 percent range

[Sullivan 1989].

Although the article noted there were other contributing factors in

this striking increase in profitability, a retailer would be reluctant

to give up any practice which contributes to such an increase. Goodale

(page 6), stated that, for large retailers, ``slotting allowances are a

major source of revenue, accounting for perhaps more than 10% of after-

tax profits.'' This underscores the potential for a retailer to become

dependent on a slotting fee arrangement, thus creating the tie or link

which is an element of exclusion.

Nature and Effect of Slotting Fees

The proposed description of slotting fees in Sec. 6.152(b), read,

in part, ``purchasing or renting specific shelf space * * * where such

purchase reduces the availability of other shelf space for the

distilled spirits, wine or malt beverages of another industry member.''

As noted earlier in the discussion of the comments on slotting, a

number of commenters requested that this definition be expanded because

slotting fees cover more than just the purchase of specific shelf

space.

Goodale (pages 8 and 9) states ``in my view, the slotting allowance

provision in Sec. 6.152(b) of the NPR is too narrow. The reference to

`purchasing or renting specific shelf space' would not include many of

the slotting allowance arrangements discussed above that have the same

adverse effect on retailer independence. The draft regulation should be

modified to make clear that all forms of slotting allowance

arrangements will be treated as putting retailer independence at risk,

as in fact they most certainly do.'' The slotting practices listed by

Goodale (pages 2 through 4) were:

Payments made by manufacturers to retailers and wholesalers to

set up a new item in their store or warehouse.

Payments made by manufacturers to retailers in return for an

obligation to, for some agreed-upon period of time:

Allocate a specified quantity of shelf or refrigerator space to

the manufacturer's product;

Allocate a favorable shelf or display position to the

manufacturer's product (aisle end or eye level, for instance);

Feature the manufacturer's products in advertising and displays

during times of peak demand, such as holidays;

Set aside warehouse or backroom space on the retail premises for

storage of the manufacturer's product, to reduce the number of

deliveries and facilitate restocking of the store shelves;

In some product categories (greeting cards and light bulbs, for

example) the retailer may carry one manufacturer's product

exclusively.

Based upon the evidence noted, ATF believes that slotting fees put

retailer independence at risk, and proposed Sec. 6.152(b) is adopted in

this final rule, with two changes. In the final rule, ATF has expanded

the description of slotting fees to more accurately reflect the variety

of practices which come under this category. ATF also dropped the

condition that the purchase of shelf space reduce the availability of

space for competitors' products from Sec. 6.152(b), since that factor

must always be shown within the framework discussed in

Sec. 6.151(a)(2).

Slotting Fees as Consignment Sales

In Notice No. 794, ATF proposed to classify payment of slotting

allowances as ``not a bona fide sale'' in the consignment sale

regulations in Part 11. This classification grows out of the

description of consignment sales in 27 U.S.C. 205(d), ``to sell * * *

on consignment or under conditional sale or with the privilege of

return or on any basis otherwise than a bona fide sale.'' ATF argued

the practical effect of ``slotting allowances'' is to refund, in whole

or in part, the purchase price of a product that has not been sold, in

proportion to the period of time that it remains unsold.

At a minimum, payment of ``slotting allowances'' may reimburse the

trade buyer for the cost of shelf space occupied by the industry

member's products. In addition, it may also compensate the trade buyer

for the lost opportunity cost of having capital tied up in inventory

acquired from the industry member. Ultimately, the amount refunded by

this mechanism can, over any specified period of time, be the economic

equivalent of simply buying back a product at the end of that period of

time.

ATF believes that its regulations should address all arrangements

that clearly embody the substance of the ``consignment sale'' practice

proscribed by Congress, and not merely particular forms of that

practice. Therefore, ATF proposed to amend its regulations to specify

payment of ``slotting allowances'' from an industry member to a trade

buyer is a form of consignment sale.

NACS, in its comment, stated that slotting allowances cannot be

equated with consignment sales. They argue that it is unlikely that,

even over time, the slotting allowances would be the equivalent of the

wholesale price, and that ATF cannot presume ``that slotting allowances

would have this effect in all circumstances.''

Other commenters offered contrasting views on this subject. E. & J.

Gallo Winery cited remarks by FTC Commissioner Deborah K. Owen on the

subject of slotting fees. She called them [[Page 20410]] a ``form of

insurance for the retailer * * * [which] reduce, and perhaps eliminate

his risk--or at least transfer some of it to the producer--by charging

a fee that, essentially, provides indemnification from the loss of

profits that would arise if the new product fails to sell well.''

Statements submitted by retailers opposing ATF's proposals on slotting

fees corroborated that slotting fees do serve the function of shifting

the risk of loss back to the supplier/wholesaler.

Kaplan (page 13) describes ``failure fees.'' ``These fees are being

paid if a `new product does not meet sales expectations.''' Kaplan's

example described a grocery chain which reportedly asks its suppliers

to agree, under contract, to cover the retail cost of merchandise

remaining unsold after a 120-day introductory period if the product has

not met its weekly volume target. The supplier ``has the option'' of

removing the remaining inventory.

Bloom (page 17) said ``a manufacturer which performs poorly is

often able to `pay to stay,' and make up for the shortfall in profits

contributed.'' Bloom went on to describe slotting fees in the grocery

industry as ``a form of `insurance' for retailers. It is well-

recognized that retailers have reduced the risk of carrying new

products by charging slotting fees. Indeed, several [interviewees]

suggested that many supermarkets may not be in the risky grocery

business anymore. Instead, they see some supermarket chains as

essentially being in the real estate business, selling and leasing

shelf space to manufacturers.''

In view of these comments, ATF believes the purported use and

purpose of slotting fees clearly demonstrate that a sale which involves

a slotting fee is ``not a bona fide sale.'' Proposed Sec. 11.24 is

retained in the final rule, but amended to reflect the broader

description of slotting fees adopted in Sec. 6.152(b).

Slotting Fees as Commercial Bribery or Exclusive Outlet

Although there was no formal request for inclusion of slotting fees

under the commercial bribery part of the regulations, a number of

commenters characterized slotting fees as bribery or ``payola.'' As

discussed earlier, the FAA prohibition of commercial bribery relates to

the offering or giving of a bribe, bonus, premium or compensation to

any individual officer, employee or representative of a trade buyer,

and not to the trade buyer entity. As slotting fees have been described

in the comments, they appear to be transactions with the entity, and

not with an individual. If an investigation disclosed payments to an

individual for influencing the display or stocking of a product, ATF

would pursue that as a case of commercial bribery, if the other

necessary criteria were met.

Coors Brewing Company suggested adding a new section to Part 8--

Exclusive Outlets, to prohibit slotting allowances, saying a slotting

allowance ``necessarily involves a requirement imposed upon a retailer

by a voluntary agreement.'' ATF disagrees; slotting allowance

agreements appear to be limited to manner of display or stocking of

product, not to exclusivity of purchase, which is the focus of the

exclusive outlet rules. Certainly, if ATF found an industry member was

requiring a retailer to purchase its products to the exclusion of

similar products sold or offered for sale by other industry members as

part of a slotting fee arrangement, ATF would also pursue the exclusive

outlet aspect of the case.

Other Proposed Changes

ATF proposed to revise or add regulations in 27 CFR Parts 6, 8, 10,

and 11, in areas suggested by the industry petition and in areas

identified by ATF as appropriate for rulemaking. The proposed revisions

and additions are discussed below.

In 1988, ATF designated an agency task force to review the trade

practice regulations and ATF's enforcement experience, since 1980, and

determine whether revisions were needed. ATF determined that certain

regulations could be modified or clarified to provide guidance to the

industry on ATF's interpretations of the trade practice statute. Such

guidance has been provided by rulings and industry circulars. Notice

No. 794 proposed incorporating these rulings and industry circulars

into the regulations.

In addition to changes identified in the Bureau's own review, this

notice responded to changes suggested in a February, 1992, petition

filed by representatives of the Distilled Spirits Council of the United

States, Inc. (DISCUS), the National Association of Beverage Importers,

Inc. (NABI), Wine and Spirits Wholesalers of America, Inc. (WSWA), the

National Licensed Beverage Association (NLBA), and the National Liquor

Stores Association, Inc. (NLSA). This petition superseded an earlier

petition filed by DISCUS and NABI with ATF. ATF suggested that DISCUS

and NABI work with all segments of the alcohol beverage industry to

reach a consensus concerning the various proposals to revise the trade

practice regulations. The 1992 petition reflects a culmination of that

effort by the supplier, wholesaler, and retailer organizations noted

above.

Scope of Parts 6, 8, 10 and 11

ATF proposed to revise Secs. 6.1, 8.1, 10.1 and 11.1 to reflect the

recodification of the Federal Alcohol Administration Act which included

renumbering the trade practice section from section 5 to section 105

and to better reflect the function of the proposed regulations. No

commenters objected to these changes, and they are adopted as proposed.

DISCUS suggested removing the sentence ``This part does not attempt to

enumerate all of the practices which may be a violation * * *'' from

each of these sections, but gave no reason for this suggestion. This

sentence was retained in each part because it is an accurate statement;

each part does not list all of the practices which can result in a

violation. The deletion of this sentence would mislead a person into

believing that each part constitutes a complete or exhaustive list of

every practice within the trade practice proscriptions.

Sections 6.3 and 8.3, Application

Although ATF had proposed no change to Sec. 6.3(b) or Sec. 8.3(b),

the National Alcohol Beverage Control Association (NABCA) renewed its

request (originally aired during the last trade practice rulemaking in

1980) that all control states be categorized as wholesalers, even if

they meet the definition of retailer contained in sections 6.11 and

8.11. NABCA states in the comment submitted on its behalf by Tendler,

Goldgerg, Biggins & Geltzer, that this simplification is needed because

Control State arrangements vary widely from State to State and create a

confusing ``patchwork'' of rules. ATF maintains its 1980 position that

there is no statutory authority for such a change. Therefore, no change

is made in these sections in the final rule.

Administrative Provisions in Parts 6, 8, 10 and 11

Section 102(c) of the FAA Act (27 U.S.C. 202(c)) incorporates by

reference the provisions of sections 49 and 50 of Title 15, U.S.C. of

the Federal Trade Commission Act which vests in ATF investigative

subpoena authority and the right to examine and copy relevant data

subject to an FAA Act investigation. In addition, section 102(d)

provides authority to require such reports as are necessary to

effectuate the purposes of the statute. ATF proposed adding new

regulations at 27 CFR 6.5, 8.5, 10.5 and 11.5 delegating these

[[Page 20411]] authorities to specific officials. There were numerous

comments on these two proposals, and they will be addressed separately

below:

Examination and Subpoena

Pursuant to 15 U.S.C. 49 and 50 as made applicable by section

102(c), ATF may examine, at all reasonable times, any documentary

evidence which is necessary to determine whether the person,

partnership, or corporation being investigated or proceeded against

violated the FAA Act. The right to examine includes the right to copy

any such documentary evidence. In addition, section 49 authorizes the

issuance of a subpoena for any person, partnership, or corporation to

produce records or give testimony relevant to an investigation of a

violation of the FAA Act. ATF proposed to delegate the authority to

examine and copy records to the Director or any ATF officer, and to

delegate the authority to issue subpoenas to the Director. Sixty two

commenters (many using similar language, as if following a sample

letter) questioned the need for this provision and ATF's interpretation

of the statute. Other commenters requested that ATF explain the reasons

for its authority for using the subpoena power in investigations.

Many of the commenters cited Serr v. Sullivan 270 F. Supp. 544

(E.D. Pa. 1967), aff'd 390 F. 2d 619 (3d Cir. 1968) (Serr), for the

proposition that ATF does not have the authority to use subpoenas in

connection with any type of investigation prior to the issuance of an

order to show cause against a basic permit.

Subsequent to the Serr decision, in consultation with the

Department of Justice, ATF concluded that it would not follow the

decision outside the 3rd circuit and planned to litigate the issue in

another circuit. ATF has continued to use its subpoena power in other

circuits and has not been challenged.

In Serr, the court narrowly interpreted the incorporation by

reference in 27 U.S.C. 202(c) of the investigatory subpoena authorized

under the Federal Trade Commission Act. The Serr decision held that

Congress provided no express investigation power to the agency

administering the FAA Act and, therefore, the subpoena authority could

only be used in an administrative proceeding against a basic permit

pursuant to 27 U.S.C. 204. The court based this conclusion on the fact

that other Federal statutes containing similar incorporations of the

Federal Trade Commission Act subpoena power contained express

provisions authorizing investigations and, additionally, Congress had

expressly rejected an investigation provision in the FAA Act.

A review of other Federal statutes cited by the court reveals that

the power to conduct investigations into possible violations is granted

either in conjunction with the broader power to call for general fact

finding investigations, or supplemental to a third party complaint

system of enforcement, or both. The court's summary conclusions about

these investigation powers did not entail an analysis of the types of

``investigations'' contemplated by these other provisions. ATF does not

conduct these types of general fact finding investigations or use a

third party complaint system. Instead, ATF traditionally conducts

investigations into specific violations by specific industry members.

Likewise, the investigation provision rejected by Congress

authorized the agency to make investigations and studies with reports

to the President and Congress on the production, distribution and

consumption of alcoholic beverages. The provision did not address the

power of the agency to conduct specific investigations into whether an

industry member violated a specific provision of the FAA Act.

Therefore, the failure of Congress to enact this provision indicates

nothing about Congress' intent on whether the administrating agency

could conduct an investigation to determine whether the industry member

violated the statute. It is fair to conclude that Congress intended

that the administering agency have routine investigatory authority as

an inherent part of the given ``duties and powers'' to administer and

enforce the unfair trade practice provisions when there is reason to

believe that an industry member violated the FAA Act.

Finally, the court's conclusion that suspension or revocation of

basic permits is sufficient for effective enforcement of the Act fails

to recognize that the FAA Act contains other enforcement mechanisms

such as injunctions, consent decrees, and offers in compromise which

are used outside of an administrative proceeding against a basic

permit, as well as ignores the fact that brewers do not hold basic

permits. Such reasoning also fails to recognize that an investigation

is a pre-requisite to developing adequate facts to support issuing an

order to show cause that alleges a specific violation. For all of these

reasons, it is illogical to conclude that Congress, on the one hand,

gave the administering agency these other traditional enforcement

mechanisms and authorized the use of other Government agencies and the

submission of reports under 27 U.S.C. 202(b) and (d) and, on the other

hand, denied the same agency the inherent authority to conduct

traditional investigations into whether an industry member has violated

a specific trade practice provision. Accordingly, ATF has retained the

proposed examination and subpoena provisions in Parts 6, 8, 10 and 11

of the final rule.

One change was made in these provisions in the final rule because

ATF noted some industry concern that these powers will be used for

``fishing,'' rather than as part of a specific investigation. ATF has

added language to require a showing that the requested evidence may

reasonably be expected to yield information relevant to a violation of

the statute by a particular industry member being investigated under

the Act.

Report of Promotional Activities

In addition, pursuant to section 102(d) of the FAA Act, new

regulations were proposed in Secs. 6.5, 8.5, and 10.5, authorizing the

regional director (compliance) to require a letter report from industry

members regarding information on sponsorships, advertisements,

promotions, and other activities conducted by, or on behalf of, or

benefiting the industry member. The reporting requirement would be used

on a case-by-case basis, rather than as a recurrent and periodic

reporting requirement such as a monthly report of activities applying

to all industry members. ATF did not propose adding a reporting

requirement in Part 11, Consignment Sales.

Most of the 66 comments on this section described the subject

reports as ``advertising reports'' and noted that ATF already had

``abundant'' authority to regulate advertising. The remainder of the

comments on this report addressed three main areas: The perjury

statement requirement, the delegation to the regional director

(compliance) and the absence of limits or safeguards.

The proposed rule required that the letter report be ``executed

under the penalties of perjury.'' Commenters were critical of this

requirement because, they pointed out, perjury carries a criminal

penalty, whereas most practices which are under investigation, if found

to be violations, would be handled administratively. ATF is retaining

this requirement in the final rule for consistency with requirements

for other documents filed under the FAA Act regulations, such as

applications for basic permits and certificates of label approval.

Further, even if the perjury statement were not required, giving a

false statement in a document presented to a government

[[Page 20412]] official and relied on by that official is still a

criminal offense under 18 U.S.C. 1001.

In the proposed rule, ATF delegated authority for requiring this

report to the regional director (compliance). Several commenters

expressed concern that these reports could be required at any time,

without any justification, and that the policy for requiring such

reports might vary from region to region. ATF addressed these concerns

by revising the final rule to authorize the Deputy Associate Director

(Regulatory Enforcement Programs) to require these reports, and by

adding language to the section specifying that the reports would only

be required as part of an investigation. Further, the final rule also

provides that the report shall cover a period of no more than three

years.

Several commenters expressed the opinion that ATF had understated

the time needed to comply with this requirement, but since no

alternative time burden estimate was offered, ATF is retaining the one

hour estimated burden in the final rule. Comments on this estimate may

be submitted to the address shown in the Paperwork Reduction Act

section of the supporting data.

Meaning of Terms Revisions in Parts 6, 8, 10 and 11

ATF proposed to add the terms ``ATF officer'' and ``Director'' to

the definitions in 27 CFR 6.11, 8.11, 10.11, and 11.11 to correspond to

the terms in the proposed administrative provisions in Secs. 6.5, 8.5,

10.5, and 11.5, discussed above. ATF also proposed adding the term

``Regional director (compliance)'' to the definitions in 27 CFR 6.11,

8.11 and 10.11 to correspond to the term in the proposed administrative

provisions. In view of the change in this delegation in the final rule,

a definition for ``Deputy Associate Director (Regulatory Enforcement

Programs)'' has been substituted.

ATF proposed to define the term ``brand'' in 27 CFR 6.11, since a

number of dollar limitations on things of value which may lawfully be

given to retailers is on a ``per brand'' basis. The definition proposed

was drawn from ATF Ruling 81-1, Q.B. 1981-2, page 27, excluding changes

in the color or design of the label. Commenters on this issue were

divided.

While most commenters supported narrowing the definition of the

word ``brand'' as proposed, Hinman & Carmichael, attorneys, noted in

their comment that label color is sometimes used to distinguish

``different quality designations of similar products produced by the

same manufacturer,'' and suggested adding ``different quality standard

or grade'' to the list of examples of different brands. ATF believes

the items listed in the proposed definition, such as age and alcohol

content, should address most such differences.

NBWA and the President's Forum of the Beverage Alcohol Industry

both commented that the proposed increase in the dollar limits in Part

6, Subpart D, combined with such a broad definition of the term

``brand,'' would have an anticompetitive effect by allowing industry

members with diverse brand portfolios to give a large number of

valuable items to retailers. As discussed later in the supplementary

information, a number of commenters expressed concern about the large

proposed increase in the dollar limitations, but did not comment on the

proposed definition of brand. Since ATF has decided to address these

concerns by raising the dollar limitations less than originally

proposed, it will not be necessary to further narrow the proposed

definition of ``brand.''

NBWA expressed concern that beverage varieties ``have proliferated

at an unprecedented rate'' and that ``even the most subtle variation in

the product line would be construed to create another `brand''' under

our proposed definition. NBWA further stated in their comment that the

``whole matter of what constitutes a brand is at the center of

controversy and litigation across the country.'' They suggested airing

this issue in a separate rulemaking and, if a definition is adopted at

all, specifying that the definition is only intended to apply to Part

6. In view of this comment, ATF has decided to adopt the definition of

brand as proposed, with the addition of a note in the definition that

it only applies to the administration of the exceptions in Part 6.

Although the petitioners suggested revising the definition of

``retailer'' in 27 CFR Parts 6 and 8, ATF proposed no changes in this

definition. The petitioners suggested removing the language which

specifies that a wholesaler who makes incidental retail sales

representing less than 5 percent of its sales during the preceding two

months shall not be considered a retailer. The petitioners state that a

supplier cannot know whether the wholesaler's retail sales are within

the 5 percent limitation and suggest eliminating that standard. The

petitioners also believe that the definition of ``retailer'' should be

clarified in order to ensure that this definition is consistent with

Sec. 6.2 which defines the territorial extent of Part 6 of the

regulations.

ATF believes that removal of the 5 percent limitation would make

the definition too broad. For example, without the percent limitations,

a wholesaler who makes a single sale to a consumer is deemed to be a

retailer. Also, the petitioners' proposed definition would exclude, as

a retailer, someone within the United States who makes sales for

consumption outside of the United States; i.e., a duty free shop. The

FAA Act itself does not allow this type of exception to the territorial

coverage of the law. Therefore, ATF did not agree with this proposal,

and proposed no change to the definition of ``retailer.'' DISCUS, in

their comment on the proposed rules, reiterated the request for these

revisions, but presented no new arguments. No other comments addressed

the definition of the word ``retailer.'' For the same reasons, ATF did

not propose conforming amendments to the definition of ``retailer

establishment.'' ATF holds to its comments as expressed in Notice No.

794, and made no changes to these definitions in the final rule.

ATF proposed to change the term ``retailer establishment'' in 27

CFR 6.11 to ``retail establishment'', since that is the term used in 27

CFR Part 6 regulations. The term ``retail establishment'' in 27 CFR

8.11 will be removed because the term is not used in 27 CFR Part 8

regulations. No commenters objected to these proposals, and they were

adopted in the final rule. Since the term ``retailer'' is being added

to Part 11, ATF has added a definition for that term in section 11.11

which conforms to the definition in 6.11.

Discussion of Changes to Individual Sections

Sections 6.25 through 6.33, Interest in Retail Licensee

The petitioners stated that these sections of the regulations

provide identical treatment concerning an interest of an industry

member in a license with respect to a retailer's premises (Sections

6.25-6.27) and in real or personal property owned, occupied, or used by

the retailer in the conduct of the business (Sections 6.31-6.33). The

petitioners proposed combining the provisions which they believe

parallel each other (Sections 6.25 and 6.31; 6.26 and 6.32; and 6.27

and 6.33).

ATF does not believe that the provisions of Secs. 6.25 through 6.33

should be combined in the various ways proposed by the petitioners.

From a structural point of view, merging Secs. 6.25 through 6.33

fundamentally alters the organization of Subpart C of Part 6.

[[Page 20413]] Subpart C is divided into topics (with titles) which

parallel sections 105(b)(1) through (7) of the FAA Act. The proposed

merger of the corresponding sections will mean that the regulations

applicable to an interest in retail property under section 105(b)(2)

will be contained in a group of the regulations categorized under an

interest in a retail license under section 105(b)(1). ATF believes that

it may be confusing for a person or industry representative relying on

the Part 6 regulations to look under the regulations on a retail

license for a regulation relating to an interest in retail property.

ATF proposed no change with respect to this request, received no

additional requests for such a merger, and makes no such change in the

final rule.

Further, the petitioners recommended clarifying changes to existing

regulations to ensure that there is no misunderstanding that a

violation of the FAA Act does not occur merely upon a finding of the

existence of the means to induce. The petitioners believe that the

wording of several existing regulations describing various means to

induce results in industry confusion since such sections are written in

terms describing ``prohibited means to induce.''

The petitioners believe that the term ``prohibited'' should be

deleted from such sections in order to avoid any contention or

confusion that this provision, read separately from section 6.21,

allows for finding a violation of the FAA Act without also establishing

that the means to induce results in exclusion. While the petitioners

recognize that these sections are subject to the general application

provisions of section 6.21, which states that these means to induce are

unlawful only if they result in exclusion, they believe such a change

will help reduce the possibility of industry confusion on this issue.

The same request was made concerning Secs. 6.31, 6.41, 6.51, 6.61, 6.65

and 6.71, which all contain similar language.

ATF proposed to amend Secs. 6.25, 6.27, 6.31, 6.33, 6.41, 6.51,

6.61, 6.65 and 6.71 by replacing the word ``prohibited,'' with the

phrase, ``a means to induce,'' in order to correspond with the wording

of the FAA Act. No objections to this change were received, and it is

adopted in the final rule.

Section 6.42, Third Party Arrangements

ATF's review of its regulations disclosed that some confusion

exists over the breadth of the proscription on indirect means to

induce. Some industry members incorrectly view the two examples in

Sec. 6.42 as exclusive of the situations covered by the regulation.

Additionally, ATF believes some industry members interpret the examples

as meaning the third party receiving the means to induce must be an

agent of an individual retailer.

By enacting the phrase ``directly or indirectly or through an

affiliate,'' Congress intended the broadest possible application of the

proscriptions of the FAA Act. The term ``indirectly'' encompasses more

than simply trade practice activities with agents of retailers. It

covers such activities with any representative of a retailer or

industry member, whether or not such representative is technically an

agent of the retailer or industry member. Thus, an industry member

providing the means to induce to any third party who will pass the

means on to the retailer, or use them in a manner to benefit the

retailer, is indirectly providing the means to induce to the retailer.

Accordingly, ATF proposed adding a sentence to Sec. 6.42 to clarify

that the examples are simply illustrative and not exclusive of the

situations resulting in indirect inducements. ATF also proposed to

revise the final sentence for clarity.

Several commenters expressed concern that ATF appeared to hold

industry members responsible for any inducement provided to a retailer

by a third party, whether or not the industry member knew or intended

that it would be provided. In response to these comments, ATF revised

the section to clarify that an inducement will not arise where the

thing of value was furnished to a retailer by a third party without the

knowledge or intent of the industry member, or the industry member did

not reasonably foresee that the thing of value would be furnished to a

retailer. In evaluating the second point of this exception, ATF will

determine if the item given was of such a nature or character that the

industry member could reasonably foresee that it would be furnished to

a retailer.

Section 6.43, Sale of Equipment

The petitioners recommended deleting the last sentence of

Sec. 6.43, which states that negotiation by an industry member of a

special price to a retailer for equipment from an equipment company is

a thing of value. They argued that this negotiation should not be

considered a thing of value unless the industry member subsidizes the

special price. ATF disagreed since the thing of value is not the

special price, but the service provided by the industry member in

negotiating with the equipment company, or using its influence on

behalf of the retailer. In the past, ATF has experienced cases in which

a retailer, believing that it received special price consideration,

altered its buying patterns resulting in exclusion of a competitor's

products. ATF did not propose deleting this language, but did propose a

conforming change to the cross-reference.

In its comment, DISCUS reiterated the petitioners' request for

deletion of the last sentence, but did not present any new information.

ATF maintains its position that the last sentence of Sec. 6.43

describes a service which is a thing of value (that is, a means to

induce a retailers' purchases) and should not be deleted. No comments

were received objecting to the change in cross reference, so that

change is adopted in the final rule.

Section 6.46, Outside Signs

ATF proposed to repeal this section and add a new Sec. 6.102 to

allow industry members to furnish outside signs to retailers as an

exception in subpart D. As discussed under Sec. 6.102, ATF received

mixed comments on this proposal and has made some changes to Sec. 6.102

as it appears in the final rule. Accordingly, Sec. 6.46 is deleted by

the final rule.

Section 6.47, Items Intended for Consumers

The petitioners recommended deleting this section because they

believe that it is redundant and unnecessary in light of Sec. 6.93 and

their proposed revisions to Sec. 6.87.

ATF proposed to remove this section since the general prohibition

in Sec. 6.41 covers things of value not specifically excepted in

Subpart D. ATF proposed to allow certain items listed in Sec. 6.47 by

listing them in the proposed revision of Sec. 6.84, Point of sale

advertising and consumer advertising specialties. No negative comments

were received on this proposal, and the section is removed in the final

rule.

Section 6.51, General

ATF proposed revising this section to replace the word

``prohibited'' with the phrase ``means to induce.'' No adverse public

comments on this proposal were received, but a commenter within ATF

pointed out that the regulation should be further clarified. A review

of the history of the section shows that it is intended to cover two

situations, reimbursements to a retailer for advertising or display

services directly provided by the retailer, and reimbursements for such

services if purchased by the retailer from a third party. The final

rule is revised accordingly. [[Page 20414]]

Section 6.52, Cooperative Advertising

ATF proposed deleting the phrase ``placed by the retailer'' from

this section and cross-referencing Sec. 6.52 to Sec. 6.98, Advertising

Service. DISCUS, in its comment, requested that the section be retained

in its present form.

Upon review, ATF concurs. The phrase ``placed by the retailer''

should be retained in Sec. 6.52, since the section is based on 27

U.S.C. 205(b)(4), and advertisements placed by the industry member

would be evaluated as ``things of value'' under 27 U.S.C. 205(b)(3).

Further, it is not appropriate to cross-reference Sec. 6.52 to

Sec. 6.98, which is an exception under 205(b)(3). ATF withdraws its

proposal; no change is made to this section in the final rule.

Section 6.67, Sales to a Retailer Whose Account is in Arrears

ATF's current position is contained in Revenue Ruling 54-162, 1954-

1 C.B. 340. On August 1, 1979, ATF proposed a regulation (Notice No.

327, 44 FR 45298) on credit arrears which would have provided that a

supplier could continue to sell to a retailer, with unpaid purchases

existing in excess of 30 days, without violating the extension of

credit provision if the retailer either made payments in accordance

with Revenue Ruling 54-162 or the amount of arrears did not exceed an

average purchase by the retailer from the supplier over the preceding 4

month period.

Commenters at the time objected to the proposal stating that it

would require extensive bookkeeping checks or it might force repayment

of large outstanding debts in order to keep dealing with a wholesaler.

Several commenters recommended that ATF simply adhere to the credit

requirements imposed by State law. ATF withdrew the proposal (T.D. ATF-

74, 45 FR 63242, September 23, 1980) from further consideration. In

Notice No. 794, ATF again proposed to adopt in the regulations the

position stated in Revenue Ruling 54-162. However, comments on other

possible approaches were solicited.

Several commenters endorsed the proposed change as set forth in

Notice No. 794 and some opposed allowing industry members to extend

credit to retailers at all. Other commenters again suggested that State

law be the guideline on extension of credit. E. & J. Gallo Winery, in

its comment, suggested that ATF allow industry members to accept cash

on delivery instead of cash with the order, to be more consistent with

most State credit laws. After reviewing the comments, ATF believes it

is appropriate to incorporate its longstanding policy as stated in

Revenue Ruling 54-162 into the regulations.

ATF has adopted the proposed rule, but modified it to show that a

sale to a retailer who is in arrears is not a means to induce ``so long

as the retailer pays in advance or on delivery'' for that current order

and to show that it applies only to products as defined in Sec. 6.11.

Where State rules are more restrictive than the Federal rules,

retailers and industry members must still comply with State law.

Section 6.71, Quota Sales and Section 6.72, Tie-In Sales

In addition to the language change to Sec. 6.71 discussed under

Sec. 6.41, the petitioners proposed to eliminate the tie-in prohibition

in Sec. 6.72 and consolidate the remaining provisions into Sec. 6.71.

The petitioners recommended deleting the first two sentences of

Sec. 6.72 because they believed that there is no statutory basis for

this regulation under the FAA Act. The petitioners stated that the

classic ``tying relationship'' prohibited by the antitrust laws is not

addressed by section 105 of the FAA Act notwithstanding that subsection

105(b) of the FAA Act bears the heading ``Tied-House.'' The petitioners

further stated that prohibitions against tie-in agreements are covered

adequately by the Federal antitrust laws.

The tie-in sale described in the regulations is a form of quota

sale covered by the Act. Moreover, ATF feels that Sec. 6.71 and

Sec. 6.72 are distinct from one another and should be kept separate to

insure clarity and foster understanding of the regulations. The fact

that another Federal law may also apply to such a practice is not

relevant to whether such a practice is covered by the FAA Act. In

enacting the FAA Act, Congress expressly decided that reliance on the

more general antitrust laws was inadequate in this field. Finally, ATF

proposed revising Sec. 6.72 to cover expressly a particular type of

transaction as a tie-in sale.

DISCUS reiterated the requests from the petition in its comment.

ATF sees no reason to change its position on these sections. DISCUS, E.

& J. Gallo Winery, and Hinman and Carmichael all asked that ATF clarify

Sec. 6.72 to show that it does not cover combination packaging allowed

in Sec. 6.93. The combination packaging addressed in Sec. 6.93 involves

combinations of alcoholic beverages with nonalcoholic products, whereas

Sec. 6.72 addresses combinations of alcoholic beverages only since this

section deals only with ``products'' as defined in section 6.11. A

cross reference to Sec. 6.93 was added for clarification.

Subpart D--Exceptions

Many changes discussed in the first section of the Supplementary

Information on Exclusion affect this subpart. The discussion which

follows is limited to specific requests by the industry or findings of

ATF's own internal review which were not discussed in that earlier

section.

Section 6.81, General

The petitioners proposed amending Sec. 6.81(a) by deleting the

second sentence which prohibits an industry member from conditioning

the providing of items or services allowed under Subpart D on the

purchase of distilled spirits, wine, or malt beverages. ATF agreed this

prohibition is not necessary for most items, and proposed to remove the

prohibition from the general section and place it in the specific

sections where such conditioning has been a concern, for instance,

Sec. 6.83 on product displays. No one commented specifically on this

proposal. While ATF agrees to delete the general prohibition, industry

members should be aware that abusive conditioning will be evaluated as

a quota sale under 27 U.S.C. 205(b)(7).

Section 6.81(b), Recordkeeping requirements, requires industry

members to maintain certain records which can be used to substantiate

claims that items provided to retailers are within the Subpart D

exceptions to the tied-house prohibitions. The petitioners proposed

deleting Sec. 6.81(b) in its entirety, thereby eliminating all

recordkeeping requirements. The petitioners stated that ``(t)his change

should be adopted because the FAA Act neither provides nor suggests

that any such requirements can be imposed.''

The petitioners further stated that if it is decided not to delete

Sec. 6.81(b) in its entirety, they recommend the addition of language

to this paragraph to make it clear that no separate violation of the

FAA Act shall arise from the failure of an industry member to maintain

records in accordance with the requirements of Sec. 6.81(b). The

petitioners believe that the FAA Act neither creates nor supports the

existence of any such violation of the FAA Act.

In Notice No. 794, ATF did not propose to eliminate the requirement

to keep records which substantiate industry members' claims that items

provided retailers are within the exceptions of Subpart D. Such a

change would negate ATF's capability to verify

[[Page 20415]] compliance with the dollar limitations and any other

requirements of Subpart D. The limitations in each exception section of

the regulations would be unenforceable if ATF had no way to verify

compliance with the requirements of such exceptions. ATF did propose to

add a sentence to Sec. 6.81(b) to state that, where an industry member

fails to keep the required records, such industry member is not

eligible for the regulatory exception in that particular transaction.

No separate recordkeeping violation would be charged.

In its comment, DISCUS continued to request elimination of

Sec. 6.81(b) in its entirety, but said if Sec. 6.81(b) is retained, ATF

should amend it to allow industry members to use unspecified other

means to show compliance. ATF disagrees, since the recordkeeping

requirement as written gives considerable flexibility to the industry

member. No specific form or record has been prescribed, as long as the

industry member can provide information an ATF officer would need to

verify that a promotion is within the scope of Subpart D. ATF is

adopting Sec. 6.81 as proposed, except for some minor editing changes

suggested by the Federal Register.

Section 6.82, Cost Adjustment Factor

While the petitioners did not request a specific change to this

section, they requested that ATF explore alternate methods which would

be cost effective for ATF to convey this information in a manner that

continues to ensure that all permittees are apprised of the annual

dollar adjustments. Instead, ATF proposed to delete this section,

increase the dollar limitations and periodically review the amounts if

necessary.

Although a few commenters supported the proposal, most objected to

the size of the proposed increase in the dollar limitations. For

instance, on product displays, ATF had proposed to increase the

limitation from $160 (1994 adjusted rate) to $500. Many commenters who

characterized themselves as small or medium size businesses said they

simply could not afford to compete with large industry members if their

competitors were providing displays worth $500 per brand.

After a thorough review of the comments, ATF concurs that such a

large increase could create the sort of tie or link identified by

Fedway. ATF has determined that making a smaller increase in the dollar

amounts is appropriate. The final rule deletes this section as proposed

in Notice No. 794.

Section 6.83, Product Displays

The petitioners recommended amending the definition of product

display to substitute ``* * * and similar items the primary function of

which is to hold, display or shelve consumer products'' for ``* * * and

the like,'' which appears in the current regulation. ATF proposed this

change, but used the phrase ``hold and display'' for clarity.

The petitioners also requested that ATF amend the dollar limitation

in the regulation to reflect the current adjusted rate of $160.

Instead, ATF proposed changing the dollar limit to $500 per brand at

any one time per retail establishment, from the current $100 (as

adjusted) per brand at any one time per retail establishment.

Although the general prohibition against an industry member

imposing conditions on receipt of items allowed in Subpart D has been

removed from Sec. 6.81, ATF proposed adding a statement to Sec. 6.83

that giving or selling product displays may be conditioned upon the

purchase of the distilled spirits, wine or malt beverage product

advertised thereon in a quantity only necessary for the initial

completion of the product display. From the mid-1960s to the 1980

recodification of the trade practice regulations, conditioning was

allowed for window or other interior displays. Industry members have

long argued that they should be allowed to condition receipt of product

displays on the purchase of a limited quantity of the product

advertised. ATF also proposed to delete the language which allows

lending or renting of product displays in the current regulation. Such

a continuing tie would not be consistent with the intent of the Act. In

making these proposals, ATF believed the dollar limit of $500 per

brand, coupled with the requirements for permanently inscribed

advertising and transfer of ownership of product displays to the

retailer minimizes the inducement value to the retailer. The

combination of these factors would allow product displays to be

excepted from the regulations of Part 6, and would be the basis for

allowing the industry member to condition receipt of such materials as

described above.

Commenters requested a number of amendments to this proposed

section. First, E. & J. Gallo Winery noted that in the preamble, ATF

had said Sec. 6.83 would allow conditioning product displays upon the

purchase of the product advertised thereon in a quantity only necessary

for the initial completion of the product display, and yet the

regulatory text omitted the word ``initial.'' This omission is

corrected in the final rule.

In the proposed amendment to Sec. 6.83, ATF eliminated the words

``furnish, loan or rent.'' DISCUS requested reinstatement of these

options, but ATF maintains its position that allowing lending or

renting of product displays creates a tie or link which is inconsistent

with the goals of the FAA Act. As a result of the Fedway decision, any

element of a promotion which indicates a continuing character is

subject to greater scrutiny.

Several other commenters, among them the American Brandy

Association, expressed concern that the higher dollar limit would allow

a large industry member to ``install a new $500 display every week in a

specific store.'' For the reasons discussed here and under Sec. 6.82,

the dollar limit has been set at $300. That dollar limit and the

aforementioned amendment to allow only outright giving or selling of

displays should also prevent the sort of monopolization of retail

premises feared by these commenters.

Finally, several commenters requested substitution of the word

``securely'' for the word ``permanently'' in describing how the

advertising material would be inscribed or affixed to the product

display. They argued that, when they give or sell a product display,

they cannot control the actions of a retailer, who may choose to remove

such advertising material. ATF will use the phrase ``permanently

inscribed or securely affixed'' in this section and in Sec. 6.84.

However, ATF will revisit this subject in later rulemaking if abuses

are found.

Section 6.84, Point of Sale Advertising and Consumer Advertising

Specialties

Promotions and practices currently allowed under the regulatory

exceptions to the tied-house provisions are safe harbors. Notice No.

794 proposed a revision to those exceptions which would combine several

of the current exceptions into one general regulatory section. The

approach of having a single general section addressing all of the

similar activities gives greater flexibility to the industry.

The proposed regulations combine the exceptions listed in

Secs. 6.84, 6.85, 6.86 and 6.87 (inside signs, retailer advertising

specialties, wine lists and consumer advertising specialties), into a

revised Sec. 6.84, Point of sale advertising and consumer advertising

specialties. Items intended for consumers currently identified in

section 6.47 are also included in the proposed listing of exceptions.

The petitioners requested that ATF amend the dollar limitation to

[[Page 20416]] reflect the adjusted rates, but instead, under ATF's

proposed revision there will be no limit to the dollar value of the

specified point of sale (POS) materials furnished by an industry member

to a retail establishment.

The petitioners also requested that the term ``wine lists'' be

expanded to include all alcoholic beverages. Instead, the proposed 6.84

permits all lists or menus, subject to the conditions in paragraph (c)

of the section.

Several commenters on these proposals requested that ATF limit

lists or menus to alcoholic beverage lists or menus. On review, ATF

concurs that there is more of a continuing character and more potential

for industry member involvement in day to day operations at a retailer

if full menus are allowed, and has revised this portion of the final

rule accordingly.

DISCUS requested that ``mechanical devices,'' which had been

permitted under ``inside signs'' in the current regulations but had

been omitted from the proposed rule, be reinstated, and that the rule

be further expanded to include ``electronic devices.'' After

considering this and related comments, ATF has revised the definition

of ``point of sale advertising materials'' to eliminate the

distinctions (inside signs and retailer advertising specialties) within

that definition and simply list examples. In that context, ATF has

added ``inside signs (electric, mechanical or otherwise)'' to the

listing of point of sale advertising materials in the final rule. The

restriction of electronic devices to signs is consistent with the

current regulatory approach and prevents abuses which could occur if

all electronic devices were allowed (since the point of sale section

contains no dollar limitations).

In their comment, E. & J. Gallo Winery suggested that the condition

in Sec. 6.84(c)(2) need not be limited to retailer and consumer

advertising specialties, and ATF concurs. In the final rule, the

condition applies to all point of sale materials and consumer

advertising specialties.

The Forum and the American Brandy Association suggested an annual

dollar limit per retail location. In the past, some of the items listed

in this section had a limitation and others did not. ATF does not

believe, given the nature of the items described and the requirement

for substantial advertising material, that furnishing such items would

create a tie or link between the industry member and the retailer. In

the final rule, ATF imposes no dollar limit, but will revisit this

subject if abuses are found.

Section 6.85, Temporary Retailers

ATF proposed adding a new section which will allow furnishing

things of value to a temporary retailer. The proposed regulations

recognize that certain retail activities of a temporary nature, such as

weekend events and community festivals, are so minor in the retail

marketplace so as not to justify Federal intervention; rather, State

agencies can regulate these situations to prevent abuses. There were

numerous comments concerning this section.

DISCUS suggested extending the provisions to cover things of value

given to a retailer for a ``temporary event.'' ATF disagrees; the

reason for excepting temporary retailers was that their short-term

existence as a retailer did not justify Federal intervention. However,

since a permanent retailer can operate at a ``temporary event,'' it is

proper to apply the trade practice provisions to the industry member's

dealings with those retailers. A number of commenters opposed allowing

any special privileges to temporary retail dealers. ATF believes that

the impact of giving things of value to temporary retailers, within the

limitations of the proposed rule, would not be disruptive to the retail

marketplace. However, the issue will be revisited if substantial abuses

are found. NABCA suggested there may be conflicts between ATF's

definition of a temporary retailer and any definition in State rules.

After considering the comments, ATF has amended the section to show

that the definition of temporary retailers applies only for purposes of

administration of the tied-house rules.

Section 6.88, Glassware--Section 6.89, Tapping Accessories--Section

6.90, Supplies--Section 6.97, Coil Cleaning Service

The petitioners recommended that these four sections be combined in

a new Sec. 6.88, under the title ``Equipment and supplies,'' because

they deal with similar types of merchandise and impose similar

conditions. As with other Subpart D exceptions which combine similar

types of merchandise, (viz., Secs. 6.83, 6.87 and 6.89), the

petitioners felt that combining these items in one section will enhance

the simplicity and clarity of the rules.

The petitioners also recommended several other revisions to this

consolidated section:

Extend coil cleaning service from ``a retailer of wine or malt

beverages'' to ``a retailer'' to provide equal treatment for wine,

malt beverages and distilled spirits;

Substitute the term ``dispensing accessories'' in Sec. 6.88 for

``tapping accessories'' because the former term more accurately

describes the modern type of accessories falling within this

category and reflects present marketplace practices where, for

example, wine also is served by dispensing equipment;

Add cold plates to the list of examples of ``dispensing

accessories'' and,

Allow carbon dioxide gas or ice to be sold at a price not less

than the cost to the industry member who initially purchased it.

While the petitioners' proposal to combine various sections into

one all inclusive section covering equipment and supplies is

structurally logical and the terminology change from tapping equipment

to dispensing equipment has merit, some of the items listed in the

petition have not in the past been recognized as exceptions by ATF.

ATF proposed consolidating these sections with the following

additional changes. ATF proposed to revise the definition of glassware

to include similar containers made of materials other than glass. The

proposed regulation also specifies that the industry member must pass

on the cost of initial installation of equipment to the retailer.

The proposed regulation expanded the original coil cleaning service

exception currently in Sec. 6.97 to cover distilled spirits, as well as

wine and malt beverages. Keeping the coils clean and free of

contamination is clearly in the interest of public health. Therefore,

it is in the public interest to allow such services without a dollar

limit.

The current regulation allows industry members to sell carbon

dioxide gas to retailers. The regulation does not provide for the sale

of other gases, such as nitrogen, which are used in various existing

alcoholic beverage dispensing systems. ATF proposed modifying this

regulatory section to allow industry members to sell any gas to a

retailer provided it is used in a beverage dispensing system. This

proposal should not be viewed as sanctioning treatment which would

change still wine to sparkling wine.

Comments on these proposals were generally favorable, and the

regulation is adopted as proposed. Forum members, in their comment,

stated the extension of coil cleaning service to distilled spirits is

unnecessary, since spirits have a longer shelf life and a higher

alcohol content. The provision was retained, to be used at the option

of the industry member. DISCUS asked that ATF amend the definition of

equipment and supplies by changing the word ``means'' to the phrase

``includes, but is not limited to.'' The use of the proposed phrase

would add an element of uncertainty and indefiniteness to the scope of

the exception. Therefore, ATF [[Page 20417]] retained the more limited

wording of the proposed rule, to emphasize that the exception is

limited to these items.

Section 6.91, Samples

The current section allows an industry member to furnish or give

samples of distilled spirits, wine or malt beverages to a retailer. The

petitioners recommended amending this section to provide that industry

members may furnish a maximum of 750 milliliters (mls.) of distilled

spirits samples to qualifying retailers, rather than the obsolete 500

milliliter (ml.) container cited in the regulation. They further

requested that the third sentence of this section, which limits the

size of a sample of spirits given to a State or a subdivision of a

State to 2 liters, should be eliminated in its entirety.

ATF agreed with the petitioners that the reference to the obsolete

500 ml size be replaced, but proposed a maximum of 3 liters for

distilled spirits. ATF also proposed amending the current regulation by

limiting the number of commonly owned retail establishments (not to

exceed four per retailer) which can be given samples. This amendment

would allow for a control State or chain retailer to receive sufficient

samples to determine whether to purchase a product.

Comments on these proposed changes were mixed. The American Brandy

Association opposed any revision to this section. DISCUS supported the

change to a spirits sample size of 3 liters and WSWA favored a sample

size of 750 ml, since that is the most common commercial package size.

ATF has decided to retain its proposal to allow a sample size of 3

liters for spirits.

The proposal to limit the number of samples which may be given to a

``chain'' of retail outlets met with a number of adverse comments.

NABCA, Hinman & Carmichael, DISCUS and Wine Institute all noted that

first, individual outlets within a chain may have the ability to

request that certain items be purchased, even though the order is

placed centrally; and second, that samples are also provided to

retailers so their personnel can be sufficiently familiar with a brand

to recommend or use it. Limiting samples to four outlets per chain

would restrict an industry member's ability to promote its products. In

light of these comments, ATF is removing the proposed limitation in the

number of samples which may be given to a chain from the final rule.

Several commenters also addressed an area which had not been

changed in the proposed amendment. E. & J. Gallo Winery and Hinman &

Carmichael both noted that, in an industry as dynamic as the alcoholic

beverage industry, it is not practical to limit samples to retailers

who have not previously purchased a brand from an industry member. They

suggested a time limit of six months or a year. The final rule has been

changed to allow samples to be given to a retailer who has not

purchased the brand from the industry member within the last 12 months.

Section 6.92, Newspaper Cuts

In Notice No. 794, ATF proposed to change the word ``loaned'' to

the word ``lent'' in this section. However, in view of the change to

Sec. 6.84, which eliminates the options of renting or lending product

displays, ATF has determined that for consistency, this section should

permit only permanent transfers. Therefore, the words ``furnished,''

``loaned'' and ``rented'' have been removed from this section.

Section 6.93, Combination Packages

In general, section 6.93 addresses combination packages where an

industry member packages a non-alcoholic item with distilled spirits,

wine, or malt beverages and, in particular, paragraph (c) requires that

the cost of the combination package be passed on to the retailer. The

petitioners recommend deleting paragraph (c) of section 6.93 because

they feel the condition imposed by the paragraph is really a pricing

decision outside of ATF's regulation under the FAA Act.

ATF proposed removing all the conditions currently imposed on

combination packages. Some commenters supported this proposal, but

NABCA expressed concern that, as written, the exception could be used

as a subterfuge to deliver non-alcohol items to the retailer with no

intention that they be passed along to consumers. Accordingly, ATF has

amended this section in the final rule to clarify that the combination

packages must be intended for sale to consumers.

Section 6.94, Educational Seminars

ATF proposed to clarify the final sentence, ``This does not

authorize an industry member to pay a retailer's expenses in

conjunction with an educational seminar.'' by adding the explanatory

phrase ``(such as travel, lodging, and meals).''

Many commenters objected to excluding meals and, upon consideration

of the comments, ATF has decided to adopt a revised final rule which

will permit an industry member to provide nominal hospitality in

conjunction with an educational seminar.

Section 6.96, Consumer Promotions

ATF proposed revising the text of section 6.96(a), Coupons, to make

the language consistent with the other sections and to simplify the

conditions. Hinman & Carmichael noted that the restriction in paragraph

(a)(1) of the proposed rule, that redemption of the coupons may not be

limited to a particular retailer or group of retailers, could be read

as preventing promotions by small producers who have a limited area of

distribution, or regional promotions by larger producers. This

restriction, which is also in the current Sec. 6.96(a), was intended to

prevent the benefit of a promotion from going to specific, named

retailers. ATF modified the provision in the final rule to require that

all retailers within the market where the offer is made may redeem such

coupons.

Section 6.98, Advertising Service

The petitioners recommended adding the clause ``except where the

exclusive retailer in the state is a state agency'' to paragraph (a) to

read as follows:

``(a) The advertisement does not also contain the retail price of

the product, except where the exclusive retailer in the state is a

state agency, and * * *''

The petitioners argue that the objectives of section 105(b) of the

FAA Act are not served by prohibiting industry members from advertising

control States' prices. The petitioners' proposed revision would permit

an industry member to advertise a control State's state-wide retail

prices as determined by that State for product sold within the State.

The petitioners feel that in such circumstances, there is no

possibility of any ``inducement'' or ``exclusion'' that would

contravene the intent or purpose of the FAA Act.

ATF proposed amending the current regulation in accordance with the

industry request, modified to reflect situations in which the sole

retailer in a jurisdiction is a State or local agency. ATF also

proposed to delete the condition that an advertisement placed by an

industry member may not mention events or promotions at a retail

establishment.

In response to several comments, ATF is modifying the final rule to

specify ``State or political subdivision of a State,'' for consistency

with the language in other sections of the regulations. DISCUS

suggested using the term ``unaffiliated'' rather than ``two or more''

retailers, to make it clear that an advertisement can not list outlets

of a single chain, and that change was adopted. NABCA additionally

requested that the final rule show that prices may [[Page 20418]] be

listed for ``a private retailer acting as an agent'' for a State or

local agency. ATF is not adopting this suggestion at this time. The

trend toward privatization of State agency sales is an evolving area.

States which are privatizing are doing so in various ways. Therefore,

it is not possible to set a single rule which will cover these changes.

Section 6.99, Stocking, Rotation, and Pricing Service

The petitioners recommended revising this section to allow industry

members to ``recommend shelf plans.'' The petitioners stated that this

revision would permit an industry member to provide services to a

retailer consistent with present day marketplace realities. ATF

proposed to amend this section in line with the petitioners' proposal.

Most commenters approved of this proposal, and it is adopted as

proposed. However, serious concerns were raised by Kendall-Jackson

Winery and American Vintners' Association about the potential for abuse

of shelf plans or schematics, through biased analysis of retailer needs

or by an industry member supplying additional services which are not

hereby authorized. ATF will revisit this subject if it appears the new

exception is being abused or creating a situation in which a retailer

becomes dependent on a single industry member's purchasing advice.

Section 6.100, Participation in Retailer Association Activities

Section 6.100 permits industry members to participate in retailer

association activities under certain circumstances. Paragraphs (b) and

(d) permit rental of display booth space and purchase of tickets or

payment of registration fees, respectively. Each of these paragraphs

contains the phrase ``if * * * not excessive and * * * the same as paid

by all exhibitors.'' ATF proposed amending the section to delete ``not

excessive'' and specifying the fees must be the same as the fees paid

by all exhibitors ``at that event.'' ATF also proposed raising the

limitation for payments for advertisements in programs or brochures

authorized by paragraph (e) from $100 (as adjusted) to $500.

Several commenters objected to the large increase in the dollar

limitation, as discussed earlier. ATF is revising the dollar limit to

$300 in the final rule. NABCA pointed out that at some retailer

activities, there are no exhibitors, so the term ``exhibitors'' may not

always be appropriate in paragraph (d). ATF concurs, and has

substituted the phrase, ``attendees, participants or exhibitors'' in

the final rule.

Section 6.101, Merchandise

Paragraph (a) currently provides that an industry member who also

is engaged in business as a bona fide vendor of other merchandise may

sell such merchandise to a retailer if three conditions are met, the

first of which is that the merchandise is ``sold at its fair market

value.'' The petitioners recommended changing this condition to state

that the merchandise is ``furnished, distributed, or sold according to

the custom and practice of that business.'' The petitioners also

recommended eliminating paragraph (b) regarding things of value covered

in other sections of Part 6 since they believe it is redundant and

unnecessary in light of other sections of Subpart D.

ATF did not propose either of these changes. Section 6.101 excepts

sales transactions by industry members who are engaged in the business

as bona fide vendors of other merchandise in addition to alcoholic

beverages. This section sanctions sales of other merchandise to

retailers in addition to alcoholic beverages if the merchandise is sold

at its fair market value, not in combination with distilled spirits,

wines, or malt beverages, and the merchandise is itemized separately on

the industry member's invoices and other records. The records are

necessary so that ATF can determine the real cost of the merchandise to

the industry member and whether the industry member is reselling the

merchandise to retailers at its fair market value. Likewise, ATF needs

these records to determine whether the industry member is a bona fide

vendor of the merchandise or whether it is using the merchandise as a

means to induce.

Accordingly, ATF proposed to revise the records requirement of the

regulation to state that, first, acquisition costs must appear on the

industry member's purchase invoices (available upon request to ATF)

and, second, the merchandise and the distilled spirits, wines, or malt

beverages sold to the retailer in a single sales transaction must be

itemized separately on the same invoice.

DISCUS, in its comment reiterated the petitioners' original

requests for changes, and noted ATF's proposal to require alcoholic

beverages and other merchandise to be shown on the same invoice was not

practical. WSWA commented further:

* * * [W]e support the objective of assuring an audit trail when

other items are offered for sale in conjunction with alcoholic

beverages. We view as impractical and unnecessarily burdensome the

proposal to require that ``merchandise and distilled spirits, wines

or malt beverages sold in a single transaction'' be ``itemized

separately on the same invoice covering the sales transaction.''

Inventory systems commonly print invoices that sequence items

sold by their warehouse location. Alcohol beverages are routinely

stored separately from other items. It is not unusual for delivery

of non-alcoholic items to be made on separate days or by a separate,

but affiliated company having its own invoicing system. Furthermore,

some states forbid using the same invoice for alcohol beverages and

other items.

It should be sufficient to require that invoices for sales of

other items with alcohol beverages to a retailer be maintained in a

manner similar to invoices for alcohol beverages.

In response to these comments, ATF is removing the requirement for

showing alcoholic beverages and other merchandise on the same invoice.

Instead, the final rule will require that the sale price of each

commodity be on the records covering the transaction. ATF still

believes the change requested by DISCUS, from ``sold at its fair market

value'' to ``furnished, distributed or sold according to the custom and

practice of that business'' is not appropriate. The requested language

appears to sanction giving things of value (other merchandise) to

retailers, in direct conflict with the statute. Additionally, the

phrase ``custom and practice'' is vague and does not provide clarity to

the industry member relying on the regulations. Paragraph (b), which

DISCUS advocates removing, is also retained in the final rule.

Hinman & Carmichael expressed a different concern in their comment

on the proposed revision to Sec. 6.101:

Section 6.72 allows certain combination sales of alcoholic

brands or products, but Sec. 6.101 seems to take this away if the

producer is also a producer (as opposed to a vendor) of nonalcoholic

beverage products. A fairly common marketing situation in California

is the packaging of gift packs of wine and olive oil, or wine and

another commodity produced by the winery. In this situation, there

is no acquisition cost to report.

ATF has modified the wording of the section to make it clear that

the exception applies to industry members who are bona fide producers

or vendors of other merchandise, if the conditions are met. As stated

earlier, Sec. 6.72 only applies to ``products'' that are distilled

spirits, wine or malt beverages. In addition, in response to this

comment and a request by DISCUS, a cross reference to the exception for

combination packaging under Sec. 6.93 has been added. [[Page 20419]]

Section 6.102, Outside Signs

ATF proposed a new section allowing outside signs in certain

circumstances and with a $500 limit. A few commenters opposed any

change in ATF's treatment of outside signs, while others, while not

opposing the proposal, expressed concern that the proposed rule did not

contain adequate safeguards against abuse. These commenters recommended

including various conditions and limitations in proposed Sec. 6.102,

among them:

Requiring that the product or the industry member's name appear

on the sign for consistency with other exceptions under Subpart D;

Lowering the dollar limitation, though no specific amount was

proposed;

Clarifying whether the word ``furnished'' includes leasing;

Specifying frequency with which signs may be provided;

Stating whether industry members may pool this allowance to

provide a sign worth more than the dollar limitation and limiting

the number of brands which may appear on a sign;

Limiting the location of the sign to the wall or roof of a

building adjacent to or occupied by a retailer, or stating whether

retail premises include roofs and parking lots; and

Specifying whether the industry member may pay for installation,

repair and maintenance of the sign.

After a careful review of the comments, ATF has decided to adopt a

modified version of Sec. 6.102 which permits signs to be given or sold

on the following conditions:

(a) The sign must bear conspicuous and substantial advertising

matter about the product or the industry member which is permanently

inscribed or securely affixed,

(b) The retailer is not compensated, directly or indirectly such as

through a sign company, for displaying the signs, and

(c) The cost of the signs may not exceed $400.

These changes were made to take into account the concerns expressed

by the commenters and to make this section more consistent with the

rest of Subpart D. Interested parties may petition ATF in the future to

reconsider the conditions under which outside signs may be provided to

retailers.

27 CFR Part 8, Exclusive Outlet

New administrative provisions and definition changes were discussed

previously.

Section 8.23, Third Party Arrangements

The current regulation can be interpreted to mean that a violation

of the section could occur if a third party requires the retailer to

use an industry member's product without the knowledge of the industry

member. ATF proposed clarifying that the industry member's requirement,

by agreement or otherwise, with a third party is necessary to violate

this section. However, the requirement need not originate with the

industry member. If the industry member knows or is aware that the

third party controlling the retailer extends such a requirement with

respect to the products of the industry member making payments under

the arrangement, and the industry member avails itself of such

requirement, then the requirement within the proscription of the FAA

Act is present.

As discussed in relation to the comments on Sec. 6.42, ATF concurs

that the industry member must know or be able to expect that the

retailer will be controlled by the third party, in other words, that

the industry member will have ``the benefit of the deal.'' This is not

a new position; ATF published Industry Circular 75-16 to discuss this

interpretation of the exclusive outlet rules. The proposed language is

adopted in the final rule.

27 CFR Part 10, Commercial Bribery

New administrative provisions and definition changes were discussed

previously.

Section 10.4, Jurisdictional Limits

ATF proposed amending this section to correct the wording of

paragraph (a)(1), which appeared in error in ATF TD-74 on September 3,

1980 (45 FR 63242). There were no objections, and this proposal is

adopted in the final rule.

Section 10.23, Gifts or Payments to Wholesalers

While no specific change was proposed to this section, ATF asked

for comments as to whether the purpose of the section should be

clarified. ATF gave an example of a sales representative incentive

program which it views as an instance of commercial bribery since it

involves the furnishing of a premium or bonus to an employee of a trade

buyer: An industry member and a trade buyer meet to discuss, among

other things, upcoming programs to promote a particular product or

products. They agree that specific promotions will be run over a period

of time. Some of these agreed upon promotions include sales incentive

programs in which sales representatives can win money and/or prizes. At

the conclusion of the meeting, the parties agree or understand, or it

is implied, that all or part of the funding for these sales

representative incentive programs will come from monies that have been

or will be provided by the industry member, usually under the guise of

unrestricted funds.

Several commenters addressed this issue, and cited ATF Ruling 77-17

as allowing the sort of promotion described in the example above. ATF

disagrees with this interpretation of ATF Ruling 77-17, and notes that

ATF Ruling 77-17 became obsolete when the regulations in 27 CFR Part 10

were originally issued in 1980 (T.D. ATF-74 45 FR 63251). In situations

where the industry member and the trade buyer have agreed upon the

promotions benefiting employees and other representatives and such

promotions are funded by the industry member, it cannot be said that

the money is being furnished to the entity in any context other than as

a conduit for the employee or representative. No change was made to the

language of Sec. 10.23 in the final rule.

27 CFR Part 11, Consignment Sales

New administrative provisions and definition changes were discussed

previously.

Section 11.24, Other than Bona Fide Sale

Section 105(d) of the Act addresses ``consignment sales.'' Section

105(d) describes consignment sales to include conditional sales (i.e.,

where an industry member is not paid for products until they are sold

by a trade buyer); sales with a privilege of return (i.e., where an

industry member agrees to repurchase products that remain unsold by the

trade buyer at the end of a specified period of time); and other sales

on any basis otherwise than a bona fide sale.

Consignment sales are essentially arrangements pursuant to which

the risk, or cost, of non-sale of a product is retained by an industry

member, or transferred from a trade buyer back to an industry member at

the expiration of a specified time period. ATF proposed adding a new

Sec. 11.24 to the consignment sale regulations to specify certain other

arrangements, in addition to conditional sales and sales with a

privilege of return, in which the risk of non-sale is transferred from

the trade buyer back to the industry member and which therefore do not

constitute bona fide sales. The only example proposed was the payment

of ``slotting allowances,'' which were discussed at length earlier in

this supplemental information.

After a review of the comments, ATF has decided the proposed

language should be modified to include purchase [[Page 20420]] or

rental of display, storage, floor or warehouse space at premises owned

or controlled by a retailer. ATF substituted the term ``retailer'' for

``trade buyer'' in this provision to clarify its application.

Section 11.32, Defective Products

The current regulation specifically allows products which are

unmarketable for specific reasons to be exchanged for an equal quantity

of identical products, but is silent as to whether such products may be

returned for cash or credit. Industry Circular 81-11 states that a

return of such products for cash or credit is not precluded by

Sec. 11.32. ATF proposed changing this regulation to incorporate the

provisions of Industry Circular 81-11 into the section. The proposed

revision also deleted references to mutilated and missing strip stamps

since they are no longer a requirement. No objection to these changes

was received, however, DISCUS pointed out that allowing returns for

mutilated or missing tamper evident closures would ``clearly serve the

public interest.'' ATF concurs and has incorporated that language in

the final rule.

Section 11.34, Products Which May No Longer Be Lawfully Sold

ATF proposed revising the current regulation to allow the return of

a product if, due to a change in law or regulation over which the trade

buyer has no control, a particular size or brand is no longer permitted

to be sold. The addition of the phrase ``over which the trade buyer has

no control'' was intended to address situations in which the trade

buyer is a State agency with the authority to delist a particular

product.

The Forum comment said this section, as proposed, and the preamble

discussion were confusing. ATF intended to make it clear that by

administratively delisting a particular product, a State or a political

subdivision of a State acting as a trade buyer could not gain a right

of return that would not be available to a commercial trade buyer. On

review, ATF notes that a State legislature may have other, legitimate,

reasons for prohibiting sale of a particular product, so the wording of

the section has been changed from ``law or regulation'' to ``regulation

or administrative procedure.''

Section 11.35, Termination of Business

ATF is revising this section to cite Sec. 11.39 instead of the

incorrect Sec. 11.40 citation.

Obsolete Rulings and Circulars

The following revenue ruling, ATF rulings and industry circulars

are incorporated into the regulations or superseded by amended

regulations; they will become obsolete on the effective date of these

regulations: Revenue Ruling 54-162, 1954-1 C.B. 340; ATF Ruling 81-1,

1981-2 ATF Q.B. 27 and ATF Ruling 81-6, 1981-4 ATF Q.B. 23; Industry

Circulars 81-7, 81-11 and 86-16. ATF Ruling 77-17 was made obsolete by

T.D. ATF-74 (45 FR 63242), effective November 24, 1980, but a number of

commenters cited it in this rulemaking.

Executive Order 12866

It has been determined that this final rule is not a significant

regulatory action as defined by Executive Order 12866. Therefore, a

Regulatory Assessment is not required.

Regulatory Flexibility Act

It is hereby certified under the provisions of section 3 of the

Regulatory Flexibility Act (5 U.S.C. 605(b)) that this final rule will

not have a significant economic impact on a substantial number of small

entities. Accordingly, a regulatory flexibility analysis is not

required. In Notice No. 794, we specifically asked for comments as to

whether small businesses would be significantly affected by our

proposals. Wine Institute, the one commenter who addressed this issue,

stated that the rules, as proposed, would not have a significant impact

on a substantial number of small entities. A majority of the commenters

who wrote in support of our proposals concerning slotting fees said

that any change in our policy would have a significant adverse impact

on their small businesses. The final rule adopts the proposals in this

area, so there should be no adverse impact.

A final area of concern to commenters was ATF's proposal to raise

dollar limits on things of value which may be given to retailers under

Subpart D of Part 6. ATF proposed raising the limit on certain

promotional items from $160 to $500, and a number of commenters noted

this large an increase would place small and medium size businesses at

a competitive disadvantage. In view of these comments, ATF is adopting

a limit of $300, a more moderate increase over the existing dollar

limit.

Paperwork Reduction Act

The collection of information contained in this final rule has been

approved by the Office of Management and Budget for review in

accordance with the Paperwork Reduction Act of 1980 (44 U.S.C.

3504(h)). Comments on the collection of information should be directed

to the Office of Management and Budget, Attention: Desk Officer for the

Department of the Treasury, Bureau of Alcohol, Tobacco and Firearms,

Office of Information and Regulatory Affairs, Washington, DC 20503,

with copies to: Reports Management Officer, Information Programs

Branch, Room 3450, Bureau of Alcohol, Tobacco and Firearms, 650

Massachusetts Avenue, NW, Washington, DC 20226.

The collection of information in this regulation is in 27 CFR Parts

6, 8, and 10. This information is required by ATF to protect the public

interest and ensure fair trade competition in the alcoholic beverage

industry. The information will be used to analyze promotional

activities as part of an investigation. The likely respondents are

industry members.

The authority to require reports which is stated in this final rule

is to be used on a case-by-case basis only, and does not apply to

industry members in general. The estimated number of respondents in any

given year is 20, with one report being required from each respondent.

The estimated average annual burden associated with this collection of

information is 1 hour per respondent.

Drafting Information

The principal author of this document is Marjorie Ruhf, Wine, Beer,

Spirits and Regulations Branch, Bureau of Alcohol, Tobacco and

Firearms. However, other personnel of ATF and the Treasury Department

participated in developing the document.

List of Subjects

27 CFR Part 6

Advertising, Alcohol and alcoholic beverages, Antitrust, Credit and

trade practices.

27 CFR Part 8

Alcohol and alcoholic beverages, Antitrust, and Trade practices.

27 CFR Part 10

Alcohol and alcoholic beverages, Antitrust, and Trade practices.

27 CFR Part 11

Alcohol and alcoholic beverages, Antitrust, and Trade practices.

Issuance

Title 27, Chapter I, is amended as follows:

PART 6--``TIED-HOUSE''

Paragraph 1. The authority citation for part 6 is revised to read

as follows:

[[Page 20421]] Authority: 15 U.S.C. 49-50; 27 U.S.C. 202 and

205; 44 U.S.C. 3504(h).

Par. 2. Section 6.1 is revised to read as follows:

Sec. 6.1 General.

The regulations in this part, issued pursuant to section 105 of the

Federal Alcohol Administration Act (27 U.S.C. 205), specify practices

that are means to induce under section 105(b) of the Act, criteria for

determining whether a practice is a violation of section 105(b) of the

Act, and exceptions to section 105(b) of the Act. This part does not

attempt to enumerate all of the practices that may result in a

violation of section 105(b) of the Act. Nothing in this part shall

operate to exempt any person from the requirements of any State law or

regulation.

Sec. 6.4 [Amended]

Par. 3. Section 6.4 is amended by removing the reference to

``section 5(b) of the Federal Alcohol Administration Act'' where it

appears in paragraph (b) and replacing it with a reference to ``section

105(b) of the Federal Alcohol Administration Act''.

Par. 4. Section 6.5 is added to subpart A to read as follows:

Sec. 6.5 Administrative provisions.

(a) General. The Act makes applicable the provisions including

penalties of sections 49 and 50 of Title 15, United States Code, to the

jurisdiction, powers and duties of the Director under this Act, and to

any person (whether or not a corporation) subject to the provisions of

law administered by the Director under this Act. The Act also provides

that the Director is authorized to require, in such manner and such

form as he or she shall prescribe, such reports as are necessary to

carry out the powers and duties under this chapter.

(b) Examination and Subpoena. The Director or any authorized ATF

officers shall at all reasonable times have access to, for the purpose

of examination, and the right to copy any documentary evidence of any

person, partnership, or corporation being investigated or proceeded

against. The Director shall also have the power to require by subpoena

the attendance and testimony of witnesses and the production of all

such documentary evidence relating to any matter under investigation,

upon a satisfactory showing that the requested evidence may reasonably

be expected to yield information relevant to any matter being

investigated under the Act.

(c) Reports required by the Deputy Associate Director (Regulatory

Enforcement Programs).

(1) General. The Deputy Associate Director (Regulatory Enforcement

Programs) may, as part of a trade practice investigation of an industry

member, require such industry member to submit a written report

containing information on sponsorships, advertisements, promotions, and

other activities pertaining to its business subject to the Act

conducted by, or on behalf of, or benefiting the industry member.

(2) Preparation. The report will be prepared by the industry member

in letter form, executed under the penalties of perjury, and will

contain the information specified by the Deputy Associate Director

(Regulatory Enforcement Programs). The period covered by the report

will not exceed three years.

(3) Filing. The report will be filed in accordance with the

instructions of the Deputy Associate Director (Regulatory Enforcement

Programs).

(Approved by the Office of Management and Budget under control

number 1512-0392)

Par. 5. Section 6.11 is amended by adding the definitions for ``ATF

officer,'' ``brand,'' ``Deputy Associate Director (Regulatory

Enforcement Programs)'' and ``Director'' and by removing the term

``retailer establishment'' and adding in its place ``retail

establishment'' and placing it in appropriate alphabetical order.

Sec. 6.11 Meaning of terms.

* * * * *

ATF officer. An officer or employee of the Bureau of Alcohol,

Tobacco and Firearms (ATF) authorized to perform any function relating

to the administration or enforcement of this part Brand. For purposes

of administering this part, the term ``brand'' refers to differences in

the brand name of a product or in the nature of a product. Examples of

different brands are products having a different brand name or class,

type, or kind designation; appellation of origin (wine); vintage date

(wine); age (distilled spirits); or percentage of alcohol. Differences

in packaging such as difference in label design or color, or a

different style, type or size of container are not considered different

brands.

Deputy Associate Director (Regulatory Enforcement Programs). The

principal ATF headquarters official responsible for administering

regulations in this part. Director. The Director, Bureau of Alcohol,

Tobacco and Firearms, the Department of the Treasury, Washington, DC.

* * * * *

Par. 6. Section 6.25 is revised to read as follows:

Sec. 6.25 General.

The act by an industry member of acquiring or holding any interest

in any license (State, county or municipal) with respect to the

premises of a retailer constitutes a means to induce within the meaning

of the Act.

Par. 7. Section 6.27 is amended by revising paragraph (a) to read

as follows:

Sec. 6.27 Proprietary interest.

(a) Complete ownership. Outright ownership of a retail business by

an industry member is not an interest which may result in a violation

of section 105(b)(1) of the Act.

* * * * *

Par. 8. Section 6.31 is revised to read as follows:

Sec. 6.31 General.

The act by an industry member of acquiring an interest in real or

personal property owned, occupied, or used by the retailer in the

conduct of business constitutes a means to induce within the meaning of

the Act.

Par. 9. Section 6.33 is amended by revising paragraph (a) to read

as follows:

Sec. 6.33 Proprietary interest.

(a) Complete ownership. Outright ownership of a retail business by

an industry member is not an interest that may result in a violation of

section 105(b)(2) of the Act.

* * * * *

Par. 10. Section 6.41 is revised to read as follows:

Sec. 6.41 General.

Subject to the exceptions listed in Subpart D, the act by an

industry member of furnishing, giving, renting, lending, or selling any

equipment, fixtures, signs, supplies, money, services, or other things

of value to a retailer constitutes a means to induce within the meaning

of the Act.

Par. 11. Section 6.42 is revised to read as follows:

Sec. 6.42 Indirect inducement through third party arrangements.

(a) General. The furnishing, giving, renting, lending, or selling

of equipment, fixtures, signs, supplies, money, services, or other

thing of value by an industry member to a third party, where the

benefits resulting from such things of value flow to individual

retailers, is the indirect furnishing of a thing of value within the

meaning of the Act. Indirect furnishing of a thing of value includes,

but is not limited to, making payments for advertising to a retailer

association or a display [[Page 20422]]

company where the resulting benefits flow to individual retailers.

(b) Exceptions. An indirect inducement will not arise where the

thing of value was furnished to a retailer by the third party without

the knowledge or intent of the industry member, or the industry member

did not reasonably foresee that the thing of value would have been

furnished to a retailer. Things which may lawfully be furnished, given,

rented, lent, or sold by industry members to retailers under subpart D

may also be furnished directly by a third party to a retailer.

Sec. 6.43 [Amended]

Par. 12. Section 6.43 is amended by removing the reference

``Secs. 6.88 and 6.89,'' where it appears in the first sentence and

replacing it with ``Sec. 6.88,''.

Secs. 6.46 and 6.47 [Removed and reserved]

Par. 13. Sections 6.46 and 6.47 are removed and reserved.

Par. 14. Section 6.51 is revised to read as follows:

Sec. 6.51 General.

The act by an industry member of paying or crediting a retailer for

any advertising, display, or distribution service constitutes a means

to induce within the meaning of the Act, whether or not the

advertising, display, or distribution service received by the industry

member in these instances is commensurate with the amount paid

therefor. This includes payments or credits to retailers that are

merely reimbursements, in full or in part, for such services purchased

by a retailer from a third party.

Par. 15. Section 6.61 is revised to read as follows:

Sec. 6.61 Guaranteeing loans.

The act by an industry member of guaranteeing any loan or the

repayment of any financial obligation of a retailer constitutes a means

to induce within the meaning of the Act.

Par. 16. Section 6.65 is revised to read as follows:

Sec. 6.65 General.

Extension of credit by an industry member to a retailer for a

period of time in excess of 30 days from the date of delivery

constitutes a means to induce within the meaning of the Act.

Par. 17. The text of Sec. 6.67 is added to read as follows:

Sec. 6.67 Sales to retailer whose account is in arrears.

An extension of credit (for product purchases) by an industry

member to a retailer whose account is in arrears does not constitute a

means to induce within the meaning of the Act so long as such retailer

pays in advance or on delivery an amount equal to or greater than the

value of each order, regardless of the manner in which the industry

member applies the payment in its records.

Par. 18. Section 6.71 is revised to read as follows:

Sec. 6.71 Quota sales.

The act by an industry member of requiring a retailer to take and

dispose of any quota of distilled spirits, wine, or malt beverages

constitutes a means to induce within the meaning of the Act.

Par. 19. Section 6.72 is revised to read as follows:

Sec. 6.72 ``Tie-in'' sales.

The act by an industry member of requiring that a retailer purchase

one product (as defined in Sec. 6.11) in order to obtain another

constitutes a means to induce within the meaning of the Act. This

includes the requirement to take a minimum quantity of a product in

standard packaging in order to obtain the same product in some type of

premium package, i.e., a distinctive decanter, or wooden or tin box.

This also includes combination sales if one or more products may be

purchased only in combination with other products and not individually.

However, an industry member is not precluded from selling two or more

kinds or brands of products to a retailer at a special combination

price, provided the retailer has the option of purchasing either

product at the usual price, and the retailer is not required to

purchase any product it does not want. See Sec. 6.93 for combination

packaging of products plus non-alcoholic items.

Par. 20. Section 6.81 is revised to read as follows:

Sec. 6.81 General.

(a) Application. Section 105(b)(3) of the Act enumerates means to

induce that may be unlawful under the subsection, subject to such

exceptions as are prescribed in regulations, having due regard for

public health, the quantity and value of articles involved, established

trade customs not contrary to the public interest, and the purposes of

that section. This subpart implements section 105(b)(3) of the Act and

identifies the practices that are exceptions to section 105(b)(3) of

the Act. An industry member may furnish a retailer equipment, inside

signs, supplies, services, or other things of value, under the

conditions and within the limitations prescribed in this subpart.

(b) Recordkeeping Requirements.

(1) Industry members shall keep and maintain records on the permit

or brewery premises, for a three year period, of all items furnished to

retailers under Secs. 6.83, 6.88, 6.91, 6.96(a), and 6.100 and the

commercial records required under Sec. 6.101. Commercial records or

invoices may be used to satisfy this recordkeeping requirement if all

required information is shown. These records shall show:

(i) The name and address of the retailer receiving the item;

(ii) The date furnished;

(iii) The item furnished;

(iv) The industry member's cost of the item furnished (determined

by the manufacturer's invoice price); and

(v) Charges to the retailer for any item.

(2) Although no separate recordkeeping violation results, an

industry member who fails to keep such records is not eligible for the

exception claimed.

(Approved by the Office of Management and Budget under control

number 1512-0392)

Sec. 6.82 [Removed and Reserved]

Par. 21. Section 6.82 is removed and reserved.

Par. 22. Section 6.83 is revised to read as follows:

Sec. 6.83 Product displays.

(a) General. The act by an industry member of giving or selling

product displays to a retailer does not constitute a means to induce

within the meaning of section 105(b)(3) of the Act provided that the

conditions prescribed in paragraph (c) of this section are met.

(b) Definition. ``Product display'' means any wine racks, bins,

barrels, casks, shelving, or similar items the primary function of

which is to hold and display consumer products.

(c) Conditions and limitations.

(1) The total value of all product displays given or sold by an

industry member under paragraph (a) of this section may not exceed $300

per brand at any one time in any one retail establishment. Industry

members may not pool or combine dollar limitations in order to provide

a retailer a product display valued in excess of $300 per brand. The

value of a product display is the actual cost to the industry member

who initially purchased it. Transportation and installation costs are

excluded.

(2) All product displays must bear conspicuous and substantial

advertising matter on the product or the industry member which is

permanently inscribed or securely affixed. The name and address of the

retailer may appear on the product displays.

(3) The giving or selling of such product displays may be

conditioned upon the purchase of the distilled [[Page 20423]] spirits,

wine, or malt beverages advertised on those displays in a quantity

necessary for the initial completion of such display. No other

condition can be imposed by the industry member on the retailer in

order for the retailer to receive or obtain the product display.

Par. 23. Section 6.84 is revised to read as follows:

Sec. 6.84 Point of sale advertising materials and consumer advertising

specialties.

(a) General. The act by an industry member of giving or selling

point of sale advertising materials and consumer advertising

specialties to a retailer does not constitute a means to induce within

the meaning of section 105(b)(3) of the Act provided that the

conditions prescribed in paragraph (c) of this section are met.

(b) Definitions.

(1) Point of sale advertising materials are items designed to be

used within a retail establishment to attract consumer attention to the

products of the industry member. Such materials include, but are not

limited to: posters, placards, designs, inside signs (electric,

mechanical or otherwise), window decorations, trays, coasters, mats,

menu cards, meal checks, paper napkins, foam scrapers, back bar mats,

thermometers, clocks, calendars, and alcoholic beverage lists or menus.

(2) Consumer advertising specialties are items that are designed to

be carried away by the consumer, such as trading stamps, nonalcoholic

mixers, pouring racks, ash trays, bottle or can openers, cork screws,

shopping bags, matches, printed recipes, pamphlets, cards, leaflets,

blotters, post cards, pencils, shirts, caps, and visors.

(c) Conditions and limitations.

(1) All point of sale advertising materials and consumer

advertising specialties must bear conspicuous and substantial

advertising matter about the product or the industry member which is

permanently inscribed or securely affixed. The name and address of the

retailer may appear on the point of sale advertising materials.

(2) The industry member may not directly or indirectly pay or

credit the retailer for using or distributing these materials or for

any expense incidental to their use.

Par. 24. Section 6.85 is revised to read as follows:

Sec. 6.85 Temporary retailers.

(a) General. The furnishing of things of value to a temporary

retailer does not constitute a means to induce within the meaning of

section 105(b)(3) of the Act.

(b) Definition. For purposes of administering this part, a

temporary retailer is a dealer who is not engaged in business as a

retailer for more than four consecutive days per event, and for not

more than five events in a calendar year.

Secs. 6.86 and 6.87 [Removed and reserved]

Par. 25. Sections 6.86 and 6.87 are removed and reserved.

Par. 26. Section 6.88 is revised to read as follows:

Sec. 6.88 Equipment and supplies.

(a) General. The act by an industry member of selling equipment or

supplies to a retailer does not constitute a means to induce within the

meaning of section 105(b)(3) of the Act if the equipment or supplies

are sold at a price not less than the cost to the industry member who

initially purchased them, and if the price is collected within 30 days

of the date of the sale. The act by an industry member of installing

dispensing accessories at the retailer's establishment does not

constitute a means to induce within the meaning of the Act as long as

the retailer bears the cost of initial installation. The act by an

industry member of furnishing, giving, or selling coil cleaning service

to a retailer of distilled spirits, wine, or malt beverages does not

constitute a means to induce within the meaning of section 105(b)(3) of

the Act.

(b) Definition. ``Equipment and supplies'' means glassware (or

similar containers made of other material), dispensing accessories,

carbon dioxide (and other gasses used in dispensing equipment) or ice.

``Dispensing accessories'' include items such as standards, faucets,

cold plates, rods, vents, taps, tap standards, hoses, washers,

couplings, gas gauges, vent tongues, shanks, and check valves.

Secs. 6.89 and 6.90 [Removed and reserved]

Par. 27. Sections 6.89 and 6.90 are removed and reserved.

Par. 28. Section 6.91 is revised to read as follows:

Sec. 6.91 Samples.

The act by an industry member of furnishing or giving a sample of

distilled spirits, wine, or malt beverages to a retailer who has not

purchased the brand from that industry member within the last 12 months

does not constitute a means to induce within the meaning of section

105(b)(3) of the Act. For each retail establishment the industry member

may give not more than 3 gallons of any brand of malt beverage, not

more than 3 liters of any brand of wine, and not more than 3 liters of

distilled spirits. If a particular product is not available in a size

within the quantity limitations of this section, an industry member may

furnish to a retailer the next larger size.

Par. 29. Section 6.92 is revised to read as follows:

Sec. 6.92 Newspaper cuts.

Newspaper cuts, mats, or engraved blocks for use in retailers'

advertisements may be given or sold by an industry member to a retailer

selling the industry member's products.

Par. 30. Section 6.93 is revised to read as follows:

Sec. 6.93 Combination packaging.

The act by an industry member of packaging and distributing

distilled spirits, wine, or malt beverages in combination with other

(non-alcoholic) items for sale to consumers does not constitute a means

to induce within the meaning of section 105(b)(3) of the Act.

Par. 31. Section 6.94 is amended by adding the phrase ``(such as

travel and lodging)'' before the period in the final sentence of the

section, and by adding a new sentence at the end of the section to read

as follows:

Sec. 6.94 Educational seminars.

* * * This does not preclude providing nominal hospitality during

the event.

* * * * *

Par. 32. Section 6.96 is amended by revising paragraph (a) to read

as follows:

Sec. 6.96 Consumer promotions.

(a) Coupons. The act by an industry member of furnishing to

consumers coupons which are redeemable at a retail establishment does

not constitute a means to induce within the meaning of section

105(b)(3) of the Act, provided the following conditions are met:

(1) All retailers within the market where the coupon offer is made

may redeem such coupons; and

(2) An industry member may not reimburse a retailer for more than

the face value of all coupons redeemed, plus a usual and customary

handling fee for the redemption of coupons.

* * * * *

Sec. 6.97 [Removed and reserved]

Par. 33. Section 6.97 is removed and reserved.

Par. 34. Section 6.98 is revised to read as follows:

Sec. 6.98 Advertising service.

The listing of the names and addresses of two or more unaffiliated

retailers selling the products of an industry member in an

advertisement of that industry member does not

[[Page 20424]] constitute a means to induce within the meaning of

section 105(b)(3) of the Act, provided:

(a) The advertisement does not also contain the retail price of the

product (except where the exclusive retailer in the jurisdiction is a

State or a political subdivision of a State), and

(b) The listing is the only reference to the retailers in the

advertisement and is relatively inconspicuous in relation to the

advertisement as a whole, and

(c) The advertisement does not refer only to one retailer or only

to retail establishments controlled directly or indirectly by the same

retailer, except where the retailer is an agency of a State or a

political subdivision of a State.

Par. 35. Section 6.99 is revised to read as follows:

Sec. 6.99 Stocking, rotation, and pricing service.

(a) General. Industry members may, at a retail establishment,

stock, rotate and affix the price to distilled spirits, wine, or malt

beverages which they sell, provided products of other industry members

are not altered or disturbed. The rearranging or resetting of all or

part of a store or liquor department is not hereby authorized.

(b) Shelf plan and shelf schematics. The act by an industry member

of providing a recommended shelf plan or shelf schematic for distilled

spirits, wine, or malt beverages does not constitute a means to induce

within the meaning of section 105(b)(3) of the Act.

Par. 36. Section 6.100 is revised to read as follows:

Sec. 6.100 Participation in retailer association activities.

The following acts by an industry member participating in retailer

association activities do not constitute a means to induce within the

meaning of section 105(b)(3) of the Act:

(a) Displaying its products at a convention or trade show;

(b) Renting display booth space if the rental fee is the same as

paid by all exhibitors at the event;

(c) Providing its own hospitality which is independent from

association sponsored activities;

(d) Purchasing tickets to functions and paying registration fees if

the payments or fees are the same as paid by all attendees,

participants or exhibitors at the event; and

(e) Making payments for advertisements in programs or brochures

issued by retailer associations at a convention or trade show if the

total payments made by an industry member for all such advertisements

do not exceed $300 per year for any retailer association.

Par. 37. Section 6.101 is revised to read as follows:

Sec. 6.101 Merchandise.

(a) General. The act by an industry member, who is also in business

as a bona fide producer or vendor of other merchandise (for example,

groceries or pharmaceuticals), of selling that merchandise to a

retailer does not constitute a means to induce within the meaning of

section 105(b)(3) of the Act, provided:

(1) The merchandise is sold at its fair market value;

(2) The merchandise is not sold in combination with distilled

spirits, wines, or malt beverages (except as provided in Sec. 6.93);

(3) The industry member's acquisition or production costs of the

merchandise appears on the industry member's purchase invoices or other

records; and

(4) The individual selling prices of merchandise and distilled

spirits, wines, or malt beverages sold in a single transaction can be

determined from commercial documents covering the sales transaction.

(b) Things of value covered in other sections of this part. The act

by an industry member of providing equipment, fixtures, signs,

glassware, supplies, services, and advertising specialties to retailers

does not constitute a means to induce within the meaning of section

105(b)(3) of the Act only as provided in other sections within this

part.

Par. 37a. Section 6.102 is added to read as follows:

Sec. 6.102 Outside signs.

The act by an industry member of giving or selling outside signs to

a retailer does not constitute a means to induce within the meaning of

section 105(b)(3) of the Act provided that:

(a) The sign

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