Deceptive Advertising and Labeling of Previously Used Lubricating Oil

SUMMARY: The Federal Trade Commission (the ``Commission'') announces

the commencement of a rulemaking proceeding for the Trade Regulation

Rule on Deceptive Advertising and Labeling of Previously Used

Lubricating Oil (``the Used Oil Rule'' or ``the Rule''), 16 CFR Part

406. The proceeding will address whether or not the Used Oil Rule

should be repealed. The Commission invites interested parties to submit

written data, views, and arguments on how the Rule has affected

consumers, businesses and others, and on whether there currently is a

need for the Rule. This document includes a description of the

procedures to be followed, an invitation to submit written comments, a

list of questions and issues upon which the Commission particularly

desires comments, and instructions for prospective witnesses and other

interested persons who desire to participate in the proceeding.

DATES: Written comments must be submitted on or before August 26, 1996.

Notifications of interest in testifying must be submitted on or before

August 26, 1996. If interested parties request the opportunity to

present testimony, the Commission will publish a document in the

Federal Register stating the time and place at which the hearings will

be held and describing the procedures that will be followed in

conducting the hearings. In addition to submitting a request to

testify, interested parties who wish to present testimony must submit,

on or before August 26, 1996, a written comment or statement that

describes the issues on which the party wishes to testify and the

nature of the testimony to be given.

ADDRESS: Written comments and requests to testify should be submitted

to Office of the Secretary, Federal Trade Commission, Room H-159, Sixth

Street and Pennsylvania Ave., NW., Washington, DC 20580, telephone

number (202) 326-2506. Comments and requests to testify should be

identified as ``16 CFR Part 406 Comment--Used Oil Rule'' and ``16 CFR

Part 406 Request to Testify--Used Oil Rule,'' respectively. If

possible, submit comments both in writing and on a personal computer

diskette in Word Perfect or other word processing format (to assist in

processing, please identify the format and version used). Written

comments should be submitted, when feasible and not burdensome, in five

copies.

FOR FURTHER INFORMATION CONTACT: Neil Blickman, Attorney, Federal Trade

Commission, Bureau of Consumer Protection, Division of Enforcement,

Sixth Street and Pennsylvania Ave., NW., Washington, DC 20580, (202)

326-3038.

SUPPLEMENTARY INFORMATION:

I. Introduction

Pursuant to the Federal Trade Commission Act (``FTC Act''), 15

U.S.C. 41-58, and the Administrative Procedure Act, 5 U.S.C. 551-59,

701-06, by this Notice of Proposed Rulemaking (``NPR'') the Commission

initiates a proceeding to consider whether the Used Oil Rule should be

repealed or remain in effect.\1\ The Commission is undertaking this

rulemaking proceeding as part of the Commission's ongoing program of

evaluating trade regulation rules and industry guides to determine

their effectiveness, impact, cost and need. This proceeding also

responds to President Clinton's National Regulatory Reinvention

Initiative, which, among other things, urges agencies to eliminate

obsolete or unnecessary regulations.

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\1\ In accordance with section 18 of the FTC Act, 15 U.S.C. 57a,

the Commission submitted this NPR to the Chairman of the Committee

on Commerce, Science, and Transportation, United States Senate, and

the Chairman of the Committee on Commerce, United Stats House of

Representatives, 30 days prior to its publication in the Federal

Register.

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II. Background Information

Based on the Commission's finding that the new or used status of a

lubricant was material to consumers, the Used Oil Rule was promulgated

by the Commission on August 14, 1964, to prevent deception of consumers

who prefer new and unused lubricating oil. The Rule requires that

advertising, promotional material, and labels for lubricant made from

used oil disclose such previous use. The Rule prohibits any

representation that used lubricating oil is new or unused. In addition,

it prohibits use of the term ``re-refined,'' or any similar term, to

describe previously used lubricating oil unless the physical and

chemical contaminants have been removed by a refining process.

On October 15, 1980, the Used Oil Recycling Act suspended the

provision of the Used Oil Rule requiring labels to disclose the origin

of lubricants made from used oil,\2\ until the Commission issued rules

under the Energy Policy and Conservation Act of 1975 (``EPCA''). The

legislative history indicates Congressional concern that the Used Oil

Rule's labeling requirement had an adverse impact on consumer

acceptance of recycled oil, provided no useful information to consumers

concerning the performance of the oil, and inhibited recycling.

Moreover, the origin labeling requirements in the Used Oil Rule

arguably are inconsistent with the intent of section 383 of EPCA, which

is that ``oil should be labeled on the basis of performance

characteristics and fitness for intended use, and not on the basis of

the origin of the oil.'' \3\

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\2\ 42 U.S.C. 6363 note.

\3\ See Legislative History Pub. L. 96-463, U.S. Code Cong. and

Adm. News, pp. 4354-4356 (1980).

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Accordingly, on April 8, 1981, the Commission published a notice

announcing the statutory suspension of the origin labeling requirements

of the Used Oil Rule. In the same notice, the Commission suspended

enforcement of those portions of the Used Oil Rule requiring that

advertising and promotional material disclose the origin of lubricants

made from used oil.\4\

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\4\ 46 FR 20979.

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The purposes of the recycled oil section of EPCA are to encourage

the recycling of used oil, to promote the use of recycled oil, to

reduce consumption of new oil by promoting increased utilization of

recycled oil, and to reduce environmental hazards and wasteful

practices associated with the disposal of used oil.\5\ To achieve these

goals, section 383 of EPCA directs the National Institute of Standards

and Technology (``NIST'') to develop test procedures for the

determination of the substantial

[[Page 39102]]

equivalency of re-refined or otherwise processed used oil or blend of

oil (consisting of such re-refined or otherwise processed used oil and

new oil or additives) with new oil distributed for a particular end use

and to report such test procedures to the Commission.\6\ Within 90 days

after receiving such report from NIST, the Commission is required to

prescribe, by rule, the substantial equivalency test procedures, as

well as labeling standards applicable to containers of recycled oil.\7\

EPCA further requires that the Commission's rule permit any container

of processed used oil to bear a label indicating any particular end

use, such as for use as engine lubricating oil, so long as a

determination of ``substantial equivalency'' with new oil has been made

in accordance with the test procedures prescribed by the Commission.\8\

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\5\ 42 U.S.C. 6363(a).

\6\ 42 U.S.C. 6363(c).

\7\ 42 U.S.C. 6363(d).

\8\ 42 U.S.C. 6363(d)(1)(B).

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On July 27, 1995, NIST reported to the Commission test procedures

for determining the substantial equivalency of re-refined or otherwise

processed used engine oils with new engine oils. Accordingly, to

implement EPCA's statutory directive, on October 31, 1995, the

Commission issued a rule (covering recycled engine oil) entitled Test

Procedures and Labeling Standards for Recycled Oil (``Recycled Oil

Rule''), 16 CFR part 311.\9\ The Recycled Oil Rule adopts the test

procedures developed by NIST, and allows (although it does not require)

a manufacturer to represent on a recycled engine-oil container label

that the oil is substantially equivalent to new engine oil, as long as

the determination of equivalency is based on the NIST test procedures.

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\9\ 60 FR 55414 (Oct. 31, 1995).

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The EPCA further provides that once the Recycled Oil Rule becomes

final, no Commission order or rule, and no law, regulation, or order of

any State (or political subdivision thereof), may remain in effect if

it has labeling requirements with respect to the comparative

characteristics of recycled oil with new oil that are not identical to

the labels permitted by this rule.\10\ Also, no rule or order of the

Commission may require any container of recycled oil to also bear a

label containing any term, phrase, or description connoting less than

substantial equivalency of such recycled oil with new oil.\11\

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\10\ 42 U.S.C. 6363(e)(1).

\11\ 42 U.S.C. 6363(e)(2).

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Under EPCA, the Recycled Oil Rule preempts the Used Oil Rule's

labeling and advertising requirements for engine oils. For non-engine

oils, the Used Oil Rule's labeling disclosure provisions continue to be

subject to the Congressional stay, and the advertising disclosure

provisions continue to be subject to the Commission's stay. The only

part of the Used Oil Rule not affected by the stays is that section

which prohibits the deceptive use of the term ``re-refined.'' In light

of the ongoing stays, when the Commission published the Recycled Oil

Rule in October 1995, it stated that, as part of its regulatory review

process, it would consider the continuing need for the Used Oil

Rule.\12\

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\12\ 60 FR 55414, 55417.

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Based on the foregoing, on April 3, 1996, the Commission published

an Advance Notice of Proposed Rulemaking (``ANPR'') stating that it had

tentatively determined that a separate Used Oil Rule is no longer

necessary, and seeking comments on the proposed repeal of the Rule.\13\

In accordance with section 18 of the FTC Act, 15 U.S.C. 57a, the ANPR

was sent to the Chairman of the Committee on Commerce, Science, and

Transportation, United States Senate, and the Chairman of the Committee

on Commerce, United States House of Representatives.

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\13\ 61 FR 14686.

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The ANPR comment period closed on May 3, 1996. The Commission

received one comment in response to the ANPR.\14\ The comment was

submitted by the Safety-Kleen Corporation (``Safety-Kleen''), a re-

refiner of used oil. Safety-Kleen supports repeal of the Commission's

Used Oil Rule, stating that it has been superseded effectively in the

marketplace by the FTC's Recycled Oil Rule.\15\

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\14\ The comment submitted in response to the ANPR has been

placed on the public record, Commission Rulemaking Record No.

R511959, and is coded ``D'' indicating that it is a public comment.

In this notice, the comment is cited by identifying the commenter

(by abbreviation), the comment number, and the relevant page number.

\15\ Safety-Kleen, D-1, 1.

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Accordingly, after reviewing the comment submitted, and in light of

promulgation of the Recycled Oil Rule, the Commission has determined

that to eliminate unnecessary duplication, and any inconsistency with

EPCA's goals, a separate Used Oil Rule is no longer necessary.\16\ The

Commission, therefore, seeks comments on the proposed repeal of the

Used Oil Rule.

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\16\ Repealing the Used Oil Rule would eliminate the

Commission's ability to obtain civil penalties for any future

misrepresentations of the re-refined quality of oil. Nevertheless,

the Commission has tentatively determined that repealing the Rule

would not seriously jeopardize the Commission's ability to act

effectively. The Recycled Oil Rule defines re-refined oil to mean

used oil from which physical and chemical contaminants acquired

through use have been removed. Although this Rule does not further

address re-refined oil or provide penalties for misrepresenting used

oil as ``re-refined,'' it defines for the public how the Commission

interprets this term. Any significant problems that may arise could

be addressed on a case-by-case basis, administratively under section

5 of the FTC Act, 15 U.S.C. 45, or through section 13(b) actions, 15

U.S.C. 53(b), filed in federal district court. Prosecuting serious

misrepresentations in district court allows the Commission to obtain

injunctive relief as well as equitable remedies, such as redress or

disgorgement.

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III. Rulemaking Procedures

The Commission finds that the public interest will be served by

using expedited procedures in this proceeding. First, there do not

appear to be any material issues of disputed fact to resolve in

determining whether to repeal the Rule. Second, the use of expedited

procedures will support the Commission's goal of eliminating obsolete

or unnecessary regulations without an undue expenditure of resources,

while ensuring that the public has an opportunity to submit data, views

and arguments on whether the Commission should repeal the Rule.

The Commission, therefore, has determined, pursuant to 16 CFR 1.20,

to use the procedures set forth in this notice. These procedures

include: (1) Publishing this Notice of Proposed Rulemaking; (2)

soliciting written comments on the Commission's proposal to repeal the

Rule; (3) holding an informal hearing, if requested by interested

parties; (4) obtaining a final recommendation from staff; and (5)

announcing final Commission action in a notice published in the Federal

Register.

IV. Invitation To Comment and Questions for Comment

Interested persons are requested to submit written data, views or

arguments on any issue of fact, law or policy they believe may be

relevant to the Commission's decision on whether to repeal the Rule.

The Commission requests that commenters provide representative factual

data in support of their comments. Individual firms' experiences are

relevant to the extent they typify industry experience in general or

the experience of similar-sized firms. Commenters opposing the proposed

repeal of the Rule should explain the reasons they believe the Rule is

still needed and, if appropriate, suggest specific alternatives.

Proposals for alternative requirements should include reasons and data

that indicate why the alternatives would better protect consumers from

unfair or

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deceptive acts or practices under section 5 of the FTC Act, 15 U.S.C.

45.

Although the Commission welcomes comments on any aspect of the

proposed repeal of the Rule, the Commission is particularly interested

in comments on questions and issues raised in this Notice. All written

comments should state clearly the question or issue that the commenter

is addressing.

Before taking final action, the Commission will consider all

written comments timely submitted to the Secretary of the Commission

and testimony given on the record at any hearings scheduled in response

to requests to testify. Written comments submitted will be available

for public inspection in accordance with the Freedom of Information

Act, 5 U.S.C. 552, and Commission regulations, on normal business days

between the hours of 8:30 a.m. to 5 p.m. at the Federal Trade

Commission, Public Reference Room, Room H-130, Federal Trade

Commission, Sixth Street and Pennsylvania Avenue, NW., Washington, DC

20580, telephone number (202) 326-2222.

Questions

(1) Should the Used Oil Rule be kept in effect, or should it be

repealed?

(2) What benefits do consumers derive from the Rule?

(3) How would repealing the Rule affect the benefits experienced by

consumers?

(4) How would repealing the Rule affect the benefits and burdens

experienced by firms subject to the Rule's requirements?

(5) Is misrepresentation of used oil as ``re-refined'' a

significant problem in the marketplace?

(6) Are there any other federal, state, or local laws or

regulations, or private industry standards, that eliminate the need for

the Rule?

(7) Is the Commission's Recycled Oil Rule likely to provide all or

most of the benefits now provided by the Used Oil Rule?

V. Requests for Public Hearings

Because there does not appear to be any dispute as to the material

facts or issues raised by this proceeding and because written comments

appear adequate to present the views of all interested parties, a

public hearing has not been scheduled. If any person would like to

present testimony at a public hearing, he or she should follow the

procedures set forth in the DATES and ADDRESS sections of this notice.

VI. Preliminary Regulatory Analysis

The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-12, requires

an analysis of the anticipated impact of the proposed repeal of the

Rule on small businesses.\17\ The analysis must contain, as applicable,

a description of the reasons why action is being considered, the

objectives of and legal basis for the proposed action, the class and

number of small entities affected, the projected reporting,

recordkeeping and other compliance requirements being proposed, any

existing federal rules which may duplicate, overlap or conflict with

the proposed action, and any significant alternatives to the proposed

action that accomplish its objectives and, at the same time, minimize

its impact on small entities.

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\17\ Section 22 of the FTC Act, 15 U.S.C. 57b-3, also requires

the Commission to issue a preliminary regulatory analysis relating

to proposed rules when the Commission publishes a notice of proposed

rulemaking. The Commission has determined that a preliminary

regulatory analysis is not required by section 22 in this proceeding

because the Commission has no reason to believe that repeal of the

Rule: (1) Will have an annual effect on the national economy of

$100,000,000 or more; (2) will cause a substantial change in the

cost or price of goods or services that are used extensively by

particular industries, that are supplied extensively in particular

geographical regions, or that are acquired in significant quantities

by the Federal Government, or by State or local governments; or (3)

otherwise will have a significant impact upon persons subject to the

Rule or upon consumers.

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A description of the reasons why action is being considered and the

objectives of the proposed repeal of the Rule have been explained

elsewhere in this Notice. Repeal of the Rule would appear to have

little or no effect on any small business. The Commission is not aware

of any existing federal laws or regulations that would conflict with

repeal of the Rule.

For these reasons, the Commission certifies, pursuant to section

605 of RFA, 5 U.S.C. 605, that if the Commission determines to repeal

the Rule that action will not have a significant impact on a

substantial number of small entities. To ensure that no substantial

economic impact is being overlooked, however, the Commission requests

comments on this issue. After reviewing any comments received, the

Commission will determine whether it is necessary to prepare a final

regulatory flexibility analysis.

VII. Paperwork Reduction Act

The Used Oil Rule imposes third-party disclosure requirements that

constitute ``information collection requirements'' under the Paperwork

Reduction Act, 44 U.S.C. 3501 et seq. On October 15, 1980, however, the

Used Oil Recycling Act suspended the provision of the Used Oil Rule

requiring labels to disclose the origin of lubricants made from used

oil,\18\ until the Commission issued rules under EPCA. Further, on

April 8, 1981, the Commission published a notice announcing the

statutory suspension of the origin labeling requirements of the Used

Oil Rule. In the same notice, the Commission suspended enforcement of

those portions of the Used Oil Rule requiring that advertising and

promotional material disclose the origin of lubricants made from used

oil.\19\ Since 1981, therefore, the Rule effectively has imposed no

paperwork burdens on marketers of used lubricating oil. In any event,

repeal of the Used Oil Rule would permanently eliminate any burdens on

the public imposed by these disclosure requirements.

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\18\ 42 U.S.C. 6363 note.

\19\ 46 FR 20979.

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VIII. Additional Information For Interested Persons

A. Motions or Petitions

Any motions or petitions in connection with this proceeding must be

filed with the Secretary of the Commission.

B. Communications by Outside Parties to Commissioners or Their

Advisors.

Pursuant to Rule 1.18(c) of the Commission's rules of practice, 16

CFR 1.18(c), communications with respect to the merits of this

proceeding from any outside party to any Commissioner or Commissioner's

advisor during the course of this rulemaking shall be subject to the

following treatment. Written communications, including written

communications from members of Congress, shall be forwarded promptly to

the Secretary for placement on the public record. Oral communications,

not including oral communications from members of Congress, are

permitted only when such oral communications are transcribed verbatim

or summarized at the discretion of the Commissioner or Commissioner's

advisor to whom such oral communications are made, and are promptly

placed on the public record, together with any written communications

relating to such oral communications. Memoranda prepared by a

Commissioner or Commissioner's advisor setting forth the contents of

any oral communications from members of Congress shall be placed

promptly on the public record. If the communication with a member of

Congress is transcribed verbatim or summarized, the

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transcript or summary will be placed promptly on the public record.

Authority: 15 U.S.C. 41-58.

List of Subjects in 16 CFR Part 406

Advertising, Labeling, Trade practices, Used lubricating oil.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 96-19009 Filed 7-25-96; 8:45 am]

BILLING CODE 6750-01-M