Regulations Under the Comprehensive Smokeless Tobacco Health Education Act of 1986

FEDERAL TRADE COMMISSION

16 CFR Part 307

Regulations Under the Comprehensive Smokeless Tobacco Health

Education Act of 1986

AGENCY: Federal Trade Commission.

ACTION: Final rule.

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SUMMARY: The Comprehensive Smokeless Tobacco Health Education Act of

1986 (``Smokeless Tobacco Act'') requires that all packaging and

advertising for smokeless tobacco products display one of three health

warnings in rotating sequence. On January 16, 1993, the Commission

published a Notice of Proposed Rulemaking seeking public comment on a

method for rotating the health warnings on promotional materials based

on the date of dissemination of the materials. On February 14, 1995,

the Commission published another Notice of Proposed Rulemaking seeking

public comment on a proposal to permit rotation of warnings on

utilitarian items based on either the date of order or the date of

dissemination of the items, provided the production of such items is

carried out in a manner consistent with customary business practices.

Having considered all of the issues raised during the two public

comment periods, the Commission is now amending the regulations

governing utilitarian items and the regulations governing promotional

materials to permit rotation based on either the date of order or the

date of dissemination, provided the production of such items or

materials is carried out in a manner consistent with customary business

practices. This document contains the statement of basis and purpose

and the text of the final regulations.

EFFECTIVE DATE: The effective date of these regulations will be

September 30, 1996.

ADDRESSES: Requests for copies of the regulations and the statement of

basis and purpose should be sent to Public Reference Branch, Room 130,

Federal Trade Commission, 6th & Pennsylvania Ave. NW, Washington, DC

20580.

FOR FURTHER INFORMATION CONTACT: Phillip S. Priesman, Attorney,

Division of Advertising Practices, Federal Trade

[[Page 45884]]

Commission, 6th & Pennsylvania Ave. NW, Washington, DC 20580. (202)

326-2484.

SUPPLEMENTARY INFORMATION:

Statement of Basis and Purpose

I. Introduction

Congress enacted the Comprehensive Smokeless Tobacco Health

Education Act of 1986 for the express purpose of educating the public

about the health consequences of using smokeless tobacco products.

(Public Law No. 99-252, 100 Stat. 30 (1986), 15 U.S.C. 4401 et seq.).

To achieve this end, the Act required the random display of three

warnings on the packaging and the rotation of these warnings in the

advertising of smokeless tobacco products.

Specifically, the Smokeless Tobacco Act mandated that one of the

following three health warnings appear in the labeling and advertising

(with the exception of outdoor billboard advertising) of smokeless

tobacco products:

Warning: This product may cause mouth cancer.

Warning: This product may cause gum disease and tooth loss.

Warning: This product is not a safe alternative to cigarettes.

The Commission's original regulations applying the Act to

promotional materials provided that ``[a] satisfactory plan for point-

of-sale and non-point-of-sale promotional materials * * * could provide

for rotation according to the time that the material is scheduled to be

disseminated or the order date for the material.'' 51 Fed. Reg. 40005,

40023 (1986). Point-of-sale materials include shelf-talkers (a card or

brochure attached to the shelf where the product is located in a retail

outlet), rack header cards (cards identifying a particular smokeless

brand on semi-circular racks displaying cans of snuff), and tear pads.

Non-point-of-sale materials include direct mail circulars, coupons,

leaflets and pamphlets.

The Commission's original regulations exempted utilitarian items

from the regulations governing the rotation and display of the health

warnings. The exemption for utilitarian items was challenged in court,

and the court ultimately ordered the Commission to delete the

exemption.1 Accordingly, in 1991, the Commission issued final

regulations setting out requirements for the rotation and display of

health warnings on utilitarian items. During its consideration of the

1991 rulemaking proceeding, the Commission became concerned that

companies could order a year's supply of utilitarian items at one time,

and thereby display only one warning over an entire year. The

Commission also was concerned that this apparent loophole could

likewise apply to promotional materials. Thus, the Commission amended

its regulations governing rotation of both promotional objects and

utilitarian objects, and called for ``rotation according to the date

the materials or objects are disseminated.'' The Commission noted,

however, that this could impose a hardship on a company that was unable

to foresee its distribution schedule when placing the order. To

alleviate this hardship, the rule also permitted rotational plans

whereby each warning would be displayed on an equal number of objects

comprising any given order. Under this option, for promotions lasting

one year or longer, the company could distribute promotional materials

or utilitarian items bearing the same warning for four months, and then

switch to another warning. If the promotion was scheduled to last less

than one year, the materials or items bearing the various warnings

could be distributed randomly.

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\1\ Public Citizen v. FTC, 869 F.2d 1541 (D.C. Cir. 1989),

aff'g, 588 F. Supp. 667 (D.D.C. 1988).

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With regard to promotional materials, the Commission published this

rule for additional public comment on January 16, 1993. The initial

comment period was to expire on February 16, 1993, but the Commission

extended the deadline until March 23, 1993. During this time, the

Commission received five comments. Four of the comments were from

manufacturers of smokeless tobacco products, and one was from a trade

association representing the manufacturers.

On February 14, 1995, the Commission published a Notice of Proposed

Rulemaking seeking comment on whether the requirements for rotating the

health warnings on utilitarian items should be amended. The proposed

rule permitted the rotation of warnings on utilitarian items according

to either the date the item is ordered or the date of dissemination,

provided that the production of the materials is carried out consistent

with customary business practices. The Commission received four

comments, all of which supported the proposed rule. All four comments

were from manufacturers of smokeless tobacco products.

II. The Regulations

The Commission's original regulations were written, for the most

part, as creating safe harbors rather than imposing mandatory

requirements for compliance with the Smokeless Tobacco Act. The

regulations issued in 1991 with respect to utilitarian items and

promotional materials and those proposed again in 1993 regarding

promotional materials removed the safe harbor provisions, and specified

that the appropriate warning would be determined by the date the

materials were scheduled for dissemination, with a limited option for

random display. The comments the Commission received indicated that

requiring rotation based on date of dissemination, even with the

limited option for random display, was likely to impose additional,

possibly significant, costs on smokeless tobacco manufacturers and

their suppliers. Both the date of dissemination requirement and the

more flexible date of order safe harbor appear likely to meet the chief

benefit intended by the regulations: Providing a system for the

rotation of health warnings as required by the Smokeless Tobacco Act.

Consequently, the Commission is returning to the previous more flexible

approach and specifying safe harbors for complying with the Smokeless

Tobacco Act's warning requirements by amending the regulation governing

utilitarian items, and retaining the present rotation schedule for

promotional materials except for the amendment that such materials be

produced in accordance with customary business practices. With these

amendments, the regulations governing the rotation of warnings for

utilitarian items will mirror those for promotional materials.

Given the practical constraints associated with the production and

dissemination of utilitarian items and those for promotional materials,

the Commission believes that the industry should be given some

flexibility in conforming the rotation requirements to these types of

advertising, while at the same time ensuring that the warnings rotate

as required by the Smokeless Tobacco Act. If, however, there is a

pattern of abuse or confusion suggesting that the safe harbors do not

provide for adequate rotation of the warnings, the Commission will

reconsider whether it is necessary to promulgate regulations providing

less flexibility and more specificity. In particular, the Commission

may reconsider whether to impose the mandatory date of dissemination

requirement for the rotation of both utilitarian items and promotional

materials.

A. Comments Regarding the Rotation of Utilitarian Items

The comments indicate that producing utilitarian items that comply

with a rotation standard based upon

[[Page 45885]]

date of dissemination is expensive and imposes burdens on the smokeless

tobacco manufacturers. According to one comment, the date of

dissemination requirement is burdensome due to the difficulty of

predicting the demand for any item in advance. This comment notes that

such prediction is difficult both because methods of forecasting demand

are imprecise and because premium promotions offering utilitarian items

often change during the course of the promotion due to competitive

conditions.2 Several comments state that the date of dissemination

requirement requires companies to order an excess supply of utilitarian

items to ensure that the supply is not exhausted before the promotion

ends.3 These comments likewise state that the need to order an

excess supply of items adds both warehousing and inventory costs (both

in terms of manpower and facilities).4 And, as inventory costs

increase, so do freight costs, according to these comments. Another

comment states that its inability to accurately forecast demand as well

as the lead time needed to order items adds planning and administrative

costs, including added costs of coordinating with suppliers,

warehousing inventory, tracking inventory, and distributing

items.5

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\2\ Comment of Pinkerton at 5 (April 17, 1995).

\3\ Comments of Conwood at 3 (April 17, 1995); Pinkerton at 6

(April 17, 1995).

\4\ Comment of Pinkerton at 6 (April 17, 1995).

\5\ Comment of United States Tobacco Co. at 9 (April 11, 1995).

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B. Comments Regarding the Rotation of Promotional Materials

The comments from the smokeless tobacco manufacturers are similar

to those for utilitarian items. The comments state that the companies

exercise very little control over the actual rate or date of

dissemination of promotional materials.6 In addition, to comply

with the proposed date of dissemination requirement, manufacturers

would need to produce most of their materials in significantly larger

quantities to ensure an adequate supply of materials with each of the

warnings. This would increase their production expenses, as well as the

cost of shipping, warehousing, and distributing the materials.7

Several companies might also need to hire additional employees to

handle the increased workload.8 Further, much of the additional

burden would fall on the businesses that produce and supply the

materials to the tobacco companies. While these businesses would likely

pass on their increased costs to their customers, some of these

suppliers might lack the resources to meet the increased production

requirements, thus forcing them to lose a significant portion of their

business.

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\6\ Comments of Conwood at 2-3 (April 17, 1993); Smokeless

Tobacco Council at 3 (March 18, 1993); Pinkerton at 5 (March 17,

1993).

\7\ Comments of Helme at 2 (March 5, 1993); United States

Tobacco Co. at 10-11 (March 18, 1993); Pinkerton at 3-4 (March 17,

1993).

\8\ Comments of Smokeless Tobacco Council at 6 (March 18, 1993);

United States Tobacco Co. at 18-20 (March 18, 1993); Conwood at 5

(March 16, 1993); Pinkerton at 4 (March 17, 1993); Helme at 2 (March

5, 1993).

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According to some of the comments, the proposed regulations would

also raise environmental issues by increasing the amount of waste

generated in producing materials.9 To comply with the proposed

requirements, manufacturers of smokeless tobacco would need to order

greater quantities of materials displaying each different warning

label. Rather than being able to exhaust the existing supply of

materials before re-ordering, companies would need to switch to

materials printed with a different warning on the specified date, and

throw out or otherwise destroy all of the remaining materials with the

outdated warning. According to the comments, this would only add to the

nation's growing environmental concerns.10

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\9\ Comment of Conwood at 6 (March 16, 1993).

\10\ Id.

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C. Commission Conclusions

Based on its review of these comments, the Commission believes it

is appropriate to adopt a rotation method that allows rotation to be

based on either the date of order or the date of dissemination, as long

as ``the production of such materials is carried out in a manner

consistent with customary business practices.'' Such a method will

fulfill the purpose of the Smokeless Tobacco Act and prevent

manufacturers from circumventing the rotation requirement without

imposing a substantial hardship on the manufacturers and their

suppliers. Almost all of the members of the industry have demonstrated

their ability to comply with a rotation requirement based on the date

of order by submitting rotational plans that follow this schedule.

Moreover, the addition of the requirement that production be based upon

business considerations will ensure that permitting rotation based on

date of order will not frustrate the Act's requirement that the

warnings rotate. The inclusion of this ``caveat'' is intended to

inhibit bulk-ordering by companies to avoid any one particular

warning.11

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\11\ Such bulk-ordering was raised as a concern during the

Commission's 1991 rulemaking regarding the rotation of warnings on

smokeless tobacco utilitarian items. 56 FR 11653, 11659 (1991).

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Some comments suggest that the Commission could lessen the burden

on the smokeless tobacco manufacturers by allowing for the random

simultaneous display of the various warnings on promotional materials.

The Smokeless Tobacco Act and the Commission's regulations specifically

permit random simultaneous display for packaging. However, the

Smokeless Tobacco Act expressly provided for different methods of

assuring the rotation of the three warnings for packaging and

advertising. On packaging, the Act specifies that the warnings be

displayed randomly in as equal a number of times as possible. In

advertising, however, the Act mandates the rotation of the three

warnings in alternating sequence every four months. While random

simultaneous display may meet the Act's directives applicable to

packaging, it generally would not appear to satisfy the prescribed

rotation in alternating sequence in advertising. The Commission,

therefore, concludes that the regulations should not provide for random

simultaneous display of either utilitarian items or promotional

materials.12

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\12\ In 1985, the Commission reached a similar conclusion with

respect to the rotation of warnings on cigarette packaging. The

Comprehensive Smoking Education Act (``Cigarette Act'') specified

that the four statutory health warnings had to rotate quarterly. 15

U.S.C. 1331(c). Pursuant to the Cigarette Act, the cigarette

companies submitted a rotational warning plan that called for the

random simultaneous display of the warnings on cigarette packages.

The Commission rejected this proposal, notifying the companies and

the relevant committees of Congress of its action. Subsequently, the

Congress amended the rotational warning requirements of the

Cigarette Act to allow simultaneous rotation on packaging only for

those cigarette companies that sold less than one-fourth of one

percent of all cigarettes sold in the United States. The Nurse

Education Amendments of 1985, Pub. L. 99-92, 99 Stat. 393, 402-403

(1985). The same Congress later enacted the Smokeless Tobacco Act,

with its different rotational warning schemes for smokeless tobacco

packages and for smokeless tobacco advertisements.

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Thus, the Commission's final regulations provide that the rotation

of the health warnings on utilitarian items and promotional materials

may be based upon either the date of order or the date of dissemination

of the materials, provided that the items or materials are produced in

accordance with customary business practices.

III. Regulatory Flexibility Act

When the Commission first promulgated the smokeless tobacco

regulations, the agency certified that the Regulatory Flexibility Act's

requirement for regulatory analysis was not applicable because the

regulation did

[[Page 45886]]

not appear to have a significant economic impact on a substantial

number of small entities. 51 FR 40005, 40014 (1986). In its subsequent

Notice, the Commission noted that the proposed amendments did not

change the regulations sufficient to alter its previous ``no impact''

determination; nonetheless, to ensure that no substantial impact was

being overlooked, the Commission requested public comment on the effect

of the proposed regulations on costs, profitability, competitiveness,

and employment in small entities. 54 FR 31541 (1989).

Two of the comments received during the comment period for

promotional materials discussed the effect that regulations requiring

rotation based upon date of dissemination would have on small

businesses. The Smokeless Tobacco Council noted that smaller smokeless

tobacco manufacturers may be unable to absorb any additional production

costs, and may eliminate their promotional programs. The Smokeless

Tobacco Council and Conwood Tobacco Company noted that small suppliers

may be unable to make the necessary adjustments. No other comments on

burden were received during the 1993 comment period for promotional

materials and no comments on burden were received during the 1995

comment period for utilitarian items. By permitting rotation based upon

date of order or date of dissemination, the final regulations will

avoid any of these potential burdens on small entities. Thus, the

Commission certifies that the amendments will not have a significant

economic impact on a substantial number of small entities. 5 U.S.C.

Sec. 605(b) (1982).

IV. Effective Date

During the comment period concerning the proposed regulations for

promotional items, the Commission received two comments requesting that

if the Commission adopts a requirement that promotional items rotate

according to the date of dissemination, the Commission include a

grandfather clause delaying the effective date of the rule for at least

two years from publication of the final rule, to enable companies to

use up their existing inventory of materials, and to allow suppliers

time to make the necessary adjustments.13 The Commission, however,

does not believe that any grandfather period is necessary given the

flexibility permitted by the amended regulations. In addition, the

Commission notes that the major smokeless tobacco manufacturers have

all previously filed plans calling for rotation based on date of order,

one of the permitted methods of rotation under the amended regulations.

However, the Commission will provide thirty (30) days for companies to

come into compliance with these amendments. Thus, the effective date

for the regulations governing the date that serves as the basis for

rotating warnings on promotional materials is thirty (30) days from the

date of publication of the final rule.

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\13\ Comments of Smokeless Tobacco Council at 7 (March 18,

1993); United States Tobacco Co. at 23 (March 18, 1993).

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List of Subjects in 16 CFR Part 307

Health warnings, Smokeless tobacco, Trade practices.

Accordingly, Part 307 of 16 CFR Chapter I is amended as follows:

PART 307--REGULATIONS UNDER THE COMPREHENSIVE SMOKELESS TOBACCO

HEALTH EDUCATION ACT OF 1986

1. The authority for Part 307 continues to read as follows:

Authority: 15 U.S.C. 4401 et seq.

2. Section 307.12(b) is revised to read as follows:

Sec. 307.12 Rotation, display, and dissemination of warning statements

in smokeless tobacco advertising.

* * * * *

(b) Each manufacturer, packager, or importer of a smokeless tobacco

product must submit a plan to the Commission or its designated

representative that ensures that the three warning statements are

rotated every four (4) months in alternating sequence. There may be

more than one system, however, that complies with the Act and these

regulations. For example, a plan may require all brands to display the

same warning during each four-month period or require each brand to

display a different warning during a given four-month period. A plan

shall describe the method of rotation and shall include a list of the

designated warnings for each four-month period during the first year

for each brand. A plan shall describe the method that will be used to

ensure the proper rotation in different advertising media in sufficient

detail to ensure compliance with the Act and these regulations,

although a number of different methods may satisfy these requirements.

For example, a satisfactory plan for advertising in newspapers,

magazines, or other periodicals could provide for rotation according to

either the cover or closing date of the publication. A satisfactory

plan for posters and placards, other than billboard advertising, could

provide for rotation according to either the scheduled or the actual

appearance of the advertising. A satisfactory plan for point-of-sale

and non-point-of-sale promotional materials such as leaflets,

pamphlets, coupons, direct mail circulars, paperback book inserts, or

non-print items, or for utilitarian objects, could provide for rotation

according to the date the materials or objects are ordered by the

smokeless tobacco manufacturer, or the date the objects or materials

are scheduled to be disseminated, provided that the production of such

materials or objects is carried out in a manner consistent with

customary business practices.

* * * * *

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 96-22221 Filed 8-29-96; 8:45 am]

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