Deceptive Advertising and Labeling of Previously Used Lubricating Oil

FEDERAL TRADE COMMISSION

16 CFR Part 406

Deceptive Advertising and Labeling of Previously Used Lubricating

Oil

AGENCY: Federal Trade Commission.

ACTION: Repeal of rule.

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

the repeal of the Trade Regulation Rule on Deceptive Advertising and

Labeling of Previously Used Lubricating Oil (``the Used Oil Rule'' or

``the Rule''). After reviewing the rulemaking record, and in light of

Commission promulgation of the Recycled Oil Rule in 1995, pursuant to

the Energy Policy and Conservation Act (``EPCA''), the Commission has

determined that the Used Oil Rule is no longer necessary or in the

public interest, and that its repeal will eliminate unnecessary

duplication, and any inconsistency with EPCA's goals. This document

contains a Statement of Basis and Purpose for repealing the Used Oil

Rule.

EFFECTIVE DATE: October 24, 1996.

ADDRESSES: Requests for copies of the Statement of Basis and Purpose

should be sent to the FTC's Public Reference Branch, Room 130, Sixth

Street and Pennsylvania Ave., N.W., Washington, DC 20580, (202) 326-

2222; TTY for the hearing impaired (202) 326-2502.

FOR FURTHER INFORMATION CONTACT:

Neil Blickman, Attorney, Federal Trade Commission, Bureau of Consumer

Protection, Division of Enforcement, Sixth Street and Pennsylvania

Ave., N.W., Washington, DC 20580, (202) 326-3038.

SUPPLEMENTARY INFORMATION: .

Statement of Basis and Purpose

I. Background

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

lubricant was material to consumers, the Used Oil Rule, 16 CFR Part

406, was promulgated by the Commission on August 14, 1964 (29 FR

11650), 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,\1\ until the Commission issued rules

under 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 were 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.'' \2\

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\1\ 42 U.S.C. 6363 note.

\2\ See Pub. L. No. 96-463, U.S. Code Cong. & Adm. News, pp.

4354-4356 (1980).

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[[Page 55096]]

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.\3\

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\3\ 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.\4\ 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 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.\5\ 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.\6\ EPCA further requires that the

Commission's rule permit any container of proposed 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.\7\

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\4\ 42 U.S.C. 6363(a).

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

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

\7\ 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.\8\ 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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\8\ 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.\9\ 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.\10\

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\9\ 42 U.S.C. 6363(e)(1).

\10\ 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.\11\

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\11\ 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 (61

FR 14686).\12\ The ANPR comment period closed on May 3, 1996.

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\12\ 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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The Commission received one comment in response to the ANPR.\13\

The comment was submitted by the Safety-Kleen Corporation, a re-refiner

of used oil. Safety-Kleen supported 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.\14\

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\13\ 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.

\14\ Safety-Kleen, D-1, 1.

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After reviewing the comment filed in response to the ANPR, on July

26, 1996, 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, the Commission published a Notice of Proposed Rulemaking

(``NPR'') initiating a proceeding to consider whether the Used Oil Rule

should be repealed or remain in effect (61 FR 39101).\15\ In the NPR,

the Commission announced its determination, pursuant to 16 CFR 1.20, to

use expedited procedures in this proceeding.\16\ The NPR comment period

closed on August 26, 1996.

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

57a, the Commission submitted the NPR 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, 30 days prior to its publication in the

Federal Register.

\16\ These procedures included: publishing a Notice of Proposed

Rulemaking; soliciting written comments on the Commission's proposal

to repeal the Rule; holding an informal hearing, if requested by

interested parties; receiving a final recommendation from Commission

staff; and announcing final Commission action in the Federal

Register.

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In response to the NPR, the Commission received two comments and no

requests to hold an informal hearing.\17\ One comment was submitted by

Evergreen Holding, Inc., a collector and re-refiner of used oil in the

state of California. Evergreen supported repeal of the Used Oil Rule,

stating that the Commission's Recycled Oil Rule adequately addresses

the major issues of concern to the used oil and re-refining industries,

and renders the Used Oil Rule duplicative unnecessary.\18\ The other

comment was submitted by Safety-Kleen. In its comment on the NPR,

Safety-Kleen reiterated its support for repeal of the Used Oil Rule,

stating that ``repealing the rule not only eliminates an antiquated

rule replaced by a more modern one, but also responds to the

President's National Regulatory Reinvention initiative by eliminating

both an unnecessary and an obsolete rule.'' \19\ Safety-Kleen further

stated that the consumer is better protected and the industry better

served

[[Page 55097]]

by the Commission's Recycled Oil Rule.\20\

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\17\ The comments submitted in response to the NPR also have

been placed on the public record, Commission Rulemaking Record No.

R511959, and are coded ``D'' indicating that they are public

comments. The comments are cited by identifying the commenter (by

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

\18\ Evergreen, D-2, 2.

\19\ Safety-Kleen, D-3, 1.

\20\ Id. at 2.

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II. Basis for Repeal of Rule

The Commission has decided to repeal the Used Oil Rule for the

reasons discussed in the NPR. In sum, after reviewing the rulemaking

record, and in light of promulgation of the Recycled Oil Rule, the

Commission has determined that a separate Used Oil Rule is no longer

necessary, and that its repeal will eliminate unnecessary duplication,

and any inconsistency with EPCA's goals. While 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, the

Commission has 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 enforcement actions under Section 13(b), 15 U.S.C. 53(b), in

federal district court. Prosecuting serious or knowing

misrepresentations in district court allows the Commission to seek

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

disgorgement. Any necessary administrative or district court actions

also would serve to provide industry members with additional guidance

about what practices are unfair or deceptive. In addition, the

Commission has concluded that eliminating the Used Oil Rule not only

reduces duplication, but also streamlines the regulatory scheme,

thereby responding to President Clinton's National Regulatory

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

eliminate obsolete or unnecessary regulations. Accordingly, the

Commission hereby announces the repeal of the Used Oil Rule.

III. Regulatory Flexibility Act

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

an analysis of the anticipated impact of the repeal of the Used Oil

Rule on small businesses. The reasons for repeal of the Rule have been

explained in this notice. Repeal of the Used Oil Rule would appear to

have little or no effect on small businesses. Moreover, the Commission

is not aware of any existing federal laws or regulations that would

conflict with repeal of the Used Oil Rule. Further, no comments

suggested any adverse effect on small business from repeal. For these

reasons, the Commission certifies, pursuant to Section 605 of the RFA,

5 U.S.C. 605, that this action will not have a significant economic

impact on a substantial number of small entities.

IV. 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,\21\ 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.\22\ 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 will permanently eliminate any burdens on

the public imposed by these disclosure requirements.

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\21\ U.S.C. 6363 note.

\22\ 46 FR 20979.

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List of Subjects in 16 CFR Part 406

Advertising, Labeling, Trade practices, Used lubricating oil.

PART 406--[REMOVED]

The Commission, under authority of section 18 of the Federal Trade

Commission Act, 15 U.S.C. 57a, amends chapter I of title 16 of the Code

of Federal Regulations by removing part 406.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 96-27181 Filed 10-23-96; 8:45 am]

BILLING CODE 6750-01-M