Trade Regulation Rule Concerning Games of Chance in the Food Retailing and Gasoline Industries

FEDERAL TRADE COMMISSION

16 CFR Part 419

Trade Regulation Rule Concerning Games of Chance in the Food

Retailing and Gasoline Industries

AGENCY: Federal Trade Commission.

ACTION: Repeal of rule.

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SUMMARY: The Federal Trade Commission announces the repeal of the Trade

Regulation Rule concerning Games of Chance in the Food Retailing and

Gasoline Industries. The Commission has reviewed the rulemaking record

and determined that due to changes in industry practices, the Rule no

longer serves the public interest and should be repealed. This notice

contains a Statement of Basis and Purpose for repeal of the Rule.

EFFECTIVE DATE: December 26, 1996.

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

should be sent to Public Reference Branch, Room 130, Federal Trade

Commission, 6th Street and Pennsylvania Avenue N.W., Washington, D.C.

20580.

FOR FURTHER INFORMATION CONTACT: John M. Mendenhall, Federal Trade

Commission, Cleveland Regional Office, Suite 520A, 668 Euclid Avenue,

Cleveland, Ohio 44114, (216) 522-4210.

SUPPLEMENTARY INFORMATION:

Statement of Basis and Purpose

I. Background

The Commission promulgated the Trade Regulation Rule concerning

Games of Chance in the Food Retailing and Gasoline Industries (Games of

Chance Rule), 16 CFR Part 419, on August 16, 1969 (34 FR 13302). The

purpose of the Rule was to address abuses that were uncovered during

Commission and Congressional investigation into the use of games of

chance for promotional purposes in the food retailing and gasoline

industries. In both industries, it appeared that the winning game

pieces were being distributed in a manner not determined by chance but

calculated to have maximum promotional impact. In order to prevent

future abuses, the Rule required various pending-game and post-game

disclosures, as well as certain procedures for operating a game of

chance.

Pending-game disclosures included: (1) The number of prizes in each

``category or denomination;'' (2) the odds-of-winning each prize; (3)

the number of retail outlets participating in the game; (4) the

geographic area covered by the game; and (5) the end date. If the game

extended beyond 30 days, the Rule required weekly updating of

disclosures of the odds-of-winning and the number of prizes. Post-game

disclosures included: (1) The list of winners and the amount or value

of each prize; (2) the total number of game pieces distributed; (3) the

number of prizes in each ``category or denomination'' that were made

available; and (4) the number of prizes actually awarded. Procedural

requirements included a hiatus between games; a prohibition against

terminating a game prior to distribution of all game pieces; a

prohibition against replenishing of game pieces or prizes during a

game; and a three-year record-keeping requirement.

The Commission amended the Rule once in 1981. The amendments

alleviated some reporting requirements, dropped certain requirements of

the ``winners list'' provision, and shortened the required hiatus

between games.1

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1 16 CFR 419.1(e), -(f) (1995); 46 FR 36840 (July 16, 1981).

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After the 1981 amendments, advertising and broadcasting trade

associations filed a petition seeking exemption from the disclosure

requirements for broadcast advertising of games. The petition asserted

that games of chance could not be advertised in the broadcast media if

full disclosures regarding prizes and odds of winning were required. In

response to the petition, the Commission granted a temporary exemption

from disclosure requirements for broadcast advertising.2

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2 48 FR 1046 (Jan. 10, 1983).

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In a related action, the Commission issued an Advance Notice of

Proposed Rulemaking (ANPR) to request comments about whether the

Commission should make the exemption permanent and whether to revise

other aspects of the Rule.3 The commenters who responded to the

ANPR consisted of members of the supermarket, gasoline, advertising,

game promotion, and broadcasting industries, and lawyers with

experience in representing such industries.

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3 48 FR 265 (Jan. 4, 1983).

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Based upon comments received in response to the ANPR and the

staff's analysis, the Commission published its Notice of Proposed

Rulemaking (NPR).4 The major proposals of the NPR were to amend

the Rule to: (1) drop certain disclosures in advertising and

promotional materials; (2) raise the threshold for winners lists

disclosures to prizes of $50.00 and over; (3) permit replenishment of

prize game pieces; and (4) drop the waiting period required between

games. In 1995, the Presiding Officer re-opened the record for

additional comments, particularly regarding whether there was a

continuing need for this Rule.5

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4 53 FR 39103 (Oct. 5, 1988).

5 60 FR 38474 (July 26, 1995).

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The Commission received seven comments in response to the NPR and

seven in response to the 1995 request for additional comments. These

commenters included members of the advertising, broadcasting, game

promotion, and game user industries.6 A number of these commenters

urged rescission of the Rule, stating that it discriminated unfairly

against certain types of retailers and that there was no record of

abuse to justify retaining the Rule.7 Others urged retention of a

modified Rule in order to protect consumers from possible

deception.8 Finally, some commenters stated that if the Commission

were to retain the Rule, it should be expanded to include other

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industries in order to remove the discriminatory effect against grocery

stores and gasoline stations.9 As with the response to the ANPR,

the Commission received no comments from any public interest groups,

government agencies or consumers.

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6 Those filing comments on the NPR included: The

Promotion Marketing Association of America, Inc.; CBS; Leo Burnett

Company, Inc.; Association of Retail Marketing Services; Incentive

Federation, Inc.; Producers Alliance on Rulemaking; and the Food

Marketing Institute. No prospective witness filed a request to

testify at a hearing, and the Presiding Officer therefore issued a

Notification of Cancellation of Public Hearings and Rebuttal Period.

53 FR 39103 (1988). Parties responding to the 1995 notice re-opening

the record included: the Food Marketing Institute; the Minnesota

Service Station and Convenience Store Association; the National

Association of Broadcasters; the National Association of Convenience

Stores; The Promotion Marketing Association of America, Inc.;

Society of Independent Gasoline Marketers of America; and Triplex

Marketing, Inc.

7 Those urging rescission included: the Food Marketing

Institute; the National Association of Convenience Stores; Society

of Independent Gasoline Marketers of America; and The Promotion

Marketing Association of America, Inc.

8 Producer's Alliance on Rulemaking; Triplex Marketing,

Inc.; and the Minnesota Service Station and Convenience Store

Association.

9 E.g., the Food Marketing Institute.

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The Final Staff Report 10 and the Presiding Officer's Report

11 on the proposed rulemaking both recommended rescission of the

Rule. The reports were placed on the public record and public comments

were invited.12 No public comments were received on the reports

and their joint recommendation to the Commission to rescind the Games

of Chance Rule. The reasons for repeal of the Rule, as set forth in

these two reports, are summarized below.

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10 Federal Trade Commission Staff, Final Staff Report to

the Federal Trade Commission, Games of Chance in the Food Retailing

and Gasoline Industries (1996).

11 Federal Trade Commission Presiding Officer, Report of

the Presiding Officer on a Trade Regulation Rule Proceeding:

Proposed Amendment of the Games of Chance Trade Regulation Rule

(1996).

12 61 FR 29039 (June 7, 1996).

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II. Basis for Repeal of Rule

The Commission has determined to repeal the Games of Chance Rule

based on an analysis of the rulemaking record. The Commission bases its

rescission on the following reasons:

1. In the 27 years since the Rule was promulgated, there have been

no enforcement actions for violations of the Rule. It appears that the

abuses that prompted adoption of this Rule have largely disappeared.

2. The Rule has become outdated. It covers only a limited sector of

retail businesses that use games of chance in their promotions. During

the 1960s, grocery stores and gasoline stations were the primary users

of games. Today, however, businesses not covered by the Rule, such as

fast food restaurants and soft drink bottlers, use games of chance as

much as, or even more often than, those that are covered by the Rule.

Generally, even businesses that are not covered voluntarily make some

of the more important required disclosures, such as the prizes offered

and the odds of winning them.

3. The Rule may have an adverse effect on businesses that must

comply with all of the Rule's requirements, but are competing with

other firms that are not regulated by the Rule. In recent years, the

distinctions between types of retailers have become blurred. Many

stores other than traditional grocery stores now sell food items, and

grocery stores often sell prepared food like restaurants. Thus,

although various retailers sell food, only grocery stores must incur

costs to comply with the Rule. This disparity in treatment could be

addressed by expanding the Rule to cover all retailers using games of

chance. There is, however, no evidentiary basis in the record for

expansion.

4. The states are in a good position to control the activities of

retailers operating games of chance because such retailers have a

physical presence in the states where they do business. Many states

traditionally have been involved in the oversight of games of chance

and sweepstakes, particularly where such games may violate a state's

public policy against commercial lotteries.

5. This rulemaking has generated very little interest, indicating a

lack of importance of this Rule in today's marketplace.13

Significantly, no comments were filed in response to the recommendation

of the Presiding Officer's Report and the Final Staff Report that the

Commission repeal the Games of Chance Rule.

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13 In fact, a survey conducted for the rulemaking staff

by Opinion Research Corporation showed that generally consumers do

not base shopping decisions on the use of games of chance by

retailers. Opinion Research Corporation, Survey to Assess the

Effectiveness of the Games of Chance Trade Regulation Rule (1987).

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All of these reasons indicate that the Rule is outdated and no

longer necessary to protect consumers. It appears that the costs of the

Rule now outweigh its benefits. Should abuses recur in the future, both

the Commission and the states can use case-by-case law enforcement to

prosecute those engaging in unfair or deceptive practices in the use of

games of chance.

III. Regulatory Flexibility Act

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

that the agency conduct an analysis of the anticipated impact of the

repeal of the Rule on small businesses.14 The purpose of a

regulatory flexibility analysis is to ensure that the agency considers

the impact of a regulatory action on small entities and examines

regulatory alternatives that could achieve the regulatory purpose while

minimizing burdens on small entities. However, Section 605 of the RFA,

5 U.S.C. 605, provides that such an analysis is not required if the

agency head certifies that the regulatory action will not have a

significant economic impact on a substantial number of small entities.

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14 The RFA addresses the impact of rules on ``small

entities,'' defined as ``small businesses,'' ``small governmental

entities,'' and ``small [not-for-profit] organizations,'' 5 U.S.C.

601. The Games of Chance Rule does not apply to the latter two types

of entities.

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Because the Games of Chance Rule covers retail food stores and

gasoline stations, it may affect a substantial number of small

entities. However, repeal of the Rule will not have a significant

economic impact upon such entities. Disclosures and record-keeping

requirements that are eliminated may involve a small cost savings to

such retailers, but the effect will not be significant. Grocery stores

and gasoline stations using games of chance, however, will be able to

continue making those disclosures deemed most important to their

customers or that are required by state law. Moreover, the Commission

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

conflict with repeal of the Rule. Therefore, based on available

information, the Commission certifies that repeal of the Games of

Chance Rule will not have a significant economic impact on a

substantial number of small entities.

IV. Paperwork Reduction Act

The Games of Chance Rule imposes third-party disclosure and record-

keeping requirements that constitute information collection

requirements for which the Commission has obtained clearance under the

Paperwork Reduction Act, 44 U.S.C. 3501 et seq., Office of Management

and Budget (OMB) Control Number 2084-0067. Accordingly, repeal of the

Rule would eliminate any burdens on the public imposed by these

disclosure and recordkeeping requirements.

List of Subjects in 16 CFR Part 419

Advertising, Foods, Gambling, Gasoline, Trade practices.

PART 419--[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 419.

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 96-33016 Filed 12-26-96; 8:45 am]

BILLING CODE 6750-01-P