20402 Federal Register /Vol. 60, No. 80/Wednesday, … Federal Register/Vol. 60, No. 80/Wednesday, April 26, 1995/Rules and Regulations DEPARTMENT OF HEALTH AND HUMAN SERVICES Food

20402 Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

DEPARTMENT OF HEALTH ANDHUMAN SERVICES

Food and Drug Administration

21 CFR Part 520

Oral Dosage Form New Animal Drugs;Lufenuron Suspension

AGENCY: Food and Drug Administration,HHS.ACTION: Final rule.

SUMMARY: The Food and DrugAdministration (FDA) is amending theanimal drug regulations to reflectapproval of a new animal drugapplication (NADA) filed by CibaAnimal Health, Ciba-Geigy Corp. TheNADA provides for oral administrationof lufenuron suspension to cats for thecontrol of flea populations.EFFECTIVE DATE: April 26, 1995.FOR FURTHER INFORMATION CONTACT:Marcia K. Larkins, Center for VeterinaryMedicine (HFV–112), Food and DrugAdministration, 7500 Standish Pl.,Rockville, MD 20855, 301–594–0614.SUPPLEMENTARY INFORMATION: CibaAnimal Health, Ciba-Geigy Corp., P.O.Box 18300, Greensboro, NC 27419–8300, filed NADA 141–026, whichprovides for oral administration ofProgram (Lufenuron) Suspension tocats 6 weeks of age or older. The drugis provided once a month, mixed infood, for the control of flea populations.The product contains six individualdose packs of 135 or 270 milligramslufenuron. Lufenuron has no deleteriouseffect on adult fleas, but it preventsmost flea eggs from hatching ormaturing into adults. The NADA isapproved as of March 28, 1995, and theregulations are amended in part 520 (21CFR 520) by adding new § 520.1289 toreflect the approval. The basis forapproval is discussed in the freedom ofinformation summary.

In accordance with the freedom ofinformation provisions of part 20 (21CFR part 20) and § 514.11(e)(2)(ii) (21CFR 514.11(e)(2)(ii)), a summary ofsafety and effectiveness data andinformation submitted to supportapproval of this application may be seenin the Dockets Management Branch(HFA–305), Food and DrugAdministration, rm. 1–23, 12420Parklawn Dr., Rockville, MD 20857,between 9 a.m. and 4 p.m., Mondaythrough Friday.

Under section 512(c)(2)(F)(ii) of theFederal Food, Drug, and Cosmetic Act(21 U.S.C. 360b(c)(2)(F)(ii)), thisapproval qualifies for 3 years ofmarketing exclusivity beginning March28, 1995, because it contains reports of

new clinical or field investigations,other than bioequivalence or residuestudies, essential to the approval andconducted or sponsored by theapplicant.

The agency has carefully consideredthe potential environmental effects ofthis action. FDA has concluded that theaction will not have a significant impacton the human environment, and that anenvironmental impact statement is notrequired. The agency’s finding of nosignificant impact and the evidencesupporting that finding, contained in anenvironmental assessment, may be seenin the Dockets Management Branch(address above) between 9 a.m. and 4p.m., Monday through Friday.

List of Subjects in 21 CFR Part 520

Animal drugs.Therefore, under the Federal Food,

Drug, and Cosmetic Act and underauthority delegated to the Commissionerof Food and Drugs and redelegated tothe Center for Veterinary Medicine, 21CFR part 520 is amended as follows:

PART 520—ORAL DOSAGE FORMNEW ANIMAL DRUGS

1. The authority citation for 21 CFRpart 520 continues to read as follows:

Authority: Sec. 512 of the Federal Food,Drug, and Cosmetic Act (21 U.S.C. 360b).

2. New § 520.1289 is added to read asfollows:

§ 520.1289 Lufenuron suspension.

(a) Specifications. Each individualdose pack contains either 135 or 270milligrams of lufenuron.

(b) Sponsor. See No. 058198 in§ 510.600(c) of this chapter.

(c) Conditions of use in cats—(1)Amount. Minimum of 13.6 milligramsper pound of body weight (30milligrams per kilogram).Recommended dose of 135 milligramsfor up to 10 pounds of body weight or270 milligrams for 11 to 20 pounds. Catsover 20 pounds are provided theappropriate combination of packs.

(2) Indications for use. For control offlea populations.

(3) Limitations. For oral use in cats 6weeks of age or older, once a month,mixed with food. Administer inconjunction with a full meal to ensureadequate absorption. Treat all cats in thehousehold to ensure maximum benefits.Because the drug has no affect on adultfleas, the concurrent use of insecticidesthat kill adults may be necessarydepending on the severity of theinfestation. Federal law restricts thisdrug to use by or on the order of alicensed veterinarian.

Dated: April 19, 1995.Stephen F. Sundlof,Director, Center for Veterinary Medicine.[FR Doc. 95–10273 Filed 4–25–95; 8:45 am]BILLING CODE 4160–01–F

DEPARTMENT OF THE TREASURY

Bureau of Alcohol, Tobacco andFirearms

27 CFR Parts 6, 8, 10 and 11

[T.D. ATF–364, Re: Notice No. 794 andNotice No. 796]

RIN 1512–AB10

Unfair Trade Practices Under theFederal Alcohol Administration Act(93F–003P)

AGENCY: Bureau of Alcohol, Tobaccoand Firearms (ATF), Treasury.ACTION: Final rule, Treasury decision.

SUMMARY: The Bureau of Alcohol,Tobacco and Firearms (ATF) isamending trade practice regulationsunder the Federal AlcoholAdministration (FAA) Act on tied-house, exclusive outlets, commercialbribery, and consignment sales byadding standards for enforcing the‘‘exclusion’’ element where appropriate.Under the FAA Act, ‘‘exclusion, inwhole or in part, of distilled spirits,wine, or malt beverages, sold or offeredfor sale by other persons’’ is a necessaryelement of a violation of the tied-house,exclusive outlets or commercial briberyprovisions. In this final rule, ATFpromulgates a framework forestablishing ‘‘exclusion,’’ identifiespromotional practices which result incontrol of a retailer or in exclusionunder the Act, identifies factors whichwill apply in evaluating exclusion, andidentifies those practices for whichthere is no likelihood that exclusionwill result and for which the Bureauwill not take action (safe harbors). Otherregulatory amendments are also made asa result of an ATF review of theregulations and an industry petitionsubmitted in 1992.EFFECTIVE DATE: May 26, 1995.FOR FURTHER INFORMATION CONTACT:James R. Crandall, Coordinator, MarketCompliance Branch, 650 MassachusettsAvenue, NW, Washington, DC 20226;telephone (202) 927–8100.

SUPPLEMENTARY INFORMATION:

Background

The Federal Alcohol Administration Act

The Federal Alcohol AdministrationAct (hereinafter referred to as FAA Act

20403Federal Register / Vol. 60, No. 80 / Wednesday, April 26, 1995 / Rules and Regulations

or Act) provides for Federal regulationof the alcoholic beverage industry. TheFAA Act contains particular restrictionsthat are unique to the alcoholic beverageindustry and reflects Congress’ concernwith a variety of trade practices andabuses that took place before, duringand immediately after Prohibition. Thisfinal rule amends regulations under fourparts of the statute, Exclusive Outlet (27U.S.C. 205(a)), Tied-House (27 U.S.C.205(b)), Commercial Bribery (27 U.S.C.205(c)), and Consignment Sales (27U.S.C. 205(d)). The supplementaryinformation is divided into twosections. The first section deals with thesubject of exclusion, and the secondsection covers other changesimplemented as a result of an internalreview of trade practice regulations andan industry petition.

ExclusionOne element which is necessary for

these practices (other than consignmentsales) to result in violation of Federallaw is ‘‘exclusion, in whole or in part,of distilled spirits, wine, or maltbeverages, sold or offered for sale byother persons.’’

Although exclusion is not defined inthe FAA Act or in the currentimplementing regulations at 27 CFRParts 6, 8 and 10, ATF has, in the past,held that ‘‘exclusion in part’’ includessimply causing retailers to purchase lessof a competing brand than theyotherwise would have bought.

In Fedway Associates, Inc., et al. v.United States Treasury, Bureau ofAlcohol, Tobacco and Firearms, 976F.2d 1416 (DC Cir. 1992) (Fedway),however, the United States Court ofAppeals for the District of ColumbiaCircuit held that Congress had intendedsomething more than just a retailerpurchasing less of a competing brandthan it otherwise would have. For aviolation to occur there must also be atie or link between a supplier andretailer that at least threatens theretailer’s independence (that is, inaddition to affecting the retailer’spurchasing pattern).

The court based this conclusion onseveral points. The court said‘‘exclusion’’ means to exclude a rivalproduct from the marketplace by somedirect action of the violator. Merelytaking some action which influences aretailer not to purchase a rival productis not exclusion under the Act if theretailer’s response is the result of a freeeconomic choice. This interpretation ofexclusion as meaning the shutting out orexpelling of a rival’s product, accordingto the court, is consistent with conductaddressed by the Act such as tied-house,commercial bribery and exclusive

outlets. Any broader interpretationwould, in the view of the court, likelyresult in restriction of pro-competitiveactivities.

The Fedway court was concerned thatATF enforcement actions could hinderlegitimate competitive activities.Consequently, the opinion states that ifATF suspects a particular practiceplaces retailer independence at risk thenthe agency must provide substantialsupport backing up its suspicion. Thecourt recognized the utility of therulemaking process to provide evidencewhich substantially supports theconclusion that a particular practiceeither actually or potentially threatensretailer independence.

Factual or substantive proof isnecessary, the court stated, to ensurethat the Government does not take anoverly-broad enforcement posture in itsefforts to prevent potential threats toretailer independence and riskoutlawing conduct that fosters acompetitive alcohol market. In theFedway proceeding, the court held thisfactual basis was not met because theonly datum or evidence presented wasthe fact that certain retailers purchasedless of a rival product.

In summary, the court offered thefollowing guidance about this statutoryelement:

Congress, we are satisfied, used‘‘exclusion’’ to indicate placement of retailerindependence at risk by means of a ‘‘tie’’ or‘‘link’’ between the wholesaler and theretailer or by any other means of wholesalercontrol.

[We demand] a factual showing thatretailer independence is potentiallythreatened * * *.

[ATF should] take reasonable account ofboth policy interests underlying the [tradepractice] provisions * * * that the alcoholindustry requires special oversight andregulation * * * and the value of pro-competitive wholesale promotions. Thisvalue derives not only from the traditionalbenefits of competition in terms of lowerprices and improved quality, but also * * *from the fact that a competitive alcoholmarket helps deter the formation of a corruptblack market.

Finally, in arriving at a reasonableinterpretation of ‘‘exclusion’’ * * * theBureau must take care to distinguishrationally between those promotions itdecides are lawful and those it decides arenot.

Notice of Proposed RulemakingOn April 26, 1994, ATF published

Notice No. 794 (59 FR 21698), proposingamendments to the trade practiceregulations to address the concerns ofthe Fedway court and to make otherchanges suggested by its internal reviewand the industry petition. Notice No.794 solicited comments on these

proposed changes by June 27, 1994. Thecomment due date was extended to July27, 1994 by Notice No. 796 (59 FR29215).

ATF emphasizes that the revision ofthe trade practices regulations is anongoing process. Any interested personmay petition ATF under 27 CFR71.41(c) for a rule change.

Comments on Notice of ProposedRulemaking

ATF received 1,347 letters ofcomment on Notice No. 794, containinga total of 1,593 signatures. Commentswere submitted by alcoholic beverageproducers, importers, wholesalers,retailers, trade associations, relatedbusinesses, consumers and governmentagencies.

National trade associations whocommented on trade practices include:American Brandy AssociationAmerican Vintners Association (AVA)Beer InstituteBrewers’ Association of America (BAA)Distilled Spirits Council of the United

States (DISCUS)Institute for Brewing StudiesNational 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 CoalitionWine and Spirits Wholesalers of

America (WSWA)Wine Institute

Summary of Proposals, Comments andChanges Incorporated in this Final Rule

The following paragraphs provide asummary of ATF’s original proposals,the comments received on each as aresult of Notice No. 794, and anexplanation of ATF’s decisionconcerning each issue. Proposals whichconcern a general topic will beaddressed first, followed by discussionof proposals concerning individualsections of the regulations.

Proposed New Subparts on Exclusion

ATF proposed amendments andadditions to the regulations on thesubject of exclusion which follow aframework which ATF believes isconsistent with the statutoryinterpretation of exclusion adopted bythe Fedway court as well as similarconcerns previously raised in ForemostSales Promotions, Inc. v. Director,


Bureau of Alcohol, Tobacco andFirearms, 860 F.2d 229 (7th Cir., 1988)(Foremost). The courts in both Fedwayand Foremost found that ‘‘exclusion’’ asused in the FAA Act cannot occurwithout a relationship or arrangementbetween the industry member and theretailer which actually or potentiallythreatens the retailer’s independence.

ATF proposed to amend regulatoryparts of Title 27 CFR relating toexclusive outlet (Part 8), tied-house(Part 6), and commercial bribery (Part10), by adding new subparts onexclusion. Even though the exclusiveoutlet provision was not involved in theFedway or Foremost decisions, theprovision is impacted by the decisionssince the provision requires the showingof exclusion in order for a violation toarise.

ATF proposed a two-step frameworkto describe exclusion, in whole or inpart, of distilled spirits, wine or maltbeverages sold or offered for sale byothers as occurring (1) when a practiceplaces retailer independence at risk bymeans of a tie or link between theindustry member and retailer or by anyother means of industry control over theretailer, and (2) such a practice by anindustry member, whether direct,indirect, or through an affiliate, resultsin the retailer purchasing less than itotherwise would have of a competitor’sproduct. The proposed regulationsincluded a set of criteria by which ATFwill determine the existence of the firstelement. These criteria include theduration of the practice or promotion,the degree to which a practice involvesan industry member in the day-to-dayoperations of a retailer, and, in somecases, the non-discrimination feature ofthe practice where it is available to allretailers. Exclusion under the Act willexist when ATF can establish thepresence of both of these elements.

General Comments on ExclusionWhile some commenters expressed

support for the approach ATF took inthe proposed rule, others objected tocertain areas of the proposals. Forexample, NABI stated it was‘‘disappointed to see BATF reassert theso-called ‘hair trigger’ or ‘one bottle less’test for determining exclusion. Proposedsection 6.152(a)(2) was pointedlyrejected by the court in Fedway, yetBATF drags up this albatross onceagain.’’ Secondly, NABI quoted theFedway decision which said the ‘‘* * *definition of the ‘exclusion’ criterionmust also recognize adequately—as theagency’s current definition does not—the value of pro-competitive wholesalepromotion.’’ The DISCUS commentstated similar concerns and asked that

the second element, relating to retailerpurchases, be deleted.

ATF disagrees with the DISCUS/NABIcomment about the second part of ATF’stwo-step framework of exclusion(§§ 6.151(a)(2), 8.51(a)(2), and10.51(a)(2)) where ATF states that apractice must result in a retailer or tradebuyer purchasing less than it wouldhave of competitor’s product forexclusion to occur. On this subject, theFedway court stated:

The Bureau explains that the phrase meansthat the inducement in question must besuccessful, i.e., it must in fact cause retailersto buy comparatively less from competitors—a minimal requirement, to be sure, but not ameaningless one.

It was the showing of this minimalrequirement in conjunction withevidence that a particular practicethreatens retailer independence that thecourt held is exclusion under the Act.Under the two-step framework,exclusion is present only if both parts orelements of the framework areestablished. If ATF were to drop thesecond element as requested by NABIand DISCUS, then ATF could proveexclusion under the Act without evershowing that a competing industrymember’s products were actuallyexcluded in whole or in part. While thiswould ease ATF’s burden in proving aviolation it would ignore the statutoryrequirement of ‘‘exclusion, in whole orin part’’ which by its terms requiressome impact on a retailer’s purchases.

Regarding NABI’s second observation,ATF’s goal in airing these proposals andsoliciting interested persons’ responsewas to develop a public record showingwhy certain practices areanticompetitive, in that they threatenretailer independence, and why otherpractices do not threaten retailerindependence. (In the context ofcommercial bribery, the trade buyer’sindependence is evaluated.) Relying onall of the comments received, ATF hasmade adjustments to its originalproposals and developed a final rulewhich it believes does, as Fedwaydirected, ‘‘distinguish rationallybetween those promotions it decides arelawful and those it decides are not.’’

The Federal Trade Commission (FTC)staff (rather than the Commission orCommissioners) submitted commentson the general approach to exclusion.While the staff concurs that the threat toretailer independence analysis isconsistent with promoting a competitivemarket, they recommend that ATFadopt more of a market share or ‘‘marketpower’’ approach.

Before responding to the particularFTC staff comments, ATF feels it is

necessary to point out that the FAA Actis concerned with the impact of aparticular marketing practice on anindividual retailer and not on the entireretail market in any particular locality(e.g., ‘‘relevant market’’). The lattermarket focus is the concern of theantitrust laws enforced by the FTC andexplains why the vertical restraintframework applied by the FTC is notrelevant to an FAA Act analysis.Congress deemed the general antitrustlaws insufficient to address the uniqueunfair trade practice problems in thealcoholic beverage industry. This is whythe FAA Act itself does not contain theterm ‘‘competitive’’ unlike the generalantitrust laws: an absenceacknowledged by the FTC staff. Instead,the Act focuses on the transactionsbetween an industry member and ‘‘anyretailer’’ or ‘‘any trade buyer.’’

The FTC staff comments implicitlyrecognize this difference when theystate that the FAA Act speaks in termsof supplier power over retailers ratherthan simply a supplier’s market share orpower. If the proper focus of the FAAAct were market share or power, thenthe Act would be identical to thegeneral antitrust laws rather than merely‘‘analogous’’ as Congress intended.

Turning to the particular comments,the staff objects to the second part of thegeneral approach to exclusion thatrequires ATF to show the retailerpurchased less of a competitor’s productthan it would have, as a result of asupplier’s promotional practices. TheFTC staff suggests that this is‘‘ambiguous’’ since there may be manylegitimate reasons explaining a decreasein a retailer’s purchases. The FTC staffalso suggests that the FAA Act does notrequire the fact of reduced purchases asan element of a statutory violation.

In promulgating the regulation on theexclusion approach, ATF is notconcluding that a mere reduction inpurchases results in a violation. ATFhas deliberately taken a narrowapproach to ensure that legitimatecompetition is not hindered. The fact ofreduced purchases is only relevantwhen that fact results from a supplierpractice that creates a tie or link (orother method of control) that threatensretailer independence. By requiring thisnexus, ATF is ensuring that reducedpurchase situations resulting from freeeconomic choice or pro-competitivemarketing practices are not pursued asa violation.

ATF believes that the FAA Actmandates a consideration of whether theretailer’s purchases have been impactedby a practice because the statute speaksof ‘‘exclusion, in whole or in part’’ of acompeting supplier’s products as a


result of a transaction between theindustry member and any retailer. Asnoted above, the Fedway courtrecognized this impact as ‘‘a minimalrequirement, to be sure, but not ameaningless one.’’ (The FTC staff alsocommented on the criteria used toevaluate exclusion, and those commentswill be discussed in that section.)

Finally, E. & J. Gallo Winery, in itscomment, noted that the Fedway courtdid not ‘‘question ATF’s authority tostrike at threats to retailer independencein their incipiency, before harmoccurred.’’ Their comment quoted theFedway court’s demand that ATF makea ‘‘factual showing that retailerindependence is potentiallythreatened.’’ The Wine Institute alsonoted the Fedway court demanded only‘‘a factual showing that retailerindependence is potentiallythreatened.’’ These comments causedATF to review its proposed rule andamend the discussion of exclusion, ingeneral, to address this potential threatby adding ‘‘places (or has the potentialto place) retailer independence at risk’’in each subpart on exclusion. Thisrevision is consistent with thediscussion of the exclusion standard inboth the Fedway and Foremostdecisions, since those decisions refer topotential threats.

Practices Which Place Retailer or TradeBuyer Independence at Risk andPractices Not Resulting in Exclusion

In each part, ATF proposed to identifycertain practices which the rulemakingrecord and judicial precedent indicateplace retailer independence at risk bytheir very existence. When suchpractices are undertaken, ATF woulddetermine through the course of aninvestigation whether the other part ofthe exclusion element relating to theactual impact on a retailer’s purchasesis present. In the exclusive outlet andcommercial bribery regulations, ATFalso proposed sections for discussion ofpractices not resulting in exclusion. Inthe tied-house regulations, ATFproposed to revise and expand theSubpart D exceptions to provide safeharbors.

Exclusive Outlet

Section 105(a) of the FAA Act makesit unlawful for an industry member torequire, by agreement or otherwise, anyretailer engaged in the sale of alcoholicbeverages to purchase any such productfrom such person to the exclusion inwhole or in part of alcoholic beveragessold or offered for sale by other personsin interstate or foreign commerce,provided one of the three interstate or

foreign commerce jurisdictional clausesis met.

Retailer independence is threatenedin an exclusive outlet arrangementwhen the ability of the retailer to decidewhich brands of alcoholic beverages topurchase is restricted or impeded. In theFedway context, the question is whetherany restriction negates the retailer’s freeeconomic choice or has been utilized bythe industry member to restrict suchchoice.

In that regard, ATF proposed addinga new section 8.52 to identify twopractices that clearly result in exclusionunder section 105(a) of the Act. The firstpractice involves purchases of distilledspirits, wine, or malt beverages by aretailer as a result, directly or indirectly,of a threat or act of physical oreconomic harm by the selling industrymember. The second practice involvescontracts between an industry memberand a retailer which require the retailerto purchase distilled spirits, wine ormalt beverages from that industrymember and expressly restrict theretailer from purchasing, in whole or inpart, such products from anotherindustry member. In both situations,exclusion of a competitor’s productsresults directly from the arrangement orthe contract without any action by theretailer. Further, ATF has alwaysviewed an exclusive outlet arrangementas including a situation where theretailer offers exclusivity privileges andthe industry member accepts that offer.In other words, it does not matterwhether the requirement originates withthe industry member or the retailer;rather, the requirement is within theexclusive outlet prohibition so long as itis understood as part of the bargain.This position was enunciated inIndustry Circulars 75–20 and 76–18,concerning sales to the U.S. military orother trade buyers. By availing itself ofthe requirement offer, the industrymember has, in effect, specificallyconditioned the promotionalarrangement on this understanding.

ATF also proposed to add a newsection 8.53 to describe practices notresulting in exclusion. Only onepractice was identified in the proposedrule, a supply contract for one year orless, under which an industry memberagrees to sell alcoholic beverageproducts to a retailer on an ‘‘as needed’’basis provided that the retailer is notrequired to purchase any minimumquantity of such products. CommentersHinman & Carmichael expressedconcern that retailers’ private label winesupply contracts would not be withinthis safe harbor, since they often last formore than a year. The commenters statethere are legitimate business reasons for

the longer duration of the contract, suchas the time needed for productdevelopment and promotion and wineproduction. After consideration, ATFbelieves the one year duration isappropriate since the supply contractswhich ATF has reviewed have involvedthat timeframe. ATF is concerned thatsupply contracts for three years involvea continuing relationship that has apotential, under certain circumstances,for tying that retailer to the industrymember. Nevertheless, the fact thatlonger contracts are outside this safeharbor does not foreclose their use; itonly means that ATF will apply thecriteria in section 8.54 to thesesituations. Sections 8.52 and 8.53 areadopted without change in the finalrule.

Part 6—‘‘Tied-House’’Section 105(b) of the FAA Act makes

it unlawful for an industry member toinduce through any of the followingmeans, any retailer engaged in the saleof alcoholic beverages to purchase anysuch products from such person to theexclusion in whole or in part ofalcoholic beverages sold or offered forsale by other persons in interstate orforeign commerce, provided one of thethree jurisdictional clauses is met:

(1) By acquiring or holding anyinterest in any license with respect tothe premises of the retailer; or

(2) By acquiring any interest in real orpersonal property owned, occupied, orused by the retailer in the conduct of thebusiness; or

(3) By furnishing, giving, renting,lending, or selling to the retailer, anyequipment, fixtures, signs, supplies,money, or other things of value, subjectto the exceptions prescribed byregulations, having due regard to publichealth, the quantity and value of articlesinvolved, established trade customs notcontrary to the public interest and thepurposes of the subsection; or

(4) By paying or crediting the retailerfor any advertising, display, ordistribution service; or

(5) By guaranteeing any loan orrepayment of any financial obligation ofthe retailer; or

(6) By extending to the retailer creditfor a period in excess of the creditperiod usual and customary to theindustry for the particular class oftransactions as ascertained by theSecretary and prescribed by regulation;or

(7) By requiring the retailer to takeand dispose of a certain quota of any ofsuch products.

Retailer independence can bethreatened in a tied-house arrangementbetween an industry member and a


retailer when the arrangement involvesa continuing business relationshipwhich restricts the retailer’s ability tomake free economic choices on whichbrands of products to purchase. Ineffect, competition is restricted becausethe retailer who is dependent on or tiedto an industry member cannot make freeand rational business choices onwhether to make a current purchasefrom another industry member based oncurrent business considerations such asconsumer demand or lower pricesoffered by the competition.

The proposed regulations identifiedthreats to a retailer’s independencewhich include: a wholesaler’s partialownership of a retailer, sales where thewholesaler conditions the purchase ofone distilled spirits product on theretailer purchasing another distilledspirits product at the same time, andwholesaler control over the retailerthrough controlling the resetting of theproducts on a retailer’s premises.

Commenters on the other practiceslisted in § 6.152 requested severalamendments to these practices. The lawfirm of Schreiber, Simmons, MacKnight& Tweedy, commenting on behalf of anAsian brewer, expressed concern thatbecause of the way paragraph (c) isworded, it appears that partialownership of a retailer by an industrymember is automatically deemed to putretailer independence at risk. E. & J.Gallo Winery also commented on thissection, recommending that ATF allowindustry members to own smallamounts of stock in publicly tradedretailers. ATF revised the wording ofthis section to show use of theownership of a less than 100 percentinterest in a retailer to influence theretailer’s purchases is the act deemed toput retailer independence at risk, notpartial ownership alone.

With respect to all the practices listedin proposed § 6.152, ATF will also berequired to determine whether thepractice results in the retailerpurchasing less than it otherwise wouldhave of a competitor’s product.

ATF also proposed to revise andconsolidate several of the provisionscontained in Subpart D of Part 6 of thecurrent regulations which find thatcertain practices will not result inexclusion under the tied-houseprovisions (that is, safe harbors).

The classification of these practices inSubpart D of Part 6 is intended toprovide guidance to the regulatedindustry so that legitimate productmarketing programs can be developedwithout the uncertainty of a potentialFederal enforcement action. Legitimateproduct marketing encouragescompetition, by large and small

businesses alike, on the basis of price,product quality and service. (Proposedrevisions to these regulatory exceptionsand related comments are examined indetail in the discussion of changes toindividual sections, below.)

Commercial Bribery

Section 105(c) of the FAA Act makesit unlawful for an industry member toinduce through any of the followingmeans, any trade buyer engaged in thesale of alcoholic beverages, to purchaseany such products from such person tothe exclusion in whole or in part ofalcoholic beverages sold or offered forsale by other persons in interstate orforeign commerce, provided one of thethree jurisdictional clauses is met:

(1) By commercial bribery; or(2) By offering or giving any bonus,

premium, or compensation to anyofficer, or employee, or representative ofthe trade buyer.

Commercial bribery situations involvethe receipt of money or a premium byan officer, employee, or representativeof the trade buyer. Payments madedirectly to business entities (i.e., thecorporation, partnership, or individualowning the business) for the use of thebusiness do not constitute a commercialbribe. The independence of the tradebuyer is threatened in a commercialbribery situation because the officer,employee, or representative of the tradebuyer is making a purchasing decisionas a result of the money or premiumreceived personally and not based onbusiness or marketing factors whichfurther the interests of the trade buyeritself.

Proposed section 10.52 identifiespromotional conduct by an industrymember that involves the payment ofmoney or another premium to anemployee or representative of a tradebuyer without the knowledge of thetrade buyer as practices under the Actthat place trade buyer independence atrisk. The Fedway court noted thatprevious case law upheld as actionablethese types of payments. Thesepayments were viewed as anti-competitive because one competitorgained a competitive advantage overanother competitor by reason of a‘‘secret and corrupt dealing withemployees or agents of prospectivepurchasers.’’ See, American DistillingCo. v. Wisconsin Liquor Co., 104 F.2d582 (7th Cir. 1939). Even where suchpractices exist, ATF would still berequired to demonstrate that they affectthe trade buyer’s purchases in order toestablish exclusion. With respect tothose practices not mentioned herein,ATF would be required to demonstrate

the existence of both of the elements ofexclusion set forth above.

ATF also proposed adding a newsection 10.53 to discuss practices whichdo not place trade buyer independenceat risk, but proposed no specificexamples.

These two sections were adopted inthe final rule without any changes.

Criteria for Determining Retailer orTrade Buyer Independence

ATF proposed adding §§ 6.153, 8.54and 10.54 to list criteria by which ATFwould evaluate whether or not aparticular practice places retailer ortrade buyer independence at risk.Elements which have repeatedly beenmentioned in court cases are degree ofcontrol exercised over trade buyers’purchasing decisions, duration of thepractice, indiscriminateness andcontractual or other enforceablerequirements. The goal of regulatingtrade practices in the alcoholic beverageindustry has been identified as healthycompetition in order to insure the bestpossible price, quality and selection forthe consumer and to prevent formationof a corrupt black market.

The proposed criteria are indicationsthat a particular practice, other thanthose in sections 6.152 and 8.52, placesretailer independence at risk. A practiceneed not meet all of the criteriaspecified in order to place retailerindependence at risk. The proposedcriteria are:

(a) The practice restricts or hampersthe free economic choice of a retailer todecide which products to purchase andthe quantity in which to purchase themfor sale to consumers.

(b) The industry member obligates theretailer to participate in the promotionto obtain the industry member’sproduct.

(c) The retailer has a continuingobligation to purchase or otherwisepromote the industry member’s product.

(d) The retailer has a commitment notto terminate its relationship with theindustry member with respect topurchase of the industry member’sproducts.

(e) The practice involves the industrymember in the day-to-day operations ofthe retailer. For example, the industrymember controls the retailer’s decisionson which brand of products to purchase,the pricing of products, or the mannerin which the products will be displayedon the retailer’s premises.

(f) The practice is discriminatory inthat it is not offered to all retailers in thelocal market on the same terms withoutbusiness reasons present to justify thedifference in treatment.


In the case of commercial bribery, therisk to the wholesale or retail tradebuyer’s independence is evaluated usingsimilar criteria in section 10.54. Anumber of commenters expressedconcern that ATF’s application of thesecriteria to wholesaler trade buyers wasoverly broad and could disruptlegitimate franchise arrangements or‘‘promotional partnerships’’ betweenindustry members and their wholesalertrade buyers. In response, ATF wishesto emphasize that the only ‘‘practices’’being evaluated in section 10.54 arecommercial bribery or the offering orgiving of a bonus, premium, orcompensation to any individual officer,or employee, or representative of thetrade buyer. Transactions with the tradebuyer entity are not in question here,unless circumstances indicate the tradebuyer entity is merely a conduitbetween the industry member and theindividual.

In their comment, DISCUS proposedan alternative to these criteria, whichthey called ‘‘guidelines for evaluatingexclusion.’’ To some extent, theseguidelines paraphrased the generalprinciples enunciated in proposed§§ 6.152, 8.52 and 10.52, but statedthem in terms that narrow theirapplication to specific factual situations.The final rule retains the generalprinciples in its criteria rather than themore limited guidelines proposed in theDISCUS comment, since the industry isprovided clearer guidance by the use ofprinciples of general application ratherthan more narrow factualcharacterizations.

The FTC staff also addressed thecriteria ATF will apply in evaluating apromotional practice not otherwisecovered in another regulation. Ingeneral, the FTC staff criticized thecriteria since they feel that each one ofthe criteria could be a feature of anormal commercial relationship underthe right circumstances. Rather thanrecommend different criteria, the FTCstaff again returns to their view that thefactor of market share or ‘‘marketpower’’ is the proper approach.

For the reasons discussed under‘‘Exclusion, in general’’ above, a marketshare or ‘‘market power’’ approach isnot consistent with the statutorylanguage of the FAA Act or Congress’intent in enacting the unfair tradepractice provisions. Rather, ATF hasdeveloped these criteria based on thefactors stressed by the various Federalcourts that have addressed violations ofthe unfair trade practice provisions. Noone factor is determinative. To theextent that applying a particular factorin a particular case will result inrestricting a pro-competitive practice,

the factor will not be applied inevaluating that practice. This is clearlya case-by-case determination. However,the FTC staff suggestion that a criteriondoes not in all cases demonstrate a tieor link that threatens retailerindependence does not render the factorirrelevant in those cases where it isevidence of such a tie or link.

After reviewing the FTC staffcomments, ATF determined, for reasonsof clarity, that criterion (a) in §§ 6.153,8.54 and 10.54 should read ‘‘whichproducts or what quantity’’ (theproposed rule read ‘‘which productsand what quantity’’). ATF has changedthe final rule accordingly.

Slotting FeesIn Notice No. 794, ATF proposed

adding slotting fees to two areas of theregulations: first, as an example of apractice which has the potential tothreaten a retailer’s independence(proposed section 6.152), and second, as‘‘other than a bona fide sale’’ (proposedsection 11.24). Slotting fees weredescribed in Notice No. 794 as fees paidto a retailer in order to obtain premiumshelf space. ATF sought comments onwhether slotting fees should beaddressed in tied-house and/orconsignment sale regulations. In thenotice, ATF requested data andinformation on the effect of such fees,rather than solely statements ofpreference by a particular commenter.

Slotting fees, also referred to asslotting allowances, are not specificallyaddressed in the current FAA Actregulations. In the past, ATF interpretedsuch fees as ‘‘things of value’’ given toretailers or as ‘‘paying or crediting theretailer for any advertising, display ordistribution service’’ and investigatedslotting fee arrangements as potentialviolations of the tied-house provisionsof the FAA Act, 27 U.S.C. 205(b)(3) or205(b)(4).

ATF received 1,347 letters ofcomment on Notice No. 794, containinga total of 1,593 signatures; of these,1,309 letters (1,554 signatures),expressed support for ATF’s statedposition on slotting fees. Several tradeassociations who supported ATF’sproposed treatment of slottingallowances enclosed substantive anddetailed analyses on the subject byauthorities outside the alcoholicbeverage industry in addition to theirown comments. The Wine Institutesubmitted a statement prepared by PaulN. Bloom, Professor of Marketing at theUniversity of North Carolina at ChapelHill (‘‘Bloom’’). The Beer Institutesubmitted statements prepared by DavidP. Kaplan, President of CapitalEconomics, a Washington, D.C.,

economic research and consulting firm(‘‘Kaplan’’) and Robert Goodale, DeputySecretary of Commerce for the State ofNorth Carolina (‘‘Goodale’’). TheBrewers Association of Americasubmitted a statement by Gregory T.Gundlach, of the College of BusinessAdministration , University of NotreDame (‘‘Gundlach’’). Most othercommenters who supported the ATFproposal commented with conclusorystatements that slotting fees are anti-competitive, but submitted noaccompanying data in support of theseconclusions.

The commenters supporting theproposed rule did so from a number ofdifferent perspectives. Approximately1,130 of the letters written in support ofATF’s proposed rules on slottingaddressed only that issue. Most of theseletters came from beer wholesalers, andmany stated simply that slotting feesshould continue to be considered apotential violation in both the tied-house and consignment salesregulations. The reasons given includedthe statements that slotting fees willhurt competition, reduce consumerchoice, discriminate against smallbusinesses and raise costs in an alreadytight market. However, no supportingevidence was furnished in most of theseletters. A few of these commenters wenton to describe likely costs in terms ofmoney, lost jobs, or product failuresfrom their experience with soft drinks orsnacks.

Of the commenters who wrote onlyabout slotting, 71 requested that ATFexpand its definition of slotting toencompass ‘‘purchasing, renting ormaintaining display and storage spaceas well as shelf space.’’

ATF also received four commentsfrom individual consumers whoexpressed concern that slottingallowances may have the effect ofdampening innovation, especially in thefledgling domestic craft brewingindustry, by making the cost ofintroducing a new product prohibitivelyhigh.

In identical letters, six commentersidentifying themselves as small retailersexpressed concern that ‘‘slotting feeswould give giant retailers more moneyto drive me out of business.’’

Five commenters argued in favor of achange in ATF’s proposed treatment ofslotting fees. These commenters werethe National Association ofConvenience Stores (NACS), theMinnesota Licensed BeverageAssociation, Inc. (MLBA), The KansasRetail Liquor Dealers Association, Inc.,the Circle K Corporation, which ownsand operates convenience stores, andThe Chapter House, a brewpub. NACS


and the Circle K corporation bothargued that slotting fees are simplyreimbursement for the expensesincurred by a retailer when it stocks anew product or moves a product alreadyin stock to a more prominent location,including rearranging warehouses,changing accounting and inventorycontrol systems, and planning newdisplays and shelf arrangements. Nospecific examples or data weresubmitted. NACS cited the high numberof new products introduced each yearand argued that slotting fees enable theproducts to be available to consumers atthe retail premises. However, nomarketing data or studies weresubmitted in support of this purportedeffect. MLBA and the Chapter Houseboth noted that consumers, by theirpurchases, ultimately control theretailer’s purchasing decisions, whetheror not slotting fees are paid.

Evaluation of Comments on SlottingFees

In examining slotting allowances orfees, also called ‘‘display fees,’’‘‘introductory allowances,’’ ‘‘pay-to-stayfees,’’ ‘‘stocking allowances,’’ ‘‘annualrenewal fees,’’ ‘‘up front fees,’’‘‘maintenance fees,’’ ‘‘push money,’’ and‘‘failure fees,’’ ATF has relied heavilyupon the aforementioned statements byBloom, Kaplan, Goodale and Gundlach,since so little objective data wassubmitted with the other comments.Where material from these statements iscited, ATF will include a reference tothe author and page number.

In his statement, Bloom (page 15)notes that slotting fees ‘‘have becomeentrenched, with both grocerymanufacturers and retailers expectingthese fees to be a part of everytransaction involving a new product.’’Since these fees have become socommonplace in other industries andare not being treated as illegal in thoseindustries, it is appropriate to reviewATF’s reasons for believing they shouldcontinue to be prohibited in thealcoholic beverage industry.

Fedway directed ATF to consider thebenefits of legitimate competitivepractices in evaluating whether apractice is exclusionary. Several of thestatements addressed this aspect ofslotting fees. One expected benefit offair competition is that it will result inbetter quality, selection or prices forconsumers. Goodale (page 8) saysslotting allowances ‘‘do not benefitconsumers. Retailers do not pass on theproceeds from slotting allowances in theform of lower prices for the favoredproducts. Moreover, competition byslotting allowances may actually tend todisplace competition in other forms

more likely to be passed on toconsumers, such as lower prices toretailers, special promotions, orcoupons. To the extent that they reducethe availability or visibility ofcompeting products, slotting allowancesalso reduce consumer choice.’’

Many commenters expressed concernthat allocation of shelf space to productsunder slotting fee agreements is notbased on perceived consumer demand,but on money factors. These concernsappear to be borne out by the expertstatements and the published materialattached to them. Several made thedistinction between ‘‘pull’’ marketing,in which the supplier uses advertising,coupons, and other means to createconsumer demand, and ‘‘push’’marketing, in which the supplieressentially pays the retailer to ‘‘push’’the product by guaranteeing itsavailability and prominence at retailoutlets. Slotting fees, sometimes called‘‘push money’’ fall into this lattercategory. In Fedway, the courtacknowledged the ‘‘general belief thatcheap and plentiful alcohol is not anunmitigated social good (as opposed,say, to cheap and plentiful homeheating oil or shoes) suggest[s] that thealcohol industry requires specialoversight and regulation.’’ There is atleast a perceived danger in allowingslotting fees in the alcoholic beverageindustry that heavily promoted productswould be overrepresented or ‘‘pushed’’at the retail level.

Bloom (pages 4 through 6 and page23) points out that ‘‘the channels ofdistribution through which an industrymember may market its beverages are farmore limited than those faced by amanufacturer of other beverages or ofother unregulated consumer products.’’Availability of retail outlets foralcoholic beverages is ‘‘restricted innumber and location, by state licensingrequirements’’ and ‘‘manufacturers inthis industry may not sell their goodsthrough mail order in many states.’’Bloom states the argument that there arealternative retail outlets (that is, that asupplier barred from selling to onecustomer may sell to others) does notapply in the alcoholic beverage industrybecause of these factors.

One of ATF’s proposed criteria fordetermining retailer independence, thatis, whether the practice has adiscriminatory aspect, also has a bearingon the evaluation of the impact of thisrulemaking on small businesses underthe Regulatory Flexibility Act. Bloom(page 11) states that ‘‘some argue thatslotting fees may be beneficial to smallbusiness, by offering the opportunity foran untested product to ‘buy’ its way intoa retailer. I consider this view somewhat

naive, since, even if such anopportunity exists in theory, it is not arealistic or practical one for most smallor start-up businesses. These areprecisely the companies that cannot winthe bidding war for retail space becausethey do not have the funding to payhundreds of thousands of dollars in up-front fees. It is highly relevant that smallfood manufacturers have been amongthe most vocal opponents of slottingfees.’’ Bloom further notes ‘‘sinceslotting fees usually bear little relationto the costs of a retailer or wholesaler,often causing manufacturers to paydifferent amounts to different resellersto stock the same item, such fees canadversely affect small retailers as well.’’(page 25—emphasis in original.)Goodale (page 6) makes a similarobservation: ‘‘Individual stores andsmaller chains have considerably less orno leverage and consequently receivedisproportionately less in ’slottingallowances,’ if any at all.’’

Kaplan (pages 18 and 19) discussescompetition and performance in thebeer and wine industries. ‘‘By anystandard, both industries have exhibitedhealthy competition and excellentperformance under a regulatory regimein which slotting allowances wereclearly prohibited. The healthy level ofindustry performance strongly suggeststhat material alterations to theregulatory treatment of slottingallowances and other long-prohibitedtrade practices should be approachedcautiously.’’ Bloom (pages 5 and 6) alsonotes, despite ‘‘the vigor of competitionin the industry, however, the * * *regulatory structure, by directingcompetition and creating entry barriers,can sometimes make it more difficult tomarket products in the alcoholicbeverage industry than in others.Accordingly, marketing practices whichmay be benign in other industries mayhave severe adverse consequences inthis one.’’

Kaplan (pages 4 and 5) performs acomparison between ATF’s criteria todetermine whether a practice placesretailer independence at risk and thecharacteristics of slotting allowances.Kaplan states, ‘‘[i]n my opinion, thepayment of a slotting allowance by asupplier restricts or hampers theretailer’s choice of which products topurchase (during the time period inwhich the shelf space has beenpurchased or rented), represents acontinuing obligation on behalf of theretailer to purchase and stock thesupplier’s product, represents acommitment by the retailer not toterminate its relationship with thesupplier with respect to purchase of thesupplier’s products, reduces the amount


of shelf space available for competingproducts, and generally results in areduction in the sales of the displacedproducts.’’ Goodale (pages 6 and 7)performs a similar analysis, with similarfindings. He adds that ‘‘[s]lottingallowances involve manufacturers in theday-to-day decisions of the retailerregarding what products the retailer willpurchase and how products will bedisplayed in the store. Payment ofslotting allowances is almost alwaysdiscriminatory among retailers in anygiven area.’’

With particular reference to thecontinuing character of the obligation,and the danger of a tie or link betweenthe industry member and the retailer,Bloom (page 7) states that‘‘manufacturers often make continuingpayments to retailers and wholesalerseither to keep a product on the shelvesor in the warehouse when the productdoes not sell in the volume expected bythe retailers, or to obtain preferentialdisplay space. In other words,manufacturers may be required to makeongoing payments even after they havepaid the entry fee and even if theproduct sells well. These are referred toas ‘pay-to-stay’ fees.

‘‘Goodale (page 6) noted‘‘Manufacturers pay slotting allowancesonly with the agreement of retailers toprovide their products some benefit orfavorable treatment. A slottingallowance is part of a mutually bindingcontract between manufacturer andretailer. Thus, a retailer that accepts aslotting allowance is obligated to fulfillthe terms of its agreement with thepaying manufacturer. Moreover,retailers do not treat this obligationlightly. A retailer that did not fulfill itspart of a slotting allowance agreementwould quickly acquire a reputation as a‘welcher’ that would damage its abilityto collect slotting allowances in thefuture. Thus, retailers have a strongincentive to honor their commitment tofavor the paying manufacturer’sproduct.’’ Bearing out this notion of anincentive to favor a supplier who paysslotting fees, Bloom attached an articlefrom Journal of Public Policy andMarketing by Joseph P. Cannon andPaul N. Bloom, called ‘‘Are SlottingAllowances Legal Under the AntitrustLaws?’’ The article noted:

Whether slotting allowances have served asanticompetitive weapons or insurance fees,grocery chains have benefited from theirexistence. Historically, profits rarelyexceeded 1 percent of sales, but the lastseveral years have seen profits in the 2percent range [Sullivan 1989].

Although the article noted there wereother contributing factors in this strikingincrease in profitability, a retailer would

be reluctant to give up any practicewhich contributes to such an increase.Goodale (page 6), stated that, for largeretailers, ‘‘slotting allowances are amajor source of revenue, accounting forperhaps more than 10% of after-taxprofits.’’ This underscores the potentialfor a retailer to become dependent on aslotting fee arrangement, thus creatingthe tie or link which is an element ofexclusion.

Nature and Effect of Slotting Fees

The proposed description of slottingfees in § 6.152(b), read, in part,‘‘purchasing or renting specific shelfspace * * * where such purchasereduces the availability of other shelfspace for the distilled spirits, wine ormalt beverages of another industrymember.’’

As noted earlier in the discussion ofthe comments on slotting, a number ofcommenters requested that thisdefinition be expanded because slottingfees cover more than just the purchaseof specific shelf space.

Goodale (pages 8 and 9) states ‘‘in myview, the slotting allowance provisionin § 6.152(b) of the NPR is too narrow.The reference to ‘purchasing or rentingspecific shelf space’ would not includemany of the slotting allowancearrangements discussed above that havethe same adverse effect on retailerindependence. The draft regulationshould be modified to make clear thatall forms of slotting allowancearrangements will be treated as puttingretailer independence at risk, as in factthey most certainly do.’’ The slottingpractices listed by Goodale (pages 2through 4) were:

Payments made by manufacturers toretailers and wholesalers to set up a new itemin their store or warehouse.

Payments made by manufacturers toretailers in return for an obligation to, forsome agreed-upon period of time:

Allocate a specified quantity of shelf orrefrigerator space to the manufacturer’sproduct;

Allocate a favorable shelf or displayposition to the manufacturer’s product (aisleend or eye level, for instance);

Feature the manufacturer’s products inadvertising and displays during times of peakdemand, such as holidays;

Set aside warehouse or backroom space onthe retail premises for storage of themanufacturer’s product, to reduce thenumber of deliveries and facilitate restockingof the store shelves;

In some product categories (greeting cardsand light bulbs, for example) the retailer maycarry one manufacturer’s productexclusively.

Based upon the evidence noted, ATFbelieves that slotting fees put retailerindependence at risk, and proposed

§ 6.152(b) is adopted in this final rule,with two changes. In the final rule, ATFhas expanded the description of slottingfees to more accurately reflect thevariety of practices which come underthis category. ATF also dropped thecondition that the purchase of shelfspace reduce the availability of space forcompetitors’ products from § 6.152(b),since that factor must always be shownwithin the framework discussed in§ 6.151(a)(2).

Slotting Fees as Consignment SalesIn Notice No. 794, ATF proposed to

classify payment of slotting allowancesas ‘‘not a bona fide sale’’ in theconsignment sale regulations in Part 11.This classification grows out of thedescription of consignment sales in 27U.S.C. 205(d), ‘‘to sell * * * onconsignment or under conditional saleor with the privilege of return or on anybasis otherwise than a bona fide sale.’’ATF argued the practical effect of‘‘slotting allowances’’ is to refund, inwhole or in part, the purchase price ofa product that has not been sold, inproportion to the period of time that itremains unsold.

At a minimum, payment of ‘‘slottingallowances’’ may reimburse the tradebuyer for the cost of shelf spaceoccupied by the industry member’sproducts. In addition, it may alsocompensate the trade buyer for the lostopportunity cost of having capital tiedup in inventory acquired from theindustry member. Ultimately, theamount refunded by this mechanismcan, over any specified period of time,be the economic equivalent of simplybuying back a product at the end of thatperiod of time.

ATF believes that its regulationsshould address all arrangements thatclearly embody the substance of the‘‘consignment sale’’ practice proscribedby Congress, and not merely particularforms of that practice. Therefore, ATFproposed to amend its regulations tospecify payment of ‘‘slottingallowances’’ from an industry memberto a trade buyer is a form ofconsignment sale.

NACS, in its comment, stated thatslotting allowances cannot be equatedwith consignment sales. They argue thatit is unlikely that, even over time, theslotting allowances would be theequivalent of the wholesale price, andthat ATF cannot presume ‘‘that slottingallowances would have this effect in allcircumstances.’’

Other commenters offered contrastingviews on this subject. E. & J. GalloWinery cited remarks by FTCCommissioner Deborah K. Owen on thesubject of slotting fees. She called them


a ‘‘form of insurance for the retailer* * * [which] reduce, and perhapseliminate his risk—or at least transfersome of it to the producer—by charginga fee that, essentially, providesindemnification from the loss of profitsthat would arise if the new product failsto sell well.’’ Statements submitted byretailers opposing ATF’s proposals onslotting fees corroborated that slottingfees do serve the function of shifting therisk of loss back to the supplier/wholesaler.

Kaplan (page 13) describes ‘‘failurefees.’’ ‘‘These fees are being paid if a‘new product does not meet salesexpectations.’ ’’ Kaplan’s exampledescribed a grocery chain whichreportedly asks its suppliers to agree,under contract, to cover the retail costof merchandise remaining unsold after a120-day introductory period if theproduct has not met its weekly volumetarget. The supplier ‘‘has the option’’ ofremoving the remaining inventory.

Bloom (page 17) said ‘‘a manufacturerwhich performs poorly is often able to‘pay to stay,’ and make up for theshortfall in profits contributed.’’ Bloomwent on to describe slotting fees in thegrocery industry as ‘‘a form of‘insurance’ for retailers. It is well-recognized that retailers have reducedthe risk of carrying new products bycharging slotting fees. Indeed, several[interviewees] suggested that manysupermarkets may not be in the riskygrocery business anymore. Instead, theysee some supermarket chains asessentially being in the real estatebusiness, selling and leasing shelf spaceto manufacturers.’’

In view of these comments, ATFbelieves the purported use and purposeof slotting fees clearly demonstrate thata sale which involves a slotting fee is‘‘not a bona fide sale.’’ Proposed § 11.24is retained in the final rule, butamended to reflect the broaderdescription of slotting fees adopted in§ 6.152(b).

Slotting Fees as Commercial Bribery orExclusive Outlet

Although there was no formal requestfor inclusion of slotting fees under thecommercial bribery part of theregulations, a number of commenterscharacterized slotting fees as bribery or‘‘payola.’’ As discussed earlier, the FAAprohibition of commercial briberyrelates to the offering or giving of abribe, bonus, premium or compensationto any individual officer, employee orrepresentative of a trade buyer, and notto the trade buyer entity. As slotting feeshave been described in the comments,they appear to be transactions with theentity, and not with an individual. If an

investigation disclosed payments to anindividual for influencing the display orstocking of a product, ATF wouldpursue that as a case of commercialbribery, if the other necessary criteriawere met.

Coors Brewing Company suggestedadding a new section to Part 8—Exclusive Outlets, to prohibit slottingallowances, saying a slotting allowance‘‘necessarily involves a requirementimposed upon a retailer by a voluntaryagreement.’’ ATF disagrees; slottingallowance agreements appear to belimited to manner of display or stockingof product, not to exclusivity ofpurchase, which is the focus of theexclusive outlet rules. Certainly, if ATFfound an industry member wasrequiring a retailer to purchase itsproducts to the exclusion of similarproducts sold or offered for sale by otherindustry members as part of a slottingfee arrangement, ATF would alsopursue the exclusive outlet aspect of thecase.

Other Proposed ChangesATF proposed to revise or add

regulations in 27 CFR Parts 6, 8, 10, and11, in areas suggested by the industrypetition and in areas identified by ATFas appropriate for rulemaking. Theproposed revisions and additions arediscussed below.

In 1988, ATF designated an agencytask force to review the trade practiceregulations and ATF’s enforcementexperience, since 1980, and determinewhether revisions were needed. ATFdetermined that certain regulationscould be modified or clarified toprovide guidance to the industry onATF’s interpretations of the tradepractice statute. Such guidance has beenprovided by rulings and industrycirculars. Notice No. 794 proposedincorporating these rulings and industrycirculars into the regulations.

In addition to changes identified inthe Bureau’s own review, this noticeresponded to changes suggested in aFebruary, 1992, petition filed byrepresentatives of the Distilled SpiritsCouncil of the United States, Inc.(DISCUS), the National Association ofBeverage Importers, Inc. (NABI), Wineand Spirits Wholesalers of America, Inc.(WSWA), the National LicensedBeverage Association (NLBA), and theNational Liquor Stores Association, Inc.(NLSA). This petition superseded anearlier petition filed by DISCUS andNABI with ATF. ATF suggested thatDISCUS and NABI work with allsegments of the alcohol beverageindustry to reach a consensusconcerning the various proposals torevise the trade practice regulations.

The 1992 petition reflects a culminationof that effort by the supplier,wholesaler, and retailer organizationsnoted above.

Scope of Parts 6, 8, 10 and 11ATF proposed to revise §§ 6.1, 8.1,

10.1 and 11.1 to reflect therecodification of the Federal AlcoholAdministration Act which includedrenumbering the trade practice sectionfrom section 5 to section 105 and tobetter reflect the function of theproposed regulations. No commentersobjected to these changes, and they areadopted as proposed. DISCUS suggestedremoving the sentence ‘‘This part doesnot attempt to enumerate all of thepractices which may be aviolation * * *’’ from each of thesesections, but gave no reason for thissuggestion. This sentence was retainedin each part because it is an accuratestatement; each part does not list all ofthe practices which can result in aviolation. The deletion of this sentencewould mislead a person into believingthat each part constitutes a complete orexhaustive list of every practice withinthe trade practice proscriptions.

Sections 6.3 and 8.3, ApplicationAlthough ATF had proposed no

change to § 6.3(b) or § 8.3(b), theNational Alcohol Beverage ControlAssociation (NABCA) renewed itsrequest (originally aired during the lasttrade practice rulemaking in 1980) thatall control states be categorized aswholesalers, even if they meet thedefinition of retailer contained insections 6.11 and 8.11. NABCA states inthe comment submitted on its behalf byTendler, Goldgerg, Biggins & Geltzer,that this simplification is neededbecause Control State arrangements varywidely from State to State and create aconfusing ‘‘patchwork’’ of rules. ATFmaintains its 1980 position that there isno statutory authority for such a change.Therefore, no change is made in thesesections in the final rule.

Administrative Provisions in Parts 6, 8,10 and 11

Section 102(c) of the FAA Act (27U.S.C. 202(c)) incorporates by referencethe provisions of sections 49 and 50 ofTitle 15, U.S.C. of the Federal TradeCommission Act which vests in ATFinvestigative subpoena authority andthe right to examine and copy relevantdata subject to an FAA Actinvestigation. In addition, section 102(d)provides authority to require suchreports as are necessary to effectuate thepurposes of the statute. ATF proposedadding new regulations at 27 CFR 6.5,8.5, 10.5 and 11.5 delegating these


authorities to specific officials. Therewere numerous comments on these twoproposals, and they will be addressedseparately below:

Examination and SubpoenaPursuant to 15 U.S.C. 49 and 50 as

made applicable by section 102(c), ATFmay examine, at all reasonable times,any documentary evidence which isnecessary to determine whether theperson, partnership, or corporationbeing investigated or proceeded againstviolated the FAA Act. The right toexamine includes the right to copy anysuch documentary evidence. Inaddition, section 49 authorizes theissuance of a subpoena for any person,partnership, or corporation to producerecords or give testimony relevant to aninvestigation of a violation of the FAAAct. ATF proposed to delegate theauthority to examine and copy recordsto the Director or any ATF officer, andto delegate the authority to issuesubpoenas to the Director. Sixty twocommenters (many using similarlanguage, as if following a sample letter)questioned the need for this provisionand ATF’s interpretation of the statute.Other commenters requested that ATFexplain the reasons for its authority forusing the subpoena power ininvestigations.

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 doesnot have the authority to use subpoenasin connection with any type ofinvestigation prior to the issuance of anorder to show cause against a basicpermit.

Subsequent to the Serr decision, inconsultation with the Department ofJustice, ATF concluded that it wouldnot follow the decision outside the 3rdcircuit and planned to litigate the issuein another circuit. ATF has continued touse its subpoena power in other circuitsand has not been challenged.

In Serr, the court narrowly interpretedthe incorporation by reference in 27U.S.C. 202(c) of the investigatorysubpoena authorized under the FederalTrade Commission Act. The Serrdecision held that Congress provided noexpress investigation power to theagency administering the FAA Act and,therefore, the subpoena authority couldonly be used in an administrativeproceeding against a basic permitpursuant to 27 U.S.C. 204. The courtbased this conclusion on the fact thatother Federal statutes containing similarincorporations of the Federal TradeCommission Act subpoena powercontained express provisionsauthorizing investigations and,

additionally, Congress had expresslyrejected an investigation provision inthe FAA Act.

A review of other Federal statutescited by the court reveals that the powerto conduct investigations into possibleviolations is granted either inconjunction with the broader power tocall for general fact findinginvestigations, or supplemental to athird party complaint system ofenforcement, or both. The court’ssummary conclusions about theseinvestigation powers did not entail ananalysis of the types of ‘‘investigations’’contemplated by these other provisions.ATF does not conduct these types ofgeneral fact finding investigations or usea third party complaint system. Instead,ATF traditionally conductsinvestigations into specific violations byspecific industry members.

Likewise, the investigation provisionrejected by Congress authorized theagency to make investigations andstudies with reports to the President andCongress on the production, distributionand consumption of alcoholicbeverages. The provision did notaddress the power of the agency toconduct specific investigations intowhether an industry member violated aspecific provision of the FAA Act.Therefore, the failure of Congress toenact this provision indicates nothingabout Congress’ intent on whether theadministrating agency could conduct aninvestigation to determine whether theindustry member violated the statute. Itis fair to conclude that Congressintended that the administering agencyhave routine investigatory authority asan inherent part of the given ‘‘dutiesand powers’’ to administer and enforcethe unfair trade practice provisionswhen there is reason to believe that anindustry member violated the FAA Act.

Finally, the court’s conclusion thatsuspension or revocation of basicpermits is sufficient for effectiveenforcement of the Act fails to recognizethat the FAA Act contains otherenforcement mechanisms such asinjunctions, consent decrees, and offersin compromise which are used outsideof an administrative proceeding againsta basic permit, as well as ignores thefact that brewers do not hold basicpermits. Such reasoning also fails torecognize that an investigation is a pre-requisite to developing adequate facts tosupport issuing an order to show causethat alleges a specific violation. For allof these reasons, it is illogical toconclude that Congress, on the onehand, gave the administering agencythese other traditional enforcementmechanisms and authorized the use ofother 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 inherentauthority to conduct traditionalinvestigations into whether an industrymember has violated a specific tradepractice provision. Accordingly, ATFhas retained the proposed examinationand subpoena provisions in Parts 6, 8,10 and 11 of the final rule.

One change was made in theseprovisions in the final rule because ATFnoted some industry concern that thesepowers will be used for ‘‘fishing,’’ ratherthan as part of a specific investigation.ATF has added language to require ashowing that the requested evidencemay reasonably be expected to yieldinformation relevant to a violation of thestatute by a particular industry memberbeing investigated under the Act.

Report of Promotional ActivitiesIn addition, pursuant to section

102(d) of the FAA Act, new regulationswere proposed in §§ 6.5, 8.5, and 10.5,authorizing the regional director(compliance) to require a letter reportfrom industry members regardinginformation on sponsorships,advertisements, promotions, and otheractivities conducted by, or on behalf of,or benefiting the industry member. Thereporting requirement would be used ona case-by-case basis, rather than as arecurrent and periodic reportingrequirement such as a monthly report ofactivities applying to all industrymembers. ATF did not propose addinga reporting requirement in Part 11,Consignment Sales.

Most of the 66 comments on thissection described the subject reports as‘‘advertising reports’’ and noted thatATF already had ‘‘abundant’’ authorityto regulate advertising. The remainderof the comments on this reportaddressed three main areas: The perjurystatement requirement, the delegation tothe regional director (compliance) andthe absence of limits or safeguards.

The proposed rule required that theletter report be ‘‘executed under thepenalties of perjury.’’ Commenters werecritical of this requirement because,they pointed out, perjury carries acriminal penalty, whereas mostpractices which are under investigation,if found to be violations, would behandled administratively. ATF isretaining this requirement in the finalrule for consistency with requirementsfor other documents filed under theFAA Act regulations, such asapplications for basic permits andcertificates of label approval. Further,even if the perjury statement were notrequired, giving a false statement in adocument presented to a government


official and relied on by that official isstill a criminal offense under 18 U.S.C.1001.

In the proposed rule, ATF delegatedauthority for requiring this report to theregional director (compliance). Severalcommenters expressed concern thatthese reports could be required at anytime, without any justification, and thatthe policy for requiring such reportsmight vary from region to region. ATFaddressed these concerns by revisingthe final rule to authorize the DeputyAssociate Director (RegulatoryEnforcement Programs) to require thesereports, and by adding language to thesection specifying that the reportswould only be required as part of aninvestigation. Further, the final rule alsoprovides that the report shall cover aperiod of no more than three years.

Several commenters expressed theopinion that ATF had understated thetime needed to comply with thisrequirement, but since no alternativetime burden estimate was offered, ATFis retaining the one hour estimatedburden in the final rule. Comments onthis estimate may be submitted to theaddress shown in the PaperworkReduction Act section of the supportingdata.

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

ATF proposed to add the terms ‘‘ATFofficer’’ and ‘‘Director’’ to thedefinitions in 27 CFR 6.11, 8.11, 10.11,and 11.11 to correspond to the terms inthe proposed administrative provisionsin §§ 6.5, 8.5, 10.5, and 11.5, discussedabove. ATF also proposed adding theterm ‘‘Regional director (compliance)’’to the definitions in 27 CFR 6.11, 8.11and 10.11 to correspond to the term inthe proposed administrative provisions.In view of the change in this delegationin the final rule, a definition for‘‘Deputy Associate Director (RegulatoryEnforcement Programs)’’ has beensubstituted.

ATF proposed to define the term‘‘brand’’ in 27 CFR 6.11, since a numberof dollar limitations on things of valuewhich may lawfully be given to retailersis on a ‘‘per brand’’ basis. The definitionproposed was drawn from ATF Ruling81–1, Q.B. 1981–2, page 27, excludingchanges in the color or design of thelabel. Commenters on this issue weredivided.

While most commenters supportednarrowing the definition of the word‘‘brand’’ as proposed, Hinman &Carmichael, attorneys, noted in theircomment that label color is sometimesused to distinguish ‘‘different qualitydesignations of similar productsproduced by the same manufacturer,’’

and suggested adding ‘‘different qualitystandard or grade’’ to the list ofexamples of different brands. ATFbelieves the items listed in the proposeddefinition, such as age and alcoholcontent, should address most suchdifferences.

NBWA and the President’s Forum ofthe Beverage Alcohol Industry bothcommented that the proposed increasein the dollar limits in Part 6, Subpart D,combined with such a broad definitionof the term ‘‘brand,’’ would have ananticompetitive effect by allowingindustry members with diverse brandportfolios to give a large number ofvaluable items to retailers. As discussedlater in the supplementary information,a number of commenters expressedconcern about the large proposedincrease in the dollar limitations, butdid not comment on the proposeddefinition of brand. Since ATF hasdecided to address these concerns byraising the dollar limitations less thanoriginally proposed, it will not benecessary to further narrow theproposed definition of ‘‘brand.’’

NBWA expressed concern thatbeverage varieties ‘‘have proliferated atan unprecedented rate’’ and that ‘‘eventhe most subtle variation in the productline would be construed to createanother ‘brand’ ’’ under our proposeddefinition. NBWA further stated in theircomment that the ‘‘whole matter of whatconstitutes a brand is at the center ofcontroversy and litigation across thecountry.’’ They suggested airing thisissue in a separate rulemaking and, if adefinition is adopted at all, specifyingthat the definition is only intended toapply to Part 6. In view of thiscomment, ATF has decided to adopt thedefinition of brand as proposed, withthe addition of a note in the definitionthat it only applies to the administrationof the exceptions in Part 6.

Although the petitioners suggestedrevising the definition of ‘‘retailer’’ in 27CFR Parts 6 and 8, ATF proposed nochanges in this definition. Thepetitioners suggested removing thelanguage which specifies that awholesaler who makes incidental retailsales representing less than 5 percent ofits sales during the preceding twomonths shall not be considered aretailer. The petitioners state that asupplier cannot know whether thewholesaler’s retail sales are within the5 percent limitation and suggesteliminating that standard. Thepetitioners also believe that thedefinition of ‘‘retailer’’ should beclarified in order to ensure that thisdefinition is consistent with § 6.2 whichdefines the territorial extent of Part 6 ofthe regulations.

ATF believes that removal of the 5percent limitation would make thedefinition too broad. For example,without the percent limitations, awholesaler who makes a single sale toa consumer is deemed to be a retailer.Also, the petitioners’ proposeddefinition would exclude, as a retailer,someone within the United States whomakes sales for consumption outside ofthe United States; i.e., a duty free shop.The FAA Act itself does not allow thistype of exception to the territorialcoverage of the law. Therefore, ATF didnot agree with this proposal, andproposed no change to the definition of‘‘retailer.’’ DISCUS, in their comment onthe proposed rules, reiterated therequest for these revisions, butpresented no new arguments. No othercomments addressed the definition ofthe word ‘‘retailer.’’ For the samereasons, ATF did not proposeconforming amendments to thedefinition of ‘‘retailer establishment.’’ATF holds to its comments as expressedin Notice No. 794, and made no changesto these definitions in the final rule.

ATF proposed to change the term‘‘retailer establishment’’ in 27 CFR 6.11to ‘‘retail establishment’’, since that isthe term used in 27 CFR Part 6regulations. The term ‘‘retailestablishment’’ in 27 CFR 8.11 will beremoved because the term is not used in27 CFR Part 8 regulations. Nocommenters objected to these proposals,and they were adopted in the final rule.Since the term ‘‘retailer’’ is being addedto Part 11, ATF has added a definitionfor that term in section 11.11 whichconforms to the definition in 6.11.

Discussion of Changes to IndividualSections

Sections 6.25 through 6.33, Interest inRetail Licensee

The petitioners stated that thesesections of the regulations provideidentical treatment concerning aninterest of an industry member in alicense with respect to a retailer’spremises (Sections 6.25–6.27) and inreal or personal property owned,occupied, or used by the retailer in theconduct of the business (Sections 6.31–6.33). The petitioners proposedcombining the provisions which theybelieve parallel each other (Sections6.25 and 6.31; 6.26 and 6.32; and 6.27and 6.33).

ATF does not believe that theprovisions of §§ 6.25 through 6.33should be combined in the various waysproposed by the petitioners. From astructural point of view, merging §§ 6.25through 6.33 fundamentally alters theorganization of Subpart C of Part 6.


Subpart C is divided into topics (withtitles) which parallel sections 105(b)(1)through (7) of the FAA Act. Theproposed merger of the correspondingsections will mean that the regulationsapplicable to an interest in retailproperty under section 105(b)(2) will becontained in a group of the regulationscategorized under an interest in a retaillicense under section 105(b)(1). ATFbelieves that it may be confusing for aperson or industry representativerelying on the Part 6 regulations to lookunder the regulations on a retail licensefor a regulation relating to an interest inretail property. ATF proposed nochange with respect to this request,received no additional requests for sucha merger, and makes no such change inthe final rule.

Further, the petitioners recommendedclarifying changes to existingregulations to ensure that there is nomisunderstanding that a violation of theFAA Act does not occur merely upon afinding of the existence of the means toinduce. The petitioners believe that thewording of several existing regulationsdescribing various means to induceresults in industry confusion since suchsections are written in terms describing‘‘prohibited means to induce.’’

The petitioners believe that the term‘‘prohibited’’ should be deleted fromsuch sections in order to avoid anycontention or confusion that thisprovision, read separately from section6.21, allows for finding a violation ofthe FAA Act without also establishingthat the means to induce results inexclusion. While the petitionersrecognize that these sections are subjectto the general application provisions ofsection 6.21, which states that thesemeans to induce are unlawful only ifthey result in exclusion, they believesuch a change will help reduce thepossibility of industry confusion on thisissue. The same request was madeconcerning §§ 6.31, 6.41, 6.51, 6.61, 6.65and 6.71, which all contain similarlanguage.

ATF proposed to amend §§ 6.25, 6.27,6.31, 6.33, 6.41, 6.51, 6.61, 6.65 and 6.71by replacing the word ‘‘prohibited,’’with the phrase, ‘‘a means to induce,’’in order to correspond with the wordingof the FAA Act. No objections to thischange were received, and it is adoptedin the final rule.

Section 6.42, Third Party ArrangementsATF’s review of its regulations

disclosed that some confusion existsover the breadth of the proscription onindirect means to induce. Someindustry members incorrectly view thetwo examples in § 6.42 as exclusive ofthe situations covered by the regulation.

Additionally, ATF believes someindustry members interpret theexamples as meaning the third partyreceiving the means to induce must bean agent of an individual retailer.

By enacting the phrase ‘‘directly orindirectly or through an affiliate,’’Congress intended the broadest possibleapplication of the proscriptions of theFAA Act. The term ‘‘indirectly’’encompasses more than simply tradepractice activities with agents ofretailers. It covers such activities withany representative of a retailer orindustry member, whether or not suchrepresentative is technically an agent ofthe retailer or industry member. Thus,an industry member providing themeans to induce to any third party whowill pass the means on to the retailer,or use them in a manner to benefit theretailer, is indirectly providing themeans to induce to the retailer.

Accordingly, ATF proposed adding asentence to § 6.42 to clarify that theexamples are simply illustrative and notexclusive of the situations resulting inindirect inducements. ATF alsoproposed to revise the final sentence forclarity.

Several commenters expressedconcern that ATF appeared to holdindustry members responsible for anyinducement provided to a retailer by athird party, whether or not the industrymember knew or intended that it wouldbe provided. In response to thesecomments, ATF revised the section toclarify that an inducement will not arisewhere the thing of value was furnishedto a retailer by a third party without theknowledge or intent of the industrymember, or the industry member didnot reasonably foresee that the thing ofvalue would be furnished to a retailer.In evaluating the second point of thisexception, ATF will determine if theitem given was of such a nature orcharacter that the industry membercould reasonably foresee that it wouldbe furnished to a retailer.

Section 6.43, Sale of EquipmentThe petitioners recommended

deleting the last sentence of § 6.43,which states that negotiation by anindustry member of a special price to aretailer for equipment from anequipment company is a thing of value.They argued that this negotiation shouldnot be considered a thing of valueunless the industry member subsidizesthe special price. ATF disagreed sincethe thing of value is not the specialprice, but the service provided by theindustry member in negotiating with theequipment company, or using itsinfluence on behalf of the retailer. In thepast, ATF has experienced cases in

which a retailer, believing that itreceived special price consideration,altered its buying patterns resulting inexclusion of a competitor’s products.ATF did not propose deleting thislanguage, but did propose a conformingchange to the cross-reference.

In its comment, DISCUS reiterated thepetitioners’ request for deletion of thelast sentence, but did not present anynew information. ATF maintains itsposition that the last sentence of § 6.43describes a service which is a thing ofvalue (that is, a means to induce aretailers’ purchases) and should not bedeleted. No comments were receivedobjecting to the change in crossreference, so that change is adopted inthe final rule.

Section 6.46, Outside Signs

ATF proposed to repeal this sectionand add a new § 6.102 to allow industrymembers to furnish outside signs toretailers as an exception in subpart D.As discussed under § 6.102, ATFreceived mixed comments on thisproposal and has made some changes to§ 6.102 as it appears in the final rule.Accordingly, § 6.46 is deleted by thefinal rule.

Section 6.47, Items Intended forConsumers

The petitioners recommendeddeleting this section because theybelieve that it is redundant andunnecessary in light of § 6.93 and theirproposed revisions to § 6.87.

ATF proposed to remove this sectionsince the general prohibition in § 6.41covers things of value not specificallyexcepted in Subpart D. ATF proposed toallow certain items listed in § 6.47 bylisting them in the proposed revision of§ 6.84, Point of sale advertising andconsumer advertising specialties. Nonegative comments were received onthis proposal, and the section isremoved in the final rule.

Section 6.51, General

ATF proposed revising this section toreplace the word ‘‘prohibited’’ with thephrase ‘‘means to induce.’’ No adversepublic comments on this proposal werereceived, but a commenter within ATFpointed out that the regulation shouldbe further clarified. A review of thehistory of the section shows that it isintended to cover two situations,reimbursements to a retailer foradvertising or display services directlyprovided by the retailer, andreimbursements for such services ifpurchased by the retailer from a thirdparty. The final rule is revisedaccordingly.


Section 6.52, Cooperative Advertising

ATF proposed deleting the phrase‘‘placed by the retailer’’ from thissection and cross-referencing § 6.52 to§ 6.98, Advertising Service. DISCUS, inits comment, requested that the sectionbe retained in its present form.

Upon review, ATF concurs. Thephrase ‘‘placed by the retailer’’ shouldbe retained in § 6.52, since the sectionis based on 27 U.S.C. 205(b)(4), andadvertisements placed by the industrymember would be evaluated as ‘‘thingsof value’’ under 27 U.S.C. 205(b)(3).Further, it is not appropriate to cross-reference § 6.52 to § 6.98, which is anexception under 205(b)(3). ATFwithdraws its proposal; no change ismade to this section in the final rule.

Section 6.67, Sales to a Retailer WhoseAccount is in Arrears

ATF’s current position is contained inRevenue Ruling 54–162, 1954–1 C.B.340. On August 1, 1979, ATF proposeda regulation (Notice No. 327, 44 FR45298) on credit arrears which wouldhave provided that a supplier couldcontinue to sell to a retailer, withunpaid purchases existing in excess of30 days, without violating the extensionof credit provision if the retailer eithermade payments in accordance withRevenue Ruling 54–162 or the amountof arrears did not exceed an averagepurchase by the retailer from thesupplier over the preceding 4 monthperiod.

Commenters at the time objected tothe proposal stating that it wouldrequire extensive bookkeeping checks orit might force repayment of largeoutstanding debts in order to keepdealing with a wholesaler. Severalcommenters recommended that ATFsimply adhere to the creditrequirements imposed by State law.ATF withdrew the proposal (T.D. ATF–74, 45 FR 63242, September 23, 1980)from further consideration. In NoticeNo. 794, ATF again proposed to adoptin the regulations the position stated inRevenue Ruling 54–162. However,comments on other possible approacheswere solicited.

Several commenters endorsed theproposed change as set forth in NoticeNo. 794 and some opposed allowingindustry members to extend credit toretailers at all. Other commenters againsuggested that State law be the guidelineon extension of credit. E. & J. GalloWinery, in its comment, suggested thatATF allow industry members to acceptcash on delivery instead of cash withthe order, to be more consistent withmost State credit laws. After reviewingthe comments, ATF believes it is

appropriate to incorporate itslongstanding policy as stated inRevenue Ruling 54–162 into theregulations.

ATF has adopted the proposed rule,but modified it to show that a sale to aretailer who is in arrears is not a meansto induce ‘‘so long as the retailer paysin advance or on delivery’’ for thatcurrent order and to show that it appliesonly to products as defined in § 6.11.Where State rules are more restrictivethan the Federal rules, retailers andindustry members must still complywith State law.

Section 6.71, Quota Sales and Section6.72, Tie-In Sales

In addition to the language change to§ 6.71 discussed under § 6.41, thepetitioners proposed to eliminate thetie-in prohibition in § 6.72 andconsolidate the remaining provisionsinto § 6.71. The petitionersrecommended deleting the first twosentences of § 6.72 because theybelieved that there is no statutory basisfor this regulation under the FAA Act.The petitioners stated that the classic‘‘tying relationship’’ prohibited by theantitrust laws is not addressed bysection 105 of the FAA Actnotwithstanding that subsection 105(b)of the FAA Act bears the heading ‘‘Tied-House.’’ The petitioners further statedthat prohibitions against tie-inagreements are covered adequately bythe Federal antitrust laws.

The tie-in sale described in theregulations is a form of quota salecovered by the Act. Moreover, ATF feelsthat § 6.71 and § 6.72 are distinct fromone another and should be kept separateto insure clarity and fosterunderstanding of the regulations. Thefact that another Federal law may alsoapply to such a practice is not relevantto whether such a practice is covered bythe FAA Act. In enacting the FAA Act,Congress expressly decided that relianceon the more general antitrust laws wasinadequate in this field. Finally, ATFproposed revising § 6.72 to coverexpressly a particular type oftransaction as a tie-in sale.

DISCUS reiterated the requests fromthe petition in its comment. ATF seesno reason to change its position on thesesections. DISCUS, E. & J. Gallo Winery,and Hinman and Carmichael all askedthat ATF clarify § 6.72 to show that itdoes not cover combination packagingallowed in § 6.93. The combinationpackaging addressed in § 6.93 involvescombinations of alcoholic beverageswith nonalcoholic products, whereas§ 6.72 addresses combinations ofalcoholic beverages only since thissection deals only with ‘‘products’’ as

defined in section 6.11. A crossreference to § 6.93 was added forclarification.

Subpart D—Exceptions

Many changes discussed in the firstsection of the SupplementaryInformation on Exclusion affect thissubpart. The discussion which followsis limited to specific requests by theindustry or findings of ATF’s owninternal review which were notdiscussed in that earlier section.

Section 6.81, General

The petitioners proposed amending§ 6.81(a) by deleting the secondsentence which prohibits an industrymember from conditioning theproviding of items or services allowedunder Subpart D on the purchase ofdistilled spirits, wine, or malt beverages.ATF agreed this prohibition is notnecessary for most items, and proposedto remove the prohibition from thegeneral section and place it in thespecific sections where suchconditioning has been a concern, forinstance, § 6.83 on product displays. Noone commented specifically on thisproposal. While ATF agrees to deletethe general prohibition, industrymembers should be aware that abusiveconditioning will be evaluated as aquota sale under 27 U.S.C. 205(b)(7).

Section 6.81(b), Recordkeepingrequirements, requires industrymembers to maintain certain recordswhich can be used to substantiateclaims that items provided to retailersare within the Subpart D exceptions tothe tied-house prohibitions. Thepetitioners proposed deleting § 6.81(b)in its entirety, thereby eliminating allrecordkeeping requirements. Thepetitioners stated that ‘‘(t)his changeshould be adopted because the FAA Actneither provides nor suggests that anysuch requirements can be imposed.’’

The petitioners further stated that if itis decided not to delete § 6.81(b) in itsentirety, they recommend the additionof language to this paragraph to make itclear that no separate violation of theFAA Act shall arise from the failure ofan industry member to maintain recordsin accordance with the requirements of§ 6.81(b). The petitioners believe thatthe FAA Act neither creates norsupports the existence of any suchviolation of the FAA Act.

In Notice No. 794, ATF did notpropose to eliminate the requirement tokeep records which substantiateindustry members’ claims that itemsprovided retailers are within theexceptions of Subpart D. Such a changewould negate ATF’s capability to verify


compliance with the dollar limitationsand any other requirements of SubpartD. The limitations in each exceptionsection of the regulations would beunenforceable if ATF had no way toverify compliance with therequirements of such exceptions. ATFdid propose to add a sentence to§ 6.81(b) to state that, where an industrymember fails to keep the requiredrecords, such industry member is noteligible for the regulatory exception inthat particular transaction. No separaterecordkeeping violation would becharged.

In its comment, DISCUS continued torequest elimination of § 6.81(b) in itsentirety, but said if § 6.81(b) is retained,ATF should amend it to allow industrymembers to use unspecified othermeans to show compliance. ATFdisagrees, since the recordkeepingrequirement as written givesconsiderable flexibility to the industrymember. No specific form or record hasbeen prescribed, as long as the industrymember can provide information anATF officer would need to verify that apromotion is within the scope ofSubpart D. ATF is adopting § 6.81 asproposed, except for some minor editingchanges suggested by the FederalRegister.

Section 6.82, Cost Adjustment Factor

While the petitioners did not requesta specific change to this section, theyrequested that ATF explore alternatemethods which would be cost effectivefor ATF to convey this information in amanner that continues to ensure that allpermittees are apprised of the annualdollar adjustments. Instead, ATFproposed to delete this section, increasethe dollar limitations and periodicallyreview the amounts if necessary.

Although a few commenterssupported the proposal, most objectedto the size of the proposed increase inthe dollar limitations. For instance, onproduct displays, ATF had proposed toincrease the limitation from $160 (1994adjusted rate) to $500. Manycommenters who characterizedthemselves as small or medium sizebusinesses said they simply could notafford to compete with large industrymembers if their competitors wereproviding displays worth $500 perbrand.

After a thorough review of thecomments, ATF concurs that such alarge increase could create the sort of tieor link identified by Fedway. ATF hasdetermined that making a smallerincrease in the dollar amounts isappropriate. The final rule deletes thissection as proposed in Notice No. 794.

Section 6.83, Product Displays

The petitioners recommendedamending the definition of productdisplay to substitute ‘‘* * * and similaritems the primary function of which isto hold, display or shelve consumerproducts’’ for ‘‘* * * and the like,’’which appears in the current regulation.ATF proposed this change, but used thephrase ‘‘hold and display’’ for clarity.

The petitioners also requested thatATF amend the dollar limitation in theregulation to reflect the current adjustedrate of $160. Instead, ATF proposedchanging the dollar limit to $500 perbrand at any one time per retailestablishment, from the current $100 (asadjusted) per brand at any one time perretail establishment.

Although the general prohibitionagainst an industry member imposingconditions on receipt of items allowedin Subpart D has been removed from§ 6.81, ATF proposed adding astatement to § 6.83 that giving or sellingproduct displays may be conditionedupon the purchase of the distilledspirits, wine or malt beverage productadvertised thereon in a quantity onlynecessary for the initial completion ofthe product display. From the mid-1960s to the 1980 recodification of thetrade practice regulations, conditioningwas allowed for window or otherinterior displays. Industry membershave long argued that they should beallowed to condition receipt of productdisplays on the purchase of a limitedquantity of the product advertised. ATFalso proposed to delete the languagewhich allows lending or renting ofproduct displays in the currentregulation. Such a continuing tie wouldnot be consistent with the intent of theAct. In making these proposals, ATFbelieved the dollar limit of $500 perbrand, coupled with the requirementsfor permanently inscribed advertisingand transfer of ownership of productdisplays to the retailer minimizes theinducement value to the retailer. Thecombination of these factors wouldallow product displays to be exceptedfrom the regulations of Part 6, andwould be the basis for allowing theindustry member to condition receipt ofsuch materials as described above.

Commenters requested a number ofamendments to this proposed section.First, E. & J. Gallo Winery noted that inthe preamble, ATF had said § 6.83would allow conditioning productdisplays upon the purchase of theproduct advertised thereon in a quantityonly necessary for the initial completionof the product display, and yet theregulatory text omitted the word

‘‘initial.’’ This omission is corrected inthe final rule.

In the proposed amendment to § 6.83,ATF eliminated the words ‘‘furnish,loan or rent.’’ DISCUS requestedreinstatement of these options, but ATFmaintains its position that allowinglending or renting of product displayscreates a tie or link which isinconsistent with the goals of the FAAAct. As a result of the Fedway decision,any element of a promotion whichindicates a continuing character issubject to greater scrutiny.

Several other commenters, amongthem the American Brandy Association,expressed concern that the higher dollarlimit would allow a large industrymember to ‘‘install a new $500 displayevery week in a specific store.’’ For thereasons discussed here and under§ 6.82, the dollar limit has been set at$300. That dollar limit and theaforementioned amendment to allowonly outright giving or selling ofdisplays should also prevent the sort ofmonopolization of retail premises fearedby these commenters.

Finally, several commenters requestedsubstitution of the word ‘‘securely’’ forthe word ‘‘permanently’’ in describinghow the advertising material would beinscribed or affixed to the productdisplay. They argued that, when theygive or sell a product display, theycannot control the actions of a retailer,who may choose to remove suchadvertising material. ATF will use thephrase ‘‘permanently inscribed orsecurely affixed’’ in this section and in§ 6.84. However, ATF will revisit thissubject in later rulemaking if abuses arefound.

Section 6.84, Point of Sale Advertisingand Consumer Advertising Specialties

Promotions and practices currentlyallowed under the regulatory exceptionsto the tied-house provisions are safeharbors. Notice No. 794 proposed arevision to those exceptions whichwould combine several of the currentexceptions into one general regulatorysection. The approach of having a singlegeneral section addressing all of thesimilar activities gives greater flexibilityto the industry.

The proposed regulations combine theexceptions listed in §§ 6.84, 6.85, 6.86and 6.87 (inside signs, retaileradvertising specialties, wine lists andconsumer advertising specialties), into arevised § 6.84, Point of sale advertisingand consumer advertising specialties.Items intended for consumers currentlyidentified in section 6.47 are alsoincluded in the proposed listing ofexceptions. The petitioners requestedthat ATF amend the dollar limitation to


reflect the adjusted rates, but instead,under ATF’s proposed revision therewill be no limit to the dollar value of thespecified point of sale (POS) materialsfurnished by an industry member to aretail establishment.

The petitioners also requested that theterm ‘‘wine lists’’ be expanded toinclude all alcoholic beverages. Instead,the proposed 6.84 permits all lists ormenus, subject to the conditions inparagraph (c) of the section.

Several commenters on theseproposals requested that ATF limit listsor menus to alcoholic beverage lists ormenus. On review, ATF concurs thatthere is more of a continuing characterand more potential for industry memberinvolvement in day to day operations ata retailer if full menus are allowed, andhas revised this portion of the final ruleaccordingly.

DISCUS requested that ‘‘mechanicaldevices,’’ which had been permittedunder ‘‘inside signs’’ in the currentregulations but had been omitted fromthe proposed rule, be reinstated, andthat the rule be further expanded toinclude ‘‘electronic devices.’’ Afterconsidering this and related comments,ATF has revised the definition of ‘‘pointof sale advertising materials’’ toeliminate the distinctions (inside signsand retailer advertising specialties)within that definition and simply listexamples. In that context, ATF hasadded ‘‘inside signs (electric,mechanical or otherwise)’’ to the listingof point of sale advertising materials inthe final rule. The restriction ofelectronic devices to signs is consistentwith the current regulatory approachand prevents abuses which could occurif all electronic devices were allowed(since the point of sale section containsno dollar limitations).

In their comment, E. & J. Gallo Winerysuggested that the condition in§ 6.84(c)(2) need not be limited toretailer and consumer advertisingspecialties, and ATF concurs. In thefinal rule, the condition applies to allpoint of sale materials and consumeradvertising specialties.

The Forum and the American BrandyAssociation suggested an annual dollarlimit per retail location. In the past,some of the items listed in this sectionhad a limitation and others did not. ATFdoes not believe, given the nature of theitems described and the requirement forsubstantial advertising material, thatfurnishing such items would create a tieor link between the industry memberand the retailer. In the final rule, ATFimposes no dollar limit, but will revisitthis subject if abuses are found.

Section 6.85, Temporary RetailersATF proposed adding a new section

which will allow furnishing things ofvalue to a temporary retailer. Theproposed regulations recognize thatcertain retail activities of a temporarynature, such as weekend events andcommunity festivals, are so minor in theretail marketplace so as not to justifyFederal intervention; rather, Stateagencies can regulate these situations toprevent abuses. There were numerouscomments concerning this section.

DISCUS suggested extending theprovisions to cover things of value givento a retailer for a ‘‘temporary event.’’ATF disagrees; the reason for exceptingtemporary retailers was that their short-term existence as a retailer did notjustify Federal intervention. However,since a permanent retailer can operate ata ‘‘temporary event,’’ it is proper toapply the trade practice provisions tothe industry member’s dealings withthose retailers. A number of commentersopposed allowing any special privilegesto temporary retail dealers. ATFbelieves that the impact of giving thingsof value to temporary retailers, withinthe limitations of the proposed rule,would not be disruptive to the retailmarketplace. However, the issue will berevisited if substantial abuses are found.NABCA suggested there may beconflicts between ATF’s definition of atemporary retailer and any definition inState rules. After considering thecomments, ATF has amended thesection to show that the definition oftemporary retailers applies only forpurposes of administration of the tied-house rules.

Section 6.88, Glassware—Section 6.89,Tapping Accessories—Section 6.90,Supplies—Section 6.97, Coil CleaningService

The petitioners recommended thatthese four sections be combined in anew § 6.88, under the title ‘‘Equipmentand supplies,’’ because they deal withsimilar types of merchandise andimpose similar conditions. As withother Subpart D exceptions whichcombine similar types of merchandise,(viz., §§ 6.83, 6.87 and 6.89), thepetitioners felt that combining theseitems in one section will enhance thesimplicity and clarity of the rules.

The petitioners also recommendedseveral other revisions to thisconsolidated section:

Extend coil cleaning service from ‘‘aretailer of wine or malt beverages’’ to ‘‘aretailer’’ to provide equal treatment for wine,malt beverages and distilled spirits;

Substitute the term ‘‘dispensingaccessories’’ in § 6.88 for ‘‘tappingaccessories’’ because the former term more

accurately describes the modern type ofaccessories falling within this category andreflects present marketplace practices where,for example, wine also is served bydispensing equipment;

Add cold plates to the list of examples of‘‘dispensing accessories’’ and,

Allow carbon dioxide gas or ice to be soldat a price not less than the cost to theindustry member who initially purchased it.

While the petitioners’ proposal tocombine various sections into one allinclusive section covering equipmentand supplies is structurally logical andthe terminology change from tappingequipment to dispensing equipment hasmerit, some of the items listed in thepetition have not in the past beenrecognized as exceptions by ATF.

ATF proposed consolidating thesesections with the following additionalchanges. ATF proposed to revise thedefinition of glassware to includesimilar containers made of materialsother than glass. The proposedregulation also specifies that theindustry member must pass on the costof initial installation of equipment tothe retailer.

The proposed regulation expandedthe original coil cleaning serviceexception currently in § 6.97 to coverdistilled spirits, as well as wine andmalt beverages. Keeping the coils cleanand free of contamination is clearly inthe interest of public health. Therefore,it is in the public interest to allow suchservices without a dollar limit.

The current regulation allowsindustry members to sell carbon dioxidegas to retailers. The regulation does notprovide for the sale of other gases, suchas nitrogen, which are used in variousexisting alcoholic beverage dispensingsystems. ATF proposed modifying thisregulatory section to allow industrymembers to sell any gas to a retailerprovided it is used in a beveragedispensing system. This proposalshould not be viewed as sanctioningtreatment which would change stillwine to sparkling wine.

Comments on these proposals weregenerally favorable, and the regulationis adopted as proposed. Forummembers, in their comment, stated theextension of coil cleaning service todistilled spirits is unnecessary, sincespirits have a longer shelf life and ahigher alcohol content. The provisionwas retained, to be used at the option ofthe industry member. DISCUS askedthat ATF amend the definition ofequipment and supplies by changing theword ‘‘means’’ to the phrase ‘‘includes,but is not limited to.’’ The use of theproposed phrase would add an elementof uncertainty and indefiniteness to thescope of the exception. Therefore, ATF


retained the more limited wording ofthe proposed rule, to emphasize that theexception is limited to these items.

Section 6.91, SamplesThe current section allows an

industry member to furnish or givesamples of distilled spirits, wine or maltbeverages to a retailer. The petitionersrecommended amending this section toprovide that industry members mayfurnish a maximum of 750 milliliters(mls.) of distilled spirits samples toqualifying retailers, rather than theobsolete 500 milliliter (ml.) containercited in the regulation. They furtherrequested that the third sentence of thissection, which limits the size of asample of spirits given to a State or asubdivision of a State to 2 liters, shouldbe eliminated in its entirety.

ATF agreed with the petitioners thatthe reference to the obsolete 500 ml sizebe replaced, but proposed a maximumof 3 liters for distilled spirits. ATF alsoproposed amending the currentregulation by limiting the number ofcommonly owned retail establishments(not to exceed four per retailer) whichcan be given samples. This amendmentwould allow for a control State or chainretailer to receive sufficient samples todetermine whether to purchase aproduct.

Comments on these proposed changeswere mixed. The American BrandyAssociation opposed any revision to thissection. DISCUS supported the changeto a spirits sample size of 3 liters andWSWA favored a sample size of 750 ml,since that is the most commoncommercial package size. ATF hasdecided to retain its proposal to allowa sample size of 3 liters for spirits.

The proposal to limit the number ofsamples which may be given to a‘‘chain’’ of retail outlets met with anumber of adverse comments. NABCA,Hinman & Carmichael, DISCUS andWine Institute all noted that first,individual outlets within a chain mayhave the ability to request that certainitems be purchased, even though theorder is placed centrally; and second,that samples are also provided toretailers so their personnel can besufficiently familiar with a brand torecommend or use it. Limiting samplesto four outlets per chain would restrictan industry member’s ability to promoteits products. In light of these comments,ATF is removing the proposedlimitation in the number of sampleswhich may be given to a chain from thefinal rule.

Several commenters also addressed anarea which had not been changed in theproposed amendment. E. & J. GalloWinery and Hinman & Carmichael both

noted that, in an industry as dynamic asthe alcoholic beverage industry, it is notpractical to limit samples to retailerswho have not previously purchased abrand from an industry member. Theysuggested a time limit of six months ora year. The final rule has been changedto allow samples to be given to a retailerwho has not purchased the brand fromthe industry member within the last 12months.

Section 6.92, Newspaper CutsIn Notice No. 794, ATF proposed to

change the word ‘‘loaned’’ to the word‘‘lent’’ in this section. However, in viewof the change to § 6.84, whicheliminates the options of renting orlending product displays, ATF hasdetermined that for consistency, thissection should permit only permanenttransfers. Therefore, the words‘‘furnished,’’ ‘‘loaned’’ and ‘‘rented’’have been removed from this section.

Section 6.93, Combination PackagesIn general, section 6.93 addresses

combination packages where anindustry member packages a non-alcoholic item with distilled spirits,wine, or malt beverages and, inparticular, paragraph (c) requires thatthe cost of the combination package bepassed on to the retailer. The petitionersrecommend deleting paragraph (c) ofsection 6.93 because they feel thecondition imposed by the paragraph isreally a pricing decision outside ofATF’s regulation under the FAA Act.

ATF proposed removing all theconditions currently imposed oncombination packages. Somecommenters supported this proposal,but NABCA expressed concern that, aswritten, the exception could be used asa subterfuge to deliver non-alcoholitems to the retailer with no intentionthat they be passed along to consumers.Accordingly, ATF has amended thissection in the final rule to clarify thatthe combination packages must beintended for sale to consumers.

Section 6.94, Educational SeminarsATF proposed to clarify the final

sentence, ‘‘This does not authorize anindustry member to pay a retailer’sexpenses in conjunction with aneducational seminar.’’ by adding theexplanatory phrase ‘‘(such as travel,lodging, and meals).’’

Many commenters objected toexcluding meals and, uponconsideration of the comments, ATF hasdecided to adopt a revised final rulewhich will permit an industry memberto provide nominal hospitality inconjunction with an educationalseminar.

Section 6.96, Consumer Promotions

ATF proposed revising the text ofsection 6.96(a), Coupons, to make thelanguage consistent with the othersections and to simplify the conditions.Hinman & Carmichael noted that therestriction in paragraph (a)(1) of theproposed rule, that redemption of thecoupons may not be limited to aparticular retailer or group of retailers,could be read as preventing promotionsby small producers who have a limitedarea of distribution, or regionalpromotions by larger producers. Thisrestriction, which is also in the current§ 6.96(a), was intended to prevent thebenefit of a promotion from going tospecific, named retailers. ATF modifiedthe provision in the final rule to requirethat all retailers within the marketwhere the offer is made may redeemsuch coupons.

Section 6.98, Advertising Service

The petitioners recommended addingthe clause ‘‘except where the exclusiveretailer in the state is a state agency’’ toparagraph (a) to read as follows:

‘‘(a) The advertisement does not alsocontain the retail price of the product,except where the exclusive retailer inthe state is a state agency, and * * *’’

The petitioners argue that theobjectives of section 105(b) of the FAAAct are not served by prohibitingindustry members from advertisingcontrol States’ prices. The petitioners’proposed revision would permit anindustry member to advertise a controlState’s state-wide retail prices asdetermined by that State for productsold within the State. The petitionersfeel that in such circumstances, there isno possibility of any ‘‘inducement’’ or‘‘exclusion’’ that would contravene theintent or purpose of the FAA Act.

ATF proposed amending the currentregulation in accordance with theindustry request, modified to reflectsituations in which the sole retailer ina jurisdiction is a State or local agency.ATF also proposed to delete thecondition that an advertisement placedby an industry member may notmention events or promotions at a retailestablishment.

In response to several comments, ATFis modifying the final rule to specify‘‘State or political subdivision of aState,’’ for consistency with thelanguage in other sections of theregulations. DISCUS suggested using theterm ‘‘unaffiliated’’ rather than ‘‘two ormore’’ retailers, to make it clear that anadvertisement can not list outlets of asingle chain, and that change wasadopted. NABCA additionally requestedthat the final rule show that prices may


be listed for ‘‘a private retailer acting asan agent’’ for a State or local agency.ATF is not adopting this suggestion atthis time. The trend towardprivatization of State agency sales is anevolving area. States which areprivatizing are doing so in various ways.Therefore, it is not possible to set asingle rule which will cover thesechanges.

Section 6.99, Stocking, Rotation, andPricing Service

The petitioners recommendedrevising this section to allow industrymembers to ‘‘recommend shelf plans.’’The petitioners stated that this revisionwould permit an industry member toprovide services to a retailer consistentwith present day marketplace realities.ATF proposed to amend this section inline with the petitioners’ proposal.

Most commenters approved of thisproposal, and it is adopted as proposed.However, serious concerns were raisedby Kendall-Jackson Winery andAmerican Vintners’ Association aboutthe potential for abuse of shelf plans orschematics, through biased analysis ofretailer needs or by an industry membersupplying additional services which arenot hereby authorized. ATF will revisitthis subject if it appears the newexception is being abused or creating asituation in which a retailer becomesdependent on a single industrymember’s purchasing advice.

Section 6.100, Participation in RetailerAssociation Activities

Section 6.100 permits industrymembers to participate in retailerassociation activities under certaincircumstances. Paragraphs (b) and (d)permit rental of display booth space andpurchase of tickets or payment ofregistration fees, respectively. Each ofthese paragraphs contains the phrase ‘‘if* * * not excessive and * * * the sameas paid by all exhibitors.’’ ATFproposed amending the section to delete‘‘not excessive’’ and specifying the feesmust be the same as the fees paid by allexhibitors ‘‘at that event.’’ ATF alsoproposed raising the limitation forpayments for advertisements inprograms or brochures authorized byparagraph (e) from $100 (as adjusted) to$500.

Several commenters objected to thelarge increase in the dollar limitation, asdiscussed earlier. ATF is revising thedollar limit to $300 in the final rule.NABCA pointed out that at some retaileractivities, there are no exhibitors, so theterm ‘‘exhibitors’’ may not always beappropriate in paragraph (d). ATFconcurs, and has substituted the phrase,

‘‘attendees, participants or exhibitors’’in the final rule.

Section 6.101, MerchandiseParagraph (a) currently provides that

an industry member who also isengaged in business as a bona fidevendor of other merchandise may sellsuch merchandise to a retailer if threeconditions are met, the first of which isthat the merchandise is ‘‘sold at its fairmarket value.’’ The petitionersrecommended changing this conditionto state that the merchandise is‘‘furnished, distributed, or soldaccording to the custom and practice ofthat business.’’ The petitioners alsorecommended eliminating paragraph (b)regarding things of value covered inother sections of Part 6 since theybelieve it is redundant and unnecessaryin light of other sections of Subpart D.

ATF did not propose either of thesechanges. Section 6.101 excepts salestransactions by industry members whoare engaged in the business as bona fidevendors of other merchandise inaddition to alcoholic beverages. Thissection sanctions sales of othermerchandise to retailers in addition toalcoholic beverages if the merchandiseis sold at its fair market value, not incombination with distilled spirits,wines, or malt beverages, and themerchandise is itemized separately onthe industry member’s invoices andother records. The records are necessaryso that ATF can determine the real costof the merchandise to the industrymember and whether the industrymember is reselling the merchandise toretailers at its fair market value.Likewise, ATF needs these records todetermine whether the industry memberis a bona fide vendor of the merchandiseor whether it is using the merchandiseas a means to induce.

Accordingly, ATF proposed to revisethe records requirement of theregulation to state that, first, acquisitioncosts must appear on the industrymember’s purchase invoices (availableupon request to ATF) and, second, themerchandise and the distilled spirits,wines, or malt beverages sold to theretailer in a single sales transactionmust be itemized separately on the sameinvoice.

DISCUS, in its comment reiterated thepetitioners’ original requests forchanges, and noted ATF’s proposal torequire alcoholic beverages and othermerchandise to be shown on the sameinvoice was not practical. WSWAcommented further:* * * [W]e support the objective of assuringan audit trail when other items are offered forsale in conjunction with alcoholic beverages.We view as impractical and unnecessarily

burdensome the proposal to require that‘‘merchandise and distilled spirits, wines ormalt beverages sold in a single transaction’’be ‘‘itemized separately on the same invoicecovering the sales transaction.’’

Inventory systems commonly printinvoices that sequence items sold by theirwarehouse location. Alcohol beverages areroutinely stored separately from other items.It is not unusual for delivery of non-alcoholicitems to be made on separate days or by aseparate, but affiliated company having itsown invoicing system. Furthermore, somestates forbid using the same invoice foralcohol beverages and other items.

It should be sufficient to require thatinvoices for sales of other items with alcoholbeverages to a retailer be maintained in amanner similar to invoices for alcoholbeverages.

In response to these comments, ATFis removing the requirement forshowing alcoholic beverages and othermerchandise on the same invoice.Instead, the final rule will require thatthe sale price of each commodity be onthe records covering the transaction.ATF still believes the change requestedby DISCUS, from ‘‘sold at its fair marketvalue’’ to ‘‘furnished, distributed or soldaccording to the custom and practice ofthat business’’ is not appropriate. Therequested language appears to sanctiongiving things of value (othermerchandise) to retailers, in directconflict with the statute. Additionally,the phrase ‘‘custom and practice’’ isvague and does not provide clarity tothe industry member relying on theregulations. Paragraph (b), whichDISCUS advocates removing, is alsoretained in the final rule.

Hinman & Carmichael expressed adifferent concern in their comment onthe proposed revision to § 6.101:

Section 6.72 allows certain combinationsales of alcoholic brands or products, but§ 6.101 seems to take this away if theproducer is also a producer (as opposed to avendor) of nonalcoholic beverage products. Afairly common marketing situation inCalifornia is the packaging of gift packs ofwine and olive oil, or wine and anothercommodity produced by the winery. In thissituation, there is no acquisition cost toreport.

ATF has modified the wording of thesection to make it clear that theexception applies to industry memberswho are bona fide producers or vendorsof other merchandise, if the conditionsare met. As stated earlier, § 6.72 onlyapplies to ‘‘products’’ that are distilledspirits, wine or malt beverages. Inaddition, in response to this commentand a request by DISCUS, a crossreference to the exception forcombination packaging under § 6.93 hasbeen added.


Section 6.102, Outside SignsATF proposed a new section allowing

outside signs in certain circumstancesand with a $500 limit. A fewcommenters opposed any change inATF’s treatment of outside signs, whileothers, while not opposing the proposal,expressed concern that the proposedrule did not contain adequate safeguardsagainst abuse. These commentersrecommended including variousconditions and limitations in proposed§ 6.102, among them:

Requiring that the product or the industrymember’s name appear on the sign forconsistency with other exceptions underSubpart D;

Lowering the dollar limitation, though nospecific amount was proposed;

Clarifying whether the word ‘‘furnished’’includes leasing;

Specifying frequency with which signsmay be provided;

Stating whether industry members maypool this allowance to provide a sign worthmore than the dollar limitation and limitingthe number of brands which may appear ona sign;

Limiting the location of the sign to the wallor roof of a building adjacent to or occupiedby a retailer, or stating whether retailpremises include roofs and parking lots; and

Specifying whether the industry membermay pay for installation, repair andmaintenance of the sign.

After a careful review of thecomments, ATF has decided to adopt amodified version of § 6.102 whichpermits signs to be given or sold on thefollowing conditions:

(a) The sign must bear conspicuousand substantial advertising matter aboutthe product or the industry memberwhich is permanently inscribed orsecurely affixed,

(b) The retailer is not compensated,directly or indirectly such as through asign company, for displaying the signs,and

(c) The cost of the signs may notexceed $400.

These changes were made to take intoaccount the concerns expressed by thecommenters and to make this sectionmore consistent with the rest of SubpartD. Interested parties may petition ATFin the future to reconsider theconditions under which outside signsmay be provided to retailers.

27 CFR Part 8, Exclusive OutletNew administrative provisions and

definition changes were discussedpreviously.

Section 8.23, Third Party Arrangements

The current regulation can beinterpreted to mean that a violation ofthe section could occur if a third partyrequires the retailer to use an industry

member’s product without theknowledge of the industry member. ATFproposed clarifying that the industrymember’s requirement, by agreement orotherwise, with a third party isnecessary to violate this section.However, the requirement need notoriginate with the industry member. Ifthe industry member knows or is awarethat the third party controlling theretailer extends such a requirement withrespect to the products of the industrymember making payments under thearrangement, and the industry memberavails itself of such requirement, thenthe requirement within the proscriptionof the FAA Act is present.

As discussed in relation to thecomments on § 6.42, ATF concurs thatthe industry member must know or beable to expect that the retailer will becontrolled by the third party, in otherwords, that the industry member willhave ‘‘the benefit of the deal.’’ This isnot a new position; ATF publishedIndustry Circular 75–16 to discuss thisinterpretation of the exclusive outletrules. The proposed language is adoptedin the final rule.

27 CFR Part 10, Commercial BriberyNew administrative provisions and


Section 10.4, Jurisdictional LimitsATF proposed amending this section

to correct the wording of paragraph(a)(1), which appeared in error in ATFTD–74 on September 3, 1980 (45 FR63242). There were no objections, andthis proposal is adopted in the finalrule.

Section 10.23, Gifts or Payments toWholesalers

While no specific change wasproposed to this section, ATF asked forcomments as to whether the purpose ofthe section should be clarified. ATFgave an example of a salesrepresentative incentive program whichit views as an instance of commercialbribery since it involves the furnishingof a premium or bonus to an employeeof a trade buyer: An industry memberand a trade buyer meet to discuss,among other things, upcoming programsto promote a particular product orproducts. They agree that specificpromotions will be run over a period oftime. Some of these agreed uponpromotions include sales incentiveprograms in which sales representativescan win money and/or prizes. At theconclusion of the meeting, the partiesagree or understand, or it is implied,that all or part of the funding for thesesales representative incentive programs

will come from monies that have beenor will be provided by the industrymember, usually under the guise ofunrestricted funds.

Several commenters addressed thisissue, and cited ATF Ruling 77–17 asallowing the sort of promotiondescribed in the example above. ATFdisagrees with this interpretation ofATF Ruling 77–17, and notes that ATFRuling 77–17 became obsolete when theregulations in 27 CFR Part 10 wereoriginally issued in 1980 (T.D. ATF–7445 FR 63251). In situations where theindustry member and the trade buyerhave agreed upon the promotionsbenefiting employees and otherrepresentatives and such promotions arefunded by the industry member, itcannot be said that the money is beingfurnished to the entity in any contextother than as a conduit for the employeeor representative. No change was madeto the language of § 10.23 in the finalrule.

27 CFR Part 11, Consignment SalesNew administrative provisions and


Section 11.24, Other than Bona FideSale

Section 105(d) of the Act addresses‘‘consignment sales.’’ Section 105(d)describes consignment sales to includeconditional sales (i.e., where anindustry member is not paid forproducts until they are sold by a tradebuyer); sales with a privilege of return(i.e., where an industry member agreesto repurchase products that remainunsold by the trade buyer at the end ofa specified period of time); and othersales on any basis otherwise than a bonafide sale.

Consignment sales are essentiallyarrangements pursuant to which therisk, or cost, of non-sale of a product isretained by an industry member, ortransferred from a trade buyer back to anindustry member at the expiration of aspecified time period. ATF proposedadding a new § 11.24 to theconsignment sale regulations to specifycertain other arrangements, in additionto conditional sales and sales with aprivilege of return, in which the risk ofnon-sale is transferred from the tradebuyer back to the industry member andwhich therefore do not constitute bonafide sales. The only example proposedwas the payment of ‘‘slottingallowances,’’ which were discussed atlength earlier in this supplementalinformation.

After a review of the comments, ATFhas decided the proposed languageshould be modified to include purchase


or rental of display, storage, floor orwarehouse space at premises owned orcontrolled by a retailer. ATF substitutedthe term ‘‘retailer’’ for ‘‘trade buyer’’ inthis provision to clarify its application.

Section 11.32, Defective Products

The current regulation specificallyallows products which areunmarketable for specific reasons to beexchanged for an equal quantity ofidentical products, but is silent as towhether such products may be returnedfor cash or credit. Industry Circular 81–11 states that a return of such productsfor cash or credit is not precluded by§ 11.32. ATF proposed changing thisregulation to incorporate the provisionsof Industry Circular 81–11 into thesection. The proposed revision alsodeleted references to mutilated andmissing strip stamps since they are nolonger a requirement. No objection tothese changes was received, however,DISCUS pointed out that allowingreturns for mutilated or missing tamperevident closures would ‘‘clearly servethe public interest.’’ ATF concurs andhas incorporated that language in thefinal rule.

Section 11.34, Products Which May NoLonger Be Lawfully Sold

ATF proposed revising the currentregulation to allow the return of aproduct if, due to a change in law orregulation over which the trade buyerhas no control, a particular size or brandis no longer permitted to be sold. Theaddition of the phrase ‘‘over which thetrade buyer has no control’’ wasintended to address situations in whichthe trade buyer is a State agency withthe authority to delist a particularproduct.

The Forum comment said this section,as proposed, and the preamblediscussion were confusing. ATFintended to make it clear that byadministratively delisting a particularproduct, a State or a politicalsubdivision of a State acting as a tradebuyer could not gain a right of returnthat would not be available to acommercial trade buyer. On review,ATF notes that a State legislature mayhave other, legitimate, reasons forprohibiting sale of a particular product,so the wording of the section has beenchanged from ‘‘law or regulation’’ to‘‘regulation or administrativeprocedure.’’

Section 11.35, Termination of Business

ATF is revising this section to cite§ 11.39 instead of the incorrect § 11.40citation.

Obsolete Rulings and CircularsThe following revenue ruling, ATF

rulings and industry circulars areincorporated into the regulations orsuperseded by amended regulations;they will become obsolete on theeffective 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 ATFQ.B. 23; Industry Circulars 81–7, 81–11and 86–16. ATF Ruling 77–17 was madeobsolete by T.D. ATF–74 (45 FR 63242),effective November 24, 1980, but anumber of commenters cited it in thisrulemaking.

Executive Order 12866It has been determined that this final

rule is not a significant regulatory actionas defined by Executive Order 12866.Therefore, a Regulatory Assessment isnot required.

Regulatory Flexibility ActIt is hereby certified under the

provisions of section 3 of the RegulatoryFlexibility Act (5 U.S.C. 605(b)) that thisfinal rule will not have a significanteconomic impact on a substantialnumber of small entities. Accordingly, aregulatory flexibility analysis is notrequired. In Notice No. 794, wespecifically asked for comments as towhether small businesses would besignificantly affected by our proposals.Wine Institute, the one commenter whoaddressed this issue, stated that therules, as proposed, would not have asignificant impact on a substantialnumber of small entities. A majority ofthe commenters who wrote in supportof our proposals concerning slotting feessaid that any change in our policywould have a significant adverse impacton their small businesses. The final ruleadopts the proposals in this area, sothere should be no adverse impact.

A final area of concern to commenterswas ATF’s proposal to raise dollar limitson things of value which may be givento retailers under Subpart D of Part 6.ATF proposed raising the limit oncertain promotional items from $160 to$500, and a number of commentersnoted this large an increase would placesmall and medium size businesses at acompetitive disadvantage. In view ofthese comments, ATF is adopting a limitof $300, a more moderate increase overthe existing dollar limit.

Paperwork Reduction ActThe collection of information

contained in this final rule has beenapproved by the Office of Managementand Budget for review in accordancewith the Paperwork Reduction Act of1980 (44 U.S.C. 3504(h)). Comments on

the collection of information should bedirected to the Office of Managementand Budget, Attention: Desk Officer forthe Department of the Treasury, Bureauof Alcohol, Tobacco and Firearms,Office of Information and RegulatoryAffairs, Washington, DC 20503, withcopies to: Reports Management Officer,Information Programs Branch, Room3450, Bureau of Alcohol, Tobacco andFirearms, 650 Massachusetts Avenue,NW, Washington, DC 20226.

The collection of information in thisregulation is in 27 CFR Parts 6, 8, and10. This information is required by ATFto protect the public interest and ensurefair trade competition in the alcoholicbeverage industry. The information willbe used to analyze promotionalactivities as part of an investigation. Thelikely respondents are industrymembers.

The authority to require reports whichis stated in this final rule is to be usedon a case-by-case basis only, and doesnot apply to industry members ingeneral. The estimated number ofrespondents in any given year is 20,with one report being required fromeach respondent. The estimated averageannual burden associated with thiscollection of information is 1 hour perrespondent.

Drafting Information

The principal author of this documentis Marjorie Ruhf, Wine, Beer, Spirits andRegulations Branch, Bureau of Alcohol,Tobacco and Firearms. However, otherpersonnel of ATF and the TreasuryDepartment participated in developingthe document.

List of Subjects

27 CFR Part 6

Advertising, Alcohol and alcoholicbeverages, Antitrust, Credit and tradepractices.

27 CFR Part 8

Alcohol and alcoholic beverages,Antitrust, and Trade practices.

27 CFR Part 10


27 CFR Part 11


Issuance

Title 27, Chapter I, is amended asfollows:

PART 6—‘‘TIED-HOUSE’’

Paragraph 1. The authority citationfor part 6 is revised to read as follows:


Authority: 15 U.S.C. 49–50; 27 U.S.C. 202and 205; 44 U.S.C. 3504(h).

Par. 2. Section 6.1 is revised to readas follows:

§ 6.1 General.

The regulations in this part, issuedpursuant to section 105 of the FederalAlcohol Administration Act (27 U.S.C.205), specify practices that are means toinduce under section 105(b) of the Act,criteria for determining whether apractice is a violation of section 105(b)of the Act, and exceptions to section105(b) of the Act. This part does notattempt to enumerate all of the practicesthat may result in a violation of section105(b) of the Act. Nothing in this partshall operate to exempt any person fromthe requirements of any State law orregulation.

§ 6.4 [Amended]

Par. 3. Section 6.4 is amended byremoving the reference to ‘‘section 5(b)of the Federal Alcohol AdministrationAct’’ where it appears in paragraph (b)and replacing it with a reference to‘‘section 105(b) of the Federal AlcoholAdministration Act’’.

Par. 4. Section 6.5 is added to subpartA to read as follows:

§ 6.5 Administrative provisions.

(a) General. The Act makes applicablethe provisions including penalties ofsections 49 and 50 of Title 15, UnitedStates Code, to the jurisdiction, powersand duties of the Director under thisAct, and to any person (whether or nota corporation) subject to the provisionsof law administered by the Directorunder this Act. The Act also providesthat the Director is authorized torequire, in such manner and such formas he or she shall prescribe, such reportsas are necessary to carry out the powersand duties under this chapter.

(b) Examination and Subpoena. TheDirector or any authorized ATF officersshall at all reasonable times have accessto, for the purpose of examination, andthe right to copy any documentaryevidence of any person, partnership, orcorporation being investigated orproceeded against. The Director shallalso have the power to require bysubpoena the attendance and testimonyof witnesses and the production of allsuch documentary evidence relating toany matter under investigation, upon asatisfactory showing that the requestedevidence may reasonably be expected toyield information relevant to any matterbeing investigated under the Act.

(c) Reports required by the DeputyAssociate Director (RegulatoryEnforcement Programs).

(1) General. The Deputy AssociateDirector (Regulatory EnforcementPrograms) may, as part of a tradepractice investigation of an industrymember, require such industry memberto submit a written report containinginformation on sponsorships,advertisements, promotions, and otheractivities pertaining to its businesssubject to the Act conducted by, or onbehalf of, or benefiting the industrymember.

(2) Preparation. The report will beprepared by the industry member inletter form, executed under the penaltiesof perjury, and will contain theinformation specified by the DeputyAssociate Director (RegulatoryEnforcement Programs). The periodcovered by the report will not exceedthree years.

(3) Filing. The report will be filed inaccordance with the instructions of theDeputy Associate Director (RegulatoryEnforcement Programs).(Approved by the Office of Management andBudget under control number 1512–0392)

Par. 5. Section 6.11 is amended byadding the definitions for ‘‘ATF officer,’’‘‘brand,’’ ‘‘Deputy Associate Director(Regulatory Enforcement Programs)’’and ‘‘Director’’ and by removing theterm ‘‘retailer establishment’’ andadding in its place ‘‘retailestablishment’’ and placing it inappropriate alphabetical order.

§ 6.11 Meaning of terms.

* * * * *ATF officer. An officer or employee of

the Bureau of Alcohol, Tobacco andFirearms (ATF) authorized to performany function relating to theadministration or enforcement of thispart Brand. For purposes ofadministering this part, the term‘‘brand’’ refers to differences in thebrand name of a product or in the natureof a product. Examples of differentbrands are products having a differentbrand name or class, type, or kinddesignation; appellation of origin(wine); vintage date (wine); age(distilled spirits); or percentage ofalcohol. Differences in packaging suchas difference in label design or color, ora different style, type or size ofcontainer are not considered differentbrands.

Deputy Associate Director (RegulatoryEnforcement Programs). The principalATF headquarters official responsiblefor administering regulations in thispart. Director. The Director, Bureau ofAlcohol, Tobacco and Firearms, theDepartment of the Treasury,Washington, DC.* * * * *


§ 6.25 General.The act by an industry member of

acquiring or holding any interest in anylicense (State, county or municipal)with respect to the premises of a retailerconstitutes a means to induce within themeaning of the Act.

Par. 7. Section 6.27 is amended byrevising paragraph (a) to read as follows:

§ 6.27 Proprietary interest.(a) Complete ownership. Outright

ownership of a retail business by anindustry member is not an interestwhich may result in a violation ofsection 105(b)(1) of the Act.* * * * *



acquiring an interest in real or personalproperty owned, occupied, or used bythe retailer in the conduct of businessconstitutes a means to induce within themeaning of the Act.


§ 6.33 Proprietary interest.(a) Complete ownership. Outright

ownership of a retail business by anindustry member is not an interest thatmay result in a violation of section105(b)(2) of the Act.* * * * *


§ 6.41 General.Subject to the exceptions listed in

Subpart D, the act by an industrymember of furnishing, giving, renting,lending, or selling any equipment,fixtures, signs, supplies, money,services, or other things of value to aretailer constitutes a means to inducewithin the meaning of the Act.


§ 6.42 Indirect inducement through thirdparty arrangements.

(a) General. The furnishing, giving,renting, lending, or selling ofequipment, fixtures, signs, supplies,money, services, or other thing of valueby an industry member to a third party,where the benefits resulting from suchthings of value flow to individualretailers, is the indirect furnishing of athing of value within the meaning of theAct. Indirect furnishing of a thing ofvalue includes, but is not limited to,making payments for advertising to aretailer association or a display


company where the resulting benefitsflow to individual retailers.

(b) Exceptions. An indirectinducement will not arise where thething of value was furnished to a retailerby the third party without theknowledge or intent of the industrymember, or the industry member didnot reasonably foresee that the thing ofvalue would have been furnished to aretailer. Things which may lawfully befurnished, given, rented, lent, or sold byindustry members to retailers undersubpart D may also be furnished directlyby a third party to a retailer.

§ 6.43 [Amended]Par. 12. Section 6.43 is amended by

removing the reference ‘‘§§ 6.88 and6.89,’’ where it appears in the firstsentence and replacing it with ‘‘§ 6.88,’’.

§§ 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:


paying or crediting a retailer for anyadvertising, display, or distributionservice constitutes a means to inducewithin the meaning of the Act, whetheror not the advertising, display, ordistribution service received by theindustry member in these instances iscommensurate with the amount paidtherefor. This includes payments orcredits to retailers that are merelyreimbursements, in full or in part, forsuch services purchased by a retailerfrom a third party.


§ 6.61 Guaranteeing loans.The act by an industry member of

guaranteeing any loan or the repaymentof any financial obligation of a retailerconstitutes a means to induce within themeaning of the Act.


§ 6.65 General.Extension of credit by an industry

member to a retailer for a period of timein excess of 30 days from the date ofdelivery constitutes a means to inducewithin the meaning of the Act.

Par. 17. The text of § 6.67 is added toread as follows:

§ 6.67 Sales to retailer whose account is inarrears.

An extension of credit (for productpurchases) by an industry member to aretailer whose account is in arrears doesnot constitute a means to induce within

the meaning of the Act so long as suchretailer pays in advance or on deliveryan amount equal to or greater than thevalue of each order, regardless of themanner in which the industry memberapplies the payment in its records.


§ 6.71 Quota sales.The act by an industry member of

requiring a retailer to take and disposeof any quota of distilled spirits, wine, ormalt beverages constitutes a means toinduce within the meaning of the Act.


§ 6.72 ‘‘Tie-in’’ sales.The act by an industry member of

requiring that a retailer purchase oneproduct (as defined in § 6.11) in orderto obtain another constitutes a means toinduce within the meaning of the Act.This includes the requirement to take aminimum quantity of a product instandard packaging in order to obtainthe same product in some type ofpremium package, i.e., a distinctivedecanter, or wooden or tin box. Thisalso includes combination sales if oneor more products may be purchasedonly in combination with otherproducts and not individually.However, an industry member is notprecluded from selling two or morekinds or brands of products to a retailerat a special combination price, providedthe retailer has the option of purchasingeither product at the usual price, andthe retailer is not required to purchaseany product it does not want. See § 6.93for combination packaging of productsplus non-alcoholic items.


§ 6.81 General.(a) Application. Section 105(b)(3) of

the Act enumerates means to inducethat may be unlawful under thesubsection, subject to such exceptionsas are prescribed in regulations, havingdue regard for public health, thequantity and value of articles involved,established trade customs not contraryto the public interest, and the purposesof that section. This subpart implementssection 105(b)(3) of the Act andidentifies the practices that areexceptions to section 105(b)(3) of theAct. An industry member may furnish aretailer equipment, inside signs,supplies, services, or other things ofvalue, under the conditions and withinthe limitations prescribed in thissubpart.

(b) Recordkeeping Requirements.(1) Industry members shall keep and

maintain records on the permit or

brewery premises, for a three yearperiod, of all items furnished to retailersunder §§ 6.83, 6.88, 6.91, 6.96(a), and6.100 and the commercial recordsrequired under § 6.101. Commercialrecords or invoices may be used tosatisfy this recordkeeping requirement ifall required information is shown.These records shall show:

(i) The name and address of theretailer receiving the item;

(ii) The date furnished;(iii) The item furnished;(iv) The industry member’s cost of the

item furnished (determined by themanufacturer’s invoice price); and

(v) Charges to the retailer for any item.(2) Although no separate

recordkeeping violation results, anindustry member who fails to keep suchrecords is not eligible for the exceptionclaimed.(Approved by the Office of Management andBudget under control number 1512–0392)

§ 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:

§ 6.83 Product displays.(a) General. The act by an industry

member of giving or selling productdisplays to a retailer does not constitutea means to induce within the meaningof section 105(b)(3) of the Act providedthat the conditions prescribed inparagraph (c) of this section are met.

(b) Definition. ‘‘Product display’’means any wine racks, bins, barrels,casks, shelving, or similar items theprimary function of which is to holdand display consumer products.

(c) Conditions and limitations.(1) The total value of all product

displays given or sold by an industrymember under paragraph (a) of thissection may not exceed $300 per brandat any one time in any one retailestablishment. Industry members maynot pool or combine dollar limitationsin order to provide a retailer a productdisplay valued in excess of $300 perbrand. The value of a product display isthe actual cost to the industry memberwho initially purchased it.Transportation and installation costs areexcluded.

(2) All product displays must bearconspicuous and substantial advertisingmatter on the product or the industrymember which is permanently inscribedor securely affixed. The name andaddress of the retailer may appear onthe product displays.

(3) The giving or selling of suchproduct displays may be conditionedupon the purchase of the distilled


spirits, wine, or malt beveragesadvertised on those displays in aquantity necessary for the initialcompletion of such display. No othercondition can be imposed by theindustry member on the retailer in orderfor the retailer to receive or obtain theproduct display.


§ 6.84 Point of sale advertising materialsand consumer advertising specialties.

(a) General. The act by an industrymember of giving or selling point of saleadvertising materials and consumeradvertising specialties to a retailer doesnot constitute a means to induce withinthe meaning of section 105(b)(3) of theAct provided that the conditionsprescribed in paragraph (c) of thissection are met.

(b) Definitions.(1) Point of sale advertising materials

are items designed to be used within aretail establishment to attract consumerattention to the products of the industrymember. Such materials include, but arenot limited to: posters, placards,designs, inside signs (electric,mechanical or otherwise), windowdecorations, trays, coasters, mats, menucards, meal checks, paper napkins, foamscrapers, back bar mats, thermometers,clocks, calendars, and alcoholicbeverage lists or menus.

(2) Consumer advertising specialtiesare items that are designed to be carriedaway by the consumer, such as tradingstamps, nonalcoholic mixers, pouringracks, 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 advertisingspecialties must bear conspicuous andsubstantial advertising matter about theproduct or the industry member whichis permanently inscribed or securelyaffixed. The name and address of theretailer may appear on the point of saleadvertising materials.

(2) The industry member may notdirectly or indirectly pay or credit theretailer for using or distributing thesematerials or for any expense incidentalto their use.


§ 6.85 Temporary retailers.(a) General. The furnishing of things

of value to a temporary retailer does notconstitute a means to induce within themeaning of section 105(b)(3) of the Act.

(b) Definition. For purposes ofadministering this part, a temporary

retailer is a dealer who is not engagedin business as a retailer for more thanfour consecutive days per event, and fornot more than five events in a calendaryear.

§§ 6.86 and 6.87 [Removed and reserved]

Par. 25. Sections 6.86 and 6.87 areremoved and reserved.


§ 6.88 Equipment and supplies.

(a) General. The act by an industrymember of selling equipment orsupplies to a retailer does not constitutea means to induce within the meaningof section 105(b)(3) of the Act if theequipment or supplies are sold at aprice not less than the cost to theindustry member who initiallypurchased them, and if the price iscollected within 30 days of the date ofthe sale. The act by an industry memberof installing dispensing accessories atthe retailer’s establishment does notconstitute a means to induce within themeaning of the Act as long as theretailer bears the cost of initialinstallation. The act by an industrymember of furnishing, giving, or sellingcoil cleaning service to a retailer ofdistilled spirits, wine, or malt beveragesdoes not constitute a means to inducewithin the meaning of section 105(b)(3)of the Act.

(b) Definition. ‘‘Equipment andsupplies’’ means glassware (or similarcontainers made of other material),dispensing accessories, carbon dioxide(and other gasses used in dispensingequipment) or ice. ‘‘Dispensingaccessories’’ include items such asstandards, faucets, cold plates, rods,vents, taps, tap standards, hoses,washers, couplings, gas gauges, venttongues, shanks, and check valves.

§§ 6.89 and 6.90 [Removed and reserved]

Par. 27. Sections 6.89 and 6.90 areremoved and reserved.


§ 6.91 Samples.

The act by an industry member offurnishing or giving a sample ofdistilled spirits, wine, or malt beveragesto a retailer who has not purchased thebrand from that industry member withinthe last 12 months does not constitutea means to induce within the meaningof section 105(b)(3) of the Act. For eachretail establishment the industrymember may give not more than 3gallons of any brand of malt beverage,not more than 3 liters of any brand ofwine, and not more than 3 liters ofdistilled spirits. If a particular product

is not available in a size within thequantity limitations of this section, anindustry member may furnish to aretailer the next larger size.


§ 6.92 Newspaper cuts.

Newspaper cuts, mats, or engravedblocks for use in retailers’advertisements may be given or sold byan industry member to a retailer sellingthe industry member’s products.


§ 6.93 Combination packaging.

The act by an industry member ofpackaging and distributing distilledspirits, wine, or malt beverages incombination with other (non-alcoholic)items for sale to consumers does notconstitute a means to induce within themeaning of section 105(b)(3) of the Act.

Par. 31. Section 6.94 is amended byadding the phrase ‘‘(such as travel andlodging)’’ before the period in the finalsentence of the section, and by addinga new sentence at the end of the sectionto read as follows:

§ 6.94 Educational seminars.

* * * This does not precludeproviding nominal hospitality duringthe event.* * * * *


§ 6.96 Consumer promotions.

(a) Coupons. The act by an industrymember of furnishing to consumerscoupons which are redeemable at aretail establishment does not constitutea means to induce within the meaningof section 105(b)(3) of the Act, providedthe following conditions are met:

(1) All retailers within the marketwhere the coupon offer is made mayredeem such coupons; and

(2) An industry member may notreimburse a retailer for more than theface value of all coupons redeemed,plus a usual and customary handling feefor the redemption of coupons.* * * * *

§ 6.97 [Removed and reserved]

Par. 33. Section 6.97 is removed andreserved.


§ 6.98 Advertising service.

The listing of the names andaddresses of two or more unaffiliatedretailers selling the products of anindustry member in an advertisement ofthat industry member does not


constitute a means to induce within themeaning of section 105(b)(3) of the Act,provided:

(a) The advertisement does not alsocontain the retail price of the product(except where the exclusive retailer inthe jurisdiction is a State or a politicalsubdivision of a State), and

(b) The listing is the only reference tothe retailers in the advertisement and isrelatively inconspicuous in relation tothe advertisement as a whole, and

(c) The advertisement does not referonly to one retailer or only to retailestablishments controlled directly orindirectly by the same retailer, exceptwhere the retailer is an agency of a Stateor a political subdivision of a State.


§ 6.99 Stocking, rotation, and pricingservice.

(a) General. Industry members may, ata retail establishment, stock, rotate andaffix the price to distilled spirits, wine,or malt beverages which they sell,provided products of other industrymembers are not altered or disturbed.The rearranging or resetting of all or partof a store or liquor department is nothereby authorized.

(b) Shelf plan and shelf schematics.The act by an industry member ofproviding a recommended shelf plan orshelf schematic for distilled spirits,wine, or malt beverages does notconstitute a means to induce within themeaning of section 105(b)(3) of the Act.

Par. 36. Section 6.100 is revised toread as follows:

§ 6.100 Participation in retailer associationactivities.

The following acts by an industrymember participating in retailerassociation activities do not constitute ameans to induce within the meaning ofsection 105(b)(3) of the Act:

(a) Displaying its products at aconvention or trade show;

(b) Renting display booth space if therental fee is the same as paid by allexhibitors at the event;

(c) Providing its own hospitalitywhich is independent from associationsponsored activities;

(d) Purchasing tickets to functionsand paying registration fees if thepayments or fees are the same as paidby all attendees, participants orexhibitors at the event; and

(e) Making payments foradvertisements in programs orbrochures issued by retailer associationsat a convention or trade show if the totalpayments made by an industry memberfor all such advertisements do notexceed $300 per year for any retailerassociation.


§ 6.101 Merchandise.

(a) General. The act by an industrymember, who is also in business as abona fide producer or vendor of othermerchandise (for example, groceries orpharmaceuticals), of selling thatmerchandise to a retailer does notconstitute a means to induce within themeaning of section 105(b)(3) of the Act,provided:

(1) The merchandise is sold at its fairmarket value;

(2) The merchandise is not sold incombination with distilled spirits,wines, or malt beverages (except asprovided in § 6.93);

(3) The industry member’s acquisitionor production costs of the merchandiseappears on the industry member’spurchase invoices or other records; and

(4) The individual selling prices ofmerchandise and distilled spirits,wines, or malt beverages sold in a singletransaction can be determined fromcommercial documents covering thesales transaction.

(b) Things of value covered in othersections of this part. The act by anindustry member of providingequipment, fixtures, signs, glassware,supplies, services, and advertisingspecialties to retailers does notconstitute a means to induce within themeaning of section 105(b)(3) of the Actonly as provided in other sectionswithin this part.

Par. 37a. Section 6.102 is added toread as follows:

§ 6.102 Outside signs.

The act by an industry member ofgiving or selling outside signs to aretailer does not constitute a means toinduce within the meaning of section105(b)(3) of the Act provided that:

(a) The sign must bear conspicuousand substantial advertising matter aboutthe product or the industry memberwhich is permanently inscribed orsecurely affixed;

(b) The retailer is not compensated,directly or indirectly such as through asign company, for displaying the signs;and

(c) The cost of the signs may notexceed $400.

Par. 38. Part 6 is amended by addinga new subpart E to read as follows:

Subpart E—Exclusion

Sec.6.151 Exclusion, in general.6.152 Practices which put retailer

independence at risk.6.153 Criteria for determining retailer

independence.

Subpart E—Exclusion

§ 6.151 Exclusion, in general.

(a) Exclusion, in whole or in partoccurs:

(1) When a practice by an industrymember, whether direct, indirect, orthrough an affiliate, places (or has thepotential to place) retailer independenceat risk by means of a tie or link betweenthe industry member and retailer or byany other means of industry membercontrol over the retailer; and

(2) Such practice results in the retailerpurchasing less than it would have of acompetitor’s product.

(b) Section 6.152 lists practices thatcreate a tie or link that places retailerindependence at risk. Section 6.153 liststhe criteria used for determiningwhether other practices can put retailerindependence at risk.

§ 6.152 Practices which put retailerindependence at risk.

The practices specified in this sectionput retailer independence at risk. Thepractices specified here are examplesand do not constitute a complete list ofthose practices that put retailerindependence at risk.

(a) The act by an industry member ofresetting stock on a retailer’s premises(other than stock offered for sale by theindustry member).

(b) The act by an industry member ofpurchasing or renting display, shelf,storage or warehouse space (i.e. slottingallowance).

(c) Ownership by an industry memberof less than a 100 percent interest in aretailer, where such ownership is usedto influence the purchases of theretailer.

(d) The act by an industry member ofrequiring a retailer to purchase onealcoholic beverage product in order tobe allowed to purchase anotheralcoholic beverage product at the sametime.

§ 6.153 Criteria for determining retailerindependence.

The criteria specified in this sectionare indications that a particular practice,other than those in § 6.152, placesretailer independence at risk. A practiceneed not meet all of the criteriaspecified in this section in order toplace retailer independence at risk.

(a) The practice restricts or hampersthe free economic choice of a retailer todecide which products to purchase orthe quantity in which to purchase themfor sale to consumers.







PART 8—EXCLUSIVE OUTLETS

Par. 39. The authority citation for part8 is revised to read as follows:



§ 8.1 General.The regulations in this part, issued

pursuant to section 105 of the FederalAlcohol Administration Act (27 U.S.C.205), specify arrangements which areexclusive outlets under section 105(a) ofthe Act and criteria for determiningwhether a practice is a violation ofsection 105(a) of the Act. This part doesnot attempt to enumerate all of thepractices prohibited by section 105(a) ofthe Act. Nothing in this part shalloperate to exempt any person from therequirements of any State law orregulation.

Par. 41. Section 8.5 is added tosubpart A to read as follows:

§ 8.5 Administrative provisions.(a) General. The Act makes applicable

the provisions including penalties ofsections 49 and 50 of Title 15, UnitedStates Code, to the jurisdiction, powersand duties of the Director under thisAct, and to any person (whether or nota corporation) subject to the provisionsof law administered by the Directorunder this Act. The Act also providesthat the Director is authorized torequire, in such manner and such formas he or she shall prescribe, such reportsas are necessary to carry out the powersand duties under this chapter.

(b) Examination and Subpoena. TheDirector or any authorized ATF officersshall at all reasonable times have accessto, for the purpose of examination, andthe right to copy any documentary

evidence of any person, partnership, orcorporation being investigated orproceeded against. The Director shallalso have the power to require bysubpoena the attendance and testimonyof witnesses and the production of allsuch documentary evidence relating toany matter under investigation, upon asatisfactory showing that the requestedevidence may reasonably be expected toyield information relevant to any matterbeing investigated under the Act.




(3) Filing. The report will be filed inaccordance with the instructions of theDeputy Associate Director (RegulatoryEnforcement Programs).(Approved by the Office of Management andBudget under control number 1512–0392)

Par. 42. Section 8.11 is amended byremoving the definition for the term‘‘retail establishment’’ and by addingdefinitions for ‘‘ATF officer,’’ ‘‘DeputyAssociate Director (RegulatoryEnforcement Programs)’’ and ‘‘Director’’as follows:



the Bureau of Alcohol, Tobacco andFirearms (ATF) authorized to performany function relating to theadministration or enforcement of thispart.

Deputy Associate Director (RegulatoryEnforcement Programs). The principalATF headquarters official responsiblefor administering regulations in thispart.

Director. The Director, Bureau ofAlcohol, Tobacco and Firearms, theDepartment of the Treasury,Washington, DC.* * * * *


§ 8.23 Third party arrangements.Industry member requirements, by

agreement or otherwise, with non-retailers which result in a retailer beingrequired to purchase the industrymember’s products are within theexclusive outlet provisions. Theseindustry member requirements arecovered whether the agreement or otherarrangement originates with theindustry member or the third party. Forexample, a supplier enters into acontractual agreement or otherarrangement with a third party. Thisagreement or arrangement contains anindustry member requirement asdescribed above. The third party, aballclub, or municipal or privatecorporation, not acting as a retailer,leases the concession rights and is ableto control the purchasing decisions ofthe retailer. The third party, as a resultof the requirement, by agreement orotherwise, with the industry member,requires the retailer to purchase theindustry member’s products to theexclusion, in whole or in part, ofproducts sold or offered for sale by otherpersons in interstate or foreigncommerce. The business arrangementsentered into by the industry memberand the third party may consist of suchthings as sponsoring radio or televisionbroadcasting, paying for advertising, orproviding other services or things ofvalue.

Par. 44. Part 8 is amended by addinga new subpart D to read as follows:

Subpart D—Exclusion

Sec.8.51 Exclusion, in general.8.52 Practices which result in exclusion.8.53 Practice not resulting in exclusion.8.54 Criteria for determining retailer

independence.


§ 8.51 Exclusion, in general.(a) Exclusion, in whole or in part

occurs:(1) When a practice by an industry

member, whether direct, indirect, orthrough an affiliate, places (or has thepotential to place) retailer independenceat risk by means of a tie or link betweenthe industry member and retailer or byany other means of industry membercontrol over the retailer, and

(2) Such practice results in the retailerpurchasing less than it would have of acompetitor’s product.

(b) Section 8.52 lists practices thatresult in exclusion. Section 8.53 listspractices not resulting in exclusion.Section 8.54 lists the criteria used for


determining whether other practices canput retailer independence at risk.

§ 8.52 Practices which result in exclusion.The practices specified in this section

result in exclusion under section 105(a)of the Act. The practices specified hereare examples and do not constitute acomplete list of such practices:

(a) Purchases of distilled spirits, wineor malt beverages by a retailer as aresult, directly or indirectly, of a threator act of physical or economic harm bythe selling industry member.

(b) Contracts between an industrymember and a retailer which require theretailer to purchase distilled spirits,wine, or malt beverages from thatindustry member and expressly restrictthe retailer from purchasing, in whole orin part, such products from anotherindustry member.

§ 8.53 Practice not resulting in exclusion.The practice specified in this section

is deemed not to result in exclusionunder section 105(a) of the Act: a supplycontract for one year or less between theindustry member and retailer underwhich the industry member agrees tosell distilled spirits, wine, or maltbeverages to the retailer on an ‘‘asneeded’’ basis provided that the retaileris not required to purchase anyminimum quantity of such product.

§ 8.54 Criteria for determining retailerindependence.

The criteria specified in this sectionare indications that a particular practice,other than those in §§ 8.52 and 8.53,places retailer independence at risk. Apractice need not meet all of the criteriaspecified in this section in order toplace retailer independence at risk.

(a) The practice restricts or hampersthe free economic choice of a retailer todecide which products to purchase orthe quantity in which to purchase themfor sale to consumers.






PART 10—COMMERCIAL BRIBERY

Par. 45. The authority citation for part10 is revised to read as follows:




pursuant to section 105 of the FederalAlcohol Administration Act (27 U.S.C.205), specify practices which may resultin violations of section 105(c) of the Actand criteria for determining whether apractice is a violation of section 105(c)of the Act. This part does not attempt toenumerate all of the practices prohibitedby section 105(c) of the Act. Nothing inthis part shall operate to exempt anyperson from the requirements of anyState law or regulation.

Par. 52. Section 10.4 is amended byrevising paragraph (a)(1) to read asfollows:

§ 10.4 Jurisdictional limits.(a) General. * * *(1) The industry member induces a

trade buyer to purchase distilled spirits,wine, or malt beverages from suchindustry member to the exclusion, inwhole or in part, of products sold oroffered for sale by other persons ininterstate or foreign commerce; and



the provisions including penalties ofsections 49 and 50 of Title 15, UnitedStates Code, to the jurisdiction, powersand duties of the Director under thisAct, and to any person (whether or nota corporation) subject to the provisionsof law administered by the Directorunder this Act. The Act also providesthat the Director is authorized torequire, in such manner and such formas he or she shall prescribe, such reportsas are necessary to carry out the powersand duties under this chapter.

(b) Examination and subpoena. TheDirector or any authorized ATF officersshall at all reasonable times have accessto, for the purpose of examination, andthe right to copy any documentaryevidence of any person, partnership, orcorporation being investigated orproceeded against. The Director shallalso have the power to require by

subpoena the attendance and testimonyof witnesses and the production of allsuch documentary evidence relating toany matter under investigation, upon asatisfactory showing that the requestedevidence may reasonably be expected toyield information relevant to any matterbeing investigated under the Act.




(3) Filing. The report will be filed inaccordance with the instructions of theDeputy Associate Director (RegulatoryEnforcement Programs).

(Approved by the Office of Management andBudget under control number 1512–0392)

Par. 48. Section 10.11 is amended byadding definitions for ‘‘ATF officer,’’‘‘Deputy Associate Director (RegulatoryEnforcement Programs),’’ and ‘‘Director’’as follows:




Deputy Associate Director (RegulatoryEnforcement Programs). The principalATF headquarters official responsiblefor administering regulations in thispart.


Par. 49. Part 10 is amended by addinga new subpart D to read as follows:


Subpart D—ExclusionSec.10.51 Exclusion, in general.10.52 Practice which puts trade buyer

independence at risk.10.53 Practices not resulting in exclusion.

[Reserved]10.54 Criteria for determining trade buyer

independence.


§ 10.51 Exclusion, in general.(a) Exclusion, in whole or in part

occurs:(1) When a practice by an industry

member, whether direct, indirect, orthrough an affiliate, places (or has thepotential to place) trade buyerindependence at risk by means of a tieor link between the industry memberand trade buyer or by any other meansof industry member control over thetrade buyer, and

(2) Such practice results in the tradebuyer purchasing less than it wouldhave of a competitor’s product.

(b) Section 10.52 lists practices thatcreate a tie or link that places tradebuyer independence at risk. Section10.53 is reserved and will list practicesnot resulting in exclusion. Section 10.54lists the criteria used for determiningwhether other practices can put tradebuyer independence at risk.

§ 10.52 Practice which puts trade buyerindependence at risk.

The practice specified in this sectionis deemed to place trade buyerindependence at risk within thedescription of exclusion in § 10.51:Industry member payments of money tothe employee(s) of a trade buyer withoutthe knowledge or consent of the tradebuyer-employer in return for theemployee agreeing to order distilledspirits, wine, or malt beverages from theindustry member. The practiceenumerated here is an example anddoes not constitute a complete list ofthose situations which result in suchcontrol.

§ 10.53 Practices not resulting inexclusion. [Reserved]

§ 10.54 Criteria for determining tradebuyer independence.

The criteria specified in this sectionare indications that a particular practicebetween an industry member and anofficer, employee, or representative of atrade buyer, other than those in § 10.52,places trade buyer independence at risk.A practice need not meet all of thecriteria specified in this section in orderto place trade buyer independence atrisk.

(a) The practice restricts or hampersthe free economic choice of a trade

buyer to decide which products topurchase or the quantity in which topurchase them for sale to retailers andconsumers.

(b) The industry member obligates thetrade buyer to participate in thepromotion to obtain the industrymember’s product.

(c) The trade buyer has a continuingobligation to purchase or otherwisepromote the industry member’s product.

(d) The trade buyer has a commitmentnot to terminate its relationship with theindustry member with respect topurchase of the industry member’sproducts.

(e) The practice involves the industrymember in the day-to-day operations ofthe trade buyer. For example, theindustry member controls the tradebuyer’s decisions on which brand ofproducts to purchase, the pricing ofproducts, or the manner in which theproducts will be displayed on the tradebuyer’s premises.

(f) The practice is discriminatory inthat it is not offered to all trade buyersin the local market on the same termswithout business reasons present tojustify the difference in treatment.

PART 11—CONSIGNMENT SALES

Par. 50. The authority citation for 27CFR Part 11 is revised to read asfollows:

Authority: 15 U.S.C. 49–50; 27 U.S.C. 202and 205.



pursuant to section 105 of the FederalAlcohol Administration Act (27 U.S.C.205), specify arrangements which areconsignment sales under section 105(d)of the Act and contain guidelinesconcerning return of distilled spirits,wine and malt beverages from a tradebuyer. This part does not attempt toenumerate all of the practices prohibitedby section 105(d) of the Act. Nothing inthis part shall operate to exempt anyperson from the requirements of anyState law or regulation.



the provisions including penalties ofsections 49 and 50 of Title 15, UnitedStates Code, to the jurisdiction, powersand duties of the Director under thisAct, and to any person (whether or nota corporation) subject to the provisionsof law administered by the Directorunder this Act.

(b) Examination and subpoena. TheDirector or any authorized ATF officersshall at all reasonable times have accessto, for the purpose of examination, andthe right to copy any documentaryevidence of any person, partnership, orcorporation being investigated orproceeded against; and the Directorshall have the power to require bysubpoena the attendance and testimonyof witnesses and the production of allsuch documentary evidence relating toany matter under investigation, upon asatisfactory showing that the requestedevidence may reasonably be expected toyield information relevant to any matterbeing investigated under the Act.

Par. 53. Section 11.11 is amended byadding definitions for ‘‘ATF officer,’’‘‘Director’’ and ‘‘Retailer’’ as follows:





Retailer. Any person engaged in thesale of distilled spirits, wine or maltbeverages to consumers. A wholesalerwho makes incidental retail salesrepresenting less than five percent of thewholesaler’s total sales volume for thepreceding two-month period shall notbe considered a retailer with respect tosuch incidental sales.* * * * *

Par. 54. A new § 11.24 is added tosubpart C to read as follows:

§ 11.24 Other than a bona fide sale.‘‘Other than a bona fide sale’’

includes, but is not limited to, sales inconnection with which the industrymember purchases or rents the display,shelf, storage or warehouse space to beoccupied by such products at premisesowned or controlled by the retailer.


§ 11.32 Defective products.Products which are unmarketable

because of product deterioration,leaking containers, damaged labels ormissing or mutilated tamper evidentclosures may be exchanged for an equalquantity of identical products or may bereturned for cash or credit againstoutstanding indebtedness.



§ 11.34 Products which may no longer belawfully sold.

Products which may no longer belawfully sold may be returned for cashor credit against outstandingindebtedness. This would includesituations where, due to a change inregulation or administrative procedureover which the trade buyer or anaffiliate of the trade buyer has nocontrol, a particular size or brand is nolonger permitted to be sold.


§ 11.35 Termination of business.

Products on hand at the time a tradebuyer terminates operations may bereturned for cash or credit againstoutstanding indebtedness. This does notinclude a temporary seasonal shutdown(see § 11.39).

Signed: January 4, 1995.Daniel R. Black,Acting Director.

Approved: March 30, 1995.John P. Simpson,Deputy Assistant Secretary, (Tariff and TradeEnforcement).[FR Doc. 95–10116 Filed 4–24–95; 8:45 am]BILLING CODE 4810–31–U

DEPARTMENT OF TRANSPORTATION

Coast Guard

33 CFR Part 117

[CGDO5–94–076]

Drawbridge Operation Regulations;Atlantic Intracoastal Waterway, ScottsHill, NC

AGENCY: Coast Guard, DOT.

ACTION: Final rule.

SUMMARY: The Coast Guard is changingthe regulations governing the operationof the Figure Eight Island swingbridgeacross the Atlantic IntracoastalWaterway, mile 278.1, located in ScottsHill, North Carolina, by restrictingrecreational vessels to bridge openingsevery half hour. This is intended toreduce the amount of bridge openings torelieve the increased volume ofvehicular traffic crossing this bridge,while still providing for the reasonableneeds of navigation.

EFFECTIVE DATE: This rule is effective onMay 26, 1995.

FOR FURTHER INFORMATION CONTACT: AnnB. Deaton, Bridge Administrator, FifthCoast Guard District, (804) 398–6222.

SUPPLEMENTARY INFORMATION:

Draft Information

The principal persons involved indrafting this document are Bill H.Brazier, Project Officer, and LCDR C.A.Abel, Project Attorney, Fifth CoastGuard District.

Regulatory History

On November 8, 1994, the CoastGuard published a Notice of ProposedRulemaking entitled AtlanticIntracoastal Waterway, Scotts Hill,North Carolina, in the Federal Register(59 FR 55601). The commend periodended January 9, 1995. The Coast Guarddid not receive any comments on theNotice of Proposed Rulemaking. OnJanuary 13, 1995, the Coast Guardissued Public Notice 5–845 requestingcomments on the Notice of ProposedRulemaking. The comment periodended February 13, 1995. No commentswere received. A public hearing was notrequested and one was not held.

Background and Purpose

The Figure Eight Beach HomeownersAssociation, Inc. has requested thatopenings of the Figure Eightswingbridge mile 278, AtlanticIntracoastal Waterway, be restricted forrecreational vessels to every half hourdue to the increase in vehicular trafficacross the bridge. Currently, this bridgeopens on signal at all times. The CoastGuard has decided to reduce therequired bridge openings forrecreational vessels from ‘‘on demand’’to openings on the hour and half hour,as needed. The bridge will continue toopen on signal at all other times for allother vessels. The Coast Guard believesthat recreational vessels will not beunduly restricted in passage through thebridge, since they can plan their vesseltransits around the hour and halfopening restriction.

Regulatory Evaluation

This proposal is not a significantregulatory action under section 3(f) ofExecutive Order 12866 and does notrequire an assessment of potential costsand benefits under section 6(a)(3) of thatorder. It has been exempted from reviewby the Office of Management andBudget under that order. It is notsignificant under the regulatory policiesand procedures of the Department ofTransportation (DOT) (44 FR 11040;February 26, 1979). The Coast Guardexpects the economic impact of thisfinal rule to be so minimal that a fullregulatory evaluation under paragraph10e of the regulatory policies andprocedures of DOT is unnecessary.

Small EntitiesUnder the Regulatory Flexibility Act

(5 U.S.C. 601 et seq.), the Coast Guardmust consider whether this final rule,will have a significant economic impacton a substantial number of smallentities. ‘‘Small entities’’ includeindependently owned and operatedsmall businesses that are not dominantin their field and that otherwise qualifyas ‘‘small business concerns’’ undersection 3 of the Small Business Act (15U.S.C. 632). Because it expects theimpact of this final rule to be minimal,the Coast Guard certifies under 5 U.S.C.605(b) that this final rule will not havea significant economic impact on asubstantial number of small entities.

Collection of InformationThis proposal contains no collection

of information requirements under thePaperwork Reduction Act (44 U.S.C.3501 et seq.).

FederalismThe Coast Guard has analyzed this

final rule under the principles andcriteria contained in Executive Order12612, and has determined that thisfinal rule does not have sufficientfederalism implications to warrant thepreparation of a Federalism Assessment.

EnvironmentThe Coast Guard considered the

environmental impact of this final ruleand concluded that under section2.B.2.e.(32)(e) of CommandantInstruction M16475.1B (as revised by 59FR 38654; July 29, 1994), this rule iscategorically excluded from furtherenvironmental documentation. ACategorical Exclusion Determinationand checklist has been prepared andplaced in the rulemaking docket.

List of Subjects in 33 CFR Part 117Bridges.

RegulationsIn consideration of the foregoing, the

Coast Guard is amending part 117 ofTitle 33, Code of Federal Regulations asfollows:

PART 117—DRAWBRIDGEOPERATION REGULATIONS

1. The authority citation for part 117continues to read as follows:

Authority: 33 U.S.C. 499; 49 CFR 1.46; 33CFR 1.05.1(g); section 117.255 also issuedunder the authority of Pub. L. 102–587, 106Stat. 5039.

2. In § 117.821, paragraphs (b) (4) and(5) are redesignated as (b) (5) and (6)respectively, and new paragraph (b)(4)is added to read as follows:

Documents

20402 Federal Register /Vol. 60, No. 80/Wednesday, … Federal Register/Vol. 60, No. 80/Wednesday, April 26, 1995/Rules and Regulations DEPARTMENT OF HEALTH AND HUMAN SERVICES Food