The TTB recently issued a 2016-1 Ruling “in response to complaints from a number of industry members who expressed concerns over potential abuse of the narrow Tied-House exception provided for in 27 CFR 6.99(b), which removes only the act of providing a recommended shelf plan or shelf schematic from the prohibited means to induce enumerated in 27 U.S.C. 205(b)(3).”
As a result of these complaints, TTB investigated and found that “there is a misunderstanding about what activities are permitted under the § 6.99(b) exception. Ruling 2016-1 is an attempt to clarify what is and is not exempted under the exception.
Now, the TTB has issued FAQs that seek to further clarify its 2016-1 Ruling.
See a few examples below but see the FAQs for for more.
Q: Does TTB Ruling 2016-1 prohibit industry members from acting as “category captains” or from engaging in “category management” activities?
A: The terms “category management” and “category captain” are not defined in the TTB regulations and can mean different things to different industry members. TTB Ruling 2016-1 reminds the industry what is exempted by 27 CFR 6.99(b); specifically, providing a recommended shelf plan or shelf schematic, and nothing further. TTB considers additional services or things of value not specifically exempted by a subpart D exception, whether or not referenced as “category management services,” as inducements under 27 CFR 6.41 of the TTB regulations. Many of the common services given under the term “category management/category captain” may be considered things of value and, as such, inducements under the Tied-House statute and regulations. If such practice results in exclusion of competitor products, in whole or in part, such that the retailer’s independence is at risk, with the requisite connection to interstate or foreign commerce, and if (in the case of malt beverages only) there is a similar State law, the practice would violate the FAA Act.
Q: Are there certain services or things of value that are not considered inducements under the Tied-House regulations?
Subject to specific recordkeeping requirements, the subpart D exceptions found in 27 CFR part 6 that allow industry members to provide a recommended shelf plan also generally authorize providing certain other things of value, such as:
- Product displays not to exceed $300 per brand.
- Point of sale/consumer advertising items such as posters, coasters, paper napkins, foam scrapers, calendars, ash trays, cork screws, shirts and caps.
- Consumer coupons and direct contests.
- Consumer tastings and samplings.
Providing a service or thing of value to a retailer that is not specifically exempted under the 27 CFR part 6 subpart D exceptions, constitutes an inducement under the Tied-House provisions.
Q: In TTB Ruling 2016-1, what does TTB mean by “[h]owever, as revealed by TTB’s review of industry practices, some industry members do not offer a mere shelving plan alone but also include additional services, sometimes of significant value, that exceed the 27 CFR 6.99(b) exception’s plain language.”
A: During its review of industry practices, TTB found services being provided to retailers that are not specifically exempted under part 6, subpart D of the TTB regulations. (27 CFR part 6, subpart D). Industry members should read the Tied-House regulations to determine if the activities, services or items of value they furnish retailers arespecifically exempted under subpart D. If not specifically exempted, then such activities, services or items of value constitute inducements.
Q: Can an industry member receive and analyze confidential and/or proprietary competitor information on behalf of the retailer?
No subpart D exception authorizes analysis of retailer or competitor information (on behalf of the retailer) that is confidential/proprietary and not made available to all industry members on the same terms. Accordingly, TTB considers such services a thing of value, and therefore an inducement, whether or not they ultimately result in furnishing a recommended schematic to the retailer.
- Example – Under a retailer-initiated program, competing industry members’ sales data, planned promotions, new products, or product pricing are shared with one industry member, which uses that information (in whole or in part) to create and provide the retailer with a recommended shelf plan.
- Example – Under an industry member-initiated program, retailer information (such as confidential retailer sales goals and expectations or retailer proprietary sales data) is shared with only one industry member, which uses such data (in whole or in part) to create and provide the retailer with a recommended shelf plan.
Q: Can an industry member furnish retailers with items of value, including market data from third party vendors?
While TTB realizes industry members often purchase and use third-party market data to assist their creation of a recommended schematic, there is no subpart D exception that authorizes sharing with or giving to retailers such information in any format other than the ultimate shelf schematic recommended by the industry member. It is up to the retailer (and not the industry member) to obtain and analyze any data that potentially supports or refutes the utility of a recommended schematic it receives.
Moreover, because there is also no subpart D exception authorizing industry members to purchase third-party market data from a company that is owned or controlled by the retailer, industry members doing so risk being deemed to have indirectly (and unlawfully) induced the retailer’s future purchases to the exclusion of its competitors.
Q: Can an industry member furnish a retailer with human resources to perform functions/activities other than stocking, rotation or pricing the industry member’s own product, as permitted in § 6.99(a) of the TTB regulations?
If an industry member furnishes human resources to perform any function on behalf of the retailer that is not specifically exempted by the Tied-House regulations, such services constitute an inducement. Industry members should carefully read the Tied-House regulations and determine if any contemplated activities, services or items of value are specifically exempted under subpart D. If not specifically exempted then the activities, services or items of value constitute inducements. If such practice results in exclusion of competitor products, in whole or in part, such that the retailer’s independence is at risk, with the requisite connection to interstate or foreign commerce, and if (in the case of malt beverages only) there is a similar State law, the practice would violate the FAA Act.