TTB Issues Frequently Asked Questions on Category Management and “Tied House” (Excerpt)

 

Source: TTB

March 16th

 

TTB has issued Frequently Asked Questions (FAQs) on shelf schematics in response to questions we received following publication of Ruling 2016-1, The Shelf Plan and Shelf  Schematic Exception to the “Tied House” Prohibition, and Activities Outside Such Exception. Ruling 2016-1 provided general guidance concerning promotional activities commonly associated with category management programs and whether or not those activities are lawful.

 

These FAQs are intended to help industry members who wish to be voluntarily compliant.

 

TTB remains firmly committed to ensuring a level playing field through enforcement of the trade practices provisions of the Federal Alcohol Administration Act.

 

http://www.ttb.gov/faqs/alcohol_faqs.shtml#sch

 

SSQ3: Does TTB Ruling 2016-1 prohibit industry members from acting as “category captains” or from engaging in “category management” activities?

 

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.

 

SSQ4: 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.

 

SSQ5: What does TTB mean when it says in Ruling 2016-1 “This Ruling illustrates what a shelf plan or shelf schematic is, and is not, relative to the exception in 27 CFR 6.99(b). A shelf plan or shelf schematic provided under this exception is a simple sales tool offering options as to how an industry member thinks a retailer’s shelves should appear.”

 

The TTB regulations at 27 CFR 6.99(b) state that the act by an industry member of providing a “recommended” shelf plan or shelf schematic for distilled spirits, wine, or malt beverages does not constitute a means to induce within the meaning of section 105(b)(3) of the Act.

 

In any potential investigation, TTB will look in part to determine if shelf plans or schematics are being provided as mere recommendations (authorized under the subpart D exceptions) or the de facto ultimate plan adopted by the retailer as a result of a unique relationship between it and the submitting industry member.  In the latter scenario, TTB may argue the submitting industry member’s schematic does not qualify for the section 6.99(b) exception.

 

SSQ6: 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.”

 

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 are specifically exempted under subpart D.  If not specifically exempted, then such activities, services or items of value constitute inducements.

 

SSQ7: Are any of the five examples listed in TTB Ruling 2016-1 red light activities or are they all yellow light activities?

 

The terms “red light” and “yellow light” are neither used nor defined in the FAA Act or TTB’s Tied-House regulations.

 

The five examples of additional services (which are not all inclusive) described in TTB Ruling 2016-1 are not exempted by 27 CFR 6.99(b).   Such services therefore constitute inducements within the meaning of section 105(b)(3) of the FAA Act.

 

In order to determine if the retailer’s independence is at risk, TTB would first determine if an inducement has been given to the retailer.  It would then evaluate, in their entirety, all of the industry member’s practices/activities with the retailer and determine if they meet the requirements outlined in 27 CFR 6.152 (Practices which put retailer independence at risk) and/or 6.153 (Criteria for determining retailer independence).  TTB makes these determinations on a case-by-case basis.

A Federal Tied-House violation will exist if all of the elements of a violation are present.  This includes an industry member providing a retailer with a prohibited inducement that 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 (in the case of malt beverages only) a similar State law.

 

SSQ9: 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.

 

SSQ10: 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.

 

SSQ11: Can an industry member provide follow-up services (such as communicating with the retailer’s stores, vendors, representatives, wholesalers, and suppliers concerning daily operational matters such as store resets, add and delete item lists, advertisements and promotions) in order to monitor and revise a schematic?

 

There is no subpart D exception authorizing industry members to monitor (or assist in monitoring) the retailer’s compliance with a shelf plan on behalf of a retailer.

 

SSQ12: 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.