On February 11, 2016, TTB issued Ruling 2016-1 titled “The Shelf Plan and Shelf Schematic Exception to the ‘Tied House’ Prohibition, and Activities Outside Such Exception.” The ruling concerns promotional activities commonly associated with category management programs and looked at such practices with respect to the federal tied house laws. The agency said its guidance was issued as a result of industry requests for clarification with respect to shelf plans and schematics and insight on what the agency considers to be permissible. For more information, see TTB Ruling 2016-1, The Shelf Plan and Shelf Schematic Exception to the “Tied House” Prohibition, and Activities Outside Such Exception.
Very generally speaking, tied house laws are designed to prevent a supplier from gaining too much control over or domination of a retailer, as well as to prohibit supplier acts of unlawful inducements as a means to encourage the sale of alcohol beverages. Both the federal law and state laws speak to tied house laws. From the federal perspective—and again, generally speaking—the law prohibits a supplier from inducing a retailer to purchase its products at the exclusion of such beverages offered for sale by other suppliers in interstate or foreign commerce. Unlawful inducements can include (but are not limited to) an industry member furnishing, giving, renting, lending, or selling equipment, fixtures, signs, supplies, money, services, or other things of value to a retailer. This means that many types of acts or services performed by a supplier to a retailer may fall into the “unlawful inducement” category and may be prohibited. The federal law contains tied house restrictions at 27 U.S.C. § 205(b) (the Federal Alcohol Administration Act) and TTB’s implementing regulations are found at 27 CFR Part 6.
While the tied house laws are generally very restrictive, there are several exceptions on the federal level. For example, 27 CFR § 6.99(b) states that should an industry member provide a retailer with a recommended shelf plan or shelf schematic for wine, malt beverages, or distilled spirits, such is not considered to be an unlawful inducement within the context of the Federal Alcohol Administration Act or TTB’s regulations. This allowance was the topic of TTB’s latest ruling.
TTB Ruling 2016-1
The TTB Ruling 2016-1 talks to promotional activities generally associated with category management programs. In particular, TTB focuses on the current regulation that talks to stocking, rotation, and pricing service, found at 27 CFR § 6.99(a)-(b):
(a) General. Industry members may, at a retail establishment, stock, rotate and affix the price to distilled spirits, wine, or malt beverages which they sell, provided products of other industry members are not altered or disturbed. The rearranging or resetting of all or part of a store or liquor department is not hereby authorized.
(b) Shelf plan and shelf schematics. 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.
Section 6.99(b) was implemented over 20 years ago by TTB’s predecessor agency, the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATF). The regulation was executed in part due to inter-industry petition. Like many laws and regulations, § 6.99(b) has much history and involved many politics, neither of which are not the topic of this article. However, it should be noted that the BATF had some hesitation toward § 6.99(b)’s implementation—in part due to the agency’s concern that shelf schematics and shelf plans could have an effect on fair trade. Industry members assured the BATF that § 6.99(b) would only be used as a standalone marketing tool and that such schematics and plans had little or no intrinsic value. The agency was (at least partially) assuaged by industry comments and arguments, and implemented the regulation with the understanding that the BATF would revisit § 6.99(b) if it appeared the exception was abused or otherwise used in violation of federal tied house laws.
Industry members recently requested that TTB clarify its position with respect to § 6.99(b). TTB’s ruling attempts to describe what a shelf plan or shelf schematic is or is not with respect to the exception in 27 CFR 6.99(b). The ruling defines a shelf plan or shelf schematic as “a simple sales tool offering options as to how an industry member thinks a retailer’s shelves should appear.” See TTB Ruling 2016-1, Page 6. TTB is not concerned about the complexity of the shelf plan or shelf schematic and does not object to suppliers furnishing such shelf plans or shelf schematics to retailers, as noted in its ruling. TTB refers to the § 6.99(b) exception as “plain language.” Id. This seems relatively consistent with past agency policy. However, TTB made an important determination in its recent ruling, one that is vital for all industry members.
When TTB reviewed current practices, the agency discovered that some industry members are providing plans and schematics “as well as services that far exceed the exception in § 6.99(b), which unambiguously exempts only the simple act by an industry member of providing a recommended shelf plan or shelf schematic . . . .” Id. In its analysis, TTB stated the additional services constitute things of value, and serve as a means to induce under § 6.21 of TTB’s tied house regulations. Id. TTB further instructed a violation of the Federal Alcohol Administration Act would arise if the actions resulted in the exclusion of a competitor’s product with the connection to interstate or foreign commerce. Id. Several other factors would need to be examined, such as whether the retailer’s independence is put at risk, before such violation could be ascertained.
In its ruling, TTB provided a list of additional actions or services which would not be exempted by § 6.99(b) and which may be subject to additional scrutiny and investigation. The practices are as follows:
- Assuming, in whole or in part, a retailer’s purchasing or pricing decisions, or shelf stocking decisions involving a competitor’s products;
- Receiving and analyzing, on behalf of the retailer, confidential and/or proprietary competitor information;
- Furnishing to the retailer items of value, including market data from third party vendors;
- Providing follow-up services to monitor and revise the schematic where such activity involves an agent or representative of the industry member communicating (on behalf of the retailer) with the retailer’s stores, vendors, representatives, wholesalers, and suppliers concerning daily operational matters (e.g., store resets, add and delete item lists, advertisements, and promotions); and
- Furnishing a retailer with human resources to perform merchandising or other functions, with the exception of stocking, rotation, or pricing services of the industry member’s own products (per § 6.99(b)).
Id. at 7.
(The above should not be considered an exhaustive list with respect to practice or services that may fall outside of § 6.99(b).)
In issuing its latest ruling, TTB reasoned that the alcohol beverage industry is experiencing significant growth and that many smaller businesses are entering the market and the agency has interest in maintaining a level playing fields for all industry members.
Industry members should be mindful of TTB’s latest guidance and interpretation of § 6.99(b). Specifically, alcohol beverage businesses must understand that TTB interprets the regulation as “plain language,” meaning that the exemption does not grant industry members privileges beyond what is explicitly stated in § 6.99(b). Second, suppliers—on both the wholesaler and production side—should be attentive to their actions and practices with respect to providing retailers with recommended shelf plans and shelf schematics. Services beyond the scope of § 6.99(b) likely violate federal (and possibly state) tied house laws, but it is imperative that industry contact their alcohol beverage counsel for further insight.
For more information on wine or alcohol law, or tied house, please contact Lindsey Zahn.
DISCLAIMER: This blog post is for general information purposes only, is not intended to constitute legal advice, and no attorney-client relationship results. Please consult your own attorney for legal advice.
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