FTC Staff Comment Before the Bureau of Alcohol, Tobacco, and Firearms Concerning Use of Certain Terms in the Labeling and Advertising of Malt Beverages

,
\J 	fj IYtp 51 	\.;UMMISSION
APPROVED·:~:: .."
COMMENTS 	OF THE BUREAUS OF CONSUMER PROTECTION,
ECONOMICS, 	AND COMPETITION
OF 	THE FEDERAL TRADE COMMISSION
Submitted 	In 	Response 	To 	Bureau 	Of 	Alcohol,
Tobacco 	And 	Firearms 	Notice 	Of 	Proposed 	Rulemaking,
Use 	Of 	The 	Terms 	"Cereal 	Beverage," 	"Near 	Beer,"
"Alcohol-Free," 	And 	"Non-Alcoholic" 	In 	The 	Labeling
And 	Advertising 	Of 	Malt 	Beverages, 	Notice 	No. 	610,
51 	Fed. 	Reg. 	39,666 	(October 	30, 	1986)
January 	28, 	1987
NOTE: 	These 	comments 	represent 	the 	views 	of 	the 	Bureaus 	of
Consumer 	Protection, 	Economics, 	and 	Competition 	of 	the 	Federal
Trade 	Commission 	and 	do 	not 	necessarily 	represent 	the 	views 	of
the 	Commission 	or 	of 	any 	individual 	Commissioner. 	The
Commission, 	however, 	has 	authorized 	the 	submission 	of 	these
comments.
r
f

I. 	INTRODUCTION-AND 	SUMMARY
By 	Notice 	of 	Proposed 	Ru1emaking, 	No. 	610, 	51 	Fed. 	Reg.
39,666 	(October 	30, 	1986), 	the 	Bureau 	of 	Alcohol, 	Tobacco 	and
Firearms 	( t1
BATF") 	requests 	comments 	on 	its 	proposal 	to 	promulgate
regulations 	that 	reaffirm 	existing 	regulations 	and 	further 	codify
its 	current 	policies 	restricting 	the 	use 	of 	the 	term 	"beer" 	in
the 	labeling 	and 	advertising 	of 	"dealcoho1ized" 	malt 	beverages.
For 	the 	reasons 	set 	forth 	below, 	the 	Bureaus 	of 	Consumer
Protection, 	Economics, 	and 	Competition 	of 	the 	Federal 	Trade
Commission 	("FTC 	staff") 	oppose 	this 	proposal. 	In 	brief, 	BATF's
current 	policy 	-- 	which 	it 	proposes 	to 	reaffirm 	precludes
manufacturers 	of 	a 	product 	that 	is 	in 	fact 	beer 	with 	the 	alcohol
removed 	from 	advertising 	and 	labeling 	the 	product 	as 	"beer." 	See
Section 	II 	below. 	,The 	only 	purpose 	of 	this 	restriction 	appears
to 	be 	to 	protect 	consumers 	from 	purchasing 	this 	product 	in
reliance 	on 	the 	mistaken 	belief 	that 	they' are 	buying 	an 	alcoholic
beverage. 	The 	market, 	however, 	provides 	strong 	incentives 	to
sellers 	to 	ensure 	that 	no 	such 	deception 	or 	confusion 	occurs,
without 	the 	need 	for 	government 	intervention. 	See 	Section 	III
be1o~. 	Rather 	than 	protecting 	drinkers 	of 	alcoholic 	beverages,
BATF's 	restrictions 	are 	likely 	to 	harm 	consumers 	who 	are 	seeking
healthier 	and 	safer 	substitutes 	by 	depriving 	them 	of 	valuable
information 	concerning 	the 	alternative 	of 	non-alcoholic 	beer.
For 	these 	reasons, 	the 	restrictions 	are 	likely 	to 	undermine,
rather 	than 	promote, 	BATF's 	statutory 	objective 	of 	providing

consumers 	with 	adequate 	information 	as 	to 	the 	identity 	and
quality 	of 	malt 	beverage 	products. 	See 	Section 	IV 	below. l
II. 	BACKGROUND
In 	response 	to 	increasing 	consumer 	demand 	for 	healthier 	and
safer 	substitutes 	for 	alcoholic 	beverages, 	the 	advertising 	and
1 	The 	Notice 	of 	Proposed 	Rulemaking 	also 	proposes 	to 	incorporate
into 	BATF's 	regulations 	current 	BATF 	policy 	restricting 	the 	use 	of
the 	terms 	"alcohol-free" 	and 	"non-alcoholic" 	in 	the 	labeling 	and
advertising 	of 	malt 	beverages. 	BATF 	prohibits 	the 	use 	of 	the 	term
"alcohol-free" 	in 	the 	labeling 	and 	advertising 	of 	malt 	beverages
containing 	any 	alcohol. 	BATF, 	however, 	permits 	the 	use 	of 	the
term 	"non-alcoholic" 	in 	the 	marketing 	of 	malt 	beverages 	when: 	(1)
the 	malt 	beverage 	contains 	less 	than 	0.5 	percent 	alcohol; 	and 	(2)
the 	statement 	"contains 	less 	than 	0~5 percent 	alcohol 	by 	volume"
is 	included 	in 	direct 	conjunction 	with 	that 	term. 	A.T.F. 	Rul. 	85-
11, 	A.T.F.Q.B. 	1985-3. 	The 	FTC 	staff's 	views 	concerning 	the 	use
of 	these 	terms 	and ,alcohol 	content 	disclosures 	in 	the 	marketing 	of
dealcoholized 	beverages 	are 	set 	forth 	in 	Statement 	of 	C. 	Lee
Peeler, 	Associate 	Director 	for 	Advertising 	Practices, 	Bureau 	of
Consumer 	Protection, 	Federal 	Trade 	Commission 	before 	the
Subcommittee 	on 	Select 	Revenue 	Measures, 	Committee 	on 	Ways 	and
Means, 	U.S. 	House 	of 	Representatives 	(May 	19, 	1986), 	which 	is
incorporated 	herein 	by 	reference. 	This 	comment 	will 	not 	further
address 	these 	aspects 	of 	BATF's 	proposal, 	except 	to 	note 	that 	the
Food 	and 	Drug 	Administration 	("FDA") 	recently 	issued 	proposed
regulations 	permitting 	de 	minimis 	quantities 	of 	cholesterol 	to 	be
present 	in 	foods 	labeled 	as 	"cholesterol 	free," 	51 	Fed. 	Reg.
42,584 	(November 	25, 	1986), 	and 	has 	issued 	final 	regulations
allowing 	de 	minimis 	amounts 	of 	salt 	in 	"salt 	free" 	foods, 	21
C.F.R. 	105:66. 	Absent 	evidence 	of 	consumer 	expectations 	to 	the
contrary, 	BATF 	should 	pursue 	a 	similar 	approach 	in 	the 	labeling
and 	advertising 	of 	malt 	beverages. 	Many 	foods, 	including 	soft
drinks, 	condiments, 	bread, 	ice 	cream, 	pickles 	and 	sauerkraut
contain 	amounts 	of 	alcohol 	similar 	to 	that 	remaining 	in
dealcoholized 	malt 	beverages. 	The 	FDA 	staff 	has 	determined 	that
there 	is 	no 	evidence 	that 	the 	low 	levels 	of 	alcohol 	contained 	in
these"products 	are 	unsafe 	to 	any 	consumers. 	Statement 	of 	Curtis
E. 	Coker; 	Assistant 	to 	Director, 	Division 	of 	Regulatory 	Guidance,
Center 	for 	Food, 	Safety and 	APplied 	Nutrition, 	Food 	and 	Drug
Administration 	before 	the 	Subcommittee 	on 	Select 	Revenue 	Measures,
Committee 	on 	Ways 	and 	Means, 	U.S. 	House 	of 	Representatives 	May 	19,
1986. 	See 	also 	Schaefer, 	On 	The 	Effects 	of 	Consuming 	"Non-
Alcoholic" 	Or 	"De-Alcoholized" 	Beverages 	And 	Health 	Risks
(Prepared 	for 	the 	Federal 	Trade 	Commission, 	January, 	1986).
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marketing 	of 	certain 	"non-alcoholic" 	or 	"dealcoholized" 	beverages
have 	significantly 	increased. 2 	These 	products 	generally 	are
produced 	from 	beer 	or 	wine 	by 	use 	of 	vapor 	pressure 	techniques
that 	leave 	only 	trace 	amounts 	of 	alcohol 	of 	less 	than 	0.5 	percent
by 	volume, 	while 	preserving 	some 	of 	the 	basic 	taste, 	color, 	smell
and 	character 	of 	the 	original 	product. 3 	The 	size 	of 	this 	rapidly
growing 	industry 	is 	already 	substantial; 	up 	to 	8 million 	cases 	of
2 	Along 	with 	the 	BATF, 	the 	FTC 	has 	concurrent 	jurisdiction 	over
the 	advertising 	and 	labeling 	of 	malt 	beverages 	under 	Sections 	5
and 	12 	of 	the 	Federal 	Trade 	Commission 	Act 	(15 	U.S.C. 	§§ 	45 	et
~), 	which 	generally 	prohibit 	fal~~, deceptive 	or 	unfair
practices 	in 	or 	affecting 	commerce. 	In 	implementing 	its
statutory 	mandate, 	the 	FTC 	has 	acquired 	substantial 	economic
expertise 	in 	understanding 	the 	informational 	roles 	of 	advertising
and 	labeling 	in 	the 	processes 	by 	which 	markets- respond 	to
consumers. 	This 	expertise 	extends 	to 	the 	examination 	of 	such
issues 	as 	the 	effects 	on 	consumer 	welfare 	of 	specific 	government-
imposed 	standards, 	disclosures, 	and 	other- advertising
restrictions. 	International 	Harvester 	Company, 	104 	F.T.C. 	949
(1984). 	See 	also, 	Letter 	from 	Federal 	Trade 	Commission 	to
Congressman 	Dingell 	(October 	14, 	1983) 	("Deception 	Policy
Statement"), 	and 	Letter 	from 	Federal 	Trade 	Commission 	to 	Senators
Ford 	and 	Danforth 	(December 	17, 	1980) 	("Unfairness 	Policy
Statement"). 	FTC 	staff's 	research 	on 	advertising 	restrictions
includes: 	W. 	Jacobs 	et 	al., 	Improving 	Consumer 	Access 	to 	Legal
Services: 	The 	Case 	for 	Removing 	Restrictions 	on-Truthful
Advettising 	(1984) 	(Federal 	Trade 	Commission); 	R. 	Bond 	et 	al.,
Effects 	of 	Restrictions 	on Advertising 	and 	Commercial 	Practice 	in
the 	Professions: 	The 	Case 	of 	Optometry 	(1980) 	(Federal 	Trade
Commission); 	R. 	Bond 	et 	al., 	Self 	Regulation 	in 	Optometry: 	The
Impact 	on 	Price 	and 	Quality, 	L. 	and 	Hum. 	Behav. 	(1983),; 	Drug
Product 	Selection 	(1979) 	(Federal 	Trade 	Commission); 	A. 	Masson
and 	R. 	Steiner, 	Generic 	Substitution 	and 	Prescription 	Drug
Prices: 	Economic 	Effects 	of 	State 	Drug 	Product 	Substitution Laws
(1985) 	(Federal 	Trade 	Commission); 	M. 	Frankena 	et 	al., 	Alcohol
Advertising, 	Consumption, 	and 	Abuse 	(1985) 	(Federal 	Trade
Commission); 	and 	J. 	Calfee, 	Cigarette 	Advertising, 	Health
Information 	and 	Regulation 	Before 	1970 	(1985) 	(Federal 	Trade
Commission).
3 	See 	Schaefer, 	supra 	note 	1.
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' .
•
non-alcoholic 	m~lt beverages 	currently 	are 	being 	consumed
annually 	in 	the 	United 	States. 4
Although 	non-alcoholic 	malt 	beverages 	have 	substantially
similar 	characteristics 	and 	const:tuents 	-- 	except 	for 	the
quantity 	of 	alcohol 	-- 	as 	the 	typical 	alcoholic 	beer, 	current
BATF 	regulations S preclude 	manufacturers 	from 	labeling 	and
advertising 	these 	products 	as 	"beer." 	Specifically,
manufacturers 	are 	prohibited 	from 	using 	the 	class 	designations
"beer," 	"lager 	beer," 	"lager," 	"ale," 	"porter," 	"stout," 	or 	any
other 	class 	or 	type 	designation 	commonly 	associated 	with 	malt
beverages 	containing 	0.5 	percent 	or 	more 	alcohol 	by 	volume, 	in
the 	labeling 	and 	advertising 	of 	any 	product 	containing 	less 	than. ,
0.5 	percent 	alcohol 	by 	volume. 	The 	Notice 	of 	Proposed 	Rulemaking
proposes 	to 	rnainta~n this 	prohibition 	by 	codifying 	current 	BATF
policy6 	to 	provide 	expressly 	that 	malt 	beverage 	products
containing 	less 	than 	0.5 	percent 	alcohol 	by 	volume 	shall 	bear 	the
class 	designation 	"malt 	beverage," 	"cereal 	beverage," 	or 	"near
beez;."
Section 	See) 	and 	(f) 	of 	the 	Federal 	Alcohol 	Administration
Act 	t"FAA Act"), 	27 	U.S.C. 	205(e) 	and 	(f), 	provides, 	in 	general
terms, 	that 	malt 	beverage 	labeling 	and 	advertising 	shall 	not
contain 	any 	statement 	that 	is 	false, 	misleading, 	deceptive, 	or
4 	It 	has 	been 	estimated 	that 	the 	non-alcoholic 	malt 	beverage
industry 	will 	experience 	a 	25 	percent 	annual 	growth 	rate. 	"BATF
Rules 	on 	'Alcohol 	Free' 	Ad 	Claims," 	Advertising 	Age, 	January 	27,
1986.
5
6
27 	C.F.R. 	7.24(d) 	and 	7.S4(d).
Rev. 	Rul. 	57-322, 	1957-2 	C.B. 	930.
-4-
..

likely 	to 	mislead 	the 	consumer 	regarding 	the 	product. 7 	In
addition, 	Section 	5(e) 	and 	(f) 	authorizes 	the 	Secretary 	of 	the
Treasury 	to 	prescribe 	such 	regulations 	as 	will 	provide 	the
consumer 	with 	adequate 	information 	as 	to 	the 	identity 	and 	quality
of 	the 	malt 	beverage 	product, 	except 	that 	statements 	of, 	or
statements 	likely 	to 	be 	considered 	as 	statements 	of, 	alcoholic
content 	of 	malt 	beverages 	are 	prohibited 	unless 	required 	by 	state
law. 8
Since 	the 	FAA Act 	does 	not 	specifically 	address 	the 	labeling
7 	The 	term 	"malt 	beverage" 	is 	defined 	in 	Section 	l7(a)(8) 	of 	the
FAA Act, 	·27 	U.S.C. 	211(a)(7), 	and 	its 	implementing 	regulation, 	27
C.F.R. 	7.10, 	as 	follows:
[A] 	beverage 	made 	by 	the 	alcoholic
fermentation 	of 	an 	infusion 	or 	decoction, 	or
combination 	of 	both, 	in 	potable 	brewing
water, 	of 	malted 	barley 	with 	hops, 	or 	their
parts, 	or 	their 	products, 	and 	with 	or 	without
other 	malted 	cereals, 	and 	with 	or 	without 	the
addition 	of 	unmalted 	or 	prepared 	cereals,
other 	carbohydrates 	or 	products 	prepared
therefrom, 	and 	with 	or 	without 	the 	addition
of 	carbon 	dioxide, 	and 	with 	or 	without 	other
wholesome 	products 	suitable 	for 	human 	food
consumption.
Neither 	the 	FAA Act 	nor 	BATF's 	regulations 	contains 	any 	reference
to 	a/minimum 	level 	of 	alcohol 	content 	before 	a 	product 	is
considered 	a 	"malt 	beverage." 	The 	Notice 	of 	Proposed 	Rulemaking
notes 	that 	the 	legislative 	history 	of 	the 	FAA Act 	clearly 	shows
that 	Congress 	intentionally 	omitted 	any 	minimum alcohol 	content
from 	the 	definition 	in 	order 	to 	bring 	all 	malt 	beverages 	within
the 	purview 	of 	the 	statute, 	regardless 	of 	alcohol 	content. 	B.R.
Rep. 	No. 	1542, 	74th 	Cong., 	1st 	Sess. 	16 	(1935).
8 	BATF 	has 	interpreted 	this 	statutory 	prohibition 	as 	precluding
statements 	of 	actual 	alcohol 	content 	and 	statements 	used 	to
represent 	that 	the 	malt 	beverage 	is 	high 	in 	alcohol. 	Thus, 	BATF
has 	held 	that 	the 	FAA Act 	does 	not 	preclude 	statements, 	such 	as
"contains 	less 	than 	0.5 	percent 	alcohol 	by 	volume," 	indicating
that 	the 	alcohol 	content 	of 	the 	malt 	beverag~ is 	below 	the 	range
of 	alcohol 	content 	found 	in 	regular 	malt 	beverages. 	A.T.F. 	Rul.
85-11, 	A.T.F.Q.B. 	1985-3.
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and 	advertising 	of 	a 	product 	as 	"beer," 	the 	Notice 	of 	Proposed
Rulemaking's 	structure 	of 	differing 	class 	designations 	for 	malt
beverages 	that 	are 	above 	and 	below 	0.5 	percent 	alcohol 	content
presumably 	is 	intended 	to 	implement 	the 	general 	provisions 	of
Section 	See) 	and 	(f).
III. 	THE 	PROPOSED 	RESTRICTIONS 	ON 	THE 	USE OF 	THE 	TERM 	"BEER" 	ARE
UNNECESSARY 	TO 	SAFEGUARD 	THE 	CONSUMER 	FROM 	DECEPTION OR
CONFUSION
The 	Notice 	of 	Proposed 	Rulemaking 	gives 	only 	one 	primary
justification 	for 	the 	current 	restrictions 	-- 	which 	it 	proposes
to 	reaffirm 	-- 	on 	the 	use 	of 	the 	term 	"beer." 	It 	states 	that 	the
restric~ions are 	necessary 	so 	that 	consumers 	will 	be 	better
informed 	as 	to 	the 	identity 	of 	products 	containing 	little 	or 	no
alcohol. 	The 	Notice 	of 	Proposed 	Rulemaking 	asserts 	that 	these
restrictions 	reflect 	historic 	trade 	and 	consumer 	recognition 	that
the 	r~ference to 	a 	product 	as 	a 	"beer" 	means 	that 	the 	product
contains 	not 	less 	than 	0.5% 	alcohol 	by 	volume. 9
It 	is 	not 	clear, 	however, 	that 	this 	is 	a 	sufficient 	basis
for 	invoking 	Section 	See) 	and 	(f). 	The 	Notice 	of 	Proposed
Rulemaking 	cites 	no 	evidence 	to 	show 	that 	restraints 	are 	actuallyt
necessary 	in 	order 	to 	safeguard 	the 	consumer 	from 	deception 	or
confusion 	as 	to 	the 	"non-alcoholic" 	nature 	of 	the 	product.
9 	51 	Fed. 	Reg. 	39,666.
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Historic 	trade 	us~gelO and 	general 	consumer 	recognition 	of 	"beer"
as 	an 	alcoholic 	beverage 	notwithstanding, 	it 	is 	unlikely 	that
consumers 	will 	mistake 	the 	dealcoholized 	nature 	of 	"non-alcoholic
beer." 	The 	manufacturers 	of 	dealcoholized 	"beer" 	have 	strong
incentives 	to 	ensure, 	through 	advertising 	and 	labeling, 	that
consumers 	are 	aware 	that 	their 	product 	retains 	only 	trace 	amounts
of 	alcohol. 	The 	target 	market 	for 	this 	product 	is 	consumers 	who
desire 	less 	alcohol. 	If 	manufacturers 	do 	not 	take 	effective
steps 	to 	inform 	consumers 	of 	the 	non-alcoholic 	nature 	of 	these
products, 	the 	marketing 	of 	these 	products 	will 	not 	succeed.
It 	appears 	that 	non-alcoholic 	malt 	beverages 	generally
comrnanda 	premium 	price 	over 	their 	alcoholic 	counterparts,
apparently 	reflecting 	higher 	costs 	of 	production. 	Given 	these
higher 	costs, 	manufacturers 	of 	non-alcoholic 	malt 	beverages 	will
take 	measures 	to 	ensure 	that 	their 	produ~ts are 	not 	confused 	with
less 	costly, 	and 	lower 	priced, 	alcoholic 	beers. 	This 	situation
contrasts 	markedly 	from 	the 	possible 	profit 	incentives 	of 	a
manufacturer 	of 	a 	lower 	cost 	product 	-- 	for 	example, 	gold-plated
~O 	The 	National 	Prohibition 	(Volstead) 	Act 	defined 	"beer" 	as
containing 	0.5 	percent 	alcohol 	or 	more 	in 	order 	to 	exempt 	malt
beverages 	containing 	less 	than 	0.5 	percent 	alcohol 	from 	the
prohibitions 	of 	the 	Eighteenth 	Amendment. 	Subsequent 	to 	repeal
of 	this 	Amendment, 	the 	Internal 	Revenue 	Code 	has 	retained 	this
definition 	for 	tax 	purposes. 	As 	the 	Notice 	of 	Proposed
Rulemaking 	recognizes, 	these 	statutory 	definitions 	of 	"beer"
merely 	reflect 	the 	understandable 	legislative 	determination 	that
malt 	beverages 	containing 	less 	than 	0.5 	percent 	alcohol 	not 	be
regarded 	as 	"alcoholic" 	beverages 	for 	prohibitory 	or taxing
purposes. 	It 	is 	both 	notable 	and 	understandable 	that 	the
legislature 	chose 	not 	to 	incorporate 	such 	a 	definition 	of 	"beer"
into 	the 	statutory 	scheme 	of 	the 	FAA Act 	governing 	labeling 	and
advertising 	-- 	an 	act 	serving 	entirely 	different 	statutory
purposes.
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jewelry 	-- 	in 	having 	it 	confused 	with 	a 	higher 	cost 	product 	--
solid 	gold.
Lastly, 	in 	the 	unlikely 	event 	that 	the 	evidence 	indicates
that 	manufacturers 	are 	failing 	to 	inform 	consumers 	of 	the
dealcoholized 	nature 	of 	their 	"beer," 	BATF 	could 	ensure 	that 	no
deception 	or 	confusion 	arose 	by 	merely 	requiring 	dealcoholized
malt 	beverages 	that 	use 	the 	term 	"beer" 	to 	disclose 	on 	the 	label
that 	they 	contain 	less 	than 	0.5 	percent 	alcohol. II
Experience 	in 	other 	markets 	suggests 	that 	this 	approach 	is 	a
sound 	one. 	BATF's 	restrictions 	on 	the 	term 	"beer" 	are
inconsistent 	with 	the 	experience 	and 	policies 	of 	both 	the 	FDA 	and
the 	FTC.concerning 	the 	marketing 	of 	dealcoholized 	wine
products. 12 	Neither 	the 	FDA 	nor 	the'FTC 	has 	prohibited 	the
marketing 	of 	these 	dealcoholized 	products 	as 	"wine." 	Consumer
advertising 	and 	labeling 	in 	that 	market 	prominently 	alert 	the
consumer 	to 	both 	the 	dealcoholized 	nature of 	the 	wine 	products
and 	to 	the 	fact 	that 	the 	products 	retain 	a 	trace 	amount 	of
alcohol. I3
11 	Indeed, 	when 	the 	term 	"non-alcoholic" 	is 	used 	in 	the
marketing 	of 	these 	products, 	BATF 	currently 	requires 	such 	an
alcohol 	r.ontent 	disclosure. 	See 	supra 	notes 	1 	and 	8.
12 	The 	FTC 	has 	jurisdiction 	over 	the 	advertising 	of 	all
dealcoholized 	beverages, 	and 	has 	concurrent 	jurisdiction with 	FDA
over 	the 	labeling 	of 	dealcoholized 	wine. 	Under 	an 	FDA-FTC
liaison 	agreement, 	as 	in 	the case 	of 	other 	foods, 	over-the-
counter 	drugs 	and 	cosmetics, 	the 	FDA 	exercises 	primary
jurisdiction 	over 	labeling 	while 	the 	FTC 	regulates 	advertising.
13 	See 	Peeler, 	supra 	note 	1.
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IV. 	THE 	PROPOSED 	RESTRICTIONS 	ON USE 	OF 	THE 	TERM 	"BEER" 	ARE
LIKELY 	TO HARM 	CONSUMERS 	BY 	REDUCING 	THE 	FLOW OF VALUABLE
PRODUCT 	INFORMATION
BATF's 	restrictions 	on 	the 	use 	of 	the 	term 	"beer" 	are 	more
likely 	to 	undermine 	than 	to 	promote 	the 	informational 	objectives
of 	Section 	5(e) 	and 	(f). 	Rather 	than 	benefiting 	consumers,
BATF's 	restrictions 	on 	the 	use 	of 	the 	term 	"beer" 	appear 	likely
to 	injure 	consumers 	by 	depriving 	them 	of 	useful 	product
information.
Advertising 	and 	labeling 	provide 	information 	about 	product
characteristics 	that 	reduces 	consumer 	search 	costs 	and 	enables
consumer~ to 	choose 	the 	particular 	products 	or 	brands 	that 	best
satisfy "their 	preferences. 	Unnecessary 	government 	regulation 	can
impose 	obstacles 	to 	this 	communication 	process 	that 	increase
firms' 	costs 	of 	effectively 	advertising. 	As 	a 	result, 	firms 	will
provide 	less 	information 	and 	consumer 	search 	costs 	will 	rise.
Subjective 	qualities, 	such 	as 	taste, 	are 	frequently 	among
the 	most 	difficult 	product 	attributes 	to 	communicate 	to
consumers. 	Yet, 	for 	consumers, 	such 	subjective 	qualities 	may 	be
amon9 	the 	most 	material 	factors 	in 	the 	purchase 	decision. 	Here
the 	non-alcoholic 	product 	may 	have 	many 	of 	the 	visual, 	smell, 	and
taste 	characteristics 	of 	alcoholic 	beer, 	so 	BATF's 	prohibition 	on
calling 	this 	product 	"beer" 	may 	deprive 	sellers 	of 	the 	most
effective 	means 	of 	providing 	consumers 	with 	valuable 	information
about 	the 	product's 	qualities. 	Indeed, 	the 	restriction may 	even
mislead 	consumers 	into 	believing 	that 	there 	are 	other 	significant
differences 	between 	the 	products, 	even 	if, 	in 	fact, 	there 	are
not. 	Moreover, 	BATF's 	restrictions 	on 	the 	use 	of 	terms 	such 	as
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'.
-,
"ale," 	"porter," 	and 	"stout" 	may 	inhibit 	product 	development 	and
innovation 	by 	manufacturers 	of 	dealcoholized 	malt 	beverage
products. 	Terms 	such 	as 	these 	may 	provide 	information 	to
consumers 	concerning 	distinct 	malt 	beverage 	qualities 	that 	can
not 	be 	easily 	conveyed 	by 	the 	use 	of 	any 	other 	terms 	or
descriptions. 	Thus, 	BATF's 	restrictions 	on 	the 	use 	of 	these
terms 	may 	hinder 	effective 	marketing 	of 	new 	dealcoholized
beverages 	of 	these 	types.
Moreover, 	the 	marketing 	terms 	permitted 	by 	BATF 	--
particularly 	"cereal 	beverage" 	and 	"near 	beer" 	-- 	may 	possess
unappealing 	connotations 	to 	consumers. 	Certainly, 	BATF 	should
not 	impose 	these 	terms 	on 	the 	manuf~~turers of 	non-alcoholic 	malt
beverages 	without 	having 	reliable 	evidence 	indicating 	whether 	and
how 	the 	meanings 	of, 	these 	terms 	differ 	from 	the 	meaning 	of 	"beer"
to 	consumers. 	Generally, 	firms 	are 	in 	a 	better 	position 	than
government 	to 	make 	the 	choices 	concerning 	the 	relative
effectiveness 	of 	different 	means 	of 	conveying 	information. 14 	In
thi~ manner, 	BATF's 	restrictions 	may 	hinder 	-- 	perhaps 	severely
14 	Significantly, 	the 	dealcoholized 	malt 	beverage 	industry 	has
strongly 	opposed 	BATF's 	restrictions 	on 	the 	use 	of 	the 	term
"beer." 	See,~, Cardinal 	Brewery 	Fribourg, 	S.A., 	Petition
For 	Labeling 	And 	Advertising 	The 	Alcoholic 	Content 	Of 	Moussy, 	A
Malt 	Beverage, 	And 	Its 	Class 	Designation 	As 	Beer 	(February 	26,
1986). 	An 	Advertising 	Age 	article, 	discussing 	BATF's
restrictions, 	quotes 	an 	industry 	spokesman 	as 	stating:
The 	cost 	of 	changing 	the 	labels 	and
advertising 	is 	insignificant. 	What's
significant 	is 	that 	we're 	losing 	potential
sales 	because 	I 	can't 	say 	beer. 	A consumer
doesn't 	want 	a 	light-malt 	beverage, 	he 	wants
a 	beer.
Advertising 	Age, 	supra 	note 	4.
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t
the 	marketing 	of 	dealcoholized 	malt 	beverages. 	This 	would 	be
an 	unfortunate 	result, 	given 	the 	national 	commitment 	to 	reducing
the 	personal 	and 	economic 	losses 	caused 	by 	the 	abuse 	of 	alcoholic
beverages.
V. 	CONCLUSION
For 	the 	above 	reasons, 	the 	FTC 	staff 	urges 	BATF 	to 	remove
the 	current 	restrictions 	on 	the 	use 	of 	the 	term 	"beer" 	set 	forth
in 	its 	Notice 	of 	Proposed 	Rulemaking. 	The 	restrictions 	appear
unnecessary 	to 	protect 	consumers 	from 	deception 	or 	confusion, 	and
are 	likely 	to 	harm 	consumers 	by 	reducing 	the 	flow 	of 	valuable
product .. information 	concerning 	dealcoholized 	malt 	beverages.
I
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