us-ftc-advocacy-filings-2c84cd83cfe719edc4662a9d7997d10d•FTC Staff Comment Before the Bureau of Alcohol, Tobacco, and Firearms Concerning Use of Certain Terms in the Labeling and Advertising of Malt Beverages
FTC Staff Comment Before the Bureau of Alcohol, Tobacco, and Firearms Concerning Use of Certain Terms in the Labeling and Advertising of Malt Beverages
us-ftc-advocacy-filings-2c84cd83cfe719edc4662a9d7997d10dFTC Staff Comment Before the Bureau of Alcohol, Tobacco, and Firearms Concerning Use of Certain Terms in the Labeling and Advertising of Malt BeveragesAdvocacy Filing
, \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. -5-
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. -6-
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. -7-
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. -8-
• 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 -9-
". '. -, "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. -10- ...
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 -11-
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