Regulations under Section 5(C) of the Fair Packaging and Labeling Act, On May 19, 1970 (35 F.R. 7705)

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Title 16— COMMERCIAL PRACTICES Chapter I-—Federal Trade Commission SUBCHAPTER E— RULES, REGULATIONS, STATE­ MENTS OF GENERAL POLICY OR INTERPRETA­ TIONS UNDER THE FAIR PACKAGING AND LABELING ACT PART 502— REGULATIONS UNDER SECTION 5(C) OF THE FAIR PACK­ AGING AND LABELING ACT On May 19, 1970 (35 F.R. 7705), and on November 24, 1970 (35 F.R. 18001), FEDERAL REGISTER, VOL. 36, NO. 126— WEDNESDAY, JUNE 30, 1971

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RULES AND REGULATIONS 12285 notices of proposed rule making pursu­ ant to section 5 (c) of the Fair Packaging and Labeling Act were published in the F ederal R egister. These proposals would regulate the use of “cents-off”, “intro­ ductory offer”, and “economy size” repre­ sentations imprinted on packaged or labeled consumer commodities. The pro­ posals were based upon both past and current observations in the consumer commodity market which disclosed that the use of such representations have re­ sulted in widespread confusion and deception of the purchasing public neces­ sitating regulations of general applica­ tion to prevent deception of consumers and to facilitate value comparisons if these representations are to be used in the future. After publication, all inter­ ested persons were afforded the oppor­ tunity to submit their written data, views, and arguments on each proposal. The Commission has now considered all matters of fact, law, policy and discre­ tion, including the data, views, and argu­ ments presented by interested persons in response to the published proposals and has determined that the adoption of the rules and statements of basis and pur­ pose set forth herein are in the public interest and are fully justified by the in­ formation available to it. A.

‘'‘Cents-off” representations. The consumer believes a “cents-off” repre­ sentation means that the commodity so labeled is being offered for sale at a re­ duction of the represented amount from the ordinary and customary price at which the commodity is regularly sold to the public by the retailer. Hearings before the Committee on Commerce in the U.S. Senate, 89th Con­ gress, first session, and before the Com­ mittee on Interstate and Foreign Com­ merce, House of Representatives, 89th Congress, second session, reveal that there was sufficient evidence of consumer deception and confusion in the use of these representations to warrant inclu­ sion in the initial bills on the Fair Pack­ aging and Labeling Act of an outright prohibition of the use of “cents-off” and “economy size” representations on pack­ ages and labels of consumer commodities. After introduction and hearings on the initial bills, testimony of the various rep­ resentatives of Federal Agencies ex­ pressed the view that if the use of these representations was properly regulated, the consumer could reap the benefits of nondeceptive retail price reductions made for promotional purposes. As a con­ sequence, the House of Representatives Bill (H.R. 15440) and the Senate Bill (S. 985) were reported out of Committee with the present provisions that respon­ sible agencies could regulate these repre­ sentations. Senator Hart in summing up the provision as finally reported out by the Conference Committee said, “Centsoff claims and economy Resignations can now be regulated. To the consumer, this means that economy size should be more economical for the housewife, not just the manufacturer; that cents-off should relate to an established price and that a manufacturer should not be allowed to use a cents-off designation to hide an actual rise in the price of the product if computed on a per ounce basis.” In January 1965 and March 1966 the Commission’s staff completed investiga­ tions involving packaging and pricing concepts utilizing “cents-off” claims. Ad­ ditional observations and reports of “cents-off” utilization have been collected by the Commission’s staff since those pe­ riods. Misrepresentations occur either when the commodity so labeled does not have an established ordinary and cus­ tomary retail price or when thè com­ modity is sold so frequently or in such great volume with the “cents-off” repre­ sentation that the “cents-off” price be-, comes the ordinary and customary price of the commodity. It was also revealed that some manufacturers have made all of their sales on a “cents-off” basis for periods of time in excess of a year and that others have repeated the “cents-off” offer so frequently that most of their out­ put has been sold at th*e reduced price. In response to the invitation contained in the proposal, sixty-two (62) comments were received from Federal and State of­ ficials, private citizens and industry rep­ resentatives. Decisions respecting the various sections of the published pro­ posed rule after consideration of all comments are as follows : (1) Proposed § 502.1 is revised to encompass the scope of all regulations which may be written under the author­ ity of section 5(c) of the Act. Note that introductory offers, previously referred to in proposed § 502.1(b), are no longer included under the regulations concern­ ing “cents-off” representations. Regula­ tions governing use of introductory offers are issued as a separate § 502.101 under “Retail Sale Price Representations”. (2) Proposed § 502.2 is revised to in­ clude the definition of terms common to all regulations to be included under Part 502. The phrase “a reasonably substan­ tial period of time” as used to define the term “ordinary and customary price” has been further defined as “a 30-day period”.

(3) Section 502.3 of the regulations is new and contains the broad prohibitions appropriate to Part 502. (4) Section 502.100 contains the regu­ lations specifically addressing the use of “cents-off” representations. Paragraph (a) defines the term “cents-off”

representation.

(5) Proposed § 502.3 now appears as paragraph (b) of § 502.100. The require­ ment that the amount of the “cents-off” be substantial (i.e., at least 8 percent) has been deleted. Since the precise amount of the “cents-off” reduction must appear on the package in each case, the consumer will have adequate information upon which to make a value comparison. An optional method of informing the con­ sumer of the ordinary and customary re­ tail price of the “cents-off” marked com­ modity has been provided to ease the a dministrative burden at the retail level. The packager or labeler must still im­ print the three-price format on the pack­ age but when he sells the product at re­ tail he may either complete the three pricing blanks or he may display the pricing information on a sign, placard or shelf-marker contiguous to the retail display of the commodity. Either the completed three-price format or the dis­ play card will insure that the consumer is fully informed on all pricing details. The sections designed to control fre­ quency, duration and volume have been revised to increase flexibility of employ­ ment of the promotion but still retain sufficient limits to preclude any misrepre­ sentation to the consumer. Volume limitation is expanded to 50 percent and this amount can be sold in one promo­ tional effort not to exceed a 6-month period in any 1 year or it may be sold in two periods or three periods within the year but the total time of all promo­ tional distribution may not exceed the 6month limitation. In addition, at least thirty (30) days must elapse between suc­ cessive promotions. This period insures the establishment of an ordinary and customary price and equates to the def­ inition of reasonably substantial period of time as used in context with ordinary and customary price. An explanation of the 12-month period to be used and a description of proper volume computa­ tion has been included.

(6) Proposed § 502.3(b) now appears as § 502.100(c) and is revised in language to include the optional pricing concepts using the three-price format or the dis­ play card.

(7) Proposed § 502.3(c) is deleted. (8) Proposed § 502.4 now appears as § 502.100(d) and is revised to require maintenance of invoices for 1 year be­ yond the prior 12-month period of “centsoff” employment.

B.

Introductory offers. The consumer believes that an “introductory offer” rep­ resentation on a package or label of a consumer commodity means there is a newly developed product being intro­ duced inte the market or a consumer commodity being newly introduced into a given trade area. When combined with a “cents-off” representation, the con­ sumer believes that the commodity so labeled is being offered for sale at a re­ duction of the represented amount from the ordinary and customary price for which the commodity will be regularly sold to the public by the retailer for a reasonably substantial period of time im­ mediately following the period of intro­ ductory offer.

In the past the Commission has dis­ cussed in advisory opinions the use of the word “new” as it relates to a con­ sumer product. The word “new” may be properly used only when the product so described is either entirely new or has been changed in a functionally signif­ icant and substantial respect. A product may not be called “new” when only the package has been altered or some other change is made which is functionally in­ significant or insubstantial. In addition, the Commission has stated that any claim that a product was “new” for a period of time longer than 6 months would be questioned unless exceptional No. 126—Pt. i----- 3 FEDERAL REGISTER, V O L 36, NO. 126— WEDNESDAY, JUNE 30, 1971

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12286 circumstances to warrant a period longer than 6 months were shown to exist. Since the consumer equates “introductory offers” with new products or products new to their trade area and the confusion and deception of “cents-off” representa­ tions are present in conjunction with employment of introductory offers, the Commission proposed regulation to pre­ vent deception and facilitate value com­ parisons when using “cents-off” with introductory offers.

Decisions respecting § 502.1(b) of the published proposed rule after considera­ tion of all comments are as follows: (1) Section 502.1(b) now appears as § 502.101 to conform with the reorganiza­ tion of Part 502 contained herein. (2) The initial part of the regulation invokes the previously announced prin­ ciples involving the use of the word “new” when introductory offers are used in con­ junction with consumer commodities. (3) The final portion of the regulation permits the use of the term “cents-off” in conjunction with introductory offers under specific conditions which provide for authenticity of price representations made to the consumer.

C.

Economy size representations. The Commission finds that the consumer be­ lieves that terms such as “economy size”, “economy pack”, “budget pack”, “bargain size”, “value size”, and the like, when placed upon a package or label of a con­ sumer commodity, represent that a retail sale price advantage is being accorded to the purchaser thereof by reason of the size of that package or the quantity of its contents.

Historically, House of Representatives and Senate Committee hearings on the Fair Packaging and Labeling Act fol­ lowed the path as enumerated herein under “cents-off” representations, clearly eliciting evidence of past practices wherein use of “economy size” repre­ sentations were both deceptive and con­ fusing to the consumer. Congress initially proposed prohibition of “economy size” designations but ultimately chose regu­ lation of this area by permitting regula­ tion to avoid deception rather than an outright ban.

In May of 1970 the Commission’s staff completed a nationwide survey of “econ­ omy size” representations used on pack­ aged and labeled consumer commodities. The staff found the following: (a) In many instances when an econ­ omy claim was made, the price at which the commodity was offered to the con­ sumer did not provide the consumer with a savings when compared to other pack­ ages of the same commodity. (b) There were some instances dis­ covered where the price of the economy marked packages were, in fact, higher than other regularly marked packages of the same product.

(c) Instances were found where the only package of a product offered to the consumer was that bearing an economy claim.

(d) Situations were observed where several sizes of the same packaged prod­ uct bore economy claims. RULES AND REGULATIONS There were twenty-five (25) comments from consumers, industry, and govern­ ment sources submitted in response to the invitation published with the proposed regulation. After consideration of all comments, decisions concerning the var­ ious sections of the previously published proposed rule are as follows: (1) Proposed § 502.6 now appears as § 502.102. The definition of “economy size” has been limited to those terms which clearly contain value representa­ tions. Terms which are used purely to de­ note size characterizations have been ex­ cluded and will be regulated when neces­ sary under section 5 (c) ( 1 ) of the Act. _ ( 2 ) Proposed § 502.6 has been omitted. The price used for purposes of economy size claims is explained in § 502.102(b) (3). To the specific request of the Com­ mission that comments address what should constitute a substantial reduction for the purposes of this paragraph, a great diversity of views were received. The opinions covered the expense of sug­ gestion that no specific definition be used because of the great variance of com­ modities involved, through the suggestion that substantial reduction be at least 25 _ percent. The Commission has concluded that at the outset of this rule there should be a minimum established which will both guide the manufacturer in his labeling and provide the consumer with basic reliability that an economy claim is at least a reduction of the regular price in recognizable percentage. Thus, the Commission has amended this section by adding the words “i.e., at least 5 percent” following the words “substantially re­ duced”.

(3) Subsection (c) of proposed § 502.7 has been deleted.

(4) Proposed § 502.8 now appears as § 502.102(d) and is revised to require maintenance of invoices for 1 year. Therefore, based on consideration of the comments received, the Commission has concluded that the proposed regula­ tions, with some modifications in lan­ guage as previously explained, should be adopted.

Accordingly, pursuant to the provisions of the Fair Packaging and Labeling Act (Sections 5, 6, 80 Stat. 1299, 1300; 15 U.S.C. 1454, 1455 ) ; Subchapter E is amended by adding thereto the following new Part 502 : .

Scope Sec.

502.1 Scope of the regulations in this part. Definitions 502.2 Terms defined.

General Requirements 502.3 Prohibited acts.

Characterization of Package «rare 502.4—502.99 [Reserved] Retail Sale Price Representations 502.100 “Cents-off” representations. 502.101 Introductory offers.

502.102 “Economy size”.

502.103—502.199 [Reserved] Common Name and I ngredient Listing 502.200—502.299 [Reserved] Nonfunctional-Slack-Pill 502.300—502.399 [Reserved] Authority : The provisions of this Part 502 issued under sections 5, 6, 80 Stat. 1299, 1300- 15 U.S.C. 1454, 1455.

S cope § 502.1 Scope of the regulations in this part.

The regulations in this part establish requirements for labeling of consumer commodities with respect to use of pack­ age size characterizations, retail sale price representations, and common name and ingredient listing. Additionally, the regulations in this part establish criteria to prevent nonfunctional-slack-fill of !packages containing consumer commodi­ ties.

Definitions § 502.2 Terms defined.

As used in this part, unless the context otherwise specifically requires: (a) The terms “Act”, “regulation” or “regulations”, “consumer commodity”, “package”, “label”, “person”, “com­ merce”, “principal display panel”, and “random package” have the same mean­ ing as those terms are defined under Part 500 of this chapter.

(b) The term “packager” and “labeler” means any person engaged in the pack­ aging or labeling of any consumer com­ modity for distribution in commerce or any person, other than a common carrier for hire, a contract carrier for hire, or a freight forwarder for hire, engaged in the distribution in commerce of any pack­ aged or labeled consumer commodity; except persons engaged in business as wholesale or retail distributors of con­ sumer commodities are not included un­ less such persons (1) are engaged in the packaging or labeling of such commodi­ ties, or (2) prescribe or specify by any means the manner in which such com­ modities are packaged or labeled. (c) The terms “ordinary and custom­ ary” and “regular” when used with the term “price” means the price at which a consumer commodity has been openly and actively sold in the most recent and regular course of business in a particular market or trade area for a reasonably substantial period of time, i.e., a 30-day period. For consumer commodities which fluctuate in price, the ordinary and cus­ tomary price shall be the lowest price at which any substantial sales were made during the aforesaid 30-day period. G eneral R equirements § 502.3 Prohibited acts.

(a) No person engaged in the packag­ ing or labeling of any consumer com­ modity for distribution in commerce, and no person (other than a common carrier for hire, a contract carrier for hire, or a freight forwarder for hire) engaged in the distribution in commerce of any packaged or labeled consumer commodity, shall distribute or cause to be distributed in commerce any such commodity if such commodity is con­ tained in a package, or if there is affixed FEDERAL REGISTER, VOL. 36, NO. 126— WEDNESDAY, JUNE 30, 1971

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RULES AND REGULATIONS 12287 to that commodity a label, which does not conform to the 'provisions of the Act and of the regulations In this part. (b) Persons engaged in business as wholesale or retail distributors of con­ sumer commodities shall be subject to the Act and the regulations in this part to the extent that such persons are en­ gaged in the packaging or labeling of consumer commodities, or prescribe or specify by any means the manner in which such consumer commodities are packaged or labeled.

Characterization of P ackage Size §§ 502.4—502.99 [Reserved] R etail Sale P rice R epresentations § 502.100 “Cents-off” representations. (a) The term “cents-off” representa­ tion means any printed matter consist­ ing of the word “cents-off” or words of similar import, placed upon any package containing a consumer commodity or placed upon any label affixed to such commodity, stating or representing by implication that the commodity is being offered for sale at a price lower than the ordinary and customary retail sale price. (b) Except as set forth in § 502.101, the package or label of a consumer com­ modity shall not have imprinted thereon by a packager or labeler a “cents-off” representation unless:

(1) The commodity has been sold by the packager or labeler at an ordinary and customary price in the most recent and regular course of business in the trade area in which the “cents-off” pro­ motion is made, either to the trade in the event such commodity is not sold at re­ tail by the packager or labeler, or to the public in the event such commodity is sold at retail by the packager or labeler. (2) The packager or labeler sells the commodity so labeled (either to the trade in the event such commodity is not sold at retail by the packager or labeler, or to the public in the event such commod­ ity is sold at retail by the packager or labeler) at a reduction from his ordinary and customary price, which reduction is at least equal to the amount of the “cents-off” representation imprinted on the commodity package or label. (3) The packager or labeler imprints on the package or label in the usual pricing spot and in a clear and convenient for­ mat the following:

Regular price You pay____ Cents-Off The packager or labeler who does not sell the commodity at retail must fill in the blank next to “cents-off” with the amount of the represented price reduc­ tion. The packager or labeler who sells the commodity at retail must fill in all three blanks, except, in lieu of complet­ ing the three blanks, he may display the identical information on a sign, placard, or shelf-marker placed in a conspicuous and prominent position contiguous to the retail display of the commodity. (4) Any “cents-off” representation, used in addition to that prescribed in subparagraph (3) of this paragraph, is limited to the phrase “---------cents-off the regular retail price”. (5) The packager or labeler: (i) Does not initiate more than three “cents-off” promotions of any single size commodity in the same trade area within a 12-month period;

(ii) Allows at least 30 days to lapse be­ tween “cents-off” promotions of any par­ ticular size packaged or labeled commod­ ity in a specific trade area; and (iii) Does not sell any single size com­ modity so labeled in a trade area for a duration in excess of 6 months within any 12-month period.

(6) Sales by the packager or labeler of any single size commodity so labeled in a trade area do not exceed in volume fifty percent (50%) of the total volume of sales of such size commodity in the same trade area during any 12-month period. The 12-month period used by the packager or labeler may be the calendar, fiscal, or market year provided the iden­ tical period is applied in this subpara­ graph and subparagraph (5) of this paragraph. Volume limits may be calcu­ lated on the basis of projections for the current year but shall not exceed 50 per­ cent of the sales for the preceding year in the event actual sales are less than the projection for the current year. (c) A packager or labeler will not make a “cents-off” promotion available in any circumstances where he knows or should have reason to know that it will be used as an instrumentality for decep­ tion or for frustration of value compari­ son, e.g., where the retailer charges a price which does not fully pass on to consumers the represented price reduc­ tion; where the retailer fails to fill in the blanks in the prescribed pricing spot clearly and correctly; or where the re­ tailer fails to conspicuously and clearly display the pricing information in lieu of filling in the blanks on the pricing spot. Nothing in this rule, however, should be construed to authorize or con­ done the illegal setting or policing of retail prices by a packager or labeler. (d) A packager or labeler who spon­ sors a “cents-off” promotion shall pre­ pare and maintain invoices or other records showing compliance with this section. The invoices or other records re­ quired by this section shall be open to inspection by duly authorized represent­ atives of this Commission and shall be retained for a period of 1 year subsequent to the end of the year (calendar, fiscal, or market) in which the “cents-off” pro­ motion occurs.

§ 502.101 Introductory offers.

(a) The term “introductory offer” means any printed matter consisting of the words “introductory offer” or words of similar import, placed upon a package containing any new commodity or upon any label affixed to such new commodity, stating or representing by implication that such new commodity is offered for retail sale at a price lower than the anticipated ordinary and customary re­ tail sale price.

(b) The package or label of a con­ sumer commodity may not have im­ printed thereon by a packager or labeler an introductory offer unless: (1) The product contained in the package is new, has been changed in a functionally significant and substantial respect, or is being introduced into a trade area for the first time. (2) The packager or labeler clearly and conspicuously qualifies each offer on a package or label with the phrase “In­ troductory Offer.”

(3) The packager or labeler does not sell any commodity so labeled in a trade area for a duration in excess of 6 months. (4) At the time of making the intro­ ductory offer promotion, the packagers or labeler intends in good faith to offer the commodity, alone, at the anticipated ordinary and customary price for a rea­ sonably substantial period of time fol­ lowing the duration of the introductory offer promotion.

(c) The package or label of a consumer commodity shall not have imprinted thereon by a packager or labeler an in­ troductory offer in the form of a “centsoff” representation unless, in addition to the requirements in paragraph (b) of this section:

(1) The packager or labeler clearly and conspicuously and in immediate conjunc­ tion with the phrase “Introductory Offer” imprints the phrase “--------cents-off the after introductory offer price”.

(2) The packager or labeler sells the commodity so labeled (either to the trade in the event such commodity is not sold at retail by the packager or labeler, or to the public in the event such com­ modity is sold at retail by the packager or labeler), at a reduction from his an­ ticipated ordinary customary price, which reduction is at least equal to the amount of the reduction from the after introductory offer price representation on the commodity package or label. (d) A packager or labeler will not make an introductory offer with a “centsoff” representation available in any cir­ cumstance where he knows or should have reason to know that it will be used as an instrumentality for deception or for frustration of value comparison, e.g., where the retailer charges a price which does not fully pass on to consumers the represented price reduction. Nothing in this rule, however, should be construed to authorize or condone the illegal set­ ting or policing of retail prices by a pack­ ager or labeler.

(e) A packager or labeler who spon­ sors an introductory offer shall prepare and maintain invoices or other records showing compliance with this^ section. The invoices or other records required by this section shall be open to inspec­ tion open to inspection by duly author­ ized representatives of this Commission and shall be retained for a period of 1 year subsequent to the period of the in­ troductory offer.

§ 502.102 “Economy size.”

(a) The term “economy size” means any printed matter consisting of the FEDERAL REGISTER, VOL. 36, NO. 126— WEDNESDAY, JUNE 30, 1971

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12288 RULES AND REGULATIONS words “economy size,” “economy pack,” “budget pack,” “bargain size,” “value size,” or words of similar import placed upon any package containing any con­ sumer commodity or placed upon any label affixed to such commodity, stating or representing directly or by implication that a retail sale price advantage is ac­ corded the purchaser thereof by reason of the size of that package or the quantity of its contents.

(b) The package or label of a con­ sumer commodity may not have im­ printed thereon an “economy size” rep­ resentation unless:

(1) The packager or labeler at the same time offers the same brand of that commodity in at least one other packaged size or labeled form.

(2) The packager or labeler offers only one packaged or labeled form of that brand of commodity labeled with an “economy size” representation. (3) The packager or labeler sells the commodity labeled with an “economy size” representation (either to the trade in the evept such commodity is not sold at retail by the packager or labeler, or to the public in the event- such Com­ modity is sold at retail by the packager or labeler), at a price per unit of weight, volume, measure, or count which is sub­ stantially reduced (l.e., at least 5 per­ cent) from the actual price of all other packaged or labeled units of the same brand of that commodity offered simultaneously.

(c) A packager or labeler will not make an “economy size” package available in any circumstances where he knows that it will be used as an instrumentality for deception, e.g., where the retailer charges a price which does not pass on to the consumer the substantial reduction in cost per unit initially granted by the packager or labeler. Nothing in this rule, however, should be construed to author­ ize or condone the illegal setting or po­ licing of retail prices by a packager or labeler.

(d) A packager or labeler' who spon­ sors an “economy size” package shall prepare and maintain invoices or other records showing compliance with para­ graph (b) of this section. The invoices or other records required by this Section shall be open to inspection by duly au­ thorized representatives of this Commis­ sion and shall be retained for one year. §§,502.103-502.199 [Reserved] Common Name and Ingredient L isting §§ 502.200-502.299 [Reserved] Nonfunctional-S lack-F ill §§502.300-502.399 [Reserved] Any person who will be adversely af­ fected by the foregoing order may at any time within 30 days from the date of its publication in the F ederal R egister file with the Secretary, Federal Trade Com­ mission, Washington, D.C. 20580, written objections thereto, specifying with par­ ticularity the provisions of the order d e e m e d objectionable, stating the grounds therefor, and requesting a public hearing upon such objections. Objections will be deemed sufficient to warrant the holding of a public hearing only: (1) If they establish that the objector will be adversely affected by the order; (2) if they specify with particularity the pro­ visions of the order to which objection is taken; and (3) if they are supported by reasonable grounds which if valid and factually supported may be adequate to justify the relief sought. Anyone who files objections which are not deemed by the Commission sufficient to warrant the holding of a public hearing will be promptly notified of that determination. As soon as practicable after the time for filing objections has expired, the Commission will publish a notice in the F ederal R egister specifying those parts of the order which have been stayed by the filing of objections or, if no objec­ tions sufficient to warrant the holding of a public hearing have been filed, stat­ ing the fact. This order shall become ef­ fective on December 31, 1971, except as to any provisions that may be stayed by the filing of valid objections. By direction of the Commission dated June 21, 1971.

[seal] Charles A. T obin, Secretary.

[FR Doc.71-9209 Filed 6-29-71;8:48 am]