Regulations under Section 5(0 of the Fair Packaging and Labeling Act, “Cents-Off” Representations

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Title 16— COMMERCIAL PRACTICES Chapter I— Federal Trade Commission SUBCHAPTER E— RULES, REGULATIONS, STATE­ MENTS OF GENERAL POLICY OR INTERPRETA­ TION UNDER THE FAIR PACKAGING AND LABELING ACT PART 502 — REGULATIONS UNDER SECTION 5(0 OF THE FAIR PACK­ AGING AND LABELING ACT “Cents-Off” Representations The Federal Trade Commission, on June 30, 1971, published an order in the F ederal R egister (36 F.R. 12284) which provided for a period of 30 days in which to file objections and requests for public hearing covering the regulations govern­ ing the use of “cents-off”, “introductory offer” and “economy size” representa­ tions imprinted on packaged or labeled consumer commodities under the Fair Packaging and Labeling Act. Communi­ cations were received from seven (7) firms and trade associations in response to the order either expressing objections, offering comments or asking questions. Some of those submitting objections also 33 Filed as part of the original. requested that their objections be made the subject of a public hearing. The Commission has evaluated all of the comments and objections received and concludes as follows: (1) Several objections were made to § 502.100(b) (3) that requires a package or label bearing a “cents-off” repre­ sentation to have imprinted thereon a triple price statement showing the regu­ lar price, the amount of “cents-off” and the price to be paid by the consumer. These objections assert that the require­ ment imposes such an administrative burden on the retailers that many have stated they will refuse to handle such items in the future. In addition, it is argued that many packages such as cans, jars, and bottles do not normally have a pricing spot employed in the labeling but are stamped on the top or cover. Thus, the use of the triple price state­ ment imposes mechanical difficulties of placement and may cause confusion to the consumer when not fully utilized. It was suggested that in lieu of the triple price statement, a statement em­ ploying terms such as “The Price Marked I s ______t Off the Regular Price” be re­ quired to accompany any representation of “cents-off” on the package or label. This certification would then qualify the single retail price, when stamped at any location on the package, permitting the consumer to ascertain the regular price by simple addition of the number of “cents-off” and the price stamped on the package. This modification to the regula­ tion would eliminate the administrative burden of dual pricing at the retail level and still provide the consumer with the three price information.

The Commission considers these ob­ jections reasonable. However, assurance that each consumer is informed of the ordinary and customary retail price of the “cents-off” marked commodity at the time of sale is considered essential to the facilitation of value comparisons by the consumer. Thus, provision in the regulations for supplying the retailer with a means of disclosing the regular price in a clear, conspicuous manner and in close proximity with the shelf display of the “cents-off” marked merchandise is made. That portion of the regulations affected is modified below, accordingly. (2) Several objections were made to the requirements of §§ 502.100(c), 502. 101(d) and 502.102(c) that packagers and labelers shall not make packages with “cents-off” introductory offer and economy size representations available in any circumstances where they will be used as instrumentalities of deception. The objections express concern that the necessity to “police” the retailer could subject the packager to charges of resale price maintenance or a failure to comply with the mandates under the Robinson- Patman Act. The Commission has issued guides for advertising allowances and other merchandising payments and services which are of assistance in this matter. In addition, the Commission is publishing, concurrent with issuance of this rule, a statement of policy guidance on the matter. Requests for further clarification in particular fact situations may be submitted in accordance with § 503.1 of the regulations. In view of the guidance available, the Commission has determined that the objection does not warrant further consideration. (3) Some objections raised the ques­ tion whether the term “Special Offer” used on a package or label would fall within the term “cents-off” representa­ tion” as defined, in § 502.100(a). Price savings offers which do not specify the amount of savings to be realized are not regulated under § 502.100. However, it should be recalled that the Commission’s guides against deceptive pricing admon­ ish that when the amount or percentage of reduction of a price is not stated, then care must be taken that the amount of reduction is not so insignificant as to be meaningless. It should be sufficiently large that the consumer, if he knew What it was, would believe that a genuine bar­ gain or saving was being offered. (4) An objection was received to the definition of the term “ordinary and customary or regular price” set forth in § 502.2(c). The objection points out the frequent employment of trade discounts and allowances granted by a packager to a retailer in return for services rendered and suggests these be specifically elim­ inated in calculating the ordinary and customary price.

The Commission concludes that it is not in order to totally exclude trade dis­ counts and allowances since many of these directly affect the ordinary and customary price. Normal trade discounts with or without volume considerations are clearly a part of the formula used to compute the ordinary and customary price. On the other hand, reimbursement for services which have no direct rela­ tionship to the sale price such as adver­ tising, hand bills, demonstrators, and window and floor displays will not nor­ mally be a part of that formula. Requests for clarification in particular fact situa­ tions may be submitted under § 503.1 of the regulations. Further consideration of this objection is not warranted. (5) An objection was received to § 502.101(b) (1) which limits the use of introductory offers to a package con­ taining a new product, a product which has been changed in a functionally sig­ nificant and substantial respect or a product which is being introduced into a trade area for the first time. The ob­ jection states that in the past, intro­ ductory offers have been frequently used to introduce new package sizes. The Commission has determined that the promotional concept of introductory offer is only meaningful to the consumer when it relates to the product as new or newly introduced into a trade area. Pro­ motions based on package size alone would be inconsistent with the intent of the Act to reduce package size prolifera­ tion. Therefore, the Commission has de­ termined that the objection is not based on legally sufficient and reasonable grounds and that a public hearing is not warranted.

(6) Several objections were received noting the omission in the regulations FEDERAL REGISTER, VOL. 36, NO. 233— FRIDAY, DECEMBER 3, 1971

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of any provision for orderly disposal of packages in inventory or with the trade. In addition, comments concerning the effective date of the regulations empha­ size the need for a period of advance planning to accomplish plate changes, printing, and availability of complying packages.

The Commission recognizes that sec­ tion 6(d) of the Act provides that reg­ ulations when issued will not preclude the orderly disposal of packages in in­ ventory or with the trade as of the effec­ tive date of the regulation. This provision has been construed to permit the filling of nonconforming packages until the ef­ fective date of the regulation and further permits distribution of the nonconform­ ing packaged products in inventory fol­ lowing that date. Unfilled nonconform­ ing packaging on hand as of the effective date may not be used unless modified to comply with the regulation. The Com­ mission assumes good faith in the quan­ titative nature of packaging and labeling prior to the effective date being related to normal packaging and distribution practices. In keeping with the mandates of the Act, to issue necessary regulations and consistent with the provision allow­ ing for orderly transition to complying packaging, the Commission will establish effective date to provide, where neces­ sary, for adequate advance planning to accomplish label changes. In view of the specific limitations set forth in the Act and the Commission’s previously issued guidance, these objections do not war­ rant further consideration. To facilitate making the above de­ scribed change in response to the objec­ tion and comments received, the Com­ mission concludes that § 502.100 of the final order of June 30, 1971 (36 P.R. 12284) should be canceled and a new final order on this matter should be adopted as set forth below. Accordingly, the December 31, 1971, effective date of the remaining sections of Part 502 is confirmed and pursuant to the authority contained in the Pair Packaging and Labeling Act (sections 5, 6, 80 Stat. 1298, 1299, 1300; 15 U.S.C. 1454, 1455) ; it is ordered that Part 502 of Subchapter E be amended by revising § 502.100 to read as follows: § 502.100 “ Cents-off” representations. (a) The term “cents-off representa- > tion” means any printed matter consist­ ing of the words “cents-off” or words of similar import, placed upon any pack­ aging 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 RULES AND REGULATIONS 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) Each “cents-off” representation imprinted on the package or label is lim­ ited to a phrase which reflects that the price marked by the retailer represents the savings in the amount of the “centsoff” the retailer’s regular price, e.g., “Price Marked i s ______ Off the Regu­ lar Price”. “Price Marked is ______ Cents-off the Regular Price of This Pack­ age” ; provided, the package or label may in addition bear in the usual pricing spot a form reflecting a space for the regu­ lar price, the represented “cents-off” and a space for the price to be paid by the consumer.

(4) The packager or labeler who sells the commodity at retail displays the reg­ ular price, designated as the “regular price”, clearly and conspicuously on the package or label of the commodity or on a sign, placard, or shelf-marker placed in a position contiguous to the retail dis­ play of the “cents-off” marked commodi­ ty, and the packager or labeler who does not sell at retail provides the retailer with a sign, placard, shelf-marker, or other device for the purpose of clearly and conspicuously displaying the retail­ ers regular price, designated as “regular price”, in a position contiguous to the “cents-off” marked commodity. (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 com­ modity 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. 23057 (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 de­ ception or for frustration of value com­ parison, e.g., where the retailer charges a price which does not fully pass on to the consumers the represented price re­ duction or where the retailer fails to dis­ play the regular price in the display area of the “cents-off” marked product. No­ thing in this rule, however, should be construed to authorize or condone the illegal setting or policing of retail prices by a packager or labeler in situations where he does not sell to the public. (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 subse­ quent to the end of the year (calendar, fiscal, Or market) in which the “centsoff” promotion occurs.

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 e g is­ ter file with the Secretary, Federal Trade Commission, Washington, D.C. 20580, written objections thereto, specifying with particularity the provisions of the order deemed objectionable, stating the grounds therefor, and requesting ti pub­ lic hearing upon such objections. Objec­ tions will be deemed sufficient to warrant the holding of a public hearing only: (1) I f they establish that the objector will be adversely affected by the order; (2) if they specify with particularity the provisions of the order to which objec­ tion is taken; and (3) if they are sup­ ported by reasonable grounds which if valid and factually supported may be adequate to justify the relief sought. Any­ one 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 objections sufficient to warrant the holding of a public hearing have been filed, stating the fact. This order shall become effective on January 2, 1972, except (1) any pro­ vision that may be stayed by the filing of valid objections and (2) § 502.100(b) (3) which shall become effective on June 30,1972.

By direction of the Commission dated December 1,1971.

[ se al] C h arles A. T o b in , Secretary.

[PR Doc. 71-17761 Piled 12-1-71;3:56 pm]