Federal Register, Volume 61 Issue 168 (Wednesday, August 28, 1996)

[Federal Register Volume 61, Number 168 (Wednesday, August 28, 1996)]
[Rules and Regulations]
[Pages 44396-44618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: X96-10828]

[[Page 44395]]

_______________________________________________________________________

Part II

Department of Health and Human Services

_______________________________________________________________________

Food and Drug Administration

_______________________________________________________________________

21 CFR Part 801, et al.

Regulations Restricting the Sale and Distribution of Cigarettes and
Smokeless Tobacco to Protect Children and Adolescents; Final Rule

Federal Register / Vol. 61, No. 168 / Wednesday, August 28, 1996 /
Rules and Regulations

[[Page 44396]]

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

21 CFR Parts 801, 803, 804, 807, 820, and 897

[Docket No. 95N-0253]
RIN 0910-AA48

Regulations Restricting the Sale and Distribution of Cigarettes
and Smokeless Tobacco to Protect Children and Adolescents

AGENCY: Food and Drug Administration, HHS.

ACTION: Final rule.

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SUMMARY: The Food and Drug Administration (FDA) is issuing regulations
governing access to and promotion of nicotine-containing cigarettes and
smokeless tobacco to children and adolescents.
The regulations prohibit the sale of nicotine-containing cigarettes
and smokeless tobacco to individuals under the age of 18; require
manufacturers, distributors, and retailers to comply with certain
conditions regarding the sale and distribution of these products;
require retailers to verify a purchaser's age by photographic
identification; prohibit all free samples and prohibit the sale of
these products through vending machines and self-service displays
except in facilities where individuals under the age of 18 are not
present or permitted at any time; limit the advertising and labeling to
which children and adolescents are exposed to a black-and-white, text-
only format; prohibit the sale or distribution of brand-identified
promotional nontobacco items such as hats and tee shirts; prohibit
sponsorship of sporting and other events, teams, and entries in a brand
name of a tobacco product, but permit such sponsorship in a corporate
name; and require manufacturers to provide intended use information on
all cigarette and smokeless tobacco product labels and in cigarette
advertising.
These regulations will address the serious public health problems
caused by cigarettes and smokeless tobacco products. They will reduce
children's and adolescents' easy access to cigarettes and smokeless
tobacco and will significantly decrease the amount of positive imagery
that makes these products so appealing to that age group.

The regulations are predicated on the agency's assertion of
jurisdiction under the Federal Food, Drug, and Cosmetic Act over
cigarettes and smokeless tobacco as delivery devices for nicotine,
incorporated as part of the regulations for purposes of, and to
facilitate, congressional review under the Small Business Regulatory
Enforcement Fairness Act of 1996.

DATES: Effective date. The regulation is effective August 28, 1997,
except that Sec. 897.14(a) and (b) are effective February 28, 1997 and
Sec. 897.34(c) is effective February 28, 1998.
Compliance dates. Manufacturers and distributors are required to
comply with the requirements of 21 CFR parts 803 and 804 August 28,
1997; manufacturers are required to comply with the requirements of 21
CFR parts 807 and 820 February 28, 1998.

ADDRESSES: References listed in the footnotes of this document have
been placed on public display at the Dockets Management Branch (HFA-
305), Food and Drug Administration, 12420 Parklawn Dr., rm. 1-23,
Rockville, MD 20857, and may be seen by interested persons between 9
a.m. and 4 p.m., Monday through Friday.

FOR FURTHER INFORMATION CONTACT: Nancy Yeates, Office of Policy (HF-
26), Food and Drug Administration, 5600 Fishers Lane, Rockville, MD
20857, 301-827-0867.

SUPPLEMENTARY INFORMATION:
Preamble Outline
I. Introduction
A. Purpose and Overview of the Rule
B. Background
C. Provisions of the Rule
II. Legal Authority
A. Legal Principles Applicable to Combination Drug/Device
Products
1. The SMDA Recognized Combination Products for the First Time
2. The SMDA Leaves to FDA's Discretion the Determination of
Which Regulatory Authorities to Apply to Particular Combination
Products
3. Interpreting the SMDA to Allow the Agency to Determine
Which Regulatory Scheme Best Serves the Public Health is Consistent
With 50 Years of Case Law
4. The Implementing Regulations and the Delegations of
Authority Reflect FDA's Interpretation That Section 503(g) of the
Act Authorizes the Agency to Determine the Appropriate Regulatory
Authorities
5. The Intercenter Agreements and Administrative Precedent
Recognize That FDA May Determine Which Regulatory Authority to Apply
to a Particular Product
B. Cigarettes and Smokeless Tobacco Have Both a Drug and a
Device Component and Are Therefore Combination Products
C. FDA's Choice of Legal Authorities
1. FDA Will Regulate Cigarettes and Smokeless Tobacco Under
the Act's Device Authorities
2. Cigarettes and Smokeless Tobacco Will be Subject to the
Full Range of Device Authorities
3. The Restricted Device Provision Authorizes FDA to Establish
Access and Advertising Restrictions
4. Application of Other Device Authorities
5. FDA Will Classify Cigarettes and Smokeless Tobacco Under
Section 513 of the Act
D. The Fact That the Act's Drug Authorities Authorize the
Imposition of Similar Restrictions Supports the Reasonableness of
the Restrictions That the Agency Has Imposed
E. Constitutional Issues Regarding Authority
1. Separation of Powers
2. Nondelegation Doctrine
III. Overview of Comments, Smoking Prevalence Rates Among Minors,
Scope, Purpose, and Definitions
A. Overview of Comments
B. Smoking Prevalence Rates Among Minors
C. Scope
D. Purpose (Sec. 897.2)
E. Definitions (Sec. 897.3)
IV. Access
A. General Comments
B. General Responsibilities of Manufacturers, Distributors, and
Retailers (Sec. 897.10)
C. Additional Responsibilities of Manufacturers (Sec. 897.12)
1. Removal of Manufacturer-Supplied or Manufacturer-Owned
Items That Do Not Comply With the Regulations
2. Visual Inspections by a Manufacturer's Representative at
Each Point of Sale
D. Additional Responsibilities of Retailers (Sec. 897.14)
1. Use of Photographic Identification to Verify Age
2. Minimum Age
3. Restrictions Against ``Impersonal'' Modes of Sale
4. Restrictions Against the Sale of Individual Cigarettes
5. Additional Comments
E. Conditions of Manufacture, Sale, and Distribution
(Sec. 897.16)
1. Restrictions on Nontobacco Trade Names on Tobacco Products
2. Minimum Package Size
3. Maximum Package Size
4. Impersonal Modes of Sale
V. Label
A. Established Name (Sec. 897.24)
B. Package Design
C. Ingredient Labeling
D. Labeling for Intended Use
E. Adequate Directions for Use and Warnings Against Use (Section
502(f) of the act)
F. Package Inserts
VI. Advertising
A. Subpart D--Restrictions on Advertising and Labeling of
Tobacco Products
B. The Need for Advertising Restrictions
1. Advertising and Young People
2. Advertising and Adults
C. The Regulations Under the First Amendment
1. Introduction

[[Page 44397]]

2. The Central Hudson Test
3. Is Cigarette and Smokeless Tobacco Advertising Misleading,
or Does It Relate to Unlawful Activity?
4. Is the Asserted Government Interest Substantial?
D. Evidence Supporting FDA's Advertising Restrictions
1. Introduction
2. Do the Regulations Directly Advance the Governmental
Interest Asserted?
3. Is There Harm? Does Advertising Affect the Decision by
Young People to Use Tobacco Products?
4. Why Young People Use Tobacco and the Role of Advertising in
That Process
5. Has The Agency Met Its Burden?
6. The Efficacy of the Restrictions; Empirical Evidence
Concerning Advertising Restrictions
E. Provisions of the Final Rule
1. Are FDA's Regulations Narrowly Drawn?
2. Section 897.30(a)--Permissible Forms of Labeling and
Advertising
3. Section 897.30(b)--Billboards
4. Section 897.32(a)--Text-Only Format
5. Section 897.32(a)--Definition of ``Adult Publication''
6. Advertising--Sec. 897.32 Requirements for Disclosure of
Important Information
7. Section 897.34(a) and (b)--Promotions, Nontobacco Items,
and Contests and Games of Chance
8. Section 897.34(c)--Sponsorship of Events
9. Proposed Sec. 897.36--False or Misleading Statements
F. Additional First Amendment Issues
VII. Education Campaign
VIII. Additional Regulatory Requirements
IX. Implementation Dates
X. Relationship Between the Rule and Other Federal and State Laws
A. The Federal Cigarette Labeling and Advertising Act
B. The Comprehensive Smokeless Tobacco Health Education Act
C. Conflict with Congressional Purpose Behind Current Regulatory
Scheme for Tobacco Products
1. The Cigarette Act and the Smokeless Act
2. The PHS Act
D. Occupation of the Field
E. Preemption of State and Local Requirements Under Section
521(a) of the Act
F. Preemption of State Product Liability Claims Under Section
521(a) of the Act
XI. Miscellaneous Constitutional Issues
A. Takings Under the Fifth Amendment
1. The Interests at Issue
2. The Takings Analysis
3. The Character of the Governmental Action
4. The Economic Impact of the Governmental Action
5. Interference with Reasonable Investment-backed Expectations
6. Summary
B. Substantive Due Process, Equal Protection, and Restrictions
on Use of Trade Names
C. Procedural Due Process Under the Fifth Amendment
XII. Procedural Issues
A. Introduction
B. Adequacy of the Record
1. The Administrative Record
2. The Agency's Use of Confidential Documents
3. The Claim that FDA Relied on ``Unknown'' Undisclosed Data
4. The Claim that FDA Failed to Include in the Record New Drug
Application (NDA) Data on Which it Relied
5. The Agency's Reliance in the Final Rulemaking on New
Materials
C. Adequacy of the Notice
1. The Agency Provided Adequate Notice of the Key Legal and
Factual Issues
2. The Agency Provided a ``Reasoned Explanation'' for its
Current Position
D. Adequacy of the Comment Period
E. Conclusion
XIII. Executive Orders
A. Executive Order 12606: The Family
B. Executive Order 12612: Federalism
C. Executive Order 12630: Governmental Actions and Interference
with Constitutionally Protected Property Rights
XIV. Environmental Impact
XV. Analysis of Impacts
A. Introduction and Summary
B. Statement of Need for Action
C. Regulatory Benefits
1. Prevalence-Based Studies
2. FDA's Methodology
3. Reduced Incidence of New Young Smokers
4. Reduced Number of Adult Smokers
5. Lives Saved
6. Life-Years Saved
7. Monetized Benefits of Reduced Tobacco Use
8. Reduced Medical Costs
9. Reduced Morbidity Costs
10. Benefits of Reduced Mortality Rates
11. Reduced Fire Costs
12. Smokeless Tobacco
13. Summary of Benefits
D. Regulatory Costs
1. Number of Affected Retail Establishments
2. Removing Self-Service and Other Prohibited Retail Displays
3. Label Changes
4. Educational Program
5. Restricted Advertising and Promotional Activities
6. Training
7. Access Restrictions
8. I.D. Checks
9. Vending Machines
10. Readership Surveys
11. Records and Reports
12. Government Enforcement
13. Comparison of Benefits to Cost
E. Distributional Effects
1. Tobacco Manufacturers and Distributors
2. Tobacco Growers
3. Vending Machine Operators
4. Advertising Sector
5. Retail Sector
6. Other Private Sectors
7. Excise Tax Revenues
F. Small Business Impacts
G. Other Alternatives
H. Unfunded Mandates Reform Act of 1995
XVI. Paperwork Reduction Act of 1995
A. Comments on the Paperwork Reduction Act Statement
B. Information Collection Provisions in the Final Rule
XVII. Congressional Review
Codified Language

I. Introduction

A. Purpose and Overview of the Rule

This rule establishes regulations restricting the sale and
distribution of cigarettes and smokeless tobacco to children and
adolescents, implementing FDA's determination that it has jurisdiction
over these products under the Federal Food, Drug, and Cosmetic Act (the
act). As described in ``Nicotine in Cigarettes and Smokeless Tobacco Is
a Drug and These Products Are Nicotine Delivery Devices Under the
Federal Food, Drug, and Cosmetic Act: Jurisdictional Determination''
(the 1996 Jurisdictional Determination), annexed hereto, FDA has
determined that cigarettes and smokeless tobacco are intended to affect
the structure or function of the body, within the meaning of the act's
definitions of ``drug'' and ``device.'' The nicotine in cigarettes and
smokeless tobacco is a ``drug,'' which produces significant
pharmacological effects in consumers, including satisfaction of
addiction, stimulation, sedation, and weight control. Cigarettes and
smokeless tobacco are combination products consisting of the drug
nicotine and device components intended to deliver nicotine to the
body.
FDA has chosen to regulate cigarettes and smokeless tobacco under
the act's device authorities. This rule allows the continued marketing
of these products, while employing measures to prevent future
generations of Americans from becoming addicted to them. As discussed
in section I.B. of this document, most people who use cigarettes and
smokeless tobacco begin their use before the age of 18 and, therefore,
before they fully understand the addictive nature and serious health
risks of these products. Even though the sale of tobacco products to
minors is illegal in 50 States, the tobacco industry has adopted
extensive marketing campaigns which appeal to children and adolescents.
Therefore, the rule effects measures that would both complement the
existing State restrictions on access and prevent

[[Page 44398]]

tobacco companies from marketing their products to children and
adolescents.
In determining the best course of action, the agency considered the
highly addictive nature of cigarettes and smokeless tobacco and the
fact that these products have previously been lawfully marketed to
millions of adult Americans. The agency has determined that the
approach outlined in this document--restrictions to reduce the use of
cigarettes and smokeless tobacco by individuals under the age of 18
while leaving these products on the market for adults--is the available
option that is the most consistent with both the act and the agency's
mission to protect the public health.
The agency intends to assist affected entities, including
retailers, distributors, and manufacturers, in complying with the rule.
The agency also will issue a small entities guide in easy to understand
language. In addition, the agency will conduct workshops throughout the
country to assist affected entities in complying with the rule.

B. Background

Approximately 50 million Americans currently smoke cigarettes and
another 6 million use smokeless tobacco. \1\ In the Federal Register of
August 11, 1995 (60 FR 41314), FDA published a proposed rule entitled
``Regulations Restricting the Sale and Distribution of Cigarettes and
Smokeless Tobacco Products to Protect Children and Adolescents'' (the
1995 proposed rule). As stated in the preamble to the 1995 proposed
rule, tobacco use is the single leading cause of preventable death in
the United States. \2\ More than 400,000 people die each year from
tobacco-related illnesses, such as cancer, respiratory illnesses, and
heart disease, often suffering long and painful deaths. \3\ Tobacco
alone kills more people each year in the United States than acquired
immunodeficiency syndrome (AIDS), car accidents, alcohol, homicides,
illegal drugs, suicides, and fires, combined. \4\
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\1\ ``National Household Survey on Drug Abuse: Population
Estimate 1993, Department of Health and Human Services (DHHS),
Public Health Service (PHS), Substance and Mental Health Services
Administration (SAMHSA), Office of Applied Studies, Rockville, MD,
Pub. No. (SMA) 94-3017, pp. 89 and 95, 1994.
\2\ ``Cigarette Smoking--Attributable Mortality and Years of
Potential Life Lost--United States, 1990,'' Mortality and Morbidity
Weekly Report, (MMWR) CDC, DHHS, vol. 42, No. 33, pp. 645-649, 1993;
Lynch, B. S., and R. J. Bonnie, editors, Growing Up Tobacco Free--
Preventing Nicotine Addiction in Children and Youths, Committee on
Preventing Nicotine Addiction in Children and Youths, Division of
Biobehavioral Sciences and Mental Disorders, Institute of Medicine,
National Academy Press, Washington, DC, p.3, 1994, (hereinafter
cited as ``IOM Report'').
\3\ ``Cigarette Smoking--Attributable Mortality and Years of
Potential Life Lost--United States, 1990,'' MMWR, CDC, DHHS, vol.
42, No. 33, pp. 645-649, 1993.
\4\ IOM Report, pp. 3-4.
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Tobacco products have historically been legal and widely available
in this country. It was only after millions of people became addicted
to the nicotine in cigarettes and smokeless tobacco that health experts
became fully aware of the extraordinary health risks involved in the
consumption of these products. Consequently, tobacco use has become one
of the most serious public health problems facing the United States
today. Because of the grave health consequences of the use of tobacco
products, some have argued that they should be removed from the market.
However, a ban would have adverse health consequences and would not
be likely to prevent individuals from gaining access to these products.
Of the 50 million people who use cigarettes, 77 to 92 percent are
addicted. \5\ Data suggest that almost as many smokeless tobacco users
may be addicted. \6\ Adverse health consequences could result if these
people were suddenly deprived of the nicotine these products deliver.
As stated in the preamble to the 1995 proposed rule:
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\5\ See authorities cited at 1996 Jurisdictional Determination,
Section II(B)(2)(a).
\6\ Id.
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Because of the high addiction rates and the difficulties smokers
experience when they attempt to quit, there may be adverse health
consequences for many individuals if the products were to be
withdrawn suddenly from the marketplace. Our current health care
system and available pharmaceuticals may not be able to provide
adequate or sufficiently safe treatment for such a precipitous
withdrawal.
(60 FR 41314 at 41348)
A similar situation would exist for addicted smokeless tobacco users.
It is probable also that a black market and smuggling would develop
to supply addicted users with these products. As stated in the preamble
to the 1995 proposed rule, and discussed further in section II.C.5. of
this document, ``[t]he products that would be available through a black
market could very well be more dangerous (e.g., cigarettes containing
more tar or nicotine, or more toxic additives) than products currently
on the market'' (60 FR 41314 at 41349). Thus, the agency has concluded
that, while taking cigarettes and smokeless tobacco off the market
could prevent some people from becoming addicted and reduce death and
disease for others, the record does not establish that such a ban is
the appropriate public health response under the act.
To effectively address the death and disease caused by tobacco
products, addiction to cigarettes and smokeless tobacco must be
eliminated or substantially reduced. The evidence demonstrates that
this can be achieved only by preventing children and adolescents from
starting to use tobacco. Most people who suffer the adverse health
consequences of using cigarettes and smokeless tobacco begin their use
before they reach the age of 18, an age when they are not prepared for,
or equipped to, make a decision that, for many, will have lifelong
consequences. These young people do not fully understand the serious
health risks of these products or do not believe that those risks apply
to them. They are also very impressionable and therefore vulnerable to
the sophisticated marketing techniques employed by the tobacco
industry, techniques that associate the use of tobacco products with
excitement, glamour, and independence. When cigarette and smokeless
tobacco use by children and adolescents results in addiction, as it so
often does, these youths lose their freedom to choose whether or not to
use the products as adults.
The facts on underage use confirm this pattern. As stated in the
preamble to the 1995 proposed rule, approximately 3 million American
adolescents currently smoke and an additional 1 million adolescent
males use smokeless tobacco. \7\ Eighty-two percent of adults who ever
smoked had their first cigarette before the age of 18, and more than
half of them had already become regular smokers by that age. \8\ Among
smokers ages 12 to 17 years, 70 percent already regret their decision
to smoke and 66 percent say that they want to quit. \9\
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\7\ ``Preventing Tobacco Use Among Young People: A Report of the
Surgeon General,'' DHHS, PHS, CDC, National Center for Chronic
Disease Prevention and Health Promotion, the Office on Smoking and
Health (OSH), Atlanta, GA, p. 5, 1994, (hereinafter cited as ``1994
SGR'').
\8\ 1994 SGR, p. 65.
\9\ ``Teen-Age Attitudes and Behavior Concerning Tobacco,'' The
George H. Gallup International Institute, p. 54, September 1992.
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Moreover, children and adolescents are beginning to smoke at
younger ages than ever before. Despite a decline in smoking rates in
most segments of the American adult population, the rates among
children and adolescents have recently begun to rise. \10\ Data
reported

[[Page 44399]]

in December 1995, after publication of the 1995 proposed rule, showed
increases in 30-day prevalence rates of cigarette smoking for 4
consecutive years for 8th- and 10th-graders, and 3 consecutive years
for high school seniors. \11\ Daily use of cigarettes by 8th-, 10th-,
and 12th-graders has also increased in each of the last 3 years. \12\
The percentage of 8th- and 10th-graders who reported smoking in the 30
days before the survey had risen by one-third since 1991 to about 19
percent and 28 percent, respectively. \13\ Similarly, the percentage of
high school seniors saying that they had smoked in the 30 days before
the survey had increased by more than one-fifth since 1991, to about
33.5 percent or one in three. \14\
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\10\ ``Cigarette Smoking Among Adults--United States, 1991,''
MMWR, DHHS, CDC, vol. 42, No. 12, pp. 230-233, 1993; Johnston, L.
D., P. M. O'Malley, and J. G. Bachman, ``National Survey Results on
Drug Use from the Monitoring the Future Study 1975-1993, vol. I:
Secondary School Students,'' Rockville, MD, DHHS, PHS, National
Institutes of Health (NIH), National Institute on Drug Abuse (NIDA),
NIH Pub. No. 94-3809, pp. 9 and 19, 79, 80, and 101, 1994; ``Smoking
Rates Climb Among American Teen-agers, Who Find Smoking Increasingly
Acceptable and Seriously Underestimate the Risks,'' The University
of Michigan News and Information Service, Table 1., July 17, 1995.
\11\ ``Results from the 1995 Monitoring the Future Survey,''
National Institute on Drug Abuse Briefing for Donna E. Shalala,
Ph.D., Secretary of Health and Human Services, December 13, 1995.
\12\ Id.
\13\ Id.
\14\ Id.
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An adolescent whose cigarette use continues into adulthood
increases his or her risk of dying from cancer, cardiovascular disease,
or lung disease. \15\ Moreover, the earlier a young person's smoking
habit begins, the more likely he or she will become a heavy smoker and
therefore suffer a greater risk of diseases caused by smoking. \16\
Approximately one out of every three young people who become regular
smokers each day will die prematurely as a result. \17\
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\15\ McGinnis, J. M., and W. H. Foege, ``Actual Causes of Death
in the United States,'' Journal of the American Medical Association
(JAMA), vol. 270, No. 18, pp. 2207-2212, 1993; ``Reducing Health
Consequences of Smoking: 25 Years of Progress, A Report of the
Surgeon General,'' DHHS, PHS, CDC, National Center for Chronic
Disease Prevention and Health Promotion (NCCDPHP), OSH, DHHS Pub.
No. 89-8411, p. 5, 1989, (hereinafter cited as ``1989 SGR''); See
generally ``The Health Consequences of Smoking: Chronic Obstructive
Lung Disease: A Report of the Surgeon General,'' DHHS, PHS, OSH,
1984, (hereinafter cited as ``1984 SGR''); ``The Health Consequences
of Smoking: Cardiovascular Disease--A Report of the Surgeon
General,'' DHHS, PHS, OSH, 1983 (hereinafter cited as ``1983 SGR'');
``The Health Consequences of Smoking: Cancer--A Report of the
Surgeon General,'' DHHS, PHS, OSH, 1982, (hereinafter cited as
``1982 SGR'').
\16\ Taioli, E., and E. L. Wynder, ``Effect of the Age at Which
Smoking Begins on Frequency of Smoking in Adulthood,'' The New
England Journal of Medicine, vol. 325, No. 13, pp. 968-969, 1991;
Escobedo, L. G., et al. ``Sports Participation, Age at Smoking
Initiation, and the Risk of Smoking Among U.S. High School
Students,'' JAMA, vol. 269, No. 11, pp. 1391-1395, 1993; see also
1994 SGR, p. 65.
\17\ Memorandum from Michael P. Eriksen (CDC) to Catherine
Lorraine (FDA) August 7, 1995 and CDC Fact Sheet (based on J. P.
Pierce, M. C. Fiore, T. E. Novotny, E. J. Hatziandreu, and R. M.
Davis, ``Trends in Cigarette Smoking in the United States:
Projections to the Year 2000,'' JAMA, vol. 261, pp. 61-65, 1989;
Unpublished data from the 1986 National Mortality Followback Survey,
CDC, OSH; Peto, R., A. D. Lopez, J. Boreham, M. Thun, and C. Heath,
Jr., ``Mortality from Smoking in Developed Countries, 1950-2000:
Indirect Estimates from National Vital Statistics,'' Oxford
University Press, Oxford, 1994).
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Similar problems exist with underage use of smokeless tobacco. As
stated in the 1995 proposed rule, the market for smokeless tobacco has
shifted dramatically toward young people since 1970 (60 FR 41314 at
41317). School-based surveys in 1991 estimated that 19.2 percent of 9th
to 12th-grade boys use smokeless tobacco. \18\ Among high school
seniors who had ever tried smokeless tobacco, 73 percent did so by the
9th grade. \19\
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\18\ Kann, L., W. Warren, J. L. Collins, J. Ross, B. Collins,
and L. J. Kolbe, ``Results from the National School-Based 1991 Youth
Risk Behavior Survey and Progress Toward Achieving Related Health
Objectives for the Nation,'' Public Health Reports, vol. 108, (Supp.
1), pp. 47-54, 1993.
\19\ 1994 SGR, p. 101.
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As long as children and adolescents become addicted to cigarette
and smokeless tobacco use in these numbers, there is little chance that
society will be able reduce the toll of tobacco-related illnesses. If,
however, the number of children and adolescents who begin tobacco use
can be substantially diminished, tobacco-related illness can be
correspondingly reduced because data suggest that anyone who does not
begin smoking in childhood or adolescence is unlikely to ever begin.
\20\
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\20\ Id., pp. 5, 58, and 65-67.
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On the basis of this evidence, the agency has determined that
establishing restrictions to substantially reduce the number of
children and adolescents who become addicted to cigarettes and
smokeless tobacco best serves its public health obligations. Because
such a small percentage of the U.S. population begins tobacco use after
the age of 18, limiting the use of these products to the adult
population would substantially reduce the principal source of new
users. Thus, the appropriate emphasis is on reducing the use of tobacco
products by children and adolescents.
Evidence in the administrative record demonstrates that the most
effective way to achieve such a reduction is by limiting the access to,
and attractiveness of, cigarettes and smokeless tobacco to young
people. FDA concludes that the act provides sufficient authority to
issue regulations that, while leaving these products on the market for
adult use, restrict access to and promotion of cigarettes and smokeless
tobacco to those under 18 years of age.

C. Provisions of the Rule

After considering numerous comments submitted in response to the
1995 proposed rule, the agency is adopting the rule in modified form.
New part 897 is being added to Title 21 of the Code of Federal
Regulations and contains the regulations governing the labeling,
advertising, sale, and distribution of cigarettes and smokeless tobacco
to children and adolescents.
FDA is regulating nicotine-containing cigarettes and smokeless
tobacco as restricted devices within the meaning of the section 520(e)
of the act (21 U.S.C. 360j(e)). While leaving these products on the
market for adults, the final rule prohibits the sale of nicotine-
containing cigarettes and smokeless tobacco to individuals under the
age of 18 and requires manufacturers, distributors, and retailers to
comply with certain conditions regarding access to, and promotion of,
these products. Among other things, the final rule requires retailers
to verify a purchaser's age by photographic identification. It also
prohibits all free samples and prohibits the sale of these products
through vending machines and self-service displays except in facilities
where individuals under the age of 18 are not present or permitted at
any time. The rule also limits the advertising and labeling to which
children and adolescents are exposed. The rule accomplishes this by
generally restricting advertising to which children and adolescents are
exposed to a black-and-white, text-only format. In addition, billboards
and other outdoor advertising are prohibited within 1,000 feet of
schools and public playgrounds. The rule also prohibits the sale or
distribution of brand-identified promotional, nontobacco items such as
hats and tee shirts. Furthermore, the rule prohibits sponsorship of
sporting and other events, teams, and entries in a brand name of a
tobacco product, but permits such sponsorship in a corporate name. This
rule is intended to complement the regulations issued by SAMHSA
implementing section 1926 of the Public Health Service Act (42 U.S.C.
300x-26) regarding the sale and

[[Page 44400]]

distribution of tobacco products to individuals under the age of 18
(the SAMHSA rule).
In this document, FDA: (1) Presents its analysis of its authority
to issue regulations that impose the enumerated restrictions on the
sale and promotion of cigarettes and smokeless tobacco to those under
the age of 18, while leaving cigarettes and smokeless tobacco on the
market for adults; and (2) responds to comments on the proposed rule.

II. Legal Authority

In the 1996 Jurisdictional Determination, annexed hereto, the Food
and Drug Administration (FDA) \21\ has determined that cigarettes and
smokeless tobacco are combination products consisting of a drug
(nicotine) and device components intended to deliver nicotine to the
body. The agency may regulate a drug/device combination product using
the Federal Food, Drug, and Cosmetic Act's (the act's) drug
authorities, device authorities, or both. The agency exercises its
discretion to determine which authorities to apply in the regulation of
combination products to provide the most effective protection to the
public health. FDA has determined that tobacco products are most
appropriately regulated under the device provisions of the act,
including the restricted device authority in section 520(e) of the act
(21 U.S.C. 360j(e)).
---------------------------------------------------------------------------

\21\ The Secretary of the Department of Health and Human
Services (DHHS) (the Secretary) has the authority to carry out
functions under the act through the Commissioner of Food and Drugs
(the Commissioner). (See section 903 of the act (21 U.S.C. 393); 21
CFR 5.10 and 5.11.) Throughout this document, references to FDA
include the Secretary and the Commissioner.
---------------------------------------------------------------------------

A. Legal Principles Applicable to Combination Drug/Device Products

The agency's discretion to choose the appropriate regulatory tools
under the act is based, in part, on the authority provided under the
Safe Medical Devices Act of 1990 (the SMDA). FDA's interpretation,
supported by the language of the statute and its legislative history,
is embodied in the agency's implementing regulations codified at part 3
(21 CFR part 3), the delegations of premarket approval authority to
FDA's Center for Drug Evaluation and Research (CDER), Center for
Devices and Radiological Health (CDRH), and Center for Biologics
Evaluation and Research (CBER) that enable all three Centers to
administer statutory authority for drugs, devices, and biologics (56 FR
58758, November 21, 1991), and the ``intercenter agreements'' that
guide the agency in allocating Center responsibility for various
categories of combination products (56 FR 58760, November 21, 1991). In
addition to the authority provided by the SMDA, the agency's discretion
is also based on the principles recognized by the Supreme Court in
cases such as United States v. An Article of Drug * * * Bacto-Unidisk,
394 U.S. 784 (1969). In Bacto-Unidisk, for example, the Supreme Court
upheld the agency's decision to regulate a diagnostic test kit under
its drug authorities on the grounds that ``[i]t is enough for us that
the expert agency charged with the enforcement of remedial legislation
has determined that such regulation is desirable for the public health
* * *.'' (Bacto-Unidisk 394 U.S. at 791-792.)
The discussion that follows describes in more detail FDA's
interpretation of the combination product provisions of the SMDA, the
agency's understanding of combination products, and the way in which
the agency has exercised its discretion in determining the most
appropriate authorities to apply to regulate combination products.
1. The SMDA Recognized Combination Products for the First Time
Congress enacted the SMDA's combination product provisions to
recognize combination products as distinct entities subject to
regulation under the act and to alleviate the difficulty the agency had
experienced in regulating such products, especially those consisting of
components of both a drug and a device. First, the SMDA explicitly
recognized the existence of products that ``constitute a combination of
a drug, device, or biological product'' (section 503(g)(1) of the act
(21 U.S.C. 353(g)(1))). Second, the statute provided a mechanism for
determining which agency component would be assigned the administrative
responsibility of regulating a particular combination product (Id.).
In accordance with its recognition of combination products, the
SMDA changed the statutory definitions of ``drug'' and ``device'' at
section 201(g) and (h) of the act (21 U.S.C. 321(g) and (h)). Before
the enactment of the SMDA, section 201(g) of the act provided that a
drug ``does not include devices or their components, parts, or
accessories.'' The SMDA removed this language from the definition of
``drug'' so that the terms ``drug'' and ``device'' were no longer
mutually exclusive, thereby making it possible for a combination
product consisting of both a drug and device to be regarded as an
independent entity subject to regulation. The legislative history
indicates that this definitional change was made ``to accommodate the
principle of [combination products in] section 20'' (S. Rept. 101-513,
101st Cong. 2d sess., at 30 (1990)). For the first time it was
possible, as a legal matter, for a single product to have both drug and
device components.
The SMDA also permitted a wider range of products to meet the
definition of a device. Prior to its amendment by the SMDA, section
201(h) of the act defined a ``device'' as an instrument or other item
that, among other things, ``does not achieve any of its principal
intended purposes through chemical action within or on the body of man
or other animals and which is not dependent upon being metabolized for
the achievement of any of its principal intended purposes.'' The SMDA
changed the phrase ``any of its principal intended purposes'' in the
definition to read, ``its primary intended purposes.'' This change
broadened the definition of device and allowed more products to be
categorized as devices.
2. The SMDA Leaves to FDA's Discretion the Determination of Which
Regulatory Authorities to Apply to Particular Combination Products
Having recognized combination products, the SMDA also provided a
clear mechanism for determining which agency component a particular
combination product should be directed to for review. Under the SMDA,
the agency must:
[d]etermine the primary mode of action of the combination
product. If the [agency] determines that the primary mode of action
is that of--
(A) a drug (other than a biological product), the persons
charged with premarket review of drugs shall have primary
jurisdiction,
(B) a device, the persons charged with premarket review of
devices shall have primary jurisdiction, or
(C) a biological product, the persons charged with premarket
review of biological products shall have primary jurisdiction.

(Section 503(g)(1) of the act)
This section of the SMDA ``provide[d] the [agency] with firm ground
rules to direct products promptly to that part of FDA responsible for
reviewing the article that provides the primary mode of action of the
combination product'' (S. Rept. 101-513, 101st Cong., 2d sess., 30
(1990)).
Although the SMDA provided a mechanism for determining which agency
component, i.e., a Center, should review a particular combination
product, the legislation left to FDA the discretion to decide which
statutory authorities it would use in regulating a particular
combination product. The

[[Page 44401]]

language of the SMDA makes this clear, as does the legislative history
of the statute. Indeed, an earlier version of the bill, S. 3006, would
arguably have removed this discretion by requiring the agency to
regulate a product based only on its Center assignment. Thus, for
example, if the primary mode of action were that of a drug, the product
would be subject to regulation by CDER under the act's drug
authorities. The earlier version's language, which Congress chose to
strike from the final enactment, provided in relevant part:
The [agency] shall require only one market clearance route for
an article that constitutes a combination of a device, drug, or
biological product. If the [agency] determines that the primary mode
of action of the combination article is that of--
(A) a drug (other than a biological product), neither the
combination article nor any part of the article shall be treated as
a device or as a biological product for market clearance purposes;
(B) a device, neither the combination article nor any part of
the article shall be treated as a drug or a biological product for
market clearance purposes; or
(C) a biological product, neither the combination article nor
any part of the article shall be treated as a drug or a device for
market clearance purposes.

(136 Congressional Record, S.12493, 101st Cong., 2d sess., August 4,
1990)
The omission of this language from the statute indicates that while
Congress considered dictating which regulatory authority must be
applied to particular combination products, and knew how to craft
language to accomplish such a result, Congress ultimately chose to rely
on FDA's expertise in determining the most appropriate regulatory tools
needed to ensure the safety and effectiveness of the combination
products that it regulates.
Moreover, Congress enacted language that recognizes that the agency
may choose the appropriate regulatory authority for a particular
combination product. Section 503(g)(2) of the act provides that nothing
``shall prevent the [Agency] from using any agency resources of the
Food and Drug Administration necessary to ensure adequate review of the
safety, effectiveness, or substantial equivalence of an article.''
Since the enactment of the SMDA, the agency has interpreted the phrase
``any agency resources'' to include administrative resources and all
applicable statutory authorities. See Drug/Device Intercenter
Agreement, p. 2, contemporaneous interpretation that:
[u]nder the provisions of the Safe Medical Devices Act of 1990
and regulations promulgated to implement the combination product
provisions of the Act, [the Center for Drug Evaluation and Research]
and [the Center for Devices and Radiological Health] each may use
both the drug and device provisions of the Federal Food, Drug, and
Cosmetic Act as appropriate to regulate a combination product.

(See 21 CFR Part 3).
(See also 56 FR 58754 at 58759, November 21, 1991 (FDA amending its
procedural regulations at part 5 by adding delegations of authority
relating to the premarket review of combination products to state that
those specified officials in CBER, CDRH, or CDER ``who currently hold
delegated premarket approval authority for biologics, devices, or
drugs, respectively, are hereby delegated all the authorities necessary
for premarket approval of any product that is a biologic, a device, or
a drug, or any combination of two or more of these products: * * *''
(21 CFR 5.33).) Thus, when a combination product, a single entity,
consists of a component that may be regulated as a drug, the act's drug
provisions and device provisions are ``resources'' available to the
agency for regulating the product.

(1) One comment disputed the agency's interpretation of section
503(g)(2) of the act, stating that the language of section 503(g)(2)
can be construed to mean only ``people, laboratories, and other agency
support. The term `Agency resources' does not mean `legal authorities'
as FDA would like to believe.''
FDA disagrees with this comment. The agency notes that there is
nothing in the statute itself or the legislative history that suggests
any reason that the expansive phrase ``any FDA resources'' should be
narrowly interpreted given the important public health benefit
(``ensuring an adequate premarket review'') that is the goal of this
section of the SMDA. The agency's interpretation of this language is
supported by the SMDA's legislative history, which is discussed more
fully in section II.A.2. of this document. More importantly, as
discussed previously, the agency has the discretion under the statute
as enacted to choose the regulatory authorities most appropriate to the
specific product at issue.
3. Interpreting the SMDA to Allow the Agency to Determine Which
Regulatory Scheme Best Serves the Public Health is Consistent With 50
Years of Case Law
Construing the act as allowing the agency discretion to choose the
most appropriate regulatory tools for a particular combination product
is consistent with over 50 years of judicial precedent. The importance
of interpreting the act in a manner that is consistent with the public
health purposes of the act was recognized by the Supreme Court in
United States v. Dotterweich, 320 U.S. 277 (1943). This case, decided
shortly after substantial changes were made to expand the agency's
authority by the 1938 act, addressed the breadth of the term ``person''
in determining who was subject to prosecution for violations of the
act. The Court described the spirit in which the statute should be
interpreted:
By the Act of 1938, Congress extended the range of its control
over illicit and noxious articles and stiffened the penalties for
disobedience. The purposes of this legislation thus touch phases of
the lives and health of people which, in the circumstances of modern
industrialism, are largely beyond self-protection. Regard for these
purposes should infuse construction of the legislation if it is to
be treated as a working instrument of government and not merely as a
collection of English words.

(Id. at 280)
The approach in Dotterweich was followed by a number of cases in
which FDA's interpretation of the statute, especially in the area of
selecting how to regulate a product to achieve a public health purpose,
has been granted deference and has been upheld. In United States v. An
Article of Drug * * * Bacto-Unidisk, 394 U.S. 784 (1969), FDA's
interpretation of the definition of the term ``drug'' and the
applicability of the premarket review requirements were at issue. The
Court upheld the agency's expansive interpretation of the definition of
``drug'' to include a laboratory screening product, in large part
because this interpretation resulted in greater protection of the
public health by virtue of the premarket review that the product would
be subject to as a drug. As the Court reasoned:
It is enough for us that the expert agency charged with the
enforcement of remedial legislation has determined that such
regulation is desirable for the public health, for we are hardly
qualified to second-guess the Secretary's medical judgment.

(Bacto-Unidisk, 394 U.S. at 791-792)
The Court further stated:
The historical expansion of the definition of drug, and the
creation of a parallel concept of devices, clearly show, we think,
that Congress fully intended that the Act's coverage be as broad as
its literal language indicates--and equally clearly, broader than
any strict medical definition might otherwise allow * * *. But we
are all the more convinced that we must give effect to congressional
intent in view of the well-accepted principle that remedial
legislation such as the Food, Drug, and Cosmetic Act is

[[Page 44402]]

to be given a liberal construction consistent with the Act's
overriding purpose to protect the public health, and specifically,
Sec. 507's purpose to ensure that antibiotic products marketed serve
the public with `efficacy' and `safety.'

(Id. at 798); (See also U.S. v. 25 Cases, More or Less, of An Article
of a Device, * * * Sensor Pads, 942 F.2d 1179 (7th Cir. 1991)
(upholding FDA's determination that a latex bag filled with a layer of
silicone lubricant that was intended to aid women in self-examinations
for early detection of breast cancer was a device, because, among other
reasons, the court deferred to the agency's discretion to interpret its
own statute based on the legislative history of the act and on the
principles announced in Chevron U.S.A., Inc. v. Natural Resources
Defense Council, Inc., 467 U.S. 837 (1984)); AMP, Inc. v. Gardner, 389
F.2d 825, 830 (2d Cir.), cert. denied, sub nom. AMP, Inc. v. Cohen, 393
U.S. 825 (1968) (upholding FDA's classification of appellant's product
for tying off severed blood vessels as a drug because, in part, the
court was reluctant to give a narrow construction to the act,
``touching the public health as it does'').)
These cases stand for two principles: (1) FDA's interpretations of
its own statute should be given deference, and (2) the act should be
interpreted expansively to achieve its primary purpose, protecting the
public health. These principles support the agency's determinations,
carefully made after applying its considerable scientific expertise to
the evaluation of the evidence before it, that cigarettes and smokeless
tobacco are drug delivery devices and that these combination products
are most appropriately regulated using the device authorities of the
act. The agency's decision regarding tobacco products is consistent
with other determinations that the agency has made, which have been
upheld and endorsed by the courts, to regulate products in the most
reasonable manner that will result in the best protection of the public
health.
4. The Implementing Regulations and the Delegations of Authority
Reflect FDA's Interpretation That Section 503(g) of the Act Authorizes
the Agency to Determine the Appropriate Regulatory Authorities
FDA's implementing regulations and delegations of authority,
adopted shortly after passage of the SMDA, reflect the agency's
contemporaneous interpretation of section 503(g) of the act as
authorizing the agency to apply the most appropriate regulatory
authorities to any given combination product. In Sec. 3.2(e)(1), FDA
defined a combination product to include, in relevant part:
A product comprised of two or more regulated components, i.e.,
drug/device, biologic/device, drug/biologic, or drug/device/
biologic, that are physically, chemically, or otherwise combined or
mixed and produced as a single entity[.]

In a final rule that published in the Federal Register of November
21, 1991 (56 FR 58754), the agency explained that ``the term
combination product means a product comprised of two or more different
regulated entities, e.g., drug, device, or biologic * * *'' or that are
produced together as a single entity, packaged together, or used
together to achieve the intended effect. Thus, the fact that a single
product contains elements of two or more regulated entities does not
change the regulatory status of the individual elements. Each
``different regulated entit[y]'' of the combination continues to
satisfy the criteria of its relevant statutory definition; that is, a
drug component must satisfy the definition in section 201(g) of the
act, and a device component must comply with the definition in section
201(h) of the act. Because the elements of a combination product meet
more than one jurisdictional definition, the agency may apply one or
more sets of regulatory provisions to the product.
In the same issue of the Federal Register in which the agency
published the final regulations governing combination products, the
agency published delegations of authority that allow the officials in
CDER, CDRH, and CBER to utilize the premarket approval authorities for
any product that is a drug, device, biologic, or any combination of two
or more of these (56 FR 58758, November 21, 1991 (21 CFR 5.32)). These
delegations allow the officials of one Center to conduct a premarket
review of a product under another Center's regulatory authority,
thereby making it possible, for example, for CDER to review a drug/
device combination product under the device authorities. While the
combination product regulations created the procedure for making the
proper Center assignment, the delegations were necessary in order for
FDA to exercise its discretion to determine which regulatory authority
is most appropriate and to make it possible to apply that authority to
review a particular product. If the primary mode of action of a
combination product having drug and device components resulted in the
assignment of the product to CDER, for example, but the agency
determined that the device component of the product presented the most
important regulatory and scientific questions, the delegations make it
possible for CDER officials to conduct the premarket review of the
product under the device provisions of the act.
The regulations and the delegations of authority constitute the
agency's contemporaneous interpretation of section 503(g) of the act as
granting the agency discretion to choose the premarket approval
authority that provides the best public health protection. Such
contemporaneous interpretations by an agency are entitled to
considerable deference by the courts. (See Young v. Community Nutrition
Institute, 476 U.S. 974 (1986).)
5. The Intercenter Agreements and Administrative Precedent Recognize
That FDA May Determine Which Regulatory Authority to Apply to a
Particular Product
In addition to the regulations and delegations of authority
implementing section 503(g) of the act, FDA has also adopted and made
public three guidance documents, entitled ``Intercenter Agreements,''
that describe the agreements reached among the Centers about regulatory
pathways for specified products or classes of products as of October
31, 1991. (See Intercenter Agreement Between the Center for Biologics
Evaluation and Research and the Center for Devices and Radiological
Health; Intercenter Agreement Between the Center for Drug Evaluation
and Research and the Center for Devices and Radiological Health (the
Drug/Device Agreement); and Intercenter Agreement Between the Center
for Drug Evaluation and Research and the Center for Biologics
Evaluation and Research.)
These documents detail which Center generally will have the lead
responsibility for regulating particular types of products. The
Intercenter Agreements also state which regulatory authority usually
will be applied to specific products. For example, the Drug/Device
Agreement provides that a device with the primary purpose of delivering
or aiding in the delivery of a drug and distributed containing a drug
(i.e., ``prefilled delivery system'') will be regulated by ``CDER using
drug authorities and device authorities, as necessary'' (Drug/Device
Agreement, p. 6). Examples given of such combination products include a
nebulizer, prefilled syringe, and transdermal patch (Drug/Device
Agreement, p. 6). The Drug/Device Agreement specifically provides that
such combination products may be regulated under either the drug or

[[Page 44403]]

device authorities, whichever is more appropriate for a particular
product. \22\
---------------------------------------------------------------------------

\22\ A later section of the Drug/Device Agreement states that a
``device containing a drug substance as a component with the primary
purpose of the combination product being to fulfill a drug purpose
is a combination product and will be regulated as a drug by CDER.''
While this is the approach that FDA will usually take with such
products, the earlier language of the Drug/Device Agreement
expressly recognizes that FDA may use its device authorities where
appropriate, and as discussed in the text, there are several
examples of this type of prefilled delivery system being regulated
using the device authorities.
---------------------------------------------------------------------------

FDA's implementation of the Intercenter Agreement reflects these
understandings. For example, one drug delivery product that has been
regulated under the device authorities under the Drug/Device Agreement
is the prefilled, intravenous infusion pump, manufactured by two
companies. These are pumps designed to be sold prefilled with a
diluent, either a sodium chloride solution or a dextrose solution. FDA
regulates the diluents in the pumps as drugs under section 201(g)(1)(B)
of the act because they are intended for use in the treatment of
disease. The pumps are combination products consisting of a device
component, the pump, and a drug component, the diluent; and the
product's purpose is to deliver the diluent to be mixed by the doctor
or other health care provider attending the patient with another drug
substance for infusion into the patient. These pumps prefilled with
diluents are clearly ``a device containing a drug substance as a
component with the primary purpose of the combination product being to
fulfill a drug purpose'' that would be regulated as a drug according to
the general principle stated in the Drug/Device Agreement (Drug/Device
Agreement, p. 14). However, the agency exercised its discretion and
determined that these drug delivery products should be regulated under
the device authorities.
The agency based its determination on the fact that the drugs that
were delivered by the products, saline and dextrose, are two
ingredients very commonly used in intravenous infusions about which the
agency had a wealth of scientific information and thorough regulatory
experience. The pumps, the device component of this combination,
however, operated on novel design principles. Because the device
components of these combination products were new and raised
significant regulatory questions, the agency determined that the
products would receive the most appropriate premarket review if the
device authorities were applied.
Another example of the agency's use of its discretion and its
ability under the guidance in the Intercenter Agreements to make a
sensible decision about product assignment is its decision regarding
regulation of a catheter flush solution containing a blood-thinning
drug and an antibiotic. The solution is intended as a flush solution to
prevent the catheter (or tube) inserted into a patient's body from
becoming clogged with blood and to prevent dangerous bacteria from
growing in the catheter. Under the Drug/Device Agreement, this product
would appear to fit into the category of a ``liquid * * * or other
similar formulation intended only to serve as a component * * * to a
device with a primary mode of action that is physical in nature [and]
will be regulated as a device by CDRH'' (see Drug/Device Agreement, p.
13). The agency did determine that the product's premarket review would
be conducted under the device authorities, but it assigned the review
responsibility to CDER. The decision to follow an approach different
from the one generally suggested in the Drug/Device Agreement was based
on the fact that the inclusion of the blood-thinning and anti-infective
drugs in the flush solution represented an innovation in such solutions
and raised important scientific and regulatory questions that were most
properly reviewed by the scientists in CDER. Because CDER was assigned
the lead, the sponsor of this product was informed that the clinical
investigations of this product should proceed under the investigational
drug provisions of the act (section 505(i) of the act (21 U.S.C.
355(i)). This determination tailored the act's premarket review
provisions, incorporating the most appropriate sections of both the
drug and device authorities without being redundant, to the special
features of this original product.
The agency has thus in the past made its jurisdiction decisions by
determining the most reasonable course of action to protect public
health given the scientific questions presented by each product. FDA
considers essential its ability to continue to assess the individual
circumstances of particular products. This will allow the agency to
respond to technological developments, expanded scientific
understanding, or additional factual information concerning a specific
product or class of products.

B. Cigarettes and Smokeless Tobacco Have Both a Drug and a Device
Component and Are Therefore Combination Products

As discussed in detail in the 1996 Jurisdictional Determination,
the agency has concluded that the nicotine in cigarettes and smokeless
tobacco is a drug within the meaning of section 201(g)(1)(C) of the
act. The agency has also concluded that cigarettes and smokeless
tobacco contain, in addition to the drug nicotine, delivery device
components that deliver a controlled amount of nicotine to the body.
Thus, cigarettes and smokeless tobacco are combination products that
contain both a ``drug'' and a ``device.''
The agency further concluded that processed loose cigarette
tobacco, which is used by smokers who roll their own cigarettes, is a
combination product.

C. FDA's Choice of Legal Authorities

1. FDA Will Regulate Cigarettes and Smokeless Tobacco Under the Act's
Device Authorities
Having established that cigarettes and smokeless tobacco are
combination products consisting of both a drug component and device
components, the agency has the discretion to choose whether it will
regulate these products under the act's drug authorities, device
authorities, or both if appropriate. Making this determination requires
FDA to consider how the public health goals of the act can be best
accomplished.
The act's drug and device provisions have a common objective: To
ensure the safety and effectiveness of regulated products. They also
provide the agency with similar authorities to regulate drugs and
devices. In certain ways, however, the device provisions offer FDA more
flexibility. The Medical Device Amendments of 1976 (the Medical Device
Amendments) were enacted nearly 40 years after the act itself. During
that period of time, Congress observed FDA's efforts to regulate
devices under the authority of the act, noting that the agency's
authority over devices became increasingly inadequate as the nature of
the devices on the market changed (H. Rept. 94-853, 94th Cong., 2d
sess., 6-10 (1976)).
In 1938 most of the devices in use were ``relatively simple items
which applied basic scientific concepts * * *'' (H. Rept. 94-853, 6).
However, by the time the Medical Device Amendments were enacted, the
universe of device products had evolved from primarily simple products,
such as tongue depressors and bandages, to include a

[[Page 44404]]

variety of scientifically and technologically sophisticated products,
such as cardiac pacemakers, lasers, and magnetic resonance imaging
equipment. This wide range of technology posed many more varied
regulatory concerns than those posed by drugs, which as a group of
products are less diverse in nature.
Congress recognized the need for specific authority for devices
that would take into account ``the great diversity among the various
medical devices and their varying potentials for harm as well as their
potential benefit to improved health'' (S. Rept. 94-33, 94th Cong., 1st
sess., 10 (1975)). Thus, with the Medical Device Amendments, Congress
enhanced FDA's authority to tailor regulatory controls, from an array
of statutory tools, to fit the particular safety and effectiveness
issues presented by individual devices.
Because of this additional flexibility, the agency has determined
that the device authorities provide the most appropriate basis for
regulating cigarettes and smokeless tobacco. Because millions of
Americans are addicted to cigarettes and smokeless tobacco, regulation
of these products presents unique safety problems that require careful,
tailored solutions. The Medical Device Amendments provide the agency
with regulatory options that are well suited to the unique problems
presented by cigarettes and smokeless tobacco.
Although the agency has determined that the device authorities are
the most appropriate authorities for regulating cigarettes and
smokeless tobacco, the agency disagrees with the comments that suggest
that the agency could not regulate cigarettes and smokeless tobacco as
drugs. To the contrary, as discussed in section II.D. of this document,
the agency could have used its drug authorities to implement similar
types of controls on cigarettes and smokeless tobacco as it is imposing
under the somewhat more flexible device authorities.
2. Cigarettes and Smokeless Tobacco Will be Subject to the Full Range
of Device Authorities
In regulating cigarettes and smokeless tobacco, FDA will follow the
regulatory scheme created by Congress for devices. Because the universe
of devices is extremely diverse, presenting a broad spectrum of safety
and effectiveness issues, the Medical Device Amendments include a wide
range of regulatory controls. Some of these controls, such as the
adulteration and misbranding requirements, are applicable to all
devices, while others, such as premarket approval and restrictions on
sale, distribution, and use, are to be applied only where FDA concludes
that they are necessary to provide reasonable assurance of safety and
effectiveness for particular devices. The Medical Device Amendments are
thus designed to allow the agency to regulate individual devices with
controls that are tailored to address the safety and effectiveness
problems raised by those devices.
As devices, cigarettes and smokeless tobacco will be subject to all
mandatory provisions of the act, except where exemption is permitted by
statute and is appropriate for these products. In addition, cigarettes
and smokeless tobacco will be subject to other discretionary provisions
of the act that the agency has concluded are necessary to address the
special safety issues posed by these products.
The basic requirements of the act applicable to all devices
include: Adulteration and misbranding provisions (sections 501 and 502
of the act (21 U.S.C. 351 and 352)), labeling requirements (section
502), establishment registration, device listing, and premarket
notification (section 510 (21 U.S.C. 360)), recordkeeping and reporting
requirements (section 519 (21 U.S.C. 360i)), and good manufacturing
practice (GMP) requirements (section 520(f)). As described in more
detail in section II.C.4. of this document, FDA intends to apply these
requirements, where appropriate, to cigarettes and smokeless tobacco at
a future time. In addition, the act requires the agency to classify
devices into one of three classes. Depending on the class into which a
product is classified, additional regulatory requirements may apply:
Class I (general controls), class II (special controls), and class III
(premarket approval). As described in more detail in section II.C.5. of
this document, as the act contemplates, FDA intends to classify
cigarettes and smokeless tobacco at a future time, and will impose any
additional requirements that apply as a result of their classification.
The agency has determined that the safety of cigarettes and
smokeless tobacco cannot be assured without restrictions on the sale,
distribution, and use of these products to children and adolescents.
Accordingly, FDA is imposing restrictions under the authority granted
in section 520(e) of the act.
(2) Several comments argued that the regulatory requirements
proposed by FDA for cigarettes and smokeless tobacco distort the
regulatory scheme for devices established by Congress. These comments
contended that FDA has: (1) Selectively applied the provisions of the
Medical Device Amendments; (2) inappropriately relied on section 520(e)
of the act (restrictions on sale, distribution, or use) while ignoring
other mandatory provisions of the act, such as classification; and (3)
determined that cigarettes and smokeless tobacco are unsafe and yet
failed to invoke provisions of the act that, according to the comments,
require the agency to remove them from the market.
FDA disagrees with these comments. As already described, FDA
intends to apply to cigarettes and smokeless tobacco all of the
mandatory provisions of the Medical Device Amendments. Thus, FDA is
neither selectively applying the provisions of the act nor ignoring
mandatory provisions.
Although FDA intends to impose on cigarettes and smokeless tobacco
all requirements applicable to devices, the act does not provide that
these requirements should all be imposed immediately. Classification
serves the purpose of identifying which devices need to be subject to
special controls (class II) or premarket approval (class III) in
addition to the general controls applicable to all devices.
Classification requires FDA to institute a separate rulemaking
proceeding. The act does not require the agency to classify a device
before general controls become applicable to it. Rather, the general
controls provisions of the act apply to all devices both before and
after classification and irrespective of the class into which a device
is ultimately classified. Because the classification process involves
many steps and can take years to complete, FDA does not ordinarily
complete the classification process before regulating the device under
its general controls.
Moreover, the statute contains no requirement that the agency
complete a classification rulemaking before invoking the general
controls that apply to all devices. For example, each of the literally
thousands of medical devices that have been classified by rulemaking
under section 513 of the act (21 U.S.C. 360c) were subject to the
general controls of the statute--such as the provisions on
adulteration, misbranding, registration, investigational device
controls, and GMP--in advance of the completion of the classification
rulemaking proceedings. (See, e.g., Contact Lens

[[Page 44405]]

Mfrs. Association v. FDA, 766 F.2d 592, 603 (D.C. Cir. 1985), cert.
denied 474 U.S. 1062 (1986).) Indeed, in some cases, the general
controls provisions were applicable to marketed devices for many years
before completion of classification.
Consistent with the agency's practice, FDA has made a decision to
apply the general controls provisions of the act to cigarettes and
smokeless tobacco, including restrictions on their distribution, sale,
and use under section 520(e) of the act, before classifying cigarettes
and smokeless tobacco. As described in section II.C.5. of this
document, FDA will, in a future rulemaking, classify cigarettes and
smokeless tobacco in accordance with the procedures in section 513 of
the act. In the meantime, the general controls will apply.
FDA also disagrees that the act requires the agency to remove
cigarettes and smokeless tobacco from the market. As described in the
preamble to the 1995 proposed rule (60 FR 41314), although cigarettes
and smokeless tobacco pose very grave risks, the agency cannot conclude
that removing them from the market would most effectively meet the
statutory goal of providing reasonable assurance of safety and
effectiveness. Because millions of Americans are addicted to cigarettes
and smokeless tobacco, the consequences of their removal from the
market, as discussed in greater detail in section II.C.5. of this
document, would include adverse health effects from sudden withdrawal,
the likely development of a black market, and the possibility that the
products that would be available through a black market would pose
greater risks than those currently on the market. None of the statutory
sections cited by the comments require the agency to remove products
from the market where the agency concludes that such action would be
contrary to the public health. Here, FDA has determined that the unique
safety issues presented by highly addictive and long-marketed products
like cigarettes and smokeless tobacco can most effectively be addressed
by actions to prevent new users from becoming addicted to these
devices.
In section II.C.3. of this document, FDA discusses its authority to
impose restrictions on sale, distribution, and use to prevent children
and adolescents from becoming addicted to cigarettes and smokeless
tobacco. In section II.C.4 of this document, FDA discusses imposition
of other general controls, and, in section II.C.5 of this document, FDA
discusses classification of cigarettes and smokeless tobacco.
3. The Restricted Device Provision Authorizes FDA to Establish Access
and Advertising Restrictions
Congress provided FDA with authority to prevent the use of a device
by those not competent to use it safely in the restricted device
provision (section 520(e) of the act). Specifically, section 520(e) of
the act states in part:
(1) The [agency] may by regulation require that a device be
restricted to sale, distribution, or use--
(A) only upon the written or oral authorization of a
practitioner licensed by law to administer or use such device, or
(B) upon such other conditions as the [agency] may prescribe in
such regulation, if, because of its potentiality for harmful effect
or the collateral measures necessary to its use, the [agency]
determines that there cannot otherwise be reasonable assurance of
its safety and effectiveness.
Section 520(e) is one of the act's ``general controls'' (see
section 513(a)(1)(A) of the act). As a general control, section 520(e)
of the act can be used by FDA to regulate any class of device (section
513(a) of the act). Because its applicability does not depend upon the
outcome of the classification process, 520(e) of the act--like the
other general controls--can be used by FDA to regulate a device prior
to the classification of the device.
In applying section 520(e) of the act to restrict the sale,
distribution, or use of a device, FDA must find that without the
restriction ``there cannot otherwise be reasonable assurance of its
safety and effectiveness.'' This provision requires FDA to find that
the restrictions in section 520(e) of the act are necessary to assure
the safety and effectiveness of the device, but FDA does not have to
find that the restrictions are sufficient to assure safety and
effectiveness. During the classification process, FDA determines
whether additional controls beyond section 520(e) of the act and the
other general controls applicable to all devices are needed to assure
the safety and effectiveness of the device.
The restricted device provision in section 520(e) of the act
authorizes FDA to adopt regulations that ensure that children and
adolescents, who by State law are not competent to use cigarettes and
smokeless tobacco, will not be able to obtain them. In particular, FDA
has determined that section 520(e) of the act authorizes the access and
advertising restrictions in the final rule because without these
restrictions ``there cannot otherwise be reasonable assurance of * * *
safety * * *.''
As described more fully later in this section of this document, the
agency's use of section 520(e) of the act in this rule is consistent
with the plain language of section 520(e), the legislative history, and
the agency's prior use of section 520(e) in, for example, restricting
the sale, distribution, and use of hearing aids (42 FR 9285, February
15, 1977, as amended at 47 FR 9397 through 9398, March 5, 1982).
As discussed in section II.C.5. of this document, the agency
intends to classify cigarettes and smokeless tobacco under the
procedures contained in section 513 of the act. The classification
process is the time at which the agency determines what degree of
regulation is necessary to provide a ``reasonable assurance of safety
and effectiveness'' for a particular product, such as tobacco products.
However, the act does not specify the timing of the application of
device authorities, and the agency is therefore able to issue
restrictions under section 520(e) of the act prior to initiating the
classification process. The agency also did so in its regulation of
hearing aids. In 1977, FDA adopted regulations under section 520(e) of
the act containing restrictions on the sale, distribution, and use of
hearing aids (42 FR 9285, February 15, 1977, as amended at 47 FR 9397
and 9398, March 5, 1982), but did not classify these products until
1986 (51 FR 40378 at 40389, November 6, 1986).
FDA is following a similar course here. The agency has determined
that unless measures are taken now to prohibit the sale and promotion
of these products to young people under the age of 18, there cannot
otherwise be reasonable assurance of safety. Therefore, FDA is acting
under section 520(e) of the act to restrict the sale, distribution, and
use of cigarettes and smokeless tobacco.
a. The restricted device provision authorizes FDA to prevent access
to persons who cannot use a device safely or effectively. Section
520(e) of the act is in part the device counterpart to section 503(b),
the act's prescription drug provision. Section 503(b)(1) of the act,
for instance, authorizes FDA to restrict access to potentially
dangerous drugs by requiring that they be dispensed ``only upon a * * *
prescription of a practitioner licensed by law to administer such a
drug * * *.'' Similarly, section 520(e)(1)(A) of the act authorizes FDA
to restrict access to potentially dangerous medical devices ``only upon
the * * * authorization of a practitioner licensed

[[Page 44406]]

by law to administer or use such device * * *.''
The restricted device provision, however, is significantly broader
than the prescription drug provision. Not only may FDA restrict sale,
distribution and use by prescription, but it may do so upon ``such
other conditions as [it] may prescribe in such regulation'' (section
520(e)(1)(B) of the act (emphasis added)). There is no counterpart to
this ``other conditions'' authority in the prescription drug
provisions.
Section 520(e) of the act was designed to deal with the risks that
are created by improper use of a device. The legislative history of the
Medical Device Amendments specifically states that section 520(e) of
the act was intended to ``supersede[ ]'' and ``add[ ]'' to the
prescription authority derived from section 503(b) of the act (H. Rept.
94-853, 94th Cong. 2d sess., 24-25 (1976)). This confirms that Congress
intended to give FDA broad authority to restrict access to potentially
dangerous devices. (See also ``Medical Device Regulation: The FDA's
Neglected Child,'' Report of the Subcommittee on Oversight and
Investigations, House Committee on Energy and Commerce, 98th Cong., 1st
sess., 31 (1985).)
Congress' use of the phrase ``could include'' indicates that this
discussion was intended to be illustrative rather than exhaustive. The
examples of possible restrictions described in the legislative history
demonstrate that Congress intended to give the agency authority to
restrict access to devices in a variety of ways, depending upon the
type of risk posed by the device and the measures needed to ensure that
the device is not used inappropriately. In short, the legislative
history supports the statutory language and establishes that Congress
intended FDA's authority to restrict the sale, distribution, and use of
devices ``upon such other conditions as the [agency] may prescribe'' to
be a flexible authority that allows FDA to tailor restrictions on sale,
distribution, and use according to the circumstances posed by the
device being regulated.
b. The restricted device provision also authorizes FDA to restrict
promotional activities that encourage uses that are inconsistent with
the regulatory scheme. Section 520(e) of the act is a broad grant of
authority. The Secretary, and by delegation FDA, is authorized to
restrict the sale, distribution, or use of a device ``upon such other
conditions as the [agency] may prescribe in such regulation.'' This
broad grant of authority covers all aspects of the sale of a device,
including the offer of sale.
How a device is sold involves many elements. It involves not only
the circumstances surrounding the exchange of money for the device, but
also whether the device must be sold only on the authorization of a
practitioner, whether age limits on users are appropriately
established, and how the device is represented to potential users. It
is in the latter regard that advertising plays a role and may be
restricted under section 520(e) of the act.
The Supreme Court cases on commercial speech recognize that a
State's interest in regulating sales extends to advertising promoting
the sale. In Edenfield v. Fane, 507 U.S. 761, 767 (1993), the Supreme
Court said that commercial transactions are ``linked inextricably''
with the commercial speech that proposes the transaction, and that the
State's interest in regulating the underlying transaction may give it a
concomitant interest in the expression itself. Likewise, under section
520(e) of the act, the sale of a device is ``linked inextricably'' to
the advertising that promotes the sale, giving FDA concomitant
authority to impose necessary restrictions on the advertising.
FDA's regulation of hearing aids exemplifies this aspect of section
520(e) of the act. One of the most important purposes of the
restrictions on sale, distribution, and use imposed on hearing aids was
to respond to widespread inappropriate promotion of hearing aids to
consumers for whom the devices are not effective (see 41 FR 16756 at
16757 (April 21, 1976)). In that regulation, in addition to restricting
sales to persons who had been medically evaluated for hearing aids, FDA
relied upon section 520(e) of the act to require that an instructional
brochure be distributed to each prospective hearing aid user. These
brochures described the adverse reactions and side effects associated
with hearing aids and encouraged prospective users to seek medical
evaluations. The distribution of the brochure was required as a means
of ensuring that advertising for hearing aids did not inappropriately
induce persons who had not been medically evaluated to purchase the
hearing aids.
The agency's authority to use section 520(e) of the act to restrict
advertising is especially strong when limits on advertising are
necessary to ensure that advertising does not undermine the conditions
on sale, distribution, or use that the agency adopts under section
520(e). The agency should not be--and under section 520(e) of the act
is not--powerless to prevent advertising that encourages sales that the
agency has barred under section 520(e). Rather, the agency may use its
authority to impose ``such other conditions as the [agency] may
prescribe'' to restrict advertising that directly undercuts the
agency's restrictions on sale, distribution, and use.
c. The restricted device provision authorizes FDA's restrictions on
youth access and on advertising designed to make cigarettes and
smokeless tobacco appealing to youth. The restricted device provision
authorizes the restrictions on youth access and on advertising in this
final rule. Section 520(e) of the act contemplates these types of
restrictions on sale and distribution. Moreover, they are necessary if
FDA ever were to be able to find that there is a reasonable assurance
of the safety of cigarettes and smokeless tobacco under the act. As
section 520(e) of the act provides, without these restrictions ``there
cannot otherwise be reasonable assurance of safety and effectiveness.''
The provisions in the final rule that restrict the access of minors
to cigarettes and smokeless tobacco are clearly restrictions on ``sale,
distribution, or use'' of a device within the meaning of section 520(e)
of the act. FDA's access restrictions are designed to ensure that
children and adolescents are unable to have access to cigarettes and
smokeless tobacco. These restrictions directly limit the sale of
cigarettes and smokeless tobacco by, for instance, banning the sale of
these products to persons under 18. They also directly limit the
distribution of cigarettes and smokeless tobacco by, for instance,
banning the distribution of free samples. Hence, these access
restrictions are within the plain language of section 520(e) of the
act.
The advertising restrictions in the final rule are also among the
types of restriction that section 520(e) of the act authorizes. As in
the case of the restrictions imposed on hearing aids, the advertising
restrictions are designed to address inappropriate promotion of
cigarettes and smokeless tobacco to individuals for whom the
potentiality for harm is particularly great. The advertising
restrictions are necessary to prevent advertising by the manufacturers
of cigarettes and smokeless tobacco from undercutting the access
restrictions. The effectiveness of the restrictions on youth access

[[Page 44407]]

would be substantially diminished if the manufacturers were free to
entice children and adolescents to circumvent the access restrictions.
In this circumstance, restrictions on advertising are properly treated
as restrictions on ``sale, distribution, or use'' within the meaning of
section 520(e) of the act.
The final requirement of section 520(e) of the act is that the
agency establish that without the restrictions on the device ``there
cannot otherwise be reasonable assurance of its safety and
effectiveness.'' This requirement is plainly met in the case of the
access and advertising restrictions for cigarettes and smokeless
tobacco. Without effective restrictions on sale and distribution of
cigarettes and smokeless tobacco to children and adolescents under 18,
young people will continue to become addicted to these products and,
once addicted, will as adults continue to use them in spite of their
potential for harmful effects. As stated in section I.B. of this
document, the earlier tobacco use begins, the greater the risk of
disease caused by, or associated with, the use of these products. Thus,
there can be no doubt that without the access and advertising
restrictions imposed in this final rule, no finding that there is a
reasonable assurance of safety for cigarettes and smokeless tobacco
would be possible.
Although FDA finds that the restrictions under section 520(e) of
the act are necessary for providing a reasonable assurance of safety,
FDA is not required under section 520(e) of the act to show that the
restrictions are sufficient by themselves to provide a reasonable
assurance of safety or effectiveness. Under section 520(e) of the act,
all that FDA must establish is that without the section 520(e)
restrictions, the device could not be found to be safe.
It is in the classification process--not in the application of
section 520(e) of the act--that FDA must determine what controls are
necessary if the agency is to find that there is a reasonable assurance
that a device is safe and effective for its intended use. As discussed
in section II.C.5. of this document, FDA intends to classify cigarettes
and smokeless tobacco in a future rulemaking.
d. Response to other comments. FDA received several comments on
whether section 520(e) of the act authorizes restrictions on youth
access and advertising. Most of the comments were from tobacco trade
associations, tobacco companies, and advertisers, arguing that section
520(e) of the act does not provide authority for either the access or
advertising restrictions. A comment from a public interest group,
however, fully supported FDA's reliance on section 520(e). FDA also
received a large number of comments from a broad cross-section of the
public that expressed support for, or opposition to, the proposed
restrictions without delving into the legal issues analyzed in the 1995
proposed rule.
(3) One comment said that FDA uses the term ``conditions'' in
section 520(e)(1)(B) of the act to mean any regulatory imposition that
the agency believes would bring about an improvement in safety in some
way related to the device in question. The comment argued that FDA has
used this term in such an overinclusive way that it would authorize FDA
to impose many of the requirements that Congress imposed in other
provisions of the act. For example, the comment argued that under FDA's
interpretation it could require premarket approval of a device with a
potentiality for harmful effect as a ``condition'' on the ``sale,
distribution, or use'' of the device, on the theory that without
premarket approval it would be impossible for there to be ``reasonable
assurance of its safety.''
FDA disagrees with this comment. FDA's interpretation of section
520(e) of the act does not create any redundancy with the other
provisions of the Medical Device Amendments. Most of the general
controls authorized under the act, and the major thrust of the
provisions on performance standards and premarket approval, are geared
toward ensuring that finished devices, when ready for use, will be free
from defects and will provide a reasonable assurance of safety and
effectiveness for their labeled use. Restrictions under section 520(e)
of the act, on the other hand, are imposed because the device's
``potentiality for harmful effect or the collateral measures necessary
to its use,'' and the determination that, without such restrictions,
there cannot otherwise be a reasonable assurance of safety and
effectiveness. The restrictions under section 520(e) of the act on
cigarettes and smokeless tobacco focus on those who may not purchase
and use these products rather than on those who will be using the
products. Without successful restrictions on sale, distribution, and
use of cigarettes and smokeless tobacco to children and adolescents
under 18, there will never be reasonable assurance of the safety of
these products because they would continue to be available to these
young people, who, by State law, are not competent to use them.
(4) With regard to access, industry comments contended that FDA's
authority under the provisions of the act relating to restricted
devices was intended to be no broader than its prescription drug
authority and, accordingly, could not extend to restrictions such as
those in the 1995 proposed rule.
FDA disagrees with this view and believes that it is unsupported by
the clear language of the act and the legislative history (see H. Rept.
94-853, 94th Cong., 2d. sess., 24-25 (1976)). Had Congress meant for
the authority granted FDA under section 520(e) of the act to be no
broader than the authority granted in section 503(b)(1) of the act to
limit drugs to prescription use, it could simply have amended section
503(b)(1) of the act to add ``or device'' after ``drug'' each time the
term is used. Indeed, as discussed in Becton, Dickinson and Company v.
Food and Drug Administration, 589 F.2d 1175 (2d Cir. 1978) that
approach was the one used in early versions of the legislation that
became the 1976 amendments but was abandoned in favor of the broader
``restricted device'' approach that has been a part of the law for 20
years. The plain language of the enacted provision contains no
limitation on the types of restrictions that can be imposed and
certainly is not limited by its terms to restriction to prescription
use. Moreover, as previously discussed, the legislative history
specifically states that the agency's authority under section 520(e) of
the act is broader than its authority under the prescription drug
provisions (H. Rept. 94-853, 94th Cong., 2d sess., 24-25, 1976).
(5) An industry comment contended that ``FDA uses what is merely
the medical device version of prescription drug status as the sole
legal justification for an elaborate system of controls far broader and
more intrusive than is authorized even for true medical devices.''
As discussed in section II.C.3. of this document, FDA's restricted
device authority is significantly broader than suggested by this
comment. Given the potentiality for harm from cigarettes and smokeless
tobacco, FDA has ample authority to impose the conditions on their
sale, distribution, and use that it is adopting.
As is the case with other medical devices, cigarettes and smokeless
tobacco are subject to those regulatory controls that are appropriate
for medical devices generally (e.g., registration, labeling, and
inspection), along with those tailored to the product in question

[[Page 44408]]

and the risks that it presents (access restrictions and advertising
controls). Thus, FDA is treating cigarettes and smokeless tobacco in a
manner that is consistent with how it treats other medical devices.
(6) Turning to the advertising restrictions, several comments
argued that section 520(e) of the act authorizes only restrictions on
``sale, distribution, or use,'' and that it does not include the words
``offer for sale.'' These comments pointed out that Congress used the
words ``offer for sale'' elsewhere in the act (sections 301(m) and (o)
(21 U.S.C. 331(m) and (o)) and 503(c)), and they therefore drew the
inference that if Congress had intended section 520(e) of the act to
authorize restrictions on how medical devices are offered for sale, it
would have made this fact explicit.
FDA is not persuaded by this argument. In each of the instances
cited in the comments where Congress has included the phrase ``offer
for sale'' in the act, it was defining a prohibited act, that is, an
act whose commission would violate the statute, in which the
prohibition focused, at least in part, on the sale of a food, drug, or
device. By including the phrase ``offered for sale'' in these
provisions, Congress sought to ensure that the statutory objective of
preventing the actual sale of products where advertising or labeling
does not meet the statutory requirement would be met by including
products merely ``offered for sale'' within the statute's coverage. The
agency notes that, similarly, the words ``offered for sale'' appear in
section 502(q) of the act, the provision that the agency would use to
enforce section 520(e) of the act. Thus, Congress did in fact include
``offer for sale'' in the scope of conduct regulated under section
520(e) of the act and its enforcement clause, section 502(q). The
comment's argument, however, misses the significance of section 520(e)
of the act.
As discussed in section II.C.3. of this document, the authority to
restrict the ``sale, distribution, or use'' of a device includes the
authority to restrict the circumstances surrounding the sale and
distribution of the device, including the device's advertising. The use
of section 520(e) of the act to restrict advertising is particularly
appropriate when the advertising restrictions are necessary to ensure
that access restrictions issued under section 520(e) of the act are not
undermined by a manufacturer's advertising. Here, FDA is restricting
the sale of cigarettes and smokeless tobacco because of their potential
harmful effects on individuals who start using them before the age of
18 and who lack the competency to decide to do so. FDA has determined,
as explained in sections VI.B. and D. of this document, that how
cigarettes and smokeless tobacco are advertised plays a material role
in the decision of children and adolescents under 18 to purchase and
use these products. Thus, if the restrictions on how cigarettes are
sold, distributed, and used that FDA is adopting under section 520(e)
of the act are to be effective, they must include restrictions on how
cigarettes and smokeless tobacco are advertised.
(7) The comments also argued that section 520(e) of the act on its
face says nothing about advertising. Thus, according to these comments,
FDA's authority to regulate the advertising of restricted devices is
limited by section 502(q)(1) of the act, which prohibits false or
misleading advertising, and section 502(r) of the act, which prescribes
certain statements in the advertising for these devices. One comment
implied that FDA's interpretation of section 520(e)(1) of the act had
rendered section 502(q)(1) and (r) of the act superfluous.
FDA is not persuaded by these comments. The interpretation of
section 520(e) of the act that FDA has adopted in this proceeding would
not render either section 502(q)(1) or (r) of the act inoperative or
superfluous. These sections impose requirements on advertising of the
permissible sale, distribution, and use of restricted devices. They set
out conditions on advertising to which manufacturers must adhere in
offering these devices for sale. Section 520(e) of the act, on the
other hand, is the means by which FDA demarcates permissible and
nonpermissible conditions of sale, distribution, and use of these
devices. In so doing, as has been explained in response to the previous
comments, FDA may by regulation impose limits on advertising that it
finds are necessary to ensure that advertising is not used to undermine
the conditions on sale, distribution, or use that the agency adopts.
This is what Secs. 897.30, 897.32(a), and 897.34, the regulations that
set out the restrictions on advertising, are designed to accomplish. In
fact, section 502(q)(1) of the act reinforces this authority because
any advertisement that promotes the sale of a device for a use that is
inconsistent with a restriction established by FDA would be false and
misleading because it would represent that the device is appropriate
for that use, which would not be the case.
Thus, Congress clearly intended section 502(q)(1) and (r) of the
act and any restrictions that FDA adopts under section 520(e) of the
act to be complementary. This intent is further evidenced by the fact
that section 502(q)(2) of the act provides that a restricted device is
misbranded if it is sold, distributed, or used in violation of
regulations prescribed under section 520(e) of the act. Section
502(q)(2) of the act thus complements sections 502(q)(1) and (r) of the
act, which, as previously explained, address different aspects of the
regulation of restricted devices than does section 520(e) of the act.
FDA's interpretation of section 520(e) of the act accordingly does
not render either section 502(q)(1) or (r) of the act superfluous.
Rather, the three provisions support and reinforce each other.
(8) An additional argument advanced by two tobacco trade
associations was that the interpretation of section 520(e)(1)(B) of the
act, which authorizes FDA to restrict the sale of a device upon such
``other conditions'' as it deems necessary, is governed and limited by
the rule of ejusdem generis. This rule of statutory construction
provides that, where general words follow an enumeration of persons or
things of a particular and specific meaning, such general words are not
to be construed in their widest extent but are to be held as applying
to only persons or things of the same general kind or class as those
specifically mentioned. Thus, the comment argued that here, ejusdem
generis limits the scope of ``other conditions'' in section
520(e)(1)(B) of the act to restrictions similar in nature to the
restriction to prescription use in section 520(e)(1)(A) of the act. The
comment argued that it would be totally inconsistent with the rule of
ejusdem generis to expand the scope of ``other conditions'' to include
a provision as dissimilar to a prescription requirement as a
restriction on advertising. FDA does not agree that ejusdem generis is
controlling, or that it has any application here. In Norfolk & Western
v. American Train Dispatchers Ass'n, the Supreme Court held that this
canon does not control ``when the whole context dictates a different
conclusion'' (499 U.S. 117, 129 (1991)). The context involving section
520(e) of the act does not support the application of ejusdem generis
to it. There is no indication that Congress thought that it was
providing a list of similar measures in section 520(e)(1)(A) and
(e)(1)(B) of the act. In fact, the face of the act is to the contrary.
After specifying one means of restricting

[[Page 44409]]

the sale, distribution, and use of a device, Congress granted the
Secretary broad authority to impose ``such other conditions as [she]
may prescribe in such regulation.'' Congress, rather than limiting the
Secretary's options, left it to the Secretary to decide what conditions
are necessary for a particular device. Nor does the legislative history
support the comments. As stated in section II.C.3.a. of this document,
Congress intended section 520(e) of the act to add to the agency's
authority beyond providing for use by prescription only (H. Rept. 94-
853, 94th Cong., 2d sess., 24-25 (1976)).
Moreover, the ``or'' connecting section 520(e)(1)(A) of the act
with section 520(e)(1)(B) is properly read here as disjunctive rather
than conjunctive. (See Garcia v. United States, 469 U.S. 70, 73
(1984).) Section 520(e) of the act is intended to authorize such
conditions on the sale, distribution, or use of a device as are
necessary to ensure that the device is not improperly used and without
which a reasonable assurance of its safety and effectiveness cannot be
provided. There is no basis on the face of the act or in the
legislative history to conclude that Congress was trying to limit the
conditions that FDA could impose to achieve that end (other than the
admonition not to base a physician restriction on board certification).
(9) One comment argued that the interpretation of section 520(e) of
the act that FDA is advancing in this proceeding is contrary to the
interpretation that the agency offered in imposing restrictions on
hearing aids in 1977. The comment pointed out that FDA stated at that
time: ``The Commissioner notes, however, that the [Act] regulates the
safety * * * of the [device] itself'' (42 FR 9286 at 9287, February 15,
1977). The comment asserted that, for this reason, FDA concluded that
it could not prescribe competency standards for hearing health
professionals, fix the price of hearing aids, or control the
promotional practices of hearing aid dispensers, all matters that were
being handled by the Federal Trade Commission (FTC) (42 FR 9286 at
9287). The comment argued that, for the same reasons, FDA may not,
under section 520(e) of the act, regulate attire, contests, or athletic
or cultural events.
FDA does not agree that the hearing aid proceeding provides any
support for the view that the agency has been inconsistent in its
interpretation of section 520(e) of the act. In that proceeding, FDA
was aware that FTC had developed a proposed trade regulation rule that
included a prohibition of certain selling techniques (42 FR 9286 at
9287). FDA said that it was avoiding any duplication of effort with
FTC. Thus, it was not necessary for FDA to consider the extent of its
authority to specifically regulate selling techniques of hearing aid
dispensers.
Contrary to the comment's assertion, this proceeding is consistent
with the hearing aid proceeding. Although FDA did not duplicate FTC's
effort and directly regulate selling techniques, FDA imposed various
restrictions that were tailored to restrict inappropriate promotion of
hearing aids including requiring a medical evaluation before purchase
and distribution of a user instructional brochure. In the case of
cigarettes and smokeless tobacco, FDA is imposing restrictions that are
tailored to promotion of tobacco products to ensure that advertising
does not induce the use of cigarettes and smokeless tobacco by children
and adolescents under 18.
(10) Finally, several comments argued that FDA lacks statutory
authority for the advertising restrictions that it is imposing. Some of
these comments sought to analogize this rulemaking to American
Pharmaceutical Ass'n v. Weinberger, 377 F. Supp. 824, 831 (D.D.C.
1974), aff'd sub nom. American Pharmaceutical Ass'n v. Mathews, 530
F.2d 1054 (D.C. Cir. 1976) (per curiam). That case involved an attempt
by FDA to limit the distribution of methadone to certain designated
facilities under the drug authorities of the act. The court held that
the statutory drug authority did not authorize the agency to impose
these limitations on the distribution of methadone, even though
methadone posed unique problems of medical judgement, law enforcement,
and public policy.
FDA regards the American Pharmaceutical Ass'n case as a
questionable precedent. The case predates both the Supreme Court's
decision in Chevron U.S.A., Inc. v. Natural Resources Defense Council,
467 U.S. 837 (1984), and the Medical Device Amendments. In Chevron, the
Court stated that ``considerable weight should be accorded to an
executive department's construction of a statutory scheme it is
entrusted to administer * * *'' (467 U.S. at 844). Moreover, when
Congress enacted section 520(e) of the act, one of its objectives was
to provide FDA with precisely the kind of authority over medical
devices that the court found that the agency did not have over drugs in
American Pharmaceutical Ass'n. Thus, FDA now has explicit authority
under section 520(e) of the act to impose conditions on the sale,
distribution, and use of a medical device to prevent its misuse,
including the access and advertising restrictions in the final rule.
FDA is imposing controls on the sale of cigarettes and smokeless
tobacco to ensure that individuals under 18 will not be able to
purchase them. Further, to ensure that these controls on sale,
distribution, and use are not undermined, FDA has found that they must
include restrictions on how these products are advertised, so that
individuals under 18 are not encouraged to purchase or use them. These
actions are consistent with the language and purpose of section 520(e)
of the act.
4. Application of Other Device Authorities
As described in section II.C.2. of this document, FDA intends to
follow its normal course and apply the ``general controls'' provisions
of the Medical Device Amendments to cigarettes and smokeless tobacco
pending classification of these products. The general controls
authorized by the Medical Device Amendments include adulteration and
misbranding (sections 501 and 502 of the act), establishment
registration, device listing, and premarket notification (section 510),
labeling requirements (section 502), recordkeeping and reporting
requirements (section 519), and GMP (sections 501 and 520(f)).
(11) Tobacco industry comments claimed that FDA had ignored a
number of mandatory provisions of the act applicable to devices,
``presumably because they again recognize that those provisions would
mean the prohibition of tobacco sales.'' The comments also asserted
that FDA had picked and chosen among statutory provisions and had
misinterpreted Heckler v. Chaney, 470 U.S. 821 (1985), as authorizing
this selective regulatory approach. These comments also argued that FDA
had ignored section 520(a) of the act, which provides that the
adulteration, misbranding, and records and reports requirements are
applicable to devices until the applicability of these requirements is
changed by an action under the classification, premarket approval,
standard-setting, or investigational device provisions of the act.
The agency disagrees with these comments. FDA is applying to
cigarettes and smokeless tobacco the general controls applicable to all
devices.
In the following discussion, the agency elaborates on the
applicability of the general controls provisions to

[[Page 44410]]

cigarettes and smokeless tobacco, and on matters the agency has
reconsidered in response to comments (the applicability of labeling
requirements to cigarettes and smokeless tobacco is discussed in
sections V. and VI. of this document). Overall, FDA believes that it
has developed a regulatory system for cigarettes and smokeless tobacco
that is consistent with the statutory scheme and the record of this
rulemaking.
a. Adulteration and misbranding. Cigarettes and smokeless tobacco
will be subject to the adulteration and misbranding provisions in
sections 501 and 502 of the act, and the implementing regulations, with
one exception that is permitted by statute. Section 502(f) of the act
authorizes the agency to grant exemptions from section 502(f)(1) of the
act under certain circumstances. As described in section V.E. of this
document, FDA has determined that an exemption from section 502(f)(1)
of the act is appropriate for cigarettes and smokeless tobacco. In
addition, section VI.E.6. of this document also contains a more
detailed description of the applicability of specific labeling
requirements to cigarettes and smokeless tobacco.
The adulteration and misbranding provisions are largely self-
executing and do not require the agency to impose requirements by
regulation.
b. Device registration and listing. Section 510 of the act and part
807 (21 CFR part 807) of the regulations require that device
manufacturers and importers register their establishments with the
agency. Every year an annual registration form is sent to all
registered establishments to be completed and returned to the agency
(Sec. 807.22(a)). Any significant changes of information to the
original must be reported to FDA within 30 days of the change
(Sec. 807.26).
Manufacturers are also required to list their devices that are in
commercial distribution in the United States (part 807). Foreign
manufacturers may, but are not required to, register (Sec. 807.40).
However, they are required to list their devices (Sec. 807.40(b)).
Manufacturers are required to update their listing if there are
significant changes to listing information.
Manufacturers of cigarettes and smokeless tobacco will be subject
to the establishment registration and device listing requirements in
section 510 of the act and part 807 of FDA's regulations. The
application of these provisions to cigarettes and smokeless tobacco
derives from their status under the device provisions of the act and
does not require rulemaking by the agency.
Section 510(k) of the act requires submission of a premarket
notification to the agency whenever a manufacturer markets a device for
the first time, whenever there is a major change in the intended use of
an already marketed device, or whenever an already marketed device is
to be modified in a way that could significantly alter its safety or
effectiveness (Sec. 807.81). The device may not be commercially
distributed unless the agency issues an order finding the device
substantially equivalent to one or more predicate devices already
legally marketed in the United States for which premarket approval is
not required (section 513(i) of the act (Sec. 807.100), or unless the
agency approves a premarket approval application for a device subject
to an approval requirement under section 515 of the act (21 U.S.C.
360(e)). Substantial equivalence means that a device has the same
intended use and the same technological characteristics as the
predicate device; or has the same technological characteristics, but it
can be demonstrated that the device is as safe and effective as the
predicate device and does not raise different questions regarding
safety and effectiveness (section 513(i) of the act). The premarket
notification submission must include either a summary of the safety and
effectiveness information upon which a substantial equivalence
determination may be based, or state that safety and effectiveness data
will be made available to anyone upon request (section 513(i)(3)(A) of
the act (21 U.S.C. 360c(i)(3)(A)), and Secs. 807.87(h) and 807.92).
c. Records and reports. Section 519 of the act contains several
requirements relating to the keeping of records and making of reports
on devices. In addition to implementing the specific requirements of
the act, the agency has used its authority under section 519 of the act
to issue several regulations. As nicotine delivery devices, which are
drug-device combination products that FDA is regulating under its
device authorities, cigarettes and smokeless tobacco are subject to the
requirements of section 519 of the act and the implementing regulations
unless otherwise exempted.
Section 519(a) of the act requires manufacturers, importers, and
distributors of devices to establish and maintain records, and make
reports and other information available to the agency, to ensure that a
device is not adulterated or misbranded and to otherwise ensure its
safety and effectiveness. Similarly, section 519(b) of the act requires
medical device user facilities to make reports to device manufacturers
and the agency when they become aware of information suggesting that a
device has caused or contributed to a death, serious injury, or serious
illness. Under this authority, the agency has issued part 803 (21 CFR
part 803), on medical device reporting, and part 804 (21 CFR part 804),
on medical device distributor reporting (the MDR requirements). These
regulations were recently amended by a final rule published in the
Federal Register of December 11, 1995 (60 FR 63578) (the 1995 reporting
requirements final rule), reflecting changes in the reporting
requirements of section 519 of the act that were mandated by the SMDA
and the Medical Device Amendments of 1992.
The 1995 proposed rule would have amended parts 803 and 804 to
exempt cigarettes and smokeless tobacco from the MDR requirements.
These proposed exemptions were based on the fact that ``the adverse
health effects attributable to cigarettes and smokeless tobacco
products are extensive and well-documented'' (60 FR 41314 at 41342).
The agency stated that it did not anticipate any real benefit in
requiring manufacturers and distributors of these products to report
such information (Id.).
(12) The agency received several comments criticizing this proposed
exemption. One comment from a trade association stated that, although
it disagreed with the agency's classification of cigarettes as medical
devices, the agency had no authority to exempt manufacturers from this
reporting requirement. This trade association also stated that, because
the agency has concluded that cigarettes are not safe for individual
users, this exemption cannot be reconciled with the standard under
section 519(c) of the act for exempting this product. (Section
519(c)(3) of the act provides for exemptions upon a finding that
compliance with recordkeeping and reporting is not necessary to ensure
that a device is not adulterated or misbranded or to otherwise ensure
its safety and effectiveness.) Another trade association claimed that
the agency did not follow the proper exemption procedures under the
act. A trade association also noted that the agency did not propose to
require such user facility reports for cigarettes and also noted that
such reports are not ``suitable'' for cigarettes.

[[Page 44411]]

In view of these comments, the agency has reconsidered its
tentative position regarding the application of the MDR requirements in
parts 803 and 804. The adverse health effects attributable to these
products are extensive and well-documented. As a result, the cost of
processing the enormously high volume of MDR reports related to the use
of cigarettes and smokeless tobacco would likely be prohibitive in
light of the small benefit to be gained from reports documenting
adverse health effects already known to the agency.
Nevertheless, there would be a benefit to receiving information
regarding adverse events that are not well-documented and thus, not
well-known or anticipated. Therefore, the agency has determined that it
will require MDR reporting in certain limited circumstances, and is
amending Secs. 803.19 and 804.25 of its regulations to make this clear.
In the preamble to the 1995 reporting requirements final rule, the
agency clarified that it may grant a written exemption, variance, or
alternative to some or all of the MDR requirements ``when it determines
compliance with all MDR requirements is not necessary to protect the
public health'' (60 FR 63578 at 63592). The agency cited, as an example
for an appropriate exemption, devices for which ``adverse events that
are known and well documented, are occurring at a normal rate, and do
not justify the initiation of remedial action * * *'' (Id.).
To limit the volume of reports that could otherwise be required,
the agency is modifying the MDR requirements for adverse events
relating to tobacco. The agency has added Sec. 803.19(f) to the
regulation's ``Exemption, variances, and alternative reporting
requirements'' section in order to limit the medical device reports
concerning cigarettes and smokeless tobacco; specifically, new
paragraph (f) requires reports from manufacturers only for those
adverse events related to contamination, a change in any ingredient or
any manufacturing process, or any serious adverse event that is not
well-known or well-documented by the scientific community.
The agency notes that user facilities are not likely to have direct
knowledge of even these limited adverse events required to be reported
by manufacturers. Therefore, the agency is adding Sec. 897.19(g) to
exempt user facilities from the MDR requirements relating to cigarettes
and smokeless tobacco.
For similar reasons, FDA is also modifying the MDR requirements for
distributors of cigarettes and smokeless tobacco. Because distributors
handle these products, break open cartons, and even affix the tax
stamp, the agency believes that distributors could be responsible for,
or aware of, contamination of these products. The agency does not
believe, however, that distributors are likely to have direct knowledge
of any change in ingredient or manufacturing process or any serious
adverse event that is not well-known or well-documented by the
scientific community. Therefore, the agency is limiting the MDR
requirements for distributors to require reports concerning cigarettes
and smokeless tobacco only for adverse events relating to
contamination.
The agency notes that it has granted similar variances in the past
for circumstances that justify modifications to the MDR requirements
and has issued guidance that establishes criteria for modified
reporting. Examples where reporting has been modified include events
involving health care professionals being stuck by needles and certain
events involving defibrillators. These modifications were made in order
to clarify which events would provide valuable information to the
agency given the inherently risky circumstances surrounding the use of
these devices. A variance from the MDR requirements has also been
granted to the manufacturers of breast implants in order to limit the
frequency of reports for events already known to the agency.
(13) Industry comments also questioned why FDA had not proposed to
apply device tracking and premarket surveillance provisions to
cigarettes and smokeless tobacco. Section 519(e) of the act, governing
device tracking, applies only to products that are permanently
implantable, life-sustaining or life-supporting, or have been
designated by the agency to be tracked. Cigarettes and smokeless
tobacco do not fall within the first two categories, and the agency has
not designated them for tracking.
For the reasons cited in the previous discussion of 519(e) of the
act, postmarket surveillance will not be required unless, at a future
date, the agency specifically designates these products under section
522 of the act (21 U.S.C. 360l).
Section 519(f) of the act, which requires FDA to issue regulations
to require reports on device removals and corrections, will apply to
manufacturers, importers, and distributors of cigarettes and smokeless
tobacco. To implement section 519(f) of the act, FDA issued a proposed
rule in the Federal Register of March 23, 1994 (59 FR 13828), that
would require manufacturers, importers, and distributors of devices to
report promptly to FDA any corrections or removals of a device
undertaken to reduce a risk to health posed by the device or to remedy
a violation of the act caused by the device which may present a risk to
health. The agency expects that the final rule will publish in 1996.
This rule will apply to removals and corrections of medical devices
including cigarettes and smokeless tobacco.
d. GMP. In the preamble to the 1995 proposed rule, FDA specifically
recognized that the GMP regulations may be appropriate for tobacco
products (60 FR 41314 at 41352). In this final rule, FDA is requiring
that the manufacturers of cigarettes and smokeless tobacco comply with
GMP regulations in part 820 (21 CFR part 820), which the agency is
currently revising. (See 58 FR 61952, November 11, 1993.) Application
of GMP's to cigarettes and smokeless tobacco will assist the tobacco
industry in avoiding such situations as the recall of Marlboros in 1995
because of a contamination mishap in processing and, in such cases, may
advance public health by reducing to some degree the overall risk
associated with these products.
(14) A comment from a tobacco trade association urged that FDA
provide ample time for compliance with GMP and requested a 2-year
period for compliance.
FDA recognizes that manufacturers will need an adequate amount of
time to comply with GMP requirements and is accepting the suggestion in
the comment by adopting a 2-year period for compliance. The tobacco
industry already has a sophisticated approach to quality control with
the production of their products. Thus, much of what is required to
meet the requirements of part 820 appears to be in place already, and
therefore, 2 years should be a sufficient time for compliance.
(15) In response to comments from tobacco distributors expressing
concern about present or future applicability of the GMP regulations,
FDA advises that it is exempting distributors from part 820. The agency
has decided to amend part 820 by adding a new Sec. 820.1(f) to exempt
distributors from the requirement of complying with GMP regulations
because it has concluded that compliance with GMP requirements

[[Page 44412]]

by distributors is not necessary to assure that these devices will be
safe and effective or otherwise in compliance with the act.
5. FDA Will Classify Cigarettes and Smokeless Tobacco Under Section 513
of the Act
In addition to applying the general device authorities previously
described to cigarettes and smokeless tobacco, the agency will classify
cigarettes and smokeless tobacco under section 513 of the act. The
agency relies on classification to determine what level of control of
the device is required to provide a reasonable assurance of safety and
effectiveness. For devices classified into class I, general controls
(sections 501, 502, 510, 516, 518, 519, and 520 of the act (21 U.S.C.
351, 352, 360, 360f, 360h, 360i, and 360j, respectively)) are
sufficient to provide a reasonable assurance of safety and
effectiveness. For devices classified into class II, special controls
(such as performance standards under section 514 of the act (21 U.S.C.
360d)) are needed in addition to the general controls to provide a
reasonable assurance of safety and effectiveness. For devices
classified into class III (premarket approval), neither general nor
special controls are sufficient to provide a reasonable assurance of
safety and effectiveness, without the added safeguard of premarket
approval. Therefore, these devices are subject to ``premarket
approval'' under section 515 of the act.
The process of classification is an important component of device
regulation, but it includes numerous procedural steps and thus cannot
be part of this final rule. Under section 513 of the act, FDA is
required to convene or use a classification panel, which should consist
of experts who ``possess skill in the use of, or experience in the
development, manufacture, or utilization of,'' the device and who
provide ``adequately diversified expertise in such fields as clinical
and administrative medicine, engineering, biological and physical
sciences, and other related professions'' (section 513(b)(2) of the
act). The classification panel is required to ``provide an opportunity
for interested persons to submit data and views on the classification''
and, after consideration of these data and views, to submit to FDA its
``recommendation for the classification of the device'' (section
513(c)(1) and (c)(2) of the act). Upon receipt of the panel
recommendation, FDA must publish in the Federal Register ``the panel's
recommendation and a proposed regulation classifying such device'' and
provide interested persons ``an opportunity to submit comments on such
recommendation and the proposed regulation'' (section 513(d) of the
act). After reviewing the comments, FDA must classify the device ``by
regulation'' (Id.).
As required by section 513 of the act, FDA will, in a future
rulemaking, classify cigarettes and smokeless tobacco in accordance
with the procedures in section 513 of the act. Without prejudging that
proceeding, the agency recognizes that it will involve consideration of
both the known risks of tobacco products and the public health concerns
that could be raised by withdrawal from the market of cigarettes and
smokeless tobacco to which many adults are addicted. Moreover, the
agency's restrictions on access and advertising in this final rule,
which are carefully designed to help prevent young people from becoming
addicted, will need to be factored in as well.
Consistent with the statute and the agency's normal practice,
however, FDA is not postponing regulation of cigarettes and smokeless
tobacco under its general authorities pending classification. Such a
postponement would serve no useful purpose, because the general
authorities will be applicable to cigarettes and smokeless tobacco
regardless of the outcome of the classification proceeding. To the
contrary, postponing application of FDA's general authorities would
have adverse consequences for public health because, during the several
years that it may require to complete classification, the applicability
of the controls put in place by this final rule, as well as the
registration, GMP, and other general controls discussed in this
document, would be delayed with respect to cigarettes and smokeless
tobacco. During this period, millions of children and adolescents would
be likely to use cigarettes and smokeless tobacco for the first time
and, in the absence of FDA regulation under its general authorities,
become addicted to these dangerous products.
The tobacco industry argues that FDA cannot classify cigarettes and
smokeless tobacco because, given ``FDA's view of the health effects''
of cigarettes and smokeless tobacco, classification would inevitably
lead to a ban of the products. According to the industry, FDA cannot
classify cigarettes under class I or class II because neither the
general nor the special controls will provide what FDA will regard as a
reasonable assurance of safety, leaving FDA with only one option: To
classify cigarettes and smokeless tobacco under class III. According to
the industry, classifying cigarettes and smokeless tobacco under class
III would lead to a ban of cigarettes and smokeless tobacco because FDA
cannot grant premarket approval of a class III device until it is
satisfied that there is reasonable assurance that the device is safe.
The tobacco industry argues that the inability of FDA to classify
cigarettes and smokeless tobacco without triggering a ban of the
products demonstrates that the act was never intended to apply to
cigarettes and smokeless tobacco.
It would not be appropriate for FDA to make a final determination
at this time as to whether the application of all appropriate
regulatory controls identified in a classification proceeding would
result in a reasonable assurance of safety and effectiveness for
cigarettes and smokeless tobacco for any users. This determination must
await completion of the classification process and of any regulatory
steps identified in the classification process (section 513 of the
act). Nonetheless, it seems clear that the best public health result is
one that prevents access to tobacco products by children and
adolescents while allowing their continued availability for adults.
Moreover, the agency disagrees with industry comments that argue that
it does not have the authority to permit the sale of tobacco products
to adults because the agency has found that tobacco products are
unsafe.
In considering this issue, the agency reiterates that tobacco
products are dangerous. As discussed more fully in section I. of this
document and in the preamble to the 1995 proposed rule, cigarettes and
smokeless tobacco cause great pain and suffering from illness, such as
cancer, respiratory illnesses, and heart disease. More than 400,000
people die each year as a result of tobacco use. \23\
---------------------------------------------------------------------------

\23\ ``Cigarette Smoking-Attributable Mortality and Years of
Potential Life Lost--United States, 1990,'' MMWR, CDC, vol. 42, No.
33, pp. 645-649, 1993.
---------------------------------------------------------------------------

If the act required that the agency limit its consideration to the
risks of tobacco products, then it could not find that there is a
reasonable assurance of safety. To the contrary, tobacco products are
unsafe, as that term is conventionally understood. However, as
reflected in the act and in judicial decisions, the determination as to
whether there is a ``reasonable assurance of safety'' involves
consideration of not only the risks presented by a product but also any
of the countervailing effects of use of that product, including the
consequences of

[[Page 44413]]

not permitting the product to be marketed. Thus, section 513(a)(2)(C)
of the act declares that, with respect to safety and effectiveness, the
agency must ``weigh[] any probable benefit to health from the use of
the device against any probable risk of injury or illness from such use
(see also 21 CFR 860.7(d)(1)). According to the legislative history of
the Medical Device Amendments, ``[the reasonable assurance of safety
standard] is predicated upon the recognition that no regulatory
mechanism can guarantee that a product will never cause injury''
because ``[r]egulation cannot eliminate all risks but rather must
eliminate those risks which are unreasonable in relation to the
benefits derived'' (H. Rept. 94-853, 94th Cong., 2d sess., 16, 17
(1976); see also United States v. Rutherford, 442 U.S. 544, 555
(1979)).
An example of the balancing of risks of using a product against the
risks of not using a product can be found in the agency's approval of a
number of drugs used in the treatment of various cancers. These drugs
are highly toxic to patients who receive them, and in approving these
drugs for chemotherapy, FDA balances the seriousness of the diseases
these drugs were intended to treat against the drugs' toxicity. In
cases where the risks of not treating the cancer outweighed the risks
of the drugs, FDA has approved these products.
Similarly, in the case of tobacco products, the agency must weigh
the risks of leaving cigarettes and smokeless tobacco on the market
against the risks of removing these products from the market. For
children and adolescents, the serious health consequences of using
tobacco products support an approach designed to reduce their use, as
all 50 States and many of the tobacco companies themselves recognize.
It is also relevant that many children who use tobacco products are in
the period of initiation and are not addicted, and thus a prohibition
of the sale and promotion to this segment of the population will
effectively reduce their use of tobacco products. Although some
children and adolescents are addicted to tobacco products, the agency
has concluded that the approach that most effectively takes into
account the health of young people is one that prohibits the sale and
promotion of tobacco products to children and adolescents under 18
years of age.
The issue is more difficult with respect to adults, particularly
adults who are addicted to cigarettes and other tobacco products. There
are approximately 50 million Americans who currently smoke and another
6 million who use smokeless tobacco. \24\ It is particularly relevant
that 77 to 92 percent of all smokers are addicted \25\ and that a
substantial number of all users of smokeless tobacco are addicted. \26\
---------------------------------------------------------------------------

\24\ ``National Household Survey on Drug Abuse: Population
Estimate 1993,'' DHHS, PHS, SAMHSA, Office of Applied Studies,
Rockville, MD, Pub. No. (SMA) 94-3017, pp. 89 and 95, 1994.
\25\ 1996 Jurisdictional Determination, section II(B)(2)(a).
\26\ Id.
---------------------------------------------------------------------------

The agency believes that these factors must be considered when
developing a regulatory scheme that achieves the best public health
result for these products. The sudden withdrawal from the market of
products to which so many millions of people are addicted would be
dangerous. First, there could be significant health risks to many of
these individuals. Second, it is possible that our health care system
would be overwhelmed by the treatment demands that these people would
create, and it is unlikely that the pharmaceuticals available could
successfully treat the withdrawal symptoms of many tobacco users.
Third, the agency also believes that, given the strength of the
addiction and the resulting difficulty of quitting tobacco use, a black
market and smuggling would develop to supply smokers with these
products. \27\ It also seems likely that any black market products
would be even more dangerous than those currently marketed, in that
they could contain even higher levels of tar, nicotine, and toxic
additives. \28\
---------------------------------------------------------------------------

\27\ That a black market and smuggling will occur can be
predicted by examining the current situation with illegal drugs in
the United States and past experience with prohibition of respect to
alcoholic beverages. In both situations, individuals continued using
the products. Moreover, in the case of cigarettes, even increased
cost due to tax disparities can lead to smuggling and black markets.
S. Rept. 95-962, 95th Cong., 2d Sess., (June 28, 1978); Joossens,
L., and M. Raw, ``Smuggling and Cross Border Shopping of Tobacco in
Europe,'' British Medical Journal, vol. 310, May 27, 1995.
\28\ Such has been the case with illegally produced alcohol. See
``Elevated Blood Lead Levels Associated with Illicitly Distilled
Alcohol--Alabama, 1990-1991,'' MMWR, CDC, DHHS, vol. 41, No. 17, pp.
294-295, 1992; Pegues, D. A., B. J. Hughes, C. H., Woernle,
``Elevated Blood Lead Levels Associated with Illegally Distilled
Alcohol,'' Archives of Internal Medicine, vol. 153, pp. 1501-1504,
1993.
---------------------------------------------------------------------------

Whether individuals who use these products have an opportunity to
make an informed choice is also relevant. Most individuals who use
these products begin as children and adolescents, at an age when they
are not prepared for or equipped to make a decision that for many will
have lifelong consequences.
In contrast, adults generally have the capacity to make informed
decisions. In the case of cigarette and smokeless tobacco, very few
adults who have not used tobacco as children and adolescents choose to
use these products as adults. \29\ Unfortunately, for the many
individuals who have become addicted, their capacity to choose whether
to use cigarettes or smokeless tobacco in large measure no longer
exists. Thus, the agency must take their addiction into consideration
when developing its regulatory scheme.
---------------------------------------------------------------------------

\29\ 1994 SGR, pp. 5, 58, and 65-67.
---------------------------------------------------------------------------

Serious health consequences follow both from the option of leaving
tobacco products on the market and from the option of banning tobacco
products. However, on balance, an approach that prohibits the sale and
promotion of cigarettes and smokeless tobacco to children and
adolescents, while permitting the sale to adults seems most
appropriate. It is consistent with the statutory standard of reasonable
assurance of safety and is more effective in achieving public health
goals than a ban on all tobacco products. Therefore, FDA is adopting
this approach in this final rule.
There is also a basis for finding that these products are
``effective'' for adults who are addicted to tobacco products because
such products sustain with great efficacy the individual's continued
need for the active ingredient nicotine. Tobacco products are effective
for preventing withdrawal symptoms in individuals addicted to nicotine
in much the same way that methadone is effective in preventing
withdrawal.
Section 516 of the act supports this analysis. Section 516 of the
act is the provision that gives the agency the authority to ban medical
devices. Under that provision, the agency ``may'' ban a device if it
finds that the device presents ``an unreasonable and substantial risk
of illness or injury.'' There are two elements of discretion which
plainly allow the agency to leave these products on the market--the
word ``may'' which applies to the entire banned device authority; and
the standard of ``unreasonable * * * risk of illness or injury,'' which
gives the agency ample discretion to balance the unique circumstances
surrounding this product.

[[Page 44414]]

D. The Fact That the Act's Drug Authorities Authorize the Imposition of
Similar Restrictions Supports the Reasonableness of the Restrictions
That the Agency Has Imposed

(16) At least one tobacco industry comment argued that the agency's
proposed access and advertising restrictions were an affront to
``common sense''--i.e., that the types of restrictions the agency had
proposed, under the device provisions of the act, went well beyond what
the plain language of the act could be read to support. The agency,
however, could have chosen to impose similar restrictions using the
act's drug authorities. As this section demonstrates, the agency has
restricted the marketing of a number of drug products, using the
adulteration, misbranding, and marketing provisions governing drug
products. That similar restrictions can be invoked under either the
act's device authorities or under the act's drug authorities supports
the reasonableness of restrictions adopted in the final rule.
As discussed in the 1995 proposed rule and in sections II.A. and B.
of this document, cigarettes and smokeless tobacco are drug delivery
systems--i.e., they combine a drug component and a device component in
a single combination product (60 FR 41314 at 41347 through 41349). As
such, cigarettes and smokeless tobacco are subject to regulation under
the device provisions of the act, the drug provisions of the act, or a
combination of the two. The agency has determined that it should use
the act's device authority to regulate these products because the
device provisions of the act offer the agency greater regulatory
flexibility than do the drug provisions of the act (see section II.B.
of this document and the 1995 proposed rule at 60 FR 41314 at 41347
through 41349). However, if there were no device component to
cigarettes and smokeless tobacco, or if the agency had chosen to
regulate these combination products under the act's drug authorities,
the agency nevertheless could have limited the access to and
advertising of these products in order to protect children and
adolescents.
Although the agency's authority to impose access restrictions on a
drug product is not as explicit as it is under the device provisions of
the act (see section 520(e) of the act authorizing controls over the
``sale, distribution, or use'' of a device to protect against a
potentially harmful or unsafe use), the agency has in fact drawn from
several statutory sources to achieve some of the same regulatory
results for a drug. The agency routinely imposes restrictions to
protect against unsafe uses of drug products--even where those uses are
otherwise unlawful, wholly irrational, or in contravention of express
warnings. From the time of the product's development and manufacture
through its retail sale, the agency is authorized to ensure that drug
products are neither unsafe, misbranded, nor adulterated. (See sections
201(n), 301, 501, 502, 503 and 505 of the act; United States v.
Sullivan, 332 U.S. 689, 696 (1948) (Congress intended ``to safeguard
the consumer by applying the Act to articles from the moment of their
introduction into interstate commerce all the way to the moment of
their delivery to the ultimate consumer'').)
Consistent with this broad grant of authority, Congress also
authorized the agency to issue regulations for the ``efficient
enforcement'' of the act, such as regulations that set forth the
conditions under which a drug must be marketed to ensure that it will
not be deemed violative of the act (see section 701(a) of the act (21
U.S.C. 371); United States v. Nova Scotia Food Products Corp., 568 F.2d
240, 246 (2d Cir. 1977); and Pharmaceutical Manufacturers Association
v. FDA, 484 F. Supp. 1179, 1183 (D. Del. 1980) (FDA has broad authority
to issue drug regulations reasonably related to the public health
purposes of the act, so long as the regulations further congressional
objectives evidenced elsewhere in the act)).
With this authority, the agency has imposed restrictions on the
advertising, labeling, and packaging of drug products, as well as
restrictions on access to drug products, without which the products
could not be lawfully marketed. For example, the agency has used its
authority to ensure that drug products are not adulterated to require
special packaging requirements for over-the-counter (OTC) drugs, to
protect against product tampering (see 47 FR 50442 at 50447, November
5, 1982); Sec. 211.132 (21 CFR 211.132)). Thus, the agency has imposed
industry-wide packaging requirements to protect against product
contamination as well as unintended, unsafe uses of drug products.
(Compare Sec. 897.14(d) (prohibiting retailers from breaking open
cigarette and smokeless tobacco packages to sell loose cigarettes or
smokeless tobacco).)
Similarly, the agency has authority to control carefully the
package size of drug products to protect persons who fail to follow the
directions from taking a lethal dose of the product (see 60 FR 52474 at
52491, 52502, and 52503, October 6, 1995, and Sec. 355.20 (21 CFR
355.20) (final monograph setting package size limitations on OTC
anticaries drugs to prevent individuals from ingesting an acutely toxic
dose)). (Compare Sec. 897.16(b) (setting minimum package size for
cigarettes).)
Along the same lines, the agency has used its authority to ensure
that drugs are not misbranded to restrict the marketing of certain drug
products where consumers simply were unable or unwilling to heed the
warnings on these products. In some instances, the agency has banned
altogether the marketing of persistently misused drug products. (See,
e.g., 47 FR 41716 at 41719, September 21, 1982 (camphorated oil
products deemed misbranded because, despite label warnings, consumers
continued to misuse the product); 47 FR 34636, August 10, 1982
(proposing withdrawal of all drugs containing phenacetin because of
persistent abuse, and associated health risks, despite label warnings
contained on those products).) In other instances, the agency has
restricted the product to prescription use. (See, e.g., Sec. 250.12 (21
CFR 250.12) (requiring prescription dispensing of OTC stramonium
preparations because, despite package warnings, young people continued
to abuse and misuse them); Sec. 250.100 (21 CFR 250.100) (switching
amyl nitrite inhalant from OTC to prescription dispensing because of
persistent off-label use and abuse); see also 60 FR 38643, July 27,
1995 (proposing to restrict ephedrine drug products to prescription
marketing because of the illicit use of OTC ephedrine in the
manufacture of certain controlled substances).)
Finally, the agency has approved drug products with strict limits
on distribution, to ensure that the drug will be safe for use under the
conditions, prescribed, recommended, or suggested in the product's
labeling. For example, the drug Clozaril (clozapine), used in
the treatment of schizophrenia, can cause the onset of a potentially
fatal blood condition, agranulocytosis. However, early detection of
agranulocytosis through routine blood testing can substantially reduce
the risk of death. FDA, therefore, approved the drug with labeling that
provides that the drug is available ``only through a distribution
system that ensures weekly [white blood cell] testing prior to delivery
of the next week's supply of

[[Page 44415]]

medication.'' \30\ This labeling was intended to ensure that
Clozaril would not continue to be administered to those for
whom it presents an unreasonable risk of harm. The marketing of
Clozaril in contravention of the labeling would result in the
product being deemed misbranded and subject to regulatory action. More
recently, the agency issued regulations authorizing generally
restrictions on the distribution of drug products in instances where
``a drug product shown to be effective can be safely used only if
distribution or use is restricted * * *'' (see Sec. 314.520 (21 CFR
314.520)). (Compare Sec. 897.16 (setting conditions on the manufacture,
sale, and distribution of cigarettes and smokeless tobacco);
Sec. 897.14(b)(1) (requiring retailers to verify the consumer's age to
ensure that the product will not be used by minors) Sec. 897.16(c)(1)
(prohibiting use of self-service displays at retail establishments).)
\31\
---------------------------------------------------------------------------

\30\ Clozaril (clozapine tablets) product labeling,
Sandoz Pharmaceuticals, March 1994, in Physician's Desk Reference,
50th edition, p. 2252, 1996.
\31\ ``The Federal Food, Drug, and Cosmetic Act provides
authority for FDA to restrict the conditions for use, including the
channels of distribution and use, of any drug, or withdraw approval
of an NDA, if a drug cannot otherwise safely be used'' (H. Rept. No.
93-884, 93d Cong., 2d Sess., p.4, 1974, reprinted in U.S. Cong. &
Admin. News, pp. 3029-3032). But see American Pharmaceutical Ass'n
v. Weinberger, 377 F.Supp. 824, 829 (D.D.C. 1974) (striking down an
FDA regulation restricting the distribution of methadone), aff'd per
curiam sub nom. American Pharmaceutical Ass'n v. Mathews, 530 F.2d
1054 (D.C. Cir. 1976). The American Pharmaceutical Ass'n case,
however, was decided before the emergence of cases such as Chevron
U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837
(1984), in which the Court signaled the importance of deferring to
an agency's interpretation of its own statute, provided the
interpretation is sufficiently rational. The case also involved some
unique circumstances: the agency had withdrawn approval of the NDA
for the drug (methadone), but nevertheless permitted the drug to be
marketed under a regulation to certain treatment programs and
pharmacies. Also, because methadone is a controlled substance within
the provisions of the Controlled Substances Act, the district court
concluded that issues regarding restrictions on the distribution of
the drug were more properly within the jurisdiction of the
Department of Justice than FDA. In most other instances, however,
where a drug is not subject to the Controlled Substances Act, and
where certain marketing restrictions are necessary to ensure that
the drug will be used safely and effectively, under the conditions
contemplated in a new drug application, the American Pharmaceutical
Ass'n case is distinguishable.
---------------------------------------------------------------------------

These examples illustrate how the agency has interpreted sections
501, 502, 503, and 505 of the act (in conjunction with sections 201(n),
301, and 701(a) of the act) as authorizing an array of controls to
prevent unsafe uses of drug products. The minimum age requirement for
cigarettes and smokeless tobacco (see Sec. 897.14(a)), and the controls
on packaging (see Secs. 897.14(d) and 897.16(b) and (d)), vending
machine sales (see Secs. 897.14(b) and 897.16(c)), and self-service
displays (see Secs. 897.14(c) and 897.16(c)), follow this same path.
Without these restrictions, cigarettes and smokeless tobacco as drug
products could be deemed misbranded or adulterated drug products and
could present too great a safety risk to be marketed at all.
The final rule also regulates the advertising used to promote
cigarettes and smokeless tobacco (see Secs. 897.30, 897.32, and
897.34). While the act's device provisions provide the most direct and
extensive basis for regulating the advertising of these products (see
section VI. of this document), the drug provisions of the act also
would have allowed the agency to regulate the advertising of these
products.
Whether a drug is marketed on a prescription basis or OTC, the
agency has authority to prohibit advertising that promotes the product
for a use for which it would be unapproved or misbranded (see sections
201(n), 301, 502, and 505 of the act; see also Sec. 201.128 (21 CFR
201.128) (advertising of a drug product may be used to establish that
the product is being marketed for a use for which it is neither labeled
nor approved)). Though the agency generally will defer to FTC with
respect to the advertising of OTC drugs (see Food and Drug
Administration and Federal Trade Commission Memorandum of Understanding
(36 FR 18539, September 16, 1971)), the agency retains authority to
take action against an OTC drug that is promoted for an unapproved use.
(See Sec. 330.1(d) (21 CFR 330.1(d)) (for an OTC drug to be generally
recognized as safe and effective, and not misbranded, the advertising
for the drug must not prescribe, recommend, or suggest its use under
conditions not stated in the labeling); see, e.g., Sec. 310.519 (21CFR
310.519) (prohibiting the marketing of any OTC drug that is ``labeled,
represented, or promoted as an OTC daytime sedative (or any similar or
related indication)''.)
The agency also has authority to require that a drug product not be
advertised in a manner that would undercut or counteract the product's
labeling, including label-based warnings. (See McNeilab, Inc. v.
Heckler, Food Drug Cosm. L. Rep. (CCH 1985) (Transfer Binder)
para.38,317, p. 39, 787 (D.D.C. 1985) (while FDA ``cannot rely on
advertising to make safe [an OTC] drug which is deemed too dangerous to
be sold with label warnings alone,'' it would be ``proper for the
agency * * * to ensure that ads do not undercut otherwise sufficient
labeling''); see also 57 FR 13234 at 13237, April 15, 1992 (preamble to
Accelerated Approval Regulations discussing requirement of submission
of promotional materials to ensure that the drugs approved under this
section will not be put to inappropriate or unsafe uses).) And,
irrespective of whether a drug is marketed OTC or by prescription, the
agency has authority to prohibit the distribution of ``false or
misleading'' product ``labeling'' (see section 502(a) of the act).
Last, had the agency chosen to use the act's drug authorities to
regulate these products, one possible means of limiting their access
would have been to require some form of prescription dispensing. In
that case, the agency's authority to regulate the advertising of
cigarettes and smokeless tobacco would be extensive (see section 502(n)
of the act; Sec. 202.1 (21 CFR 202.1); Sec. 314.81(b)(3)(i) (21 CFR
314.81(b)(3)(i))). The agency, for example, has discretion under the
act to regulate both the presentation and format of prescription drug
advertising. According to the House Conference Report on section 502(n)
of the act, Congress contemplated that:
[I]n administering the requirement contained in the conference
substitute that advertisements contain brief summaries of side
effects, etc., the Secretary under the conference substitute has
sufficient discretion to exercise due regard to the size of the
advertisement, the need for protecting the public health, and the
conditions for which the drug is offered in the advertisement.
(Report of the Committee of Conference, H. Conf. Rept. 2526, 87th Cong.
2d sess., (Oct. 3, 1962) reprinted in 1962 U.S. Code Cong. and Admin.
News 2927, 2934 (emphasis added).)
Further, the agency may take action against a prescription drug
advertisement to the extent it lacks ``fair balance'' or is otherwise
``false or misleading'' (see sections 201(n), 502(a), and (n) of the
act; Sec. 202.1 (21 CFR 202.1)). Thus, had the agency chosen to
regulate these products as prescription drugs, the agency's existing
prescription drug advertising regulations themselves would require
significant changes to the content and format of the tobacco industry's
advertising campaigns.
The final concern--had the agency regulated these products as
drugs--is whether cigarettes and smokeless tobacco could continue to be
marketed to adults. As discussed in greater detail

[[Page 44416]]

in section II.C.5. of this document, there are compelling public health
reasons for permitting the continued marketing of these products to
adults. The same rationale would apply had these products been
regulated as drugs. As is the case with respect to devices, there is a
basis for concluding that an approach that prohibits the sale and
promotion of cigarettes and smokeless tobacco to children and
adolescents, yet allows these products to continue to be marketed to
adults who are addicted to these products, could be found to be
consistent with the statutory standard of ``safe'' and ``effective''
under section 505 of the act for these products.
It is, of course, essential to this analysis that the agency's
youth access restrictions in new part 897 be implemented. These
restrictions are necessary to help ensure that the most alarming safety
issue associated with these products will have been contained. Absent
these restrictions, the risks associated with the continued marketing
of these products, even to adults, may be overwhelming. The close issue
of whether the public health is better served by allowing adults to
continue to use these products, such that the agency could find that
cigarettes and smokeless tobacco are ``safe'' and ``effective,''
depends heavily on the agency's ability to prevent the most alarming
use of these products, namely, use by substantial numbers of children.
Moreover, the approach of allowing the continued marketing of these
products to adults, so long as youth access is carefully controlled,
would be consistent with the agency's inherent discretion to take
enforcement action against some uses of a drug product, but not others.
Such an exercise of discretion would be unreviewable (Heckler v.
Chaney, 470 U.S. 821 (1985)). \32\
---------------------------------------------------------------------------

\32\ See Cutler v. Hayes, 818 F.2d 879, 893 (D.C. Cir. 1987)
(``The FDC act imposes no clear duty upon FDA to bring enforcement
proceedings to effectuate either the safety or the efficacy
requirements of the Act''); Schering Corp. v. Heckler, 779 F.2d 683,
686 (D.C. Cir. 1985) (FDA's agreement not to take enforcement action
against an unapproved product for a period of 18 months was
unreviewable); see also Cutler v. Kennedy, 475 F.Supp. 838, 856
(D.D.C. 1979) (while FDA may not formally authorize the sale of
drugs that it has found do not comply with the safety and
effectiveness provisions of the act, the agency may use its
enforcement discretion not to move against these unapproved drug
products).
---------------------------------------------------------------------------

In resolving that there is a presumption against judicial review of
agency determinations not to take enforcement action, the Chaney Court
reasoned that an agency's nonenforcement policy generally involves a
complex weighing of factors ``peculiarly'' within the agency's
expertise. (Id. at 831). These factors include, ``whether agency
resources are best spent on this violation or another,'' ``whether the
agency has enough resources to undertake the action at all,'' and
``whether the particular enforcement action requested best fits the
agency's overall policies.'' (Id. at 831-832).
A decision by the agency to focus its resources on youth access to
cigarettes and smokeless tobacco involves the same ``ordering of
priorities''--i.e., the same balancing of agency-specific factors--on
which the rule crafted in Chaney rests. Thus, were the agency to
enforce the act only with respect to the promotion and sale of these
products to children and adolescents, such a decision would enjoy the
full force of the Chaney Court's presumption of nonreviewability. \33\
---------------------------------------------------------------------------

\33\ In a number of other contexts, the agency has declined to
take enforcement action against particular uses of unapproved drug
products. Indeed, the agency has on occasion set forth detailed
guidelines outlining the conditions under which it will, as a
general matter, refrain from taking regulatory action. (See, e.g.,
FDA Compliance Policy Guide, (CPG) 7132b.15 (stating that pending
completion of the OTC Drug Review, FDA generally will not take
regulatory action against unapproved or misbranded OTC drugs prior
to completion of a final monograph); CPG 7125.06 (setting conditions
exempting extra-label use of new animal drugs from regulatory
action); Regulatory Procedures Manual 9-71 (setting conditions under
which FDA generally will permit the import of small quantities of
unapproved drugs for personal use which are not available
domestically).)
---------------------------------------------------------------------------

Thus, while the agency finds that cigarettes and smokeless tobacco
are more appropriately regulated as restricted devices, as the
discussion in section II.C. of this document demonstrates, the agency
could have crafted a serviceable regulatory scheme for these products
under the drug provisions of the act. Contrary to the comments that
have argued that the act is inherently unfit for regulation of these
products, or that the agency's proposed restrictions exceeded the
common sense boundaries of the act, both the device provisions and the
drug provisions of the act provide sound authority for controlling the
access to and promotion of these drug delivery devices.

E. Constitutional Issues Regarding Authority

1. Separation of Powers
The doctrine of Separation of Powers refers to the distribution
under the Constitution of the Federal Government's powers among the
legislative, executive, and judicial branches. In particular, under
this scheme only Congress has the constitutional authority to make law.
(17) Numerous comments by industry, media, and retailer trade
associations and by State legislators and individuals argued that FDA's
assertion of jurisdiction over tobacco products supersedes Congress'
legislative judgment, and, some argued, therefore violates the doctrine
of Separation of Powers. The comments contended that Congress has
provided statutory authority over tobacco products to the Executive
Branch only under the statutes that it has enacted that expressly apply
to tobacco products, such as the Comprehensive Smokeless Tobacco Health
and Education Act (the Smokeless Act) (15 U.S.C. 4401 et seq.) and the
Federal Cigarette Labeling and Advertising Act (the Cigarette Act) (15
U.S.C. 1331 et seq.) and not at all under the act. The comments cited
the history of proposals in Congress further to regulate tobacco
products, none of which came to fruition, as evidence that Congress has
exercised its legislative will not to act further on tobacco
regulation.
The agency does not agree that the rule violates the Separation of
Powers Doctrine. The relevant legal standards are set out in Youngstown
Sheet and Tube Co. v. Sawyer, 343 U.S. 579 (1952), and Chrysler Corp.
v. Brown, 441 U.S. 281 (1979), which are cited in the comments. Justice
Black's opinion for the Court in Youngstown stands for the proposition
that the Executive Branch may not act unless authorized by the
Constitution or by statute to do so. In particular, lacking
Constitutional authority, the Executive Branch may act only under the
aegis of a statute passed by Congress under its ``law making power''
(see Youngstown, 343 U.S. at 585-586, 589).
Executive Branch agencies frequently act by rulemaking. In
Chrysler, the Supreme Court considered the prerequisite for an agency's
``legislative'' or ``substantive'' rules to have the ``force and effect
of law'' (see Chrysler, 441 U.S. at 301-302). ``The legislative power
of the United States is vested in the Congress, and the exercise of
quasi-legislative authority by governmental departments and agencies
must be rooted in a grant of such power by the Congress and subject to
limitations which that body imposes'' (Id. at 302). Therefore, for
legislative rules to have the ``force and effect of law,'' they must be
``reasonably within the contemplation of [the statutory] grant of
authority'' (Id. at 306). The ``thread''

[[Page 44417]]

between the regulations and the statute relied upon may not be ``so
strained that it would do violence to established principles of
separation of powers to denominate the[] particular regulations
`legislative' and credit them with the `binding effect of law''' (Id.
at 307-308).
This is not to say that any grant of legislative authority to a
Federal agency by Congress must be specific before regulations
promulgated pursuant to it can be binding on courts in a manner akin
to statutes. What is important is that the reviewing court
reasonably be able to conclude that the grant of authority
contemplates the regulations issued.
(Id. at 308.)
Youngstown therefore requires that FDA act under a statutory grant by
Congress, while Chrysler demands a ``nexus between [FDA's] regulations
and some delegation of the requisite legislative authority by
Congress'' (see Chrysler, 441 U.S. at 304).
As discussed elsewhere in this document, Congress exercised its
lawmaking power to provide FDA with the authority to regulate any
product that is a drug or device as defined in section 201 of the act.
The evidence cited in both the 1995 Jurisdictional Analysis and the
1996 Jurisdictional Determination annexed hereto demonstrates that
cigarettes and smokeless tobacco meet the statutory definitions of drug
and device. FDA may therefore act to regulate tobacco products, and in
doing so, it is acting ``pursuant to an express or implied
authorization of Congress,'' and the executive branch's ``authority is
at its maximum * * *'' (see Youngstown, 343 U.S. at 635 (Jackson, J.,
concurring)). Moreover, Chrysler does not require that the act
specifically refer to tobacco products, as the comments suggested (see
Chrysler, 441 U.S. at 308). In fact, most products regulated by FDA are
not specifically referred to in the act. In addition, as discussed in
sections X.A. and X.B. of this document, neither the Smokeless Act nor
the Cigarette Act precludes regulation under the act of cigarettes and
smokeless tobacco as drug delivery devices. FDA's assertion of
jurisdiction over cigarettes and smokeless tobacco is therefore
reasonably contemplated by the laws as enacted by Congress.
Consequently, in regulating tobacco products under the act, FDA is not
asserting the lawmaking power reserved by the Constitution to Congress.
2. Nondelegation Doctrine
The Nondelegation Doctrine, broadly speaking, imposes constraints
on Congress' authority to delegate to others the legislative power
vested in it by the Constitution.
(18) While maintaining that Congress has not granted FDA the
authority to regulate tobacco products, an industry comment argued that
FDA seeks to assume authority that, under the Nondelegation Doctrine,
Congress could not have delegated to the Executive Branch. In
particular, the comment argued that the act requires FDA to approve a
new drug as safe and effective, or to ban it, and to classify a device
into one of three categories in which it will be required to meet
conditions that ensure that it is safe and effective. Because FDA
proposed to do neither with respect to nicotine and cigarettes and
smokeless tobacco, the comment contended, the agency is free to choose
any course it wishes; and had Congress delegated to FDA such unlimited
authority, it would have violated the Nondelegation Doctrine. The
comment can also be read to suggest that, if FDA has the flexibility to
regulate medical devices, and in particular tobacco products, as it
proposed, then Congress provided the agency without a standard, that
is, with too much discretion.
The agency disagrees with this comment. The act, while vesting FDA
with broad discretion to regulate foods, drugs, and devices, does so by
precisely defining the agency's jurisdictional ambit in section 201 of
the act and by establishing a range of requirements and enforcement
provisions--for example, in sections 301, 302, 303, 304, 501, 502, 505,
510, 513, 514, 515, 516, 517, 518, 519, 520, and 701 of the act (21
U.S.C. 331, 332, 333, 334, 351, 352, 355, 360, 360c, 360d, 360e, 360f,
360g, 360h, 360i, 360j, and 371 respectively)--for it to pursue when,
in its discretion, Heckler v. Chaney, 470 U.S. 821 (1985), it has found
the operative facts established by Congress. The act therefore involves
no delegation of Congress' legislative power that violates the
Nondelegation Doctrine, as the courts have repeatedly held. (See, e.g.,
United States v. Shreveport Grain and Elevator Co., 287 U.S. 77, 85
(1932); United States v. Garfinkel, 29 F.3d 451, 457-59 (8th Cir.
1994); White v. United States, 395 F.2d 5, 9-10 (1st Cir.), cert.
denied, 393 U.S. 928 (1968)); United States v. 62 Packages, More or
Less, of Marmola Prescription Tablets, 48 F. Supp. 878, 884 (W.D. Wis.
1943), aff'd, 142 F.2d 107 (7th Cir.), cert. denied, 323 U.S. 731
(1944).)
The Supreme Court has only infrequently invalidated a congressional
delegation to the Executive Branch. (See, e.g., Panama Refining Co. v.
Ryan, 293 U.S. 388, 418 (1935) (holding statute authorizing the
President to prohibit interstate shipment of ``hot oil'' determined by
State law or regulation to be ``excess'' to be unconstitutional
delegation because ``Congress left the matter to the President without
standard or rule, to be dealt with as he pleased''); Schechter Poultry
Corp. v. United States, 295 U.S. 495, 541-542 (1935) (reversing
convictions for violations of code of conduct for poultry suppliers
because ``the discretion of the President in approving or prescribing
[such] codes, and thus enacting laws for the government of trade and
industry throughout the country, is virtually unfettered'').)
More recently, the courts have applied the Nondelegation Doctrine
to reach, or require from an agency, a narrow interpretation of a
statutory provision that would otherwise be too broad a delegation.
(See, e.g., Industrial Union Dep't., AFL-CIO v. American Petroleum
Inst., 448 U.S. 607, 646 (1980); International Union, UAW v. OSHA, 37
F.3d 665, 668-69 (D.C. Cir. 1994); International Union, UAW v. OSHA,
938 F.2d 1310, 1316-17 (D.C. Cir. 1991).)
Unlike the statutes under review in Panama Refining and Schechter,
the act sets standards for FDA to follow. The agency need not narrowly
interpret the act to avoid an otherwise over-broad delegation, and
courts have repeatedly directed that the act be construed liberally in
light of its public health purpose (see sections I.B. and II.A. of this
document). The agency's rulemaking with respect to tobacco products is
a legitimate application of those standards to the facts before the
agency. The agency therefore concludes that neither the act nor this
rulemaking violates the Nondelegation Doctrine.

III. Overview of Comments, Smoking Prevalence Rates Among Minors,
Scope, Purpose, and Definitions

A. Overview of Comments

From the time the 1995 proposed rule was published on August 11,
1995 (60 FR 41314), until January 2, 1996, the Food and Drug
Administration (FDA) accepted public comments. This comment period was
the opportunity for the public to speak to FDA about the matter of
regulating nicotine-containing tobacco products. On March 18, 1996, the
agency reopened the comment period for 30 days to make additional
information relevant to this rulemaking available for public comment.

[[Page 44418]]

The 1995 proposed rule generated more responses than the agency had
received at any other time in its history on any other subject.
Altogether, the agency received more than 700,000 pieces of mail,
representing the views of nearly 1 million individuals. Most of the
submissions were form letters or post cards. The agency identified more
than 500 different types of form letters. \34\ Others were petitions
with sometimes hundreds of signatures. More than 95,000 submissions
expressed individual comments on the 1995 proposed rule, including more
than 35,000 from children who were overwhelmingly supportive. The
individual comments included one from an industry trade association
which delivered a single submission of some 45,000 pages on the last
day of the announced comment period.
---------------------------------------------------------------------------

\34\ Opponents and proponents of the rule organized letter-
writing campaigns. One, a massive tobacco company-orchestrated
campaign, generated some 300,000 pieces of mail--nearly half of all
of the mail received by the agency on this topic.
---------------------------------------------------------------------------

As may be expected, comments differed sharply on the overarching
issues of whether FDA should regulate cigarettes and smokeless tobacco,
and whether the 1995 proposed rule would have the desired effect of
reducing the availability and attractiveness of these products to
children and adolescents.
Several Government officials commented, including U.S. Senators and
Congressmen, other Federal agencies, State governors and legislators,
and law enforcement officials. Comments came from every corner of the
country. FDA heard from smokers who could not understand why the
Government was meddling in their lives, and from smokers who
desperately wanted to quit, but could not. It heard from employers and
employees in the affected industries, including tobacco farmers,
wholesalers, cigarette manufacturers, and even laborers with the lowest
paying jobs who feared that they might lose the only jobs they know.
The agency even heard from school children who wanted to be protected
from tobacco. ``It is not fair,'' wrote one 13-year-old, ``that the
tobacco companies try to get kids to use tobacco.''
Although many of the comments were addressed to specific portions
of the tobacco regulation proposal, tens of thousands of letters
commented in general. Thousands of general comments supported the rule.
Some, like this one, came from surprising sources: ``I support
regulations restricting the sale, advertising, promotion and
distribution of cigarettes and chewing tobacco. I grow tobacco, but I
know it is wrong to sell death. I really feel sorry for people who are
'hooked' on nicotine.'' Other supporting comments came from more
traditional sources, especially the medical and public health
communities. One letter from a coalition of medical associations that
was addressed to President Clinton said: ``We, the undersigned 125
organizations, representing more than 18 million members and
volunteers, urge your strong support for Food and Drug Administration
actions to protect children and teenagers from tobacco.''
Many expressed strong overall opposition to the rule. One comment
said: ``I am taking the time to write this letter to express my
overwhelming dissatisfaction with the action of the FDA in trying to
rewrite the Constitution and take control of the Tobacco Industry.''
Although many comments opposed FDA's regulation of tobacco
products, there was nearly unanimous agreement--even from the tobacco
companies and smokers--that children under the age of 18 should not be
using nicotine-containing products, either cigarettes or smokeless
tobacco. A few children, however, did write that, even if tobacco use
is unhealthy, it should still be their choice, even if they are younger
than 18. The agency received thousands of general comments about the
addictive and harmful consequences of tobacco use, and they called on
the agency to act.
A summary of the general issues reflected in the thousands of
comments, and the agency's responses, follows:
(1) The agency received several thousand comments stating that FDA
should focus on the products it already regulates. In addition, many
comments said that FDA should not expand its responsibilities because
the agency's resources already are inadequate. Others stated that the
regulation of tobacco is a responsibility that Congress has reserved
for itself.
In contrast, many supporters of the 1995 proposed rule argued that
it was appropriate for FDA to take action on this issue. One woman
wrote: ``As the Federal agency designed to protect consumers from
harmful consumer products, FDA clearly has both the right and the
responsibility to take these actions against the most serious health
threat to our young people.''
The regulation of drugs and medical devices sold through interstate
commerce is central to FDA's established role. Based on recently
available information, as stated in section II. and in the 1996
Jurisdictional Determination annexed hereto, FDA has determined that
nicotine is an addictive drug, and that cigarettes and smokeless
tobacco are drug delivery devices, which are combination products under
section 503(g) of the Federal Food, Drug, and Cosmetic Act (the act)
(21 U.S.C. 353(g)). As such, these products fall within the traditional
scope of FDA's jurisdiction. Therefore, by regulating these products,
FDA is carrying out its traditional role.
(2) FDA received thousands of comments about how smoking was an
issue of free choice for adults. Most of the comments focused either on
the ideological issue of freedom to choose anything, even something
dangerous, or on related economic issues, such as the freedom to
receive discount or specialty tobacco products by mail. Many comments
said the Government must not attempt to regulate human behavior,
especially for adults, even when there are health consequences. Letters
like this were typical: ``As individuals we too have been promised the
freedom of choice and this should continue to be. I don't want the
government regulating my personal freedoms.''
Supporters of the rule countered that because nicotine addiction is
a pediatric disease, the choice to start smoking is not being made by
adults, but by adolescents who constitute a most vulnerable population.
Because they are not yet mature individuals, they are not really
expressing a free choice, the comments said. In addition, supporters of
the rule stated that adolescents, who are so impressionable, are being
manipulated by the tobacco companies, especially through advertising,
and therefore, are actually being denied a free choice. Instead, the
comments urged that adolescents not be allowed to choose something
addictive that may damage their health or shorten their lives.
FDA believes that adults should continue to have the freedom to
choose whether or not they will use tobacco products. However, because
nicotine is addictive, the choice of continuing to smoke, or use
smokeless tobacco, may not be truly voluntary. Because abundant
evidence shows that nicotine is addictive and that children are not
equipped to make a mature choice about using tobacco products, the
agency believes children under age 18 must be protected from this
addictive substance.
(3) Numerous comments, many from adult smokers, expressed the fear
that FDA's true goal is a total ban of all

[[Page 44419]]

tobacco products. Some asserted that the 1995 proposed rule is a
prelude to prohibition. One woman wrote: ``The most insidious insight
into this proposed regulatory act is the Federal Government's thinly
veiled motive of the eventual prohibition of tobacco sales in the
United States to appease a small minority of fanatical anti-smoking
zealots.''
FDA strongly disagrees with these comments and reiterates that it
has no intention of banning cigarettes and smokeless tobacco. FDA is
aware that at least one tobacco manufacturer, in letters sent to its
customers encouraging them to submit comments opposing the rule,
claimed that the ``real agenda is Backdoor Prohibition of all tobacco
products.'' These allegations are baseless and ignore statements made
by the President and FDA to the contrary. For example, when the
President announced the proposed FDA regulations on August 10, 1995,
one reporter asked whether an outright ban would be more logical than a
``regulatory partial step.'' The President replied:
I think it would be wrong to ban cigarettes outright because,
number one, it's not illegal for adults to use them * * * tens of
millions of adults do use them. And I think it would be as
ineffective as prohibition was. But I do think to focus on our
children is the right thing to do.

(Transcript, ``Press Conference by the President,'' dated August 10,
1995)
The preamble to the 1995 proposed rule expressed a similar view that
removing cigarettes and smokeless tobacco from the market would not be
in the best interest of public health (60 FR 41314 at 41348 and 41349).
Rather than instituting prohibition, the agency's rule will inhibit
the spread of smoking behavior from one generation to the next. As a
result, fewer and fewer adolescents will become addicted to nicotine-
containing products. As current smokers either quit or die, the total
number of smokers will gradually decline as they are replaced by fewer
and fewer new smokers. The agency wants to reassure those who fear that
FDA is taking the first steps that would lead inexorably to a ban on
the sale of these products to those 18 and over that FDA will not ban
these products for adults. Thus, any claim that the rule is a prelude
to or would lead to prohibition is totally without merit.
(4) FDA received many comments from politicians, industry
representatives, and private citizens who argued that the agency does
not need to regulate tobacco because the product is already highly
regulated. Many comments observed that all 50 States have passed their
own laws prohibiting the sale of tobacco products to minors younger
than 18. Comments on existing State enforcement programs primarily came
from those opposed to FDA's proposed regulation, including legislators
from more than a dozen States. These comments claimed that this should
remain a State matter, that State laws are either sufficient or
superior to the 1995 proposed rule, that State officials, unlike FDA,
are responsive to the concerns of State citizens, and that States and
private groups are more responsible and effective than a Federal
agency. Comments like this were common: ``Many states have strict
restrictions on tobacco sales to minors already and in my State
(Maryland) these regulations are being enforced with great success.''
Many supporters of the 1995 proposed rule, however, pointed out
that State rules generally have failed to stop minors from purchasing
tobacco products. One individual wrote: ``I currently live in a State
where there is absolutely no enforcement of the laws banning sales of
tobacco to minors,'' and numerous other comments referred to specific
instances in which they said State laws were not observed. A joint
letter sent by attorney generals from 25 States, as well as Guam and
Puerto Rico, welcomed the 1995 proposed rule, saying:
Although every State bans the sale of tobacco to minors, studies
show that children have easy access to tobacco. * * * We believe the
proposed rule, which emphasizes reducing access and limiting the
appeal of tobacco products to children, should be a crucial
component of a national effort by Federal, State and local officials
to help our youngest generation of Americans avoid suffering
preventable disease and premature death from the use of tobacco
products.
Many comments stated that the tobacco industry has in place
guidelines to prevent the sale of tobacco products to minors. Said one
comment: ``I fail to see why the government is so quick to dismiss
voluntary action on the part of the industry.'' Other comments
recommended that voluntary education programs aimed at retailers, or,
more specifically, at retail sales clerks, would be sufficient. These
educational programs would either be based on voluntary efforts by the
affected industries or in-house, employee training programs.
Supporters of the rule, however, expressed widespread distrust of
the industry and of its promise to use voluntary programs to prevent
minors from smoking. One woman wrote: ``Thirty years of experience in
compromising with the tobacco industry has proven that the industry can
not be trusted. After the release of the Surgeon General's report in
1964, the tobacco industry promised to abide by a voluntary advertising
code, but the code was quickly ignored after the threat of government
regulation had passed.'' Another comment said: ``When tobacco companies
fear government regulation, they often adopt voluntarily the
restrictions the government is considering. However, there is no
penalty for violating a voluntary guideline. The tobacco industry has a
track record that speaks for itself. Please don't play the tobacco
industry's game!''
The agency believes that the comments opposing the rule on the
basis that the States already have restrictions have misinterpreted its
scope and application. FDA, under the act, regulates human and animal
drug products, certain foods, and devices that are, or have been in
interstate commerce. The fact that these products move across State
lines makes their regulation a Federal matter.
Other statutes and regulations provide further evidence that
tobacco regulation is not reserved to States. The Federal Cigarette
Labeling and Advertising Act (15 U.S.C. 1331 et seq.) (Cigarette Act)
and the Comprehensive Smokeless Tobacco Health Education Act (15 U.S.C.
4401 et seq.) (Smokeless Act), among other things, place federally-
required statements and warnings on cigarettes and smokeless tobacco
and require manufacturers to submit reports to the Federal Government.
These products are also subject to Federal taxes (see, e.g., 26 U.S.C.
5701) and Federal, rather than State, laws and regulations intended to
guard against contraband cigarettes (see 18 U.S.C. 2341 et seq.; 27 CFR
part 296, subpart F). Thus, tobacco regulation is clearly both a
Federal and State matter.
FDA also disagrees with those comments suggesting that States and
private groups may be more responsible or efficient than FDA or that
FDA may not be as responsive to citizens' concerns. Federal regulation
of these products has several significant advantages over State or
private group oversight alone; for example, the rule establishes
minimum, national standards for the sale and distribution of these
products whereas State or private group efforts may be limited to a
specific locality or to group members. FDA's regulations also create
enforceable obligations whereas private

[[Page 44420]]

group efforts, voluntary codes, and industry policies do not.
FDA notes that this regulation does not necessarily preclude States
from enforcing their own laws. In fact, under section 1926 of the
Public Health Service Act (the PHS Act) (42 U.S.C. 300x-26), States are
expected to enact and to enforce laws to prohibit any manufacturer,
retailer, or distributor of tobacco products from selling or
distributing such products to any individual under age 18.
Moreover, States may choose to regulate areas that are not
addressed in this rule and not authorized by the act, such as requiring
licenses for retailers. FDA agrees with the comments from State
attorneys general that effective regulation of cigarettes and smokeless
tobacco, in order to protect children and adolescents, will involve
cooperation and joint efforts by Federal and State officials and FDA's
rule will enhance, rather than hinder, State tobacco control efforts.
Moreover, States are not precluded from taking action in areas that
are addressed in this rule. Although some of these requirements may be
preempted, the State may petition the agency for an exemption from the
act's preemptive effect under section 521(b) of the act (21 U.S.C.
360k(b)). A more detailed discussion of preemption can be found in
section X. of this document.
Finally, regarding the comments questioning FDA's response to State
or citizen concerns, mechanisms do exist for States and individual
citizens to seek regulatory action or changes by FDA. FDA regulations
permit any person to petition the agency to request an action (such as
issuance, amendment, or revocation of a rule), to reconsider an action,
or to stay an administrative action (see Secs. 10.30, 10.33, and 10.35
(21 CFR 10.30, 10.33, and 10.35)). Less formal mechanisms for
communicating with FDA, such as letters or meetings, exist as well.
(5) Many comments opposing this rule argued that the tobacco
industry already is intensely regulated, and that more regulation is
unneeded and unjustified. One person wrote: ``As you know the tobacco
industry is already one of the most heavily regulated industries in the
United States. Current laws would accomplish the stated objective of
the proposed FDA regulations.'' Others disagreed: ``I believe that the
tobacco industry has a long, sorry, and cynical record * * *. It is an
industry that greatly deserves to be regulated further.''
While it is true that production of tobacco products is regulated,
and the industry is heavily taxed, virtually none of these measures is
aimed at the product's impact on the health of the individuals using
them or on public health. FDA regulation of tobacco products is
intended to have a completely different effect than any of the rules
that currently applies to the tobacco industry. The agency's regulatory
effort will attempt to reduce the number of young people who smoke or
use tobacco products, consistent with FDA's mission to protect public
health by existing laws.
(6) Many comments objected to the 1995 proposed rule, stating that
cigarettes and smokeless tobacco are legal products and should be
treated like any other legal consumer product.
FDA believes that the comments misunderstand the regulatory basis
for the rulemaking. FDA has determined that these products contain both
a drug and device component as defined in section 201(g) and (h) of the
act (21 U.S.C. 321(g) and (h)), respectively, because the products, and
the nicotine in the products, are intended to affect the structure and
function of the body. The agency has further determined that these
products should be regulated as devices. Thus, the issue is not merely
whether the products themselves have been legally marketed, but how
they may be most appropriately regulated to protect the public health,
given their status under the act and potential to do harm.
(7) Some comments suggested that if the Government begins
regulating tobacco, it will soon regulate many other consumer products
that are now legal, but judged to be harmful to health, including
alcohol and caffeine. They expressed fear that, once FDA begins to
regulate one consumer product, it will be obligated to regulate others.
Said one man: ``The FDA thinks it is being sly by defining cigarettes
as `nicotine delivery devices.' A shot glass must then be described as
a device for alcohol consumption. A coffee mug must be a device for
caffeine consumption. Will the FDA be regulating my morning coffee by
restricting the size of my cup?'' Some supporters of the proposed rule
said that FDA should regulate some of the other consumer products
associated with medical disorders. Wrote one: ``Bud frogs are no
different than Joe Camel.''
FDA strongly disagrees with these comments and believes that the
concerns they express are misplaced. In no way does the agency's
regulation of cigarettes and smokeless tobacco as nicotine delivery
devices justify or require the regulation of coffee cups and shot
glasses.
First, the agency notes that currently it regulates both caffeine
and alcohol under the authority of the act. Caffeine naturally occurs
in coffee, tea, and other foods. It is also used as an ingredient in
soft drinks. The act defines ``food'' as ``articles used for food or
drink for man or other animals'' (section 201(f)(1) of the act (21
U.S.C. 321(f)(1))). When caffeine naturally occurs in products that are
foods, such as coffee, or when caffeine is used in soft drink products
in accordance with section 402 of the act (21 U.S.C. 342), the product
is a ``food'' under section 201(f)(1) of the act and thus explicitly
excepted from the definition of ``drug'' in section 201(g)(1)(C) (21
U.S.C. 321(g)(1)(C)). Caffeine used in soft drinks in accordance with
section 402 of the act is appropriately regulated as a food under
201(f)(1) of the act. Caffeine is also used as an active ingredient in
several products regulated as drugs by the agency, including over-the-
counter stimulants, internal analgesics and menstrual discomfort relief
products.
Likewise, alcohol is used as an ingredient in products regulated as
drugs under the act, including over-the-counter cough and cold
preparations. There is no evidence to suggest that the agency's current
regulation of these substances is inappropriate or inadequate to
protect the public health. Therefore, there is no factual or scientific
basis for the agency to change the manner in which these substances are
now being regulated.
FDA's attention was drawn to tobacco rather than caffeine and
alcohol because of certain fundamental differences among the
substances. Nicotine is a highly addictive drug. As discussed in
section I.B. of this document, studies estimate that as many as 92
percent of all smokers are addicted to the nicotine in cigarettes.
There is no evidence that either caffeine or alcohol pose this kind of
health problem. Moreover, cigarettes and smokeless tobacco are
dangerous products that are associated with lung cancer, heart disease,
and many other serious illnesses and conditions.
Yet these factors only served to draw FDA's attention to the
tobacco problem. What ultimately separates caffeine and alcohol from
nicotine and tobacco products is that caffeine and alcohol are
currently being appropriately regulated as foods or drugs based on
their intended use. Nicotine and tobacco products, on the other hand,
are drugs

[[Page 44421]]

and medical devices, respectively, that, in large measure, are not
being appropriately regulated. FDA is moving to correct this situation,
and the public health will undoubtedly benefit as a result.
(8) Several comments argued that it is the responsibility of
parents and teachers, not the Federal government, to educate young
people about cigarette and smokeless tobacco use. Some comments feared
that FDA's effort to reduce the use of nicotine-containing cigarettes
and smokeless tobacco by youth might interfere with the relationship
between parents and their children. Many comments voiced the argument
that this rule is a sign of big Government getting in the way of
parents educating their children. One comment stated, ``This is
obviously a case of misplaced priorities * * *. The battle will really
be won on the home front. Parental guidance will go a long way in
curbing underage smoking.''
Other parents, however, were grateful for any assistance they could
get to help protect their children from nicotine addiction. One person
said: ``The parents cannot do it all alone.'' Furthermore, most parents
who submitted comments stated that a strong national approach to
reducing these products' accessibility and appeal would reinforce
messages that their children get at home. One comment stated, ``While I
am in no way an advocate of government in my life, this to me is a
totally different circumstance * * * children should not be expected to
make these choices.'' One comment from a middle school student said,
``Giving school age children the opportunity to purchase things that
will endanger them is inexcusable.''
The agency recognizes the unique role that parents and teachers
have in educating young people and has no intention of intervening in
that relationship. Rather, FDA expects the rule to complement parental
and educational efforts by reducing the availability and appeal of
tobacco products. The preamble to the 1995 proposed rule contained
ample evidence as to how these products are easily accessible to and
appeal to young people and how a comprehensive approach, aimed at
reducing both access and appeal, will be more effective than an
educational approach alone. Educating young people about health risks
may deter some young people from trying cigarettes and smokeless
tobacco, but educating them and simultaneously reducing their ability
to acquire the products, as well as reducing the appeal of the products
themselves, will prevent more young people from using the products.
FDA also emphasizes that cigarettes and smokeless tobacco are
combination drug-device products that are subject to regulation under
the act. Consequently, the rule properly addresses issues relating to
the sale, distribution, and use of these products by children and
adolescents. The rule does not adversely affect a parent's or teacher's
ability to discuss cigarette and smokeless tobacco use with young
people.
(9) Comments suggested that, for some, illegal drugs and crime
evoke stronger emotions than tobacco use. Many comments stated that the
Government, although not FDA specifically, should spend more of its
resources on fighting crime instead of trying to regulate a legal
product such as tobacco. One of the form letters stated it this way:
``Federal dollars would be much better spent addressing inner-city
violence, illegal drug sales, and this country's deteriorating
education system.''
FDA's authority is defined by the act. FDA lacks the authority to
help with other social ills such as crime and illicit drug sales.
(10) One comment urged FDA to institute policies that would
facilitate ``whistleblowing.'' The comment said that FDA should
encourage tobacco company employees to disclose allegedly illegal or
dishonest practices.
Any person, regardless of the industry that employs that person,
can provide records and information to FDA for law enforcement purposes
with the assurance that his or her identity, and the information and
records that he or she provides, will not be publicly disclosed.
Current Federal statutes and FDA regulations already protect records or
information compiled for law enforcement purposes from public
disclosure. For example, the Freedom of Information Act exempts law
enforcement records and information from public disclosure. FDA's
regulations governing public disclosure elaborate on this exemption,
stating, among other things, that the agency may withhold from public
disclosure records or information compiled for law enforcement purposes
to the extent that disclosure of such records or information could
reasonably be expected to disclose the identity of a confidential
source and information furnished by a confidential source in the case
of a record compiled by FDA or any other criminal law enforcement
authority in the course of a criminal investigation (Sec. 20.64 (21 CFR
20.64(a))).

B. Smoking Prevalence Rates Among Minors

The agency received some comments stressing the importance of
accurately measuring youth consumption of tobacco products, reiterating
the problem of growing use among young people, and stressing the need
to curb such growth to improve health and to reduce the tremendous
health care costs attributable to tobacco-related illnesses. However,
several disputed the statistics FDA cited on the number of youth
smokers and challenged the data sources used. These comments are
discussed below.
(11) One comment objected to FDA's description of smoking as a
``pediatric problem,'' arguing that ``TAPS II [Teenage Attitude and
Practice Survey II] demonstrates that smoking in any meaningful sense
is a phenomenon that occurs in the later teenage years, not in the pre-
teen or early teen years.'' It further charged that the agency's use of
the term ``pediatric'' is intended to serve ``emotive and/or political
purposes, not to describe the problem of underage smoking in scientific
or medical terms.''
A comment from a public health association, however, cited the TAPS
II survey as showing that ``the average teen smoker initiates smoking
at age 13, and becomes a regular smoker by age 14.5.'' It also referred
to the Center for Disease Control and Prevention (CDC's) 1992 Youth
Risk Behavior Survey, which showed ``similar patterns of early
initiation rates, with smoking initiation rates rising rapidly between
10 and 14 years of age.''
The agency maintains its position that smoking is a pediatric
disease. It agrees with the comment citing TAPS II and Youth Risk
Behavior Survey data showing that the average teen smoker begins
smoking in the early teens or even preteens, rather than later years.
Furthermore, the American Academy of Pediatrics' Council on Child
and Adolescent Health states that the purview of pediatrics includes
the physical and psychosocial growth, development, and health of the
individual beginning before birth through early adulthood, and that
``[t]he responsibility of pediatrics may therefore begin with the fetus
and continue through 21 years of age.'' This definition of pediatrics
obviously includes the age group FDA has targeted to reduce smoking.
(12) One comment from the tobacco industry charged that FDA's
assertion

[[Page 44422]]

that smoking has increased among 8th- and 10th-grade students ignored
CDC's TAPS II data showing that the incidence of underage smoking
declined between 1989 and 1993. TAPS II, the comment maintained, showed
that ``[a]lthough total smoking in the interview sample [1993] has
increased as minors have aged since 1989, comparing the results for
minors of a given age indicates that the incidence of underage smoking
declined between the two surveys'' and that ``between the two surveys
both daily smoking and any smoking in the past 30 days declined among
minors.''
The introduction to TAPS II stated that its prevalence findings
were comparable to or lower than those of other national surveys. It
explained that the survey method used in TAPS II, computer-assisted
telephone interviews, had several limitations that may have led to the
lower estimates. For example, young people may be fearful of disclosing
smoking behavior if a parent is present in the room during the
telephone interview. Further, telephone interviews do not afford the
same opportunity for building a rapport between the interviewer and the
respondent as do in-person interviews. As a result, young people being
interviewed in this manner may be less likely to disclose their real
smoking behavior. For these reasons, the introduction stated,
``prevalence estimates from TAPS II may be lower than they would have
been had the entire TAPS I cohort been successfully reinterviewed and
therefore, should be interpreted with caution.'' \35\
---------------------------------------------------------------------------

\35\ ``1993 Teenage Attitudes and Practices Survey, Public Use
DataTape,'' CDC, OSH, p. 3, 1993 (unpublished data).
---------------------------------------------------------------------------

(13) One comment challenged FDA's claim that 3,000 young people
become new smokers every day. The comment maintained that ``the study
from which the `3,000 per day' number was derived did not refer to
children at all,'' but to smokers ``aged 20 years old'' (Pierce et al.,
1989) (emphasis from original). \36\
---------------------------------------------------------------------------

\36\ Pierce, J. P., M. C. Fiore, T. E. Novotny, E. J.
Hatziandreu, and R. M. Davis, ``Trends in Cigarette Smoking in
United States: Projections to the Year 2000,'' JAMA, vol. 261, pp.
61-65, January 6, 1989.
---------------------------------------------------------------------------

The agency agrees that the study surveyed individuals who were 20-
years-old, although the agency referred to these individuals in
essentially the same terms used by the authors of the study--``young
persons.''
Any potential confusion is mitigated by the fact that subsequent
surveys indicate that the vast majority of 20-year-olds begin smoking
at a younger age. For example, according to the Combined National
Health Interview Surveys for 1987 to 1988, 92 percent of 20-year-old
smokers started smoking by age 18. Taking into account the comment and
these data, the agency believes that it is accurate to state that
approximately 3,000 young people begin to smoke each day, regardless of
whether young people is defined as under 18, or 20 years and under,
although the agency would note that of the 3,000 young people who begin
smoking each day, 2,722 are under age 18.

C. Scope

Proposed Sec. 897.1(a) would have stated that ``[t]his part is
intended to establish the conditions under which cigarettes and
smokeless tobacco products that contain or deliver nicotine, because of
their potential for harmful effect, shall be sold, distributed, or used
under the restricted devices provisions of the Federal Food, Drug, and
Cosmetic Act.'' Proposed Sec. 897.1(b) would have stated that
``[r]eferences in this part to regulatory sections to the Code of
Federal Regulations are to chapter I of Title 21, unless otherwise
noted.'' The final rule is being amended to explicitly state that
failure to comply with any applicable provision would render the
product misbranded.
The preamble to the 1995 proposed rule stated that ``[t]he proposed
rule would not apply to pipe tobacco or to cigars because the agency
does not currently have sufficient evidence that these products are
drug delivery devices under the act'' (60 FR 41314 at 41322). The
preamble stated that ``FDA has focused its investigation of its
authority over tobacco products on cigarettes and smokeless tobacco
products, and not on pipe tobacco or cigars, because young people
predominantly use cigarettes and smokeless tobacco products'' (Id.).
(14) A comment opposing this provision stated that FDA does not
have authority to regulate cigarettes under the restricted device (or
any other) provision of the act.
The agency disagrees. A full discussion of the agency's authority
can be found in section II. of this document.
(15) Several comments supported the provision. Some comments
recommended that the scope of the rule should also apply to adult
smokers. One comment stated that:
[I]t is evident from the FDCA [the Federal Food, Drug, and
Cosmetic Act] that the FDA has clear and unambiguous authority to
regulate and restrict the sale of the subject products not only to
minors but also to adults, who suffer equally from the mortality and
morbidity effects of the toxic components of cigarette smoke and
tobacco.
As discussed in section I.B. of this document, the agency believes
that, on balance, it is better for cigarettes and smokeless tobacco to
remain available for use by adults.
(16) Several comments urged that the scope should be expanded to
include all nicotine containing products, including cigars and pipes.
Another comment expressed concern that the sale and use of big cigars
and pipe tobacco by youth may be increasing, and therefore recommended
that FDA expand the scope ``to include all presently marketed nicotine
delivery devices,'' or to ``include regular monitoring of youth's use
of these products, and should that use increase, provide a means to
extend the FDA's rulings to include those products.''
Another comment stated that since ``federal regulations often take
seven to ten years to enact and enforce, it is essential that the
regulation be written pro-actively to adequately address the problem at
the outset.'' The comment stated that ``[i]t is therefore, important to
write regulations to protect the public from all `nicotine delivery
devices' that in the future, might be placed in something other than
tobacco'' because ``[a]ny product containing the addictive substance of
nicotine has a future market because of its addictive nature.''
Finally, this comment asserted that FDA should broaden the scope of
the rule to include all products that deliver nicotine, because the
comment stated that smoking mothers are at greatest risk for
reproductive hazards, such as low birth weight babies. The comment
stated that ``[c]onsidering that over 50% of births are unplanned, and
that people believe they can always quit smoking, it is too late to
avoid damage by smoking mothers by the time they realize they are
pregnant.''
The preamble to the 1995 proposed rule stated that ``[t]he proposed
rule would not apply to pipe tobacco or to cigars because the agency
does not currently have sufficient evidence that these products are
drug delivery devices under the act'' (60 FR 41314 at 41322). The
preamble stated that ``FDA has focused its investigation of its
authority over tobacco products on cigarettes and smokeless tobacco,
and not on pipe tobacco or cigars, because young people predominantly
use cigarettes and smokeless tobacco products'' (60 FR 41314 at 41322).
The agency advises that, at this time, there is insufficient
evidence of cigar or pipe tobacco use by children and

[[Page 44423]]

adolescents to support the inclusion of cigar, pipe tobacco, or ``all
presently marketed nicotine delivery devices'' within the scope of the
final rule (section III.E. of this document).
In response to the comment stating that the agency should monitor
youths' use of products such as cigars or pipe tobacco, and that the
agency should provide a means to ``extend FDA's rulings to include
these products,'' the agency advises that, as stated in the 1995
proposed rule, the objective of the final rule is to meet the goal of
the report ``Healthy People 2000,'' by reducing roughly by half
children's and adolescents' use of tobacco products. The agency is not
asserting jurisdiction over pipes and cigars at this time because it
does not have sufficient evidence that these products satisfy the
definitions of drug and device in the act. However, the agency will
consider any additional evidence that becomes available, including any
new evidence that these products meet the statutory definitions as well
as evidence that indicates that cigars and pipe tobacco are used
significantly by young people.
FDA also disagrees with the comment claiming that Federal
regulations take 7 to 10 years to enact and enforce. While it may be
true that rulemaking, in general, can be a time-consuming task, the
agency can and has taken prompt action to issue rules with significant
public health implications. For example, the proposed rule for this
final rule appeared in the Federal Register of August 11, 1995 (60 FR
41314). (See also 56 FR 60366 et al., November 27, 1991, and 58 FR 2066
et al., January 6, 1993 (15 months to issue Nutrition Labeling and
Education Act regulations); 60 FR 5530, January 27, 1995, and 60 FR
63372, December 8, 1995 (11 months to issue regulations to facilitate
communications between FDA and State and foreign governments in order
to enhance regulatory cooperation).) If it is necessary to amend this
regulation, the agency will also be able to do so expeditiously.
The agency agrees with the comment stating that smoking mothers are
at risk for certain reproductive hazards. FDA has chosen to tailor its
regulation to address only children and adolescents. However, other
agencies within the Department of Health and Human Services (DHHS) have
programs that currently address tobacco use by persons of all ages.
FDA, on its own initiative, has revised Sec. 897.1 to simplify and
to clarify the scope of the rule. As revised, Sec. 897.1(a) states that
part 897 ``sets out the restrictions under the Federal Food, Drug, and
Cosmetic Act (the act) on the sale, distribution, and use of cigarettes
and smokeless tobacco that contain nicotine.'' This sentence is
comparable to proposed Sec. 897.1(a), but more accurate because the
1995 proposed rule only referred to FDA's restricted device authority.
FDA has also added a new Sec. 891.1(b) stating that ``[t]he failure to
comply with any applicable provision in this part in the sale,
distribution, and use of cigarettes and smokeless tobacco renders the
product misbranded under the act.'' This sentence is intended to remind
parties that violations of a regulation for a restricted device and
other actions relating to the sale of a device may cause a device to be
``misbranded'' under the act. Proposed Sec. 897.1(b), which would have
stated that regulatory references are to title 21 of the Code of
Federal Regulations, has been renumbered as Sec. 891.1(c) in the final
rule and has not been changed.

D. Purpose (Sec. 897.2)

Proposed Sec. 897.2(a) would have stated that:
[t]he purpose of this part is to establish conditions for the
sale, distribution, and use of cigarettes and smokeless tobacco
products in order to: * * * [r]educe the number of people under 18
years of age who become addicted to nicotine, thus avoiding the
life-threatening consequences associated with tobacco use and to
provide important information regarding the use of these products to
users * * *.
The agency has modified the final rule to provide information regarding
the use of these products only to users; it has deleted potential users
because the final rule no longer includes an education program for
young people. Proposed Sec. 897.2(b) stated that this part of the
provision is intended to ``[p]rovide important information regarding
the use of these products to users and potential users.'' The agency's
response to more specific comments follows.
The preamble to the 1995 proposed rule stated that the proposed
rule would reduce ``the appeal of and access to cigarettes and
smokeless tobacco products by persons under 18 years of age,'' but
``would preserve access to cigarettes and smokeless tobacco products by
persons 18 years of age and older'' (60 FR 41314 at 41322).
This rule is designed to complement the regulations (sometimes
referred to as ``the Synar regulations'') issued by the Substance Abuse
and Mental Health Services Administration (SAMHSA) (the SAMHSA rule)
implementing section 1926 of the PHS Act regarding the sale and
distribution of tobacco products to individuals under the age of 18.
The SAMHSA rule contains standards for determining State compliance
with section 1926 relating to the enactment and enforcement of State
laws prohibiting the sale and distribution of tobacco products to
individuals under the age of 18. Both sets of regulations are designed
to help address the serious public health problem caused by young
people's use of nicotine-containing tobacco products. By approaching
this pediatric disease from different perspectives, these regulations
together will help achieve the Administration's goal of reducing the
number of young people who use tobacco products by 50 percent.
(17) One comment opposing this provision stated that ``it will have
little effect on tobacco use by young people, is beyond FDA'S statutory
authority, is unjustified as a matter of policy, and would violate the
Constitution.''
The agency believes that the comment opposing this provision
misinterprets Sec. 897.2. This particular provision merely states the
purpose of the entire rule and is not intended, in and of itself, to
impose any new restrictions. The agency disagrees that the entire rule
will have little effect on tobacco use by young people; that it is
beyond the agency's statutory authority; that it is unjustified as a
matter of policy; and that it violates the Constitution. All of these
issues are discussed in detail elsewhere in this document.
(18) Several comments supported the provision, stating that a
national policy is essential because State laws are ineffective and
inconsistent.
The agency agrees with these comments and advises that the final
rule complements the existing efforts by States to enforce restrictions
on young people's access to cigarettes and smokeless tobacco. As stated
in the comments, all States currently have laws prohibiting the sale of
tobacco products to minors. Section 1926 of the PHS Act creates an
incentive for the States to reduce the unlawful sales of tobacco
products to young people by ``requiring States to have in effect laws
which prohibit the sale of tobacco products to minors as a condition of
receipt of substance abuse grants.'' This rule would only preempt
individual State requirements that are different from or in addition to
these regulations (see section 521(a) of the act (21 U.S.C. 360k(a))).
Thus, a State restriction on the sale of cigarettes and smokeless
tobacco to individuals under the age of 18 will continue to be enforced
by the State. (See preemption discussion,

[[Page 44424]]

section X. of this document.) While the agency expects the State laws
to reduce smoking among young people, those laws unlike FDA's rule,
only reduce access and not the appeal of smoking to young people. Thus,
the agency believes that the rule will help States achieve their goals
under the substance abuse programs.
(19) One comment supporting the provision stated that although the
focus of the rule should be on children, ``the needs of adult smokers
should not be abandoned.'' Another comment stated that:
Cigarettes and smokeless tobacco products are nicotine delivery
devices and they regularly cause addiction in their users. Because
addiction often leads to serious illness and death, it is important
to reduce the number of people under 18 years of age who become
addicted to nicotine. Similarly, it is important to provide accurate
information about the use of these products to users and to
potential users.
The agency appreciates the comment's suggestion, but advises that,
for reasons explained in section I.B. of this document, the final rule
focuses principally on children and adolescents.
FDA, on its own initiative, has revised Sec. 897.2 to state that
the purpose of part 897 is ``to establish restrictions on the sale,
distribution, and use of cigarettes and smokeless tobacco in order to
reduce the number of children and adolescents who use these products,
and to reduce the life-threatening consequences associated with tobacco
use.'' FDA believes this revision is a simpler and more accurate
statement of the rule's purpose.

E. Definitions (Sec. 897.3)

Proposed Sec. 897.3 would have contained definitions for the terms
``cigarette,'' ``cigarette tobacco,'' ``distributor,''
``manufacturer,'' ``nicotine,'' ``package,'' ``point of sale,''
``retailer,'' and ``smokeless tobacco.'' The agency received several
comments on the definition section of the proposal, regarding either
the specific definitions provided or requesting definitions for
additional terms. In response to the comments, the agency has clarified
several terms, including ``distributor'' and ``retailer,'' and has
modified the term ``cigarette'' to exclude little cigars.
Proposed Sec. 897.3(a)(3) would have provided a definition of
``cigarette'' which included the following language, modeled after the
definition of ``little cigar'' contained in the Cigarette act:
(a) Cigarette means * * *
(3) [a]ny roll of tobacco wrapped in leaf tobacco or any
substance containing tobacco * * * and as to which 1,000 units weigh
not more that 3 pounds.
(20) Several comments supported the inclusion of ``little cigars''
in the definition of ``cigarette'' and suggested that the definition be
broadened to include other tobacco products as well. These comments
argued that all tobacco, including ``snuff,'' chewing tobacco, cigars,
and pipes, should be regulated in the same manner as cigarettes, as
these products are also nicotine delivery systems. These comments
further stated that there is evidence to show that cigar smoking is
becoming increasingly popular among young adults and adolescents.
In contrast, several comments from industry indicated that little
cigars are unique products which should not be regulated as cigarettes.
One comment stated that the agency has no studies to support the
inclusion of little cigars in the rule. Moreover, the U.S. Treasury
Department's Bureau of Alcohol, Tobacco and Firearms (BATF) submitted a
comment opposing the inclusion of little cigars in the ``cigarette''
definition, as this would require little cigars to be labeled and
advertised as a cigarette under the FDA regulations, but taxed and
labeled as a ``cigar,'' under the Internal Revenue regulations enforced
by BATF.
The agency has decided, based upon the comments and the record of
this proceeding, not to include little cigars in the definition of
``cigarettes'' for the purposes of the regulation. The differences
between little cigars and cigarettes are significant--the products are
easily distinguishable, taxed at different levels, and marketed to
different consumers. Moreover, little cigars are neither advertised
extensively nor sold in vending machines. Most importantly, the agency
is not currently aware of sufficient evidence of use of little cigars
by children or adolescents to support inclusion of such products in the
rule. Therefore, FDA has deleted little cigars from the definition of
``cigarette'' in Sec. 897.3(a). Moreover, FDA will continue to
coordinate definitions with BATF as appropriate.
Additionally, FDA has deleted ``components, accessories, or parts''
from Sec. 897.3(a). The reference to ``components, accessories, or
parts'' was unnecessary because the statutory definition of ``device''
includes ``any component, part, or accessory.''
Proposed Sec. 897.3(b) would have defined ``cigarette tobacco'' as
``any loose tobacco that contains or delivers nicotine and is intended
for use by consumers in a cigarette.'' The proposed definition also
would have stated that ``[u]nless otherwise stated, the requirements
pertaining to cigarettes shall also apply to cigarette tobacco.''
(21) One comment by manufacturers of ``roll-your-own'' (RYO)
cigarette tobacco argued that the inclusion of RYO cigarette tobacco
under the 1995 proposed rule was arbitrary and capricious, as the
agency had no factual information about RYO's composition, marketing,
and usage. This comment also asserted that there is no evidence of RYO
tobacco usage by minors.
The agency disagrees that the inclusion of cigarette tobacco in the
rule is arbitrary and capricious. RYO tobacco is nothing less than
cigarettes that have not yet been assembled. Unquestionably, RYO
cigarettes contain tobacco and are smoked. The comment did not
challenge the agency's proposed finding that the smoke from RYO
cigarettes is inhaled, that the RYO tobacco is processed, and that RYO
cigarettes deliver nicotine. Unlike ``little cigars,'' discussed in
paragraph 1 of this section of the document, the agency believes that
there is no significant difference in the composition of RYO tobacco or
in the reason consumers use it (to deliver nicotine) from cigarettes.
The agency believes that, because a RYO cigarette is fundamentally the
same product as a commercially manufactured cigarette posing the same
risks, it should be subject to the restrictions in this rule in order
to protect the public health.
Furthermore, it is important to include RYO tobacco because to
exclude it would provide a simple and obvious way to avoid the
restrictions in this regulation. If such an exception existed,
cigarettes could be packaged and sold in such a way as to be considered
RYO products. Tobacco companies would then be free to sell these
products using all the marketing and promotion techniques currently
used for cigarettes, techniques that are particularly successful with
young people. An exception so broad would quickly undermine the entire
purpose of the rule. Additionally, FDA has made a minor change to
Sec. 897.3(b) to have ``cigarette tobacco'' mean ``any product that
consists of loose tobacco * * *.'' The addition of the words ``any
product'' is intended to make Sec. 897.3(b) conform with the format
used for other definitions.
(22) In proposed Sec. 897.3(c), ``distributor'' would have been
defined as ``any person who furthers the marketing of cigarettes or
smokeless tobacco products * * * from the

[[Page 44425]]

original place of manufacture to the person who makes final delivery or
sale to the ultimate user, but who does not repackage or otherwise
change the container, wrapper, or labeling of the * * * products.''
Several comments stated that the definition of ``distributor'' is
vague and over broad, because:
[P]ersons `who further the marketing of cigarettes or smokeless
tobacco' [may include] literally everyone involved in the
production, shipping, advertising, or promotion of cigarettes. Such
`distributors' could thus include, for example, cigarette
manufacturers and their employees; truckers and shipping clerks
involved in the physical movement of the product; advertising
agencies; people involved in promotional activities and the
manufacture of promotional materials; retailers and their employees;
and conceivably even individuals who `deliver' cigarettes to social
acquaintances or family members as `ultimate users.' Including such
persons and entities within the definition of `distributor' would,
in turn, render them `responsible,' * * * for ensuring that the
cigarettes the `marketing' of which they `further' comply with `all
applicable requirements' of part 897.
(23) One comment suggested that an individual advocating a
particular brand of cigarette would fall within the definition of
``distributor.''
The agency recognizes the concerns expressed about the proposed
definition of ``distributor.'' Therefore, based upon the comments
received, the agency has determined that the definition should be
modified to clarify the term. The definition of ``distributor'' has
been modified to mean ``any person who furthers the distribution of
cigarettes or smokeless tobacco, whether domestic or imported, at any
point from the original place of manufacture to the person who sells or
distributes the product to individuals for personal consumption.'' The
term does not include persons who do not manufacture, fabricate,
assemble, process, or label a finished cigarette or smokeless tobacco
product, and does not repackage or otherwise change the container,
wrapper, or labeling of the cigarette or smokeless tobacco product,
because such persons would be ``manufacturers'' under Sec. 897.3(d).
Under this modified definition, one who manufactures cigarettes or
smokeless tobacco is not considered a distributor, but is subject to
the requirements applicable to manufacturers (see Sec. 897.3(d),
definition of ``manufacturer''). Similarly, one who ``sells or
distributes the product to individuals for personal consumption'' is
not a distributor, but is subject to the requirements applicable to
retailers (see Sec. 897.3(h), definition of ``retailer''). Furthermore,
the modified definition clearly does not apply to advertising agencies.
Although advertising agencies may be said to further the ``marketing''
of a product they advertise, they do not further the ``distribution''
of that product. As for truckers and other carriers, section 703 of the
act only requires ``carriers engaged in interstate commerce'' and
persons receiving or holding devices in interstate commerce to provide
access to records showing the devices' movement or holding in
interstate commerce. Thus, such carriers would not be subject to the
requirements applicable to distributors under this part.
(24) Proposed Sec. 897.3(d) would have defined ``manufacturer,'' in
part, ``as any person, including any repacker and/or relabeler, who
manufactures, fabricates, assembles, processes, or labels a finished
cigarette or smokeless tobacco product.'' One comment suggested that
this definition be modified to exclude foreign manufacturers and
manufacturers of products that make up less than 1 percent of the total
U.S. cigarette market.
The agency disagrees that foreign manufacturers and ``small''
manufacturers should be excluded from the definition. A company that
manufactures a small amount of a product is, nevertheless, a
manufacturer. Thus, small manufacturers and foreign manufacturers of
products marketed in the United States are included in the definition
of ``manufacturer'' and are subject to the provisions of this rule.
Furthermore, as discussed in more detail later, FDA regulates devices
as a class without making exceptions for small market share.
Additionally, FDA, on its own initiative, has deleted the part of
the definition which would have stated that a ``manufacturer'' ``does
not include any person who only distributes finished cigarettes or
smokeless tobacco products.'' FDA believes this text was unnecessary
given the definition of ``distributor'' in Sec. 897.3(c).
Proposed Sec. 897.3(e) would have defined ``nicotine'' by its
chemical formula, 3-(1-Methyl-2-pyrolidinyl) pyridine, and would have
included any salt or complex of nicotine. FDA did not receive any
comments that would warrant a change to Sec. 897.3(e), and has
finalized this definition without change.
Proposed Sec. 897.3(f) would have defined ``package'' as a pack,
box, carton, or container of any kind in which cigarettes or smokeless
tobacco are offered for sale, sold, or otherwise distributed to
consumers.
FDA did not receive any comments that would warrant a change to
Sec. 897.3(f) but has, on its own initiative, deleted the word
``products'' from ``smokeless tobacco products'' to correspond to
similar changes throughout the rule.
(25) Proposed Sec. 897.3(g) would have defined ``point of sale'' to
mean ``any location at which a consumer can purchase or otherwise
obtain cigarettes or smokeless tobacco products for personal
consumption.'' One comment stated that this definition is
unconstitutionally vague and over broad, because ``a person can
`obtain' cigarettes from a social acquaintance or family member * * *
in any number of * * * settings.'' The comment suggested that ``point
of sale'' be limited to ``commercial establishments where tobacco
products are sold in arm's-length commercial transactions.''
The agency agrees that obtaining a cigarette from a social
acquaintance or family member should not render the venue of this
``transaction'' a ``point of sale.'' However, the agency does not
believe that the definition of ``point of sale'' is vague or overly
broad, or that it needs to be modified. The definition, as proposed,
makes it clear that ``point of sale'' does not contemplate venues where
cigarettes are lent or offered to social acquaintances or family
members. The definition in Sec. 897.3(d) refers to the ``location at
which a consumer can purchase or otherwise obtain'' the product
(emphasis added). The term ``consumer,'' means ``a person who buys
goods or services for personal needs and not for resale or to use in
the production of other goods for resale.'' \37\ Thus, in its normal
use, the term ``consumer'' implies a commercial relationship and
precludes the possibility that, for example, the act of providing a
cigarette to a travel partner would render the vehicle in which both
are traveling the ``point of sale'' for that product.
---------------------------------------------------------------------------

\37\ Webster's New World Dictionary, edited by V. Neufeldt,
Third College Edition, Prentice Hall, New York, p. 299, 1991.
---------------------------------------------------------------------------

(26) Proposed Sec. 897.3(h) would have defined ``retailer'' to mean
``any person who sells or distributes cigarettes or smokeless tobacco
products to individuals for personal consumption.'' One comment stated
that this definition is unconstitutionally vague and over broad,
because a ``manufacturer or wholesaler that `distributes' complimentary
cigarettes to its employees, or to guests at a private function, would
be a `retailer,' as would

[[Page 44426]]

be any individual who gives any other individual a cigarette.''
The agency agrees that, although the intended meaning of the term
is clear, a ``person who * * * distributes * * * [a product] to
individuals for personal consumption'' may include transactions that
the agency does not intend to regulate (i.e., noncommercial
transactions). Therefore, the definition is modified to mean ``any
person who sells cigarettes or smokeless tobacco to individuals for
personal consumption.''
Additionally, under Sec. 897.3(h) as revised, a retailer can be any
person ``who operates a facility where vending machines and self-
service displays are permitted under this part.'' This change
complements a change to Sec. 897.16(c) which permits vending machines
and self-service displays in facilities where no person under age 18 is
present, or permitted to enter, at any time. The agency addresses
Sec. 897.16(c) in greater detail below.
Proposed Sec. 897.3(i) would have defined smokeless tobacco as
``any cut, ground, powdered, or leaf tobacco that contains or delivers
nicotine and that is intended to be placed in the oral cavity.''
FDA did not receive any comments that would warrant a change to
Sec. 897.3(i). However, FDA has revised the definition to refer to
``any product that consists of cut, ground, powdered, or leaf tobacco *
* *.'' The agency made this change because the words ``smokeless
tobacco'' are often understood as meaning a ``smokeless tobacco
product'' or products. Additionally, elsewhere in this rule, FDA has
replaced ``smokeless tobacco product'' with ``smokeless tobacco.''
(27) Several comments requested definitions for additional terms.
Specifically, one comment requested that ``advertising'' be defined to
distinguish between trade and consumer advertising; several comments
requested that ``vending machine'' be defined to exempt machines which
dispense cigarettes to cashiers, machines that dispense individual
cigarettes, or machines that scan a driver's license or age of majority
card before dispensing cigarettes; and several comments requested that
``playground'' be defined for clarity.
The agency disagrees that additional definitions are necessary for
the terms ``advertising'' and ``vending machine.'' However, the agency
has clarified the use of those terms in the relevant sections of the
preamble. The agency has determined that a definition for the term
``playground'' is necessary, and has added some examples to
Sec. 897.30. A discussion of the comments regarding the definition of
``playground'' can be found in section VI. of this document.

IV. Access

Subpart B of part 897 (now retitled as ``Prohibition of Sale and
Distribution to Persons Younger than 18 Years of Age'') contains the
restrictions on access to cigarettes and smokeless tobacco by
individuals under the age of 18. This subpart, by imposing restrictions
on manufacturers, distributors, and retailers, is intended to ensure
that children and adolescents cannot purchase these products.
In support of proposed subpart B, the preamble to the 1995 proposed
rule cited studies showing that the majority of junior high and high
school students--from 67 percent of 9th grade students in a 1990 survey
to 94 percent of junior high and high school students in a 1986
survey--believed that purchasing cigarettes and smokeless tobacco was
easy (60 FR 41314 at 41322, August 11, 1995). Other studies supported
that belief. As noted in the preamble to the 1995 proposed rule, the
1994 Surgeon General's Report entitled ``Preventing Use Among Young
People: A Report of the Surgeon General'' (the 1994 SGR) examined 13
studies of over-the-counter (OTC) sales and determined that
approximately 67 percent of minors are able to purchase cigarettes
illegally. The 1994 SGR examined nine studies and found that the
weighted average rate of illegal sales to children and adolescents from
vending machines was 88 percent. \38\
---------------------------------------------------------------------------

\38\ 1994 SGR, p. 249.
---------------------------------------------------------------------------

Significant numbers of children and adolescents successfully
purchased smokeless tobacco as well, with the success rate ranging from
30 percent for junior high school students to 62 percent for senior
high school students (60 FR 41314 at 41322). Ninety percent of
smokeless tobacco users in junior high and high school in a 1986 survey
said they bought their own smokeless tobacco (60 FR 41314 at 41322).
Studies indicate that a comprehensive approach to reducing young
people's access to cigarettes and smokeless tobacco would be more
effective than relying primarily on retailer education programs about
the need to prevent sales to underage persons. For example, the
preamble to the 1995 proposed rule cited a comprehensive community
intervention in Woodridge, IL, involving retailer licensing, regular
compliance checks, and penalties for merchant violations. The Woodridge
program reduced illegal sales from 70 percent to less than 5 percent
almost 2 years later (60 FR 41314 at 41322). Rates of both
experimentation and regular smoking decreased more than 50 percent
among seventh and eighth grade students (60 FR 41314 at 41322).
In contrast, another study cited in the 1995 proposed rule
indicated that retailer education programs, alone, may have limited
utility. In the study, retailers received informational packages on
preventing illegal sales to young people, yet despite these
informational packages, young people were able to buy cigarettes in 73
percent of the stores that received these informational packages, and,
after a comprehensive retailer educational program was conducted,
illegal sales were still found to occur in 68 percent of the stores (60
FR 41314 at 41322). When the program began issuing citations to
violative establishments, the illegal sales rate dropped to 31 percent
(Id.). This study, as well as other studies reviewed by the agency in
the 1995 proposed rule and made available for public comment and
review, led the Food and Drug Administration (FDA) to draft a
comprehensive proposal to reduce young people's access to cigarettes
and smokeless tobacco and to make explicit the responsibility of
manufacturers, distributors, and retailers to prevent cigarette and
smokeless tobacco product sales to persons under 18 years of age.
Subpart B to part 897 consists of four provisions. Section 897.10
establishes the general responsibilities of manufacturers,
distributors, and retailers to ensure that the cigarettes and smokeless
tobacco that they manufacture, label, advertise, package, distribute,
sell, or otherwise hold for sale comply with the requirements in this
subpart. The agency made one minor change to this provision, to change
``smokeless tobacco products'' to ``smokeless tobacco.''
Section 897.12 sets forth additional responsibilities of
manufacturers. Proposed Sec. 897.12(a) would have required
manufacturers to remove from point of sale all violative self-service
displays, advertising, labeling, and other manufacturer-supplied or
manufacturer-owned items. In response to comments from manufacturers
and sales representatives objecting to their responsibility for items
not owned by them, the agency has amended this provision to require
manufacturers only to remove from point of sale all violative self-
service displays, advertising,

[[Page 44427]]

labeling, and other items owned by the manufacturer.
Proposed Sec. 897.12(b) would have required manufacturers'
representatives who visit a point of sale in the normal course of
business to visually inspect and ensure that products are labeled,
advertised, and distributed in accordance with this subpart. In
response to comments questioning the need for and operation of this
requirement, FDA has deleted this provision.
Section 897.14 sets forth additional responsibilities of retailers.
Many of the comments supported the requirements to verify age and to
ban the sale of single cigarettes. Comments were divided on the
requirement for a direct transaction. The comments opposing the 1995
proposed rule were taken into account in the modifications to the final
rule.
The final rule contains a new Sec. 897.14(a), which states that no
retailer may sell cigarettes or smokeless tobacco to any person younger
than 18 years of age. This new paragraph codifies a concept that was
implicit in the 1995 proposed rule.
Proposed Sec. 897.14(a) (now renumbered as Sec. 897.14(b)) would
have required that the retailer or an employee of the retailer verify
by means of photographic identification showing the bearer's date of
birth that no purchaser is younger than 18 years of age. In response to
changes made to Sec. 897.16 regarding mail-order and vending machine
sales and self-service displays in facilities inaccessible to children
and adolescents, the final rule excepts the requirements for proof of
age under these limited circumstances. New Sec. 897.14(b)(2) eliminates
the verification requirement for consumers 26 years of age or older.
Proposed Sec. 897.14(b) (now numbered as Sec. 897.14(c)) would have
required that cigarettes or smokeless tobacco be provided to the
purchaser by the retailer or an employee of the retailer, without the
assistance of an electronic or mechanical device, such as a vending
machine. The final provision has been modified to reflect changes made
to Sec. 897.16 permitting vending machines and self-service displays in
certain limited circumstances and to correspond more closely to the
requirements in Sec. 897.16(c)(1).
Proposed Sec. 897.14(c) (now renumbered as Sec. 897.14(d)) would
have prohibited the retailer or an employee from opening any cigarette
or smokeless tobacco package to sell or distribute individual
cigarettes or any quantity of the product that is smaller than the
quantity in the unopened products. In order to clarify the intent of
this provision, the final rule prohibits retailers from breaking or
otherwise opening ``any cigarette or smokeless tobacco product package
to sell or distribute individual cigarettes or a number of unpackaged
cigarettes that is smaller than the quantity in the minimum cigarette
package size defined in Sec. 897.16(b), or any quantity of cigarette
tobacco or smokeless tobacco that is smaller than the smallest package
distributed by the manufacturer for individual consumer use.''
The final rule also adds Sec. 897.14(e) to clarify that each
retailer is responsible for removing all violative self-service
displays, advertising, labeling, and other items located in the
retailer's establishment or for bringing those items into compliance
with the requirements in this rule. This provision complements
Sec. 897.12 which requires manufacturers to remove manufacturer-owned,
violative items from retail establishments.
Section 897.16 establishes the conditions of manufacture, sale, and
distribution. Proposed Sec. 897.16(a) would have prohibited the use of
a trade or brand name for a nontobacco product as the trade or brand
name for a tobacco product ``except for tobacco products on which a
trade or brand name of nontobacco product was in use on January 1,
1995.'' The only change to Sec. 897.16(a) has been to clarify the
agency's intent by amending the language to restrict manufacturers to
those product names ``whose trade or brand name was on both a tobacco
product and a nontobacco product that were sold in the United States on
January 1, 1995.''
Section 897.16(b) would have established a minimum package size of
20 for cigarettes. The final rule was amended only to provide a very
limited exception consistent with the changes made to
Sec. 897.16(c)(2)(ii), discussed below.
Proposed Sec. 897.16(c) would have prohibited vending machines,
self-service displays, mail-order sales, and other ``impersonal'' modes
of sale and required direct, face-to-face exchanges between retailers
and consumers. In response to comments criticizing the restrictions as
inconveniencing adults, the agency has amended this section. The final
rule allows mail-order sales (except for mail-order redemption of
coupons and the distribution of free samples through the mail). The
final rule also allows vending machines (even those selling packaged,
single cigarettes), and self-service displays (merchandisers) in
facilities that are inaccessible to persons under the age of 18.
Proposed Sec. 897.16(d) would have prohibited manufacturers,
distributors, and retailers from distributing any free samples of
cigarettes or smokeless tobacco. FDA made one minor change to this
provision, changing the words ``manufacturers, distributors, and
retailers may not distribute'' to ``no manufacturer, distributor, or
retailer may distribute'' free samples.
The final rule adds a new Sec. 897.16(e) to prohibit manufacturers,
distributors, and retailers from selling, distributing, or causing to
be sold or distributed cigarettes or smokeless tobacco with advertising
or labeling that does not comply with the rule's advertising and
labeling requirements. This provision is intended to clarify that the
rule's advertising and labeling requirements are conditions on the
sale, distribution, and use of these products.

A. General Comments

The agency received many general comments both in support of and in
opposition to proposed subpart B of part 897. Comments supporting the
1995 proposed rule often stated that the rule, if finalized, would help
prevent young people from obtaining or using cigarettes and smokeless
tobacco and would eventually lead to a healthier population and lower
health care costs. The agency also received comments from attorneys
general of more than 25 States concluding that, overall, the 1995
proposed rule ``should be a crucial component of a national effort by
Federal, State, and local officials to help our youngest generation of
Americans avoid suffering preventable disease and premature death from
the use of tobacco products.''
Comments opposing the 1995 proposed rule, in general, asserted that
FDA regulation was unnecessary or unauthorized or that the proposed
requirements would be ineffective. The following is an analysis of and
response to these general comments.
(1) Several comments stated that the 1995 proposed rule violates
the Commerce Clause of the Constitution. The comments argued that there
is no equivalent to a congressional finding that the regulated activity
at issue--the sale of tobacco products to children and adolescents--
affects interstate commerce, nor is the regulation reasonably adapted
to an end permitted by the Constitution. They argued that the
regulation of tobacco products by

[[Page 44428]]

the Federal Government is impermissible based on United States v.
Lopez, 115 S.Ct. 1624 (1995) (Congress lacked power under Commerce
Clause to criminalize possession of a gun within 1,000 feet of a
school).
The agency disagrees with these comments. The Constitution gives
Congress the power ``[t]o regulate Commerce with foreign Nations, and
among the several States, and with the Indian Tribes.'' Under the
Commerce Clause, Congress may ``regulate those activities having a
substantial relationship to interstate commerce, i.e., those activities
that substantially affect interstate commerce'' (Lopez, 115 S.Ct. at
1629-30 (citation omitted)). The Supreme Court has consistently held
that Congress acted within its powers under the Commerce Clause when it
enacted and subsequently amended the Federal Food, Drug, and Cosmetic
Act (the act). (See United States v. Sullivan, 332 U.S. 689, 697-98
(1948); United States v. Walsh, 331 U.S. 432, 437-38 (1947); Weeks v.
United States, 245 U.S. 618, 622 (1918); Seven Cases of Eckman's
Alternative v. United States, 239 U.S. 510, 514-15 (1916); McDermott v.
Wisconsin, 228 U.S. 115, 128 (1913); Hipolite Egg Co. v. United States,
220 U.S. 45, 58 (1911).) Regulation of tobacco products is a legitimate
exercise of FDA's authority under the act to regulate drugs and devices
and is therefore within the scope of Congress' power under the Commerce
Clause.
The Supreme Court's recent opinion in Lopez does not affect this
analysis. As the Court noted, ``[t]he possession of a gun in a local
school zone is in no sense an economic activity that might, through
repetition elsewhere, substantially affect any sort of interstate
commerce.'' (See Lopez, 115 S.Ct. at 1634; see also Id. at 1640
(Kennedy, J., concurring) (``[H]ere neither the actors nor their
conduct have a commercial character, and neither the purposes nor the
design of the statute have an evident commercial nexus.'').)
By contrast, this tobacco regulation affects conduct that is
distinctly commercial in character. In particular, the access
restrictions--the national minimum age for purchase of tobacco products
and the restrictions on hand-to-hand sales, sales from opened packages,
package size, vending machine sales, and self-service displays--all
involve actors (manufacturers, vendors, and consumers) and conduct (the
marketing, sale, and purchase of products that are themselves in
interstate commerce) that are quintessentially commercial (see, e.g.,
Katzenbach v. McClung, 379 U.S. 294, 298-304 (1964) (under the Commerce
Clause, Congress may regulate activities of restaurants that serve
food, a substantial portion of which has moved in interstate
commerce)). In addition, the purpose and design of the regulation--to
deter this commercial activity directed at persons under the age of 18
in order to reduce addiction to the nicotine in these products--has the
requisite commercial nexus. (See, e.g., Heart of Atlanta Hotel, Inc. v.
United States, 379 U.S. 241 (1964); Perez v. United States, 402 U.S.
146 (1971).) Moreover, because youths alone purchase an estimated $1.26
billion of tobacco products annually, the regulated activity--sales of
tobacco products--substantially affects interstate commerce. \39\
---------------------------------------------------------------------------

\39\ DiFranza, J. R., and J. B. Tye, ``Who Profits from Tobacco
Sales to Children?'' JAMA, vol. 263, No. 20, pp. 2784-2787, 1990.
---------------------------------------------------------------------------

As noted, tobacco products are in interstate commerce as defined in
section 201(b) of the act (21 U.S.C. 321(b)). Cigarettes manufactured
in the United States include myriad components that are in interstate
commerce. For example, American-type blended cigarettes contain
oriental tobacco imported from Greece, Turkey, Russia, Yugoslavia, or
Bulgaria, and they may also contain imported flue-cured tobacco from,
for example, Zimbabwe or Brazil. In addition, they contain other
tobacco and tobacco products, filters, paper, ammonia, sugars,
humectant, licorice, and cocoa, among nearly 600 other possible
ingredients. (See generally Brown, C. L., The Design of Cigarettes,
Hoechst Celanese Corp., Charlotte, NC (3d ed. 1990); ``Ingredients
Added to Tobacco in the Manufacture of Cigarettes by the Six Major
American Cigarette Companies,'' (April 12, 1994)). Similarly, smokeless
tobacco is made from tobacco grown in Pennsylvania and Wisconsin or in
Kentucky and Tennessee and contains other ingredients from a list of
over 560, such as sugar, molasses, and licorice, which are in
interstate commerce. (See The Health Consequences of Using Smokeless
Tobacco: A Report of the Advisory Committee to the Surgeon General,
DHHS, PHS, p. 5, 1986; ``Smokeless Tobacco Ingredient List as of April
4, 1994, attached to letter of May 3, 1994, from Stuart M. Pape to the
Hon. Henry A. Waxman and the Hon. Thomas J. Bliley, Jr.)
(2) The comments also suggested that Congress' Commerce Clause
powers do not allow imposition of a national minimum age for the
purchase of tobacco products.
The agency disagrees. The cases cited in these comments, South
Dakota v. Dole, 483 U.S. 203 (1987) and Oregon v. Mitchell, 400 U.S.
112 (1970), do not address the Commerce Clause, and there is no case
law suggesting that an agency may not impose regulations on commerce
based on the age of people involved, under a statute passed pursuant to
Congress' Commerce Clause power, and in particular that an agency may
not set a national minimum age for sales of cigarettes and smokeless
tobacco in order to reduce the risks of addiction and to health
associated with their use by individuals under age 18. In fact, under
its authority to regulate commerce, Congress may exclude from
interstate commerce goods produced by children workers, United States
v. Darby, 312 U.S. 100, 115-17 (1941) (overruling Hammer v. Dagenhart,
247 U.S. 251 (1918), which held that Congress lacked power to exclude
products of child labor from interstate commerce), and criminalize, for
example, the transportation in interstate commerce of pornography
involving children (18 U.S.C. 2251 through 2259), or the sale of
firearms and ammunition to individuals under the age of 18 (18 U.S.C.
922(b)(l)).
Moreover, ```[t]he authority of the Federal government over
interstate commerce does not differ' * * * `in extent or character from
that retained by the states over intrastate commerce.''' (See Heart of
Atlanta Hotel, 379 U.S. at 260 (quoting United States v. Rock Royal Co-
op., Inc., 307 U.S. 533, 569-70 (1939)).) States may set a minimum age
for sales of cigarettes and smokeless tobacco, and these products are
in interstate commerce (and as devices, are presumed under section 709
of the act to be in interstate commerce for the purpose of jurisdiction
under the act). Thus, it follows that the Federal Government may
establish a national minimum age for sales of tobacco products.
In summary, the imposition of a national minimum age for purchase
of tobacco products and restrictions on hand-to-hand sales, sales from
opened packages, package size, vending machine sales, and self-service
displays is within Congress' authority under the Commerce Clause.
(3) Several comments argued that the regulation's imposition of a
national minimum age for purchase of tobacco products and its
restrictions on impersonal sales, sales from opened packages, package
size, vending

[[Page 44429]]

machine sales, and self-service displays violate the Tenth Amendment to
the Constitution. In particular, the comments argued that the
regulation of tobacco products and decisions about eligibility and
maturity are traditionally State functions, and that this fact required
Congress to have made it unmistakably clear by statute that it intended
FDA to regulate tobacco products.
The agency believes that this regulation does not violate the Tenth
Amendment. The Tenth Amendment provides that ``[t]he powers not
delegated to the United States by the Constitution, nor prohibited by
it to the States, are reserved to the States respectively, or to the
people.'' It follows that, ``[i]f a power is delegated to Congress in
the Constitution, the Tenth Amendment expressly disclaims any
reservation of that power to the States.'' (See New York v. United
States, 505 U.S. 144, 156.) Because FDA is acting under the act, which
Congress enacted under its Commerce Clause authority, there is no Tenth
Amendment violation.
FDA disagrees that regulation of tobacco sales or decisions about
eligibility and maturity are traditional State functions. Even if they
were, however, that fact would not implicate the Tenth Amendment. ``As
long as it is acting within the powers granted it under the
Constitution, * * * Congress may legislate in areas traditionally
regulated by the States'' (Gregory v. Ashcroft, 501 U.S. 452, 460
(1991)). Because the agency is acting to regulate cigarette and
smokeless tobacco sales in order to eliminate the health risks of those
products, and is doing so under a statute passed under Congress'
Commerce Clause power, these provisions do not violate the Tenth
Amendment.
Further, Congress need not make its intention to regulate in such
areas ``unmistakably clear in the language of [a] statute,'' Will v.
Michigan Dept. of State Police, 491 U.S. 58, 65 (1989) (quotations
omitted), as suggested in the comments. This requirement only applies
to Federal statutes that ``go[] beyond an area traditionally regulated
by the States'' to affect ``decision[s] of the most fundamental sort
for a sovereign entity,'' Gregory, 501 U.S. 460, because such statutes
``alter the usual constitutional balance between the States and the
Federal Government,'' Will, 491 U.S. 65 (quotations omitted); see also
Seminole Tribe of Florida v. Florida, 116 S.Ct. 1114, 1123-1132 (1996)
(holding that, even if Congress, acting under the Commerce Clause,
makes its intention to subject unconsenting States to Federal suits by
private parties absolutely clear, the Eleventh Amendment bars such
suits). Regulation of the sale of cigarettes and smokeless tobacco does
not fundamentally affect the States' prerogatives under the
Constitution (such as abrogating the States' sovereign immunity), and
so Congress need not have made it unmistakably clear by statute that it
intended FDA to regulate their sale.
In summary, the agency is imposing a national minimum age for
purchase of tobacco products and restrictions on impersonal sales,
sales from opened packages, package size, vending machine sales, and
self-service displays in order to eliminate the health risks to young
people associated with products in interstate commerce. These
provisions therefore do not violate the Tenth Amendment.
(4) A comment from an industry trade association stated that the
Ninth Amendment to the Constitution is a ``barrier to federal laws that
would restrict freedom of adults as well as others to use tobacco
products.'' Several comments from adults expressed similar arguments
regarding an adult's ``freedom'' to purchase or use tobacco products.
The agency disagrees that its imposition of a national minimum age
for purchase of tobacco products and its restrictions on hand-to-hand
sales, sales from opened packages, package size, vending machine sales,
and self-service displays impinge on unenumerated rights protected by
the Ninth Amendment.
The Ninth Amendment provides that ``[t]he enumeration in the
Constitution, of certain rights, shall not be construed to deny or
disparage others retained by the people.'' Although not a source of
rights itself, the Ninth Amendment nevertheless ``show[s] the existence
of other fundamental personal rights'' and that `liberty' protected by
the Fifth * * * Amendment[] from infringement by the Federal Government
* * * is not restricted to rights specifically mentioned in the first
eight amendments.'' Griswold v. Connecticut, 381 U.S. 479, 493 (1965)
(Goldberg, J. concurring).
The final rule regulates commercial transactions involving tobacco
products to limit young people's access to them. Young people do not
have an unenumerated, fundamental right protected by the Constitution
to have commercial access to tobacco products. (See Bowers v. Hardwick,
478 U.S. 186, 190 (1986).) Nor does the agency believe that it is
merely a specific manifestation of a broader right, Id. at 199
(Blackmun, J., dissenting), whether styled as the right to privacy,
Griswold, 381 U.S. at 484-485, or to be let alone, Olmstead v. United
States, 277 U.S. 438, 478 (1928) (Brandeis, J., dissenting), or to
individual autonomy, Carey v. Population Services Int'l, 431 U.S. 678,
687 (1977).
In particular, the right to privacy does not protect commercial
access to tobacco products for young people, because restricting sales
of addicting tobacco products to young people ``is within the area of
governmental interest in protecting public health.'' (See Rutherford v.
United States, 616 F.2d 455, 457 (10th Cir.), (right to privacy does
not include access to laetrile) cert. denied, 449 U.S. 937 (1980); see
also Carnohan v. United States, 616 F.2d 1120, 1122 (9th Cir. 1980)
(``Constitutional rights of privacy and personal liberty do not give
individuals the right to obtain laetrile free of the lawful exercise of
government police power''); United States v. Horsley, 519 F.2d 1264,
1265 (5th Cir. 1975), (holding that right of privacy does not protect
possession of marijuana with intent to distribute) cert. denied, 424
U.S. 944 (1976); United States v. Kiffer, 477 F.2d 349, 352 (2d Cir.)
(same), cert. denied, 414 U.S. 831 (1973).) The agency therefore
concludes that this rule does not abridge an unenumerated, fundamental
right reserved to the people by the Ninth Amendment to the
Constitution.
(5) Several comments suggested that comprehensive regulations were
unnecessary. Instead, these comments advocated training programs for
retailers and, more specifically, for retail sales clerks. These
training programs would be based either on voluntary efforts by the
affected industries or on in-house, employee training programs. A few
comments argued that any regulations to restrict access to cigarettes
and smokeless tobacco would be futile because young people ``would get
the products anyway.''
The agency disagrees with these comments. The preamble to the 1995
proposed rule indicated that informational or training programs, alone
or without any enforcement mechanisms, have limited success (60 FR
41314 at 41322). Given the health risks caused by or associated with
these products and the evidence that current, voluntary restrictions on
youth access are ineffective, FDA believes that it

[[Page 44430]]

needs to develop an effective, mandatory program under the act to
restrict young people's access to cigarettes and smokeless tobacco. The
agency cannot and should not abdicate its public health
responsibilities in deference to voluntary efforts to inform employees
or other parties on the sale and distribution of these products, given
the evidence cited in the preamble to the 1995 proposed rule that such
programs must be bolstered by government sanctions and measures like
those in subpart B of part 897 in order to be effective.
(6) Other comments, particularly those submitted by a few State
legislators, claimed that States should be free to allocate their
resources as they wished so that, if a State decided not to address a
particular issue, such as access to tobacco products, that decision
would be within the State's purview.
In contrast, comments submitted by State and local public health
officials were unanimous in recommending strong Federal leadership in
reducing young people's access to cigarettes and smokeless tobacco.
The agency believes that the comments opposing the rule
misinterpret the rule's scope and application. The rule does not
require States to enforce any provision, nor does it require States to
allocate resources in any manner. FDA will enforce the rule as it does
any other rule, by using FDA's own resources or, where appropriate and
with cooperation from State officials, by ``commissioning'' State
officials to perform specific functions on the agency's behalf. FDA is
authorized, under section 702(a) of the act (21 U.S.C. 372), to conduct
examinations and investigations through any health, food, or drug
officer or employee of any State, territory, or political subdivision
commissioned as an officer of DHHS. In most cases, a commissioned State
or local government official is authorized to perform one or more of
the following functions: (1) Conduct examinations, inspections, and
investigations under the act; (2) collect and obtain samples; (3) copy
and verify records; and (4) receive and review official FDA documents.
\40\ The scope of the official's authority depends on his or her
qualifications, and the commissioning process involves active and
voluntary participation by States in identifying suitable candidates
for commissioning and establishing the scope of the commissioned
official's duties.
---------------------------------------------------------------------------

\40\ FDA Regulatory Procedures Manual, DHHS, PHS, Office of
Regulatory Affairs, Office of Enforcement, Division of Compliance
Policy, Chapter 3, p. 45, August 1995.
---------------------------------------------------------------------------

(7) A few comments claimed that the rule would create friction
between States and the Federal Government because, according to these
comments, FDA would be interfering in State affairs. Some comments also
claimed that the rule would make State efforts less effective because
State regulatory or police agencies would defer to FDA.
In contrast, as noted above, several State attorneys general
expressed a different view, stating that the rule would strengthen
State efforts to reduce cigarette and smokeless tobacco use among young
people.
The agency respectfully disagrees with those comments that claim
FDA will be interfering in State affairs or that the rule will create
friction or undermine the effectiveness of State officials. The agency
has a history of cooperative relations with State regulatory officials.
For example, as mentioned earlier, section 702(a) of the act authorizes
FDA to commission State officials to perform specific functions on
FDA's behalf. FDA also works with State officials in implementing
statutes such as the Prescription Drug Marketing Act of 1987, the
Nutrition Labeling and Education Act of 1990, and the Mammography
Quality Standards Act of 1992. Given this history of cooperation
between FDA and State regulatory agencies, FDA does not agree that the
rule will create friction between FDA and State authorities or
undermine the effectiveness of State officials.
(8) Many comments argued that the 1995 proposed rule would restrict
an adult's ability to purchase or select cigarettes and smokeless
tobacco. Several asserted that regulations would be ineffective because
young people would obtain cigarettes and smokeless tobacco anyway.
Hence, these comments would eliminate all provisions intended to reduce
a young person's access to these products.
In contrast, many comments supported the rule, stating that it
would reduce a young person's easy access to and opportunity for early
experimentation with cigarettes and smokeless tobacco, help reduce the
use of those products by young people, and prevent young people from
suffering adverse health effects associated with using these products.
The agency agrees that the rule may have an incidental effect on an
adult's ability to purchase cigarettes or smokeless tobacco, but FDA
emphasizes that the rule's benefits far outweigh any inconvenience to
adults. FDA has narrowly focused the rule to address those activities
and practices that are especially appealing to, or used by, young
people and to preserve, to the fullest extent practicable, an adult's
ability to purchase these products. Any inconvenience to adults should
be slight. For example, although the final rule eliminates self-service
displays for cigarette packages in facilities that are accessible to
young people, the limited amount of time spent in requesting and
receiving a cigarette pack from a retail clerk should not result in
hardship on adults. The agency has also amended the rule, as discussed
in section IV.E. of this document to retain specific modes of sale that
are restricted to--or used almost exclusively by--adults. These
amendments respond to comments from adult consumers and retailers that
young people cannot or do not use certain modes of sale and so those
modes of sale should remain available to adults.
(9) Several comments argued that the 1995 proposed rule
``intruded'' on private life or ``discriminated'' against adult
cigarette and smokeless tobacco users.
In contrast, other comments agreed that FDA has jurisdiction over
cigarettes and smokeless tobacco and that the rule was an appropriate
exercise of FDA's authority and properly focused on curtailing access
by young people. Several comments suggested amending the rule to add
restrictions for adults, to ban smoking, or to provide information to
help all smokers to stop smoking.
As stated earlier, the agency has drafted the rule as narrowly as
possible to restrict the sale and distribution of these products to
children and adolescents, while preserving adults' ability to purchase
the products.
As for extending the rule to include adults or to ban smoking, FDA
declines to adopt the comments' suggestion. As discussed in section
III.A. of this document, the President, and the agency in its preamble
to the 1995 proposed rule, have stated that removing cigarettes and
smokeless tobacco from the market would not be in the best interests of
the public health. The agency adheres to this position.
(10) Many comments urged FDA to refrain from rulemaking and instead
rely on voluntary, manufacturer-developed or retailer-developed
programs, such as ``Action Against Access,'' ``It's the Law,'' and ``We
Card,'' to prevent sales to young people. Some would require retailers
and their employees to be trained to comply with existing State and
local laws. Several large retail

[[Page 44431]]

chains described the programs they already have in place.
Other comments expressed skepticism about such programs and,
therefore, strongly supported FDA's rulemaking activities.
The agency declines to rely solely on voluntary, manufacturer- or
retailer-developed programs to prevent sales to young people. The
agency is regulating cigarettes and smokeless tobacco as devices under
the act. Voluntary programs cannot serve as a substitute for such
regulation and do not provide many of the safeguards that the act
provides.
As for retailer programs to train employees not to sell cigarette
and smokeless tobacco to young people, FDA believes that such training
efforts will help retailers comply with their obligations under
Sec. 897.14. However, retailer training programs, alone, will not be as
effective as the rule's comprehensive approach because such training
would not affect certain activities (such as free samples and
advertising) that are used by or appeal to young people.
Similarly, voluntary, manufacturer-developed programs are not
sufficient to prevent sales to young people. Such programs purport to
deter young people from using cigarettes or smokeless tobacco until
they reach legal age, but often omit retail activities or impose no
sanctions if a voluntary code or provision is violated. For example,
one comment supported the rule, in part, because a retailer gave the
author, when he was 15 years old, and other children free cigarettes. A
manufacturer-developed program might not be effective at curtailing
such practices by retailers, whereas the rule bars distribution of free
samples by manufacturers, distributors, and retailers.
(11) One comment suggested amending the rule to include
advertisers.
FDA declines to amend the rule as suggested by the comment. The
agency's authority attaches to the product and those responsible for
its manufacture, distribution, or sale in interstate commerce.
Advertisers do not have control over the products and presumably act at
the direction of manufacturers, distributors, and retailers. If an
advertisement violated the requirements of this part, the agency would
hold the appropriate manufacturer, distributor, or retailer responsible
for the violative advertisement.
(12) One comment argued that cigarettes should be sold by
prescription only. Other comments opposing the rule predicted that the
agency would require prescriptions.
The agency declines to amend the rule to require prescriptions.
Such a requirement would unduly affect adults and retailers and, FDA
expects that the more narrowly tailored provisions in subpart B of part
897 will adequately restrict young people's access to these products.
(13) One comment criticized the 1995 proposed rule for not
restricting where cigarettes and smokeless tobacco may be sold. The
comment said that pharmacies and health care facilities often sell
these products and that such sales undermine the credibility of health
warnings related to these products. The comment suggested that FDA
prohibit ``inappropriate places'' from selling these products.
FDA declines to amend the rule as suggested by the comment. The
agency has no information or criteria that would permit it to determine
whether certain places or types of establishments are not
``appropriate'' for selling cigarettes and smokeless tobacco.

B. General Responsibilities of Manufacturers, Distributors, and
Retailers (Sec. 897.10)

Proposed Sec. 897.10 would have required each manufacturer,
distributor, and retailer to be responsible for ensuring that the
cigarettes or smokeless tobacco that it ``manufactures, labels,
advertises, packages, distributes, sells, or otherwise holds for sale''
comply with the requirements in part 897. FDA proposed this provision
setting forth these general responsibilities as part of the agency's
comprehensive program to reduce young people's access to cigarettes and
smokeless tobacco. Through this provision FDA intended to ensure that
these products, from the time of their manufacture to the time of their
purchase, comply with part 897 and that manufacturers, distributors,
and retailers appreciate their roles, and carry out their legal
responsibilities to reduce the accessibility and appeal of these
products to young people. The final rule retains Sec. 897.10 without
any significant changes.
(14) Many comments interpreted proposed Sec. 897.10 as imposing
strict liability on manufacturers, distributors, and retailers.
Generally, these comments interpreted the 1995 proposed rule as making
a party responsible for violations committed by another party, even if
the former was unaware that the violation had been committed by the
latter. Some comments asserted that the agency cannot impose such
vicarious liability, under these comments' interpretation of United
States v. Dotterweich, 320 U.S. 277 (1943), and United States v. Park,
421 U.S. 658 (1975). One comment acknowledged that proposed
Sec. 897.10, when read literally, would not hold parties responsible
for acts committed by other parties, but nevertheless claimed that,
despite such language, FDA would hold manufacturers, distributors, and
retailers liable for any action committed by any party.
The agency believes that the comments have misinterpreted
Sec. 897.10. Section 897.10 holds manufacturers, distributors, and
retailers responsible for their own actions; it does not require any
party to ensure that another party complied with the regulations, nor
does it hold a party responsible criminally or civilly for actions that
it did not commit or about which it had no responsibility under the act
and no knowledge. This is the most logical and straightforward
interpretation of Sec. 897.10, and, as stated earlier, the provision
states that ``each manufacturer, distributor, and retailer is
responsible for ensuring that the cigarettes and smokeless tobacco it
manufactures, labels, advertises, packages * * * comply with all
applicable requirements under this part'' (emphasis added). The word
``it'' refers to the individual manufacturer, distributor, or retailer,
while the word ``applicable'' signifies that a party, depending on the
circumstances, is subject only to those requirements for which that
party is responsible. This issue is discussed in greater detail later
in this section of the document.
In determining which party may be responsible for a regulatory
violation, FDA will examine where and when the violation occurred. For
example, Sec. 897.14(d), among other things, prohibits retailers from
opening any cigarette package and selling individual cigarettes. If a
retailer, on its own initiative, opened a package and sold single
cigarettes, without the knowledge of a manufacturer or distributor,
only the retailer would be responsible because only the retailer
engaged in actions that violated the requirements in this part.
However, if the manufacturer or distributor supplied single cigarettes
to the retailer--contrary to Sec. 897.16(b) which establishes a minimum
package size for cigarettes--and the retailer sold the single
cigarettes, or if the manufacturer or distributor knew or had reason to
know that the retailer sold

[[Page 44432]]

single cigarettes and continued to provide cigarettes to the retailer,
the manufacturer or distributor, as well as the retailer, would be
subject to regulatory action. The manufacturer or distributor would
have violated Sec. 897.16(b) and assisted in violating Sec. 897.14(d),
while the retailer would be in violation of Sec. 897.14(d). In sum,
each manufacturer, distributor, and retailer is responsible for
ensuring that its products (whether it manufactures, labels,
advertises, packages, distributes, sells, or otherwise holds them for
sale) comply with all requirements applicable to it and its products.
As such, Sec. 897.10 does not create the problems that the comments
suggested it does.
(15) Several comments objected to proposed Sec. 897.10 because it
would have each manufacturer, distributor, and retailer responsible for
ensuring compliance with the regulatory requirements in part 897. These
comments interpreted the provision as having the affected industries,
rather than Federal or State Governments, determine compliance. One
comment also asserted that the imposition of such responsibility on
private persons is a violation of the Due Process Clause of the Fifth
Amendment, which prevents unreasonable delegations of governmental
authority. Several comments added that manufacturers, distributors, and
retailers should not ``spy'' on each other to ensure compliance. One
comment said that the rule would create a ``hidden enforcement tax.''
FDA believes that the comments objecting to Sec. 897.10 have
misinterpreted its application. Section 897.10 does not make
manufacturers, distributors, or retailers solely responsible for
ensuring compliance with the regulations nor does it alter or affect
any Federal or State enforcement mechanism. Section 897.10 is intended
to remind manufacturers, distributors, and retailers that they are
responsible for complying with the regulations that are applicable to
them. FDA remains primarily responsible, as it does for most FDA
regulations, for determining whether parties comply with the
regulations. States, of course, remain free to enforce applicable State
laws relating to these products.
(16) One comment asserted that proposed Sec. 897.10 would impose
vicarious liability in violation of the Eighth Amendment's Excessive
Fines Clause.
As previously discussed, Sec. 897.10 does not impose the sort of
vicarious liability on manufacturers or distributors that the comments
suggested it does. The Excessive Fines Clause of the Eighth Amendment
states that ``excessive fines [shall not be] imposed.'' Here, neither
Sec. 897.10 nor any other provision of the final rule imposes an
excessive fine or any fine at all. Moreover, whether a fine is
excessive in a particular case requires a close analysis of the facts
of that case. (See, e.g., United States v. One Parcel Property Located
at 427 and 429 Hall Street, Montgomery, Montgomery County, Alabama, 74
F.3d 1165, 1170-73 (11th Cir. 1996) (adopting and applying
proportionality test to in rem civil forfeiture); United States v.
Chandler, 36 F.3d 358, 365-66 (4th Cir. 1994) (adopting and applying
three-part instrumentality test to in rem civil forfeiture) cert.
denied, 115 S.Ct. 1792 (1995).)
(17) A few comments implied that manufacturers should be excluded
from Sec. 897.10, stating that retailers, rather than manufacturers,
should be responsible for preventing sales to young people.
The agency declines to amend the rule to exclude manufacturers. The
preamble to the 1995 proposed rule demonstrated how certain practices
by manufacturers, such as the distribution of free samples, offer young
people easy and inexpensive access to cigarettes and smokeless tobacco.
(See 60 FR 41314 at 41326 (free samples).) FDA received several
comments that reinforced these views, such as comments from a 12-year
old recounting how his classmate acquired free cigarettes from a
manufacturer, and a mother whose 14-year old daughter and friends
attributed their cigarette use to free samples obtained from
manufacturers. Thus, manufacturers play a critical role in making
cigarettes and smokeless tobacco accessible and appealing to young
people.
In addition, because cigarettes and smokeless tobacco are products
subject to the act, regulation of these products properly follows them
from the time of their manufacture to their sale to the consumer.
Focusing solely on the sale of these products to consumers would
deprive the agency of any ability to address problems that may exist at
the manufacturer or distributor level. For example, if products were
incorrectly packaged or labeled, a rule that concentrated solely on
retail sales might permit FDA to restrict sales of those products, but
might not permit FDA to require the manufacturer to package or label
those products correctly.
(18) Two comments would amend the rule to exempt manufacturers that
had 1 or 2 percent of the cigarette or smokeless tobacco product
market. One comment came from an association of specialty tobacco
companies that either manufacture or import specialty cigarettes and
other tobacco products. The comment claimed that specialty cigarettes
account for a very small fraction (approximately 400 million
cigarettes) of the total cigarettes market, are sold at higher retail
prices compared to domestic cigarettes (from $1.75 for 10 Indonesian
cigarettes to $4.00 for 20 German cigarettes), and are sold in shops
that young people normally do not frequent. The comment also stated
that the rule would have an adverse effect on foreign products
(particularly products in packages containing less than 20 cigarettes),
that the companies had little control over foreign manufacturers, and
that companies would go out of business or be adversely affected by the
rule. The comment sought an exemption either for firms or brands that
have 1 percent or less of the total cigarette market in the United
States. The comment explained that an exemption would be equitable
because, the comment asserted, there is no evidence that speciality
cigarettes contribute to underage smoking, and would also be consistent
with an exemption granted by the Federal Trade Commission (FTC) for
rotating cigarette label warnings and regulations by the U.S.
Department of Agriculture (USDA) defining a ``domestic manufacturer of
cigarettes'' for assessing payments under the Agricultural Adjustment
Act of 1938.
The other comment came from a firm whose sales focused primarily on
smokeless tobacco, with the remainder devoted to cigars and ``smoking
tobaccos.'' The company said that it had approximately 1 percent of the
smokeless tobacco market and is the sixth largest smokeless tobacco
product manufacturer. The comment sought an exemption for companies
with market shares under 2 percent because it claimed the rule would
``sound the death knell'' for small, family-owned businesses.
Both comments indicated that 80 to 90 percent of their sales
occurred through the mail.
The agency declines to accept the comments' suggestions to create
an exemption based solely on market share. The agency believes that
subjecting similar or identical products to the same statutory and
regulatory standards is both practical and fair to manufacturers

[[Page 44433]]

and consumers. A consumer should be able to expect that similar or
identical products made by different manufacturers will be regulated in
the same fashion. Similarly, manufacturers will not be unfairly
advantaged or disadvantaged if they are all subject to the same
statutory and regulatory requirements. For example, the final rule
prohibits the distribution of free samples. This restriction applies
regardless of a manufacturer's market share and, aside from eliminating
a free source of cigarettes and smokeless tobacco that people use, also
treats manufacturers equally.
FDA is not persuaded by one comment's suggestion that an exemption
would be consistent with actions taken by other agencies. FTC's
exemption is based on statutory language at 15 U.S.C. 1333(c)(2)(A)(i)
and is limited to changes in the label rotation sequence; in other
words, the exemption does not relieve the manufacturer from placing
warning statements on its packages. USDA's regulation pertaining to
``domestic'' manufacturers is based on statutory language at 7 U.S.C.
1301(b)(17) as part of the Agricultural Adjustment Act of 1938 that was
designed, among other things, to create an incentive for domestic
manufacturers to use domestic tobacco leaf. Thus, neither the FTC nor
USDA statutes or regulations were intended to relieve foreign products
from substantive requirements or to regulate foreign manufacturers.
As for the comments' assertions that their products are either not
used by or accessible to young people, the agency has amended the rule
to permit specific modes of sale, including mail order sales, that
young people cannot or do not use. The agency did not amend the rule,
however, to exclude cigarettes and smokeless tobacco or brands that
young people do not appear to use or purchase. It would be
inappropriate to exempt a particular brand or specialty product simply
because a manufacturer claims young people do not purchase that
product. (The agency also notes that the $1.75 price charged for 10
Indonesian cigarettes is lower than the price charged for some domestic
brands and creating an exemption for a low cost cigarette product in a
``kiddie pack'' size would be contrary to the rule's purpose.)
Additionally, FDA traditionally classifies, as a group, device
products that are sufficiently similar so that they can be considered
the same type of device for purposes of applying the regulatory
controls in the act (see Sec. 860.3(i) (21 CFR 860.3(i)) (definition of
``generic type of device''), using the cumulative evidence from several
manufacturers. Reclassification of one product of a particular type
results in the reclassification of the entire group. (See 42 FR 46028,
September 13, 1977; and 43 FR 32988 July 28, 1978.) The alternative
would require FDA to classify individually each manufacturer's device,
and to undertake the classification process whenever a new manufacturer
marketed a product within an already identified device type. Thus, FDA
applies the same regulatory requirements to all devices within an
identified device type that are substantially equivalent to one
another. This approach is necessary to provide similar regulatory
treatment for essentially identical products of different manufacturers
and distributors (42 FR 46028 at 46031; and 43 FR 32988 at 32989).
Additionally, assuming that the rule effectively restricts a young
person's access to cigarettes and smokeless tobacco, it is reasonable
to assume that a young person would turn to alternative products, such
as foreign cigarettes that the comment would exempt. Consequently, the
agency declines to exempt products with small market shares from the
rule.
(19) FDA received several comments from wholesalers or distributors
arguing that they should be exempt from the 1995 proposed rule,
particularly proposed Sec. 897.10, because they are unable to affect
the actions of manufacturers and retailers. Several comments asserted
that wholesalers and distributors are ``merely a conduit'' for
transferring products from manufacturers to retailers and have small
staffs that would be unable to comply with all requirements in part
897. According to these comments, a wholesaler or distributor would
either have to hire additional staff to ensure that products complied
with all applicable requirements or be without sufficient staff to
ensure that all products supplied to all retailers complied with the
regulations. Several comments added that requiring wholesalers and
distributors to maintain records, submit reports to FDA, and be subject
to inspection by FDA would waste the wholesaler's or distributor's
resources and provide FDA with little or no useful information. A
minority expressed confusion as to their obligations if they relabel
cigarettes or smokeless tobacco.
The agency believes that the comments misinterpret Sec. 897.10. The
provision states that a distributor would be responsible for ensuring
that the cigarettes or smokeless tobacco that it manufactures, labels,
advertises, packages, distributes, sells, or otherwise holds for sale
complies with all applicable requirements. For example, the reporting
requirement in proposed Sec. 897.40 was directed at manufacturers.
Consequently, distributors would not have been required to submit
reports to FDA under Sec. 897.40. (Moreover, as discussed in section
VIII. of this document, FDA has deleted Sec. 897.40 and exempted
distributors from the registration and listing requirements in part
807. Distributors are, however, subject to other reporting
requirements, such as medical device distributor reports under part
804.) However, if a distributor acts in a manner that is outside the
definition of distributor in Sec. 897.3, it may alter its regulatory
status and become subject to other provisions in this part. For
example, a distributor who relabels cigarettes would, for those
relabeled products, become a ``manufacturer'' under this rule and be
subject to those provisions pertaining to manufacturers. Section 897.3
defines a manufacturer, in part, as any person, including any repacker
and/or relabeler, who manufactures, fabricates, assembles, processes,
or labels finished cigarettes or smokeless tobacco.
(20) Several comments would exempt distributors from the rule
because, the comments claimed, the 1995 proposed rule set forth little
or no evidence to justify regulating distributors.
FDA declines to exempt distributors from the rule. The agency
reiterates that it is regulating cigarettes and smokeless tobacco under
its drug and device authority, and that, as it does for other FDA
regulated products, FDA's rule follows the products from the time of
their manufacture to the time of their sale. Wholesale or distribution
operations must be included in any effective regulatory system because
products can be contaminated, diverted into illegal channels, or
otherwise adulterated or misbranded at the wholesale or distribution
level just as they can at the manufacturing and retail levels.
(21) Many comments asserted that, rather than impose
responsibilities on manufacturers and distributors, FDA should limit
the rule to requiring that retailers verify the age of persons
purchasing cigarettes and smokeless tobacco. These comments claimed
that no other regulatory provisions would be necessary if retailers, or
their sales clerks, verified the purchaser's age.

[[Page 44434]]

FDA declines to exclude manufacturers and distributors from the
rule. As stated earlier in section IV.B. of this document, cigarettes
and smokeless tobacco are products subject to regulation under the act,
and, as a result, the rule follows the products from the time of their
manufacture, through storage and distribution, to product sale at the
consumer level. Excluding manufacturers and distributors would
compromise FDA's ability to ensure that these products are not
accessible or appealing to young people. Manufacturers engage in
activities, such as advertising, labeling, and distributing samples,
that make cigarettes and smokeless tobacco accessible and/or appealing
to young people. Distributors channel products from manufacturers to
retailers, and so the rule includes distributors to ensure, among other
things, that the products do not become adulterated or misbranded while
held by distributors.
(22) FDA received many comments from retailers stating that FDA
regulation was unnecessary because retailers train their staffs to
request proof of age or have taken other steps to prevent sales to
young people.
The preamble to the 1995 proposed rule provided reasons for not
relying on retailer training programs alone. The preamble to the 1995
proposed rule cited a report by 26 State attorneys general stating that
industry training films and retailers' programs have not, on their own,
prevented illegal sales to young people and that, in some retail
sectors, high employee turnover rates complicated training efforts (60
FR 41314 at 41323). The preamble to the 1995 proposed rule also cited
studies showing that significant numbers of young people are not asked
to verify their age when purchasing cigarettes or smokeless tobacco and
that, in some cases, retail clerks even encouraged the young person's
purchase by suggesting cheaper brands or offering to make up the
difference in the purchase price if the young person lacked sufficient
funds (60 FR 41314 at 41323). FDA received some comments that further
illustrated the ease with which young people can purchase these
products; for example, one comment reflected on the author's own
practice, at age 11, of purchasing cigarettes by saying ``They are for
my Mom.'' Thus, while training retail clerks to request proof of age
should help curtail a young person's access to cigarettes and smokeless
tobacco, the reports and studies cited in the 1995 proposed rule, as
well as the personal experiences reflected in some comments, suggest
that additional measures are necessary to reduce a young person's
access to these products.
(23) Several comments from retailers claimed that the 1995 proposed
rule violated their ``right'' to sell products or arrange their stores
in any manner they wished. Many comments added that, if retailers are
subject to the rule, many retailers will lose sales and fees associated
with cigarettes and smokeless tobacco and could be forced to fire
staff. One comment further stated that this would actually harm young
people because the retailer would fire its newest staff, and such staff
employees are usually young people. Conversely, some comments claimed
that, in order to comply with the rule, retailers would be obliged to
hire additional staff.
In contrast, FDA received two comments denying that retailers would
lose slotting or promotional fees. (Some manufacturers pay retailers to
display their products (often referred to as ``slotting fees'') in a
specific fashion or to display signs or other materials provided by the
manufacturer.) One comment, based on experience in an area in northern
California where self-service displays were prohibited, stated that
retailers did not suffer significant economic losses after the displays
were banned. Another comment opined that manufacturers would still have
an incentive to offer slotting fees or allowances to retailers to
ensure advantageous placement of their products behind the counter.
FDA disagrees with the comments asserting an unrestricted ``right''
to sell products. Section 520(e) of the act (21 U.S.C. 360j(e)) states,
in part, that the agency may require that a device be restricted to
sale, distribution, or use upon such conditions as the agency may
prescribe by regulation. Because FDA has determined that these products
should be regulated as restricted devices, the act authorizes FDA to
impose controls on their sale and distribution. The agency further
notes that, in addition to restrictions authorized under the act, other
consumer products are sold subject to various restrictions. For
example, under 23 U.S.C. 158(a)(1), the ``national minimum drinking
age'' is 21 years, and the Secretary of Transportation is authorized to
withhold certain highway funds from States that have a lower minimum
age. Federal law expressly prevents licensed importers, manufacturers,
dealers, and collectors from selling firearms and ammunition to any
individual that the licensee knows or has reasonable cause to believe
to be under 18 years old (except in specific, limited cases), or, if
the firearm is not a shotgun or rifle, prohibits sales to individuals
under 21 years of age (18 U.S.C. 922(b)).
Thus, there is no unfettered or unrestricted ``right'' to sell
consumer products. Instead, products are often sold subject to
conditions or restrictions, including those based on age, that are
designed to protect the integrity of the product, to protect users or
other members of the public, or to prevent the product from reaching
certain groups of people.
FDA also disagrees with those comments predicting that the rule
will result in lower sales and fees and compel retailers to lay off
staff. Insofar as retailers are concerned, the rule does not affect
sales to adults. It is intended to eliminate illegal sales to young
people. Thus, for a retailer to assert that the rule will reduce its
sales revenue so much as to require staff reductions, illegal sales
would necessarily have to play a significant role in funding staff
positions.
With respect to fees, the agency cannot determine whether
manufacturers will discontinue paying slotting fees or other allowances
to retailers as a result of the rule. The preamble to the 1995 proposed
rule did estimate that industry promotional allowances totaled
approximately $1.6 billion in 1993, or $2,600 per retailer if the sum
is evenly distributed among the estimated 600,000 retail outlets (60 FR
41314 at 41369). FDA does note, however, that some comments supported
the agency's position that retailers will not suffer significant
economic losses. One study cited in the preamble to the 1995 proposed
rule stated that, ``in the absence of advertising and promotion outlets
* * * the cigarette industry may be expected to provide greater
incentives to retailers to provide more and better shelf space for
their brands in order to provide availability to the buyer in the
store'' (60 FR 41314 at 41369). Thus, while some manufacturers might
stop paying slotting fees, others might continue paying those fees or
even increase the fees to obtain favorable placement of their products
behind the counter.
Furthermore, as described in greater detail in section IV.E.4.b. of
this document, FDA has amended the rule to permit self-service displays
(or, more specifically, merchandisers) in facilities that are
inaccessible to young people.
As for those comments stating that retailers would have to hire
additional staff, it is possible that some retailers

[[Page 44435]]

who have relied on modes of sale that the rule will now prohibit or
restrict may need to hire additional staff. For example, if a retailer
derived a substantial portion of its revenue from vending machines and
those machines would not be available under the rule, the retailer
might decide to hire staff in order to continue selling cigarettes or
smokeless tobacco. However, the comments did not provide sufficient
information to enable FDA to determine the number of retailers who
might be affected or the extent to which they might be affected.
(24) A few comments challenged the validity of the 1995 proposed
rule because it did not impose responsibilities on young people who
purchase cigarettes and smokeless tobacco. These comments claimed that
omitting young people from the rule, while requiring retailers to
comply, was unfair, arbitrary, and capricious. One comment stated,
``any effective public policy to restrict sales of tobacco products to
minors must go beyond the discouragement of promotion, advertising and
merchandising to minors. It must be accompanied by realistic penalties
for minors who purchase and possess cigarettes and for adults who
purchase for them.''
It would be inappropriate for FDA to amend the rule to impose
penalties or sanctions on young people who purchase or possess
cigarettes or smokeless tobacco or adults who purchase such products
for young people. The main focus of the act is on the introduction,
shipment, holding, and sale of goods in interstate commerce. Thus, the
actions of minors who purchase cigarettes and smokeless tobacco are
appropriately a matter for State or local law.
(25) One comment stated that FDA should prohibit young people under
18 years of age from selling tobacco products.
The agency declines to amend the rule to place age restrictions on
those who sell these products. FDA has little evidence to suggest that
manufacturers', distributors', or retailers' young employees play a
significant role in making cigarettes and smokeless tobacco accessible
or appealing to young people. Although some evidence indicates that, in
certain settings, a young employee might be less likely to check age or
to challenge his or her peers (as in situations where the young
employee distributed free samples (60 FR 41314 at 41326)), other
provisions in this subpart, such as the elimination of free samples,
should reduce the need to place age restrictions on employees.
The agency does note, however, that in response to comments
requesting that vending machines and self-service displays be permitted
in ``adult-only'' facilities, FDA has amended the final rule to allow
vending machines and self-service displays in facilities that are
totally inaccessible to people under 18 and employ no persons below age
18. This is to ensure that an ``adults-only'' facility is truly
restricted to adults rather than to create an age restriction on
sellers. These changes to the rule are described in greater detail
elsewhere in this document.
The agency is aware that several local governments have statutes or
regulations that establish minimum age requirements for persons who
sell tobacco products. Because this rule does not contain a minimum age
requirement for persons who sell these products, those statutes or
regulations are not preempted. The rule's preemptive effect on other
State or local statutes or regulations and federalism issues are
discussed elsewhere in this document.
(26) Several comments suggested that, instead of issuing
regulations, the Federal Government should transfer funds to States for
use in preventing cigarette and smokeless tobacco sales to young
people.
FDA must decline to accept the comments' suggestion. Federal
funding of State prevention efforts is beyond the scope of the rule.
The agency does intend to work with State officials and cooperate in
enforcement activities where appropriate and to the extent that its
resources permit.
(27) Several comments suggested that FDA amend the rule so that the
restrictions on the sale and distribution of cigarettes and smokeless
tobacco do not apply to locations where young people do not enter or
where entry is restricted, such as bars, liquor stores, factories, and
prisons.
After consideration of these comments, the agency has amended the
rule to allow certain retail practices to continue because those
practices are not used by young people or are inaccessible to them. For
example, the final rule permits mail-order sales to occur because the
evidence does not establish that young people use mail-order sales to
acquire these products. The final rule also permits vending machines
and self-service displays (merchandisers only) to be used in locations
where young people cannot enter, such as locations where proof of age
is required in order to enter the premises or facilities that employ
only adults. These changes are described in detail in the discussion of
Sec. 897.16 and elsewhere in this document.

C. Additional Responsibilities of Manufacturers (Sec. 897.12)

1. Removal of Manufacturer-Supplied or Manufacturer-Owned Items That Do
Not Comply With the Regulations
Proposed Sec. 897.12(a) would have required manufacturers, in
addition to their other obligations under part 897, to remove, from
each point of sale, ``all self-service displays, advertising, labeling,
and other manufacturer-supplied or manufacturer-owned items'' that do
not comply with the requirements in part 897. In response to comments,
the agency has amended the final rule to require the manufacturer to
remove only those violative items that the manufacturer owns.
(28) Many comments, including comments from manufacturers' sales
representatives and retailers, strongly objected to this provision,
particularly as it would apply to self-service displays. In general,
the comments claimed that retailers, rather than manufacturers, own the
self-service displays. The comments also expressed concern that
manufacturers' representatives or retailers' employees might be
physically harmed if a manufacturer's representative attempted to
remove a self-service display from a retailer. Several comments also
interpreted proposed Sec. 897.12(a) as requiring a manufacturer's sales
representative to remove self-service displays supplied by another
manufacturer; these comments said removing a competitor's self-service
display would be unethical and could result in the sales representative
being barred from reentering the retail establishment in the future.
In contrast, a few comments supported proposed Sec. 897.12(a)
because manufacturers provide the displays to retailers and visit
retailers often. One comment added that the burden of removing displays
should not rest on retailers alone, but added that retailers should
remain ultimately responsible for displays they use or have on site.
This comment suggested that retailers be responsible for removing
displays if the manufacturer fails to do so.
The agency agrees, in part, with the comments critical of the
proposed provision and has amended Sec. 897.12 to clarify that a
manufacturer is responsible for removing all self-service displays
(which the final rule also clarifies as referring to merchandisers),

[[Page 44436]]

advertising, labeling, and other items that it owns that do not comply
with the requirements in part 897. FDA has also amended Sec. 897.14 to
clarify the obligation of retailers with respect to all other violative
items in the retailer's establishment. These changes should eliminate
potential conflicts between manufacturers' sales representatives and
retailers.
Additionally, Sec. 897.12 requires a manufacturer to be responsible
only for the removal of the items it owns. The agency does not expect
manufacturers to remove items owned by another manufacturer, but
encourages manufacturers to inform another manufacturer and FDA if
another manufacturer's items violate the requirements in part 897.
However, the agency advises manufacturers who know or have reason to
know that a distributor or retailer is misbranding that manufacturer's
products, or causing its products to violate these regulations or the
act, to take action, such as discontinuing sales, incentives, and
supplies, to halt the violation. Manufacturers might be held liable for
subsequent violations by the distributor or retailer, if the
manufacturer knew or should have known about the violation and
continued to supply its product to such parties.
Liability, both criminal and civil, under the act is very broad.
Section 301 of the act (21 U.S.C. 331) prohibits certain acts ``and the
causing thereof.'' United States v. Dotterweich, 320 U.S. 277 (1943),
and United States v. Park, 421 U.S. 658 (1975) elaborate on the meaning
of ``causing'' in section 301 of the act (see Park, 421 U.S. at 673).
These cases stand for the proposition that a corporate official can be
held criminally liable as having caused the corporation's violations of
the act of which he had no knowledge, so long as he stood in a
``responsible relationship'' to the violations (Id. at 672).
Under the act, ``all who * * * have * * * a responsible share in
the furtherance of the transaction which the statute outlaws'' have
caused the violation and are subject to civil and criminal liability
(Dotterweich, 320 U.S. at 284). Indeed, a corporate employee and the
corporation itself can have a responsible share in the furtherance of a
violation of the act committed by another corporation or a person who
is not an employee of the corporation. (See, e.g., United States v.
Parfait Powder Puff Co., 163 F.2d 1008, 1009-10 (7th Cir. 1947)
(holding defendant corporation criminally liable for violations
committed without its knowledge by second corporation that defendant
had contracted with to manufacture, package, and distribute its
cosmetic product), cert. denied, 332 U.S. 851 (1948); United States v.
Articles of Drug, 601 F. Supp. 392 (D. Neb. 1984) (enjoining drug
distributor that induced its customers to pass off its drugs as
controlled substances), aff'd in part, rev'd in part on other grounds,
825 F.2d 1238 (8th Cir. 1987); cf. Inwood Lab., Inc. v. Ives Lab.,
Inc., 456 U.S. 844, 853-54 (1982) (manufacturer or distributor who
``intentionally induces another'' to violate trademark law or who
``continues to supply its product to one whom it knows or has reason to
know'' will violate trademark law is itself responsible for
violation).) And it is a ``settled doctrine[] of criminal law'' (Park,
421 U.S. at 669) that a person who knows or has reason to know that
goods that he sells will be used unlawfully may be criminally liable as
aider and abettor under 18 U.S.C. 2; Bacon v. United States, 127 F.2d
985, 987 (10th Cir. 1942) (discussing former 18 U.S.C. 550, precursor
to 18 U.S.C. 2(a))).
For example, a manufacturer or distributor that continues to supply
its product to a retailer whom it knows or has reason to know sells
cigarettes or smokeless tobacco to young people (or who breaks open
packages and sells single cigarettes) might be liable for subsequent
violations by that retailer. Likewise, a manufacturer who paid a
retailer a fee for the retailer to use an illegal self-service display
in a store might be liable for the retailer's violation.
These examples are, however, only by way of illustration because,
as the Supreme Court stated in Dotterweich, ``[t]o attempt a formula
embracing the variety of conduct whereby persons may responsibly
contribute in furthering a transaction forbidden by an Act of Congress
* * * would be mischievous futility'' (320 U.S. at 285). It added that,
``[i]n such matters the good sense of prosecutors, the wise guidance of
trial judges, and the ultimate judgment of juries must be trusted''
(Id.).
(29) One comment challenged FDA's authority to require
manufacturers to remove items that fail to comply with the regulations.
The comment explained that FDA, rather than manufacturers, is
responsible for compliance activities and a manufacturer's
representative is not deputized or authorized to act on the agency's
behalf. The comment added that sales representatives are not trained to
perform investigative or law enforcement functions and, unlike
Government employees, would not enjoy the same legal protections
accorded to the agency's inspectors. The comment also argued that FDA
lacks authority to require manufacturers, or any other party, to remove
any materials that would violate the regulations. The comment asserted
that the agency has no general recall authority and that the recall
authority in the act for devices requires the agency to find that a
reasonable probability of serious adverse health consequences or death
exists and, when exercising that recall authority, to provide an
opportunity for a hearing. Thus, according to the comment, the 1995
proposed rule is deficient because it makes no findings and fails to
provide for a hearing.
The agency believes that the comment misinterprets the provision.
Section 897.12 would not ``deputize'' manufacturers' representatives
nor confer any official responsibility on them. FDA intends to enforce
the act and regulations itself and, where appropriate, will consider
commissioning State officials, under its authority in section 702(a) of
the act, to perform specific functions on FDA's behalf. Section 702(a)
of the act does not extend to commissioning private parties, and the
agency has no intention of commissioning manufacturers'
representatives.
FDA also disagrees with the comment's claim that FDA has no
authority to require manufacturers to remove materials that violate FDA
regulations. FDA is issuing this provision, as well as part 897
generally, under its authority under section 520(e) of the act, which
expressly declares, in part, that the agency may, by regulation,
require that a device be restricted to sale, distribution, or use
``upon such other conditions as the Secretary may prescribe in such
regulation.'' Section 897.12, as amended, is a logical and necessary
complement to the restrictions on the devices' sale, distribution, and
use because it requires the manufacturer to assume responsibility for
removing items that it owns that do not comply with the restrictions.
Furthermore, as the Supreme Court stated in United States v. Park, 421
U.S. 658, 672 (1975), ``the act imposes not only a positive duty to
seek out and remedy violations when they occur but also, and primarily,
a duty to implement measures that will insure that violations will not
occur.''
The comment's argument with respect to the agency's recall
authority is also misplaced. Section 897.12 applies in situations where
a manufacturer knows,

[[Page 44437]]

either acting on its own or on the basis of information supplied to it,
that one of its items does not comply with the regulations. Knowing
that the item does not comply with the requirements in part 897, the
manufacturer is then obligated to remove the violative item. Notice of
an opportunity for a hearing or other due process considerations
associated with recalls under section 518 of the act (21 U.S.C. 360h)
are inapplicable because the manufacturer, rather than the government,
would be the principal party during this process, using information it
has to act on its own items. In any case, section 518 of the act
applies to the recall of a device, not its advertising.
FDA fully expects manufacturers to comply with Sec. 897.12. For
example, if the manufacturer provided advertising that used colors and
photographs, contrary to Sec. 897.32, which requires black and white
text only, the manufacturer is deemed to know that the advertising does
not comply with Sec. 897.32 and should remove that advertising. In this
situation, where the manufacturer's advertising clearly does not comply
with the regulations, requiring FDA to provide notice and an
opportunity for a hearing (as the comment would apparently require)
would simply waste FDA's and the manufacturer's resources.
FDA will take regulatory action against manufacturers who fail to
comply with this provision or any other applicable provision. The
nature of the regulatory action will depend, in large part, on the
violation, but could range from issuance of a warning letter, to an
injunction under section 302 of the act (21 U.S.C. 332), the imposition
of civil penalties, criminal fines, and/or imprisonment under section
303 of the act (21 U.S.C. 333), and seizures under section 304 of the
act (21 U.S.C. 334).
2. Visual Inspections by a Manufacturer's Representative at Each Point
of Sale
Proposed Sec. 897.12(b) would have required a manufacturer's
representatives to visually inspect each point of sale that they visit
during the normal course of business to ensure that cigarettes and
smokeless tobacco are ``labeled, advertised, and distributed in
accordance with this part.'' The preamble to the 1995 proposed rule
indicated that manufacturers keep extremely detailed records about each
retailer and that some records noted whether the retailer should be
visited weekly, biweekly, etc. and noted the types of displays in the
retailer's establishment (60 FR 41314 at 41323). The preamble to the
1995 proposed rule also stated that this provision would not impose a
new responsibility or burden on companies that did not visit retailers
as part of their ordinary business practice and, for those
manufacturers that would be expected to comply, estimated that these
visual inspections would take no more than 2 to 3 minutes per visit (60
FR 41314 at 41323 and 41365). Based on the comments received in
response to this proposal, the agency has deleted Sec. 897.12(b) from
the final rule.
(30) Several comments opposed proposed Sec. 897.12(b). One comment
argued that proposed Sec. 897.12(b) is unconstitutional because it
would hold manufacturers vicariously liable for the acts of others in
violation of the Due Process Clause, and would violate Article I,
Section 8 of the Constitution, which implicitly reserves to States the
authority to raise militias. One comment asserted that the number of
manufacturers' representatives varies among manufacturers and that
there are too many retail establishments for those representatives to
inspect. The comment added that any inspection would require more than
3 minutes to be effective, so that conducting inspections at each
retailer would be labor intensive and costly. Another comment,
notwithstanding the statement in the preamble to the 1995 proposed rule
that the provision applied only to those firms that visit retailers in
the ordinary course of business, asserted that its entire staff would
be too small to visit all the retailers that it services. A small
number of comments added that such responsibilities would, in effect,
constitute a hidden ``tax'' on manufacturers.
Other comments, many submitted by sales representatives, objected
to proposed Sec. 897.12(b), stating that the representatives have no
power over a retailer's actions and cannot take any adverse action,
such as discontinuing supplies, to retailers who sell cigarettes and
smokeless tobacco to young people. Some comments explained that, even
if a sales representative could ask a distributor to stop supplying
certain retailers, the retailer could simply switch distributors and
continue to obtain products. Other comments argued that the
responsibility to prevent sales to young people rests solely with the
retailer.
In contrast, several comments supported proposed Sec. 897.12(b)
because sales representatives frequently visit retailers or because
manufacturers deliver materials, such as self-service displays and
promotional materials, to retailers. One comment even suggested
amending the rule to require manufacturers to enter into contracts with
retailers and distributors to comply with FDA regulations and to state
that failure to comply would result in termination of the retailer's or
distributor's ability to obtain the manufacturer's cigarettes or
smokeless tobacco.
After consideration of the comments, the agency has removed
Sec. 897.12(b). FDA intends to examine this matter further and to
develop a guidance describing how manufacturers may be able to assist
retailers to comply with this subpart. Possible options might include
methods suggested by the comments, such as contractual agreements
between retailers and manufacturers including provisions on compliance
and the consequences of noncompliance.

D. Additional Responsibilities of Retailers (Sec. 897.14)

Proposed Sec. 897.14 would have established additional
responsibilities for retailers, stating that ``[i]n addition to the
other requirements under this part, each retailer is responsible for
ensuring that all sales of cigarettes and smokeless tobacco to any
person (other than a distributor or retailer)'' comply with specific,
listed requirements.
FDA, on its own initiative, has amended Sec. 897.14 to delete the
parenthetical text referring to a distributor or retailer because the
evidence does not establish that retailers sell these products to such
parties, and if a retailer did sell these products to a distributor or
retailer, the retailer would be acting as a ``distributor'' as defined
in Sec. 897.3(c).
FDA, also on its own initiative, has amended Sec. 897.14 to add a
new paragraph (a) stating that, as one of the listed requirements,
``[n]o retailer may sell cigarettes or smokeless tobacco to any person
younger than 18 years of age'' and has renumbered proposed
Sec. 897.14(a) through (c) accordingly. The new paragraph codifies a
concept that was present throughout the 1995 proposed rule, namely that
retailers are not to sell cigarettes or smokeless tobacco to young
people under 18 years of age.
1. Use of Photographic Identification to Verify Age
Under proposed Sec. 897.14(a) (now renumbered as Sec. 897.14(b)),
each retailer, or an employee of the retailer,

[[Page 44438]]

would have been required to verify, by means of photographic
identification containing the bearer's date of birth, that no person
purchasing or intending to purchase cigarettes or smokeless tobacco is
younger than 18 years of age.
The preamble to the 1995 proposed rule explained that studies
indicate that young people who purchase cigarettes and smokeless
tobacco from stores are often not asked to verify their age. For
example, one study found that 67 percent of young people, whose mean
age was 15 years, were asked no questions when they attempted to
purchase cigarettes. In some cases, retail clerks even encouraged
purchases by young people, suggesting less expensive brands or offering
to make up the difference if he or she lacked sufficient funds (60 FR
41314 at 41323). The preamble to the 1995 proposed rule also noted that
requiring proof of age to purchase cigarettes and smokeless tobacco
could reduce cigarette and smokeless tobacco use among young people (60
FR 41314 at 41323). Consequently, the 1995 proposed rule would have
required retailers to verify that persons who intend to purchase
cigarettes or smokeless tobacco are legally entitled to do so.
The preamble to the 1995 proposed rule also indicated that a
driver's license or college identification card would be acceptable
forms of photographic identification, but the agency invited comment on
whether the final rule should contain more specific requirements on the
types of identification (60 FR 41314 at 41323).
FDA received many comments supporting a proof of age requirement.
These comments came from law enforcement entities, drug abuse
prevention groups, health care professionals, medical societies, public
health organizations, and even some adult smokers who agreed that a
proof of age requirement will reduce young people's access to
cigarettes and smokeless tobacco. One comment from a coalition of State
attorneys general said there ``are many teenagers who look much older
than they are, who can obtain tobacco products quite easily. When they
are required to show age verification, they will not be mistaken for an
older age. Therefore, they will not be permitted to acquire tobacco
products.'' Another comment from a State public health department
reported that, based on data analyzed from the State's own experience,
illegal tobacco purchases occur less than 5 percent of the time when
the retailer checks a photographic identification card to verify age,
as opposed to a 95 percent illegal sales rate when no photographic
identification card is checked.
In response to comments and changes to Sec. 897.16 regarding mail
order and vending machine sales and self-service displays in facilities
that are inaccessible to children and adolescents, the final rule
excepts the proof of age requirement under these limited circumstances.
(31) Several comments objected to making retailers responsible for
their employees' actions. These comments asserted that an employee's
failure to verify a potential purchaser's age or an employee's error
should not subject the retailer to any regulatory action. A few
comments faulted the 1995 proposed rule for not holding sales clerks
responsible or argued that the rule would be ineffective because it
would not alter a sales clerk's behavior.
In contrast, many comments supported the requirements that hold
retailers responsible for preventing illegal sales. Indeed, one comment
suggested that there should be ``significant penalt[ies] for sales to
persons under 18, including the loss of the opportunity to sell tobacco
* * *.'' Another comment stated that the rule should contain penalties
for illegal tobacco sales.
The agency declines to amend the rule to relieve retailers from
responsibility. Retailers, in general, are responsible for the acts of
their employees. (See United States v. Park, 421 U.S. 658, 672 (1975).)
Relieving retailers from responsibility for their employees' actions
would only invite abuse because retailers could continue to sell
products to young people and, if caught making such sales, could blame
their employees without suffering any adverse consequences themselves.
To reflect its position that retailers are generally responsible for
their employees' actions, FDA has amended Sec. 897.14 to remove all
references to ``an employee of the retailer.'' Thus, Sec. 897.14 now
refers to a ``retailer'' and makes no distinction for the retailer's
employees.
As for the comment claiming the rule contains no penalties for
illegal tobacco sales, the agency believes that the comment
misunderstands how the rule will operate. In general, FDA regulations
implement and interpret the agency's statutory obligations under the
act, including various criminal and civil penalties. Thus, a regulation
need not specify what penalties are attached to a violation because the
act provides this information.
FDA has, however, amended proposed Sec. 897.14(a) (now renumbered
as Sec. 897.14(b)) to state that, ``[e]xcept as otherwise provided in
Sec. 897.16(c)(2)(i) and in paragraph (a)(2) of this section,'' a
retailer shall ensure compliance with the prohibition against sales to
persons under 18 by verifying the purchaser's age. FDA made this
amendment to correspond with the prohibition, in Sec. 897.14(a),
against sales to persons under 18 and because, as discussed in greater
detail below, the final rule permits sales from vending machines and
self-service merchandisers that are inaccessible to young people and
permits mail-order sales. These modes of sale are either secure from
access by young people (by requiring age verification upon entrance to
the facility) or not used by them. The exception for paragraph (a)(2)
complements another change to Sec. 897.14 (discussed in greater detail
below) to not require proof of age from persons over the age of 26.
FDA has also amended Sec. 897.14(b) to delete the words ``intending
to purchase.'' The requirement that retailers verify the age of persons
``purchasing the product'' sufficiently accomplishes the provision's
goal of reducing illegal sales.
(32) Several comments supported the use of identification cards to
verify the purchaser's age. Some comments, responding to a question in
the preamble to the 1995 proposed rule asking whether the rule should
specify the types of identification that would comply with a proof-of-
age requirement, advocated using identification cards, passports, or
other official documents establishing the bearer's age issued by
States, the Federal Government, or foreign governments. One comment
recommended that States develop a uniform coding system for
identification cards to permit retailers to read or to scan
identification cards quickly to verify a purchaser's age. Other
comments advised against the use of college or school identification
cards; the comments noted that colleges and schools have little
incentive to design their identification cards to be sufficiently
tamper-proof.
In contrast, one comment stated that the agency should not ask for
comment on the type of identification card to require, arguing that the
``degree of micromanagement implied by the Agency's invitation for such
comment underscores the inappropriateness of federal action in this
area.''
FDA recognizes the comments' concern. However, the final rule does

[[Page 44439]]

not require a uniform coding system or a Federal, State, or local
government identification card.
(33) FDA received several comments that addressed when a retailer
should inspect a purchaser's photographic identification card. One
comment interpreted the provision as requiring retailers to inspect
visually the photographic identification card of every purchaser, and
said that this would be unreasonable. The same comment contended that
retailers and their employees should be required to demand proof of age
only from prospective purchasers who do not appear to be over 18; this
was the standard employed in Everett, WA, which was cited in the
preamble to the 1995 proposed rule.
In contrast, other comments supported age verification for all
tobacco sales. Some comments from retailers indicated that some
retailers check identification cards for all tobacco sales, while many
comments submitted by retailers stated that they check identification
cards to verify the age of purchasers who appear to be ``underage.''
Other comments suggested that the regulation require visual inspection
of photographic identification cards for purchasers who appear to be
younger than 21, 25, 26, or 30 years of age. Such a requirement
appeared to be independently selected to ensure that the purchaser met
the age requirement in the particular jurisdiction.
Contrary to the comment that interpreted the rule as requiring
proof of age in all transactions, the 1995 proposed rule would have
given retailers some flexibility in deciding when to demand proof of
age. The preamble to the 1995 proposed rule cited studies and reports
demonstrating that few retailers request proof of age from young people
attempting to purchase cigarettes or smokeless tobacco (60 FR 41314 at
41323). Consequently, proposed Sec. 897.14(a) (now renumbered as
Sec. 897.14(b)) would have required retailers to verify that
prospective purchasers are of legal age, and the preamble to the 1995
proposed rule suggested that retailers request proof of age from anyone
who does not appear to be at least 26 years old (60 FR 41314 at 41323).
This suggestion was similar to a recommendation made in a report by 26
State attorneys general. The agency anticipated, for example, that
requiring proof of age from a senior citizen would be unnecessary, but
strongly recommended requiring proof of age from an individual who
appears youthful.
However, due to concerns that, despite the language in the preamble
to the 1995 proposed rule, the rule would require age verification in
all cases, the agency has amended the rule to except from the age
verification requirement individuals who are over 26 years old. The
agency declines to amend the rule to require age verification if the
purchaser appears to be 21, 25, 26, or 30 years old. Determining a
person's age by his or her physical appearance alone is a subjective
determination, and so requiring age verification if a person ``looked''
like he or she was a particular age would be difficult to administer
and to enforce. By requiring age verification if a purchaser is 26
years old or younger, regardless of his or her appearance, the retailer
foregoes age verification at its own risk.
The agency notes that using the higher age of 26 as the threshold
for requiring proof of age should increase the likelihood that illegal
sales to young people will not occur. Using a lower age, such as 18
(which is used in some States) or 21, as the threshold for requiring
proof of age may enable some young people to purchase cigarettes and
smokeless tobacco, and, as a result, cause a retailer to be in
violation of this subpart.
(34) Many comments, particularly comments from retailers, supported
the requirement for age verification but added that the requirement
should be voluntary. Others said that State law or regulations
requiring age verification are adequate, and that, as a result, FDA
regulation is unnecessary. Other comments claimed FDA regulation would
add ``red tape and paperwork'' that would not reduce young people's
access to cigarettes and smokeless tobacco and would instead ``come at
great cost to taxpayers.''
On the other hand, State attorneys general and other State and
local enforcement authorities commented that the Federal regulations
requiring age verification by inspection of photographic identification
card will complement and enhance their enforcement abilities.
FDA declines to delete an age verification requirement from the
rule. The preamble to the 1995 proposed rule cited studies and reports
to show that young people are often able to purchase cigarettes and
smokeless tobacco without showing proof of age (60 FR 41314 at 41323).
In one case, the young people were able to purchase cigarettes even
when they admitted that they were under the legal age (60 FR 41314 at
41323). These studies and reports suggest that the final rule must
require retailers to demand proof of age because voluntary efforts are
ineffective.
As for deferring to State laws and regulations, FDA believes that
State efforts to require proof of age, and retailer compliance with
such efforts, should increase and become more effective due to section
1926 of the PHS Act. This provision requires States to enact and to
enforce laws prohibiting manufacturers, retailers, or distributors of
tobacco products from selling or distributing such products to persons
under age 18 in order to receive substance abuse prevention and
treatment block grants. However, State laws may differ, and so the
final rule requires retailers to verify the age of purchasers. This
will establish a uniform, national requirement regarding proof of age
and is consistent with the assertion of Federal authority over these
products under the act.
(35) Many comments pointed out that there is no penalty for parents
who allow underage children to smoke.
FDA believes that the vast majority of adults and parents do not
purchase tobacco products for young people. Parental actions are also
beyond the scope of FDA's authority. However, it should be noted that
parental consent to a young person's purchase of cigarettes and
smokeless tobacco cannot override the requirements in Sec. 897.14(a)
prohibiting sales to anyone under 18 and in Sec. 897.14(b) that each
purchase is subject to age verification. Thus, under this rule, a
retailer must refuse to sell cigarettes or smokeless tobacco to any
young person who claims that he or she has ``permission'' to purchase
such products for himself or herself or for an adult.
(36) One comment contended that the photographic identification
card requirement is invalid because it exceeds FDA's authority under
section 520(e) of the act because it does not purport to provide
reasonable assurance of the safety and effectiveness of cigarettes.
FDA disagrees with the comment. Section 520(e) of the act
authorizes the agency to establish, by regulation, conditions
restricting the sale, distribution, or use of a device if, because of
the device's potentiality for harmful effect or the collateral measures
necessary to its use, the agency determines that there cannot be a
reasonable assurance of the device's safety or effectiveness. A
photographic identification card requirement is a

[[Page 44440]]

condition of sale for these products and a collateral measure that is
necessary to the requirement that the products are not sold to anyone
under the age of 18.
(37) One comment contended that proposed Sec. 897.14(a) (now
renumbered as Sec. 897.14(b)) is precluded by section 1926 of the PHS
Act. The comment stated that this law established Congress' intent to
allow States to enact necessary programs to keep tobacco products out
of the hands of young people as a condition for receiving block grant
funding. According to the comment, there is no single best approach,
and the FDA proposal prevents States from emulating the successful
approach used in Woodridge, IL. The comment stated that FDA may not
preempt State laws without making a showing of clear and manifest
congressional intent to authorize its preemption of those State laws.
The agency disagrees with the comment. The preemption issues
related to this rule (as well as the rule's relationship to the
regulations issued by the Substance Abuse and Mental Health Services
Administration (SAMHSA) implementing section 1926 of the PHS Act
regarding the sale and distribution of tobacco products to individuals
under the age of 18 (the SAMHSA rule) are discussed in great detail in
section X. of this document.
2. Minimum Age
Proposed Sec. 897.14(a)(now renumbered as Sec. 897.14(b)), would
have required retailers to verify that persons buying cigarettes or
smokeless tobacco were not younger than 18 years of age. FDA received
many comments supporting a Federal minimum age to purchase cigarettes
and smokeless tobacco. Some comments suggested that enforcement of this
provision would be as effective as advertising limitations in
controlling underage smoking. In supporting the proposal, comments
noted that while most teenage smokers do not plan to be smokers 5 years
after they begin smoking, less than 10 percent of teenagers are able to
quit within 5 years of starting. Moreover, like their adult
counterparts, 70 percent of high school seniors who smoke would like to
stop smoking completely. Some comments noted that the average age at
which teenage smokers first tried their first cigarette is 13 or 14
years, and by age 18, many teens are smoking daily and smoking at a
rate very near the adult rate. Health-care professionals (nurses,
physicians, dentists, public health officials, etc.) as a group were
very supportive of a Federal minimum age limit of at least 18.
(38) A major American medical association suggested amending
Sec. 897.14(a) (now renumbered as Sec. 897.14(b)) to raise the minimum
age of sale to 21. It noted that one State, Pennsylvania, has set 21 as
the minimum age for the purchase of cigarettes, and argued that prior
to enactment of the national standard of age 21 for alcohol purchase,
many States had laws that allowed purchase at age 18, but subsequently
changed to 21 without hardship.
Other comments advocated raising the minimum age to 19 years.
Several comments explained that many high school students are 18 years
old; thus, if FDA increased the minimum age to 19 years, it would be
less likely that an underage high school student would be able to
purchase or obtain cigarettes or smokeless tobacco, because raising the
age to 19 would eliminate from the high school environment peers who
are legally able to obtain nicotine-containing tobacco products. In
addition, the agency received a considerable number of comments from
students, teachers, and even adult smokers, urging the agency to raise
the legal age to purchase cigarettes to 21, to be consistent with the
legal age to purchase alcohol. Indeed, many comments assumed that the
legal age was already 21 and urged the agency to retain this age limit.
In contrast, other comments supporting 18 as the minimum age for
purchasing cigarettes and smokeless tobacco argued that, because most
States already established 18 as the minimum age, FDA regulations did
not need to establish a minimum age. A few comments, mostly from young
people, asked FDA to lower the legal age for purchasing cigarettes to
below 18 years of age.
In order to make its decision on the appropriate minimum age, the
agency weighed a variety of factors including evidence on the onset of
nicotine addiction and the history underlying the age of majority.
FDA's goal is to prevent underage use of tobacco in order to preclude
as many new cases of nicotine addiction as possible. The agency
considered minimum ages from 18 to 21, because individuals are
generally viewed as reaching adulthood in this age range. The agency
faced the question: At which age in this range are most individuals
able to make an informed decision to begin using a product that the
overwhelming majority of individuals will not be able to stop using,
even though using the product is likely to lead to severe disability
and premature death?
The agency began by reviewing key data sources on the onset and
course of nicotine addiction. The National Household Surveys on Drug
Abuse sought to determine the age when individuals first tried a
cigarette and the age when individuals first started smoking daily--an
important measure of the progression toward addiction. The survey asked
questions of 30 to 39 year olds who had ever smoked daily. The average
age of first trying a cigarette was 14.5 years. \41\ Eighty-two percent
had tried a cigarette before 18, 89 percent before 19, 91 percent
before 20, and 98 percent before 25. \42\ Daily smoking began slightly
later. Fifty-three percent began smoking daily before 18, 71 percent
before 19, 77 percent before 20, and 95 percent before 25. \43\
---------------------------------------------------------------------------

\41\ 1994 SGR, p. 67.
\42\ Id., p. 65.
\43\ Id.
---------------------------------------------------------------------------

The agency reviewed the history underlying the theory of majority
and the concept of adults making informed choices. Majority is defined
in Black's Law Dictionary as ``the age at which, by law, a person is
capable of being legally responsible for all his or her acts * * *, and
is entitled to the management of his or her own affairs and to the
enjoyment of civic rights. * * *'' \44\ The 26th Amendment to the
United States Constitution provides those 18 years and above with the
right to vote. Prior to the adoption of the 26th Amendment in 1971, the
age of majority in almost every State was 21. Each State has the power
to set its own age of majority and since enactment of the 26th
Amendment most States have lowered the age of majority from 21 to 18.
---------------------------------------------------------------------------

\44\ Black's Law Dictionary, edited by M. A. Black, West
Publishing Co., St. Paul, MN, p. 955, 1990.
---------------------------------------------------------------------------

The agency reviewed the reasons why Congress chose 18 as the
appropriate age to vote. According to a Senate report on lowering the
voter age, the 21 year age was believed to be derived by historical
accident. Eighteen-year olds bore many adult citizens' responsibilities
such as the ability to marry and raise a family, and serve in the
military. A lower voting age was seen as benefiting society by bringing
into the American political system the idealism, concern, and energy of
young people. (See ``Lowering the Voting Age to 18,'' S. Rept. 92-96,
92d Cong., 1st sess., p. 5, March 8, 1971.)
While the justifications do not necessarily support establishing a
minimum age of 18 for tobacco

[[Page 44441]]

products, the agency declines to raise the minimum age for several
reasons. First, as stated in the preamble to the 1995 proposed rule,
all States prohibit the sale of tobacco products to persons under the
age of 18; currently only four States prohibit cigarette sales to
persons over 18 (60 FR 41314 at 41315). Consequently, setting a
national minimum age of 18 is consistent with most States. Second,
selecting 18 as the minimum age is consistent with the age Congress
established under section 1926 of the PHS Act, which conditions a
State's receipt of substance abuse grants on State laws to prohibit any
manufacturer, retailer, or distributor of tobacco products from selling
or distributing such products to any individual under the age of 18.
FDA also declines to amend the rule to eliminate a Federal minimum
age and instead rely on existing State laws. Establishing 18 as the
national minimum age will strengthen State and local enforcement, as
discussed earlier.
FDA also declines to amend the rule to reduce the minimum age.
Reducing the minimum age would undermine existing State laws and the
rule's effectiveness because it would, in essence, circumvent statutory
and regulatory protections by letting more young people purchase these
products. Reducing the minimum age would also be contrary to the
evidence cited in the preamble to the 1995 proposed rule, which shows
that half of adults start smoking daily before age 18.
FDA does plan to monitor closely the incidence of new cases of
nicotine addiction. If the evidence indicates that the number of new
cases of nicotine addiction does not significantly decline, consistent
with the agency's stated goal of a 50 percent reduction, but rather are
merely delayed a year or two, FDA will consider whether increasing the
minimum age for purchase of nicotine-containing tobacco products would
further the goal of the rule.
3. Restrictions Against ``Impersonal'' Modes of Sale
Proposed Sec. 897.14(b) (now renumbered as Sec. 897.14(c)) would
have required the retailer or an employee of the retailer to provide
cigarettes or smokeless tobacco to a purchaser ``without the assistance
of any electronic or mechanical device (such as a vending machine or
remote-operated machine).'' The preamble to the 1995 proposed rule
stated that this provision would have the practical effect of making
access to cigarettes and smokeless tobacco more difficult for young
people (60 FR 41314 at 41324). In response to comments, the agency has
amended Sec. 897.14(c) to allow for the use of certain impersonal modes
of sale, such as vending machines and self service displays
(merchandisers only), in facilities which are inaccessible to
individuals under the age of 18 at any time. Additionally, as stated in
section IV.D.1. of this document, FDA has deleted the reference to ``an
employee of the retailer'' because retailers are generally responsible
for their employees' actions and has revised the text to correspond
more closely with Sec. 897.16(c).
(39) Several comments objected to proposed Sec. 897.14(b). One
comment asserted that proposed Sec. 897.14(b) (now renumbered as
Sec. 897.14(c)) was unjustified, and arbitrary and capricious because
it would apply to locations where young people are not permitted to
enter and, in places where they can enter, would be unnecessary if
retailers required proof of age from prospective cigarette and
smokeless tobacco purchasers. The comment stated that less restrictive
alternatives, such as increased supervision over self-service displays,
exist. The comment further argued that FDA lacked support for this
provision, stating that, regardless of how tobacco products are sold
over-the-counter, the key party in the transaction is the cashier.
According to the comment, requiring retail clerks to comply with
applicable minimum age laws should be sufficient to prevent illegal
sales to young people, thereby making the proposed provision
unnecessary. The comment, therefore, stated that the evidence did not
support a rule that would preclude State and local governments from
relying on ``less drastic controls.''
In contrast, many comments agreed that this provision would reduce
a young person's access to cigarettes and smokeless tobacco because it
would require potential purchasers to interact with retailers or would
discourage young people from purchasing these products because they
would have to interact with a retailer and provide proof of age. One
comment stated that the regulations establish a code of conduct for
merchants, ensuring that they take practical steps to prevent illegal
sales of tobacco products to young people. One comment stated that
face-to-face transactions are the only way to assure that
identification of under-age customers is checked.
FDA disagrees, in part, with the comments that oppose this
provision. FDA declines to amend the rule to rely on alternative
measures such as increased supervision of displays or proof of age
alone. The preamble to the 1995 proposed rule cited reports and studies
showing that young people can easily use impersonal modes of sale
despite restrictions on their placement or the installation of devices
to prevent illegal sales. For example, for self-service displays, the
Institute of Medicine (IOM) Report Growing Up Tobacco Free, Preventing
Nicotine Addiction in Children and Youths (1994) referred to surveys in
two communities that found over 40 percent of daily smokers in grade
school shoplifted cigarettes (60 FR 41314 at 41325). For vending
machines, the preamble to the 1995 proposed rule cited several studies
and reports showing that young people were able to purchase
cigarettes--despite laws restricting the placement of those machines,
or requiring the machines to have a locking device to prevent sales to
young people (60 FR 41314 at 41324 through 41325).
FDA also found that relying solely on retailers to verify the
purchaser's age had limited effect on reducing young people's access to
cigarettes and smokeless tobacco; retail clerks rarely asked young
people to verify their age or even assisted in completing a purchase.
Some retail sectors also suffered from high employee turnover rates
that undermined the effectiveness of retailer programs to prevent
illegal sales (60 FR 41314 at 41323). Consequently, the agency believes
that the most effective approach towards reducing young people's access
to cigarettes and smokeless tobacco is a sufficiently comprehensive set
of access restrictions to prohibit most impersonal modes of sale,
require retailers to verify the consumer's age, and make young people's
access to these products more difficult.
The agency also reminds parties that these products are restricted
devices because of their potentiality for harmful effect. The final
rule contains restrictions that the agency believes are necessary in
order to reduce the number of children and adolescents who use and
become addicted to these products. Relying solely on retail clerks to
verify age, increasing supervision over displays, or deferring to other
less restrictive alternatives would not, in comparison to the rule's
comprehensive approach, be sufficient to achieve that goal.
With respect to locations that are entirely inaccessible to young
people, however, the agency has amended

[[Page 44442]]

Sec. 897.16 to permit certain modes of sale, such as vending machines
and self-service displays (merchandisers only), in facilities where
young people are not present, or permitted to enter, at any time. These
modes of sale do not involve hand-to-hand transactions between the
retailer and the purchaser. Consequently, FDA has made a corresponding
amendment to Sec. 897.14(c) to require retailers to personally provide
cigarettes or smokeless tobacco to purchasers ``[e]xcept as otherwise
provided in Sec. 897.16(c)(2)(ii) and revised the text to correspond
more closely with the language in Sec. 897.16(c)(1).'' The amendments
to Sec. 897.16 are discussed in greater detail below.
(40) A few comments questioned the need for proposed Sec. 897.14(b)
(now renumbered as Sec. 897.14(c)). These comments said that the rule
would not prompt retailers to verify a prospective purchaser's age
because retailers who sell cigarettes and smokeless tobacco to minors
are already in violation of State laws.
FDA disagrees with the comments' assertion. FDA's enforcement
authority and the range of sanctions under the act should give
retailers additional incentives to verify proof of age. Hence, FDA
believes that the weight of Federal law and these regulations will
prompt retailers to pay more attention to the consumer's age. By way of
analogy, the United States enjoys a very high rate of compliance with
prescription drug restrictions in part because a violation of the
prescription requirement is actionable under Federal law. Similarly,
section 1926 of the PHS Act gives States, as a condition for receiving
a block grant for the prevention and treatment of substance abuse,
further incentive to ensure that illegal tobacco sales to young people
do not occur and that the illegal sales rate steadily decreases from 50
percent in fiscal year 1994 (or fiscal year 1995 for some States) to 20
percent 4 years later. States must also conduct annually a reasonable
number of random, unannounced inspections to ensure compliance with
State law (see 61 FR 1492 at 1508, January 19, 1996). Section 1926 of
the PHS Act and its implementing regulations should also prompt States
to devote more attention to compliance efforts to prevent illegal sales
to young people and, through the requirement for random, unannounced
inspections, make retailers more aware of the need to verify the
consumer's age.
4. Restrictions Against the Sale of Individual Cigarettes
Proposed Sec. 897.14(c) (now renumbered as Sec. 897.14(d)) would
have prohibited the retailer or an employee of the retailer from
breaking or otherwise opening any cigarette package or smokeless
tobacco product to sell or distribute individual cigarettes or any
quantity of cigarette tobacco or of a smokeless tobacco that is smaller
than the quantity in the unopened product. In response to comments and
for other reasons discussed below, the agency has amended
Sec. 897.14(d) to prohibit retailers from breaking or otherwise opening
``any cigarette or smokeless tobacco package to sell or distribute
individual cigarettes or a number of unpackaged cigarettes that is
smaller than the quantity in the minimum cigarette package size defined
in Sec. 897.16(b), or any quantity of cigarette tobacco or smokeless
tobacco that is smaller than the smallest package distributed by the
manufacturer for individual consumer use.'' Additionally, as stated in
section IV.D.1. of this document, FDA has deleted the reference to ``an
employee of the retailer'' because the retailer is generally
responsible for its employee's actions.
(41) Several comments opposed proposed Sec. 897.14(c) (now
renumbered as Sec. 897.14(d)) in conjunction with proposed Sec. 897.10
(which would establish general responsibilities for manufacturers,
distributors, and retailers). The comments said it would be
unreasonable to expect retailers to inspect all packages to assure
compliance with minimum package requirement, as well as other
requirements, and yet retailers would face significant penalties if
they failed to comply. Other comments asked whether retailers would be
held liable for opening shipping packages consisting of individual
cigarette packages or cartons and selling the individual packages or
cartons.
The comments misinterpreted the proposed provision. Section
897.14(d) does not require retailers to police minimum package
requirements, but rather expressly states that the retailer shall not
break or otherwise open any cigarette or smokeless tobacco package to
sell or distribute individual cigarettes or number of cigarettes or any
quantity of cigarettes or smokeless tobacco that is smaller than the
quantity in the unopened package. The confusion may have stemmed from
the definition of ``package.'' Section 897.3(f) defines ``package'' as
a ``pack, box, carton, or other container * * * in which cigarettes or
smokeless tobacco are offered for sale, sold, or otherwise distributed
to consumers.'' The provision, therefore, focuses on two distinct
actions: (1) The retailer breaks or opens a cigarette package or
smokeless tobacco product; and (2) the retailer sells or distributes a
portion of the cigarette package or smokeless tobacco product to a
consumer.
A literal reading of proposed Secs. 897.3(f) and 897.14(d) together
would prohibit a retailer from opening a carton of cigarettes to sell a
single package of 20 cigarettes. The agency did not intend to prohibit
retailers from opening shipped quantities or bundles of cigarette
packages or cartons or smokeless tobacco in order to break that
shipment down into ordinary packages, cartons, or other standard
product units. The agency has amended Sec. 897.14(d), to eliminate this
unintended effect. The new language clarifies that retailers may open
shipping boxes or cigarette cartons to sell a pack of cigarettes or a
smokeless tobacco package. Additionally, FDA has modified the
introduction to Sec. 897.14(d), changing ``the retailer shall not''
break or open any cigarette or smokeless tobacco package to ``no
retailer may'' break or open any package. This change is intended to
simplify the text and does not alter a retailer's obligations under
Sec. 897.14(d).
(42) One comment from a company opposed a restriction on the sale
of single cigarettes because it had made a substantial investment
developing a vending machine that would sell single cigarettes that
complied with applicable labeling and tax laws. The comment added that
its machines are located in areas that are frequented by or limited to
adults and that there is a market for adults who wish to smoke only
occasionally.
The restriction against the sale of single cigarettes pertained to
single cigarettes that are removed from cigarette packages or cartons
and sold on an individual basis. Thus, the product described by the
comment, a prepackaged single cigarette that complies with all
applicable labeling and tax laws, does not appear to correspond to what
is commonly known as a ``loosie.'' As for selling a packaged single
cigarette in a vending machine, the final rule permits vending machines
to be used in certain locations that are entirely inaccessible to young
people. This comment, and corresponding amendments to the rule, are
discussed in greater detail in section IV.E.4.a. of this document.

[[Page 44443]]

(43) A small number of comments opposed any restriction on the sale
of single cigarettes, stating that such a restriction would make
purchases by adults more difficult or could actually work to the
detriment of adults who are trying to reduce their cigarette
consumption by purchasing single cigarettes.
Most comments, however, supported a prohibition against the sale of
single cigarettes. In general, they agreed that eliminating single
cigarettes would make cigarette purchases more expensive for young
people and, as a result, less likely. A number of State attorneys
general stated that this provision, in conjunction with others, would
assist States in enforcing compliance with State laws. A few comments
noted reports of single cigarette sales occurring within their State or
jurisdiction; one stated that ``the problem of loosies is a very old
story within the inner city,'' while another even claimed seeing young
people wait in line for free samples of single cigarettes.
The agency declines to amend the rule to exclude single cigarettes.
The preamble to the 1995 proposed rule cited evidence that a
significant number of retailers are willing to sell single cigarettes
to young people and are sometimes more inclined to sell single
cigarettes to young people than to adults (60 FR 41314 at 41324). The
comments supporting the rule reinforce the notion that single
cigarettes appeal to young people.
While FDA is sensitive to the fact that adults who wish to quit
smoking may wish to purchase single cigarettes to reduce smoking, on
balance, the agency believes that the benefits of eliminating single
cigarette sales to young people outweighs any possible detriment to
adults.
5. Additional Comments
(44) Several comments suggested that FDA license retailers and
impose fines or other sanctions on retailers who sell cigarettes and
smokeless tobacco to young people.
The agency declines to amend the rule to create a licensing system.
FDA notes that SAMHSA confronted similar comments when it proposed
rules to implement section 1926 of the PHS Act and elected not to
require a licensing system (61 FR 1492 at 1495). The preamble to the
SAMHSA rule indicated that States could use a licensing system to
identify retail outlets and enforce State laws, with licensure fees and
civil penalties funding the States' random, unannounced inspections and
covering administrative and enforcement costs (61 FR 1492 at 1495). FDA
concurs with the SAMHSA analysis and, because licensure would be a
State matter, will refrain from establishing a licensing system for
retailers.
As for fines and other sanctions, no amendment to the rule is
necessary. The act already establishes fines and other sanctions for
parties who violate the act. For example, any restricted device that is
sold, distributed, or used in violation of regulations for that
restricted device is misbranded under section 502(q) of the act (21
U.S.C. 352(q)), and section 301(a) of the act prohibits the
introduction or delivery for introduction into interstate commerce of a
misbranded device. (Section 709 of the act creates a presumption that
all devices are in interstate commerce and section 304 allows seizure
of adulterated or misbranded devices even in the absence of interstate
commerce.) Among other things, section 301(b) of the act prohibits the
misbranding of a device in interstate commerce, while section 301(c) of
the act prohibits the receipt in interstate commerce of any misbranded
device. Additionally, any person who violates section 301 of the act is
subject to injunctions under section 302 of the act and civil
penalties, fines and imprisonment under section 303 of the act, while
section 304 of the act authorizes seizure actions against misbranded
devices themselves without any need for proof of interstate commerce.
(45) One comment argued that retailers should be required to keep
cigarette products from public view.
FDA declines to amend the rule as suggested by the comment. The
agency believes that concealing these products from view would not
significantly enhance the restrictions against access by young people
and would instead unduly impair an adult's ability to determine what
products and brands a retailer is selling as well as the retailer's
ability to sell those products.
(46) One comment stated that Sec. 897.14 can only be enforced by
routine compliance checks using underage agents. The comment suggested
that FDA negotiate with States to receive information on violations of
State laws and to use that information against retailers who fail to
comply with Sec. 897.14.
FDA intends to cooperate with State governments to curtail illegal
sales of cigarettes and smokeless tobacco to young people.
Additionally, as stated earlier in this document, FDA is authorized to
commission State officials to perform certain functions on behalf of
the agency. FDA may consider commissioning State officials, where
appropriate, if commissioned State officials would help ensure
compliance with these regulations.
(47) One comment would amend Sec. 897.14 to refer to ``purchasing''
and ``obtaining'' cigarettes or smokeless tobacco. The comment said
this would prevent young people from attempting to obtain cigarettes or
smokeless tobacco from retailers by claiming to act with a parent's
permission or on behalf of a parent or adult.
The agency declines to amend the rule as suggested by the comment.
As written, Sec. 897.14 prohibits retailers from selling cigarettes or
smokeless tobacco to anyone under 18 and also requires retailers to
verify the purchaser's age. These provisions do not make any
distinction or exception as to whether the person purchasing the
products claims to be purchasing the products for an adult. In other
words, even if a young person claimed to have a parent's permission or
to be purchasing these products for an adult, Sec. 897.14(a) still
prohibits retailers from selling cigarettes or smokeless tobacco to
that young person, and Sec. 897.14(b) requires the retailer to verify
the purchaser's age.
(48) As mentioned earlier in the discussion for Sec. 897.10, FDA
has amended the final rule to create a new Sec. 897.14(e) to require
each retailer to remove or bring into compliance all self-service
displays, advertising, labeling, and other items at the retailer's
establishment if those items do not comply with the requirements under
this part. This amendment became necessary because comments from
manufacturers and retailers claimed that retailers owned the self-
service displays or that, once the manufacturer's representative gives
an item to a retailer, the item becomes the retailer's property.
Consequently, Sec. 897.14(e) requires retailers to remove or otherwise
bring into compliance items at the retailer's establishment if those
items do not comply with this subpart. This provision essentially gives
retailers three options with respect to an item that violates the
requirements in this rule: (1) If the item belongs to a manufacturer,
the retailer could ask the manufacturer to remove the item, consistent
with the manufacturer's obligations under Sec. 897.12; (2) the retailer
could convert the item to another use or alter the item to make it
comply with the regulations; or (3) the retailer could remove the item.

[[Page 44444]]

E. Conditions of Manufacture, Sale, and Distribution (Sec. 897.16)

1. Restrictions on Nontobacco Trade Names on Tobacco Products
Proposed Sec. 897.16 would have established several important
restrictions or conditions on the sale of cigarettes and smokeless
tobacco. Proposed Sec. 897.16(a) would have prohibited the use of a
trade or brand name for a nontobacco product as the trade or brand name
for a tobacco product ``except for tobacco products on which a trade or
brand name of nontobacco product was in use on January 1, 1995.'' For
example, Harley Davidson cigarettes would be ``grandfathered'' under
this provision. The preamble to the 1995 proposed rule stated that the
provision would be necessary to prevent the industry from circumventing
the purpose behind the rule (60 FR 41314 at 41324) by benefitting from
the promotion of the nontobacco items in ways that appeal to young
people. FDA noted, however, that several cigarette brands already used
trade names that are normally associated with nontobacco products and
would exempt those brands from Sec. 897.16. The final regulation
remains essentially the same, but clarifies the agency's intent by
amending the language to limit the exception to those product names
``whose trade or brand name was on both a tobacco product and a
nontobacco product that were sold in the United States on January 1,
1995.''
(49) FDA received few comments on this provision. The comments
asserted that the 1995 proposed rule would effect takings compensable
under the Fifth Amendment.
The agency disagrees with these comments. The final rule does not
violate the Fifth Amendment. This issue is discussed in greater detail
in section XI. of this document.
(50) Several comments on the use of nontobacco trade names on
tobacco products would delete proposed Sec. 897.16(a), arguing that the
provision will have no effect on cigarette or smokeless tobacco use by
young people, and that businesses should be free to decide how to
advertise or sell their products. One comment challenged the agency's
authority to regulate nontobacco trade names, stating that the act only
permits the agency to take action against names that are false and
misleading. According to this comment, a nontobacco trade name that
appeals to young people does not become subject to the act. The comment
further charged that FDA has no evidence to support a conclusion that a
tobacco product bearing a nontobacco trade name would be especially
appealing to young people; the comment explained that the brands
mentioned by FDA in the preamble to the 1995 proposed rule--Harley-
Davidson, Cartier, and Yves St. Laurent's Ritz cigarettes--either have
very small market shares or are not sold in the United States.
In contrast, one comment said Sec. 897.16(a) is ``essential to
avoid the same problems that occur with `image' advertising.'' The
comment explained that tobacco manufacturers have used nontobacco trade
names on tobacco products to give the tobacco products an ``instant
image.''
The point of this provision, like the restrictions on advertising,
is to ensure that the restrictions on sale and distribution to children
and adolescents are not undermined by how the product is presented to
the public. As detailed in subpart D of part 897, FDA is restricting
the way cigarette and smokeless tobacco are advertised in order to
eliminate those elements that resonate most strongly with the needs of
those under 18 to establish an appropriate image and to create a sense
of acceptance and belonging. The use of nontobacco trade names has
particular appeal in the former regard. If a firm could use a popular
nontobacco product trade name and put it on a tobacco product, the firm
could attempt to exploit the imagery or consumer identification
attached to the nontobacco product to make the tobacco appeal to young
people.
For example, young people might purchase a particular nontobacco
product that they perceive as symbolizing the adult sophistication or
sex appeal of its users; they might also be inclined to purchase
cigarettes bearing the same trade name if they perceive that the
cigarettes will enhance their lifestyles in the same manner. Section
897.16(a), therefore, eliminates a potential loophole in the
advertising and labeling provisions.
FDA also disagrees with the comment challenging FDA's authority.
Section 897.16(a) is authorized under section 520(e) of the act which
permits FDA to restrict, by regulation, the sale, distribution, or use
of certain devices. Prohibiting firms from adopting nontobacco product
names that appeal to young people is a restriction on the product's
``sale.'' The comment's suggestion that FDA cannot rely on section
502(a) of the act reveals a misunderstanding of FDA's position. FDA
predicated its action on section 520(e) of the act and therefore it is
not necessary to address the relevance of section 502(a).
FDA is not persuaded that small market shares for cigarette
products bearing nontobacco trade names undermines the need for
Sec. 897.16(a). The preamble to the 1995 proposed rule demonstrated
that young people use the most heavily advertised brands and that they
can purchase cigarettes and smokeless tobacco easily (60 FR 41314 at
41323 through 41326, and 41332). The brands cited in the preamble,
Harley-Davidson, Cartier, and Yves St. Laurent's Ritz, are not among
the most heavily advertised brands, and, according to the comment, two
(Cartier and Ritz) are not sold in the United States. Thus, there is no
reason to expect these brands to be especially appealing to or
purchased by young people in the United States today. However, if the
other provisions in this rule are effective, some manufacturers might
try altering their advertising or marketing strategy in order to
generate product appeal; Sec. 897.16(a) thus eliminates this
potentially significant avenue for making a product appeal to young
people.
(51) A few comments noted that the provision did not elaborate on
what constitutes a ``trade or brand name for a nontobacco product.''
One comment interpreted the terms as including any nontobacco product
trade name used anywhere in the world and, as a result, argued that the
provision would impose an impossible burden on manufacturers to conduct
trademark searches. The comment added that manufacturers would not be
able to conduct trade or brand names searches with certainty (because
the 1995 proposed rule did not confine itself to registered trademarks)
and manufacturers would be subject to regulatory action even if they
unknowingly used a trade or brand name for a nontobacco product.
In contrast, another comment noted that a brand name directory
published by the Tobacco Merchants Association of the United States
lists numerous brand names for both nontobacco and tobacco products.
The comment suggested that there are a greater number of cigarette
products whose brand names were the same as brand names for nontobacco
products than the three brands that FDA identified in the preamble to
the 1995 proposed rule. The comment suggested that FDA amend the rule
to limit eligible brand name ``tie-ins'' to those relating to both
tobacco products and to nontobacco products

[[Page 44445]]

sold in the United States as of January 1, 1995.
FDA agrees, in part, with the comments. It would be unreasonable
for the regulation to encompass all possible nontobacco product trade
names, regardless of their nationality or whether the trade name was a
registered trademark. Neither FDA nor manufacturers would be able to
ensure that a name was not used elsewhere. FDA intended that proposed
Sec. 897.16(a) would apply to trade names in use in the United States,
and that the exception for nontobacco product trade names would apply
only to product trade names that were in use on both tobacco and
nontobacco products as of January 1, 1995. Consequently, to clarify the
rule, FDA has amended Sec. 897.16(a) to restrict manufacturers to use
of those product names that were used on both nontobacco and tobacco
products in the United States as of January 1, 1995.
(52) One comment would amend Sec. 897.16(a) to state that, in
addition to being on the market as of January 1, 1995, the cigarette
brand had to have generated sales of at least 500 million cigarettes or
500 million grams of cigarette or smokeless tobacco in 1994. The
comment explained that this amendment would eliminate a ``loophole''
because a product with ``nominal sales volume could open up large
marketing holes for all sorts of product names.''
FDA declines to amend the provision as suggested by the comment.
The final rule, as amended, prohibits manufacturers from using a
nontobacco product trade or brand name as the trade or brand name for a
cigarette or smokeless tobacco product. The sole exception is for
tobacco products whose trade or brand name was on both nontobacco and
tobacco products sold in the United States as of January 1, 1995. FDA
will construe this exception narrowly such that the trade or brand name
on the nontobacco product must be the same. For example, if the trade
name for a nontobacco product was ``Old Time Country Store,'' a
cigarette product called ``Old Time'' would not qualify for the
exception because the name is not identical to that for the nontobacco
product.
(53) FDA, on its own initiative, has amended Sec. 897.16(a) to
replace the word ``may'' with ``shall.'' This amendment is intended to
reinforce the notion that, except as otherwise provided in
Sec. 897.16(a), manufacturers are prohibited from using a trade or
brand name of a nontobacco product as the trade or brand name for a
cigarette or smokeless tobacco product.
2. Minimum Package Size
Proposed Sec. 897.16(b) would have made 20 cigarettes the minimum
package size for cigarettes. The preamble to the 1995 proposed rule
explained that FDA selected 20 as the minimum number of cigarettes
because most cigarette packs in the United States contain 20 cigarettes
and that establishing a minimum package size would preclude firms from
manufacturing so-called ``kiddie packs.'' The preamble to the 1995
proposed rule explained that ``kiddie packs'' usually contain a small
number of cigarettes, are easier to conceal, and are less expensive
than full-sized packs. The preamble to the 1995 proposed rule also
noted that, based on studies or reports in other countries, significant
numbers of children purchase ``kiddie packs'' (60 FR 41314 at 41324).
Thus, by establishing a minimum package size, the 1995 proposed rule
would have essentially eliminated the manufacture, distribution, and
sale of ``kiddie packs.'' The final rule provides a narrow exception to
the minimum package size in response to a comment on vending machines
that sell certain packaged, single cigarettes.
(54) Several comments opposed creating any minimum package size. A
minority disputed that the rule would be effective, stating that young
people will get cigarettes anyway or will simply begin purchasing full-
sized packs. One comment, submitted on behalf of specialty tobacco
companies, suggested exempting specialty tobacco products from the
rule. The comment explained that many specialty tobacco products are
produced in package sizes smaller than 20 cigarettes, ranging from 8 to
18 cigarettes, but that young people do not purchase specialty tobacco
products. Consequently, the comment sought an exemption for specialty
tobacco products or for products with a very small market share. One
comment asserted that small package sizes reduce smoking by adults
while another comment would amend the rule to lower the minimum size to
10 cigarettes; neither comment offered any evidence to support their
assertions.
In contrast, many comments supported proposed Sec. 897.16(b). The
comments indicated that eliminating ``kiddie packs'' is ``essential to
protect youth'' and described ``kiddie packs'' as an ``obvious come-on
that would appeal to kids.'' Other comments said the provision would
reduce underage purchases because children would not be able to afford
full-sized packs as easily or as quickly as they might afford ``kiddie
packs.''
The final rule retains 20 cigarettes as the minimum package size.
The agency disagrees that this provision will be ineffective. The
provisions in this subpart are designed to: (1) Make young people's
access to cigarettes and smokeless tobacco more difficult by
restricting specific modes of access to these products that young
people use, and (2) make purchases by young people more difficult (by
requiring proof of age, and other methods) and more expensive (by
eliminating free samples and ``kiddie packs'').
Additionally, while some tobacco products, specifically the
specialty tobacco products, may have been sold in smaller sizes, the
benefits of eliminating ``kiddie packs,'' namely eliminating a product
size that is relatively inexpensive and appealing to young people,
outweigh any inconvenience to adults.
FDA also declines to create an exemption based on market share or
claims that young people do not use a particular type of cigarette;
such exemptions would not treat manufacturers equally, would depart
from FDA's traditional approach of regulating devices as a class (see
section IV.B. of this document), and would be impractical because a
firm's compliance with the rule could vary depending on fluctuations in
market share and use by young people. Moreover, even a small percentage
of a market, such as 1 or 2 percent, could translate into a large
number of Americans; for example, 2 percent of the approximately 50
million Americans who smoke would represent 1 million people. Two
percent of the approximately 3 million children under age 18 who are
regular smokers would represent 60,000 young people.
Furthermore, FDA declines to make 10 cigarettes the minimum package
size. The comment did not offer any justification for the lower figure,
and the agency believes that a smaller package size would be
counterproductive because a 10-cigarette minimum size would be
tantamount to making a ``kiddie pack'' the minimum package size for
cigarettes.
(55) One comment supported the provision, but suggested that FDA
amend the rule to prevent the development of ``mini'' cigarettes or
``short smokes.'' The comment said such products contain less tobacco
so that they can be sold at a lower price.

[[Page 44446]]

The agency declines to amend the rule as suggested by the comment.
Section 897.3(a) define a cigarette, in part, as any product that
consists of any roll of tobacco; it does not establish a minimum
quantity of tobacco. Thus, while manufacturers can develop such a
product, it would still be a cigarette under this rule and subject to
all restrictions for cigarettes.
(56) Two comments would amend the minimum package size by
increasing it to 200 cigarettes or a carton of cigarettes. The comments
explained that making cartons the minimum package size would further
reduce access to cigarettes by young people because cartons would be
more expensive than single packs and would be harder to shoplift. The
comment said that adults would not be adversely affected by such a
change because adults generally buy cartons.
The agency declines to make 200 cigarettes or one carton the
minimum ``package'' size. Eliminating cigarette packages would unduly
affect those adults who prefer to purchase cigarette packs rather than
cartons due to limited funds or other reasons, and would unduly affect
manufacturers, distributors, and retailers because, at the very least,
they would need to revise manufacturing practices or machines and/or
revise or reconfigure product storage practices and units to
accommodate only cartons. It is even possible that some adults might
consume more cigarettes if the minimum package size were increased to
200 cigarettes.
(57) One comment challenged the agency's authority for proposed
Sec. 897.16(b). The comment argued that requiring a minimum package
size exceeds FDA's authority under the act because it does not purport
to provide reasonable assurance of the product's safety and
effectiveness to potential users.
FDA disagrees with the comment. Section 520(e) of the act
authorizes the agency to impose restrictions on the sale, distribution,
and use of a device. Establishing a minimum package size is a
restriction on the sale and distribution of these devices and is
reasonably related to assuring the product's safety for those persons,
namely young people, whom this rule protects. Cigarettes and smokeless
tobacco either cause or are associated with serious adverse health
effects, and the evidence suggests that ``kiddie packs'' appeal to
young people. Hence, establishing a minimum package size that is larger
than a ``kiddie pack'' should help reduce young people's access to
these products and, as a result, protect them from those potential
adverse health effects.
(58) One comment stated that the agency lacks factual support for a
minimum package size, claiming that there is no evidence that young
people buy such products or that ``kiddie packs'' are especially
popular with young people. The comment claimed that the studies cited
by FDA in the preamble to the 1995 proposed rule are flawed due to
small sample size. The comment disputed the results of those studies,
arguing that the studies did not show whether young people favored
small package sizes because they are easily concealed--a reason
identified by FDA in the preamble to the 1995 proposed rule--or because
they are less expensive. The comment added that FDA's rationale is
further undermined by the fact that FDA has claimed both that young
people are price sensitive and that they do not purchase inexpensive
brands. According to the comment, it is not possible to have it both
ways.
Specifically, the comment questioned the validity of the 1987
Australian study by Wilson. \45\ The comment argued that the authors
could not assure that the subject population of 14- and 15-year olds
was representative and, because selection criteria for the adult
subjects differed, the results from the adult population could not be
compared to the results from the 14- to 15-year old subjects. The
comment disputed the study's finding that young Australians favored
smaller cigarette packages because the small packs were more
``concealable,'' stating that the study did not explain whether a pack
containing 15 cigarettes was significantly smaller than a pack
containing 20 cigarettes. The comment also criticized the study for
being unclear as to whether the researchers surveyed youth smokers
alone or young smokers and other youths to determine why young people
purchased the 15-cigarette package, and it criticized FDA for not
mentioning that the third most popular reason for purchasing 15-
cigarette packs was ``reducing smoking.''
---------------------------------------------------------------------------

\45\ Wilson, D. H., et al., ``15's: They Fit in Everywhere--
Especially the School Bag: A Survey of Purchases of Packets of 15
Cigarettes by 14 and 15 Year Olds in South Australia,'' Supplement
to Community Health Studies XI (1), pp. 16s-20s, 1987.
---------------------------------------------------------------------------

FDA is not persuaded that the studies are unreliable. The comment's
criticisms of the Wilson study do not acknowledge that the study's
authors compensated for the lack of a population-based probability
sample by using a sample size that exceeded the required size for a
simple random sample. The authors used a cross-sectional sample of 649
young people between the ages of 14 and 15. This number exceeded the
363 persons required for a simple random sample, based on an estimate
that 40 percent of the 25,000 South Australian children aged 14 to 15
years old would be smokers and using 95 percent confidence intervals of
35 to 45 percent, and exceeded the 567 person sample size that would be
obtained when the random sample size is multiplied by a factor of 1.3
to allow for a clustered design and increased 20 percent to allow for
persons dropping out of the survey.
Additionally, while the study did say that the sample of 14- and
15-year old children was a ``sample of convenience,'' that, alone, does
not make the study unreliable. Many studies use a sample of convenience
rather than a representative sample, and the application of a study's
results or findings to a broader population depends on the study's
methodology.
The comment's criticism of the different selection methods lacks
merit because it neglects to consider the context for the selection
method. The authors selected schools in order to obtain underage
subjects; this selection method precluded getting a representative
sample of adults (because they would not be in schools). For the adult
subjects, selection was based on a probability-based method of
selection instead of school affiliation. Both selection methods were
scientifically valid.
Moreover, two well-conducted studies provide a reasonable basis for
comparison, even between different populations. This is especially true
for the Wilson study because both the adolescent and adult studies were
performed under the auspices of the South Australian Health Commission
and were drawn from the same geographical area within 2 weeks of each
other. Thus, one can reasonably assume that the studies were well
conducted and that comparisons between the adolescent and adult groups
were appropriate.
Finally, the comment's criticism of Wilson's findings is also
misplaced. Contrary to the comment's assertion, the issue is not
whether 15-cigarette packs are smaller or more easily concealed than
full-sized packs. Nor is the issue whether underage smokers, as opposed
to underage smokers and other young

[[Page 44447]]

people, prefer 15-cigarette packs. Instead, the issue is whether young
people, for whatever reason, favor and purchase smaller packs. The
study indicated that over 90 percent of the young people surveyed
preferred 15-cigarette packs because they considered them to be less
expensive, easier to conceal, or helpful to reduce smoking. This led
the authors to state that, ``if adolescents did not have available to
them these cheaper brands, or the price was raised considerably, or
packaging in a way that is more appealing to adolescent budgets was
prohibited then the current popularity of 15's would be reduced
considerably.'' \46\
---------------------------------------------------------------------------

\46\ Id., p. 19s.
---------------------------------------------------------------------------

(59) The same comment challenged a study by Hill. \47\ The preamble
to the 1995 proposed rule cited this study to show that younger
children (12-year olds in the study) preferred 15-cigarette packages
more than older children (17-year olds) and that older children
preferred packages containing 25 cigarettes. However, the comment
interpreted the Hill study in a much different manner, noting that,
according to the study, the youngest age group experienced the greatest
decline in smoking prevalence in the period following the introduction
of the 15-cigarette package. Thus, the comment asserted that, ``[t]his
fact suggests that smaller packages are associated with less youth
smoking, rather than more.'' The comment further stated that the
researchers' opinion that price and ``concealability'' make smaller
packages appealing to young people is contradicted by the findings that
children in all age groups preferred 25- and 30-cigarette packages.
---------------------------------------------------------------------------

\47\ Hill, D. J., et al., ``Tobacco and Alcohol Use Among
Australian Secondary Schoolchildren in 1987,'' Medical Journal of
Australia, vol. 152, pp. 124-130, 1990.
---------------------------------------------------------------------------

FDA believes that the comment misinterprets the study. While the
study did indicate that the proportion of Australian students, aged 12
to 17 years, who smoked weekly declined from 1984 to 1987 (with the
greatest declines in the youngest age groups), the study did not
attribute the decline to the introduction of a smaller cigarette
package. Instead, the study attributed the decline to ``the health
education and promotional campaigns that were established in Australia
during the period between the surveys.'' \48\
---------------------------------------------------------------------------

\48\ Id., p. 128.
---------------------------------------------------------------------------

Similarly, a closer examination of the study does not support the
comment's assertion that the popularity of larger cigarette packages
among Australian schoolchildren refutes FDA's statement that the price
and ``concealability'' of smaller packages appeal to young people. The
study found that 42 percent of the children surveyed smoked cigarettes
from 25-cigarette packages, with the next most popular size being 30-
cigarette packages. Nearly 20 percent smoked cigarettes from 15-
cigarette packages, and ``preference for packets of this size showed a
marked inverse relationship with age, decreasing from 30% of 12-year-
old school children to 11% of 17-year-old school children.'' \49\ The
study did not attribute the popularity of the smaller package size to
lower price or concealability but merely cited the Wilson study to say
that young people ``presumably'' prefer the smaller packages for those
reasons. Yet, regardless of the reason, the Hill study illustrates that
a significant percentage of young people prefer smaller package sizes
and that the percentage increases in the younger age groups.
---------------------------------------------------------------------------

\49\ Id., p. 126.
---------------------------------------------------------------------------

(60) The same comment also criticized the Nova Scotia study. \50\
FDA cited this study to show that 49 percent of tobacco users in the
sixth grade purchased 15-cigarette packages. The comment criticized the
Nova Scotia study for the ``absurdly small size of this population
sample (37 students).'' The comment also criticized the Nova Scotia
study's assertion that price and concealability motivate young people
to purchase small cigarette packages. The Nova Scotia study indicated
that only 3 percent of the sixth grade students surveyed (or one out of
the 37 students) purchased single cigarettes compared to 11 percent of
the twelfth grade students (or 12 students out of the 123 surveyed).
The comment argued that the Nova Scotia study showed that twelfth grade
students ``were four times as likely as the sixth-graders to purchase
single cigarettes'' and that, ``[i]f price and `concealability' were
the key factors for young people, those in the youngest age group would
surely be purchasing single cigarettes, not 15's''.
---------------------------------------------------------------------------

\50\ ``Students and Tobacco,'' The Nova Scotia Council on
Smoking and Health Survey, Final Report, March 1991.
---------------------------------------------------------------------------

The comment misconstrues the importance of the study. FDA cited
this study to show that 49 percent of tobacco users in the sixth grade
purchased 15-cigarette packages, but the agency did not rely solely on
the Nova Scotia study as evidence that young people prefer small
cigarette packages. Instead, the agency cited the Nova Scotia study and
the Hill study that surveyed 19,166 Australian schoolchildren to show
that the youngest children prefer smaller cigarette packages. So, even
if the Nova Scotia study used a small sample size, the study's findings
are consistent with the Australian study that surveyed 19,166 children.
The agency also disagrees with the comment's claim that the Nova
Scotia study contradicts FDA's view that young people purchase ``kiddie
packs'' due to their low price and small size. The study did not
examine specific reasons for purchasing single cigarettes as opposed to
15-, 20-, or 25-cigarette packages, and so it would be inappropriate to
draw any conclusions based on different purchase rates alone. In other
words, the percentage of students who purchase a particular package
size may offer little or no insight as to the reasons why a student
selected a particular package size.
Other factors might also explain the low rate of single cigarette
sales relative to cigarette packages. Low price and concealability
might be important factors in purchasing behavior, but they may not be
the controlling or sole factors behind a purchase. For example, the
preamble to the 1995 proposed rule stated, among other things, that
single cigarettes make children more willing to experiment with tobacco
products (60 FR 41314 at 41324), and stated that young people see or
use tobacco products as a badge or method of conveying or creating a
certain image for themselves (60 FR 41314 at 41329). A single
cigarette, sold without a package, is an ineffective ``badge'' compared
to the more conspicuous cigarette pack. Additionally, very young
children may not opt for single cigarettes because such products are
typically purchased from retailers that may question the children's
age. (See 60 FR 41314 at 41325 (very young children rely on vending
machines more often than older children).) The Nova Scotia study,
however, did not examine reasons for purchasing single cigarettes as
opposed to purchasing 15-cigarette packages, and so the agency declines
to draw any conclusions solely from different sales rates for single
cigarettes compared to those for cigarette packages.
(61) One comment suggested amending Sec. 897.16(b) to prohibit
manufacturers, distributors, and retailers from selling or causing to
be sold, distributing or causing to be distributed, ``cigarettes unless
contained in packages of at least 20 cigarettes.'' The comment said
that the rule did not prevent anyone other than retailers from selling
individual cigarettes.

[[Page 44448]]

FDA believes the comment misinterpreted the rule. Section 897.3
defines a ``retailer'' as any person who sells cigarettes or smokeless
tobacco to individuals for personal consumption. Thus, a manufacturer
or distributor who attempted to sell single cigarettes to a consumer
would, under the final rule, be considered a ``retailer'' for purposes
of that transaction and would be in violation of the individual
cigarette restriction in Sec. 897.14.
(62) One comment suggested amending the rule to create a minimum
package size for smokeless tobacco. The comment would make the minimum
package size for smokeless tobacco equivalent to 20 doses of nicotine,
but it did not state what a dose would be.
The agency agrees that a minimum package size for smokeless tobacco
may be helpful, but lacks sufficient information to determine what that
size should be for the various forms of smokeless tobacco on the
market. Unlike cigarettes, which are generally sold in packages of 20,
smokeless tobacco comes in various forms and sizes, and, with the
possible exception of prepackaged forms, can be used in quantities
determined by the user. One individual, for example, might place more
chewing tobacco in his or her mouth than another individual.
Consequently, absent more information, the agency is unable to
establish a minimum package size for smokeless tobacco.
(63) The agency, on its own initiative, has amended Sec. 897.16(b)
(minimum cigarette package size) to add the introductory phrase,
``Except as otherwise provided under this section.'' This amendment
became necessary because, as discussed in greater detail in section
IV.E.4.a. of this document, the agency has concluded that vending
machine sales should be permitted in facilities that are inaccessible
to young people, and FDA is aware of at least one type of vending
machine that sells packaged, single cigarettes. The agency is aware of
vending machines that dispense cartons, packages, and now packaged,
single cigarettes and has made an exception for packaged, single
cigarettes due to their unique nature (relatively high price compared
to ``loosies,'' packaging in compliance with labeling and tax
requirements, and sale only in adult locations). Additionally, FDA, on
its own initiative, has revised the rule to state that no manufacturer,
distributor, or retailer ``may'' sell (rather than ``shall'' sell)
cigarette packages containing less than 20 cigarettes.
3. Maximum Package Size
The preamble to the 1995 proposed rule also invited comment as to
whether a maximum package size should be established. The preamble to
the 1995 proposed rule cited one study that found that older Australian
children favored cigarette packs containing 25 cigarettes (60 FR 41314
at 41324).
(64) Several comments offered suggestions regarding a maximum
package size. One comment noted that packages containing 10 and 25
cigarettes have been sold in the United States and suggested that, when
considering a maximum package size, FDA should consider the
attractiveness of the pack and whether a larger pack would encourage
increased consumption. The comment added that one option would be to
limit sales to 200 units (or one carton). Another comment would make 20
cigarettes the maximum package size, but conceded that there is
insufficient evidence to make a strong recommendation.
In contrast, one comment stated that the agency has no authority or
evidence to justify creating a minimum package size and so it lacks
authority and evidence to create a maximum package size.
Based on the comments, there is insufficient evidence to establish
a maximum package size for cigarettes. There is little experience in
the United States with package sizes greater than 20 cigarettes. As a
result, the final rule does not establish a maximum package size for
cigarettes.
4. Impersonal Modes of Sale
Proposed Sec. 897.16(c) would have permitted cigarettes and
smokeless tobacco to be sold only in a direct, face-to-face exchange
between the retailer, or the retailer's employees, and the consumer.
Thus, the proposal would have prohibited the use of vending machines,
self-service displays, mail-order sales, and mail-order redemption of
coupons. Implicit in this provision, and in subpart B of part 897, is
the notion that transactions involving restricted devices should
involve a sense of ``formality'' or gravity that conveys to both the
seller and the buyer the seriousness of the transaction and of the
products themselves. FDA has amended this provision in response to
comments. As discussed in section IV.E.4.c. of this document, certain
mail-order sales are now exempted from this requirement, as are vending
machines and self-service merchandisers in facilities not admitting
individuals under the age of 18.
a. Vending machines. The preamble to the 1995 proposed rule cited
numerous studies and surveys showing that significant percentages of
young people are able to purchase cigarettes from vending machines,
even in jurisdictions that have laws restricting the placement of those
machines or requiring the use of locking devices. In some cases, young
people successfully bought cigarettes from vending machines 100 percent
of the time (60 FR 41314 at 41324 through 41325). Consequently, the
agency elected to prohibit the use of vending machines rather than
restrict their placement or require locking devices.
FDA's proposal to eliminate the use of vending machines
(Sec. 897.16(c)) generated more comments than any other provision aimed
at reducing children's and adolescents' access to tobacco products; the
agency received thousands of comments on this provision. While agreeing
that children and adolescents should not use tobacco products, comments
submitted by adult smokers, the tobacco industry, and vending machine
owners and operators, strenuously objected to the provision. Nearly all
of the comments in opposition stated that the provision would be
unnecessary if State and local jurisdictions enforced existing laws
prohibiting the sale of tobacco products to children and adolescents
under the age of 18.
By contrast, concerned adults, parents, educators, State and local
public health agencies, and medical professionals overwhelmingly
supported the provision. In addition, tens of thousands of school
children wrote letters asking that vending machines be eliminated.
Nearly all comments in favor of the provision pointed to the serious
health risks that a lifetime of nicotine addiction poses to children
and adolescents who begin to smoke, arguing that vending machines offer
children and adolescents who choose to begin to smoke easy access to
cigarettes.
(65) Several comments asserted that the proposed restriction
pertaining to vending machines would effect takings compensable under
the Fifth Amendment.
The agency disagrees with the comments. As discussed in greater
detail in the paragraph below, FDA has amended the final rule to permit
vending machines in facilities that are inaccessible to young people at
all times. Additionally, given the character of this regulation and the
lack of reasonable investment-backed expectations in personal property,
its

[[Page 44449]]

economic impact, while potentially significant for some persons, is not
such as to effect a taking. The agency addresses Fifth Amendment issues
in greater detail in section XI. of this document.
(66) Most comments submitted by adult smokers and nearly all of the
comments submitted by the cigarette and vending machine industries
stated that the provision would not effectively reduce children's and
adolescents' access to cigarettes. The comments argued that the
proposed elimination of vending machines is not supported by the
evidence in the record, either because the studies cited by FDA do not
measure children's and adolescents' actual purchasing habits, or
because the percentage of children and adolescents who reportedly buy
cigarettes from vending machines is not significant. Finally, many
adult smokers and some parents argued that determined teenagers will
find a way to obtain cigarettes whether or not vending machines are
eliminated.
On the other hand, almost all of the children, parents, adults who
do not smoke, medical professionals, and public interest groups
commented that the provision would effectively reduce children's access
to cigarettes. These comments generally cited personal experience in
concluding that vending machines provide an easy source of cigarettes
for many children who smoke. For example, the executive director of a
public health education program wrote: ``It is outrageous that we allow
tobacco, a most addictive drug, to be sold through vending machines
where anyone can purchase it!'' Comments overwhelmingly concluded that
the elimination of vending machines, coupled with the other proposed
access and advertising restrictions and the proposed education
campaign, would effectively reduce the availability of cigarettes to
children.
Several comments analyzed currently available studies and concluded
that ``easy access to vending machines * * * enable[s] young people to
obtain cigarettes, and that high proportions of vending machine users
are people under 18.'' Moreover, several comments in support of the
provision cited their own studies indicating the ease with which
children and adolescents obtain cigarettes from vending machines. For
example, a coalition dedicated to preventing and reducing tobacco use
submitted its 1994 annual report, which included an article describing
an undercover buying survey, the largest of its kind, conducted in
Spring, 1994. One hundred and seven teenagers participated in the 12-
county survey by entering stores under the supervision of an adult and
attempting to purchase cigarettes, and:
[k]ids were more successful attempting to buy cigarettes through
vending machines [than through retail outlets], without any adults
trying to stop them. Teens made 21 of 24 successful attempts to
purchase cigarettes through vending machines, an 88 percent success
rate.
Similarly, the manager of a youth tobacco prevention program in
Washington State's Department of Health commented that ``[a] recent
survey in one Washington county found that youth can still purchase
tobacco from vending machines at a 75 percent success rate.'' The
comment recommended that all tobacco vending machines be eliminated.
Finally, comments submitted by children, parents, and nonsmoking
adults indicate that these groups believe tobacco vending machines are
easily accessible to children and adolescents. One comment, typical of
those submitted by children, stated: ``I especially agree with getting
rid of vending machines. That, I think, is probably the most common way
that children get their cigarettes.'' The director of a public health
center in California submitted the results of a poll indicating that 75
percent of Californians support banning cigarette vending machines.
Vending machines certainly represent one of the major ways that
children currently obtain cigarettes. In addition to studies depicting
how easily children and adolescents could purchase cigarettes from
vending machines, the 1995 proposed rule cited surveys of children's
actual purchasing behavior (60 FR 41314 at 41324 through 41325).
Relying on both types of evidence, the agency concluded that the
provision would eliminate one of the primary sources of cigarettes for
at least 2 percent of 17-year-old smokers and 22 percent of 13- to 17-
year-old smokers. Moreover, the agency finds that the number of
children and adolescents in these two groups is substantial.
While the agency agrees that some children and adolescents who are
determined to smoke may find or create new ways of obtaining
cigarettes, the removal of vending machines from sites accessible to
young people will eliminate what is currently a popular and easy means
of access to tobacco, especially for younger children. In addition, if
other access restrictions are imposed, such as requiring customers to
provide proof of age, without also eliminating vending machines, use of
vending machines among children between the ages of 13 and 17 years
would likely increase (60 FR 41314 at 41325). Therefore, the agency has
concluded that the provision is an important part of the overall scheme
to reduce children's and adolescents' access to cigarettes.
(67) The agency received many comments regarding the location of
vending machines. A trade association representing the cigarette
industry stated that most vending machines are currently inaccessible
to children and adolescents because they are located either in areas
that are off-limits to young people, such as nightclubs or casinos, or
in areas that young people rarely frequent, such as industrial plants
and private offices. Thus, the comment concluded, eliminating vending
machines will not discourage youth smoking.
The vending machine industry and establishments that currently have
vending machines unanimously opposed the provision. Some comments
suggested that the agency specifically allow vending machines in
locations where young people are not present. One vending machine
operator commented, ``[m]any cigarette machine vendors are small
businessmen like myself; 95 percent of our locations are in taverns and
lounges, where no one under 21 years old is allowed in.'' Other
comments argued that, even if retail purchases become increasingly
difficult, vending machines in establishments that are not open to the
public should not be eliminated because children and adolescents cannot
enter these places.
Both the cigarette and vending machine industries argued that FDA's
conclusion, that children and adolescents can easily purchase
cigarettes from vending machines even in ``adult'' locations, was based
on flawed studies. Comments argued that the sting operations, on which
these studies were based, do not demonstrate where teenagers actually
or usually go. One comment, submitted by an association representing
1,700 vending machine companies, argued that: ``it is highly
questionable if minors might have alone and without encouragement
entered taverns or bars in restaurants just to purchase cigarettes
without exemption from the district attorney's office.'' Moreover,
these comments argued, local sting operations do not establish the
national cigarette purchasing habits of children and adolescents.

[[Page 44450]]

In contrast, a national public health organization concluded that
available studies indicate that restricting the location of vending
machines is an ineffective method of controlling sales of tobacco to
young people. Another comment opposed to weakening the provision
characterized as unreliable the number of machines currently in
``adult'' locations. The comment attacked as statistically unsound a
vending machine industry survey that concluded that 77 percent of all
vending machines are in ``adult locations.''
FDA has determined that cigarettes should not be dispensed to
consumers from vending machines that are accessible to children and
adolescents. While young people's actual current purchasing habits
provide irrefutable evidence of accessibility, available evidence
demonstrates that cigarette vending machines also are accessible to
children and adolescents even in locations that are not often or
currently frequented by young people. FDA has determined that cigarette
vending machines should be eliminated from locations that are
accessible to children and adolescents, whether or not children and
adolescents currently use them.
While the IOM recommended that vending machines be eliminated
altogether, it cautioned that, if partial bans were to be enacted, the
definition of ``adult'' location must be narrowly drawn.
Youths do not now report ``adult'' locations as major sources of
tobacco, but there is evidence that minors can often easily enter
``adult'' locations, and once inside, can easily buy tobacco
products * * *. If partial vending machine bans are to be effective,
the statutes must define ``adult'' locations carefully and narrowly.
For example, the bar area of a restaurant is not sufficiently
inaccessible to minors to deter their purchases. * * * Many bars
only restrict access to alcohol; they do not restrict entrance by
age. Accordingly, if vending machine are permitted at all, they
should be permitted only in locations to which minors may not be
admitted. \51\
---------------------------------------------------------------------------

\51\ IOM Report, p. 214.
---------------------------------------------------------------------------

Based on comments, FDA has determined that some ``adult'' locations
can be made sufficiently secure to prevent young people's access and
that vending machines should remain available to adults in these
locations. For example, some establishments, such as nightclubs or
casinos, require that patrons present proof of age before they are
permitted to enter or post a guard at the door to prohibit underage
access. In 1994, CDC analyzed 15 recent studies of children's access to
tobacco and noted that ``[s]ome inspections of private clubs and bars
were not carried out because access to the outlet was blocked by a
doorman or security guard.'' \52\ FDA finds that those establishments
where people under the age of 18 are legally prohibited from entering
and where a system exists to ensure that children are prevented from
entering, can, in fact, be sufficiently inaccessible to children that
the goals of the rule would not be significantly advanced by
prohibiting vending machines in those limited locations.
---------------------------------------------------------------------------

\52\ ``Design of Inspection Surveys for Vendor Compliance with
Restrictions on Tobacco Sales to Minors,'' Battelle, prepared for
the CDC, OSH, p. 17, April 1994.
---------------------------------------------------------------------------

Other ``adult'' establishments prohibit children and adolescents
from entering, as a matter of establishment policy. For example, some
private clubs do not grant membership to persons under the age of 18
and require that members provide proof of membership before entering
the club. Similarly, for example, some industrial or manufacturing
facilities not open to the public may, for safety reasons, prohibit the
hiring of persons under the age of 18, and require that employees
present proof of employment upon entering the facility. FDA finds that
these establishments, like some nightclubs or casinos, can be similarly
inaccessible to children and, if so, should be permitted to make
cigarette vending machines available to their adult members or
employees.
Futhermore, an exemption for vending machines located in areas
where no person under 18 is present or permitted to enter is consistent
with the ``Prohibition of Cigarette Sales to Minors in Federal
Buildings and Lands Act'' (Pub. L. 104-52, sec. 636). This particular
statute, which became law on November 19, 1995, prohibits the sale of
tobacco products in vending machines located ``in or around any Federal
building,'' but the statute authorizes the Administrator of the General
Services Administration (GSA) or the head of an agency to exempt areas
that prohibit the ``presence of minors'' (whom the statute defines as
individuals under age 18). See also 41 CFR 101-20.109(d) (Administrator
of the GSA or agency head may designate areas where vending machine
sales of tobacco products may occur ``if the area prohibits minors'');
61 FR 2121, January 25, 1996.
Consequently, Sec. 897.16(c) exempts vending machines located in
establishments that are totally inaccessible to persons under 18. The
owner of the facility must ensure, by means of photographic
identification or some other means, that no one under 18 enters the
facility. Thus, the rule would permit a vending machine in an
establishment only where persons under 18 are not present, or permitted
to enter, at any time. FDA emphasizes that this narrowly drawn
exemption accommodates adults only in locations where young people, in
fact, have no access at any time. For example, a vending machine might
be permitted in a facility that employs only adults and where guards
prevent any person under 18 from entering. A vending machine would not
be permitted in a facility that employs only adults but also permits
employees to bring children to work. The agency further emphasizes that
it is the exempt establishment's responsibility to ensure that no one
under 18 is present, or permitted to enter the premises, at any time.
In addition, under Sec. 897.16(c), a vending machine in an exempt
establishment must be entirely inaccessible to children. Thus, an
establishment must place the machine entirely inside the premises,
beyond the point where persons are required to present proof of age,
membership, or employment. Vending machines are prohibited from any
public area in or around the establishment, including, for example,
lobbies, parking lots, and entrances.
FDA emphasizes that the final rule exempts only establishments that
are, in fact, inaccessible to young people at all times. FDA will
monitor young people's access to cigarettes from vending machines in
exempt establishments, and, after 2 years, will assess whether the
vending machine exemption has been effective. At that time, the agency
finds that vending machines continue to be accessible to young people,
FDA will propose further restrictions.
(68) Several comments suggested that, rather than eliminate vending
machines or restrict their location, FDA require that they be
supervised. These comments would allow vending machines to be placed
anywhere, even in locations frequented by children and adolescents, as
long as the machines were supervised.
FDA disagrees that supervising vending machines would prevent
illegal sales to children and adolescents. Comments opposed to the
provision offered no evidence that supervision of vending machines
would sufficiently impede a young person's access to cigarettes. In
fact, studies indicate that young people are able to purchase

[[Page 44451]]

cigarettes even from vending machines under the immediate vicinity and
control of employees.
One study conducted in a State requiring that vending machines be
supervised demonstrated that youths were able to purchase from 72
percent of vending machines, in bars and taverns, within clear view of
an employee. \53\ Another report examining vending machine sales in New
York City demonstrated that 11- and 12-year-olds successfully purchased
cigarettes from supposedly supervised vending machines in bars and
taverns 100 percent of the time. The study found that children and
adolescents ``had no more difficulty buying cigarettes from vending
machines in bars than they had buying cigarettes from restaurants,
pizza parlors, or video arcades. In all instances, the barman and/or
patrons watched but did not intervene.'' \54\
---------------------------------------------------------------------------

\53\ Cismoski, J., and M. Sheridan, ``Availability of Cigarettes
to Under-age Youth in Fond du Lac, Wisconsin,'' Wisconsin Medical
Journal, vol. 92, No. 11, pp. 626-630, 1993.
\54\ ``Cigarette Vending Machines Sell Cigarettes to Children,
11-15 Years Old, 100% of the Time,'' Smokefree Educational Services,
Inc., October 1990. ``Critics Target Vending Machines,'' The
Christian Science Monitor, p. 6, April 1990.
---------------------------------------------------------------------------

In other studies, employees helped children and adolescents to
illegally purchase cigarettes by providing change for the cigarette
vending machine \55\ or suggesting that the children and adolescents go
next door where cigarettes were cheaper. \56\
---------------------------------------------------------------------------

\55\ Mead, R., ``Teen Access to Cigarettes in Green Bay,
Wisconsin,'' Wisconsin Medical Journal, pp. 23-24, January, 1993.
\56\ ``Springfield Teen Tobacco Purchase Survey,'' Stop Teenage
Addiction to Tobacco (STAT), 1993.
---------------------------------------------------------------------------

Additionally, each provision in subpart B of part 897 is intended
to eliminate a popular source of cigarettes and smokeless tobacco for
children. The vending machine restriction is intended to complement,
and be reinforced by, the other restrictions.
The preamble to the 1995 proposed rule cited studies indicating
that the use of vending machines by adolescents is greater in
jurisdictions that have stronger access restrictions (60 FR 41314 at
41325). Based on those studies and comments that it received, FDA
concludes that decreasing the supply of tobacco products to children
and adolescents by one means of access, such as restricting self-
service displays, would cause an increased demand by another means of
access, such as cigarette vending machines. FDA remains persuaded that,
without eliminating cigarette vending machines accessible to children
and adolescents, other access restrictions would cause an increase in
illegal vending machine sales.
(69) Most comments submitted by the tobacco and vending machine
industries recommended that, rather than eliminate vending machines,
FDA should require that they be equipped with electronic locking
devices (devices that render the machine inoperable until activated by
an employee) or token mechanisms (which require consumers to purchase
tokens from an employee in order to use a vending machine). Either
method would require a face-to-face transaction between the purchaser
and the retailer.
The cigarette and vending machine industries commented that studies
do not support FDA's conclusion that locking devices are ineffective.
Comments asserted that the studies failed to include vending machines
fitted with locking devices in traditionally adult locations or to
account for the lack of enforcement in the jurisdiction in which the
study was conducted. In addition, several comments pointed out that the
tobacco sales ordinance in Woodridge, IL, where illegal tobacco sales
were reduced from 70 percent to less than 5 percent 2 years later,
included a locking device requirement rather than a ban on cigarette
vending machines.
On the other hand, one comment from a public interest group
strongly supported FDA's proposal to eliminate vending machines
altogether and urged that FDA not permit the use of locking devices.
The comment cited a survey, conducted by an association of public
health officials in New Jersey, in which young people successfully
purchased cigarettes from supposedly locked vending machines in 11 of
15 attempts. The comment noted that ``[i]n some instances, the remote
control device to operate the machine was sitting on top of the machine
to save store personnel the bother of having to press the switch.''
FDA acknowledges that properly installed locking devices require
that vending machine purchasers engage in a face-to-face transaction,
increasing the likelihood that children would be prevented from
purchasing cigarettes. However, as explained in the preamble to the
1995 proposed rule, available evidence indicates that the industry is
slow to install the locking devices, and that, after a short period,
the locking devices are often disabled (60 FR 41314 at 41324 through
41325).
FDA agrees that the Woodridge, IL, community was able to
dramatically reduce illegal tobacco sales while permitting the use of
locking devices on cigarette vending machines. However, FDA notes that
when the community implemented its tobacco ordinance in May, 1989, the
community had only six vending machines, and when the study was
completed December, 1990, the number of vending machines had dropped to
two. Moreover, despite the requirement of locking devices and
persistent compliance checks by law enforcement, a child was able to
purchase cigarettes from one of the two remaining vending machines in
December, 1990. \57\
---------------------------------------------------------------------------

\57\ Jason, L. A., P. Y. Ji, M. D. Aneo, and S. H. Birkhead,
``Active Enforcement of Cigarette Control Laws in the Prevention of
Cigarette Sales to Minors,'' JAMA, vol. 266, No. 22, pp. 3159-3161,
December 11, 1991.
---------------------------------------------------------------------------

Similarly, in 1990, Minnesota enacted a law eliminating vending
machines in public areas unless the machines were only operable by
activation of an electronic switch or token and were under the direct
supervision of a responsible employee. One year after the law was
passed, a study conducted in four cities found many machines had not
been fitted with the required devices and, of those fitted with the
devices, there was no significant reduction in purchase success. \58\
---------------------------------------------------------------------------

\58\ Kotz, K., ``An Evaluation of the Minnesota Law to Restrict
Youth Access to Tobacco,'' presented to the American Public Health
Association (APHA) 121st Annual Meeting, San Francisco, CA, October
24-28, 1993.
---------------------------------------------------------------------------

IOM reviewed the available evidence and determined that locking
devices do not effectively prevent youth access to cigarette vending
machines. IOM noted that ``although fewer cigarettes are sold to youths
than where vending machines are completely unrestricted, businesses
that installed locking devices on vending machines were still more
likely to sell cigarettes to young people than businesses that used
over-the-counter sales.'' \59\
---------------------------------------------------------------------------

\59\ IOM Report, p. 213.
---------------------------------------------------------------------------

Finally, the Inspector General reported that Utah experienced
limited success with locking devices:
Reportedly, clerks would simply activate the machine without
checking the age of the purchaser. Since the locking devices require
employee participation, they are often not as effective in busy
places, such as bars or restaurants, where employees are more likely
to simply activate the machine. \60\
---------------------------------------------------------------------------

\60\ ``Youth Access to Cigarettes,'' Department of Health and
Human Services (DHHS), Office of the Inspector General, Pub. No.
OEI-02-90-02310, p. 9, May 1990.
---------------------------------------------------------------------------

FDA has not been persuaded that vending machines equipped with
locking devices sufficiently guard

[[Page 44452]]

against children's access to tobacco products. Comments provided no
evidence, and FDA is not aware of any studies, on whether law
enforcement efforts affect children's ability to access tobacco
products through locked vending machines. However, one study examined
the effect of law enforcement efforts on illegal vending machine sales
in three comparable communities that did not require locking devices.
Despite the fact that merchants in one of the three communities
received a letter describing the State law and warning them of the
city's intention to enforce the law, there was no significant
difference in the rate of illegal vending machine sales among the
communities. \61\
---------------------------------------------------------------------------

\61\ Forster, J. L., M. Hourigan, and P. McGovern,
``Availability of Cigarettes to Underage Youth in Three
Communities,'' Preventive Medicine, vol. 21, No. 3, pp. 320-328, May
1992.
---------------------------------------------------------------------------

Comments also provided no evidence that restricting the location of
cigarette vending machines equipped with a locking device renders the
machines less accessible to children and adolescents. FDA notes that,
if locking devices were effective, the location of the machine would be
of no consequence. Yet, as discussed in the preceding paragraphs, FDA
is persuaded that some establishments are entirely inaccessible to
young people. Accordingly, the final rule allows the use of vending
machines in those establishments without requiring that the machines be
equipped with a locking device.
FDA declines to grant an exception for tokens in the absence of
evidence that machines operated only by tokens prevent children from
obtaining cigarettes. Several comments suggested, rather than eliminate
vending machines, that FDA require either locking devices or tokens.
These comments focused on locking devices, without offering any
evidence of the number of vending machines currently operating with
tokens, the extent to which tokens have been tested in the marketplace,
or whether the technology prevents children and adolescents from
obtaining cigarettes from vending machines. FDA is aware that three
States whose laws restrict the use of vending machines permit the use
of locking devices or tokens. However, FDA is not aware of any evidence
indicating that the use of tokens prevents young people's access to
cigarettes from vending machines that are otherwise accessible to
children.
(70) The most common concern raised by adult smokers was that the
elimination of vending machines would inconvenience them. Most adult
smokers stated that vending machines are closer than retail outlets to
their homes or places of work. Some adult smokers stated that they
would be unable to purchase cigarettes late at night if vending
machines were eliminated. Others indicated that vending machines
provide the only means of obtaining their brand, or of obtaining
cigarettes altogether.
In contrast, while acknowledging that adult smokers would be
somewhat inconvenienced, comments in support of eliminating vending
machines pointed out that adult smokers would still be able to purchase
their products in retail transactions. Nearly all comments in support
of the provision, including comments from grade school students,
parents, and health professionals, said that the significant reduction
in children's access to cigarettes would outweigh any inconvenience
experienced by adult smokers.
The agency is persuaded that the provision would not unduly burden
adult smokers, who could continue to purchase cigarettes in retail
transactions, and that the inconvenience some smokers would experience
is a small burden when compared to the significant public health
benefit of reducing children's and adolescents' access to tobacco.
(71) A few comments questioned the propriety of using young people
in ``sting'' operations to determine the level of compliance with
existing laws restricting the sale of tobacco products to children. One
comment suggested that these operations taught children how and where
to purchase cigarettes, concluding that the operations ``have done more
to increase smoking in our youth than any tobacco company or
advertisement could have.''
FDA relied on several types of evidence in proposing these
regulations, including teen surveys and peer-reviewed studies.
Compliance testing involves sending underage children and adolescents
into tobacco outlets to attempt to purchase cigarettes or smokeless
tobacco. This type of study provides reliable evidence of children's
ability to illegally obtain tobacco products.
A 1994 review \62\ of the design of recent studies indicates
children who participated in these studies received specific
instructions about the method and purpose of the study and were
escorted by at least one adult. Some adults waited outside the outlet
for the young person while others went inside to observe the child
attempt the purchase. In response to comments on the final rule on
substance abuse prevention and treatment block grants (suggesting that
participating in sting operations could be detrimental to children and
adolescents), DHHS explained that ``proper training and adult
supervision can reduce any potential risk of negative consequences
toward youth'' (61 FR 1492 at 1494, January 19, 1996). In addition,
DHHS offered States assistance in developing compliance testing
procedures.
---------------------------------------------------------------------------

\62\ ``Design of Inspections Surveys for Vendor Compliance with
Restrictions on Tobacco Sales to Minors,'' Battelle, prepared for
CDC, OSH, p. 14, April 1994.
---------------------------------------------------------------------------

FDA is not persuaded that participating in compliance testing
entices children to smoke. The agency believes that, with proper
training and adult supervision, children and adolescents who
participate in compliance testing will understand that their role in
this testing is to help reduce teenage smoking by identifying places
that illegally sell tobacco products to children, and that, after
identification and publicity or enforcement action, these places will
stop illegal sales.
(72) Several adult smokers commented that the provision, either
alone or in conjunction with other provisions, would cause a decrease
in tobacco consumption. To compensate for this loss, they argue,
tobacco companies will raise their prices and governments will increase
taxes. Overwhelmingly, adult smokers commented that the price of a
package of cigarettes is already unfairly high.
The agency has narrowly tailored the final regulations to prevent
only young people's use of cigarettes and smokeless tobacco. Because
sales to children account for a small percentage of total tobacco
sales, industry revenues will be significantly diminished only after
many years have passed. Moreover, the long-term effect on product
prices is difficult to forecast because reduced product demand could
easily result in price decreases.
(73) In contrast, one comment cited a 1995 survey in which three-
quarters or more of those Californians polled supported increasing the
tobacco tax by 25 cents. Another comment suggested that an additional
portion of excise taxes be allocated to smoking cessation programs and
to prenatal care, especially antismoking messages targeted to pregnant
women. Other comments noted that increased prices

[[Page 44453]]

could serve to deter some children and adolescents from purchasing
cigarettes.
The agency cannot act on these comments as it lacks the authority
to levy taxes or mandate prices.
(74) One comment submitted by cigarette manufacturers characterized
as misleading FDA's claim that its proposal to eliminate vending
machines is consistent with recommendations from IOM, PHS, a working
group of State attorneys general, and the Inspector General of DHHS (60
FR 41314 at 41325). FDA disagrees. IOM and PHS specifically recommended
that vending machines be eliminated. IOM advocated that less
restrictive measures be adopted only if shown to be effective, \63\
while PHS cautioned that alternatives be examined carefully. \64\
Moreover, PHS specifically noted that Utah found disabling devices to
be ``ineffectual in practice.'' \65\
---------------------------------------------------------------------------

\63\ IOM Report, p. 214.
\64\ ``Model Sale to Tobacco Products to Minors Control Act, A
Model Law Recommended for Adoption by States of Localities to
Prevent the Sale of Tobacco Products to Minors,'' DHHS, p. 2, May
24, 1990.
\65\ Id., p. 5.
---------------------------------------------------------------------------

The State attorneys general determined that ``very young children
rely heavily on vending machines as a major source of tobacco
products,'' and that ``their use of these machines is difficult to
police.'' \66\ Consequently, the group recommended that retail stores
``remove cigarette vending machines from their premises and sell
tobacco products only from the controlled settings recommended above.''
\67\ The referenced controlled settings included the use of electronic
price scanners to prompt retail clerks to check a customer's
identification and to display the last acceptable date of birth, using
price scanner systems with tobacco ``locks,'' and requiring tobacco
products to be kept behind sales counters. The State attorneys general
did acknowledge that, ``at a minimum,'' vending machines should be
modified to require tokens that could be purchased only from a store
manager or be programmed to operate only if a cashier activates a
remote switch, but their principal recommendation was the removal of
vending machines.
---------------------------------------------------------------------------

\66\ ``No Sale: Youth Tobacco and Responsible Retailing
Developing Responsible Retail Sales Practices and Legislation to
Reduce Illegal Tobacco Sales to Minors, Findings and Recommendations
of a Working Group of State Attorneys General,'' pp. 31-32, December
1994.
\67\ Id., p. 32.
---------------------------------------------------------------------------

While the Inspector General made no recommendation, his report
noted that 42 percent of State health department officials believe that
total bans are the only way to prevent teens from using cigarettes.
\68\
---------------------------------------------------------------------------

\68\ ``Youth Access to Cigarettes,'' DHHS, Office of the
Inspector General, Pub. No. OEI-02-90-02310, pp. 8-9, May 1990.
---------------------------------------------------------------------------

FDA believes the provision on vending machines is consistent with
the positions taken by the IOM, PHS, State attorneys general, and the
Inspector General of DHHS.
(75) One comment suggested that the rule define ``vending machine''
to avoid regulating machines that dispense cigarettes to salespersons
rather than customers. The comment described a machine designed to
limit theft and to control the inventory of cigarettes and other
similarly packaged items in retail stores, principally supermarkets.
The machine requires that a computer command be entered before it
dispenses a package of cigarettes. The comment asserted that among the
machine's benefits is its ability to exclude customer access to
cigarettes.
FDA did not contemplate the type of inventory machine described by
the comment, and the provision, as drafted, would not include this type
of machine. Section 897.16(c) is intended, in part, to eliminate
mechanical devices that dispense cigarettes or smokeless tobacco to
purchasers in locations that are accessible to children. FDA declines
at this time to define ``vending machine'' so as to exclude from the
rule mechanical devices developed in the future, including those
intended to aid in preventing theft.
(76) One comment opposed to the provision interpreted it as
prohibiting a vending machine that dispenses single cigarettes,
packaged separately in tubes, each bearing the Surgeon General's
warning and in compliance with tax laws. The comment explained that in
some adult locations, such as cocktail lounges and casinos, many adults
would like to purchase a single cigarette, and that the person
submitting the comment developed the machine to fill this perceived gap
in the marketplace.
The proposal did not contemplate the type of machine described by
the comment. Accordingly, Sec. 897.16(c) has been amended to permit the
sale of a packaged, single cigarette in locations inaccessible to
persons under the age of 18. This exception is restricted to packaged,
single cigarettes that comply with other applicable laws and
regulations.
b. Self-service displays. Proposed Sec. 897.16(c) also would have
prohibited the use of self-service displays. The preamble to the 1995
proposed rule explained that self-service displays enable young people
to quickly, easily, and independently obtain cigarettes and smokeless
tobacco. FDA cited one report that reviewed surveys of grade school
students; the report found that over 40 percent of the students who
smoked daily shoplifted cigarettes from self-service displays (60 FR
41314 at 41325). The agency also cited one study showing that tobacco
sales to young people dropped 40 to 80 percent after enactment of
ordinances prohibiting self-service displays and requiring vendor-
assisted sales (60 FR 41314 at 41325). The proposed provision,
therefore, was intended to prevent young people from helping themselves
to these products and to increase the amount of interaction between the
sales clerk and the underage customer.
The preamble to the 1995 proposed rule also referred to the IOM
Report which stated that placing products out of reach ``reinforces the
message that tobacco products are not in the same class as candy or
potato chips.'' \69\
---------------------------------------------------------------------------

\69\ IOM Report, p. 215.
---------------------------------------------------------------------------

In response to the comments, the agency has amended this section to
except certain self-service displays (merchandisers) in facilities
inaccessible to persons under the age of 18.
(77) Several comments asserted that the proposed restriction
pertaining to self-service displays would effect takings compensable
under the Fifth Amendment.
The agency disagrees with the comments. Given the character of the
section, as modified in this final rule, and the lack of reasonable
investment-backed expectations in personal property, its economic
impact, while potentially significant for some parties, is not such as
to effect a taking. The agency addresses Fifth Amendment issues in
greater detail in section XI.A. of this document.
(78) Several comments challenged FDA's basis and authority for
prohibiting self-service displays. The comments focused, in part, on
the studies and reports cited by the agency. They argued that active
enforcement of laws, rather than elimination of self-service displays,
led to decreases in young people's access to cigarettes and smokeless
tobacco. Other comments disputed whether significant shoplifting occurs
from self-service displays. According to these comments, FDA did not
provide any evidence to suggest that eliminating self-service displays
is necessary to prevent shoplifting.

[[Page 44454]]

One comment examined studies that FDA did not cite in the 1995
proposed rule and found one study estimating that less than 5 percent
of the adolescents surveyed had shoplifted cigarettes. Also, a number
of comments stated that, if shoplifting were truly a significant
problem, retailers would have a financial interest in reducing their
losses and would remove self-service displays themselves. The comments
implied that shoplifting is not a significant problem, and several
claimed FDA's rationale was inconsistent because, if young people could
purchase cigarettes and smokeless tobacco easily from retailers, they
would not have to steal them from self-service displays.
In contrast, several comments supported the prohibition on self-
service displays, reiterating FDA's position that displays encourage
shoplifting, and their absence increases the likelihood of age
verification. For example, a drug addiction counselor commented that
teens do not want to go to the counter and ask for cigarettes since
there is a greater likelihood that they will be asked to show their
identification and they might be embarrassed. One comment also asserted
that retailers get products for displays at a discount, and such
discounts are, in effect, a subsidy for shoplifting. Another comment
alleged that, in one area of the country, low-priced brands are put in
displays and that retailers are compensated for any shoplifting losses.
Comments from other areas of the country agreed that shoplifting
occurs, sometimes at significant rates. One comment stated that a 1993
survey of 9th-grade students in one county revealed that 51 percent had
shoplifted cigarettes. Another comment, reflecting on experiences
conducting retailer compliance checks in three small towns, stated that
its teenage volunteers ``commented on the ease with which they could
have lifted cigarettes from free-standing displays.'' A comment
describing practices in a rural part of the country stated that theft
was one method of acquiring smokeless tobacco, and that young people
often began using such products at the age of 10, 11, or 12.
Other comments suggested an additional reason for eliminating self-
service displays. These comments indicated that young people can easily
pick up products from displays, leave their money at the cashier's
desk, and leave the premises without being challenged by a retailer or
before the retailer can request proof of age.
FDA believes there is ample evidence to support a restriction on
self-service displays. The preamble to the 1995 proposed rule cited
surveys suggesting that a significant percentage of children and
adolescents (40 percent in the two areas surveyed) shoplift cigarettes
(60 FR 41314 at 41325), and at least one comment reported an even
higher percentage (50 percent). Although one comment from cigarette
manufacturers suggested the shoplifting rate to be only 5 percent, FDA
emphasizes that, even if one accepts the 5 percent figure, the numbers
of young people engaging in shoplifting can be very large. For example,
5 percent of the estimated 3 million young people who smoke cigarettes
daily equals 150,000 children and adolescents. Five percent of the
estimated 3 million smokeless tobacco product users under the age of 21
also equals 150,000 people.
These numbers may even be artificially low because they exclude the
number of young people who do not smoke or use smokeless tobacco daily,
and these numbers may be extremely low if the 40 or 50 percent
shoplifting rates identified by the agency or by other comments prove
to be more accurate than the 5 percent rate cited by the cigarette
manufacturers.
FDA also disagrees with those comments claiming that shoplifting is
not a significant problem. Generally, such comments asserted that the
problem is not significant because, if it were, retailers would move
self-service displays, and most have not done so. Such comments,
however, misconstrue the significance of the problem. The agency did
not, and does not, claim that individual retailers are suffering
significant shoplifting losses (although FDA did receive one comment
containing information showing that shoplifting losses at two stores
amounted to several thousands of dollars worth of cigarettes annually).
Instead, FDA is stating that significant numbers of young people
shoplift these products. The distinction is critical. To illustrate, if
1,000 retailers each lose 1 cigarette package to shoplifting, each
retailer might feel that the shoplifting rate, from its perspective, is
insignificant. However, if 1,000 young people acquire cigarettes by
shoplifting, the shoplifting problem, from a public health perspective,
then becomes much more significant.
(79) Several comments argued that the studies cited by the agency,
having been conducted at only two locations in the United States (Erie
County, NY, and Fond du Lac, WI), cannot be used to justify a
nationwide prohibition against self-service displays.
The agency disagrees with these comments. The comments offered no
evidence to show that these communities are so distinct or unique from
the remainder of the United States to require FDA to discount or to
ignore their findings. To the contrary, FDA received other comments
from various parts of the nation supporting the rule, and these
comments often agreed that young people shoplift these products from
displays.
FDA also notes that it does not require clinical investigations for
product approvals to be conducted on a national scale. One important
aspect of any study, whether it is submitted as part of an
investigational product exemption, marketing application, or
rulemaking, is whether the study is conducted and analyzed in a
scientifically valid way that permits the results to be extrapolated to
a broader population. In other words, the methodology and analysis are
more important than where the study was conducted. If the agency could
only act after nationwide studies had been conducted, it would be
unable to act or to respond promptly, even in response to significant
public health problems or emergencies.
(80) Several comments questioned the evidence supporting the
proposed restriction on self-service displays. The comments stated that
FDA had no evidence to support the assertion that removing self-service
displays will increase the likelihood of retail clerks requesting proof
of age. One comment stated that the one document cited by FDA (which
compared smoking practices in five California counties before and after
the institution of ordinances prohibiting self-service merchandising)
\70\ cannot be used to justify a rule with nationwide application
because the document, which the comment correctly identified as a
``position paper'' rather than a study, did not: (a) Indicate whether
the ordinances contained other provisions that would have led to
enhanced compliance with minimum age laws; and (b) disclose whether
retailers were told of the compliance testing operation before or after
the fact, such that, had the retailers known, they would have been more
vigilant in ensuring

[[Page 44455]]

compliance regardless of how their products were displayed. This
comment further asserted that the act of adopting the ordinances, and
the penalties they contained, may have made retailers more vigilant in
ensuring compliance with minimum age laws than the restrictions in the
ordinances themselves. Finally, the comment stated that the document
was not a controlled study and that there was no indication that it was
not biased, was subjected to peer review, or was even published in a
scientific journal. The comment stated that the document would not be
acceptable to FDA if it had been submitted as proof of a product's
effectiveness.
---------------------------------------------------------------------------

\70\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco
Sales,'' Stop Tobacco Access for Minors Project (STAMP), North Bay
Health Resources Center, November 3, 1994.
---------------------------------------------------------------------------

Another comment echoed criticism of the document, stating that
factors besides the restriction on self-service displays could have
reduced tobacco use by young people and so the document does not
support a prohibition against self-service displays.
FDA acknowledges that the document omitted details regarding the
author's methodology and the ordinances in the 5 California counties
and the 24 cities covered in the document. The agency disagrees,
however, with the comments' assertion that factors other than the
restriction on self-service displays or other features of the
ordinances may have been principally responsible for decreasing tobacco
use among young people. Such comments overlook the document's statement
that the ordinances were to ``prohibit self-service merchandising
(display and sale) of tobacco products and point-of-sale tobacco
promotional products and require only vendor-assisted sales of tobacco
products and point-of-sale tobacco promotional products in retail
stores.'' \71\ This statement suggests that the ordinances focused on
restricting self-service displays (or merchandisers) and point-of-sale
promotional products rather than other activities.
---------------------------------------------------------------------------

\71\ Id., p. 3.
---------------------------------------------------------------------------

Other criticisms of the document are inappropriate as well. For
example, the comment claimed that other provisions in the ordinances or
other factors may have contributed to the decline in tobacco use in
young people so that a restriction on self-service displays, alone, may
not have been a significant factor in reducing tobacco use among young
people. This criticism, however, overlooks the fact that the rule's
restriction on self-service displays is also complemented by other
provisions (such as requiring retailers to verify age and prohibiting
distribution of free samples) that will, both individually and
collectively, reduce young people's access to cigarettes and smokeless
tobacco.
Similarly, FDA does not agree that the document is flawed because
retailers were not informed of the compliance testing operation before
it was conducted. Alerting a retailer to an upcoming compliance test
would bias any results because the retailer would alter its behavior in
order to ``pass'' the test.
Additionally, in drafting the 1995 proposed rule, FDA used the best
evidence available to it. The comments did not provide any studies to
contradict the cited document, and while some criticisms of the
document may be valid, such criticisms do not require the agency to
revoke the provision entirely. The document was not FDA's sole basis
for proposing to restrict self-service displays. The preamble to the
1995 proposed rule indicated that such a restriction would also reduce
shoplifting, eliminate the ``message'' that displays send to young
people, and increase interaction between retailers and their customers.
These other justifications, and the comments pertaining to them, are
discussed in greater detail in this document.
(81) Other comments objected to a prohibition on self-service
displays because, according to these comments, the rule did not impose
any sanctions on young people or contain any provisions that would
modify a young person's behavior so that he or she would not shoplift.
Some comments suggested that, instead of restricting the use of self-
service displays, shoplifters should be prosecuted, but these same
comments also declared that State or local government authorities
usually decline to prosecute young shoplifters.
As stated earlier, it would be inappropriate for FDA to amend the
rule to impose penalties on young people who purchase or possess
cigarettes or smokeless tobacco. The main focus of the act is on the
introduction, shipment, holding and sale of goods in interstate
commerce. Thus, whether young people should be prosecuted for
shoplifting, and the penalty for shoplifting are appropriately matters
for State or local law.
(82) Several comments challenged the statement in the preamble to
the 1995 proposed rule that removing self-service displays would
reinforce the message to children that tobacco products are not as
acceptable as candy or potato chips. The comments said that young
people know that tobacco products are not like candy or potato chips
and that there is no evidence to show that the statement is true. A
small number of comments added that FDA's rationale would force
retailers to remove other ``unhealthy'' products (such as products
containing fat or cholesterol) from displays.
In contrast, a few comments agreed that self-service displays for
cigarettes and smokeless tobacco convey an implied message that these
products are acceptable. One comment from a local government reported
that young people often see tobacco products as being socially
acceptable (or less harmful to health) because they are openly
displayed. The comment noted that the local jurisdiction had restricted
displays to being within 20 feet of the checkout counter and in a
direct line of sight, but expressed regret that it had not eliminated
displays altogether. Other comments noted that many retailers display
cigarettes next to candy, baseball cards, and other items that appeal
to children and adolescents. These comments concluded that it is
necessary to eliminate self-service displays so that young children do
not associate cigarettes with other products that they find amusing or
that adults give to children and adolescents as treats.
The IOM Report advanced the theory that young people see self-
service displays as an implied message regarding the acceptability or
safety of cigarettes and smokeless tobacco. The IOM report represents
the informed decisions, opinions, and recommendations of a body of
experts, and so, with respect to this issue, the agency disagrees with
those comments that would have FDA dismiss the IOM's opinion.
FDA also disagrees with those comments arguing that the agency
would have to eliminate self-service displays for potato chips, candy,
and other supposedly ``unhealthy'' products. These food products do not
present the same range or magnitude of adverse health effects or
effects on the body to warrant tighter restrictions on their sale,
distribution, or use.
(83) Several comments challenged FDA's claim that removing self-
service displays would increase direct interaction between sales clerks
and underage consumers. The comments asserted that removing self-
service displays will not prompt sales clerks to check for proof of age
and that FDA had no evidence to support this proposition. Other
comments opposed any restriction on self-service displays

[[Page 44456]]

because, they claimed, retail clerks, rather than self-service
displays, are responsible for sales to young people. If retail clerks
consistently demanded proof of age, these comments would permit self-
service displays to be used.
Other comments asserted that FDA has no reasonable basis to assume
that clerks will check for proof of age when clerks already ignore
State laws.
In contrast, a few comments agreed that eliminating self-service
displays would increase interaction between clerks and underage
consumers or deter young people from attempting to purchase cigarettes
or smokeless tobacco. One comment from a local board of health stated
that it eliminated self-service displays because its evidence indicated
that young people in the locality are less likely to purchase
cigarettes if they have to request them from retail clerks. Another
comment reflected on the author's own experience as a child when she
would purchase cigarettes and said it is easy to grab a cigarette
package, leave money on the counter, and simply leave a store before
the sales clerk can react.
Section 897.14(b)(1) requires retailers to verify that persons
purchasing cigarettes or smokeless tobacco are not under the age of 18.
This provision, in conjunction with the prohibition against sales to
anyone under 18 in Sec. 897.14(a), the restriction on self-service
displays in Sec. 897.16(c), the sanctions that are available under the
act, and the likelihood that State agencies will devote more attention
to illegal sales to young people as a result of section 1926 of the PHS
Act should increase the probability that retailers will verify the age
of prospective purchasers.
Yet logically, removing self-service displays should increase
interaction between retailers and potential consumers because the
retailer, under this rule, must physically hand the product to the
consumer. While this action probably will take little time (the
preamble to the 1995 proposed rule and to this final rule estimate that
the elimination of self-service displays would require 10 seconds of
additional labor time for many retail transactions), nevertheless it
increases the interaction between the retailer and potential customers.
Furthermore, by restricting self-service displays, the rule eliminates
a young person's ability to take a package of cigarettes or smokeless
tobacco, leave money on the counter, and leave the retailer's premises
without having to provide proof of age.
(84) Many comments opposed any restriction on self-service displays
because they said eliminating self-service displays would adversely
affect adult consumers or would be ``inconvenient'' because adults
would not be able to purchase products quickly; see, handle, or choose
products; or obtain information about a product or a special promotion.
A few comments asserted, without any supporting evidence, that self-
service displays are not or cannot be used by young people, and,
therefore, should not be regulated.
Conversely, one comment supporting the provision recommended that
FDA clarify or modify the term ``self-service displays'' to distinguish
self-service sales or merchandisers from advertising displays.
The comments opposing the rule misinterpreted how it would apply.
The final rule prohibits self-service displays from being in facilities
that are accessible to young people. Eliminating self-service displays
from such facilities simply means that a consumer will not be able to
take physical possession of a product without the retailer's
assistance. Any inconvenience to an adult should be slight. For
example, it is extremely unlikely that adults will suffer undue
hardship or wait an unreasonable amount of time if they must ask a
retail clerk to hand a product to them. Moreover, the provision does
not prevent adults from seeing or choosing a product or from seeing or
receiving information about a product; products would remain visible,
but they would be behind a counter or in an area accessible only to the
retailer.
Deleting self-service displays from the rule because adults wish to
avoid contact with clerks would be inappropriate as well. As a
practical matter, adults who use self-service displays would not be
able to avoid all contact with a retailer because they presumably still
interact with the retailer when they pay for the product. An important
component of these regulations is to eliminate those modes of sale used
by young people that do not require them to show proof of age or
otherwise do not challenge a young person to show that he or she is
legally entitled to purchase the product.
FDA does agree, however, that the rule should be clarified so that
the reference to displays in Sec. 897.16(c) is understood to cover
self-service sales or merchandisers rather than advertising displays
that contain no products and has amended the rule accordingly. However,
advertising displays are restricted under the advertising provisions in
this rule.
(85) The preamble to the 1995 proposed rule expressed a belief that
retailers, in order to comply with a prohibition on self-service
displays, could move displays behind a retail counter or create an area
that would be accessed only by the retailer's employees.
Many comments rejected this notion, claiming that, due to space
constraints, many retailers would be unable to move displays behind a
counter and would be obliged to build areas where access would be
controlled. The comments said such construction and remodeling could be
expensive and could force some retailers to scale back their tobacco
sales or abandon them completely; such actions would lead to decreased
sales by the retailer and trigger reductions in staff and in State or
local Government tax revenues.
One comment estimated that, for convenience stores, the average
remodeling cost would be as high as $7,000 per store and noted that
tobacco purchases account for 28 percent of convenience store sales.
So, instead of eliminating self-service displays, some comments
advocated alternative approaches. The alternatives included attaching
electronic article surveillance tags to products (although the comment
suggesting this alternative conceded that new technology or assistance
at the manufacturer's level would be needed); ``source tagging,'' where
random packages contain an electronic tag so that would-be shoplifters
would not know which packages were tagged and, as a result, would be
less inclined to shoplift products; and requiring displays to be within
a certain distance of a cash register or the cashier's line of sight,
supplemented by posting signs against underage sales and by training
sales clerks. ``Source tagging'' would require manufacturers, rather
than retailers, to insert tags into packages.
The alternatives identified by the comments appear to be less
effective or less practical than removing self-service displays from
places that are accessible to young people. For example, surveillance
tags and, to a lesser extent, ``source tagging'' might deter
shoplifting, but this would require all manufacturers to agree to place
such tags in their products and would require retailers to install
machines or gates to detect those tags. More importantly, comments from
manufacturers did not address the creation or use of such tags. A
``line-of-sight'' or restricted-placement alternative (requiring a
display to be within a certain distance of a retail employee) would
require no changes by

[[Page 44457]]

manufacturers and few changes by retailers, yet the preamble to the
1995 proposed rule cited studies where similar requirements for vending
machines failed to prevent illegal sales to young people (60 FR 41314
at 41325). Employees might also be distracted or blocked from seeing
the displays, thereby reducing the effectiveness of any ``line-of-
sight'' or restricted placement alternative. Furthermore, the
alternatives would fail to eliminate the implied message that self-
service displays send regarding the acceptability or safety of these
products. Because FDA is unaware of any effective alternative, the
agency declines to amend the rule as suggested by the comments.
FDA has, however, amended the rule to permit self-service displays
(merchandisers only) in facilities that are inaccessible to people
under 18 at all times. The agency made this change in response to
comments stating that some facilities are inaccessible to young people
and so certain requirements, such as restrictions against vending
machines and self-service displays, should not apply. This exception is
subject to the same restrictions as the exception on vending machine
sales.
(86) Many comments, particularly from retailers, opposed
eliminating self-service displays, stating that they derive a
significant portion of their revenue from displays and slotting fees
provided by manufacturers. Several cited figures that were in the
hundreds of thousands of dollars. The comments generally stated that
eliminating self-service displays would decrease or eliminate a
significant portion of their revenue and, according to some, lead to
layoffs or prevent them from hiring young people.
Similarly, FDA received a few comments from firms that manufacture
or sell displays. These comments stated that the firms would lose
significant amounts of revenue or would be forced out of business if
self-service displays were eliminated.
A few comments, however, disputed whether retailers would lose
slotting fees. One comment explained that manufacturers would continue
to pay fees to ensure that their products would be placed in strategic
locations behind the counter, while another comment noted that many
retailers in a northern California region where self-service displays
were eliminated did not lose slotting fees.
The agency declines to amend the rule because of the possible loss
of slotting fees or other revenue from manufacturers. The theoretical
loss of fees that are, at best, tangential to the sale of these
products is an inappropriate basis for determining whether this
provision denies young people's access to these products effectively.
Furthermore, FDA appreciates that such fees may be important to certain
retailers, but, as stated earlier, the agency has no reason to conclude
that all manufacturers will discontinue those fees because of this
rule. The preamble to the 1995 proposed rule (see 60 FR 41314 at 41369)
and one comment cited experience in California to show that retailers
might not suffer significant economic losses if self-service displays
are removed.
FDA reiterates that removing self-service displays from places that
are accessible to young people does not mean that cigarettes and
smokeless tobacco must be hidden from public view. It simply means that
retailers will be required to hand these products to consumers.
Presumably, if the products are moved behind the counter, manufacturers
still have an incentive to ensure that their products are strategically
placed in order to attract adult consumers.
(87) Several comments objected to a restriction on self-service
displays, claiming that retailers have a ``right'' to advertise and
sell products in their own establishments in any manner they select.
As mentioned in section IV.B. of this document earlier, section
520(e) of the act states, in part, that the agency may issue
regulations to establish conditions on the sale, distribution, or use
of a restricted device. Restrictions on cigarette and smokeless tobacco
sales are appropriate given the potential adverse health effects caused
by or associated with the use of these products and their accessibility
and appeal to young people.
(88) A few comments said that eliminating self-service displays
will make it difficult or impossible for marginal brands of cigarettes
or smokeless tobacco to compete against established brands.
FDA reiterates that eliminating self-service displays from places
that are accessible to young people does not mean that the products
must be hidden from view; it simply means that consumers will not be
able to take physical possession of the product without the retailer's
assistance. Consequently, all products will face the same constraints,
insofar as retailer space is concerned.
(89) Many comments would delete a prohibition against self service
displays because, according to these comments, the prohibition would be
ineffective. These comments stated that self-service displays do not
entice young people to smoke, do not increase consumption of tobacco
products, or are only used where retailers check the consumer's age.
Others stated that young people would get the products anyway, so there
was no need to prohibit the use of self-service displays.
The preamble to the 1995 proposed rule stated, among other things,
that young people shoplift products from displays (60 FR 41314 at
41325). Additionally, the preamble to the 1995 proposed rule indicated
that young people will adjust or shift their purchasing behavior as
certain avenues of obtaining these products are eliminated. (See 60 FR
41314 at 41325 (citing different vending machine use rates depending on
the access restrictions used in the jurisdiction).) Given this
evidence, it is reasonable to assume that, as young people are
precluded from purchasing these products, they may be inclined to
acquire them by theft and other means. Thus, when properly framed, the
issue is not whether displays entice young people to smoke or to use
smokeless tobacco (which FDA did not advance as the principal
justification for the rule), but whether the agency should eliminate
self-service displays as an avenue that young people use to obtain
these products. The agency concludes that self service displays must be
eliminated from places that are accessible to young people as part of
the general restriction against impersonal modes of sale.
(90) Several comments opposed elimination of self-service displays
because they claimed that retailers would be forced to hire additional
staff. These comments contrasted sharply with the majority of comments
from retailers who predicted that the loss of self-service displays
would compel them to lay off staff. One comment explained that a self-
service display frees the retailer's staff to perform other tasks. The
other asserted that the rule would compel retailers to hire additional
staff in order to sell these products and that this would result in an
``unfunded mandate'' in violation of the Unfunded Mandates Reform Act.
The preambles to the 1995 proposed rule and to this final rule
estimate that eliminating self-service displays would require 10
seconds of additional labor time for many retail transactions involving
cigarette cartons (60 FR 41314 at 41367). The ``Analysis of Impacts''

[[Page 44458]]

discussion in section XV. of this document places the labor cost for
this time at approximately 2.6 cents per carton. Thus, for a retailer
to be compelled to hire additional staff to compensate for the loss of
self-service displays, cigarette and smokeless tobacco product
purchases would have to account for a substantial number of
transactions. Some retailers may indeed feel that they need to hire
additional staff, but the agency believes that the rule's benefits--
reducing young people's access to cigarettes and smokeless tobacco
nationwide--outweigh the hiring and accompanying economic burdens that
might be imposed on some retailers. Moreover, because the final rule
permits self-service displays (merchandisers only) in facilities that
are inaccessible to under 18 people at all times, the final rule's
impact on some retailers may be reduced.
FDA also disagrees with the comment claiming that the agency
violated the Unfunded Mandates Reform Act. The preamble to the 1995
proposed rule contained a discussion of the Unfunded Mandates Reform
Act as well as the estimated added labor costs in the ``Analysis of
Impacts'' (60 FR 41314 at 41367 and 41359 through 41372).
(91) One comment disputed FDA's estimate that eliminating self-
service would result in 10 seconds of additional labor time for most
retail transactions. The comment, however, did not provide any estimate
of the time that would be required.
The agency did not receive any data to suggest that the additional
labor time would be greater or less than 10 seconds. While some
transactions may take more than 10 seconds, the agency believes that
the additional labor time will be so negligible that it will not be a
significant burden on the retailer.
c. Mail-order sales and mail-order redemption of coupons.--i. Mail-
order sales. Proposed Sec. 897.16(c) would also have prohibited the use
of mail-order sales and mail-order redemption of coupons. The preamble
to the 1995 proposed rule stated that mail-order sales and mail-order
redemption of coupons do not involve a face-to-face transaction that
would enable verification of the consumer's age.
The agency received thousands of comments on the proposed
restriction against the mail-order sale of cigarettes and smokeless
tobacco. Comments supporting the proposed restriction noted that it
would make cigarettes and smokeless tobacco more difficult for young
people to obtain. Specifically, comments stated that ``mail-order sales
should be prohibited since the seller has obvious difficulties
verifying the age of the purchaser in selling where there is no face-
to-face encounter.'' A comment from 26 State attorneys general stated
that ``ending distribution of tobacco by mail-order * * * will greatly
assist our efforts to enforce compliance with our state laws.'' As a
result of some comments discussed in detail below, however, the final
rule permits mail-order sales, except for redemption of coupons and
free samples.
(92) The agency received hundreds of comments opposing the proposed
restriction against mail-order sales. Many comments were submitted by
older smokers (senior citizens, retirees on fixed incomes, etc.) who
identified themselves as pipe tobacco smokers who purchased tobacco
products through the mail; most individuals appeared to be clients from
one tobacco product supply house in Tennessee. These comments stated
that young people do not smoke pipe tobacco and added that they would
like to continue to purchase their pipe tobacco through the mail.
The agency believes that the comments misinterpreted the 1995
proposed rule. The preamble to the 1995 proposed rule stated that the
rule did not apply to pipe tobacco or to cigars because FDA has no
evidence demonstrating that pipe tobacco and cigars are drug delivery
devices under the act or that young people use such products to any
significant degree (60 FR 41314 at 41322).
(93) One comment asserted that the proposed mail-order provision is
unauthorized and contrary to law. According to the comment, neither
section 520 of the act nor any other provision of the act gives FDA the
authority to declare matter unmailable. The comment explained that,
under the Prescription Drug Marketing Act (PDMA), prescription drug
samples may be sent through the mail to those authorized by law to
obtain them. Furthermore, the comment argued, Congress has specifically
determined and legislated what products should not be sent through the
mail (39 U.S.C. 3001(f) and (g) (Federal statute on ``nonmailable
matter'')).
The agency disagrees with the comment. Section 520(e) of the act
expressly authorizes the agency to issue regulations pertaining to the
sale, distribution, or use of a restricted device. Restrictions on the
sale or distribution of such a device through the mail are clearly
within the scope of FDA's authority under that section.
Additionally, FDA does not agree that the PDMA or 39 U.S.C. 3001
prevents the agency from acting on mail-orders. The PDMA's mail-order
restrictions represented a congressional response to a specific
problem, namely the diversion of adulterated prescription drug products
(including drug samples) into illegal markets. Here, the products in
question are devices rather than prescription drugs, and the rule does
not purport to address the diversion of adulterated cigarettes or
smokeless tobacco or samples of those products.
Similarly, the Postal Service provision (39 U.S.C. 3001) on
``nonmailable matter'' does not preclude FDA from issuing regulations
pertaining to the distribution of a regulated device. The provision
simply states that certain items or types of items are nonmailable and
directs the United States Postal Service (USPS), in certain situations,
to issue regulations (such as regulations pertaining to fragrance
advertising samples). FDA interprets 39 U.S.C. 3001, therefore, as
establishing certain ``nonmailable'' items for USPS purposes rather
than precluding FDA from regulating the sale and distribution of a
device pursuant to its device authority. Nevertheless, as discussed in
comment 94 below, FDA has amended the rule to permit mail order sales,
so the issue of the USPS restrictions on nonmailable matter is moot.
(94) The agency received many comments from individuals who
contended that the proposed mail-order restriction is unwarranted
because the agency cited no studies to demonstrate that young people
actually use the mail to obtain cigarettes. One comment noted that IOM
acknowledges that ``the extent of mail-order purchase of tobacco
products by minors is not known.'' According to the comment, the mail-
order restriction must be based on actual evidence that a substantial
number of young people use the mail to purchase cigarettes and not
based on ``theoretical purchasability.''
Other comments stated that young people do not obtain cigarettes
through the mail because they do not possess checks or credit cards to
effectuate mail-order purchases. In addition, the comments questioned
whether young people are patient enough to wait several weeks to obtain
tobacco products. A few comments, including a comment from a mail-order
firm, contended that mail-order purchases would be too expensive for
young people, either because of the cost or the

[[Page 44459]]

minimum order sizes (which, according to one comment, usually consists
of several pounds of tobacco). These comments opposed the proposed
mail-order restriction on the basis that it would not effectively
reduce young people's access to tobacco products and would instead
eliminate an adult's access to entirely legal tobacco products.
Other comments from firms with a significant mail-order business
stated that the elimination of mail-order sales would force the firms
to terminate staff or go out of business.
The agency also received many comments from adults opposing the
proposed mail-order restriction. These comments stated that because
mail-order sales are highly preferable to purchases in retail stores
the products sold through the mail are unavailable in stores or are
less expensive than those sold in stores. Other comments (including one
from a prison inmate) said that because mail-order sales serve those in
rural or isolated areas, eliminating mail-order sales would eliminate
the principal or sole source of tobacco for those adults.
After carefully reviewing the comments, the agency has decided to
delete mail-order sales from Sec. 897.16. The restriction was intended
to preclude young people from having easy access to cigarettes and
smokeless tobacco. However, there is inadequate evidence demonstrating
that young people use mail-order sales to any significant degree. This
lack of evidence may indicate that it is not relatively easy for young
people to purchase cigarettes and smokeless tobacco through the mail.
FDA also considered the impact of the proposed mail-order
restriction on adults. The agency does not intend to unreasonably
interfere with an adult's ability to obtain legally his or her
preferred tobacco products.
Consequently, FDA has amended Sec. 897.16(c) to allow mail-order
sales of cigarettes and smokeless tobacco. The agency emphasizes,
however, that the final rule retains the restrictions against the
redemption of coupons and distribution of free samples through the
mail. This amendment is consistent with the IOM Report which
recommended a suitably limited Federal ban on the distribution of
tobacco products through the mail as part of a long-term access
strategy and, at a minimum, restrictions against the mail-order
redemption of coupons and the distribution of free samples through the
mail. \72\
---------------------------------------------------------------------------

\72\ IOM Report, pp. 108, 225-226.
---------------------------------------------------------------------------

FDA remains concerned, however, that young people may turn to mail-
order sales as the rule's restrictions against other forms of access
(such as vending machines and retail stores) become effective.
Accordingly, FDA strongly advises mail-order firms to take appropriate
steps to prevent sales to young people and reminds mail-order firms
that Sec. 897.14(a) prohibits the sale of cigarettes and smokeless
tobacco to anyone under age 18. The agency will monitor the sales of
mail-order tobacco products, and if FDA determines that young people
are obtaining cigarettes or smokeless tobacco through the mail, the
agency will take appropriate action to address the situation.
(95) Several comments criticized the agency for failing to consider
less restrictive alternatives. The comments noted that tobacco mail-
order houses require payment by check or credit card. Other comments
would amend the rule to require firms to maintain records evidencing
compliance with proof of age requirements. Another comment suggested a
requirement for photocopies of photographic identification cards, such
as an identification with a drivers license number, for mail-order
transactions.
As stated previously, FDA has amended the final rule to permit
mail-order sales, but will monitor such sales to ensure that young
people do not obtain cigarettes or smokeless tobacco through the mail.
The agency, therefore, strongly advises firms to take appropriate
measures to prevent sales to young people.
(96) Several comments expressed concern about the financial well
being of the USPS. These comments predicted that the USPS would lose
income if tobacco products could no longer be sent by mail. The
comments predicted that the USPS would be forced to raise postal rates
to compensate, thus affecting product users and nonusers alike.
As stated previously, the agency has amended the rule to permit
mail-order sales to continue. However, FDA notes that speculative or
theoretical impacts on the USPS are not an appropriate basis for
determining how or whether to regulate a restricted device under the
act.
(97) One comment representing the concerns of specialty tobacco
products noted that 90 percent of its manufacturer-distributor-retailer
distribution system uses the mail or other commercial carriers. This
comment requested that FDA clarify that the proposed restriction on
mail-order sales pertained to mail-order sales to the ultimate user
rather than to inter-company transfers.
Proposed Sec. 897.16(c) was intended to address sales and
distributions to consumers. Transactions and shipments between
manufacturers, distributors, and retailers, therefore, are not subject
to the restrictions on mail-order sales of cigarettes and smokeless
tobacco. However, because the final rule permits mail-order sales,
there is no need to amend the rule to clarify this point.
(98) One comment supported the restriction against mail-order sales
in part because, the comment claimed, such sales permit the purchaser
to avoid taxes on these products (by purchasing the products from firms
in States with lower taxes). The comment also stated that eliminating
these sales would help Canadians because American mail-order firms are
not subject to high Canadian taxes and can sell comparatively lower-
cost cigarettes in Canada. The comment said this practice increases
cigarette consumption in Canada and undermines the health benefits
resulting from high Canadian taxes.
The issues raised by the comments are beyond the scope of this rule
and FDA's authority.
ii. Mail-order redemption of coupons. Proposed Sec. 897.16(c) would
have prohibited mail-order redemption of coupons. The preamble to the
1995 proposed rule addressed mail-order redemption of coupons in
conjunction with mail-order sales, and the restriction against mail-
order redemption of coupons was meant to apply only to coupons that a
prospective purchaser would send through the mail (regardless of
whether the prospective purchaser used the USPS or a private carrier)
to a firm to obtain cigarettes or smokeless tobacco.
(99) Most comments on this issue mistakenly assumed that FDA was
proposing to ban all direct mail coupons. These comments contended that
direct mail coupons are redeemed during face-to-face transactions at
larger retail establishments such as grocery stores. For the most part,
these comments suggested that young people do not routinely use coupons
to purchase tobacco products, noting that the smaller, convenience
stores where young people frequently obtain cigarettes and smokeless
tobacco often do not accept coupons.

[[Page 44460]]

In contrast, FDA also received several comments supporting the
proposal to eliminate mail-order redemption of cigarette and smokeless
tobacco coupons. For example, the attorney general for a populous
northeastern State commented that ``[i]n another operation conducted by
my office earlier this year, 30 minors mailed in coupons to obtain free
samples of smokeless tobacco products from United States Tobacco
Company. Virtually all of the minors were provided with such free
samples.''
Proposed Sec. 897.16(c)'s reference to mail-order redemption of
coupons was directed at the redemption of coupons through the mail. The
provision was not intended to prevent adults from redeeming coupons at
a point of sale or from receiving coupons through the mail. FDA based
this provision on the IOM Report which, among other things, noted that
value added promotions, including coupons, constituted the largest
market expenditure by the tobacco industry in 1991, that coupons are
accessible to young people through direct mail campaigns, and that
price-sensitive young people are attracted to such schemes or may be
increasingly attracted to such schemes as their other sources of
tobacco products are restricted. \73\
---------------------------------------------------------------------------

\73\ Id.
---------------------------------------------------------------------------

Comments supporting this provision confirmed the need for
prohibiting mail-order redemption of coupons. These comments reported
incidents where one or more young people obtained several packages of
cigarettes or smokeless tobacco by sending in coupons (usually for free
samples). Consequently, the final rule retains the restriction against
mail-order redemption of coupons. FDA adds that, for purposes of this
subpart, ``mail'' is not confined to USPS delivery but includes items
shipped through private carriers.
d. Free samples. Proposed Sec. 897.16(d) would have prohibited
manufacturers, distributors, and retailers from distributing or causing
to be distributed any free samples of cigarettes or smokeless tobacco.
The agency proposed this restriction because free samples are often
distributed at ``mass intercept locations,'' such as street corners and
shopping malls, and at events such as festivals, concerts, and games.
The preamble to the 1995 proposed rule stated that free samples
represent a ``risk-free and cost-free'' way for young people to obtain
and possibly use cigarettes or smokeless tobacco and that, when free
samples are distributed at cultural or social events, peer pressure may
lead some young people to accept and to use the free samples (60 FR
41314 at 41326).
The preamble to the 1995 proposed rule also cited surveys and
reports demonstrating that young people, including elementary school
children, can obtain free samples easily. Young people were able to
obtain free samples despite industry-developed, voluntary codes that
supposedly restrict distribution of free samples to underage persons.
The agency cited the IOM Report which suggested that distribution of
free samples to young people occurs because the samplers are often
placed in crowded places and operating under time constraints that may
limit their ability to request proof of age. The IOM Report added that
the samplers are usually young themselves and, as a result, ``may lack
the psychological wherewithal to request proof of age and refuse
solicitations from those in their own peer group'' (60 FR 41314 at
41326).
(100) FDA received a few comments that opposed any restrictions on
free samples, claiming that eliminating free samples would violate the
``rights'' of adult consumers, reduce choices for adults, or deprive
adults of the opportunity to save money.
In contrast, many comments supported proposed Sec. 897.16(d),
including several that opposed the remainder of the rule but expressly
supported a prohibition on the distribution of free samples. Several
comments stated that young people can easily obtain free samples; a few
comments, including two from 12-year old students, mentioned that their
classmates were able to receive free samples or reported that young
people were able to receive free samples without being asked to show
proof of age. One comment even reported that a young person was able to
receive 4 cigarette packages through the mail as free samples, while
another claimed to have seen 12 cans of smokeless tobacco being given
to teenagers.
Another comment supported the provision, based on the author's own
experience when he was 15 years old; a neighborhood grocer gave him and
his friends free cigarettes ``until we were hooked'' and then the
grocer ``had steady paying customers.'' Other comments supported this
provision for the same reason that they supported eliminating single-
cigarette sales and establishing a minimum package size: Such items
encourage young people to experiment with cigarettes or they represent,
as a consortium of State attorneys general said, ``sales and marketing
practices that provide young people with the easiest access to
tobacco.''
The agency agrees that Sec. 897.16(d) will affect adults by
effectively requiring them to purchase cigarettes and smokeless tobacco
rather than receive them free of charge. However, the comments opposing
the elimination of free samples did not offer any suggestions as to how
to prevent free samples from reaching young people. In view of the
evidence showing that young people obtain free samples despite any
industry-imposed restrictions or (in the case of at least one comment)
that they obtain free cigarettes from a retailer, the agency concludes
that the benefits of eliminating free samples as a source for young
people outweigh the inconvenience to adults.
FDA also disagrees with the comments asserting that eliminating
free samples adversely affects an adult's ability to choose products or
otherwise violates adult ``rights.'' The final rule does not alter an
adult's ability to select or purchase cigarettes and smokeless tobacco.
(101) Several comments submitted by manufacturers or their
representatives opposed the prohibition against the distribution of
free samples, stating that manufacturers use free samples to introduce
new products, to encourage adult consumers to switch brands, or to
thank their adult consumers for their patronage. Others comments added
that free samples do not encourage young people to smoke or to use
smokeless tobacco or that eliminating free samples would not reduce
cigarette or smokeless tobacco use by young people.
The agency is eliminating free samples because they are an
inexpensive and easily accessible source of these products to young
people and, when distributed at cultural or social events, may increase
social pressure on young people to accept and use free samples (60 FR
41314 at 41326). The preamble to the 1995 proposed rule cited studies
and reports to support the agency's views; those documents contradict
the comments' claim that free samples do not encourage young people to
use these products or affect use by young people.
As for the rule's impact on manufacturers' practices, the public
health benefits from eliminating free samples as an avenue that young
people use to obtain cigarettes and smokeless tobacco outweigh any
inconvenience to

[[Page 44461]]

manufacturers who will be obliged to devise new ways to introduce new
products, to get adults to switch brands, or to thank adult consumers.
FDA believes that manufacturers will be able to devise new approaches
to promote new brands or to attract new adult customers that comply
with these regulations.
(102) One comment expressed strong opposition to proposed
Sec. 897.16(d). The comment argued that FDA lacked authority to ban
free samples, especially when the agency would permit sales to adults,
and that the agency had no evidence to support a ban on free samples.
The comment added that the act did not extend to device samples and
argued that Congress knows how to give FDA authority over samples, as
evidenced by sampling provisions in the PDMA. The comment further
stated that the term ``sample'' was over-broad because it was not
limited to products distributed in public settings for promotional
purposes; thus, the comment continued, any complimentary gift could be
a ``sample'' under proposed Sec. 897.16(d).
FDA disagrees with the comment. Section 520(e) of the act states
that the agency may ``require that a device be restricted to sale,
distribution, or use * * * upon such other conditions as the Secretary
may prescribe by * * * regulation.'' Restricting free samples is
clearly a restriction on the product's distribution.
As for the PDMA, the comment's claim that the PDMA's sampling
restrictions shows that Congress has not authorized FDA to regulate
device samples (due to the absence of express language on device
samples) fails to take into account the fact that FDA's restricted
device authority is broader than its prescription drug authority. Also,
the comment fails to take into account the reasons behind enactment of
PDMA. PDMA was enacted not to give FDA new authority over prescription
drug samples, but to curtail the illegal diversion of drugs, including
samples, into the market. (See S. Rept. 100-303, 100th Cong., 2d sess.
2-3 (1988).) Before PDMA was enacted, FDA regulated prescription drug
samples in the same manner as prescription drug products. Thus, PDMA is
not intended to give FDA new authority over samples; instead, it
reflects a congressional decision to give FDA a comprehensive and
explicit set of new authority to prevent illegal diversions of
prescription drug products, including the diversion of prescription
drug samples to illegal markets.
FDA also declines to amend the rule to allow ``gifts.'' Allowing
``gifts'' would enable parties to declare that their free samples were
now ``gifts'' and therefore outside the rule and could lead to disputes
as to whether an item was a prohibited ``sample'' or an allowable
``gift.'' However, the agency will exercise discretion in interpreting
and enforcing this rule. For example, a manufacturer's employee who
sends cigarettes or smokeless tobacco to an adult relative to celebrate
a birthday would not be subject to regulatory action under the free
sample restriction in Sec. 897.16(c).
(103) One comment stated that, notwithstanding the preamble to the
1995 proposed rule, FDA has no evidence to support a restriction on the
distribution of free samples. The comment stated that the rule
overestimated the prevalence of sample activities and that cigarette
sampling accounted for only 0.7 percent of the total spent on cigarette
advertising and promotion in 1993. The comment also said that FDA
relied on an outdated version of the cigarette manufacturers' voluntary
code. According to the comment, the outdated code prohibited
distribution of cigarette samples within two blocks of any ``center of
youth activities'' and ``required samplers to demand proof of age in
doubtful cases.'' The revised code adds that ``[s]ampling shall not be
conducted in or on public streets, sidewalks or parks, except in places
that are open only to persons to whom cigarettes lawfully may be
sold.''
In contrast, two comments cautioned FDA against deferring to a
voluntary code or relying on the industry. One comment stated that, in
Maine, the industry agreed to submit reports on sampling activities to
the State in place of legislation that would have curtailed sampling
activities, but the industry discontinued these reports as soon as
State authorities stopped sending reminders that the reports were due.
Another comment stated that, in Massachusetts, a lawsuit over sampling
practices by a smokeless tobacco firm ended in a settlement whereby the
firm would require photocopies of identification cards for all mail-in
requests for samples. The comment said that the settlement represented
an improvement over requiring no proof of age at all, but noted that
the firm refused to apply this practice outside the State and that the
restriction did not apply to other smokeless tobacco firms. The comment
also claimed that firms often agree to restrict sampling activities
only after adverse publicity or agree to restrict sampling activities
without setting any measurable performance goals.
FDA disagrees with the comment asserting that the agency has no
evidence to support a restriction on free samples. The preamble to the
1995 proposed rule cited several reports and surveys showing that young
people, including elementary school children, obtain free samples
easily (60 FR 41314 at 41326). The agency also has no assurance that
the revised cigarette industry code will be any more effective than
earlier versions. Moreover, as mentioned earlier in this document, FDA
received comments stating that young people continue to receive free
samples of cigarettes and smokeless tobacco. The comments refute the
claim that voluntary industry restrictions on sampling preclude the
need for FDA regulation of free samples.
Additionally, the rule offers several important advantages over
voluntary codes. The rule creates enforceable obligations which, if
violated, may subject the manufacturer, distributor, or retailer to
sanctions under the act. These sanctions, in turn, create an incentive
for regulated parties to adhere to the act and its implementing
regulations. A voluntary code also applies only to the parties that
accept the code or fall within the same industry; for example, a
voluntary manufacturers' code might not extend to distributors or to
retailers, or, as the comment recognized, a voluntary cigarette
manufacturers' code might differ from a voluntary smokeless tobacco
manufacturers' code.
Furthermore, a regulation creates uniform standards and policies
for the same product. Those standards apply regardless of whether a
firm is a member of a voluntary organization.
Finally, the agency notes that, while the comment said that ``only
0.7 percent of the total spent on cigarette advertising and promotion''
in 1993 went to cigarette sampling activities, this percentage still
translates into a large sum. Cigarette advertising and promotion
expenditures, according to the same FTC report cited by the comment,
were approximately $6 billion in 1993. Thus, the seemingly small
percentage devoted to cigarette sampling activities, when translated
into dollars, represents $42 million.
(104) Several comments supported the prohibition against the
distribution of free samples, but suggested that FDA amend the rule to
prevent distribution of cigarettes and smokeless tobacco at prices
below their fair market value. One comment would define a product's

[[Page 44462]]

fair market value as the average retail price in the region. Another
comment would amend Sec. 897.16(d) to prohibit sales or distribution of
cigarettes and smokeless tobacco ``in return for nominal
consideration.''
The agency declines to amend the rule as suggested by comments.
While the comments have merit, FDA usually has no role in the prices
charged for an FDA-regulated product. Additionally, it would be
difficult for FDA to monitor fair market values for various products,
and disputes would inevitably arise as to whether the ``market'' should
cover a broader or narrower geographic area, the data used to determine
the fair market value, and how compliance actions would be affected by
fluctuations in the fair market value. Similar disputes would arise
regarding ``nominal consideration.'' Furthermore, regardless of the
price at which the product is sold, other provisions in this subpart
should deter or reduce access by young people.
e. Restrictions on labeling and advertising. The agency on its own
initiative has added Sec. 897.16(e) as a point of clarification to the
final rule. This provision states that ``no manufacturer, distributor,
or retailer may sell or distribute, or cause to be sold or distributed,
cigarettes or smokeless tobacco with labels, labeling, or advertising
not in compliance with the restrictions in Subparts C and D * * *.''
The restrictions on labels, advertising, and labeling in subparts C and
D of part 897 are authorized, in part, under section 520(e) of the act
and are considered conditions of sale, distribution, and use.
Therefore, Sec. 897.16(e) clarifies the statutory obligations of
manufacturers, distributors, or retailers under this rule.

V. Label

In the 1995 proposed rule (60 FR 41314, August 11, 1995), subpart C
of part 897 was entitled ``Labels and Educational Programs,'' and
contained two provisions. Proposed Sec. 897.24, would have required
cigarette or smokeless tobacco packages to contain the appropriate
``established name'' of the product; the final rule retains that
provision and does not make any substantive changes to it. Proposed
Sec. 897.29 would have required manufacturers to establish and maintain
a national educational program to discourage children from using
cigarettes and smokeless tobacco. Based on issues raised by comments,
proposed Sec. 897.29 has been deleted from the final rule, and instead,
the Food and Drug Administration (FDA) has determined that issuing
notification orders under section 518 of the Federal Food, Drug, and
Cosmetic Act (the act) (21 U.S.C. 360h) would be the most practicable
and appropriate means of requiring tobacco manufacturers to inform
young people of the unreasonable health risks. Discussion of the
comments received regarding this education provision is included in
section VII. of this document.

A. Established Name (Sec. 897.24)

Proposed Sec. 897.24 would have required that each cigarette or
smokeless tobacco product package, carton, box, or container of any
kind that is offered for sale, sold, or otherwise distributed bear
whichever of the following established names is appropriate:
``Cigarettes,'' ``Cigarette Tobacco,'' ``Loose Leaf Chewing Tobacco,''
``Plug Chewing Tobacco,'' ``Twist Chewing Tobacco,'' ``Moist Snuff,''
or ``Dry Snuff.''
The preamble to the 1995 proposed rule explained that this
provision was intended to implement section 502(e)(2) of the act (21
U.S.C. 352(e)(2)), which states that a device shall be deemed
misbranded if its label fails to display the established name for the
device. Section 502(e)(4) of the act, in turn, explains that the
``established name'' for a device is the applicable official name of
the device designated under section 508 of the act (21 U.S.C. 358), the
official title in a compendium if the device is recognized in an
official compendium but has no official name, or ``any common or usual
name of such device.'' In this case, no official names have been
designated under section 508 of the act, and no compendium provides an
established name for these products. Consequently, Sec. 897.24 proposed
designating ``cigarettes,'' ``cigarette tobacco,'' and the common or
usual names for smokeless tobacco (such as ``moist snuff'' or ``loose
leaf chewing tobacco'') as established names for these products.
(1) The agency received few comments on proposed Sec. 897.24. One
comment that opposed the provision stated that it was unnecessary and
would produce anomalous results. The comment stated that, because
cigarettes are already required to be labeled ``cigarettes'' under
regulations adopted by the Bureau of Alcohol, Tobacco and Firearms
(BATF) under the Internal Revenue Code (27 CFR 270.215 (1995)),
``Cigarettes'' is already the common and usual name and, therefore,
there is no need to designate an ``established name.''
The agency has concluded that the BATF requirement does not
conflict with the act's requirement that the label bear the established
name of these products. The agency recognizes that BATF regulations
currently require cigarette packages to include the word ``cigarettes''
on the package or on a label securely affixed to the package (27 CFR
270.215). For smokeless tobacco and chewing tobacco, BATF regulations
require the packages to include the words ``snuff'' or ``chewing
tobacco,'' or alternatively, ``Tax Class M'' or ``Tax Class C,''
respectively (27 CFR 270.216). These terms also describe the
established name, as required in section 502(e) of the act.
Many of the labeling provisions of the act, including section
502(e)(2), are intended to provide important basic information to
consumers and others coming in contact with a regulated product. In
this case, the act requires that the established or common name be
placed on the product's label in a clear way so that it is easily seen
and consumers can readily identify the product. Congress provided an
exception only for cases where compliance with this provision is
``impracticable.'' If a manufacturer believes that it cannot comply
with this provision of the rule, the manufacturer should consult with
the agency to determine if it qualifies for an impracticability
exception under section 502(e)(2) of the act.
(2) One comment that supported the provision on established name
recommended that, in addition to the established names set forth in the
1995 proposed rule, little cigars and tobacco sticks should also be
listed as separate products with their own specific established names,
``little cigars'' and ``tobacco sticks'' ``in keeping with the manner
and style of the established names to be used for smokeless tobacco
products.''
One comment that opposed the provision stated that since proposed
Sec. 897.3(a) would define ``cigarettes'' to include little cigars, the
same package of little cigars that must be labeled ``small cigars'' or
``little cigars'' (under current BATF regulations, 27 CFR 270.214(c)
(1995)), would also have to carry the established name of
``cigarettes'' under the proposed FDA regulation. The comment argued
that such a conflicting labeling requirement is absurd, and would
create confusion where none now exists.
The agency has modified the definition of ``cigarette'' found in
proposed Sec. 897.3(a) to exclude little

[[Page 44463]]

cigars from the final rule. The agency also advises that, to the best
of its knowledge, tobacco sticks currently are not sold in the United
States. If tobacco sticks were to be marketed in this country, the
agency advises that such products would be subject to premarket
notification under section 510(k) of the act (21 U.S.C. 360(k)) and 21
CFR part 807, and could be included under the established name of
``cigarette tobacco,'' and therefore do not need to be listed as
separate products at this time.

B. Package Design

(3) Several comments noted that the 1995 proposed rule did not
include any action to eliminate the use of the tobacco product package
itself to influence children. A few comments cited a March 1995
Canadian study, which found that package designs affect the ability of
teens to associate lifestyle and personality imagery to specific brands
and detract from the health message. \74\ Another study found that the
``badge'' value of cigarette packages for youths was decreased when the
packages were stripped of their unique characteristics. \75\ The
comment suggested that the provisions of proposed Sec. 897.30,
requiring text only with black text on a white background, should be
extended to cigarette packages. One comment pointed out that FDA has
the authority to require plain packaging without violating the Federal
Cigarette Labeling and Advertising Act (the Cigarette Act), 15 U.S.C.
1334(a), which prohibits additional statements related to smoking and
health on cigarette packages.
---------------------------------------------------------------------------

\74\ ``When Packages Can Speak: Possible Impacts of Plain and
Generic Packaging of Tobacco Products,'' Health Minister of Canada,
March 1995.
\75\ Rootman, I., B. R. Flay, and D. Flay, ``A Study on Youth
Smoking, Plain Packaging Health Warnings, Event Marketing and Price
Reductions, Key Findings,'' A Joint Research Project by University
of Toronto, University of Illinois, York University, Ontario Tobacco
Research Unit, Addiction Research Foundation, p. 7, 1995.
---------------------------------------------------------------------------

The agency agrees with the comments that cigarette package design
and imagery are powerful tools that increase the appeal of the product,
especially to young people. In the preamble to the 1995 proposed rule
the agency cited several studies demonstrating that ``[i]magery ties
the products to a positive visual image'' (60 FR 41314 at 41335).
Another study showed that ``children and adolescents react more
positively to advertising with pictures and other depictions than to
advertising (or packaging) that contains only print or text'' (60 FR
41314 at 41335).
The agency has considered extending the requirements of Sec. 897.30
(text only, black on white background) to the package itself, but
believes at this time these measures are not necessary considering the
comprehensive nature of the regulatory scheme contained in this rule.
Therefore, the agency is not extending the requirements applicable to
advertising and labeling to the package itself.

C. Ingredient Labeling

The agency specifically requested comments on whether it should
implement recommendations from the Ad Hoc Committee of the President's
Cancer Panel, which recommended, among other things, that the range of
tar, nicotine, and carbon monoxide delivered by each product be
communicated to consumers. In addition, the Ad Hoc Committee
recommended that smokers be informed of ``other hazardous smoke
constituents.''
(4) The agency received several comments suggesting that tar and
nicotine delivery or yield information should be disclosed on product
packages in order to assist consumers in making more informed decisions
about the use of cigarettes. Some of these comments also suggested that
labels list the toxins present in, or delivered from, cigarettes and
state their effect, e.g., ``known carcinogen.''
One comment stated that it cannot be claimed that the ingredients
are trade secret information and, therefore, cannot be disclosed,
because the tobacco companies voluntarily released a list of
ingredients to the public in 1995. The comment noted that, under
current case law, only items kept confidential qualify as trade
secrets. (See Kewanee Oil v. Bicron Corp., 416 U.S. 470 (1974); Avtect
Systems v. Peiffer, 21 F.3d 568 (4th. Cir. 1994).) The comment noted
further that because companies can and do perform reverse engineering
on another company's products, the ingredients are not trade secret.
The comment proposed that, at a minimum, FDA should designate a partial
list of previously disclosed ingredients and require that the list be
included on package labels. Another comment stated that only a
reasonable number of ingredients should be listed on the label or in a
package insert.
One comment stated that ingredient listing is not barred by the
Cigarette Act or by the Comprehensive Smokeless Tobacco Health
Education Act of 1986 (Smokeless Act). (See 15 U.S.C. 1331 et seq. and
15 U.S.C. 4401 et seq.) These statutes require the current Surgeon
General's warnings on tobacco products and preempt any additional
statements relating to smoking or health from being required on
cigarette or smokeless tobacco packages. The comment asserted that a
list of ingredients is not a statement, and cannot be reasonably
construed as a statement relating to smoking and health, because a
statement expresses a point of view, whereas an ingredient list does
not.
One comment noted that the Cigarette and Smokeless Acts require
manufacturers to submit annually to the Department of Health and Human
Services (DHHS) a list of ingredients added to tobacco products, and
the statutes further require that the lists be treated as confidential
commercial or trade secret information. (See 15 U.S.C. 1335(a) and 15
U.S.C. 4403.) The comment stated that the confidentiality provisions in
both statutes bind the Secretary of DHHS with respect to trade secrets,
but do not restrict FDA's authority to require ingredient listing.
FDA agrees that accurate information about the tar, nicotine, and
carbon monoxide delivery from a cigarette to the user would be useful
information. FDA is aware of the Federal Trade Commission's (FTC's)
recent efforts to develop a system to measure, more accurately than the
current test, the tar, nicotine, and carbon monoxide delivered by
cigarettes. FTC has announced that it will issue a report of its
findings regarding a new test method in the near future. FDA believes
that it would be premature to require manufacturers to put any of this
information on tobacco product labels before FTC has issued its report
and made recommendations on accurately measuring the delivery of tar,
nicotine, and carbon monoxide to product users.
With regard to ingredients other than tar, nicotine, and carbon
monoxide, the agency agrees that it has authority under the act to
require labeling or listing of other substances present or delivered by
cigarettes. (See section 502(r) of the act.) The agency notes that
there are hundreds of ingredients added to or delivered by cigarettes
and smokeless tobacco. Even if the agency were to require listing of
only a ``reasonable number,'' current methodologies are not adequate to
accurately identify and quantify the added ingredients or the
constituents delivered by these products. Moreover, at this time there
is not enough data to enable the agency to determine what a
``reasonable'' number of ingredients would be or to determine which
ingredients should be listed and

[[Page 44464]]

which should not. Therefore, the agency is not requiring the listing of
ingredients in the rule.
As discussed in the preamble to the 1995 proposed rule, cigarettes
and smokeless tobacco are subject to various pre-existing requirements
in the statute and the regulations. The preamble stated that such
``regulations include the general labeling requirements for devices at
part 801 (21 CFR part 801) (excluding Sec. 801.62)'' (60 FR 41314 at
41352). The parenthetical reference was a typographical error because
the 1995 proposed rule would have exempted such products from
Sec. 801.61, not Sec. 801.62 (60 FR 41314 at 41342). Section 801.62
states the requirements for ``Declaration of net quantity of
contents.'' This provision requires that the label of an over-the-
counter device bear a declaration of the net quantity and weight of the
contents, e.g., ``20 cigarettes.'' The agency fully expects
manufacturers to comply with this provision and, as discussed below,
also expects manufacturers to comply with Sec. 801.61.

D. Labeling for Intended Use

(5) The agency received comments suggesting that FDA require
intended use information on the package label of cigarettes and
smokeless tobacco. Proposed Sec. 801.61(d) would have exempted
cigarettes and smokeless tobacco from the statement of identity and
labeling for intended use requirements of Sec. 801.61. The comments
stated that such information informs the public about the product's
intended use. One comment supported proposed Sec. 801.61(d).
Based on the comments received, the agency has reconsidered the
matter and concluded that it is appropriate to require that this
information appear on the label. Consequently, the agency has deleted
Sec. 801.61(d) from the final rule.
All over-the-counter devices are required to comply with
Sec. 801.61 and bear the ``common name of the device followed by an
accurate statement of the principal intended action(s) of the device''
on the principal display panel of the package. (See Sec. 801.61.) As
over-the-counter devices, cigarettes and smokeless tobacco are legally
required to comply with this provision.
In the 1995 proposed rule, the agency proposed to exempt these
products because ``section 801.61 stems, in part, from the Fair
Packaging and Labeling Act (FPLA), and [t]obacco products are exempt
from the statute's requirements'' (60 FR 41314 at 41342). Further
evaluation revealed that the requirements in Sec. 801.61 are also based
on FDA labeling authorities including, but not limited to, section
502(a), (c), (e), (f), and (q) of the act, and not the FPLA.
Furthermore, section 1460 of the FPLA contains ``Savings
provisions'' (15 U.S.C. 1460). The provisions state that ``Nothing
contained in this Act [15 U.S.C. 1451 et. seq.] shall be construed to
repeal, invalidate, or supersede * * *(b) the Federal Food, Drug, and
Cosmetic Act [21 U.S.C. 301 et. seq.] * * *.'' Thus, because FDA's
assertion of jurisdiction over these products is under its statutory
authority under the act, any conflict between the two statutes shall be
resolved in favor of the act. (See Jones v. Rath Packing, 430 U.S. 519
(1977).) Consequently, section 1459 of the FPLA, which removes tobacco
from the definition of ``consumer commodity,'' and thus, removes it
from jurisdiction under the FPLA, is superseded by FDA's coverage of
these products under the act.
As stated in the preamble to the 1995 proposed rule, manufacturers
of cigarette and smokeless tobacco are expected to comply with the
general labeling requirements in part 801 (60 FR 41314 at 41352). For
purposes of Sec. 801.61, the ``common name of the device'' is the
established name as set forth in Sec. 897.24.
To more accurately reflect the permitted intended use of these
products, the agency has modified the statement of intended use set
forth in the proposal. The agency proposed that the intended use of
these products be described as a ``nicotine delivery device.'' Under
this rule, these products may be intended for use only by persons 18
years of age and older. Thus, a more accurate statement of the
permitted intended use of these products is ``Nicotine Delivery Device
For Persons 18 or Older.''
Further authority for this requirement stems from section 520(e)(2)
of the act (21 U.S.C. 360j(e)(2). This provision states that: ``The
label of a restricted device shall bear such appropriate statements of
the restrictions required by a regulation under paragraph (1) as the
Secretary may in such regulation prescribe.'' The statement of intended
use, in essence, incorporates the statement of one of the principal
restrictions FDA is imposing on these products.
Accordingly, a provision has been added to Sec. 897.25 that
codifies this intended use statement and statement of restrictions for
purposes of Sec. 801.61.

E. Adequate Directions for Use and Warnings Against Use (Section 502(f)
of the act)

(6) A few comments stated that FDA failed to discuss or provide for
adequate directions for use, as required in section 502(f) of the act.
The comments stated that FDA's silence on this issue is a tacit
acknowledgment that the agency cannot have jurisdiction over these
products because adequate directions for use cannot be prepared for
them.
The agency disagrees with these comments. It does not logically
follow that because the agency was silent on this issue, it does not
have jurisdiction over tobacco products. In fact, in the preamble to
the 1995 proposed rule, the agency cited one of the authorities for the
labeling requirements for these products as section 502 of the act.
According to section 502(f) of the act, a device shall be deemed
misbranded:
Unless its labeling bears (1) adequate directions for use; and
(2) such adequate warnings against use in those pathological
conditions or by children where its use may be dangerous to health,
or against unsafe dosage or methods or duration of administration or
application, in such manner and form, as are necessary for the
protection of users, except that where any requirement of clause (1)
of this paragraph, as applied to any drug or device, is not
necessary for the protection of the public health, the Secretary
shall promulgate regulations exempting such drug or device from such
requirement.
For devices, ``adequate directions for use'' means ``directions
under which the layman can use a device safely and for the purposes for
which it is intended'' (Sec. 801.5). These regulations outline the type
of information which, if missing, may lead to a product being deemed to
be misbranded. Such information includes conditions, purposes, and uses
for which the device is intended; quantity of dose; frequency,
duration, time, route or method of administration; or preparation for
use (Sec. 801.5).
The agency acknowledges that it is very difficult to establish
adequate directions for use for cigarettes and smokeless tobacco,
primarily because of the inherent nature of the products, their
addictiveness, the numerous hazards associated with their use, and
because the behavior of each user (e.g., the depth of inhalation, the
duration of puff, whether the filter holes are covered, and length of
time in mouth) determines the amount of tar and nicotine delivered to
the user from the device.
Section 502(f) of the act provides for an exemption for adequate
directions for use if they are ``not necessary for the

[[Page 44465]]

protection of the public health.'' For example, the agency has
established exemptions from adequate directions for use where adequate
directions for common uses of certain devices are known to the ordinary
individual. (See Sec. 801.116.) Tobacco products have a very long
history of use in this country, and they are one of the most readily
available consumer products on the market today. Consequently, the way
in which these products are used is common knowledge. FDA believes that
the public health would not be advanced by requiring adequate
directions for use. Accordingly, the agency has added a provision to
the final rule exempting cigarette and smokeless tobacco from the
requirement of having adequate directions for use. Section 801.126,
states, ``Cigarette and smokeless tobacco as defined in part 897 of
this chapter are exempt from section 502(f)(1) of the Federal, Food,
Drug, and Cosmetic Act.''
The agency has considered the requirement in section 502(f)(2) of
the act that the labeling of a medical device must provide ``adequate
warnings against use * * * by children where its use may be dangerous
to health.'' In the agency's view, the warnings mandated by the
Cigarette Act (15 U.S.C. 1333) and the Smokeless Act (15 U.S.C. 4402)
satisfy this requirement. Additionally, the Surgeon General's warnings
provide information warning against use in persons with certain
conditions, i.e., pregnant women. Consequently, cigarettes and
smokeless tobacco are not exempt from the statutory requirements under
section 502(f)(2) of the act.

F. Package Inserts

(7) Several comments stated that FDA should require cigarette and
smokeless tobacco packages to contain package inserts that contain
health information and information about the chemicals added to
cigarettes and smokeless tobacco. One comment stated that FDA has
statutory authority to require package inserts under sections 502(a)
and (q) and 520(e) of the act. Another comment stated that the agency
is not preempted from requiring package inserts because sections
1334(a) and 4406 of the Cigarette Act and the Smokeless Act,
respectively, preempt statements related to health ``on any package,''
not in any package.
FDA agrees with the comments that it has statutory authority under
the act to require package inserts for these products. Under section
502(a) of the act, a device is misbranded if its labeling is false or
misleading in any particular. Section 201 of the act (21 U.S.C. 321),
the ``Definitions'' section of the act, describes the concept of
``misleading'' in the context of labeling and advertising. Section
201(n) of the act explicitly provides that, in determining whether the
labeling of a device is misleading, there shall be taken into account
not only representations or suggestions made in the labeling, but also
the extent to which the labeling fails to reveal facts that are
material in light of such representations or material with respect to
the consequences that may result from use of the device under the
conditions for use stated in the labeling or under customary or usual
conditions of use.
These statutory provisions, combined with section 701(a) of the act
(21 U.S.C. 371(a)), authorize FDA to issue a regulation designed to
ensure that persons using a medical device will receive information
that is material with respect to the consequences that may result from
use of the device under its labeled conditions. In the prescription
drug context, this interpretation of the act and the agency's authority
to require patient labeling for prescription drug products have been
upheld. (See Pharmaceutical Manufacturers Assn. v. FDA, 484 F.Supp.
1179 (D. Del. 1980) aff'd per curiam, 634 F.2d 106 (3rd Cir. 1980).)
Additionally, on several occasions, the agency has required patient
package inserts for devices, and has specified either the express
language for the patient package insert or the type of information to
be included in the patient package insert. These devices include
hearing aids (Sec. 801.420), intrauterine devices (Sec. 801.427), and
menstrual tampons (Sec. 801.430).
The agency also agrees with the comment that it is not prohibited
from requiring patient package inserts due to the preemption clauses in
the Cigarette Act and the Smokeless Act. Each of the clauses in these
statutes specifically prohibits requirements that statements relating
to smoking and health be placed on the package. Package inserts, by
nature, are typically found in the package.
Although the agency believes that package inserts for these
products are authorized under the act and would provide useful
information to users, further evaluation would be needed to determine
what specific information a package insert would contain. Therefore,
the agency is not requiring them as part of this rule.

VI. Advertising

A. Subpart D--Restrictions on Advertising and Labeling of Tobacco
Products

Subpart D in part 897 contains the restrictions for advertising and
labeling of cigarettes and smokeless tobacco. Subpart D of part 897 in
the Food and Drug Administration's (FDA's) August 11, 1995, proposed
rule (60 FR 41314) (the 1995 proposed rule) provoked some of the
strongest and most passionate comments from both supporters and
opponents of the proposed restrictions. Many comments from the tobacco
industry, the advertising industry, public interest groups, and
individuals expressed major concerns about the legality,
constitutionality, and wisdom of the advertising restrictions in
general and about the underlying support for individual sections of the
1995 proposed rule. Comments from the largest organization of
psychologists in the world, public interest and health groups,
individual advertisers, and individuals expressed strong support for
the legality and constitutionality of the proposal, provided
information supporting various provisions of the proposal, and
emphasized the necessity for comprehensive advertising regulations.
The purpose of the advertising regulations is to decrease young
people's use of tobacco products by ensuring that the restrictions on
access are not undermined by the product appeal that advertising for
these products creates for young people. (See Central Hudson Gas and
Electric Corp. v. Public Serv. Comm'n of N.Y., 447 U.S. 557, 569
(1980).) Proposed subpart D of part 897 included a range of
restrictions that attempted to preserve the informational components of
advertising and labeling which can provide useful product information
for adult smokers, while eliminating the imagery and color that make
advertising appealing and compelling to children and adolescents under
18 years of age.
Briefly, the 1995 proposed rule included four provisions. Section
897.30 would have defined those media in which labeling and advertising
for cigarettes or smokeless tobacco may appear. In addition, it would
prohibit outdoor advertising within 1,000 feet of elementary and
secondary schools and playgrounds. Proposed Sec. 897.32 would limit all
advertising to black text on a white background. Advertising in any
publication that is read primarily by adults would be permitted to
continue to use imagery and color. Further, all

[[Page 44466]]

cigarette and smokeless tobacco product advertisements would be
required to include the product's established name and intended use,
e.g., ``Cigarettes--A Nicotine Delivery Device,'' and cigarette
advertisements would be required to include a brief statement, such as
``About one out of three kids who become smokers will die from their
smoking.'' Proposed Sec. 897.34 would prohibit the sale and
distribution of nontobacco items, contests and games of chance, and
sponsored events using any indicia of product identification (e.g.,
brand name, logo, recognizable pattern of color). Finally, proposed
Sec. 897.36 outlined those conditions under which the agency would find
the advertising or labeling of any cigarette or smokeless tobacco
product to be false or misleading.
In response to comments filed, FDA has modified the proposed
regulations. Briefly, some of the more substantive changes include: The
definition of adult-oriented publications remains unchanged, but the
preamble makes clear that the responsibility will be assigned
specifically to the manufacturer, distributor, or retailer of tobacco
products that wishes to place advertisements to gather and retain
competent and reliable evidence that the readership of the publication
meets the criteria for an adult-oriented publication. Moreover,
unrestricted advertising, i.e., with color and imagery, may be
displayed at facilities described in Sec. 897.16(c)(2)(ii) that may
sell tobacco from vending machines and self-service provided that the
advertising, e.g., posters and signs, must be displayed so that they
are not visible from outside the facility and are affixed to a wall or
fixture in the facility.
The revised intended use statement is ``Nicotine Delivery Device
for Persons 18 or Older,'' and the agency will not require a brief
statement other than the Surgeon General's warnings.
As provided in the 1995 proposed rule, the final rule states that
any event sponsored by a manufacturer, distributor, or retailer of
tobacco products is to be sponsored only in the corporate name. Teams
and entries also may be sponsored but only in the corporate name. The
regulation includes a ban on all brand-identified nontobacco items,
including those transactions based upon proofs-of-purchase. However,
the proposed ban on contests and games has been deleted. Finally, the
agency has decided to delete the definition of false or misleading
advertising and labeling from this final rule because it is duplicative
and unnecessary in light of the underlying requirements in sections
201(n), 502(a), and 502(q) (21 U.S.C. 321(n), 352(a), and 352(q)) of
the Federal Food, Drug, and Cosmetic Act (the act).
Section VI.B. of this document provides a general discussion of
the rationale for including significant advertising restrictions in the
final regulation, including a discussion in response to comments
concerning the theory of advertising and the importance of color and
imagery to advertising's appeal, especially for young people. This
section also provides a discussion of the effects of advertising on
young people, including expert opinion and research evidence provided
by the American Psychological Association.
Section VI.C. of this document provides responses to questions
raised about the constitutionality of the regulations. Section VI.D. of
this document includes a discussion of the evidence that cigarettes and
smokeless tobacco advertising plays a direct and material role in young
people's decisions to purchase and use these products. This part also
explains why restricting tobacco advertising will advance the Federal
Government's interest in preventing the use of tobacco products by
young people, and provides responses to comments about the evidence.
Finally, section VI.E. of this document responds to comments concerning
the factual evidence provided by FDA in support of its proposed
regulation in a section-by-section format, as well as to comments
claiming that each of these sections was not narrowly tailored to
minimize the burden on commercial speech. \76\
---------------------------------------------------------------------------

\76\ For the purposes of section VI. of this document, the
agency will refer to advertising and labeling merely as
``advertising.'' As the agency pointed out in the preamble to the
1995 proposed rule, advertising and labeling often perform the same
function: to convey information about the product; to promote
consumer awareness, interest, and desire; to change or shape
consumer attitudes and images about the product; and/or to promote
good will for the product (60 FR 41314 at 41328). Moreover, most
court cases involving advertising do not distinguish between the
forms of advertising that FDA calls labeling and those referred to
as advertising. When there is a need to distinguish between the two
forms of promotion, for example, when labeling and advertising are
subject to different statutory requirements, this document will make
clear what is being discussed.
---------------------------------------------------------------------------

B. The Need for Advertising Restrictions

In the preamble to the proposed 1995 rule, FDA tentatively asserted
that a preponderance of the quantitative and qualitative studies of
cigarette advertising suggested: (1) A causal relationship between
tobacco advertising and tobacco use by young people, and (2) a positive
effect of stringent advertising measures on smoking rates and on youth
tobacco use. In arriving at this tentative finding, FDA relied heavily
on the National Academy of Sciences Institute of Medicine's (IOM's)
Report entitled Growing Up Tobacco Free, Preventing Nicotine Addiction
in Children and Youths, Washington, DC 1994 (the IOM Report) and the
Department of Health and Human Services' (DHHS') Center for Disease
Control and Prevention's (CDC's) Report entitled Preventing Tobacco Use
Among Young People, A Report of the Surgeon General (1994) (1994 SGR).
Both indicated that advertising was an important factor in young
people's tobacco use, and that restrictions on advertising must be part
of any meaningful approach to reducing smoking and smokeless tobacco
use among young people. In addition, FDA was careful to note that
industry statements and actions and examples of youth oriented
advertising and marketing campaigns lent support to the agency's
findings.
FDA's review and consideration of the comments received has led the
agency to conclude that advertising plays a material role in the
decision by those under 18 to use tobacco products.
1. Advertising and Young People
(1) Comments from the tobacco industry argued that FDA had simply
assumed that young people found cigarette and smokeless tobacco
advertising to be appealing, and that there was no empirical evidence
of how young people actually perceived the imagery displayed in
cigarette and smokeless tobacco advertisements. The comments argued
that the research cited by the agency relates primarily to the role of
imagery in brand choice decisions. In addition, several comments
disputed FDA's evidence that young people are particularly vulnerable
to image-oriented advertisements. To respond to these comments, it is
necessary to describe the function of advertising and how it affects
young people.
a. Function of advertising. Advertisers use a mix of advertising
and promotional vehicles to call attention to the product they are
selling--to describe its properties, to convey its superiority over
other products, and in some cases to give it an allure above and beyond
the qualities of the product itself. (A red convertible can be a mode
of transportation; it can also tell people a

[[Page 44467]]

lot about who you are, or who you think you are or want to be.)
Advertising creates a matrix of attributes for a product or product
category and beliefs about the product and its possessor. It can serve
to convey images that are recalled later when an event prompts the
consumer to think about a purchase. Consumers, as a general rule,
overestimate the effect that advertising has on the market in general,
but they routinely underestimate its effect upon them and their own
purchasing choices. \77\
---------------------------------------------------------------------------

\77\ Gunther, A. C., and E. Thorson, ``Perceived Persuasive
Effects of Product Commercials and Public Service Announcements:
Third Person Effects in New Domains,'' Communication Research, vol.
19, pp. 574-575, 1992.
---------------------------------------------------------------------------

As discussed in sections VI.B.1.b. and VI.B.1.c. of this document,
advertising that is diverse, image-laden, and colorful can be
particularly effective in attracting attention in a cluttered
advertising environment. Further, advertising that is repeated
frequently and in as many different media as possible is most likely to
ensure that its message is received by the maximum number of consumers.
This trend toward the use of many media in a coordinated effort to
communicate an advertising message supports the need for a
comprehensive approach to mitigating the effects of tobacco
advertising. \78\
---------------------------------------------------------------------------

\78\ Flynn, B. S., J. K. Worden, R. H. Secker-Walker, G. J.
Badger, B. M. Geller, and M. C. Costanza, ``Prevention of Cigarette
Smoking Through Mass Media Intervention and School Programs,''
American Journal of Public Health, vol. 82, pp. 827-834, 1992.
---------------------------------------------------------------------------

Every presentation can add to and build upon the imagery and appeal
created for a product category or a particular brand. Print
advertising, direct mail, and outdoor advertising help to create an
image of the brand (and sometimes an image of the brand's user) and
provide information about price, taste, relative safety, and product
developments for current or prospective users. William Campbell, Chief
Executive Officer of Philip Morris, explained the importance of linking
the brand imagery in various media in relationship to the success in
marketing its Marlboro product:
[W]e've managed to take what was originally tunnel vision
advertising and positioning * * * into every kind of avenue * * *.
For example, our auto racing activities are just another way to
express the Marlboro positioning. Some would say the Marlboro Cup is
different from Marlboro Country, but it is absolutely consistent.
\79\
---------------------------------------------------------------------------

\79\ ``Philip Morris Keeps Smoking--Campbell Sees Growth for
Tobacco Unit in Declining Industry,'' Advertising Age, p. 20, Nov.
19, 1990.
---------------------------------------------------------------------------

The use of many different media is also important in advertising
directed to children. An example of a successful multimedia approach
directed to children is the cigarette smoking prevention program
conducted by Flynn et al., in Vermont, New York, and Montana, and cited
in the preamble to the 1995 proposed rule. \80\ This effort combined
school cigarette smoking prevention programs with a mass media
intervention featuring more than 50 different television and radio
spots over a 4-year period. Some communities received the school
cigarette smoking prevention programs alone, and others received the
school program in combination with the mass media intervention. By the
final year of the program, students exposed to both school and mass
media interventions were 35 percent less likely to have smoked during
the past week than students exposed only to the school program.
Further, this preventive effect persisted for at least 2 years
following the completion of the program. \81\ The researchers
attributed the effectiveness of their program in part to the fact that
their intervention used a wide variety of messages and message styles
over a significant period of time.
---------------------------------------------------------------------------

\80\ Flynn, B. S., J. K. Worden, R. H. Secker-Walker, G. J.
Badger, B. M. Geller, and M. C. Costanza, ``Prevention of Cigarette
Smoking Through Mass Media Intervention and School Programs,''
American Journal of Public Health, vol. 82, pp. 827-834, 1992.
\81\ Flynn, B. S., J. K. Worden, R. H. Secker-Walker, P. L.
Pirie, G. J. Badger, and B. M. Geller, ``Mass Media Interventions
for and School Interventions for Cigarette Smoking Prevention:
Effects Two Years After Completion,'' American Journal of Public
Health, vol. 84, pp. 1148-1150, 1994.
---------------------------------------------------------------------------

Thus, all media collectively along with the amount of exposure time
to young people, can increase the effectiveness of the advertiser's
message. For example, billboards near schools or playgrounds expose
children to unavoidable advertising messages for a more prolonged
period of time than billboards they pass on the highway. Further,
sponsored events that typically last for 2 to 3 hours ensure that those
attending the event or viewing it at home on television are exposed for
a sustained period of time.
b. Color contributes. Color is an important component of
advertising. It can be used to promote a ``feeling'' and a message--
blue is cool, red is hot, green is menthol. Studies have shown that
four-color advertisements significantly increase attention and recall
relative to two color or black- and white- advertisements. \82\
Moreover, the importance of color in advertising becomes more salient
when it is considered that most consumer behavior occurs in conditions
of ``low involvement.'' \83\ Low involvement conditions are those that
occur when a reader skims a magazine advertisement rather than
carefully searching for an advertisement for information about price,
taste, relative ``safety'' of the product, or product improvement.
---------------------------------------------------------------------------

\82\ Hanssens, D., and B. Weitz, ``The Effectiveness of
Industrial Print Advertisements Across Product Categories,'' Journal
of Marketing Research, vol. 17, pp. 294-306, 1980.
\83\ MacInnis, D. J., and L. L. Price, ``The Role of Imagery in
Information Processing: Review and Extensions,'' Journal of Consumer
Research, vol. 13, pp. 473-491, 1987.
---------------------------------------------------------------------------

A recent article in The European \84\ described the importance of
color:
---------------------------------------------------------------------------

\84\ Short, D., ``The Colour of Money,'' The European, p. 21,
April 10, 1996.
---------------------------------------------------------------------------

[S]ecuring a brand colour is more important than ever,
particularly for companies chasing a youth market. The main reason
is the increasing use of fast and furious graphics in advertising
and marketing communications generally. ``This makes owning a colour
more and more important. You can keep changing the graphics, but the
colour remains constant in the consumer's mind.'' Owning a colour
also helps when sponsoring a sports event, for instance, ``All Pepsi
now has to do is put up lots of blue,'' said Brant. \85\
---------------------------------------------------------------------------

\85\ Id. Brant was commenting on Pepsi's decision to change its
brand color to blue.
---------------------------------------------------------------------------

c. The importance of imagery. Imagery also enhances the ability of
advertising to communicate more quickly in low involvement situations
and in quick exposure contexts. Pictorial information is remembered
much better than verbal information, as pictures perform a function of
``organizing'' the qualities of the product as depicted with an image.
Generally, as the pictures or images in an advertisement increase (both
in number and the proportion of the advertisement occupied by the
image), the advertisement is more likely to be recognized, and the
brand name more likely to be remembered. In most cases, pictorial or
image advertising is a more robust and flexible communications medium
and can be used to communicate with the functionally illiterate or the
young person in a hurry. \86\
---------------------------------------------------------------------------

\86\ Lutz, K. A., and R. J. Lutz, ``Effects of Interactive
Imagery on Learning: Applications to Advertising,'' Journal of
Applied Psychology, vol. 62, pp. 493-498, 1977; Hendon, D. W., ``How
Mechanical Factors Affect Ad Perception,'' Journal of Advertising
Research, vol. 13, pp. 39-45, 1973; See also Holbrook, M. B., and D.
R. Lehmann, ``Form Versus Content in Predicting Starch Scores,''
Journal of Advertising Research, vol. 20, pp. 53-62, 1980; Twedt, D.
W., ``A Multiple Factor Analysis of Advertising Readership,''
Journal of Applied Psychology, vol. 36, pp. 207-215, 1952.

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[[Page 44468]]

An executive from Griffin Bacal, one of the largest advertising
agencies in New York, explained how visual imagery scored with young
people:
Pictures sell. Visuals count * * * even those visuals that
seemingly have nothing to do with the product sale. * * * [including
locations, sets, props, wardrobe, colors, numbers, sexes and ages of
people in the ads] * * * Kids want to be like each other. Group
acceptance, and living the life of the gang, is critical. * * *
Similarly, kids define themselves by the product choices they make
and share. Be sure your advertising makes the ``world'' accessible
and ``invites'' the viewer to join. \87\
---------------------------------------------------------------------------

\87\ Kurnit, P., ``10 Tips From the Top Agency-Exec Explains How
Griffin Bacal Scores with Kids,'' Advertising Age Supplement, pp.
19-20, February 10, 1992.
---------------------------------------------------------------------------

Evidence from social psychology and marketing research shows image-
based advertising, such as that employed by the cigarette and smokeless
tobacco industry, is particularly effective with young people, and that
the information conveyed by imagery is likely to be more significant to
young people than information conveyed by other means in the
advertisement.
According to the ``elaboration-likelihood model of persuasion,''
persuasive communications, such as advertisements, can persuade people
either: (1) By the ``central route,'' or (2) by the ``peripheral
route.'' \88\ The central route refers to the process by which a person
reads the messages or information contained in the advertisement and
thinks carefully about it and is influenced by the strength of its
arguments. The peripheral route is a process in which individuals,
particularly young people, are more likely to pay attention and be
persuaded by peripheral cues such as attractive models, color and
scenery, which are unrelated to the primary parts of the message.
Therefore, a young person, or anyone who is unmotivated or unable to
carefully consider the arguments in a message, is likely to be
persuaded via the peripheral route.
---------------------------------------------------------------------------

\88\ Petty, R. E., and J. T. Cacioppo, Communication and
Persuasion: Central and Peripheral Routes to Attitude Change,
Springer-Verlag, New York, p. 3, 1986.
---------------------------------------------------------------------------

In markets where most brands in a product category are similar (as
is the case with cigarettes and smokeless tobacco products), most
advertising provides little, if any, new information. Thus, peripheral
cues (such as color and imagery) take on added significance. Moreover,
according to the model, for children, the motivation and ability to
``elaborate'' upon the arguments (pay attention to and think about the
factual information) contained in cigarette and smokeless tobacco
advertising are relatively low, making young people more susceptible to
influence from peripheral cues such as color and imagery.
Finally, according to the comment from the nation's largest
psychological association, children generally have less information-
processing ability than adults, and they are less able or less willing
to pay attention to the factual information in the advertisements. This
comment stated that because any possible negative health consequences
associated with using tobacco products are relatively far in the future
for them, children are less motivated than adults to carefully consider
information such as tar and nicotine content or the Surgeon General's
warnings, which are contained in cigarette and smokeless tobacco
advertising. Thus, the comment concludes, color and imagery in
advertisements are important components for young people. \89\
---------------------------------------------------------------------------

\89\ See also, Huang, D. P., D. Burton, H. L'Howe, and D. M.
Sosin, ``Black-White Differences in Appeal of Cigarette
Advertisements Among Adolescents,'' Tobacco Control, vol. 1, pp.
249-255, 1992.
---------------------------------------------------------------------------

A communications researcher who provided comments on FDA's 1995
proposed rule for the consolidated comment of the cigarette industry
asserted that the elaboration likelihood model was relevant to the way
children respond to tobacco advertising, but took a somewhat different
view than that expressed above. Specifically, the comment stated that
children are most likely to use the central route when they are ego-
involved in the subject of persuasion, and that ``ego-involvement
generally comes from those subjects which are salient to the groups
with which one is aligned - e.g. peers.'' However, the comment also
stated that because children would have no real experiences surrounding
the initiation of cigarette smoking, they would be likely to engage in
peripheral processing, and would rely on credible sources, such as
peers. The comment contended,
The reason the elaboration likelihood model is relevant here is
that the decision to begin smoking cigarettes does not come out of a
set of fixed or habituated experiences personal to the decision
maker. For that reason this decision is likely to be one on which a
person is particularly susceptible to the influence of others, and
therefore source credibility becomes key. [Emphasis added].
The agency is not convinced by the comment. This explanation does
not address children's responses to tobacco advertisements--it
essentially assumes that children are influenced by advertising only
insofar as it is filtered through the experience of their peers. This
reasoning is both circular and illogical. However, the agency does
concur with the comment's view that children typically process tobacco
advertising via the peripheral route, that children are particularly
susceptible to the influence of others regarding the decision to start
smoking or to use smokeless tobacco, and that perceived source
credibility plays an important role. FDA maintains that the ``source''
of the persuasive message in tobacco advertising is frequently conveyed
by the imagery presented in the advertisement. The same comment
expressed this sentiment, stating ``[s]ince the media consumer often
does not know the writer or broadcaster personally, the consumer or
receiver may attribute source credibility to the media themselves.'' To
the extent that characters featured in tobacco advertising, such as Joe
Camel, the Marlboro Man or the attractive models or race car heroes
typically portrayed in such advertising appear credible and appealing,
they are perceived as credible sources, and could influence children
regarding the decision to smoke or to use smokeless tobacco products.
2. Advertising and Adults
(2) Several comments from the tobacco industry and the advertising
industry stated that cigarette and smokeless tobacco advertising plays
an important economic role in tobacco marketing. A comment from the
tobacco industry stated that FDA proposed restrictions would: (1)
Substantially impair advertising of tobacco to adults; (2) deprive
adults of useful information about products and services such as
availability, price, and quality; (3) reduce the incentive and ability
to market improved products; and (4) deprive adult smokers of the
benefits of competition to provide a broad range of choices and to
assure that tobacco products are provided at the lowest possible cost.
Consequently, the comment said that the 1995 proposed rule would have a
far greater adverse impact on advertising to adults than on advertising
seen by young people.
One comment from an advertising agency argued that restrictions on
the advertising of tobacco products would ``significantly erode the
progress made over the past 15 years in increasing the quantity and
variety of information readily available to the public.'' This

[[Page 44469]]

progress, the comment reiterated, has benefited and continues to
benefit the public.
Further, several comments argued that unfettered advertising is
consistent with our Nation's belief in providing the broadest possible
range of information to individuals, so that they can exercise informed
judgment in their daily lives. For these reasons, the comment stated,
further restrictions on the advertising of legal products would not be
in the public interest and should be opposed.
FDA recognizes, as these comments maintained, that imagery and
color make advertising appealing to adults, as well as to children, and
that advertisers consistently use these elements to make advertisements
compelling and attention getting. Moreover, removal of color and
imagery will make advertising's role in presenting information to
adults more difficult. However, as stated more fully in the preamble to
the 1995 proposed rule, FDA has attempted to tailor its advertising
restrictions as narrowly as possible consistent with its purpose of
reducing young people's attraction to and use of tobacco. Thus, rather
than banning all advertising, the proposed regulations retain the
informational function of advertising by permitting text-only
advertising while removing color and imagery from those advertisements
to which young people are unavoidably exposed.
FDA does not believe that these restrictions should dramatically
increase search costs for adult smokers and smokeless tobacco users who
are actively looking for information on price and new product
innovations. Text-only advertising requires a high involvement on the
part of the consumer but can realistically be expected to provide
sufficient information to carry the message and also provide sufficient
appeal to attract current smokers and smokeless tobacco users. Some
advertising for low-tar products relies on text-only or text with few
pictures.
If the information about product type is important and desired by
adult tobacco users, it can and will be provided by text-only
advertisements if the industry desires to make the information
available. As noted above, advertising for low-tar cigarettes is
generally high-involvement advertising at the present and therefore can
be expected to survive in a text-only environment. Nonetheless, the
agency recognizes that it may be more difficult for advertising,
without imagery and color, to attract the attention of current tobacco
users. However, the agency has decided that the public health benefits
of reducing advertising's ability to create appeal for young people
greatly outweighs the tobacco companies' interest in unrestricted
advertising to adults.
The position argued by these comments is essentially that industry
has the right to communicate freely with its intended audience
regardless of the impact its advertising has on the illegal and
vulnerable audience of children and adolescents. Other comments counter
this comment asserting that it is the Government's obligation to
protect children because of their special vulnerabilities, their lack
of experience and knowledge, and their limited ability to make
appropriate decisions regarding behavior that will have lifelong health
consequences. FDA believes its obligation with respect to tobacco
products is to safeguard the health and safety of young people to
ensure that they do not begin a potentially lifelong addiction to
products that cause so much disease and premature death.

C. The Regulations Under the First Amendment

1. Introduction
Under section 520(e) of the act (21 U.S.C. 360j(e)), FDA included a
number of proposed conditions in the 1995 proposed rule on how
cigarettes and smokeless tobacco could be advertised as part of its
proposed restrictions on the sale of these products. The agency
tentatively found that these conditions are necessary to reduce the
advertising's ability to create demand for these products--that is, the
desire to purchase them--among children and adolescents under 18, for
whom these products are not safe (60 FR 41314 at 41350). In addition,
FDA tentatively found that it was necessary to include an industry-
financed education program among these conditions.
In proposing these measures, FDA recognized that they would have to
pass muster under the protections of communication extended by the
First Amendment to the United States Constitution, in particular, under
the protections extended to commercial speech (60 FR 41314 at 41353).
Before addressing the commercial speech analysis, however, this section
responds to several comments which registered more fundamental
complaints under the First Amendment about FDA's proposed approach.
(3) Several comments, which were from the tobacco and advertising
industries, found in statements made by FDA evidence of an intent not
merely to protect the health of young persons but to ``delegitimize''
lawful adult conduct, to engage in ``viewpoint discrimination,'' and to
run ``roughshod'' over the rights of cigarette and smokeless tobacco
companies. One comment said that it is outside the realm of permissible
exercise of governmental power to suppress speech for the purpose of
instilling values that the Federal Government believes are appropriate.
This comment also said that the purpose of FDA's rulemaking is to
eliminate speech that conflicts with Government messages on smoking and
health. The comment noted that FDA's goal is to bring about the demise
of smoking as a social custom. However, a comment from a consumer group
disagreed, saying instead that FDA's 1995 proposed rule was limited to
covering only those activities designed to promote the sale of the
product to young people and thus covered only commercial speech.
FDA has carefully considered these comments and has taken the
concerns that they expressed into account as it developed this final
rule. The agency recognizes that its authority is limited by the act
and the Constitution. Thus, it has scrutinized each of the conditions
on advertising that it proposed in light of whether the condition
advances the purposes of section 520(e) of the act or some other
section of the act, and whether the condition is consistent with the
First Amendment.
FDA's primary concern is the public health. Because of the
potentiality for harmful effects on individuals under 18 from use of
cigarettes and smokeless tobacco, FDA is adopting restrictions on
advertising among other restrictions on the sale, distribution, and use
of these products. These restrictions will mean that it should be more
difficult to sell these products to people under age 18, who currently
purchase these products in significant numbers.
The agency acknowledges that insofar as these restrictions help
reduce the sale of tobacco products to young people, the restrictions
will have an adverse effect on the cigarette and smokeless tobacco
companies. However, this fact does not mean that FDA is trying to bring
about the demise of the tobacco industry. The restrictions that FDA is
adopting have been tailored to help reduce tobacco advertising's
ability to create an underage market for these products, while leaving
open ample avenues for cigarette and smokeless tobacco companies to
communicate to current users 18 years of age or older about their
products. As explained in detail in

[[Page 44470]]

section VI.E. of this document, this is all that the First Amendment
requires.
(4) Several comments argued that, in the 1995 proposed rule, FDA
had understated the protection that commercial speech is afforded under
the First Amendment. These comments pointed out that advertisers and
consumers have powerful First Amendment rights to send and receive
commercial messages. To support this point, one comment pointed out
that the Supreme Court has recognized that the free flow of commercial
information is ``indispensable to proper allocation of resources in a
free enterprise system.'' (See Virginia State Bd. of Pharmacy v.
Virginia Citizen's Consumer Council, Inc., 425 U.S. 748, 765 (1976).)
The comment also pointed out that the Court went on to say that a
``particular consumer's interest in the free flow of commercial
information * * * may be as keen, if not keener by far, than his
interest in the day's most urgent political debate'' (Id. at 763).
Another comment, however, citing Ohralik v. Ohio State Bar Ass'n.,
436 U.S. 447 (1978), stated that there are dangers inherent in a free-
for-all marketplace, and that, at times, vigilant Government action is
needed to protect the public from false, deceptive, or overbearing
sales campaigns.
In addition to the comments, the agency has considered the Supreme
Court's recent decision in 44 Liquormart, Inc. v. Rhode Island, 116
S.Ct. 1495 (1996), which was handed down after the rulemaking record
was closed. The Court ruled unanimously that Rhode Island's ban on all
dissemination of price advertising for alcoholic beverages was
violative of the First Amendment. No rationale for this judgment
commanded a majority of the Court, however. Nonetheless, FDA considered
each part of the principal opinion, as well as the concurring opinions,
in arriving at the decisions that are set forth in this final rule.
FDA in no way underestimates the protection extended to commercial
speech by the First Amendment. FDA recognizes the important societal
interests served by this type of speech and has given full
consideration to those interests in developing this final rule.
Nonetheless, it is also true, as the agency stated in the 1995 proposed
rule (60 FR 41314 at 41353 to 41354), that the measure of protection
that commercial speech receives is commensurate with its subordinate
position in the scale of First Amendment values, and it is subject to
modes of regulation that might be impermissible in the realm of
noncommercial expression. (See Florida Bar v. Went For It, Inc., 115
S.Ct. 2371, 2375 (1995).)
However, in 44 Liquormart, Inc., three Justices stated:
[w]hen a State entirely prohibits the dissemination of
truthful, nonmisleading commercial messages for reasons unrelated to
the preservation of a fair bargaining process, there is far less
reason to depart from the rigorous review that the First Amendment
generally demands.
(116 S.Ct. at 1507)
This statement has no application to the restrictions that FDA is
imposing for two reasons. First, FDA is not entirely prohibiting the
dissemination of commercial messages about cigarettes and smokeless
tobacco. As explained in section VI.E. of this document, it is adopting
carefully tailored restrictions on the time, place, and manner in which
such messages may be conveyed so that they are not used to undermine
the restrictions on access by minors. Second, the restrictions are
related to the bargaining process. As explained in section II.C.3. of
this document in the discussion of section 520(e) of the act, the
access restrictions, and the concomitant restrictions on promotion of
these products, derive from the fact that, at least as a matter of law,
minors are not competent to use these products.
``The protection available for particular commercial expression
turns on the nature both of the expression and of the governmental
interests served by its regulation.'' (See Central Hudson, 447 U.S. at
563.) FDA has weighed these factors in deciding what restrictions on
cigarette and smokeless tobacco advertising can appropriately be
included in this final rule.
2. The Central Hudson Test
The comments were unanimous in agreeing that any restrictions the
agency adopts on commercial speech will be assessed under the test
first articulated by the Supreme Court in Central Hudson, 447 U.S. at
563-64. This test was originally set out as a four-step analysis in
Central Hudson; however, in one recent case, Florida Bar v. Went For
It, Inc., the Supreme Court described the test as having three prongs
after a preliminary determination is made, although the matters to be
considered remain unchanged:
Under Central Hudson, the government may freely regulate
commercial speech that concerns unlawful activity or is misleading*
* *. Commercial speech that falls into neither of these categories,
* * * may be regulated if the government satisfies a test consisting
of three related prongs: first, the government must assert a
substantial interest in support of its regulation; second, the
government must demonstrate that the restriction on commercial
speech directly and materially advances that interest; and third,
the regulation must be ``narrowly drawn'' * * *.
(115 S.Ct. at 2376 (citations omitted))
FDA explained in the preamble to the 1995 proposed rule why the
restrictions on advertising that it was proposing met each requirement
of the Central Hudson test (60 FR 41314 at 41354 and 41356). The agency
received a number of comments on its analysis--mostly from the tobacco
industry, newspaper or magazine associations, and advertisers. These
comments argued that FDA's proposed restrictions failed under one or
more elements of the Central Hudson test. The agency also received
comments from a public interest group, which has the protection of
commercial speech as one of its interests, and from a coalition of
major national health organizations. Both of these comments argued
that, in virtually all respects, FDA's proposed restrictions satisfy
the Central Hudson test.
In the sections that follow, for each of the restrictions on
advertising that the agency proposed, FDA will analyze the case law
that elucidates the applicable standard, the information presented in
comments, and all other available evidence and decide whether that
standard is met. However, before the agency does so, it must first
consider the preliminary inquiry under Went For It and decide whether
the First Amendment provides any protection to the advertising that is
restricted by this final rule.
3. Is Cigarette and Smokeless Tobacco Advertising Misleading, or Does
It Relate to Unlawful Activity?
As stated earlier, the preliminary inquiry under the Went for It
case is whether the commercial speech is misleading or relates to
unlawful activity. FDA did not specifically address this aspect of the
Central Hudson analysis in its proposal (60 FR 41314 at 41354).
Nonetheless, several comments did.
Many of the comments asserted that the targeted speech concerns
lawful conduct, and that, therefore, this aspect of the Central Hudson
analysis is satisfied. One comment noted FDA's silence on this matter
and said that there is thus no suggestion that cigarette advertisements
propose an illegal transaction or urge youths to begin smoking before
it is lawful for them to do so.
Some comments argued, however, that cigarette and smokeless tobacco

[[Page 44471]]

advertising is not entitled to First Amendment protection because it is
misleading, and it concerns unlawful activity. These comments pointed
out that it is unlawful in all 50 States to sell tobacco products to
children under the age of 18. The comments said the evidence that FDA
assembled in its 1995 proposal suggested that manufacturers of tobacco
products are aware that their advertising campaigns induce minors to
experiment with tobacco products (citing 60 FR 41314 at 41330-41331),
and that much of the promotional efforts of the tobacco industry are
geared toward an illegal end--inducing minors to try to break the law
by obtaining cigarettes and smokeless tobacco that may not legally be
sold or otherwise provided to them.
The comments also argued that governmental entities are entitled to
broad discretion when regulating the promotion of legal products or
activities that pose dangers to society (citing, e.g., United States v.
Edge Broadcasting Co., 509 U.S. 418 (1993)). The comments argued that
cigarette advertising is designed to persuade minors that any concerns
about health hazards are misplaced or overstated, and that their peers
are having fun because they smoke.
Contrary positions were taken by several comments. One argued that
the fact that the sale of tobacco to minors is illegal under State law
does not remove the constitutional protection for advertising to adults
an otherwise lawful product (citing Dunagin v. City of Oxford, 718 F.2d
738, 743 (5th Cir. 1983) (en banc), cert. denied, 467 U.S. 1259
(1984).) A second comment cited the conclusion of a respected
researcher that: ``the suggestion that advertising messages are somehow
working subliminally to twist children's minds before they are old
enough to know better is a complete invention, for which there is no
evidence whatever'' (citing McDonald, C., ``Children, Smoking and
Advertising: What Does the Research Really Tell Us?,'' 12 International
Journal Of Advertising 286 (1993)). These comments also argued that
given the warnings that must appear in all tobacco advertising, it
could not be maintained that tobacco advertising is misleading.
FDA has carefully considered these comments. They raise the
fundamental question of whether tobacco advertising is protected by the
First Amendment. This question cannot be disposed of based simply on
the question of whether such advertising explicitly urges young people
to begin purchasing or using tobacco products before it is lawful for
them to do so. \90\
---------------------------------------------------------------------------

\90\ As explained more fully below, FDA finds unpersuasive the
quote from McDonald because it does not address the means by which
cigarette and smokeless tobacco product advertising influences
minors' decisions on whether to purchase and use these products.
Therefore, the agency turns to the legal issue raised by the
comments.
---------------------------------------------------------------------------

The Supreme Court has repeatedly said that commercial speech
``related to'' unlawful activity is not entitled to First Amendment
protection. (See 44 Liquormart, Inc., 116 S.Ct. at 1505 n.7 (`` By
contrast, the First Amendment does not protect commercial speech about
unlawful activities.''); Florida Bar v. Went For It, 115 S.Ct. 2376
(``Under Central Hudson, the government may freely regulate commercial
speech that concerns unlawful activity or is misleading''); Bolger v.
Youngs Drug Products Corp., 463 U.S. 60, 69 (1983) (``The State may
also prohibit commercial speech related to illegal behavior.'');
Central Hudson, 447 U.S. at 563-564 (``The government may ban * * *
commercial speech related to illegal activity.'' (citations omitted)).)
Tobacco advertising is ``related to illegal activity'' in two
significant respects and thus, in fact, might not be protected speech.
First, tobacco ads, at least as a legal matter, propose a
commercial transaction (see Virginia State Bd. of Pharmacy v. Virginia
Citizens Consumer Council, Inc., 425 U.S. 748, 762 (1976); Pittsburgh
Press Co. v. Human Relations Com'n, 413 U.S. 376, 389 (1973)), that is,
to sell cigarettes and smokeless tobacco. In proposing these
transactions, the advertisers do not differentiate between adult and
minor purchasers. Because sales to minors are unlawful in every State,
\91\ the undifferentiated offer to sell constitutes, at least in part,
an unlawful offer to sell. At the very least, these advertisements are
clearly perceived by minors as offers or inducements to buy and use
these products. Millions of American children and adolescents act on
these perceived offers. It is estimated that each year children and
adolescents consume between 516 million and 947 million cigarette
packages and 26 million containers of smokeless tobacco (60 FR 41314 at
41315). Thus, in a practical sense, cigarette and smokeless tobacco
advertising is proposing transactions that are illegal (see Virginia
State Board of Pharmacy v. Virginia Citizens Council, Inc., 425 U.S. at
772), whether or not that is the advertiser's intent. As such, the
protections of the First Amendment might not attach to such advertising
because it proposes an illegal transaction. (See Pittsburgh Press Co.,
413 U.S. at 389; Zauderer v. Office of Disciplinary Counsel, 471 U.S.
626 638 (1985) (``The States and the Federal Government are free to
prevent the dissemination of commercial speech that is false,
deceptive, or misleading, * * *, or that proposes an illegal
transaction * * *'' (citations omitted)).)
---------------------------------------------------------------------------

\91\ ``State Laws on Tobacco Control--United States, 1995,''
Morbidity and Mortality Weekly Report (MMWR), CDC, DHHS, vol. 44,
No. ss-6, pp. 16-17, November 3, 1995.
---------------------------------------------------------------------------

Second, even if it is assumed, arguendo, that cigarette and
smokeless tobacco ads are not, for constitutional purposes, literal
offers to sell to minors, they nonetheless are ``related to'' an
unlawful activity. Whether it is the advertiser's intent or not, as
explained in sections VI.D.3. through VI.D.6. of this preamble,
cigarette and smokeless tobacco advertising has a powerful appeal to
children and adolescents under the age of 18 and through this appeal,
by means of the image that it projects, it has an effect on a young
person's decision to use, and thus to attempt to purchase, tobacco
products. Yet, as stated above, sale of tobacco products to minors is
unlawful in all 50 States, and the purchase, possession, or use of
tobacco products by minors is unlawful in a majority of States.\92\
Thus, the appeal of tobacco advertising to minors is such that this
type of advertising can appropriately be viewed as encouraging, and
thus being ``related to'', illegal activity. As a result, it is
arguable that, without more, FDA would be able to freely restrict such
advertising.
---------------------------------------------------------------------------

\92\ Id.
---------------------------------------------------------------------------

Nevertheless, the advertising also relates to lawful activity--the
sale of tobacco products to adults. Consequently, FDA may not have
unlimited discretion to regulate tobacco advertising. (See Dunagin v.
City of Oxford, 718 F.2d at 743.) At the very least, however, FDA
should be afforded discretion to do what it has tried to do in these
regulations; that is, to distinguish advertising that ``relates to''
commercial activity that, in substantial respects, is unlawful, the
sale of tobacco products to children, from advertising that does not.
Significantly, the Supreme Court was confronted with a situation
similar to this in United States v. Edge Broadcasting. In Edge, the
Supreme Court upheld a Federal statute that prohibited advertising that
``related to'' unlawful activity (broadcast of lottery advertising by a
broadcaster licensed to

[[Page 44472]]

a State that does not allow lotteries), but not advertising that did
not relate to unlawful activity (broadcasting of lottery advertising by
a broadcaster licensed to a State that allowed a lottery.)
Edge was recently cited with approval by the plurality opinion in
44 Liquormart Inc., 116 S.Ct. at 1511. Justice Stevens (joined by
Justices Thomas, Kennedy, and Ginsburg) reasoned that the statute in
Edge ``was designed to regulate advertising about an activity that had
been deemed illegal in the jurisdiction in which the broadcaster was
located.'' He contrasted the statute in Edge to the statute in 44
Liquormart which ``targets information about entirely lawful behavior''
(Id.). Thus, the Supreme Court has countenanced distinctions in how
speech is regulated that are based on whether the underlying conduct to
which the speech relates is entirely lawful or not. That is exactly the
type of distinction that FDA is drawing here.
Thus, a credible argument can be made that advertising of
cigarettes and smokeless tobacco, at least to the extent that it is
related to sale of these products to children under 18, is not speech
protected by the First Amendment, and thus that the regulations that
FDA is adopting restricting such advertising are subject only to review
under an arbitrary or capricious standard. (See Florida Bar v. Went For
it, Inc., 115 S.Ct. at 2376.) However, FDA is not relying solely on
this analysis. Alternatively, FDA has assumed that a Central Hudson
test, such as that applied in Edge--for products that relate to both
lawful and unlawful transactions--would be appropriate here. Therefore,
a full analysis of these restrictions under Central Hudson follows.
Before proceeding to the Central Hudson analysis and considering
the comments that bear on it, FDA wants to emphasize that, even if the
First Amendment applies to tobacco advertising, the restrictions that
the agency is adopting have very limited impact on those attributes of
commercial speech that are protected by the First Amendment. In 44
Liquormart, Inc., a plurality of the Supreme Court reemphasized that
commercial speech is protected solely because of the informational
value:
Advertising, however tasteless and excessive it sometimes may
seem, is nonetheless dissemination of information as to who is
producing and selling what product, for what reason, and at what
price. So long as we preserve a predominantly free enterprise
economy, the allocation of our resources in large measure will be
made through numerous private economic decisions. It is a matter of
public interest that those decisions, in the aggregate, be
intelligent and well informed. To this end, the free flow of
commercial information is indispensable.
116 S.Ct. at 1505 (emphasis added), quoting Virginia Board of Pharmacy
v. Virginia Citizens Consumer Council.
The restrictions that FDA is adopting have virtually no effect on
the core informational function of commercial speech as described in 44
Liquormart, Inc. and Virginia Board of Pharmacy. Except for billboards
within 1,000 feet of schools and playgrounds, which, as explained
below, present special circumstances, FDA is not restricting the
ability of a manufacturer, distributor, or retailer to inform the
public about what they are selling, why they are selling it, or the
price of their products or, for that matter, about the characteristics
of their products or about any other aspect of what they sell. FDA's
concerns are about the ability of manufacturers to use images, color,
and peripheral presentations (such as sponsorship) in their advertising
and promotion of their products to create particular appeal for
children and adolescents under 18. Thus, FDA has designed the
restrictions that it is adopting to ensure that adults can continue to
be informed by the information in tobacco advertising while restricting
the noninformative aspects of advertising that appeal to children and
adolescents under the age of 18. The agency will explain how it has
achieved this end in the discussion that follows.
4. Is the Asserted Government Interest Substantial?
Assuming that the Central Hudson test applies, ``[t]he State must
assert a substantial interest to be achieved by restrictions on
commercial speech.'' (See Central Hudson, 447 U.S. at 564.) In the 1995
proposed rule, FDA stated that this prong of the Central Hudson test
was satisfied because the proposed regulations serve the substantial
Government interest of protecting the public health. FDA stated that
the advertising restrictions will help to reduce the use of cigarettes
and smokeless tobacco by those who are ``the most vulnerable to
addiction and, perhaps, the least capable of deciding whether to use
the products. Decreased use of these products will reduce the risk of
tobacco-related illnesses and deaths'' (60 FR 41314 at 41354).
Most of the comments that FDA received on this issue, even some
from those who otherwise opposed the agency's proposed restrictions,
agreed with the agency that it has a substantial interest in protecting
the health of individuals under 18 years of age.
(5) Two comments, however, said that the interest asserted by FDA
is insufficient to justify the proposed restrictions on speech. One of
those comments said that smoking is a legal and widespread activity,
and that there is no congressional policy against smoking. One comment
said that while the Government has a substantial interest in ensuring
that tobacco products are used by adults only, FDA is not empowered to
protect that interest.
FDA strongly disagrees with the latter comments. The Government's
interest in the public health, and particularly in the well-being of
minors, is well-established. (See Action for Children's Television v.
FCC, 58 F.3d 654, 661 (D.C. Cir. 1995) and 60 FR 41314 at 41354.) In
fact, the Supreme Court has found that there is a compelling, not
merely a substantial, interest in protecting the physical and
psychological well-being of children, New York v. Ferber, 458 U.S. 747,
756-57 (1982), and that the Government's interest in the well-being of
youth and in parents' claim to authority in their own household can
justify the regulation of otherwise protected expression, FCC v.
Pacifica Foundation, 438 U.S. 726, 749 (1978). (See also Denver Area
Educational Telecommunications Consortium v. FCC, 64 U.S.L.W. 4706 (in
press) (June 28, 1996).)
As the agency has explained in section II.B. and in the 1996
Jurisdictional Determination annexed hereto, cigarettes and smokeless
tobacco are drug delivery devices that are subject to regulation as
devices under the act. Their use by children and adolescents under 18
presents serious risk to the health of this segment of the population.
For example, studies show that the age one begins smoking influences
the amount of smoking one will engage in as an adult and will
ultimately influence the smoker's risk of tobacco related morbidity and
mortality (60 FR 41314 at 41317). In addition, the risk of oral cancer
increases with increased exposure to smokeless tobacco products (60 FR
41314 at 41319). Thus, the health of children and adolescents is
related to their use of cigarettes and smokeless tobacco.
FDA's compelling interest in the health and well-being of minors
supports restrictions on cigarette and smokeless tobacco advertising to
ensure

[[Page 44473]]

that advertising does not undermine FDA's restrictions on the sale of
these products.
One comment said that while FDA's articulated interest in
protecting minors from harm clearly is substantial, this interest is
not served by FDA's regulations. According to the comment, the only
goal served directly by the proposed regulations is that of
delegitimatizing smoking. Two comments said that under the guise of
protecting adolescents and children, FDA is trying to ```save' all
Americans from the `evils' of smoking.'' Two comments said that the
agency is trying to prevent cigarette advertising from presenting
smoking in a positive light. One comment, citing Carey v. Population
Services International, 431 U.S. 678 (1977), said that the Government
cannot restrict cigarette advertising because it legitimizes or
favorably influences a young person's views toward tobacco products.
FDA finds no merit in these comments. Advertisements for cigarette
and smokeless tobacco are not banned by the restrictions that FDA is
adopting. For example, the companies are free to use advertising in
almost all media that communicates to adults about the price, taste, or
joys of using their product, as long as they do so using black-and-
white, text-only advertisements, or using imagery and color in
publications read primarily by adults. Thus, it is simply not true that
manufacturers will be prevented from presenting tobacco use in a
positive light or that they will be prevented from conveying truthful,
nonmisleading information in almost all media.
These regulations are intended, however, as explained in section
VI.E. of this document, to prevent manufacturers from advertising their
tobacco products in a way that encourages underage individuals to
purchase these products. They are authorized by sections 520(e) and
502(q) of the act and are in no way inconsistent with Carey v.
Population Services International.
Carey involved a challenge to a law that banned all advertisement
of contraceptives. The Government argued that advertising
contraceptives would legitimize sexual activity of young children. The
Supreme Court said that this basis was not a justification for
validating suppression of expression protected by the First Amendment
(431 U.S. at 701).
Carey is distinguishable from the present situation in several
ways. The advertisements in that case stated the availability of
products and services that were not only entirely legal but were
constitutionally protected because they involved the exercise of a
fundamental right (Id.). (The Court also struck down other provisions
of the law that prohibited distribution of contraceptives to anyone
under the age of 16 and by anyone other than a licensed pharmacist.)
Cigarettes and smokeless tobacco are neither lawful for all people nor
constitutionally protected. The sale of these products to individuals
under 18 is unlawful in every State (see also, 42 U.S.C. 300x-26), and
possession, purchase, or use of at least some tobacco products by this
segment of the population is unlawful in a majority of States. \93\
Moreover, there was no credible suggestion in any of these comments
that the restrictions on the sale of these products infringe on the
exercise of a fundamental right.
---------------------------------------------------------------------------

\93\ Id.
---------------------------------------------------------------------------

The Supreme Court in Carey made clear the limited coverage of its
holding. (See 431 U.S. at 702, n. 29 (``We do not have before us, and
therefore express no views on, state regulation of the time, place, or
manner of such commercial advertising based on these or other state
interests.'').) Thus, given the significant differences in the two
situations, Carey does not limit FDA's ability to adopt conditions on
advertising that are designed to ensure that restrictions on sale to
minors are not undermined.
(6) Finally, a group of comments on this first prong of the Central
Hudson test attacked FDA for being paternalistic. These comments said
that a principal theme of commercial speech doctrine is a societal
intolerance for Government-enforced ignorance designed to ``help''
consumers who are not trusted by bureaucrats to evaluate advertising
for themselves. One comment said that how to balance short-term
gratification against long-term risk is a uniquely personal analysis
that is best left to individual autonomy rather than Government
censorship. The comment said that people must be trusted to perceive
their own best interests without Government intervention in the
information flow. These comments take on a particular significance in
light of the plurality's statement in 44 Liquormart, Inc. v. Rhode
Island, 116 S.Ct. at 1508, that ``[t]he First Amendment directs us to
be especially skeptical of regulations that seek to keep people in the
dark for what the government perceives to be their own good.''
FDA has no disagreement with these comments with respect to
individuals and, in fact, finds these regulations cannot fairly be
characterized as paternalistic with respect to that population group.
These regulations do not prohibit the inclusion of any information in
advertising. They also do not impose the type of ban on accurate
commercial information that has characterized the limitations on
commercial speech that the Supreme Court has branded as paternalistic.
(See, e.g., 44 Liquormart, Inc., 116 S.Ct. at 1510; Virginia Bd of
Pharmacy, 425 U.S. at 769-770.)
The agency acknowledges, however, that in another respect, these
regulations are paternalistic. These regulations are specifically aimed
at protecting children and adolescents under the age of 18 from the
appeal of tobacco advertising. The agency finds however, that for it to
be paternalistic with respect to children and adolescents in no way
offends the First Amendment or Supreme Court precedent. (See Denver
Area Communications Consortium, Inc. v. FCC, No. 95-124 (U.S. June 28,
1996) slip op. at 25.) Nothing in 44 Liquormart, Inc., for example,
suggests in any way that government may not be paternalistic with
respect to children and adolescents under the age of 18.
In fact, the Supreme Court has stated: ``* * * [T]he law has
generally regarded minors as having a lesser capability for making
important decisions.'' (See Carey v. Population Services International,
431 U.S. at 693, n. 15.) Given these facts--that most cigarette smokers
smoke their first cigarette before 18, that children and adolescents
who use tobacco products quickly become addicted to them before they
reach the age of 18, that among smokers aged 12 to 17 years, 70 percent
regret their decision to smoke, and 66 percent state that they want to
quit (60 FR 41314)--the decision to smoke is among the most important
that an individual will make. Significantly, all 50 States have
prohibited sales of cigarettes to people under 18 years of age. These
regulations have been tailored to help ensure that individuals do not
make a decision on whether to smoke before they are 18 and have a
greater capacity to understand the consequences of their actions, and
that they are not influenced to make this decision before that time by
advertising. At the same time, FDA has sought to ensure that the
restrictions do not burden any more speech than is necessary to
accomplish this goal. Thus, FDA's purpose is not inconsistent with law,
commercial speech doctrine, or the

[[Page 44474]]

country's precepts of individual autonomy.

D. Evidence Supporting FDA's Advertising Restrictions

1. Introduction
Having considered the preliminary inquiry and the first prong of
the Central Hudson analysis, the agency turns to the heart of this
analysis, whether the restrictions on cigarette and smokeless tobacco
advertising that FDA is imposing are in proportion to the interest that
it is seeking to advance. To meet its burden on this issue, FDA first
must show that tobacco advertising plays a concrete role in the
decision of minors to smoke, and that each specific restriction on this
advertising that it is adopting will contribute to limiting its effects
and thus to protecting the health of children and adolescents under the
age of 18. The extensive evidence in this proceeding fully supports
these judgments.
2. Do the Regulations Directly Advance the Governmental Interest
Asserted?
In Central Hudson, the Supreme Court said that any limitation on
commercial speech that the State imposes ``must be designed carefully
to achieve the State's goal'' (447 U.S. at 564). ``* * * [T]he
restriction must directly advance the State interest involved; the
regulation may not be sustained if it provides only ineffective or
remote support for the government's purpose'' (Id.).
The Supreme Court elaborated on what this aspect of the Central
Hudson test requires in Edenfield v. Fane, 507 U.S. 761, 770-771
(1993);
It is well-established that ``[t]he party seeking to uphold a
restriction on commercial speech carries the burden of justifying
it.'' * * * This burden is not satisfied by mere speculation or
conjecture; rather, a governmental body seeking to sustain a
restriction on commercial speech must demonstrate that the harms it
recites are real and that its restriction will in fact alleviate
them to a material degree * * *. Without this requirement, a state
could with ease restrict commercial speech in the service of other
objectives that could not themselves justify a burden on commercial
expression.
In Edenfield, the Court struck down a Florida ban on in-person
solicitation by Certified Public Accountants (CPA's) because the State
board failed to demonstrate that the harm it recited was real.
It presents no studies that suggest personal solicitation of
prospective business clients by CPAs creates the dangers of fraud,
overreaching, or compromised independence that the Board claims to
fear. The record does not disclose any anecdotal evidence, either
from Florida or another State, that validates the Board's
suppositions.
(Id.)
In Rubin v. Coors, the Court struck down a section of the Federal
Alcohol Administration Act (27 U.S.C. 201 et seq.) that prohibited beer
labels from displaying alcohol content because the Government failed to
demonstrate that this restriction would alleviate the recited harm to a
material degree. (See 115 S.Ct. at 1592.) The Court characterized the
Government's regulatory scheme as ``irrational'' (Id.). See also,
Justice Stevens' opinion in 44 Liquormart, 116 S.Ct. at 1509, 1510. (In
striking down Rhode Island's ban on price advertising for failure to
demonstrate that the restrictions would advance the State's interest,
Stevens, joined by Justices Kennedy, Ginsburg, and Souter, found that
while the record ``suggests that the price advertising ban may have
some impact on the purchasing patterns of temperate drinkers of modest
means * * * no evidence [has been presented] to suggest that its speech
prohibition will significantly reduce market-wide consumption.''
Therefore, Stevens stated that ``[s]uch speculation certainly does not
suffice when the State takes aim at accurate commercial information for
paternalistic ends.'')
Thus, under the applicable case law, to adopt the proposed
restrictions on cigarette and smokeless tobacco advertising, FDA must
find that it can conclude from the available evidence that: (1)
Advertising plays a material role in the process by which children and
adolescents decide to begin or to continue to use these products; and
(2) Limitations on advertising will contribute in a direct and material
way to FDA's efforts to ensure that the restrictions it is adopting on
the sale and use of tobacco products to minors are not undermined.
Contrary to what some comments asserted, it is not necessary for
FDA to establish by empirical evidence that advertising actually causes
underage individuals to smoke, or that the restrictions on advertising
will directly result in individuals that are under 18 ceasing to use
cigarettes or smokeless tobacco. It is not necessary in satisfying this
prong of Central Hudson for the agency to prove conclusively that the
correlation in fact (empirically) exists, or that the steps undertaken
will completely solve the problem. (See United States v. Edge
Broadcasting Co., 509 U.S. 418, 434-35.) Rather, the agency must show
that the available evidence, expert opinion, surveys and studies
provide sufficient support for the inference that advertising does play
a material role in children's tobacco use.
In the 1995 proposed rule, FDA suggested that its judgment as to
whether the governmental interest involved was directly advanced by its
actions was entitled to some deference. ``The Supreme Court has stated
that, when determining whether an action advances the governmental
interest, it is willing to defer to the `common sense judgments' of the
regulatory agency as long as they are not unreasonable'' (citing,
Metromedia Inc. v. City of San Diego, 453 U.S. 490, 509 (1981) (60 FR
41314 at 41354)).
Several comments took issue with this suggestion. One comment said
that FDA had mischaracterized Supreme Court jurisprudence, and two
comments said that courts will defer only to common sense judgments of
legislatures.
FDA disagrees with those comments. In Florida Bar v. Went For It,
Inc., the Supreme Court said that it had permitted ``litigants,'' which
it did not limit to State legislatures, to justify speech restrictions
by ``studies and anecdotes pertaining to different locales altogether,
* * * or even, in a case applying strict scrutiny, to justify
restrictions based solely on history, consensus, and ``simple common
sense * * *'' (115 S.Ct. at 2378). Thus, FDA's reliance on common sense
(which, as made clear in section VI.D.3. through VI.D.6. of this
document, provides only part of the basis for FDA's findings) is
justified.
(7) One comment said that, rather than giving FDA deference, courts
review with special care any regulations that suppress commercial
speech to pursue a nonspeech-related policy.
FDA disagrees with this comment for two reasons. First, these
regulations do not suppress commercial speech. While they limit such
speech, they leave open significant means of communication about these
products. Second, this comment derives specifically from footnote 9 of
Central Hudson, 447 U.S. at 566 (``We review with special care
regulations that entirely suppress commercial speech in order to pursue
a nonspeech-related policy.''). In that case, the Supreme Court found
that control of demand for electricity was a speech-related policy (see
447 U.S. at 569). Similarly, the policy that FDA seeks to advance here,
control of demand for cigarettes and smokeless tobacco by minors, is a
speech-related policy.

[[Page 44475]]

(8) Finally, one comment said that FDA claimed deference for its
common sense judgments to deflect attention from the lack of a factual
basis for the 1995 proposed rule. Two comments, however, stated that
FDA has compiled a record on the problem that is more extensive than
any that existed in any of the cases in which the Supreme Court upheld
restrictions on commercial speech.
In the discussion that follows, FDA reviews the evidence on whether
cigarette and smokeless tobacco advertising affects the decision by
minors to use these products, and whether the restrictions on
advertising that it is imposing will limit the effect to a material
degree. This review demonstrates that FDA's judgment on these issues is
supported not only by common sense but by studies, anecdotes, history,
expert consensus documents, and empirical data. All of this evidence
provides support that restrictions on the advertising of these products
will directly advance the Government's interest in protecting the
health of children and adolescents under 18 years of age.
3. Is There Harm? Does Advertising Affect the Decision by Young People
to Use Tobacco Products?
a. In general. In the preamble to the 1995 proposed rule, FDA
stated that perhaps the most compelling piece of evidence supporting
restrictions was that these products were among the most heavily
advertised and widely promoted products in America. The agency cited
the most recent Federal Trade Commission (FTC) figures of overall
expenditures for 1993, that indicated that over $6.1 billion had been
spent by the cigarette and smokeless tobacco industries to promote
their products in diverse media. These include magazines, newspapers,
outdoor advertising, point of purchase, direct mail, in-store,
dissemination of nontobacco items with brand identification, and
sponsorship of cultural and sporting events.
(9) Several comments from the tobacco industry and the advertising
industry criticized FDA's reliance on the immensity of advertising
expenditures that show that tobacco products are heavily advertised.
The comments claimed that the size of the industry advertising budget
is not evidence that it is effective in causing young people to
smoke.Conversely, one comment concluded that:
[h]ighly repetitious ad exposure likely leads to judgment
biases in both risk and social perceptions, such as assessments of
smoking prevalence and the social acceptance experienced by smokers.
The largest psychological association, in its comments, agreed and
stated that research indicates that young people are indeed exposed to
substantial and unavoidable advertising and promotion, \94\ even though
they have been banned from radio and television. Referencing numerous
studies, this comment stated further that:
---------------------------------------------------------------------------

\94\ Fischer, P. M., M. P. Schwartz, J. W. Richards, A. O.
Goldstein, and T. H. Rojas, ``Brand Logo Recognition by Children
Aged 3 to 6 years: Mickey Mouse and Old Joe Camel,'' Journal of the
American Medical Association (JAMA), vol. 266, pp. 3145-3148, 1991;
Mizerski, R., K. Straughn, and J. Feldman, ``The Relationship
Between Cartoon Trade Character Recognition and Product Category
Attitude in Young Children,'' presented at Marketing and Public
Policy Conference, 1994.
---------------------------------------------------------------------------

there is considerable evidence that young people are exposed to
tobacco ads, that those who smoke are especially likely to be aware
of cigarette advertising, and that liking of cigarette advertising
among young people is predictive of smoking behavior * * *.
The comment continued that increasing one's exposure to advertising
and promotions creates persuasion, and that reducing that exposure will
impede that process. \95\ One study \96\ found that even brief exposure
to tobacco advertising can cause some young people to have more
favorable beliefs about smokers. \97\
---------------------------------------------------------------------------

\95\ For example, Lavidge, R. J., and G. A. Steiner, ``A Model
for Predictive Measurements of Advertising Effectiveness,'' Journal
of Marketing, vol. 25, pp. 59-62, 1961; McGuire, W. J.,
``Persistence of the Resistance to Persuasion Induced by Various
Types of Prior Belief Defenses,'' Journal of Abnormal and Social
Psychology, vol. 64, pp. 241-248, 1962.
\96\ Pechmann, C., and S. Ratneshwar, ``The Effects of
Antismoking and Cigarette Advertising on Young Adolescents'
Perceptions of Peers who Smoke,'' Journal of Consumer Research, vol.
21, pp. 236-251, 1994.
\97\ See also, Hock, J., P. Gendall, and M. Stockdale, ``Some
Effects of Tobacco Sponsorship Advertisements on Young Males,''
International Journal of Advertising, vol. 12, pp. 25-35, 1993.
---------------------------------------------------------------------------

FDA did not cite the industry's expenditures to indicate that the
size of the industry's advertising budget was, in and of itself, a
problem, but rather to show that the very size of the campaign, and the
resultant ubiquity and unavoidability of the advertising in all media,
created a climate that influences young people's decisions about
tobacco use. The ubiquity creates what FDA referred to in the preamble
to the proposed rule (60 FR 41314 at 41343), as ``friendly
familiarity'' that makes smoking and smokeless tobacco use seem
respectable to young people. In its comments, the advertising agency
that coined this phrase in the 1960's has protested that FDA used the
phrase improperly. However, regardless of the firm's protest, the
agency finds that this phrase ``friendly familiarity'' accurately
describes the effect of massive marketing that uses a variety of media
and saturates potential consumers with information and imagery.
Researchers have found that ``the ubiquitous display of messages
promoting tobacco use clearly fosters an environment in which
experimentation by youth is expected, if not implicitly encouraged.''
\98\
---------------------------------------------------------------------------

\98\ Bonnie, R. J., and B. S. Lynch, ``Time to Up the Ante in
the War on Smoking,'' Issues in Science and Technology, vol. 11, pp.
33-37, 1994.
---------------------------------------------------------------------------

b. Evidence regarding young people's exposure to, recall of,
approval of, and response to advertising. Many studies have
demonstrated that young people are aware of, respond favorably to, and
are influenced by cigarette advertising. In the preamble to the 1995
proposed rule, FDA presented a number of studies examining young
people's exposure to, recall of, approval of, and response to cigarette
advertising. \99\ Collectively, these studies showed that children who
smoke are more likely to correctly identify cigarette advertisements
and slogans in which the product names or parts of the slogans have
been removed than are children who do not smoke, and that exposure to
and approval of cigarette advertising were positively

[[Page 44476]]

related to smoking behavior and intentions to smoke.
---------------------------------------------------------------------------

\99\ Chapman, S., and B. Fitzgerald, ``Brand Preference and
Advertising Recall in Adolescent Smokers: Some Implications for
Health Promotion,'' American Journal of Public Health, vol. 72, pp.
491-494, 1982; Aitken, P. P., and D. R. Eadie, ``Reinforcing Effects
of Cigarette Advertising on Under-Age Smoking,'' British Journal of
Addiction, vol. 85, pp. 399-412, 1990; Goldstein, A. O., P. M.
Fischer, J. W. Richards, and D. Creten, ``Relationship Between High
School Student Smoking and Recognition of Cigarette
Advertisements,'' Journal of Pediatrics, vol. 110, pp. 488-491,
1987; Botvin, G. L., C. J. Goldberg, E. M. Botvin, and L. Dusenbury,
``Smoking Behavior of Adolescents Exposed to Cigarette
Advertising,'' Public Health Reports, vol. 108, pp. 217-224, 1993;
Klitzner, M., P. J. Gruenewald, and E. Bamberger, ``Cigarette
Advertising and Adolescent Experimentation With Smoking,'' British
Journal of Addiction, vol. 86, pp. 287-298, 1991; Aitken, P. P., D.
R. Eadie, G. B. Hastings, and A. J. Haywood, ``Predisposing Effects
of Cigarette Advertising on Children's Intentions to Smoke When
Older,'' British Journal of Addiction, vol. 86, pp. 383-390, 1991;
O'Connell, D. L., H. M. Alexander, A. J. Dobson, D. M. Lloyd, G. R.
Hardes, H. J. Springthorpe, and S. R. Leeder, ``Cigarette Smoking
and Drug Use in Schoolchildren: II. Factors Associated With
Smoking,'' International Journal of Epidemiology, vol. 10, pp. 223-
231, 1981; Alexander, H. M., R. Calcott, A. J. Dobson, G. R. Hardes,
D. M. Lloyd, D. L. O'Connell, et al., ``Cigarette Smoking and Drug
Use in Schoolchildren: IV. Factors Associated With Changes in
Smoking Behaviour,'' International Journal of Epidemiology, vol. 12,
pp. 59-66, 1983.
---------------------------------------------------------------------------

(10) Several comments from the tobacco industry and advertising
groups were critical of these studies. The comments argued that none of
the studies demonstrated that recognition of, exposure to, or approval
of, cigarette advertising caused the initiation of cigarette smoking;
that smoking in fact engendered increased exposure to, approval of and
recognition of cigarette advertising; and that the samples were
inappropriate and not generalizable. One comment took issue with the
way in which smoking transition was defined in the Aitken study cited
by the agency. \100\ In addition, the same comment questioned the use
of self-reported measures of cigarette advertising exposure in several
of the studies.
---------------------------------------------------------------------------

\100\ Aitken, P. P., D. R. Eadie, G. B. Hastings, and A. J.
Haywood, ``Predisposing Effects of Cigarette Advertising on
Children's Intentions to Smoke When Older,'' British Journal of
Addiction, vol. 86, pp. 383-390, 1991.
---------------------------------------------------------------------------

FDA agrees that none of these studies individually is sufficient
to: (1) Establish that advertising has an effect of directly causing
minors to use tobacco products; (2) determine directionality--that is,
did advertising cause the observed effect, or are smokers more
observant of advertising (the Klitzner, Aitken, et al., and Alexander
studies attempted to control for this effect); or (3) define terms or
disprove the influence of peer pressure in smoking behavior.
However, none of these defects is sufficient to render it
inappropriate for FDA to use the studies as evidence. The studies, in
fact, present useful insight into how advertising affects smoking
behavior and when considered with other studies provide sufficient
support for the agency's conclusions. For example, one study \101\
stated that the results show that part of the process of becoming a
smoker is to adopt a preferred brand, which the advertising and tobacco
industries concede is affected by advertising. Moreover, these studies
clearly indicate that, at a minimum, advertising plays an important
role in developing an appealing and memorable image for brands.
Finally, FDA recognizes that advertising may not be the most important
factor in a child's decision to smoke; however, the studies cited by
the agency establish that it is a substantial, contributing, and
therefore material, factor.
---------------------------------------------------------------------------

\101\ Chapman, S., and B. Fitzgerald, ``Brand Preference and
Advertising Recall in Adolescent Smokers: Some Implications for
Health Promotion,'' American Journal of Public Health, vol. 72, pp.
491-494, 1982.
---------------------------------------------------------------------------

c. Evidence concerning overestimation of smoking prevalence. In the
preamble to the 1995 proposed rule, FDA cited numerous studies finding
that children's misperceptions about the prevalence of smoking are
related to smoking initiation and the progression to regular smoking.
\102\ Further, the evidence indicated that cigarette advertising plays
a role in leading young people to overestimate the prevalence of
smoking.
---------------------------------------------------------------------------

\102\ Chassin, L., C. C. Presson, S. J. Sherman, E. Corty, and
R. W. Olshavsky, ``Predicting the Onset of Cigarette Smoking in
Adolescents: A Longitudinal Study,'' Journal of Applied Social
Psychology, vol. 14, pp. 224-243, 1984; Collins, L. M., S. Sussman,
J. Mestel Rauch, C. W. Dent, C. A. Johnson, W. B. Hansen, and B. R.
Flay, ``Psychosocial Predictors of Young Adolescent Cigarette
Smoking: A Sixteen-Month, Three-Wave Longitudinal Study,'' Journal
of Applied Social Psychology, vol. 17, pp. 554-573, 1987; Sussman,
S., C. W. Dent, J. Mestel-Rauch, C. A. Johnson, W. B. Hansen, and B.
R. Flay, ``Adolescent Nonsmokers, Triers, and Regular Smokers'
Estimates of Cigarette Smoking Prevalence: When do Overestimations
Occur and by Whom?,'' Journal of Applied Social Psychology, vol. 18,
pp. 537-551, 1988; 1994 SGR, p. 192-195, citing Burton, et al., The
L.A./Finland Study; Sherman, S. J., C. C. Presson, L. Chassin, E.
Corty, and R. Olshavsky, ``The False Consensus Effect in Estimates
of Smoking Prevalence: Underlying Mechanisms,'' Personality and
Social Psychology Bulletin, vol. 9, pp. 197-207, 1983; Botvin, G.
J., C. J. Goldberg, E. M. Botvin, and L. Dusenbury, ``Smoking
Behavior of Adolescents Exposed to Cigarette Advertising,'' Public
Health Reports, vol. 108, pp. 217-224, 1993.
---------------------------------------------------------------------------

(11) Several comments criticized the overestimation of smoking
prevalence studies presented by FDA in its 1995 proposed rule. The most
common criticism was that the cited studies did not demonstrate a
causal relationship between either exposure to advertising or
overestimation of smoking prevalence and intentions to smoke. One
comment noted that some of the cited studies did not necessarily
measure ``overestimation,'' but instead simply measured respondents'
perceptions of smoking levels among their peers and adults. Another
comment argued that FDA ignored other variables (such as whether or not
one's friends smoked) that were predictive of smoking status or
intentions to smoke.
It is true that some of the cited studies did not measure
``overestimation'' in the most literal sense but instead measured
respondents' perceptions of smoking levels among peers and adults.
However, the perceived levels were still uniformly higher among those
who smoked than among those who did not. The importance of these
studies is the fact that they established differences in perception
between smoking and nonsmoking young people about the prevalence, and
therefore the acceptability, of smoking.
d. The effects of selected advertising campaigns that were
effective with children. In the preamble to the 1995 proposed rule, FDA
presented evidence about two campaigns that appear to have been
particularly effective with children, and a historical analysis of
trends in U.S. smoking initiation among 10- to 20-year-olds from 1944
to 1980. \103\
---------------------------------------------------------------------------

\103\ Pierce, J. P., E. Gilpin, D. M. Burns, E. Whalen, B.
Rosbrook, D. Shopland, and M. Johnson, ``Does Tobacco Advertising
Target Young People to Start Smoking?'' JAMA, vol. 266, pp. 3154-
3158, 1991; Fischer, P. M., M. P. Schwartz, J. W. Richards, A. O.
Goldstein, and T. H. Rojas, ``Brand Logo Recognition by Children
Aged 3 to 6 Years: Mickey Mouse and Old Joe Camel,'' JAMA, vol. 266,
pp. 3145-3148, 1991; Hastings, G. B., H. Ryan, P. Teer, and A. M.
MacKintosh, ``Cigarette Advertising and Children's Smoking: Why Reg
was Withdrawn,'' British Medical Journal, vol. 309, pp. 933-937,
1994; Pierce, J. P., L. Lee, and E. A. Gilpin, ``Smoking Initiation
by Adolescent Girls, 1944 through 1988: An Association with Targeted
Advertising,'' JAMA, vol. 271, pp. 608-611, 1991.
---------------------------------------------------------------------------

FDA presented several studies finding that the ``Joe Camel''
campaign had a significant impact on underage smoking in the United
States, \104\ and that a humorous character for Embassy Regal
cigarettes named ``Reg'' was appealing to children in the United
Kingdom. \105\
---------------------------------------------------------------------------

\104\ Fischer, P. M., M. P. Schwartz, J. W. Richards, A. O.
Goldstein, and T. H. Rojas, ``Brand Logo Recognition by Children
Aged 3 to 6 Years: Mickey Mouse and Old Joe the Camel,'' JAMA, vol.
266, pp. 3145-3148, 1991; Pierce, J. P., E. Gilpin, D. M. Burns, E.
Whalen, E. Rosbrook, D. R. Shopland, and M. Johnson, ``Does Tobacco
Advertising Target Young People to Start Smoking?'', JAMA, vol. 266,
pp. 3154-3158, 1991.
\105\ Hastings, G. B., H. Ryan, P. Teer, and A. M. MacKintosh,
``Cigarette Advertising and Children's Smoking: Why Reg was
Withdrawn,'' British Medical Journal, vol. 309, pp. 933-937, 1994.
---------------------------------------------------------------------------

FDA also cited a recent study that used data from the National
Health Interview Survey to study trends in smoking initiation among 10
to 20 year olds from 1944 through 1980. \106\ The study concluded that
tobacco marketing campaigns that targeted women resulted in increased
smoking uptake in young women and girls, but not in adults generally.
\107\
---------------------------------------------------------------------------

\106\ Pierce, J. P., L. Lee, and E. A. Gilpin, ``Smoking
Initiation by Adolescent Girls, 1944 through 1988: An Association
with Targeted Advertising,'' JAMA, vol. 271, pp. 608-611, 1994.
\107\ Id.; See also Pierce, J. P., and E. A. Gilpin, ``A
Historical Analysis of Tobacco Marketing and Uptake of Smoking by
Youth in the United States: 1890-1977,'' Health Psychology, vol. 14,
pp. 500-508, 1995. Burns, D. M., L. Lee, J. W. Vaughn, Y. K. Chiu,
and D. R. Shopland, ``Rates of Smoking Initiation Among Adolescents
and Young Adults, 1907-1981,'' Tobacco Control, vol. 4, supp. 1, pp.
52-58, 1995.
---------------------------------------------------------------------------

The Joe Camel Campaign--In the preamble to the 1995 proposed rule,

[[Page 44477]]

FDA described R. J. Reynolds' (RJR) use of the cartoon Joe Camel as the
centerpiece of a very successful campaign that sought to revitalize
Camel cigarettes. The preamble to the 1995 proposed rule described two
sets of studies. One set indicatedthat the campaign was so pervasive
and juvenile that children as young as 3 to 6 years old, recognized the
Joe Camel character and knew that he sold cigarettes. The other set of
studies provided evidence that the campaign had resulted in Camel's
share of the adolescent youth market rising from below 4 percent of
underage smokers to between 13 and 16 percent in a short period of time
(60 FR 41314 at 41333).
This description of the Camel campaign produced over 200 comments
from the advertising, tobacco, legal and publications industries,
members of legislative bodies, State and local government officials and
agencies, health providers and organizations, academics, and the
general public. The latter included many anecdotal references to
children's positive reactions to the campaign, including comments from
parents, teachers, and children themselves. One comment, from a State
attorney general, stated that ``in 1993, after reviewing research
documenting the extremely powerful effect R. J. Reynolds' `Cool Joe
Camel' ads have on children, I joined with 26 other State Attorneys
General in calling'' for a ban on that campaign.
(12) The comments differed radically in assessing the accuracy of
FDA's use of Joe Camel as evidence of the effect of a youth-oriented
campaign. A number of comments stated that the Joe Camel campaign was
neither directed toward children nor effective at reaching them, and
that FDA's evidence did not support the agency's position. The comments
criticized the studies cited by FDA and referred to other studies that
they believed supported their contention that the Joe Camel campaign
was not directed toward children. For example, one comment argued there
was no evidence to suggest that brand recognition had any influence on
smoking initiation. This same comment also complained that the studies
relied on by FDA were ungeneralizable and were from medical journals,
not marketing journals. Another comment argued that the Pierce study
cited by the agency had demonstrated only that Camel and Marlboro were
thought to be the most advertised brands across all respondent age
groups. \108\
---------------------------------------------------------------------------

\108\ Pierce, J., et al., ``Does Tobacco Advertising Target
Young People to Start Smoking? Evidence from California,'' JAMA,
vol. 266, No. 22, p. 3154-3158, 1991.
---------------------------------------------------------------------------

Several comments argued that the finding in the Fischer and
Mizerski studies that children recognize Joe Camel did not necessarily
indicate that they liked Joe Camel, let alone that they would be more
likely to take up cigarette smoking. \109\ For example, some comments
from the tobacco industry discussed the Mizerski study funded by RJR
and criticized FDA's use of it. FDA, as noted above, had cited this
study in the 1995 proposed rule to show that 72 percent of 6 year olds
and 52 percent of children between the ages of 3 and 6 could identify
Joe Camel. \110\ This exceeded the recognition rates for Ronald
McDonald, a character frequently advertised on television. The
comments, however, stated that the results of the study indicated that
while recognition of the cartoon trade characters and liking of the
associated product each tended to increase with age, for Joe Camel, at
every age, children who recognized Joe Camel were more likely to report
disliking cigarettes than did children who did not recognize Joe Camel.
---------------------------------------------------------------------------

\109\ Fischer, P. M., et al., ``Brand Logo Recognition by
Children Aged 3 to 6 Years: Mickey Mouse and Old Joe the Camel,''
vol. 266, pp. 3145-3148, 1991; Mizerski, R., ``The Relationship
Between Cartoon Trade Character Recognition and Product Category
Attitude in Young Children,'' presented at ``Marketing and Public
Policy Conference,'' May 13-14, 1994.
\110\ Independent research by Fischer found that 91 percent of 6
year-olds and 30 percent of 3 year-olds recognized Joe Camel.
Fischer, P. M., J. W. Schwartz, A. O. Goldstein, and T. H. Rojas,
``Brand Logo Recognition by Children Aged 3 to 6 Years: Mickey Mouse
and Old Joe the Camel,'' JAMA, vol. 266, pp. 3145-3148, 1991.
---------------------------------------------------------------------------

Several comments also cited another study by Henke (the Henke
Study), \111\ which found results suggesting that even though
recognition of brand advertising symbols increases with age,
recognition does not necessarily indicate favorable attitudes about a
product. Although the children in the study were generally able to
recognize Joe Camel, 97 percent of the respondents reported that
cigarettes were ``bad for you,'' and all but one of the minors stated
that cigarettes were for adults. Several comments also mentioned a
November 1993 Roper survey of over 1,000 young people between ages 10
and 17. \112\ This survey found that 97 percent of those youths who
recognized ``Joe Camel'' had negative opinions about smoking.
---------------------------------------------------------------------------

\111\ Henke, L., ``Young Children's Perceptions of Cigarette
Brand Advertising Symbols: Awareness, Affect and Target Market
Identification,'' Journal of Advertising, in press.
\112\ Roper Starch, ``Advertising Character and Slogan Survey,''
pp. 16-17, November 1993 (conducted for R. J. Reynolds Tobacco Co.).
---------------------------------------------------------------------------

Finally, these comments also stated that the Joe Camel campaign did
not increase the smoking rates of minors. The comments cited to data
from CDC's Office of Smoking and Health's (OSH's) study ``1993 Teenage
Attitudes and Practices Survey, Public Use Data Tape'' (TAPS II) \113\
that show that, contrary to FDA's assertion and citation to data from
Monitoring the Future, \114\ there has not been an increase in youth
smoking rates as a result of the Joe Camel campaign.
---------------------------------------------------------------------------

\113\ ``1993 Teenage Attitudes and Practices Survey, Public Use
Data Tape,'' CDC, OSH, p. 3, 1993 (unpublished data).
\114\ Johnston, L. D., P. M. O'Malley, and J. G. Bachman,
National Survey Results on Drug Use from the Monitoring the Future
Survey, 1975-1993: vol. I: Secondary School Students, Rockville, MD,
DHHS, Public Health Service (PHS), National Institutes of Health
(NIH), National Institute on Drug Abuse (NIDA), NIH Pub. No. 94-
3809, 1994.
---------------------------------------------------------------------------

Conversely, several comments from professional associations and
many from private citizens supported FDA's tentative conclusion that
some tobacco advertising campaigns--particularly Joe Camel--are very
effective with children. Some comments referred to the same research
evidence cited by FDA in the 1995 proposed rule.
It is not the agency's position that the recognition studies
provide evidence of the effect of this campaign upon the smoking habits
of children. The Henke study found that children age 6 and younger do
not smoke and uniformly report that they dislike smoking. \115\
However, although young children usually dislike smoking, many of them
later do smoke. FDA's point in using the recognition studies was that
advertising for Camel cigarettes was so pervasive and appealing to
young people that children saw the advertisements and assimilated them
even though they were too young to even think about smoking. These
studies provide important evidence of the pervasiveness of tobacco
advertising.
---------------------------------------------------------------------------

\115\ Henke, L., ``Young Children's Perceptions of Cigarette
Brand Advertising Symbols: Awareness, Affect and Target Market
Identification,'' Journal of Advertising, in press.
---------------------------------------------------------------------------

The Henke study (cited by comments opposed to the 1995 proposed
rule), which reported that although recognition of brand advertising
symbols increases with age, recognition does not necessarily indicate
favorable attitudes toward a product--is subject to

[[Page 44478]]

many of the same criticisms as those leveled by the tobacco industry at
studies cited by FDA, and in fact contains more serious flaws that
suggest that its results should be interpreted with a great deal of
caution.
First, the sample employed in this study was both inadequate to
test the author's hypotheses, and is nongeneralizable to other
populations. There were only 83 participants in the study; this sample
is too small to allow for adequate power to test the author's fine-
grained hypotheses concerning age. In fact, the inadequate sample size
led the author to collapse the participants into three age groups for
many analyses, which meant that 3-year olds were placed into the same
group as children who were 5-and-a-half years old. In addition,
participants all were recruited from middle class neighborhoods in the
same ``small coastal town'' in Maine. Racial breakdowns were not
presented, but it is likely, given the demographics of upstate Maine,
that whites were overrepresented and African-Americans
underrepresented. In addition, males were overrepresented. At best, the
sample represents the population of 3- to 8-year-old children in that
small town in Maine, but it is not even clear that this is the case.
Second, the interview process used to collect data in the study,
and even the nature of the interviewers themselves, greatly limit the
conclusions that may be drawn from the study. The study used six
different interviewers, five of whom were college undergraduates, and
one of whom was a child care professional. Each interviewer
participated in but a single training session before collecting data.
Further, not all of the interviewers were blind to the hypotheses of
the study. This is a great concern, considering the very subjective
nature of the interview. It was not reported whether who the
interviewer was had significant effects on the results of the study
(and indeed the sample size is probably too small to permit such an
analysis), but it is unlikely that all six interviewers conducted the
interviews in precisely the same way or elicited the same types of
responses from the participants.
The interview process itself appeared to be highly biased and
subjective in nature. It is not surprising that the children
overwhelmingly reported that cigarettes were ``bad for you'' and were
meant for adults, given that they were being interviewed face-to-face
by adult strangers. Any potential differences attributable to
recognition of cigarette advertising were probably masked by the
intimidating presence of the interviewer. Further, the answers to
questions such as ``Do you like this product or not like this
product?,'' and ``Is this product good for you or bad for you?'' can
depend to a great extent on the manner in which they are asked.
Overall, the small, nonrepresentative sample, the excessive number
of questionable interviewers, and the interview process itself all cast
serious doubt on the value of this study. Finally, as noted in the
previous paragraph, children almost uniformly report that smoking is
bad, but many of them will smoke in the future in part due to the
appeal created for the product by advertising.
Additional studies--Two additional studies on this issue of
recognition were submitted to the docket. The first, an article by Joel
S. Dubow, \116\ merely commented on several general studies on recall
of advertising. The result was that children and especially adolescents
remember more about advertising than adults. (FDA agrees with the point
that advertising is more memorable to children.) Further, all the
advertisements tested, and those that children and adolescents
remembered so well, were either on television or presented in a movie
theater setting.
---------------------------------------------------------------------------

\116\ Dubow, J. S., ``Advertising Recognition and Recall by Age-
Including Teens,'' Journal of Advertising Research, pp. 55-60, Sept/
Oct 1995.
---------------------------------------------------------------------------

Children and adolescents are more visually oriented than adults;
they remember what they see on television. However, as noted,
commercials for cigarettes are not on television and so the high
recognition rates of Joe Camel cannot be accounted for on that basis.
Thus, the study begs the same question that is raised by the Mizerski
study: Where did those 3 to 6 year olds see the cigarette
advertisements they found so memorable?
The answer may be provided by the second recognition study
submitted by RJR. One study was conducted by Roper Starch in November
1993 for RJR and tested young people's recognition of advertising
characters. The results of that study show that Joe Camel was
recognized by 86 percent of all 10 to 17 year olds, in both aided and
unaided recall. The characters with greater recognition were all
televised characters: the Energizer Bunny, Ronald McDonald, the Keebler
Elves, etc. Recognition scores for those characters were in the 97
percent to 100 percent range. Of more interest, 95 percent of those who
recognized Joe Camel knew that he sold cigarettes, similar to the
product familiarity rates for the other characters. \117\
---------------------------------------------------------------------------

\117\ ``Advertising Character and Slogan Survey,'' pp. 10, 12,
22-23.
---------------------------------------------------------------------------

But perhaps the most interesting answers were those provided by the
children who responded that they knew that Joe Camel sold cigarettes.
In response to the question, ``[p]lease tell me the ways that you might
have seen or heard about this character,'' 51 percent said the
information came from a billboard advertisement, 45 percent said from
an advertisement in a magazine, 32 percent said from an advertisement
in the store, and 22 percent said on a tee shirt. A sizable group said
they had seen him on television (42 percent). On the other hand, all
the other characters were identified as having been on television (88
percent to 100 percent). Recognition based upon billboard exposure for
these other characters was between 6 percent and 13 percent. Most were
not recognized as having been on tee shirts.
Clearly, cigarettes are marketed differently than most consumer
products; nonetheless, whatever the marketing mix used by the tobacco
industry, cigarette advertisements are clearly being seen and
assimilated by those too young to be interested in or to have started
smoking.
A second type of study, provided evidence of the effect of this
campaign on adolescent smoking rates. As noted, one comment disputed
that there was a rise in young people's smoking rates that corresponded
to the introduction of the Joe Camel campaign. The significance of this
argument is that if smoking rates after the introduction of the Joe
Camel advertising campaign did not rise, there is little reason to
believe that the campaign caused young people to take up smoking. This
comment referred to its own analysis of smoking trends, which it stated
were derived from TAPS II \118\ data and not from the data in
Monitoring the Future used by FDA. \119\
---------------------------------------------------------------------------

\118\ ``Current Trends: Changes in the Cigarette Brand
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR,
CDC, vol. 43, pp. 577-581, Aug 19, 1994.
\119\ Johnston, L. D., P. M. O'Malley, and J. G. Bachman,
National Survey Results on Drug Use from the Monitoring the Future
Study, 1975-1993: Vol. I; Secondary School Students, DHHS, PHS, NIH,
NIDA, NIH Pub. No. 94-3809, 1994.
---------------------------------------------------------------------------

FDA has provided a more detailed answer to this comment above. As
explained there, the agency finds this comment to be without merit. The
Monitoring the Future study is the most consistent source of data
available on youth smoking rates. RJR's expert, Dr. J.

[[Page 44479]]

Howard Beales, III, has referred to it as ``[t]he most consistent data
available'' to track the incidence of teen smoking over time. \120\
Moreover, Dr. Beales noted that other Government studies are
``sporadic'' and, by implication, cannot be relied upon to give an
accurate picture of overall smoking trends.
---------------------------------------------------------------------------

\120\ Beales, J. H., ``Teenage Smoking: Fact and Fiction,'' The
American Enterprise, vol. 21, March/April 1994.
---------------------------------------------------------------------------

The Monitoring the Future Study indicates that from 1987 to 1993,
the 30-day smoking rates and daily smoking rates for male high school
seniors increased steadily, although with variations in some years.
\121\ During that same period, Camel's share of the youth market rose
from below 4 percent to around 13 percent (60 FR 41314 at 41330).
---------------------------------------------------------------------------

\121\ Johnston, L. D., P. M. O'Malley, and J. G. Bachman,
National Survey Results on Drug Use from the Monitoring the Future
Study, 1975-1994, Vol. I: Secondary School Students, DHHS, PHS, NIH,
NIDA, NIH Pub. No. 94-3809, 1995.
---------------------------------------------------------------------------

These data do not absolutely prove that Camel advertising
``caused'' a rise in youth smoking. However, they do provide further
evidence that the Joe Camel campaign had an effect on youth smoking
rates.
(13) Comments from the tobacco industry maintained that FTC's
investigation, which failed to produce ``evidence to support'' FTC
action against RJR for the Joe Camel campaign, should have been
dispositive of the issue. Therefore, the comments argued, it is
inappropriate for FDA to use the campaign as evidence that advertising
causes children to start to smoke. The comments maintained that the FTC
review included the same studies relied upon by FDA to condemn the Joe
Camel campaign.
Comments stated further that Congress has vested jurisdiction in
FTC to prosecute unfair and deceptive advertising of tobacco products,
and that it has sole jurisdiction in this area. (See Federal Trade
Commission Act (the FTC Act) (15 U.S.C. 41).) These comments noted
further that FTC has shown its ability to fulfill its responsibilities
in this area, citing two recent consent agreements secured by FTC. One
was against RJR for advertising that disputed some of the health risks
of smoking. (See In the matter of R. J. Reynolds Tobacco Company, 113
FTC 344 (1990).) The other was against American Tobacco Company for
allegedly misleading statements about tar and nicotine ratings. (See In
the matter of The American Tobacco Company, Dkt. No. C-3547 (Consent
Order, January 31, 1995).)
On the other hand, comments from two national health organizations
alleged that the fact FTC concluded it was unable to take action
against Joe Camel demonstrates that the FTC Act, as it is currently
being interpreted by the Commission, is not sufficient to protect
American youth from inappropriate tobacco advertising and that FDA,
therefore, needs to take action under its authority.
The industry comments misapprehend FDA's citation to the Joe Camel
campaign. As noted above, FDA cited to numerous studies that had been
performed by independent researchers on children's recognition of the
main character of a youth oriented advertising campaign (60 FR 41314 at
41333). The agency also cited to several documents that it had obtained
that indicated that RJR may have intended for its Joe Camel campaign to
appeal to and attract young people (60 FR 41314 at 41330). FDA's
discussion of the marketing success of the Joe Camel campaign is not
intended to suggest that FDA had found or concluded that the Joe Camel
campaign violated any law, but that FDA had found in that success--
tripling Camel's share of the youth market--support for restricting
such activities in the future through rulemaking.
Moreover, FTC did not disagree with FDA's use of the campaign. In
its comment to FDA on the 1995 proposed rule, FTC stated, ``This
decision [by FTC to close the RJR investigation without issuing a
complaint] does not contradict FDA's conclusion.'' FTC continued that
its failure to initiate legal action did not ``mean that cigarette and
smokeless tobacco advertising, in the aggregate, is not one of a number
of factors that `play[s] an important role in a youth's decision to use
tobacco.''' \122\
---------------------------------------------------------------------------

\122\ FTC analyzed the complaint recommendation before it under
its unfairness jurisdiction. An action is unfair if it causes
substantial consumer injury, without offsetting benefits to
consumers or competition, which consumers cannot reasonably avoid.
(International Harvester, 194 FTC 949, 1070, 1984.)
---------------------------------------------------------------------------

(14) The other citation to the Joe Camel campaign (60 FR 41314 at
41330) utilized RJR's documents to illustrate the youth focus of one
advertising campaign through use of the company's own documents. Some
comments received from the tobacco industry (including one from RJR),
trade associations, and some individuals disagreed with this use and
stated that the Camel campaign was designed to, and did in fact,
attract the attention of young adult smokers, aged 18 to 24. These
comments stated that the Joe Camel campaign was directed to adult
smokers, specifically existing male Marlboro smokers aged 18 to 24. The
comments stated that the illustrated character Joe Camel was developed
to reposition the brand by stressing images and characteristics, such
as the ``Smooth Moves'' image, which appeal to the young adult,
particularly male, Marlboro smoker.
Industry comments further stated that the company conducted no
market research on nonsmokers, and that the campaign reached adult
smokers aged 18 to 24 years. One comment postulated that it is merely
the cartoon form of Joe Camel that causes people to mistakenly believe
that Joe Camel is child-oriented. It stated further that many adult
products are advertised using illustrated characters, such as the Pink
Panther for fiberglass insulation, Garfield the Cat for a hotel chain,
Mr. Clean for household products, and the Peanuts characters for life
insurance. Moreover, RJR stated that it made efforts to ensure that the
ad copy and promotional activity for Joe Camel would not appeal to
minors. It said that a skateboard promotion proposed by an advertising
agency was rejected by the company because it was assumed that
skateboarding is disproportionately engaged in by children and
adolescents. Similarly, marketing research included 25 to 34 year olds
``to serve as a safety check to make sure that the concept appeal did
not skew too young.''
These comments further stated that Joe Camel advertisements were
directed to, and reached, the intended market. Examples of publications
in which the Joe Camel advertisements were placed are Cycle World,
Penthouse, Gentleman's Quarterly, and Road and Track. Joe Camel's share
of 18 to 24 year olds increased by 6.9 percentage points, from 3.2 in
1986, the year before Joe Camel's inception, to 10.1 by the end of
1994. The comment stated that Camel's and Marlboro's growth came at the
expense of other brands. These comments are consistent with the
industry's assertion that this is the whole point of cigarette
advertising: to encourage current smokers to buy the advertised brand
either by switching brands or remaining loyal to their existing brands.
(This comment states that because there is no evidence that smoking
rates have risen among adolescents, there cannot be a reason to believe
that Camel's success among adolescents came from new, as opposed to
existing, smokers. See section III.B. of

[[Page 44480]]

this document for a refutation of the industry assertion that smoking
rates among adolescents are static.)
In contrast, comments from health organizations and concerned
citizens stated that Joe Camel has been successful in attracting
underage smokers. These comments further stated the belief that the
campaign was intended to attract children, citing the methods of
advertising and promotion employed as evidence of its intention to
appeal to children. For example, one comment stated: ``* * * T-shirts
and caps, like those marketed with `Joe Camel' are found in
disproportionate numbers of children.''
FDA continues to believe that RJR documents do illustrate the
creation of and execution of a decidedly youth-oriented campaign.
FDA finds that previously confidential RJR documents provide
convincing evidence of the company's intention to attract young smokers
and so-called presmokers to its Camel brand. These documents,
identified as RJR marketing documents and submitted during the comment
period, reflect a company policy that in order to grow and ensure a
profitable future, the company must develop new brands that would
appeal to and capture a share of the youth market. These young people
were described as ``presmokers'' and ``learners'' in RJR marketing
language and were identified as being 14 to 18 year olds.
While the documents concerning the Camel campaign (focus group
reports, etc.) submitted by RJR to the rulemaking docket do not
identify the under-18 group as the company's target, the implication
arises from the company-submitted documents that the Camel campaign was
the logical outgrowth of the planning and forecasting contained in the
heretofore confidential marketing documents.
In a 1972 memo entitled ``Research Planning Memorandum on the
Nature of the Tobacco Business and the Crucial Role of Nicotine
Therein,'' the author, Claude Teague Jr., Assistant Director of
Research and Development, wrote:
[I]t may be well to consider another aspect of our business;
that * * * the factors which induce a presmoker or nonsmoker to
become a habituated smoker. * * * He does not start smoking to
obtain undefined physiological gratifications or reliefs, and
certainly he does not start to smoke to satisfy a nonexistent
craving for nicotine. Rather, he appears to start to smoke for
purely psychological reasons--to emulate a valued image, to conform,
to experiment, to defy, to be daring, to have something to do with
his hands, and the like. Only after experiencing smoking for some
period of time do the physiological ``satisfactions'' and
habituation become apparent and needed. Indeed, the first smoking
experiences are often unpleasant until a tolerance for nicotine has
been developed. * * * [I]f we are to attract the nonsmoker or
presmoker, there is nothing in this type of product that he would
currently understand or desire. We have deliberately played down the
role of nicotine, hence the nonsmoker has little or no knowledge of
what satisfactions it may offer him and no desire to try it.
Instead, we somehow must convince him with wholly irrational reasons
that he should try smoking, in the hope that he will for himself
then discover the real ``satisfactions'' obtainable. \123\
---------------------------------------------------------------------------

\123\ Teague, C., Research Planning Memorandum on the Nature of
the Tobacco Business and the Crucial Role of Nicotine Therein, pp.
4-5, 1972.
---------------------------------------------------------------------------

In 1973, the same author reported in another memo, ``Research
Planning Memorandum on Some Thought about New Brands of Cigarettes for
the Youth Market,'' his thoughts on how to acquire a portion of the
important youth market:
[W]e should simply recognize that many or most of the ``21 and
under'' group will inevitably become smokers, and offer them an
opportunity to use our brands.Realistically, if our Company is to
survive and prosper, over the long-term we must get our share of the
youth market. In my opinion this will require new brands tailored to
the youth market; I believe it unrealistic to expect that existing
brands identified with an over-thirty 'establishment' market can
ever become the 'in' products with the youth group. Thus we need new
brands designed to be particularly attractive to the young smoker,
while ideally at the same time being appealing to all smokers. \124\
---------------------------------------------------------------------------

\124\ Teague, C., Research Planning Memorandum on Some Thought
About New Brands for Cigarettes for the Youth Market, p. 1, 1973.
---------------------------------------------------------------------------

Mr. Teague then described the factors he thought must be taken into
account in designing a brand that would attract young people:
Several things will go to make up any such new ``youth''
brands, the most important of which may be the image and quality-
which are, of course, interrelated. The questions then are: What
image? and What quality? Perhaps these questions may best be
approached by consideration of factors influencing pre-smokers to
try smoking, learn to smoke and become confirmed smokers. * * * For
the pre-smoker and ``learner'' the physical effects of smoking are
largely unknown, unneeded, or actually quite unpleasant or awkward.
The expected or derived psychological effects are largely
responsible for influencing the pre-smoker to try smoking, and
provide sufficient motivation during the ``learning'' period to keep
the ``learner'' period going, despite the physical unpleasantness
and awkwardness of the period. * * * \125\

\125\ Id., pp. 1-2.
---------------------------------------------------------------------------

Mr. Teague continues with some reasons why young people smoke and then
gives advice on the type of advertising campaign that would appeal to
the presmoker group based on these reasons:
A. Group Identification--Pre-smokers learn to smoke to identify
with and participate in shared experiences of a group of associates.
If the majority of one's closest associates smoke cigarettes, then
there is strong psychological pressure, particularly on the young
person, to identify with the group, follow the crowd, and avoid
being out of phase with the group's value system even though,
paradoxically the group value system may esteem individuality. This
provides a large incentive to begin smoking.
* * * * *
[The brand's] promotion should emphasize togetherness, belonging and
group acceptance, while at the same time emphasizing individuality
and ``doing ones own thing.''
B. Stress and Boredom Relief--The teens and early twenties are
periods of intense psychological stress, restlessness and boredom.
Many socially awkward situations are encountered. [the documents
mentions smoking gives you something to do with your hands--find an
ashtray etc.]
C. Self-Image Enhancement--The fragile, developing self-image of
the young person needs all of the support and enhancement it can
get. Smoking may appear to enhance that self-image in a variety of
ways. [Values mentioned in the document include adventurousness,
adult image.] If one values certain characteristics in specific
individuals or types and those persons or types smoke, then if one
also smokes he is psychologically a little more like the valued
image. This self-image enhancement effect has traditionally been a
strong promotional theme for cigarette brands and should continue to
be emphasized.
D. Experimentation--There is a strong drive in most people,
particularly the young, to try new things and experiences. This
drive no doubt leads many presmokers to experiment with smoking,
simply because it is there and they want to know more about it. A
new brand offering something novel and different is likely to
attract experimenters, young and old, and if it offers an advantage
it is likely to retain those users. \126\
---------------------------------------------------------------------------

\126\ Id., pp. 6-7.
---------------------------------------------------------------------------

In March 1976 R. J. Reynolds' Research Department created a memo
entitled, ``Planning Assumptions and Forecast for the Period 19**-1986
for R. J. Reynolds Tobacco Company.'' Under a heading, The Tobacco
Industry and R. J. Reynolds Tobacco Company--subheading E. Products--
the memo states:
The present large number of people in the 18-35 year old age
group represents the greatest opportunity for long-term cigarette
sales growth. Young people will continue to become smokers at or
above the present rates during the projection period. The brands
which these beginning smokers accept and

[[Page 44481]]

use will become the dominant brands in future years. Evidence now
available * * * indicate[s] that the 14 to 18 year old group is an
increasing segment of the smoking population. RJR must soon
establish a successful new brand in this market if our position in
the industry is to be maintained over the long term.
(Emphasis omitted.) \127\
---------------------------------------------------------------------------

\127\ An RJR spokesperson referred to these documents and did
not dispute their validity. (See Levy, D., ``RJR Memo Targeted Teen
Market,'' USA Today, p. 1D, October 6, 1995; ``Report: Teen
Cigarettes Eyed,'' AP Online, October 4, 1995.); Planning
Assumptions and Forecast for the Period 197*-1986 for R.J. Reynolds
Tobacco Company, Research Department, 1976.
---------------------------------------------------------------------------

By the mid to late 1980's, RJR was marketing its newly revitalized
Camel brand to ``young adults'' 18 to 20 years old. According to an
internal memo cited in the Wall Street Journal, \128\ the business plan
for 1990 had a single-minded focus on getting young adults, especially
the 18 to 20 year olds, to smoke Camels. The brand was to be refocused
on young adult smokers, aged 18 to 24 with a strong emphasis on males
18 to 20. \129\
---------------------------------------------------------------------------

\128\ Freedman, A. M., and S. L. Huang, ``Reynolds Marketing
Strategy Sought to Get Young Adults to Smoke Camels,'' Wall Street
Journal, p. B10, col. 3, November 2, 1995.
\129\ A 1984 strategic research document, authored by Diane
Burrows of R. J. Reynolds and entitled ``Younger Adult Smokers:
Strategies and Opportunities,'' came to FDA's attention as a result
of its inclusion as an exhibit attached to a brief filed by the
State of Minnesota and Blue Cross in Ramsey County District Court in
litigation involving the seven tobacco companies. The document was
also described in numerous press accounts of the event (e.g.,
Phelps, D., and J. Hodges, ``Suit: Kids were focus of Reynolds
strategy. Documents filed in state's lawsuit against the tobacco
industry show how R. J. Reynolds targeted young smokers as critical
to the industry's future,'' Star Tribune, 1A, July 11, 1996;
Worklan, P., ``R. J. Reynolds Secret Report Targets Young Adult
Market,'' Chicago Tribune, N19, July 11, 1996.) Although the agency
has not relied on this memo as part of the justification for this
rule, FDA is citing to it here because it is relevant to the issues
discussed.
The memo indicates that by 1984, R. J. Reynolds was beginning
to conduct research on the concepts detailed above that were
developed during the 1970's. The memo describes the problem facing
Reynolds at that time of declining market share and then proposed a
solution: ``RJR's consistent policy is that smoking is a matter of
free, informed, adult choice which the Company does not seek to
influence. However, in order to plan our business, we must consider
the effects those choices may have on the future of the Industry.
Furthermore, if we are to compete effectively, we must recognize the
imperative to know and meet the wants of those who are 18 and have
already elected to smoke, as well as those of older smokers
(emphasis added).''
The memo recognizes several important facts: ``The renewal of
the market stems almost entirely from 18-year-old smokers. No more
than 5% of smokers start after age 24.''Moreover, the memo also
recognizes that: ``[t]he brand loyalty of 18-year-old smokers far
outweighs any tendency to switch with age. Thus, the annual influx
of 18-year-old smokers provides an effortless, momentum to
successful `first brands'.''
These ``first brands'' were identified as those which appeal to
the 18-year-old smoker rather than switchers ages 19-24.
The memo identifies additional factors that had to be
considered in this calculus: (1) Although 18- to 24-year-olds
account for a very small part of market share, this age group
represents the future of a brand. Those young, brand loyal smokers
who now consume very few cigarettes, will consume more cigarettes
with age and generally remain loyal to this first brand, its brand
family or to the company; (2) Although young smokers are easier to
switch than older smokers, a brand can not rely exclusively on
switching younger smokers to produce a lasting brand equity--the
major and most important share advantage available to a company is
to have a cigarette brand relevant to young people and accepted by
them as their ``first brand.''
The reports's recommendation was to research and capitalize on
the factors and strategies which have been successful with youth
brands of the past. This would require devoting substantial
resources to identifying and tracking values, wants, and media
effectiveness relevant to younger people. Because of the sensitivity
of this young market, the memo continued: ``brand development/
management should encompass all aspects of the marketing mix and
maintain a long term, single-minded focus to all elements-product,
advertising, name, packaging, media, promotion and distribution.
(Emphasis omitted)''
This must include, the memo stated, a careful emphasis on the
``imagery and product positives'' relevant to ``younger adults.''
---------------------------------------------------------------------------

Documents submitted by RJR in its comment detail its plans for
developing and promoting Joe Camel as the spokescharacter for the
brand. In language reminiscent of the 1973 Teague memo, RJR
reemphasized the importance of the young adult smokers (which RJR
nicknamed the ``YAS'')--noting that only 5 percent of smokers start
after age 24. \130\ The paper noted that 40 percent of the ``virile''
segment have made a brand choice at age 18--a brand to which they will
be loyal for years or throughout their smoking career. Thus, although
this document describes the YAS as 18 to 24 year olds, the company's
interest appears to have been with those younger than 18 who are in the
process of selecting their first brand, the 14 to 18 year olds
described by Teague.
---------------------------------------------------------------------------

\130\ ``White Paper,'' Camel Advertising Development, p. 1,
undated.
---------------------------------------------------------------------------

In addition, the problem, the White Paper emphasized, was that
Camel needed a facelift to make it relevant to this YAS group.
Research, they noted, indicates that YAS see advertising as ``younger
adult oriented'' when it is speaking directly to them. Therefore,
advertising needed to be developed to speak to the target audience, to
appeal to the ``hot buttons'' of young people such as to ``escape into
imagination.'' ``Fantasy to these smokers can mean imagining a place to
escape to or an image of yourself that is better than reality.''
The YAS group also relates to excitement and fun, noted the White
Paper: ``Younger adults center their lives on having fun in every way
possible and at every time possible. Their definition of success is
`enjoying today' which differentiates them from older smokers.
Advertising which incorporates an `exciting', `fun', `humorous' theme
provides a way for these smokers to `feel good' about the message.''
By 1988 RJR was testing its new ideas about Camel. It described the
results in a Marketing Research Report, entitled Camel ``Big Idea''
Focus Groups--Round II dated September 21, 1988, and written by M. R.
Bolger. The group was composed of male Marlboro smokers ages 18 to 34.
Two groups were men 18 to 20, two groups were 21 to 24, and one group
was age 25 to 34 to serve as a ``safety check'' to make sure the
concept did not skew too young. Various themes were tested and one,
``Smooth Moves,'' was received best by the younger portion of the
target--those that had fewer responsibilities, are single, and go to
parties. The focus groups also showed that premiums (nontobacco items)
performed best among the younger portion of the group. Older smokers
were more discerning and saw the items as being of little value to
them. \131\
---------------------------------------------------------------------------

\131\ Bolger, M. R., ``Camel `Big Idea' Focus Groups--Round
II,'' Marketing Research Report, September 21, 1988.
---------------------------------------------------------------------------

What resulted from this research was the Joe Camel campaign, an
unusually successful effort, particularly with the group that RJR
research documents discussed--the 14 to 18 year olds. Thus, RJR appears
to have used its research on 18 to 20 year olds to its advantage with
the 14 to 18 year old group--a group who shares many of the same
interests and ``hot'' buttons of the older group. These internal
documents complement those cited in the preamble to the 1995 proposed
rule. In the preamble to the 1995 proposed rule, FDA described two
letters from RJR sales managers about the placement of YAS [Camel]
merchandise. Both letters stated that high school neighborhoods were a
likely location for YAS. RJR, in its comments to the proposed rule,
stated that those two letters were mistakes. However, these latest
documents rebut RJR's comment. The mistake made by the two sales
representatives was in speaking too clearly of the company's intention.
``Reg''--The second campaign reviewed by FDA was the ``Reg''
campaign used in the United Kingdom. One comment took issue with FDA's
claim that the ``Reg'' campaign was

[[Page 44482]]

particularly effective with British adolescents and argued that the
study that FDA relied on was based on unreliable evidence and is not
applicable to American adolescents. The comment contended that there
was no evidence to show that liking the ``Reg'' character caused
children to smoke and argued instead that children who smoked came to
like ``Reg.'' The comment also argued that the recognition task,
described in the study, was too suggestive and biased, and suggested
that the young people were primed and pressured to say they had seen
the advertisements during ``games'' that they say took place before the
recognition task.
First, this comment is wrong. Games were played during another
portion of the study, not the one referenced. The comment confused the
quantitative survey with the qualitative. Second, evidence from England
about youth smoking habits is no less probative than evidence from the
United States, as it provides insights into children's smoking
behavior.
Smoking Trends--A few comments were critical of the study of trends
in the smoking initiation study, which found a temporal relationship
between advertising targeted at women and rising initiation rates among
girls and young women. \132\ The principal criticisms were that the
authors failed to examine the actual advertising campaigns in question,
that FDA failed to consider alternative explanations for the study's
findings, and that the study's measures were subjective and unreliable.
---------------------------------------------------------------------------

\132\ Pierce, J. P., L. Lee, and E. A. Gilpin, ``Smoking
Initiation by Adolescent Girls, 1944 through 1988, An Association
with Targeted Advertising,'' JAMA, vol. 271, pp. 608-611, 1994.
---------------------------------------------------------------------------

In response, the agency reiterates that it did not cite to this
study, or any one study, as ``proof'' that advertising during this
period ``caused'' a rise in smoking initiation. The study was provided
as one example of targeted marketing being ``associated'' with
increases in cigarette consumption among young people. \133\ A logical
inference to be drawn from the cumulative effect of such studies is
that advertising does play a role in young people's smoking behavior.
---------------------------------------------------------------------------

\133\ A more sophisticated example of this type of time series
analysis was published by the FTC to show that health claims in food
advertising could have a beneficial effect upon people's consumption
of high fiber breakfast cereals. (Ippolito, P., and A. Mathios,
Health Claims in Advertising and Labeling, A Study of the Cereal
Market, Bureau of Economics Staff Report, FTC, August 1989.)
---------------------------------------------------------------------------

e. Evidence that youth brand choices are related to advertising.
Virtually all of the comments from the tobacco industry claimed that
cigarette and smokeless tobacco manufacturers market their products
solely to adults. They disputed the findings of studies, cited by FDA
in the preamble to the 1995 proposed rule, examining advertising
campaigns that had been particularly effective with children. In
addition, while the comments acknowledged that younger smokers are the
intended targets for some cigarette advertising, they argued that only
younger smokers of legal age were targeted.
In the preamble to the 1995 proposed rule, FDA presented a number
of studies showing that youth cigarette brand choices are related to
advertising. \134\ These studies showed that young people smoke many
fewer brands than adults, and that their choices are directly related
to the amount and kind of advertising. While 86 percent of youths who
smoke choose the three most advertised brands, \135\ the most commonly
smoked cigarettes (39 percent) among adult smokers are brandless (i.e.,
private label, generics, or plain packaged products). \136\ Another
study found that children who smoke as few as one cigarette per week
can identify a preferred brand. \137\
---------------------------------------------------------------------------

\134\ ``Current Trends: Changes in the Cigarette Brand
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR,
CDC, vol. 43, pp. 577-581, August 19, 1994; Goldstein, A. O., P. M.
Fischer, J. W. Richards, and D. Creten, ``Relationship Between High
School Student Smoking and Recognition of Cigarette
Advertisements,'' Journal of Pediatrics, vol. 110, pp. 488-491,
1987.
\135\ ``Current Trends: Changes in the Cigarette Brand
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR,
CDC, vol. 43, pp. 577-581, August 19, 1994.
\136\ Teinowitz, I., ``Add RJR to List of Cig Price Cuts,''
Advertising Age, pp. 3 and 46, April 26, 1993.
\137\ Goldstein, A. O., P. M. Fischer, J. W. Richards, and D.
Creten, ``Relationship Between High School Student Smoking and
Recognition of Cigarette Advertisements,'' Journal of Pediatrics,
vol. 110, pp. 488-491, 1987.
---------------------------------------------------------------------------

One comment argued that the CDC study that found that most children
smoke the three most advertised brands showed only a correlation
between advertising expenditures and brand preferences, and that the
data did not even support this correlation consistently. The comment
noted that the data on which these findings were based included 18 year
olds, who are of legal age to smoke. The comment also contended that
the data did not allow a determination of what came first: Changes in
advertising expenditures or changes in brand preference
(directionality).
The same comment also criticized the study indicating that children
who smoke as few as one cigarette per week can identify a preferred
brand. In addition to pointing out that the study did not demonstrate a
causal relationship and that the sample was not generalizable, the
comment argued that:
* * * other research has found that adolescents smoke a smaller
number of different brands than do adults, [the researchers] tested
only the correlation between adolescent smoking and advertising
recognition. [The researcher] did not know which brands the
adolescents in this study smoked. [emphasis in original]
Contrary to the comment, these studies are evidence that, when
considered together, form a coherent pattern that establishes the role
that advertising plays in young people's smoking behavior.
The CDC study \138\ provides evidence of young people's smoking
choices. Neither the fact that the data included 18-year-olds nor the
question of directionality is sufficient to invalidate the study's
utility. While the data available for the study contained 18-year-old
use, there is little difference between 17- and 18-year-old cigarette
use; certainly not enough to invalidate the general finding that
underage and 18-year-old smokers choose the three most heavily
advertised brands. The issue of directionality of the results is no
more important. The results showed that young people chose cigarettes
that are heavily advertised, not ones that are cheap or low tar, etc.
The CDC study, as noted, did not prove causality--it was not intended
to and it did not.
---------------------------------------------------------------------------

\138\ ``Current Trends: Changes in the Cigarette Brand
Preferences of Adolescent Smokers--United States, 1989-1993,'' MMWR,
CDC, vol. 43, pp. 577-581, August 19, 1994.
---------------------------------------------------------------------------

The comment's criticism of the study, which involved children who
smoke as few as one cigarette a week, is not correct. The researchers
did know the brands that the adolescents in the study smoked. ``Fifty-
two percent of all students who had used cigarettes identified a single
preferred brand * * *. One brand of cigarettes (Marlboro) accounted for
76% of all preferred brands.'' The study's finding is consistent with
every other study of adolescent brand preference: Marlboro is the
number one brand choice.
The effect of advertising on brand choice by young people is
important. It shows that young people choose the imagery of the two or
three most highly advertised brands to smoke, brands that provide
specific definitions of a user.

[[Page 44483]]

The choice permits the user to adopt the image created by the brand.
f. The Canada advertising case. A series of comments raises new
issues not considered in the preamble to the 1995 proposed rule.
The September 1995 decision of the Supreme Court of Canada on the
Canadian Tobacco Products Control Act (TPCA), \139\ enacted to regulate
tobacco advertising and promotion in Canada, prompted several comments,
primarily from the tobacco industry. The TPCA banned all tobacco
advertising, restricted the promotion of tobacco products and required
packaging to display prominent unattributed health messages and toxic
constituent information. As soon as the TPCA was enacted in 1988, the
tobacco companies challenged the act as unconstitutional. On September
21, 1995, the Supreme Court of Canada found that Parliament had the
criminal law power to legislate regarding the advertising and promotion
of tobacco products, but that, based on the record developed in the
court below, the restrictions on advertising and promotion violated the
tobacco companies' freedom of expression guaranteed to all Canadians.
Several of the key sections of the TPCA were struck down by the
Canadian Supreme Court. The Canadian court ruled that the government
had failed to demonstrate that the restraints regarding advertising,
promotion, and labeling were reasonable and justified restrictions on
freedom of expression.
---------------------------------------------------------------------------

\139\ RJR-MacDonald, Inc. v. Canada (Attorney General), S.Ct. of
Canada, 100 C.C.C. 3d 449, Sept. 21, 1995.
---------------------------------------------------------------------------

The Canadian court also found that the government had failed to
demonstrate that less intrusive measures, falling short of a complete
restriction on advertising and promotion, would be less effective in
protecting young people from inducements to use tobacco products.
Further, the Canadian court found that the government had failed to
show that unattributed health messages were required to achieve its
objective of reducing tobacco consumption. Finally, the Canadian court
decided that there was no rational connection between prohibiting a
tobacco product trademark on a nontobacco product and the objective of
the TPCA. The decision left the advertising and promotion of tobacco
products substantially unregulated in Canada.
Because of some similarities between the Canadian federal tobacco
control strategy and FDA's proposed regulation, some comments suggested
that the opinions of the Canadian court are a basis for rejecting
actions and laws targeting lawful tobacco advertising, particularly FDA
proposed regulations. Moreover, the comments said that the Canadian
court concluded that the proposed prohibition on tobacco advertising
could not be sustained because it ``failed the rational connection
test'' in that there was no causal connection ``whether based on direct
evidence or logic and reason'' justifying the law (100 C.C.C. 3d. 449,
Charter of Rights).
In contrast, one comment suggested that the ruling on this case is
consistent with FDA's emphasis on reducing image advertising directed
towards young people. The comment stated that FDA's focus fits the
Canadian court's decision and had the Canadian government restricted
image advertising rather than banning all advertising, it would have
upheld the regulation.
FDA does not find the decision of the Canadian court to be contrary
to its findings. The Canadian court did recognize that image or
lifestyle advertising can affect overall consumption. Moreover,
contrary to the comment's suggestion, the court specifically recognized
that: ``measures * * * to prohibit advertising aimed at children and
adolescents * * * would be a reasonable impairment of the right to free
expression, given the important objective and the legislative context''
(100 C.C.C. 3d. 449).
Finally, FDA has considered a much larger quantity of evidence than
that which was before the Canadian court, including the evidence
concerning nontobacco item ownership by young people and the materials
received during the comment period. The latter included the heretofore
confidential or secret documents from RJR's marketing department and
also those concerning the results of RJR's focus groups, which showed
that interest in nontobacco items was highest among the young. Thus,
FDA considered a much fuller record than that before the Canadian
court. Moreover, the comment period provided the agency with additional
evidence concerning various proposed provisions. FDA's final rule is
thus based on a very complete and full record and its decisions are
well justified.
g. Roberts and Samuelson. Concerning the effect of advertising on
consumption patterns, one study not considered by the court in Canada,
but cited by FDA in the preamble to the 1995 proposed rule, was an
econometric analysis employed by Roberts and Samuelson \140\ to show
that advertising can increase the market demand for tobacco products.
The study measured the effect on brand share and market size of
advertising for low and high-tar cigarettes. The results indicated that
advertising for low tar cigarettes did increase overall market size.
---------------------------------------------------------------------------

\140\ Roberts, M. J., and L. Samuelson, ``An Empirical Analysis
of Dynamic, Nonprice Competition in an Oligopolistic Industry,''
Rand Journal of Economics, vol. 19, pp. 200-220, 1988.
---------------------------------------------------------------------------

The study looked at the question of the effect of advertising not
from the viewpoint of the consumer, but from the producer's
perspective--how much should a firm invest in advertising in order to
maximize its profits. A predicate assumption is that a manufacturer
would not invest in advertising if the cost did not produce a return.
This study also was conducted by independent economists and appeared in
a peer reviewed journal.
Several comments criticized the study as an ``ambitious failure.''
The industry comments criticized the study on the following grounds:
The study inappropriately measures the level of advertising in messages
and not in expenditures, and the study had inadequacies in some
assumptions and in the data and these flaws thus call into question the
study's results. Moreover, the comments alleged that misallocation of
advertising expenditures may have biased the results. The results of
the study show that advertising for low tar cigarettes had a beneficial
effect on the overall level of consumption, but that the same effect
did not occur for high tar cigarette advertising. The comments noted
that young people do not consume low tar cigarettes, and therefore the
results are irrelevant to a discussion of youth smoking. Moreover, the
comments said that the results are not generalizable to all cigarette
advertising. Finally, the comments said that population growth may have
accounted for the finding of a relationship between advertising and
consumption.
The agency disagrees with the criticisms of this study and finds
instead that it is persuasive evidence of the effects of tobacco
advertising for low-tar cigarettes on the overall market. In answer to
the first criticism, the study used messages instead of expenditures as
a measure of advertising in order to increase the accuracy of the
analysis. It is the messages actually seen by a consumer, and not the
amount spent by the company on advertising, that is more relevant in
assessing the effect of advertising. If the cost of advertising

[[Page 44484]]

were to go up, and thus firms would have to pay more for fewer
messages, we would not expect to find a greater effect on consumers,
which was the effect shown by the study.
The second issue, that there were flaws in the study, is similarly
not fatal. As noted in section VI.D.4.d. of this document, each study
utilizes the best data and methods available at the time. This may not
be the perfect study, but its flaws are minor and do not affect its
usefulness. Moreover, one major criticism was with the advertising
variable and as noted more fully in section VI.D.6.a. of this document
data on advertising expenditures are generally considered trade secrets
by the companies. Thus, independent researchers have to use whatever
data are available, even if they are not perfect. If the industry
wanted to ensure more complete studies, it could release old data
relevant to advertising expenditures.
Third, the comments complain that the focus of the study, low-tar
advertising, limits the applicability of the results. However, the fact
that this study found that advertising for low-tar cigarettes increased
the market is not a limitation that restricts the results to that one
example. The importance of the results is that the study shows that
advertising in this oligopolistic industry can affect the market size.
The purpose of dividing the market into high- and low-tar advertising
was an attempt to isolate the effect of advertising for each of the
product classes.
Fourth, the comments expressed concern about the possibility of
population growth as an intervening factor. Population growth should
not have affected the results as growth would have affected the high-
tar market as well as the low-tar market, a consequence that did not
occur.
FDA concludes that this study presents excellent evidence of the
effect of advertising on consumption patterns and, that it would have
provided quite supportive evidence before the Canada court for
advertising restrictions.
h. The African-American youth market. Referring to the declining
African American youth tobacco market, several comments argued that
FDA's tentative finding in the preamble to the 1995 proposed rule on
the relationship between outdoor cigarette advertising and tobacco
consumption by young people is incorrect. Comments said that if
cigarette advertising increases the prevalence of smoking among young
people, the percentage of African-American young people who smoke
should be equivalent to that of whites, because African-American young
people see as much or more cigarette advertising than do whites.
However, smoking rates for young African-Americans are much lower than
for white young people. One comment further indicated that African-
American young people's decision to smoke may be more responsive to
peer influence and parental and community advice than cigarette
advertising.
It is unclear why African-American young people do not use tobacco
at the same rate as white young people. It is surely not that their
parents smoke less; the smoking rate among African-American adults is
26 percent, almost the same rate as for white adults. \141\ Whatever
may be the reason (and it is unknown) for the lower smoking rates among
youth among that segment of the population, it does not provide
sufficient evidence against advertising restrictions when other
evidence shows that advertising does affect children's decisions to use
tobacco products.
---------------------------------------------------------------------------

\141\ ``Cigarette Smoking Among Adults--United States-, 1993,''
MMWR, CDC, vol. 43, pp. 925-930, 1994.
---------------------------------------------------------------------------

i. The evidence relating to smokeless tobacco. A couple of comments
argued that FDA had presented insufficient evidence regarding the
effect of advertising on the decision to use smokeless tobacco. One
joint comment from the smokeless tobacco manufacturers stated:
The studies cited by the agency regarding cigarette
advertisements and smoking are all either highly flawed, biased, or
simply do not support the agency's hypothesis. * * * Even more
troubling--and from the standpoint of sustaining its legal
obligation, a fatal flaw--is the agency's audacity to propose a
virtual ban on advertising for smokeless tobacco products without
even deigning to build a case.
The comment is correct that there is less evidence available
regarding smokeless tobacco advertising practices and smokeless tobacco
use. Nevertheless, the record contains sufficient evidence to provide a
basis for applying the advertising restrictions in the 1995 proposed
rule to smokeless products. In the preamble to the 1995 proposed rule
(60 FR 41314 at 41331), reference was made to the remarkably successful
regeneration of the smokeless tobacco market by U.S. Tobacco (UST), the
leading smokeless tobacco company, in the 1980's. In the 1970's, the
segment of the population with the highest use of these products was
over age 50, and young men were among the lowest. Fifteen years later,
there had been a tenfold increase in the use of smokeless tobacco by
young men, whose use became double that of men over 50. The preamble to
the 1995 proposed rule attributed that increase to the concerted
advertising and marketing efforts of UST.
As detailed more fully in the preamble to the 1995 proposed rule
(60 FR 41313 at 41331), officials at UST held a marketing meeting in
1968 where, according to the Wall Street Journal, the vice-president
for marketing said, ``We must sell the use of tobacco in the mouth and
appeal to young people *** we hope to start a fad.'' Another official
attending the same meeting was quoted as saying, ``We were looking for
new users-younger people who, by reputation, wouldn't try the old
products.''
Later, Louis Bantle, the chairman of the board of UST, described
the reason that so many young males use smokeless tobacco, ``I think
there are a lot of reasons, with one of them being that it is very
`macho;.'' UST's advertising utilized the themes that play well with
`macho' boys--rugged masculine images--and utilized heros to this
group--professional athletes. Bantle described the success of this
program thus: ``In Texas today, a kid wouldn't dare to go to school,
even if he doesn't use the product, without a can in his Levis.''
The UST program also utilized a promotional program that it called
``graduation strategy'':
UST distributes free samples of low nicotine-delivery brands of
moist snuff and instructs its representatives not to distribute free
samples of higher nicotine-delivery brands. The low nicotine-
delivery brands also have a disproportionate share of advertising
relative to their market share. For example, in 1983, Skoal Bandits,
a starter brand, accounted for 47 percent of UST's advertising
dollars, but accounted for only 2 percent of the market share by
weight. In contrast, Copenhagen, the highest nicotine-delivery
brand, had only 1 percent of the advertising expenditures, but 50
percent of the market share. This advertising focus is indicative of
UST's ``graduation process'' of starting new smokeless tobacco
product users on low nicotine-delivery brands and having them
graduate to higher nicotine-delivery brands as a method of
recruiting new, younger users.
(60 FR 41314 at 41331)
Therefore, the agency disagrees with the assertion that it has
presented no evidence to support restricting smokeless tobacco
advertising. In fact, it finds the graduation strategy to be strong
evidence of the effectiveness of advertising in targeting young people
to become new users and consistent with and supported by the general

[[Page 44485]]

discussion, see sections VI.B. and VI.D. of this document.
4. Why Young People Use Tobacco and the Role of Advertising in That
Process
(15) Regardless of the evidence cited in section VI.D.3. of this
document, many comments argued that children start to smoke and use
smokeless tobacco because of influences on them other than advertising,
primarily the influence of their friends and peers.
a. Why young people use tobacco. One comment cited studies showing
that young people who were most likely to be smokers were those who
were particularly rebellious or prone to deviant behavior, \142\ and
said that it was counterintuitive that young people fitting these
profiles would want to conform to what advertising portrayed as
desirable.
---------------------------------------------------------------------------

\142\ Chassin, L., C. C. Presson, S. J. Sherman, E. Corty, and
R. W. Olshavsky, ``Predicting the Onset of Cigarette Smoking in
Adolescents: A Longitudinal Study,'' Journal of Applied Social
Psychology, vol. 14, pp. 224-243, 1984; Collins, L. M., S. Sussman,
J. Mestel Rauch, C. W. Dent, C. J. Johnson, W. B. Hansen, and B. R.
Flay, ``Psychosocial Predictors of Young Adolescent Cigarette
Smoking: A Sixteen-Month, Three-Wave Longitudinal Study,'' Journal
of Applied Social Psychology, vol. 17, pp. 554-573, 1987.
---------------------------------------------------------------------------

Conversely, many comments said that cigarette advertising, like all
advertising portrays highly attractive images. One comment stated that
when young people's peers are also smoking, this can serve to
personalize the images and make them relevant for their own lives, and
cause them to have favorable impressions about their friends who smoke.
\143\
---------------------------------------------------------------------------

\143\ Pechmann, C., and S. J. Knight, ``Cigarette Ads,
Antismoking Ads and Peers: Why do Underage Youth Smoke Cigarettes?''
Advances in Consumer Research, Association for Consumer Research,
edited by Corfman, K. P., and J. G. Lynch, eds., Provo, UT, vol. 23,
pp. 267-268, 1996.
---------------------------------------------------------------------------

One comment argued further that children smoke because they hope to
convey a positive self-image. \144\ Hence, young people may be
particularly vulnerable to being influenced by the attractive images
presented in cigarette and smokeless tobacco advertising. \145\
---------------------------------------------------------------------------

\144\ Chassin, L., C. Presson, S. J. Sherman, E. Corty, and R.
W. Olshavsky, ``Self-Images and Cigarette Smoking in Adolescence,''
Personality and Social Psychology Bulletin, vol. 7, pp. 670-676,
1981; Barton, J., L. Chassin, C. Presson, and S. J. Sherman,
``Social Image Factors as Motivators of Smoking Initiation in Early
and Middle Adolescence,'' Child Development, pp. 1499-1511, 1982.
\145\ Id.
---------------------------------------------------------------------------

Specifically, the same comment cited numerous studies that indicate
that many young people smoke because they hope to convey a positive
image. \146\ Based on these studies, the comment stated: ``Image or
impression management (Schlenker, 1980) has great utility for young
people as they struggle for social acceptance and autonomy (citations
omitted).''
---------------------------------------------------------------------------

\146\ Chassin, L., C. Presson, S. J. Sherman, E. Corty, and R.
W. Olshavsky, ``Self-Images and Cigarette Smoking in Adolescence,''
Personality and Social Psychology Bulletin, vol. 7, pp. 670-676,
1981; Barton, J., L. Chassin, C. C. Presson, and S. J. Sherman,
``Social Image Factors as Motivators of Smoking Initiation in Early
and Middle Adolescence,'' Child Development, pp. 1499-1511, 1982;
Belk, R. W., ``Possessions and the Extended Self,'' Journal of
Consumer Research, vol. 15, pp. 139-168, 1988; Belk, R. W., R.
Mayer, and A. Driscoll, ``Children's Recognition of Consumption
Symbolism in Children's Products,'' Journal of Consumer Research,
vol. 10, pp. 386-397, 1984; Brown, B. B., M. J. Lohr, and E. L.
McClenahan, ``Early Adolescents' Perceptions of Peer Pressure,''
vol. 6, pp. 139-154, 1986; Messick, P. M., and C. C. McClelland,
``Social Traps and Temporal Traps,'' Personality and Social
Psychology Bulletin, vol. 9, pp. 105-110, 1983; Levy, S. J.,
``Meanings in Advertising Stimuli,'' Advertising and Consumer
Psychology, Praeger, New York, pp. 214-226, 1986; Solomon, M. R.,
``The Role of Products as Social Stimuli: A Symbolic Interactionism
Perspective,'' Journal of Consumer Research, vol. 10, pp. 319-329,
1983.
---------------------------------------------------------------------------

Finally, the comment described the developmental aspects of
adolescents that are relevant to this issue:
With respect to developmental aspects of adolescence, there are
two related factors that make adolescents especially vulnerable to
being influenced by tobacco advertising. First, adolescents are
typically beginning to focus on peer group interactions more than on
family interactions (e.g., Brown et al., 1986), which they may
likewise value to a far greater extent. Second, tobacco use
constitutes a ``temporal trap'' (Messick and McClelland, 1983) in
the sense that the peer group benefits of tobacco use are immediate,
while the negative consequences in terms of health outcomes are so
far into the future that many adolescents, who often see themselves
as invulnerable even in the present, would consider them to be
irrelevant. Furthermore, the negative social consequences of tobacco
use in adulthood (i.e., social stigmatization * * *) are also
unimportant to adolescents at the time they are making the decision
to use tobacco products. \147\
---------------------------------------------------------------------------

\147\ Brown, B. B., M. J. Lohr, and E. L. McClenhanan, ``Early
Adolescents' Perceptions of Peer Pressure,'' Journal of Early
Adolescence, vol. 6, pp. 139-154, 1986; Messick, P. M., and C. C.
McClelland, ``Social Traps and Temporal Traps,'' Personality and
Social Psychology Bulletin, vol. 9, pp. 105-110, 1983.
---------------------------------------------------------------------------

Stated differently, adolescence is a time of ``identity
formation.'' Young people use the attractive imagery of advertising as
a ``window into the adult world.'' They are ``susceptible to the images
of romance, success, sophistication, popularity, and adventure * * *.''
\148\ By adolescence, clothes, possessions, and ``badge products'' such
as cigarettes are used to define oneself and to control relations with
others. \149\
---------------------------------------------------------------------------

\148\ Nichter, M., and E. Cartwright, ``Saving the Children for
the Tobacco Industry,'' Medical Anthropology Quarterly, vol. 5, pp.
236-256, 1991.
\149\ Stacey, B. G., ``Economic Socialization in the Pre-Adult
Years,'' British Journal of Social Psychology, vol. 21, pp. 159-173,
1982.
---------------------------------------------------------------------------

Support for this view of the role of tobacco advertising also comes
from the tobacco industry:
FDA turns a blind eye to the fact that the personal display of
products with commercial logo--through dress and other forms of
expression--is a form of participation in American popular culture.
It is a way to register a group identity to signal one's place in
the social fabric.
In addition to these comments, FDA has the words of RJR's research
department in a 1973 memo, detailed in section VI.D.3.d. of this
document, that chart a course for attracting the young smoker. \150\
---------------------------------------------------------------------------

\150\ A July 3, 1974 memo, authored by D. W. Tredennick, of R.
J. Reynolds' Marketing Research Department was submitted to the
rulemaking docket by the Attorney General of Mississippi in response
to the reopening of the rulemaking record (61 FR 11349, March 20,
1996). Although the agency has not relied on the memo as part of the
justification for this rule, FDA is citing to it here because it is
relevant to the issues discussed. The memo was also reported in the
press, see Schwartz, J., ``R. J. Reynolds Marketing Memo Discusses
Young Smokers' Brand Image,'' Washington Post, A03, April 23, 1996.
The memo asked and answered the question: ``What causes smokers to
select their first brand of cigarettes?'' The answers developed by
Mr. Tredennick echos the concepts discussed above. The memo
hypothesized that: ``[t]he causes of initial brand selection relate
directly to the reasons a young person smokes. The more closely a
brand meets the psychological 'support' needs (advertising or
otherwise communicated brand or physiological needs (product
characteristics), the more likely it is that a given brand will be
selected. (Emphasis added)'' One important characteristic was
associated with the user ``image'' associated with a brand. ``To
some extent young smokers 'wear' their cigarette and it becomes an
important part of the 'I' they wish to be, along with their clothing
and the way they style their hair.'' The memo also recognized the
importance of peer influence on a young person's decisions about
smoking and noted that: ``It must also be true that influential
young smokers (perhaps relatively few) have made brand selections
based on product characteristics or advertising and promotion
communication. The fact that two brands, Marlboro and Kool, have
such dominant shares among youths suggests the above hypothesis * *
*.'' Tredennick noted further that both Marlboro and Kool project
imagery that is psychologically important to adolescents--the need
for support and strength.
---------------------------------------------------------------------------

On the basis of the evidence cited and reviewed in section VI.D.3.
of this document, the agency finds that the suggestion that it is
impossible to advertise in a way that would appeal to rebellious
nonconformist teenagers is

[[Page 44486]]

without merit. Tobacco advertising plays directly to the factors that
are central to adolescents as they decide whether to use tobacco
products. Thus, the available evidence clearly supports a finding that
advertising plays an important role in young people's tobacco use.
b. Determinants of smoking. Several comments from the advertising
and tobacco industries claimed that the econometric studies performed
for them by experts found that peers, parents, and siblings have the
greatest influence on young peoples' decision to start smoking.
Citing an econometric analysis performed for RJR by Dr. J. H.
Beales, on data concerning its Joe Camel advertising campaign, one
comment argued that ``minors balance the risks and rewards of smoking
to decide whether or not to smoke, just as they would any other
consumption decision. The greater an individual minor perceives the net
rewards of smoking, the more likely he or she will try smoking. Minors
who perceive greater net rewards of smoking are also likely to smoke
more intensively.''
The comment further argued that an analysis based upon this
theoretical model by Dr. Beales found that neither advertising nor
advertising expenditures has an appreciable effect on young people's
perceptions of the benefits of smoking and thus would have no indirect
effect on teenage smoking decisions. \151\ More specifically, the
comments stated that the Beales' studies show that advertising
expenditures for the particular brands that most teenagers smoke,
Marlboro and Camel, do not influence and are not associated with
smoking decisions. Moreover, Dr. Beales reported that the results of
his studies indicate further that advertising did not have an indirect
effect on smoking behavior. Beales concluded that minors who had been
exposed to more advertising did not identify the perceived rewards of
smoking--``smoking helps when bored,'' ``smoking helps relax,''
``smoking helps with stress,'' and ``smoking helps in social
situations,'' in a greater number than did those minors who reported
less exposure. The comment concluded that the failure of the 1993
Beales study to find either direct or indirect effects from advertising
on smoking behavior should be conclusive.
---------------------------------------------------------------------------

\151\ Dr. Beales used children's designation of a ``most
advertised brand'' as a surrogate for the effect of advertising.
---------------------------------------------------------------------------

FDA does not agree. The 1993 Beales study presents only one
analysis of youthful smoking and that analysis is flawed. \152\ Dr.
Beales appears to have performed tests using an ordered logistic
regression model to test for: (1) The effect of advertising on smoking
behavior, using advertising expenditures and young people's view of
``most advertised brand'' as measures; and (2) smoking behavior as a
function of a number of psychosocial variables and determinants.
---------------------------------------------------------------------------

\152\ Beales, J. H., ``Advertising and the Determinants of
Teenage Smoking Behavior,'' p. 44, 1993.
---------------------------------------------------------------------------

First, a logistic model is only as good as the variables used.
Thus, if a variable is mispecified or imprecise, the model's predictive
capacity will be severely compromised. The variable ``most advertised
brand'' appears to be quite imprecise as a measure to capture the
effect of advertising. The most that this variable would capture would
be the ability of the campaign to be seen and remembered. It would not
capture the appeal of the campaign, or the effect of the campaign on
consumers, nor could it measure the ability of an advertising campaign
to change or create consumer action. In addition, it would not be
surprising to find that almost as many nonsmoking young people as young
smokers found Camel (or Marlboro) to be the most advertised brands,
since those advertising campaigns were quite ubiquitous at the time the
data for this study were collected and were, in fact, the most
advertised brands. A variable that cannot discriminate between users
and nonusers, because all had seen and remembered the advertising,
cannot be expected to produce useful predictive results in a regression
analysis of why people, particularly young people, smoke.
Second, Dr. Beales attempted to determine whether differences in
advertising expenditures would predict smoking behavior. It appears,
however, that Dr. Beales did not look at this question longitudinally--
that is, he did not look at whether smoking rates varied as a function
of advertising expenditures for Camel cigarettes before the Joe Camel
campaign and after the campaign started. Instead, he appears to have
measured smoking rates as a function of the differences in regional
advertising expenditures in California during one time period. It
should not be surprising therefore that little if any effect on smoking
rates was found: (1) There is no reason to expect to find significant
changes in smoking behavior based on small regional variations within
one State in advertising expenditures, and (2) optimum expenditures for
advertising outlays in any given region would have been determined in
advance by an advertising agency and therefore would more likely
reflect smoking patterns already in existence. Had he wanted to measure
smoking behavior as a function of Camel's advertising, he should have
modeled it longitudinally over time. Since the regional advertising
expenditures must have been obtained from a RJR data base, Beales
clearly had access to other sources of data within the company. He
therefore should have been able to acquire advertising expenditures for
the Camel brand before the introduction of Joe Camel and advertising
expenditures for the period after Joe Camel's appearance. This would
have been a better test.
Finally, Dr. Beales performed an analysis to determine the ``true''
determinants of smoking. Dr. Beales' regression analysis utilized a
series of psychosocial characteristics and beliefs about smoking. He
found that the only factor that failed to produce an association was
advertising. First, as noted, there is no reason to believe that ``most
advertised brand'' would perform as a useful surrogate for the effects
of advertising. Therefore, regardless of the value of the study, it is
not good evidence concerning the role of advertising in young people's
smoking decision. Second, the analysis indicates what is already known:
certain beliefs and life patterns can help predict who may become a
smoker. However, it does not measure what effect advertising can have
on a young person's perception or beliefs.
Additional concerns about the study are similar to those that the
tobacco industry comments raised about studies cited by FDA. The first
concern is that several variables used in the model measure the same
impact. This redundancy could create a multicollinearity problem (i.e.,
two or more variables vary together but it is very difficult to
determine which variable influences the other). Moreover, the
redundancy may have caused irrelevant variables to be included in the
regression equation. Both multicollinearity and the inclusion of
irrelevant variables can affect the efficiency of the model's
estimates. The second concern is that the model used in the study is
questionable. The correct model could well have been a double hurdle
model, i.e., modeling the decision to smoke first and then modeling the
choice of what brand to smoke, second.

[[Page 44487]]

Finally, there is concern that the data for the impact of
advertising expenditures and smoking behavior were incompatible and,
thus, may have failed to find a relationship that did in fact exist.
The teen smoking prevalence data were from a behavioral study, and the
measurement of advertising expenditures was from regional advertising
expenditures, undoubtedly maintained by the company. The smoking
decision for a teenager may very well not have been influenced by the
amount of money spent but by the number of messages he/she receives.
The aggregate expenditures for advertising cannot measure the number of
messages actually received by an individual teen.
Given the multitude of problems with the design of the study and
the choice of variables, the study has limited capability for producing
results that can adequately describe advertising effects on smoking
behavior. Moreover, this study is but one of many and, whatever its
value, it does not overwhelm the evidence that FDA has relied on.
c. Laugesen and Meads. In contrast to the Beales' study, FDA had
cited a study by Laugesen and Meads, entitled ``Advertising, Price,
Income and Publicity Effects on Weekly Cigarette Sales in New Zealand
Supermarkets,'' \153\ which provided evidence that increases in
advertising expenditures had an effect on youth smoking behavior
including recruiting new smokers and increasing the market base.
---------------------------------------------------------------------------

\153\ Laugesen, M., and C. Meads, ``Advertising, Price, Income,
and Publicity Effects on Weekly Cigarette Sales in New Zealand
Supermarkets,'' British Journal of Addiction, vol. 86, pp. 83-89,
1991.
---------------------------------------------------------------------------

One comment stated that data from supermarkets were
unrepresentative, both because of the percentage of sales from
supermarkets in New Zealand (presumably not large), and because it is
not known what percentage of sales to young people are made at
supermarkets. Moreover, many conditions were not accounted for,
including possible different pricing structures between retail outlets.
The comments also criticized several major assumptions they claim
were made in the study, for example, that young people purchase the
less expensive, down market brand. Finally, the comment criticizes the
failure to control for other variables (such as rotating health
warnings and new advertising restrictions).
The authors themselves responded to some of the concerns expressed.
For example, they explained that they specifically chose to collect
data from supermarkets because other ``authors with access to full
industry data \154\ have recommended that the data interval [for
supermarket sales] should reflect the inter-purchase time for
cigarettes,'' which in New Zealand is a week or less. Moreover, the
authors found that supermarket cigarette sales are more consistent than
other points of sales. Hence there were fewer fluctuations in the
demand data for cigarettes.
---------------------------------------------------------------------------

\154\ The authors cited this study as an example of one having
access to full industry data. Leeflang, P. S. H., and Reuiyl,
``Advertising and Industry Sales: An Empirical Study of the West
German Cigarette Market,'' Journal of Marketing, vol. 49, p. 97,
1985; Laugesen, M., and C. Meads, ``Advertising, Price, Income, and
Publicity Effects on Weekly Cigarette Sales in New Zealand
Supermarkets,'' British Journal of Addiction, vol. 86, pp. 83-89,
1991.
---------------------------------------------------------------------------

Moreover, in response to the second comment, the authors did not
assume that young people purchase downmarket cigarettes at a higher
rate than the general population, but that people with lower income,
which includes young people, purchase these brands more often. But more
importantly, the study found that it takes only 2 years of advertising
of this downmarket brand to expand the teen market by 4 percent, and
this fact was not disputed.
d. Other comments. Finally, several comments criticized the quality
of the evidence cited by FDA in its preamble to the 1995 proposed rule.
One comment stated that FDA has relied too heavily on studies conducted
by physicians or others not familiar with the art and science of
persuasion. Further, it asserted that most of the evidence cited in
support of the regulations had been published in medical journals and
not in peer reviewed marketing journals.
However, a review of the evidence presented belies that concern.
First, FDA relied on the research and expert opinion of consumer
psychologists, business and marketing experts, economists and social
science researchers as well as medical experts. Moreover, FDA has
relied on two outstanding reports issued in the past few years that
specifically addressed the issue of young people's use of tobacco--the
1994 SGR and the IOM Report. Both commented extensively on the role
that advertising plays in young people's smoking behavior and use of
smokeless tobacco and both recommended strongly that a comprehensive
plan to attack the problem of youth tobacco use include stringent
advertising restrictions.
Moreover, of the 15 members of the IOM committee, 7 were expert in
the fields of behavioral sciences, including psychology, psychiatry and
public policy, anthropology, and economics. Similarly, the contributing
authors to the 1994 SGR included experts in economics, social research,
marketing, and business administration. Finally, the comments submitted
include additional empirical evidence, the expert opinion of the
American Psychological Association, \155\ and the words of the tobacco
industry itself, all of which are referred to in this document.
---------------------------------------------------------------------------

\155\ The American Psychological Association represents 132,000
members and affiliates and is the largest organization of
psychologists in the world. Its comment represents the
organization's ``research-based recommendations'' and reflects
significant input from several relevant divisions including the
Division of Personality and Social Psychology, the Division of
Society for the Psychological Study of Social Issues, and the
Division of Consumer Psychology.
---------------------------------------------------------------------------

One comment criticized FDA's reliance on the IOM Report and the
1994 SGR as simply presenting ``selective reviews'' of much of the same
``dubious literature'' reviewed by FDA. Another comment stated that FDA
had indiscriminately relied on studies cited in the 1994 SGR, none of
which, the comment claimed, was capable of determining whether
advertising influences children to initiate smoking.
Several comments appeared to place great importance on the fact
that both reports acknowledge that the psychosocial and econometric
research that they present do not prove that cigarette advertising
causes young people to begin smoking or to use smokeless tobacco. The
IOM Report stated that, because of the nature of the research, it is
not known for certain whether youths already interested in smoking or
smokeless tobacco become more attentive to advertisements for these
products or whether these advertisements lead youths to become more
interested in these products. One comment argued that the ``IOM's
recognition of this weakness fatally undermines its own and FDA's
arguments on the impact of advertising on smoking behavior.'' Another
comment claimed that the IOM Report acknowledges the lack of a causal
relationship between advertising and smoking and acknowledges that the
very econometric studies it cites are unreliable to determine whether
advertising contributes to youth smoking behavior. The comment also
stated that FDA misstates IOM's conclusion regarding evidence of a

[[Page 44488]]

causal relationship between advertising and smoking initiation.
Further, several comments cited to a statement in the 1994 SGR that
``no longitudinal study of the direct relationship of cigarette
advertising to smoking initiation has been reported in the
literature.'' \156\ However, these comments failed to include the
sentence immediately preceding this quote: ``Considered together, these
studies offer a compelling argument for the mediated relationship of
cigarette advertising and adolescent smoking.''
---------------------------------------------------------------------------

\156\ 1994 SGR, p. 188.
---------------------------------------------------------------------------

Another comment in support of advertising restrictions on tobacco
products argued that the multidisciplinary studies cited in the 1994
SGR supported the conclusion that marketing and advertising tobacco
products do play a role in tobacco use among young people. The comment
suggested that this conclusion is consistent with the 1989 Surgeon
General's conclusion that ``the collective empirical, experiential, and
logical evidence makes it more likely than not that advertising and
promotional activities do stimulate cigarette consumption.'' \157\
Additionally, the comment supported the findings of the 1994 SGR that
``cigarette advertising appears to increase young people's risk of
smoking'' by conveying the impression that smoking has social benefits
and is far more common than it really is. \158\ Moreover, this comment
contended that the IOM's conclusions supported FDA's tentative view
that image advertising of tobacco products is tremendously appealing to
young people.
---------------------------------------------------------------------------

\157\ 1989 SGR, p. 517.
\158\ 1994 SGR, p. 195.
---------------------------------------------------------------------------

As noted more fully in section VI.B. of this document, FDA did rely
heavily on the two reports, and continues to find the reports
persuasive evidence. They represent mainstream scientific consensus and
are appropriately entitled to a great deal of deference. The agency
notes that, in a different but not entirely unrelated context, that of
health claims for food, Congress has said that FDA would have to
specifically justify any decision rejecting the conclusions of a report
from an authoritative scientific body of the United States. (See
section 403(r)(4)(C) of the act (21 U.S.C. 343(r)(4)(C)).) No
justification for rejecting the IOM's conclusions exists here.
Finally, the agency, like the 1994 SGR and IOM Report, finds that
an adequate basis does exist to conclude that advertising plays a
``mediated relationship'' to adolescent tobacco use. \159\ The proper
question is not, ``Is advertising the most important cause of youth
initiation?'' but rather, ``does FDA have a solid body of evidence
establishing that advertising encourages young people's tobacco use
such that FDA could rationally restrict that advertising?'' The answer
to this question is ``yes.''
---------------------------------------------------------------------------

\159\ Id., p. 188.
---------------------------------------------------------------------------

5. Has the Agency Met Its Burden?
(16) Several comments from the tobacco and advertising industries
criticized the agency for failing to present evidence that conclusively
establishes a causal link between advertising and young people's
decisions to begin using cigarettes and smokeless tobacco.
FDA disagrees that its burden is to conclusively prove by rigorous
empirical studies that advertising causes initial consumption of
cigarettes and smokeless tobacco. No single study is capable of doing
so. As one comment stated, it would in fact be practically and
ethically impossible to conduct such a study. Certainly no study
presented by industry or any other party demonstrated that advertising
does not cause the initial consumption of cigarettes and smokeless
tobacco. Indeed, it should be noted that not one study cited by FDA or
submitted by industry could conclusively demonstrate that any factor
actually caused children to begin smoking or to use smokeless tobacco.
This includes family and peer influences, which the tobacco industry
repeatedly cite as the major determinants of youth smoking and
smokeless tobacco use. As was suggested by a comment, however, even
when a young person's decision to smoke is strongly influenced by a
friend or parent, advertising reinforces the decision and makes the
young person feel good about the decision and the ``identity'' thereby
acquired.
It should also be noted that the apparent focus on the possible
causal role of cigarette and smokeless tobacco advertising in young
people's initial decision to smoke or to use smokeless tobacco is
overly narrow. Human behavior cannot be modeled so simplistically. In
point of fact, tobacco advertising has an effect on young people's
tobacco use behavior if it affects initiation, maintenance, or attempts
at quitting.
The evidence that FDA has gathered in this proceeding establishes
that cigarette and smokeless tobacco advertising does have such an
effect. While not all the evidence in the record supports this
conclusion, there is more than adequate evidence, that when considered
together, supports a conclusion that advertising, with the knowledge of
the industry, does affect the smoking behavior and tobacco use of
people under the age of 18. This behavior includes the decision whether
to start using cigarettes or smokeless tobacco, whether to continue
using or to increase ones consumption, when and where it is proper to
use tobacco, and whether to quit. This evidence includes:
Expert opinion--The American Psychological Association provided
expert opinion, with specific citation to numerous studies, to show
that tobacco advertising plays directly to the factors that are central
to children and adolescents and thus plays an important role in their
decision to use tobacco. (See section VI.D.4.a. of this document; and
60 FR 41314 at 41329.)
Advertising Theory--Basic advertising and consumer psychology
theory, statements from advertising experts, and general consumer
testing show that advertising that is multi-media, that uses color, and
that employs more pictures, characters, or cartoons as opposed to text
is more robust and can be better processed, understood and remembered
by children and adolescents, who have less information processing
ability than adults. (See section VI.B.1. and VI.B2. of this document.)
Studies and Surveys--Studies show that children are exposed to
substantial and unavoidable advertising, that exposure to tobacco
advertising leads to favorable beliefs about tobacco use, that
advertising plays a role in leading young people to overestimate the
prevalence of tobacco use, and that these factors are related to young
people's tobacco initiation and use. (See sections VI.D.3.a.,
VI.D.3.b., and VI.D.3.c. of this document.)
Empirical Studies--Studies conducted on sales data have shown that
advertising did increase one segment of the tobacco market (low tar
cigarettes), that advertising in New Zealand had the effect of
increasing tobacco sales to young people, and that a large multi-
country survey showed that advertising tends to increase consumption of
tobacco products. (See 60 FR 41314 at 41333 through 41334; sections
VI.D.3.g., VI.D.4.c., and VI.D.6.a. of this document)
Anecdotal Evidence, and Various Advertising Campaigns Successful
with

[[Page 44489]]

Young People--Studies show that the buying behavior of young people is
influenced by advertising, that they smoke the most advertised brands,
that children ages 3 to 6 can recognize a cartoon character associated
with smoking at the same rate as they recognize Ronald McDonald, that
various ad campaigns (Camel cigarettes, Reg cigarettes, products
designed for women, and smokeless tobacco advertising aimed at new
users) that appeared to be targeted to young people did have an effect
upon young people's purchases and use of tobacco, and that young people
report that they got their information about a tobacco brand from
billboards, magazines, in store advertising and on teeshirts (60 FR
41314 at 41329 through 41334; and see sections VI.D.3.d., VI.D.3.e.,
and VI.D.3.i. of this document).
Industry Statements--Statements in documents created by R. J.
Reynolds' researchers, by Philip Morris advertising people, by
executives of US Tobacco and by people in and doing work for various
Canadian tobacco companies indicate that young people are an important
and often crucial segment of the tobacco market.
Consensus Reports--The IOM and 1994 SGR concluded on the basis of
an exhaustive review of the evidence that advertising affects young
people's perceptions of the pervasiveness, image, and function of
smoking, that misperceptions in these areas constitute psychosocial
risk factors for the initiation of tobacco use, and thus advertising
appears to increase young people's risk of tobacco use.
Consequently, tobacco advertising works in a way that is roughly
analogous to the way the Supreme Court described how deceptive
advertising works (FTC v. Colgate - Palmolive Co., 380 U.S. 374
(1965)). The Supreme Court described how sellers use deceptive
practices to break down the resistance of the buying public (Id. at
389-90). Here, as the 1994 SGR, the IOM report, and the comment of the
American Psychological Association demonstrate, cigarette and smokeless
tobacco companies use image and other advertising techniques to appeal
to adolescents' need to belong and to appear to be adult, and thereby
to break down their resistance to tobacco use. The advertising helps
the companies to overcome the fact, as documents for R. J. Reynolds
show, that there is no natural craving for nicotine. While the
advertising techniques used by the tobacco industry are quite different
than those used by the company in the referenced Supreme Court case,
they ultimately have the same goal--to induce people, in this case
young people, to purchase and use these products.
Thus, the evidence in this proceeding demonstrates that cigarette
and smokeless tobacco advertising plays a material role in the decision
of children and adolescents under the age of 18 to engage in tobacco
use behavior. It therefore establishes that the harm from this
advertising is real.
6. The Efficacy of the Restrictions; Empirical Evidence Concerning
Advertising Restrictions
The final aspect of the analysis under the second prong of the
Central Hudson test requires a showing by the agency that the
restrictions that it seeks to impose will alleviate the harm to a
material degree. FDA finds, based upon a review of all of the evidence
and the comments received, that the restrictions will, in fact, meet
this test.
(17) Nearly all comments in opposition to advertising restrictions
argued that the preponderance of the empirical evidence supported a
finding of no effect from advertising on young people. Some comments
stated that, consequently, the advertising restrictions are
``unwarranted, unjustified, unnecessary, [and] will not be effective in
reducing underage smoking.'' Several comments, representing a variety
of interest groups, claimed that the ``best available evidence'' found
that ``peer pressure,'' ``peer and family smoking behaviors'' and
``young people's perceptions of the costs and benefits of smoking'' are
more important than advertising and promotion in encouraging young
people to experiment with cigarettes and smokeless tobacco. \160\ Still
others claimed that ``being a girl,'' ``living with a single parent,''
``having relatively less negative views about smoking,'' ``having no
intention to stay in full-time education after age 16,'' and ``thinking
they might be a smoker in the future,'' are key influencing factors for
a young person to start smoking. \161\
---------------------------------------------------------------------------

\160\ Beales, J. H., ``Advertising and the Determinants of
Teenage Smoking Behavior,'' vol. 44, 1993.
\161\ McDonald, C., ``Children, Smoking and Advertising: What
Does the Research Really Tell Us?'', International Journal of
Advertising, vol. 12, pp. 279-287, 1993; Goddard, E., ``Why Children
Start Smoking,'' British Journal of Addiction, vol. 87, No. 1, pp.
17-25, 1992.
---------------------------------------------------------------------------

The tobacco industry and the advertising industry stated that their
advertising is not directed at children and adolescents but to adults
who already use tobacco, and thus it is not a proper subject for
government regulation. The advertising agency for the largest cigarette
brand stated, ``[T]obacco advertising has as its intended audience
existing smokers * * * it is not the company's desire that children
start to smoke.''
However, one comment questioned this and asked how cigarette
advertising that has an impact upon adults can be assumed to leave
unaffected a young viewer, smoker or otherwise. The same comment also
cited the words of one retired Marlboro ad man: ``I don't know any way
of doing this (advertising cigarettes) that doesn't tempt young people
to smoke.'' \162\
---------------------------------------------------------------------------

\162\ Daniels, D., Giants, Pygmies and Other Advertising People,
Crain, Chicago, p. 245, 1974.
---------------------------------------------------------------------------

Many comments from consumer groups, public health organizations and
numerous private individuals were supportive of the agency's position
that the 1995 proposed rule will reduce underage smoking and use of
smokeless tobacco. The comments cited evidence from numerous sources
such as government officials, university researchers, and antismoking
advocates to demonstrate that restrictions on advertising would be
effective.
For example, a comment from a leading psychological association
stated that research, common sense, and its expert opinion support
that, if image-oriented advertising and promotion are replaced with
text-only advertising, it would reduce the advertiser's ability to
suggest that tobacco users project a desirable image, e.g., glamour,
sexiness or maturity. \163\
---------------------------------------------------------------------------

\163\ Cohen, J. B., ``Reconceptualizing Alcohol Advertising
Effects: A Consumer Psychology Perspective,'' The Effects of the
Mass Media on the Use and Abuse of Alcohol, Research Monograph, No.
28, Bethesda, MD, NIH, 1995; Goldberg, M. W., J. Madill-Marshall, G.
J. Gorn, J. Liefeld, and H. Vredenburg, ``Two Experiments Assessing
the Visual and Semantic Images Associated with Current and Plain
(Generic) Cigarette Packaging,'' Advances in Consumer Research,
edited by Corfman, K. P., and J. G. Lynch, Association for Consumer
Research, Provo, UT, vol. 23, 1996; Pollay, R. W., and A. M. Lavack,
``The Targeting of Youths by Cigarette Marketers: Archival Evidence
on Trial,'' Advances in Consumer Research, Association for Consumer
Research, Provo, UT, vol. 20, pp. 266-271, 1993; Richins, M. L.,
``Social Comparison and the Idealized Images of Advertising,''
Journal of Consumer Research, vol. 18, pp. 71-83, 1991.
---------------------------------------------------------------------------

FDA has concluded that restrictions on advertising and promotion
are necessary to reduce the appeal of tobacco products to young people.
Such restrictions will protect the access restrictions that the agency
is adopting from being undermined and thereby the health of young
people. To be effective,

[[Page 44490]]

these restrictions must be comprehensive, that is, they must apply to
the many types of media currently used in a coordinated way to
advertise cigarettes and smokeless tobacco.
FDA finds support for the need for comprehensive regulation in the
experiences of other countries which have enacted and put into place
some form of restrictions on the advertising of tobacco. Some comments
discussed the experience in other countries in which tobacco
advertising has been banned. These comments indicated that in countries
that have enacted restrictions on advertising that were not
comprehensive, the industry was able to continue advertising and
portraying attractive imagery in media left uncovered by regulations.
For example, Canada, Finland, Great Britain, and Australia enacted
regulations of tobacco advertising that did not completely ban or
restrict all forms of advertising and promotion. In each of those
instances, according to the comments, the tobacco industry was able to
take advantage of loopholes in the system to continue to advertise to
reach their target audience. Thus, in Canada the advertising ban, which
did not ban nontobacco items, was accompanied by the increased use of
nontobacco items that carried the tobacco brand name as a mechanism for
continuing to advertise the tobacco brand and its prior image. In Great
Britain, sophisticated colorful advertisements appeared when the use of
human figures in tobacco advertising was banned; in Australia,
loopholes in sports sponsorship provisions enabled the industry to
continue sports advertising.
Another comment detailed numerous other examples of tobacco
companies continuing to advertise effectively in spite of a ban or
restrictions on advertising. For example, this comment noted that after
France banned all cigarette advertising in magazines, Philip Morris set
up a travel agency and advertised ``Marlboro Country Travel'' in French
magazines (Thus, although there was no longer any ``cigarette
advertising,'' Philip Morris was able to continue using its western,
cowboy theme in advertisements for a travel agency). The comment noted
further that in Europe, advertising for cigarettes was replaced by
advertisements, using the same imagery, for Camel and Marlboro sports
watches and Camel boots. In Malaysia, cigarette companies set up travel
agencies called Marlboro, Kent, and Peter Stuyvesant, clothing stores
named Camel, jewelry stores named for Benson and Hedges, luxury car
dealerships named More, Salem record stores and Salem and More concert
and movie promotions to advertise cigarettes in a country that has
banned cigarette advertising. FDA finds that these comments provide
strong support for the need for the advertising restrictions to be
comprehensive and apply to all advertising media to be effective.
Two aspects of the evidence in this proceeding are particularly
persuasive in evidencing that restrictions on advertising will directly
advance the agency's goal of protecting the health of children and
adolescents under 18. The experience of other countries that have
adopted advertising restrictions shows that when those restrictions are
enforced, they have resulted in reductions in the level of tobacco use.
In addition, the courts themselves have generally found that, as a
matter of common sense, reductions in advertising have produced a
reduction in demand. While some comments tried to distinguish these
cases, FDA finds that they are relevant.
A discussion of each of these aspects of the evidence follows:
a. International and cross country studies. FDA did not receive
consistent comment on the international studies \164\ that it cited in
the preamble to the 1995 proposed rule on the relationship between
advertising restrictions and consumption.
---------------------------------------------------------------------------

\164\ Smee, C., ``Effect of Tobacco Advertising on Tobacco
Consumption--A Discussion Document Reviewing the Evidence,''
Department of Health, Economics, and Operational Research Division,
London, 1992; ``Health or Tobacco--An End to Tobacco Advertising and
Promotion,'' Toxic Substances Board (TSB), Wellington, New Zealand,
May 1989; Laugesen, M., and C. Meads, ``Tobacco Advertising
Restriction Price, Income and Tobacco Consumption in OECD Countries,
1960-1986,'' British Journal of Addiction, vol. 86, pp. 1343-1354,
1991.
---------------------------------------------------------------------------

(18) Several comments stated that advertising restrictions have not
affected tobacco product consumption, and further stated that, in fact,
tobacco product consumption has increased in most countries with
advertising and promotional restrictions.
In contrast, other comments supported the findings of the same
studies and stated that the studies support the conclusion that
advertising and promotional restrictions can be effective in curbing
smoking initiation among young people.
Several comments opposing the 1995 proposed rule maintained that
better surveys of the results of advertising restrictions abroad were
done in conjunction with the World Health Organization (WHO). The two
WHO surveys on the health behavior of schoolchildren in four countries
found that smoking among schoolchildren is related to peer smoking
behaviors and to the number of smokers in the family. \165\ More
importantly, the comments said that the survey found ``no systematic
differences'' between the smoking behavior of young people in countries
where tobacco advertising is completely restricted and in countries
where it is not. They asserted that the findings of the WHO survey
completely repudiate FDA's assertion that advertising restrictions
reduce tobacco consumption among young people. The comments further
argued that a followup survey found that the prevalence of smoking
among schoolchildren in countries with total tobacco advertising
restrictions was actually higher than countries with fewer
restrictions. \166\
---------------------------------------------------------------------------

\165\ Aaro, L. E., B. Wold, L. Kannas, and M. Rimpela, ``Health
Behavior in Schoolchildren: A WHO Cross-National Survey,'' Health
Promotion, vol. 1, pp. 17-33, May 1986.
\166\ Van Reek, J., H. Adriaanse, and L. Aaro, ``Smoking by
Schoolchildren in Eleven European Countries,'' Proceedings of the
7th World Conference on Tobacco and Health, Duroton, B., and K.
Jamrozik, vol. 301, pp. 301-302, 1991.
---------------------------------------------------------------------------

However, the two surveys cited by these comments did not compare
the percentage of young people who smoked before and after the
implementation of tobacco advertising restrictions within countries. In
order to realistically measure the effect of advertising restrictions,
each country must be looked at individually. For example, country A,
with a high rate of smoking, cuts its smoking rate in half. This would
be considered a major success for country A, but country A still may
have a higher smoking rate than country B. Country B may not have
instituted any advertising restrictions because its smoking rate has
always been low. Thus, comparing the rates of countries A and B would
be like comparing apples and oranges.
Studies that have looked at before and after data from individual
countries have reported downward trends in smoking rates among young
people following advertising restrictions. \167\ For example, in Norway
the percentage of 15-year old boys and the percentage of 15-year old
girls who were daily smokers in 1975, before a restriction on all forms
of tobacco advertising and promotion was put in place, was

[[Page 44491]]

approximately 23 percent and 28 percent, respectively. \168\ According
to the WHO followup survey, the percentage of 15- to 16-year old boys
and the percentage of 15- to 16-year old girls who were daily smokers
in 1986-1987 was 16 percent and 17 percent, respectively. \169\ This
represents success not only with the group that was prohibited from
purchasing cigarettes, those younger than 16, but also with a group
that could legally purchase cigarettes. These results also appear to
indicate that the restrictions did not simply move the onset of smoking
to the first legal year of purchase.
---------------------------------------------------------------------------

\167\ Bjartveit, K., ``The Effect of an Advertising Ban--Who has
the Burden of Proof,'' National Health Screening Service, Norway,
1994; Rimpela, M., L. E. Aaro, and A. H. Rimpela, ``The Effects of
Tobacco Sales Promotion on Initiation of Smoking,'' Scandinavian
Journal of Social Medicine, 1994.
\168\ Rimpela, M., L. E. Aaro, and A. H. Rimpela, ``The Effects
of Tobacco Sales Promotion on Initiation of Smoking,'' Scandinavian
Journal of Social Medicine, vol. 49, pp. 1-23, 1994.
\169\ Van Reek, J., H. Adriaanse, and L. Aaro, ``Smoking by
Schoolchildren in Eleven European Countries,'' Proceedings of the
7th World Conference on Tobacco and Health, Duroton, B., and K.
Jamrozik, vol. 301, pp. 301-302, 1991.
---------------------------------------------------------------------------

Comments from the tobacco industry also relied upon research
conducted by J. J. Boddewyn, which has found results contrary to those
presented by FDA, to argue that tobacco advertising bans have not been
a successful part of tobacco control policy. \170\ Boddewyn's research
is directly contrary to many of the studies cited by FDA in support of
its 1995 proposed rule and is also inconsistent with the best available
data on smoking rates from the countries studied.
---------------------------------------------------------------------------

\170\ Boddewyn, J. J., ``Tobacco Advertising Bans and
Consumption in 16 Countries,'' International Advertising
Association, 1986; Boddewyn, J. J., ``Why do Juveniles Start
Smoking?'' Children's Research Unit of London (CRU) Study, 1986;
Boddewyn, J. J., ``Cigarette Advertising Bans and Smoking: The
Flawed Policy Connection,'' International Journal of Advertising,
vol. 13, No. 4: pp. 311-332, 1994.
---------------------------------------------------------------------------

Boddewyn has used selective data on the total number of cigarettes
sold in a particular country as the basis for his analysis and has used
it to justify a finding that, in those countries where advertising bans
have been introduced, decreases in the total number of cigarettes sold
have not followed. Relying solely on the number of cigarettes sold in a
country to measure the effects of government restrictions fails to take
into account the myriad of influences that can affect cigarette
consumption and, thus, will not yield accurate results.
First, the overall number of cigarettes sold in a country may be
influenced by factors other than the percentage of the population that
smokes. For example, if the population of a country has risen, or if
those who remained smokers were the heaviest smokers, the number of
cigarettes smoked may not fall even though the percentage of the
population that smokes has decreased. Moreover, an analysis based on
the number of cigarettes sold would not account for the success
advertising restrictions might have had with those not yet addicted to
tobacco. The preaddicted group, mostly composed of children, does not
smoke as many cigarettes as do older addicted smokers. Therefore, any
success in stemming initiation rates would not show up for many years
if measured as fewer cigarettes consumed.
Finally, Boddewyn and others have claimed that the experience in
Norway, Finland, and Sweden supports the view that advertising
restrictions have been ineffective in reducing smoking rates. However,
three reports \171\ presented at the World Conference of Tobacco and
Health in Paris, France in October 1994 support the conclusion that
advertising restrictions, if comprehensive and enforced, are effective
in helping to reduce the percentage of people who smoke, particularly
young people not yet addicted to tobacco.
---------------------------------------------------------------------------

\171\ Bjartveit, K., ``The Effect of an Advertising Ban--Who Has
the Burden of Proof,'' National Health Screening Service, Oslo,
Norway, October 1994; Lund, K., ``Tobacco Advertising and How to
Measure Its Effect on Smoking Behavior,'' Tobacco and Health, Slama,
K., ed., Plenum Press, New York, pp. 199-204, 1995; Rimpela, M., L.
E. Aaro, and A. H. Rimpela, ``The Effects of Tobacco Sales Promotion
on Initiation of Smoking,'' Scandinavian Journal of Social Medicine,
vol. 49, pp. 1-23, 1994.
---------------------------------------------------------------------------

Bjartveit's report presented the results of the Norwegian
experience after the implementation of the 1975 Norway advertising ban.
In 1975, Norway banned all advertising of tobacco products and
prohibited the sale of tobacco to anyone under the age of 16. Norway
also required warnings on packages, an educational program, and, in
1980, a larger excise tax. The results of Norway's actions belie
Boddewyn's claims. First, the prevalence of smoking for boys and girls
declined between 1975 and 1990. The percentage of daily smokers aged 13
to 15 declined from 15 percent to 9 percent for boys and from 17
percent to less than 10 percent for girls. Per-capita consumption for
boys and girls also declined. Between 1975 and 1994, the overall sales
of cigarettes and smoking tobacco per person among 15 year olds has
declined from over 2,000 grams of tobacco to less than 1,800 grams.
In 1976, Finland banned some forms of tobacco advertising and
promotion and increased expenditures for health education. While
relatively little data are available on the smoking trends in Finland,
one comment reported data that showed the government's actions did have
an impact, although the extent has been more uneven than in Norway.
Before the advertising restrictions, cigarette consumption was
increasing at the rate of 2.2 percent per year. In the decade since the
1975 Finland advertising ban, the rate of increase has been cut in half
to a little over 1 percent per year--a meaningful change but not a
decline. However, the greatest benefits have been for teenagers. In
1973, 26 percent of 16 to 18 year olds in secondary school smoked. By
1979, 2 years after restrictions went into place, this rate dropped to
14 percent. Since that time, the decrease has continued but has leveled
off. In 1973, 19 percent of 14-year old children in Finland smoked. By
1979, 2 years after the ban, only 8 percent of 14-year old children in
Finland smoked, a decrease of over 50 percent.
Moreover, a report by Rimpela \172\ provided a more complete
explanation of the experience that Finland has had with its advertising
restrictions. Although the 1978 Finnish Tobacco Act banned cigarette
advertisements in youth magazines, it did not eliminate the advertising
of product-families or the sponsorship of events. Consequently, the
tobacco companies found new means of sales promotion through image
advertising in these two venues. The author concluded that a
promotional onslaught in these two forums undercut the so-called
advertising ban, and the weak implementation of the legislation by
health authorities caused the advertising restrictions to be less
effective than they might have been with a total ban. The author
contrasted these uneven results with the success of Norway's total ban.
---------------------------------------------------------------------------

\172\ Rimpela, M., L. E. Aaro, and A. H. Rimpela, ``The Effects
of Tobacco Sales Promotion on Initiation of Smoking,'' Scandinavian
Journal of Social Medicine, vol. 49, pp. 1-23, 1994.
---------------------------------------------------------------------------

The study presents strong evidence for the need for comprehensive
advertising restrictions covering all forms of advertising and
promotion in order to achieve the best results in reducing youth
tobacco use. Finally, the restrictions imposed in Sweden have not been
in effect long enough to measure accurately.
i. The British Health Department Report. Several comments from the
tobacco industry criticized the findings of the British Health
Department Report (Smee Report) that advertising increases consumption
of tobacco products, and that restrictions on advertising decrease
tobacco use beyond what would have occurred in the absence of

[[Page 44492]]

regulation. \173\ The Smee Report examined: (1) The relationship
between cigarette advertising, (2) the effects of partial and complete
advertising bans on tobacco consumption, and (3) the results of cross-
national studies. The study focused on countries for which the most
complete data exists--Norway, Finland, Canada, New Zealand, and the
United Kingdom. One reported result of this analysis was that in all
five countries, bans or restrictions on cigarette advertising resulted
in an aggregate decrease in cigarette consumption.
---------------------------------------------------------------------------

\173\ Smee, C., ``Effect of Tobacco Advertising on Tobacco
Consumption--A Discussion Document Reviewing Evidence,'' Department
of Health, Economics, and Operational Research Division, London, p.
18, 1992.
---------------------------------------------------------------------------

(19) The comments argued that the WHO study contradicts the
findings of this report regarding Norway, Finland, and Canada, stating
that the findings do not indicate that advertising restrictions affect
consumption. Several comments stated their belief that the author's
(Smee's) ``sweeping and unjustified'' conclusions are based on ``data
collected over a short time period'' and on a ``limited and incomplete
review of the available evidence''. They also argued that Smee's
reliance on existing studies linking advertising and consumption is
misplaced. Furthermore, the comments specifically criticized the
report's use of several of the reviewed studies, which, they claim, did
not apply rigorous statistical analysis. Finally, the comments stated
that the author's model made no allowances for the effect of
externalities, such as health shocks (the Royal College of Physicians'
Report on Smoking in 1962, the Report of the Surgeon General's Panel on
Smoking and Lung Cancer in 1964, etc.). All the above comments
maintained that the Smee Report should not be relied upon as evidence
of the causal relationship between advertising restrictions and teen
smoking behavior.
FDA disagrees with the comments' assessment and finds the Smee
Report to be unbiased and useful as a comprehensive survey of the
literature. Upon examining the specific concerns expressed by the
comments in connection with specific country analyses, FDA has found
that the criticisms are without merit. For example, the comments stated
that the reduction in tobacco consumption found in Norway could be
attributed to externalities, such as to enforcement of other provisions
of the antitobacco legislation package, e.g., health warnings, health
education, and sales restrictions. However, Smee reported that the
share of reduction in tobacco consumption attributable to the
advertising ban ``is likely to account for the great majority of the
effect.'' Another comment expressed concern that Smee, in reporting on
the Canadian experience, failed to include income as an independent
variable. The comment stated that this could seriously bias the results
because real income was falling in Canada at the time the advertising
ban went into effect. However, in the initial Smee model, the income
variable was included, and it did not explain the variation in tobacco
consumption. In the final model, Smee did not include the income
variable. However, removing the income variable did not significantly
change the estimated coefficient and would not have biased the
estimates from the model.
Finally, all econometric studies are subject to limitations. As
noted in sections VI.D.4.d. and VI.D.5. of this document, it would
require controlled studies to produce better results and it is neither
practical nor ethical to conduct such studies. Empirical research is
always subject to the criticism that some variables were omitted, or
that alternative specifications would yield different results. However,
Smee collected many studies, and hence his compilation includes many
different specifications of tobacco demand. Thus, although it is
difficult to evaluate the causes of variations in each study, an
analysis of all the existing studies should yield more generalizable
and robust results than those of a single study. The question here is
not whether each of the studies has limitations, but to what extent
those limitations impair the findings of the overall survey. Smee's
study represents the best attempt to date to compile the numerous
studies on the effects of advertising restrictions on tobacco use and
to provide a coherent analysis. His conclusion was that restrictions on
advertising did reduce tobacco use.
A comment in support of the findings of the Smee Report stated
that this study was unbiased and performed by a credible organization.
The comment argued that advertising restrictions produced the decline
in the percentage of young people who smoke in the countries studied.
In response to the tobacco industry's claim that the total number of
cigarettes consumed continued to rise in several countries, the comment
said that ``it takes a number of years for the impact of the fact that
fewer people are starting to smoke to show up in overall tobacco
consumption data.''
ii. New Zealand Toxic Substances Board Study. Several comments gave
considerable attention to the New Zealand Government Toxic Substances
Board (``TSB'') Study which reviewed the effect of advertising
restrictions in 33 countries. \174\ The study concluded that there was
a correlation between the degree of restrictions imposed in each
country and decline in tobacco use.
---------------------------------------------------------------------------

\174\ ``Health or Tobacco--An End to Tobacco Advertising and
Promotion,'' TSB, Wellington, New Zealand, May 1989.
---------------------------------------------------------------------------

(20) Comments submitted by those opposing the proposed regulations
argued that the study lacked objectivity because of methodological
errors, particularly in the collection, sorting and selective use of
data. The comments argued that these errors removed all probative value
from the study. Moreover, the comments noted that FDA's use of the
study illustrates its inconclusive nature. In addition, one comment
asserted that the drop-offs in consumption and the number of smokers
may be related to events other than legislated restrictions.
One comment argued that several studies cited by FDA in the
preamble to the 1995 proposed rule, including Chetwynd and Harrison, do
not support the claimed relationship between advertising expenditures
and consumption because the studies have flawed data and fundamental
methodological errors. For instance, the comment argued that, in the
Laugesen study on tobacco consumption in 23 Organization for Economic
Cooperation and Development (OECD) countries described below, \175\ the
qualitative variables used were not relevant to the regression model
and biased the results. Additionally, the comment criticized the
authors of the study for ignoring contradictory findings.
---------------------------------------------------------------------------

\175\ Laugesen, M., and C. Meads, ``Tobacco Advertising
Restrictions, Price, Income, and Tobacco Consumption in OECD
Countries, 1960-1986,'' British Journal of Addiction, vol. 86, pp.
1343-1354, 1991.
---------------------------------------------------------------------------

One comment suggested that the findings in several smaller studies
cited by FDA \176\ do not indicate that

[[Page 44493]]

advertising affects consumption. The comment argued that one of the
analyses failed to account for common trends resulting from the
diffusion of information about health risks. The comment further stated
that Chetwynd used a model in his study that was more likely to
indicate correlation than causation. The comment also asserted that the
model suffers from poor data and fails to take into account changing
social mores. In addition, the comment argued that a comparable study
(Boddewyn) has not shown a decrease in cigarette consumption in areas
that restrict advertising. \177\
---------------------------------------------------------------------------

\176\ Chetwynd, J., P. Coope, R. J. Brodie, and E. Wells,
``Impact of Cigarette Advertising on Aggregate Demand for Cigarettes
in New Zealand,'' British Journal of Addiction, vol. 83, p. 409-414,
1988; Harrison, R., J. Chetwynd, and R. J. Brodie, ``The Influence
of Advertising on Tobacco Consumption: A Reply to Jackson and
Ekelund,'' British Journal of Addiction, vol. 84, pp. 1251-1254,
1989; Raferty, J., ``Advertising and Smoking--A Smoldering
Debate?'', British Journal of Addiction, vol. 84, pp. 1241-1246,
1989.
\177\ Boddewyn, J. J., ``Tobacco Advertising Bans and
Consumption in 16 Countries,'' International Advertising
Association, 1986.
---------------------------------------------------------------------------

Industry comments uniformly criticized the TSB study. This study
was also criticized by the Canadian courts in the course of litigation
over the validity of Canada's advertising restrictions, see section
VI.D.3.f. of this document. In response, the TSB published a
modification of the original study that recognized that mistakes had
been made in the initial report. The reissued report was entitled ``A
Reply to Tobacco Industry Claims about Health or Tobacco,'' ISBN-0-477-
04574-X (hereinafter referred to as the Reply). According to one
comment from a public interest group:
The Reply re-analyzed the data of the impact of advertising in
a number of countries based upon criticisms of the original report
by the tobacco industry. Even after taking into account the
criticisms of the tobacco industry, the New Zealand government found
strong empirical evidence of the link between tobacco advertising
and tobacco consumption.
In addition to the issuance of the Reply, Laugesen and Meads \178\
retested the typology created by the TSB and applied it to 22 OECD
countries for a 15-year period. In the preamble to the 1995 proposed
rule, FDA referred to the Laugesen study as providing affirmation of
the TSB's analysis and conclusions, that, as a group, countries
prohibiting tobacco advertising in most or all media experienced more
rapid percentage falls in consumption than the group of countries that
permitted promotion (60 FR 41314 at 41334).
---------------------------------------------------------------------------

\178\ Laugesen, M., and C. Meads, ``Tobacco Advertising
Restriction, Price, Income, and Tobacco Consumption in OECD
Countries, 1960-1986,'' British Journal of Addiction, vol. 86, pp.
1343-1354, 1991.
---------------------------------------------------------------------------

The industry comments' major criticism of the Laugesen study is
that the scale developed by Laugeson is flawed. The comments criticized
the amount of weight accorded to different types of advertising
restrictions (i.e., TV ban versus warning on package). However, the
rating scale accurately reflects the level of restrictions in each
country. The steps between the ratings in the scale may be smaller or
larger than the comments believe were warranted, but the relative
rankings would remain the same regardless.
Finally, several comments found fault with the smaller studies
cited by FDA, including ones by Chetwynd and Harrison. Contrary to the
comments' assertions, the studies do include the most relevant
variables such as price, income and advertising expenditures. A major
complaint of the industry regarding studies done abroad is that the
advertising expenditures fail to be totally inclusive. However, the
solution to that problem lies with the industry in most cases.
Advertising expenditures are a closely guarded industry trade secret,
\179\ which the companies state cannot be released to the public
because of their commercial sensitivity. However, the industry could
release older relevant data that are no longer sensitive for the
purposes of investigation and study. Moreover, researchers who have had
access to industry data have not released their data sets for
replication by other research groups. \180\
---------------------------------------------------------------------------

\179\ Even in the United States, only FTC has access to company
expenditure data and it is prevented from disclosing information
concerning advertising expenditures except at the industry-
agglomerated level.
\180\ Beales, J. H., ``Advertising and the Determinants of
Teenage Smoking Behavior,'' p. 44, 1993.
---------------------------------------------------------------------------

The final study criticized by the industry, performed by Harrison,
was written in response to earlier criticism by the industry about the
Chetwynd study, and it therefore provided some answers to the comments'
concerns. For example, the comments fault Chetwynd for failing to take
into account changing social mores. Harrison stated that he retested
Chetwynd's model and found that the model was structurally stable
through time in the long term. He also found that the long run analyses
indicated that the impact of cigarette advertising on consumption may
be larger than was suggested in the original work. \181\
---------------------------------------------------------------------------

\181\ Harrison, R., J. Chetwynd, and R. J. Brodie, ``The
Influence of Advertising on Tobacco Consumption: A Reply to Jackson
and Ekelund,'' British Journal of Addiction, vol. 84, pp. 1251-1254,
1989.
---------------------------------------------------------------------------

After reviewing the studies provided by the comments and
reevaluating the studies relied upon in the preamble to the 1995
proposed rule, FDA reaffirms that the statement that it made in the
preamble is correct:
These studies provide insight into the effects of advertising on
the general appeal of and demand for cigarettes and smokeless
tobacco products. They also provide evidence confirming
advertising's effect on consumption and the effectiveness of
advertising restrictions on reducing youth smoking.
(60 FR 41314 at 41333)
Based on the foregoing, FDA finds that the international experience
provides empirical evidence that restrictions on tobacco advertising,
when given appropriate scope and when fully implemented, will reduce
cigarette and smokeless tobacco use among children and adolescents
under the age of 18. This experience provides strong evidence that the
restrictions that FDA is imposing will directly advance its interest in
protecting the health of these young people.
b. Case law considering the effect of advertising and advertising
restrictions upon tobacco use by young people. Virtually every court
that has examined the issue has held that there is a direct connection
between advertising and demand for the product advertised. For example,
in Central Hudson Gas and Electric, 447 U.S. at 569, the Supreme Court
stated: ``[T]he State's interest in energy conservation is directly
advanced by the Commission order at issue here. There is an immediate
connection between advertising and demand for electricity.'' See also
Posadas de Puerto Rico v. Tourism Co. of Puerto Rico, 478 U.S. at 341-
342. In United States v. Edge Broadcasting Co., the Supreme Court
carried its position in Central Hudson one step further:
If there is an immediate connection between advertising and
demand, and the federal regulation decreases advertising, it stands
to reason that the policy of decreasing demand for gambling is
correspondingly advanced.
(509 U.S. 434)
Each circuit court that has considered the issue has also concluded
that the regulation of advertising is reasonably aimed at reducing
demand. (See, Anheuser-Busch, Inc. v. Schmoke, 63 F.3d 1305. 1314-15
(4th Cir 1995), vacated and remanded 64 U.S.L.W. 3333 (May 20, 1996);
Dunagin v. City of Oxford, Miss., 718 F.2d at 750 (``[W]e hold that
sufficient reason exists to believe that advertising and consumption
are linked to justify the ban, whether or not 'concrete scientific
evidence' exists to that effect.''); and Oklahoma Telecasters Ass'n v.
Crisp, 699 F.2d 490, 501 (10th Cir. 1983), rev'd on other grounds
sub.nom. Capital

[[Page 44494]]

Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984)).) In Greater New
Orleans Broadcasting Ass'n v. United States, 69 F.3d 1296, 1301 (5th
Cir. 1995), the court said:
They cannot seriously dispute that a prohibition of advertising
of casino gambling directly advances the governmental interest in
discouraging such gambling and fulfills the [second] Central Hudson
prong. It is axiomatic that the purpose and effect of advertising is
to increase consumer demand.
To counter the weight of this case law, comments that opposed FDA's
advertising restrictions made two arguments. First, several comments
from the tobacco and advertising industries argued that the agency
cannot rely on the assumption of a link between advertising and demand
that is embodied in these decisions and, citing the Court's more recent
Coors decision, contended that the agency's evidentiary record will be
held to a higher standard of proof.
However, as one comment correctly noted, the Court in Coors wrote:
It is assuredly a matter of `common sense' that a restriction
on the advertising of a product characteristic will decrease the
extent to which consumers select a product on the basis of that
trait.
(115 S.Ct. at 1592) Moreover, in 44 Liquormart, Inc., Justice Stevens
quoted with apparent approval Central Hudson's reliance on the
``immediate connection'' between ``promotional advertising'' and demand
(116 S.Ct. at 1506, quoting Central Hudson 447 U.S. at 569). Thus, the
Supreme Court continues to hold that there is a connection between
advertising and demand, and FDA finds no merit to this contention in
the contrary argument in the comments.
The second argument that these comments made is that because
tobacco products constitute a ``mature product'' whose availability and
qualities are widely known to consumers, the purpose and function of
cigarette advertising is to build market share and to maintain brand
loyalty, not to stimulate demand. FDA considers these comments in depth
in the following section of this document.
c. The function of advertising in the ``mature'' market. Comments
from the industry, advertisers, psychologists, and economists argued
that although it may be true that advertising generally serves the
function of increasing demand for a product category, that truism does
not work for tobacco, which, they claim, is a mature market.
(21) The comments argued that because tobacco is a mature product,
advertising serves to reinforce brand loyalty and to induce current
smokers to switch brands. They stated that because consumers are
already aware of the tobacco category, advertising does not serve to
inform potential consumers of the product and to entice them to become
a user. One comment likened tobacco to other mature products such as
soft drinks, deodorants, antiperspirants, and appliances. Moreover,
this comment argued that ``[b]ecause FDA lacks marketing expertise,''
it has been misled by the size of the industry's advertising
expenditures and assumed, incorrectly, that this means that the
industry is attempting to expand its overall market. Finally, several
comments stated that there are no data that clearly prove that
advertising and promotion increase demand in the tobacco market.
Other comments took the opposing view and agreed with FDA's
assessment that tobacco advertisements make tobacco products more
appealing to young people and affects tobacco use among young people.
Several comments argued that the market for cigarettes and smokeless
tobacco is not mature but is actually very dynamic. In addition to
brand switching and brand loyalty, they argued that tobacco marketing
generates market expansion. The comment noted that there is substantial
movement at the margins with new customers entering the market, and
many current customers trying to leave.
FDA agrees with those comments that expressed the view that
labeling the tobacco market as a ``mature market'' is a simplistic
denotation, which fails to recognize the movement into the market each
day of new young smokers often motivated in part by advertising. Even
``mature'' markets must replenish their customer base as older
consumers leave the market. In fact, approximately one million new
young smokers enter the tobacco market each year. These new smokers are
necessary to keep the mature market stable and to prevent decline.
There is no evidence to suggest that these new smokers are predestined
\182\ to enter the market. RJR acknowledged this in one marketing memo,
---------------------------------------------------------------------------

\182\ Teague, C., Research Planning Memorandum on Some Thought
about New Brands of Cigarettes for the Youth Market, 1973.
---------------------------------------------------------------------------

``[I]f we are to attract the nonsmoker or the presmoker, there
is nothing in this type of product that he would currently
understand or desire. * * * Instead, we somehow must convince him
with wholly irrational reasons that he should try smoking.'' \183\
---------------------------------------------------------------------------

\183\ Teague, C., Research Planning Memorandum on the Nature of
the Tobacco Business and the Crucial Role of Nicotine Therein, 1972.
---------------------------------------------------------------------------

They must be influenced by peers, parents, and advertising, either to
join the market or to decline to enter.
The agency finds that regardless of whether marketers and their
advertising agencies intentionally target children and adolescents,
young people are still affected by advertising. Children are not
isolated from tobacco advertising's attractiveness or inducements.
There is no ``magic curtain around children and teenagers who seek to
learn how to fit into the adult world,'' nor is there any evidence to
support a claim that young people are immune from advertising's
blandishments. \184\
---------------------------------------------------------------------------

\184\ Cohen, J. B., ``Charting a Public Policy for Cigarettes,''
Marketing and Advertising Regulation: The Federal Trade Commission
in the 1990's, edited by Murphy, P. E., and W. L. Wilkie, University
of Notre Dame Press, Notre Dame, IN, pp. 234-254 , 1990.
---------------------------------------------------------------------------

Comments asserting that tobacco advertising fails to increase
consumption for the tobacco market run contrary to the views of one
well-known advertising executive who stated:
I am always amused by the suggestion that advertising, a
function that has been shown to increase consumption of virtually
every other product, somehow miraculously fails to work for tobacco
products. \185\
---------------------------------------------------------------------------

\185\ Foote, E., ``Advertising and Tobacco,'' JAMA, vol. 245,
pp. 1667-1668, 1981.
---------------------------------------------------------------------------

Further, the view that advertising does not affect consumption is
contradicted by industry experience, logic, and evidence. It does not
appear credible that the industry spends more than $6 billion annually
merely to maintain brand share and to try to switch current smokers;
this argument defies common sense. The economics of this argument are
strained--five manufacturers control almost 100 percent of the market,
and three of these have approximately 90 percent of the market. \186\
---------------------------------------------------------------------------

\186\ Weidner, D., ``RJR Tobacco International Gets New Chief,''
Winston-Salem Journal, p. A1, Dec. 8, 1995. (Philip Morris, 45
percent, Reynolds 27 percent.); Antunes, S., ``B & W Harassed
Workers,'' Evening Standard, p. 47, Nov. 16, 1994. (After Brown &
Williamson acquired American Tobacco, it had 18 percent of the
market.)
---------------------------------------------------------------------------

The courts have also expressed skepticism about this argument. In
Dunagin v. City of Oxford, Miss., the advertiser's expert, a professor
in sociology who specialized in alcoholism, testified that advertising
merely affected brand loyalty and market share, rather than increasing
overall consumption or consumption of individual consumers (718 F.2d at
748). The court rejected this argument:
It is beyond our ability to understand why huge sums of money
would be devoted to the promotion of sales of liquor without
expected

[[Page 44495]]

results, or continue without realized results. No doubt competitors
want to retain and expand their share of the market, but what
businessperson stops short with competitive comparisons? It is total
sales, profits, that pay the advertisers and dollars go into
advertising only if they produce sales. Money talks: it talks to the
young and the old about what counts in the marketplace of our
society, and it talks here in support of Mississippi's concern.
(718 F.2d at 749)
The court concluded: ``We simply do not believe that the liquor
industry spends a billion dollars a year on advertising solely to
acquire an added market share at the expense of competitors'' (718 F.2d
at 750). The same reasoning applies here.
(22) One comment discussed the results of a recent study that the
comment said had been accepted for publication \187\ which found that
less than 10 percent of adult smokers switch brands each year, and that
only 6.7 percent switch companies. The commentary suggests that this
amount of ``real'' brand switching would not justify $6.1 billion, an
amount in annual advertising and promotional expenditures.
---------------------------------------------------------------------------

\187\ Siegel, M., et al., ``The Extent of Cigarette Brand and
Company Switching: Results from the Adult Use-of-Tobacco Survey,''
American Journal of Preventive Medicine, vol. 12, No. 1, pp. 14-16,
1996.
---------------------------------------------------------------------------

In addition to logic, there is empirical evidence that advertising
can expand demand in a so-called mature market and in fact has done so
in the cigarette market before. Smoking rates for teenage girls rose
from 8.4 percent in 1968, when major promotional campaigns first
targeted women, to 15.3 percent in 1974, by which time other tobacco
companies had also begun marketing women's brands. \188\ The same
phenomenon was captured differently in a recent study \189\ that
tracked initiation rates for girls and women over a 40-year period. The
study found that smoking initiation rates rose for girls under 18
during the period between 1967 and 1973 (women's targeting period),
even though initiation rates did not rise for women 18 and older.
Finally, as detailed more fully in the preamble to the 1995 proposed
rule (60 FR 41314 at 41345), another study looked at the effect of
variations in advertising expenditures for low tar cigarettes. Although
the advertising did not increase the advertiser's brand share,
increased advertising for low tar cigarettes caused the entire market
for cigarettes to increase. \190\
---------------------------------------------------------------------------

\188\ Botvin, G. J., C. J. Goldberg, E. M. Botvin, and L.
Dusenbury, ``Smoking Behavior of Adolescents Exposed to Cigarette
Advertising,'' Public Health Reports, vol. 108, pp. 217, 222, 1993.
\189\ Pierce J. P., L. Lee, and E. A. Gilpin, ``Smoking
Initiation by Adolescent Girls, 1944 through 1988,'' Journal of the
American Medical Association, vol. 271, No. 8, pp. 608-611, 1994.
\190\ Roberts, M. J., and L. Samuelson, ``An Empirical Analysis
of Dynamic, Nonprice Oligoplistic Industry,'' Rand Journal of
Economics, vol. 19, pp. 200-220, 1988.
---------------------------------------------------------------------------

The ability of advertising to expand total demand for a particular
class of products through market segmentation has also been
demonstrated in other markets when the breakfast cereal industry first
began making health claims for their products, such as those regarding
the cancer-prevention benefits of dietary fiber. The creation of a new
segment of the cereal market--healthy cereal--through the use of
advertising resulted in an increase in the overall adult cereal market.
Advertising caused an increase in aggregate demand by giving consumers
a ``new'' product that met their needs, wants, and desires. \191\
---------------------------------------------------------------------------

\191\ Ippolito, P., and A. Mathios, Health Claims in Advertising
and Labeling: A Study of the Cereal Market, p. 32, 1989.
---------------------------------------------------------------------------

Thus, advertising can serve an important role in meeting and
expanding desires in the marketplace. It identifies consumers' needs
and desires and then matches them with the attributes of particular
product categories and brands. Advertising can perform this function
through its use of explicit claims or through imagery, code words, or
psychosocial cues. And, in doing so, it can both shift demand across
the entire product category and create new demand.
Moreover, the industry's mature market categorization assumes that
the product category has no outside competitors, i.e., that there is no
other product line that competes for the consumers' attentions and
dollars. For example, soft drinks are a mature market, but more
healthful drinks, such as milk, juices, or even water, can attempt to
draw off part of the market. In addition, soft drinks can try to expand
their own market share as Coca Cola and later Pepsi did a number of
years ago \192\ when they promoted cola for breakfast.
---------------------------------------------------------------------------

\192\ Dourado, P., ``Breakfast Cola Takes on America's Coffee
Giants,'' The Independent, p. 28, April 15, 1990.
---------------------------------------------------------------------------

Similarly, tobacco has competitors. New users or ``presmokers,'' as
one RJR employee refers to them, \193\ are faced not only with tobacco
imagery but also with antismoking health messages in commercial media
and in schools. Current smokers are faced with alternatives to smoking,
including over-the-counter and prescription drug advertising for
nicotine replacement products and stop-smoking cures. The tobacco
market thus has to convince the presmoker or new smoker to switch from
the nonuse category promoted by health professionals, public service
announcements, and school messages, to tobacco use. Also, it must
constantly convince the addicted smoker not to leave the market by use
of a competing nicotine-delivery product, a nicotine replacement
source, or by other voluntary means.
---------------------------------------------------------------------------

\193\ Teague, C., Research Planning Memorandum on Some Thoughts
about New Brands of Cigarettes for the Youth Market, p. 1, 1973.
---------------------------------------------------------------------------

Finally, even the industry acknowledges that young people are a
strategically important audience because brand loyalty often develops
during this period of trying cigarettes and becoming a smoker. In 1973,
RJR's research and development officer wrote ``Realistically, if our
Company is to survive and prosper over the long term, we must get our
share of the youth market.'' \194\ And, as noted in the preamble of the
1995 proposed rule, these words reflect those uttered by the Canadian
sister company of the American tobacco company, Brown and Williamson
Tobacco Corp.
---------------------------------------------------------------------------

\194\ Id.
---------------------------------------------------------------------------

If the last ten years have taught us anything, it is that the
industry is dominated by the companies who respond most effectively
to the needs of younger smokers. \195\
---------------------------------------------------------------------------

\195\ Overall Marketing Objectives-F88, 1988 Imperial Tobacco
Ltd. Marketing Plan, p. 6; 60 FR 41314 at 41331.
---------------------------------------------------------------------------

FDA finds that there is no merit to the industry's claim that
because the tobacco market is a mature market, advertising does not
stimulate demand but only reallocates the existing market between
companies. Not only is the industry's argument overly simplistic, but,
as shown, advertising plays an important role in creating new
customers, including young people. FDA shares the incredulity expressed
by the court in Dunagin, 718 F.2d at 750, regarding this argument: ``It
is beyond our ability to understand'' why an industry would spend
billions a year merely to acquire market share at the expense of its
competitors, when it has a much harder job of convincing young people
to start a habit that is neither easy to acquire nor pleasant.
Consequently, FDA finds that the second prong of Central Hudson is
satisfied, i.e., the advertising restrictions directly and materially
advance the substantial state interest.

[[Page 44496]]

E. Provisions of the Final Rule

FDA selected each of the restrictions that it included in the 1995
proposed rule based on its tentative view that the particular
restriction is necessary to providing a comprehensive response to the
appeal of tobacco advertising to young people. Each proposed
restriction was intended to address an aspect of this advertising that
contributes to its appeal. The agency tentatively concluded that,
together, these restrictions will ensure that advertising is not used
to undermine the access restrictions that FDA proposed and thus will
help to protect the health of children and adolescents under the age of
18.
In this section of the document, FDA will respond to comments on
each element of this comprehensive approach, including comments on
whether the regulations are legally supportable. A key question about
the agency's approach is whether there is a reasonable fit between the
agency's interest and the means that it has chosen to accomplish it;
that is, between the agency's interest and the specific restrictions
that it proposed. This inquiry involves consideration of the
restrictions under the third and final prong of Central Hudson.
FDA will first consider comments that raised general concerns about
its approach under the third prong of Central Hudson. It will then
consider comments that raised concerns about specific restrictions
under this aspect of Central Hudson as part of its discussion of the
comments on each restriction.
1. Are FDA's Regulations Narrowly Drawn?
In the preamble to the 1995 proposed rule, FDA stated that the
regulations that it was proposing met the final prong of the Central
Hudson test (60 FR 41314 at 41355). In Central Hudson, the Supreme
Court stated that the First Amendment mandates that speech restrictions
be ``narrowly drawn.'' The Court continued:
The regulatory technique may extend only as far as the interest
it serves. The State cannot regulate speech that poses no danger to
the asserted State interest, * * * nor can it completely suppress
information when narrower restrictions on expression would serve its
interest as well.
(447 U.S. at 565, n.7) FDA pointed out, however, that: ``The Supreme
Court has made it clear that this prong does not require a `least
restrictive means test,' but rather that there be a `reasonable fit'
between the government's regulation and the substantial governmental
interest sought to be served'' (Board of Trustees of State University
of New York v. Fox, 492 U.S. 469, 480 (1989); (60 FR 41314 at 41355).
(23) This statement by FDA provoked a significant amount of
comment. Several comments said that FDA had mischaracterized its
burden. These comments argued that Fox did not dilute the Central
Hudson analysis, and that any restriction on commercial speech must be
narrowly tailored. One comment pointed out that, in Rubin v. Coors, the
Supreme Court made no mention of reasonable fit. The comment stated
that in Rubin v. Coors, the Supreme Court said that Central Hudson
requires that a valid restriction be no more extensive than necessary
to serve the governmental interest (115 S.Ct. at 1591). Finally, one
comment said that FDA was arguing that courts have applied a rational
basis standard to restrictions on commercial speech, but the comment
stated that FDA was wrong because courts have rejected this notion.
In response to these comments, FDA has carefully evaluated the
relevant case law. The agency does not agree that it mischaracterized
its burden in the 1995 proposed rule.
It is true that in Rubin v. Coors the Supreme Court found that the
challenged statutory provision violated the First Amendment's
protection of commercial speech, at least in part, because it was more
extensive than necessary (115 S.Ct. at 1594). However, the Court also
stated that its inquiry under the last two steps of Central Hudson
involves ``a consideration of the 'fit' between the legislature's ends
and the means chosen to accomplish those ends'' (Id. at 1391 (quoting
Posadas De Puerto Rico Associates v. Tourism Co. of Puerto Rico, 478
U.S. at 341); (See also 44 Liquormart, Inc. v. Rhode Island, 116 S.Ct.
at 1510 (``As a result, even under the less than strict standard that
generally applies in commercial speech cases, the state has failed to
establish a reasonable fit between its abridgment of speech and its
temperance goal.'')).
Moreover, the Court's statement in Rubin v. Coors that a
restriction on commercial speech must be no broader than necessary,
which was cited by a comment, must be read in light of the Court's
discussion of this requirement in Board of Trustees of State University
of New York v. Fox, 492 U.S. at 476-481. In Fox, the Supreme Court
concluded from its consideration of how this phrase has been used in
its case law and in the related case law on time, place, and manner
restrictions, that what is required, exactly as the agency said in the
1995 proposed rule, is a fit between the Government's ends and the
means chosen to accomplish those ends that is not necessarily perfect
but reasonable (492 U.S. at 480). The Supreme Court reiterated this
point in Florida Bar v. Went For It, Inc., 115 S.Ct. at 2380 (citations
omitted):
With respect to this prong, the differences between commercial
speech and noncommercial speech are manifest. In Fox, we made clear
that the ``least restrictive means'' test has no role in the
commercial speech context * * * ``What our decisions require,''
instead, ``is a `fit' between the legislature's ends and the means
chosen to accomplish those ends,'' a fit that is not necessarily
perfect, but reasonable; that represents not necessarily the single
best disposition but one whose scope is `in proportion to the
interest served' that employs not necessarily the least restrictive
means but * * * a means narrowly tailored to achieve the desired
objective.
Thus, FDA did not mischaracterize its burden in the 1995 proposed
rule. Moreover, in any event, FDA has narrowly tailored its provisions.
Before turning to the question of whether there is a reasonable fit
between FDA's interest in the health of children and the restrictions
that FDA proposed on tobacco advertising, the agency wishes to make
clear that, contrary to the claim of one comment, it recognizes that
courts have not equated the reasonable fit test with rational basis
review. (See, e.g., Florida Bar v. Went For It, Inc.) FDA recognizes
that the reasonable fit test requires that the Government goal be
substantial, and that the cost of achieving that goal be carefully
calculated. (See Board of Trustees of State University of New York v.
Fox, 492 U.S. at 480.) It also recognizes that this test requires that
the agency consider whether there are less burdensome alternatives to
restrictions on speech.
Having already established that its goal is substantial (see
section VI.C.4. of this document), FDA will consider the issues of the
costs of the restrictions and alternatives to these restrictions in its
analysis of the comments that follows.
(24) Several comments argued that the restrictions on cigarette and
smokeless tobacco advertising that FDA proposed are not narrowly
tailored. One comment said that the premise of the narrow tailoring
requirement is that commercial speech is valuable, and that it may only
be restricted when it is necessary to do so. Other comments argued that
restrictions on speech must attack only problem speech, and that FDA
had failed to prove that this is what the proposed restrictions did.
These

[[Page 44497]]

comments stated that FDA's proposed restrictions are more extensive
than necessary to achieve the agency's asserted interest, particularly
because the agency had failed to show that the advertising restrictions
will have any effect on underage smoking. Some comments argued that the
restrictions that FDA proposed were tantamount to a ban because they
will prevent the advertiser's message from reaching consumers.
Other comments disagreed. These comments said that FDA's proposed
action is narrowly tailored. They argued that FDA had steered clear of
imposing a categorical ban on tobacco advertising, or even broad
prophylactic rules. One comment said that tailored prohibitions,
instead of all-out bans, are important signposts indicating a measured
response.
FDA disagrees with the comments that claimed that the restrictions
were not narrowly tailored. The agency recognizes, as the Supreme Court
said in Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 646
(1985), that it has the burden of distinguishing the harmless from the
harmful. FDA has met this burden.
The restrictions that FDA is adopting are not like those in Central
Hudson, which, even though the Public Service Commission's interest was
limited to energy conservation, reached all promotional advertising,
regardless of the impact of the touted service on energy use. (See 447
U.S. at 570.) Rather, FDA's restrictions are carefully crafted to focus
on those media and aspects of advertising that children are routinely
exposed to and that the available evidence shows has the greatest
effect on youngsters, while leaving the informational aspects of
advertising largely untouched. FDA is not banning outdoor advertising;
it is restricting it so that it does not unavoidably confront children
when they play. It is not banning print advertising. It is restricting
the use of images and color, which are particularly appealing to
children, in publications that have a large number of young readers
under the age of 18 and in other forms of advertising to which children
are routinely exposed but permitting unrestricted advertising in adult
publications and adult venues. It is restricting cigarette and
smokeless tobacco companies' use of brand names and product
identifications in sponsored events, but again in a way that reflects
the agency's concern about children and adolescents under the age of
18. That is, it is permitting companies to sponsor in the corporate
name in order to engender good will, but preventing them from using the
brand specific attractive imagery that is influential with young
people. Finally, it is prohibiting the use of branded promotional items
because it is the young who find particular value in these items. In
each of these respects, the agency has gone no further than it has
found, based on the evidence, is necessary to meet its ends. (See
Dunagin v. City of Oxford, Miss., 718 F.2d at 751.)
Under the restrictions that FDA is adopting, firms will remain free
to disseminate advertising that performs all the informational
functions that are protected by the First Amendment. They will be able
to disseminate information on what they are selling, for what reason,
and at what price. (See Virginia State Board of Pharmacy v. Virginia
Citizens Consumer Council, 425 U.S. 748, 765 (1976); Bates v. State Bar
of Arizona, 433 U.S. 350, 364 (1977).) Thus, the situation here is
analogous to that in Friedman v. Rogers, 440 U.S. 1 (1979), where the
Supreme Court found that a restriction on the use of optometrical trade
names had only an incidental effect on the content of commercial
speech. The Court said that ``the factual information associated with
trade names may be communicated freely and explicitly to the public''
(440 U.S. at 16). So, here, any information that firms wish to
communicate to adults may still be communicated by use of words.
Indeed, the tobacco industry has used text-only advertising
successfully in the past. \196\
---------------------------------------------------------------------------

\196\ As discussed more fully elsewhere, advertising for low-tar
products is generally more reliant on text than on imagery.
---------------------------------------------------------------------------

It may be true, as some of the comments state and as the agency
recognized above, that it will be more difficult for adult consumers to
find cigarette and smokeless tobacco advertising without images and
color, but willingness to search for information is one of the things
that adults will do when they need information about price, quality, or
product performance. Moreover, as discussed above, adult tobacco users
are particularly interested in information on price, ``safer''
cigarettes, and new products, information that can be freely conveyed
under FDA's regulations.
(25) The effect of the proposed restrictions on cigarette and
smokeless tobacco product manufacturers' ability to communicate with
adults was the subject of a number of comments. These comments argued
that the proposed restrictions would not only preclude speech that may
be perceived by young people, it would preclude speech that would be
received by adults. The restrictions, these comments asserted, would
deprive adults, who are legally entitled to smoke, of their right to
the free flow of relevant commercial information. Other comments,
relying on several cases, said that the First Amendment does not
countenance wholesale censorship of speech for adults under the guise
of protecting children. Many comments, for example, quoted a statement
from Butler v. State of Michigan, 352 U.S. 380, 383 (1957) (``Surely,
this is to burn the house to roast the pig.'') in support of this
point. One comment said that FDA's purpose of reducing tobacco use by
minors cannot support massive censorship between tobacco advertisers
and adults.
One comment, however, argued that FDA's proposed restrictions are
narrowly tailored to the specific types of advertising that are most
effective with children. This comment said that these restrictions
permit companies to continue marketing practices that do not appeal to
children.
FDA has considered the concerns expressed in the comments. First,
FDA does not agree that its interest is limited. As discussed above,
the agency's interest is compelling. Nonetheless, the agency has tried
very hard to tailor the restrictions on advertising in this final rule
to focus them in order to limit the appeal of advertising to the young
and ensure that the restrictions on access to cigarettes and smokeless
tobacco will not be undermined, while at the same time, minimizing
their effect on adults. Given this approach, FDA's restrictions differ
significantly from those struck down in Butler v. State of Michigan,
where the Court overturned conviction of a bookseller for selling a
book to adults that contained some portions that might be objectionable
to young people. In that case, the Supreme Court stated:
We have before us legislation not reasonably restricted to the
evil with which it is said to deal. The incidence of this enactment
is to reduce the adult population of Michigan to only what is fit
for children.
(352 U.S. at 383)
This statement clearly does not describe the situation under the
restrictions FDA is adopting. Except for limits on images and colors,
the restrictions that FDA is adopting do not limit what cigarette and
smokeless tobacco manufacturers, distributors, or retailers may say. As
stated above, they are free to put into words any nondeceptive message
that they would have communicated by color or image.

[[Page 44498]]

FDA's restrictions, as one comment stated, restrict only those
advertising techniques that have the most appeal. Thus, contrary to the
situation in Butler v. Michigan, these restrictions are reasonably
restricted to the harms they are intended to address.
Nor are the restrictions that FDA is imposing like the one struck
down in Bolger v. Youngs Drug Products Corp., 463 U.S. 60 (1983), which
was cited by several comments. In that case, a Federal statute
prohibited the mailing of unsolicited advertisements for
contraceptives. The Postal Service sought to justify this restriction
as aiding parents' efforts to discuss birth control with their
children. While the Court found this interest to be substantial, it
found the restriction to be more extensive than the Constitution
permits (463 U.S. at 73). The Supreme Court struck down the
restrictions, stating: ``The level of discourse reaching the mailbox
simply cannot be limited to that which would be suitable for a
sandbox'' (Id. at 74). It is in this respect that FDA's restrictions
differ from those in Bolger. While FDA may limit the type of color or
imagery, or the use of noncommunicative media, i.e., hats, FDA's
restrictions do not limit the types of information that can be
disseminated, except within 1,000 feet of schools and playgrounds.
(26) Other comments cited Sable Communications v. FCC, 492 U.S. 115
(1989), in which the Supreme Court struck down an outright ban on
indecent as well as obscene interstate commercial telephone messages.
This case is not relevant here because FDA is not imposing an outright
ban on cigarette and smokeless tobacco advertising, \197\ and because
in contrast to Congress's failure to make findings that would justify
the ban in Sable, FDA is fully explaining the basis for each of the
restrictions that it is adopting here.
---------------------------------------------------------------------------

\197\ The Court specifically distinguished FCC v. Pacifica
Foundation, 438 U.S. 726 (1978), because that case did not involve a
total ban on broadcasting indecent material. The Court pointed out
that the FCC rule in that case sought to channel the indecent
material to times of the day when children most likely would not be
exposed to it (Sable Communications v. FCC, 492 U.S. at 127). FDA's
intention here is to impose a similar type of focused and tailored
restriction on tobacco advertising to limit the appeal of such
advertising to children.
---------------------------------------------------------------------------

Other comments cited Erznoznik v. City of Jacksonville, 422 U.S.
205 (1975), in which the Supreme Court struck down an ordinance that,
to protect minors, made it illegal to exhibit a motion picture visible
from public streets in which female buttocks and bare breasts were
shown. In doing so, the Supreme Court stated that: ``Speech * * *
cannot be suppressed solely to protect the young from ideas or images
that a legislative body thinks unsuitable for them'' (422 U.S. at 213).
Again, however, FDA is imposing restrictions on the manner and, to
a limited extent, places in which cigarettes and smokeless tobacco are
advertised, not content restrictions. Moreover, FDA is restricting
commercial speech, which, as stated in section VI.C.1. of this
document, is subject to a subordinate position in the scale of First
Amendment values to the noncommercial expressions involved in
Erznoznik. Thus, this case has no application here.
(27) Finally, a few comments cited Project 80's, Inc. v. City of
Pocatello, 942 F.2d 635 (9th Cir. 1991), a case in which the U.S. Court
of Appeals for the Ninth Circuit struck down ordinances that prohibited
door-to-door solicitation because they restricted both wanted and
unwanted solicitations. (See 942 F.2d at 638-639.) The municipalities
sought to defend these ordinances on the grounds that they did not
prohibit in-home sales. However, the court said that residents who
wanted to receive unwanted solicitors had to post a ``Solicitors
Welcome'' sign, and that the Government's imposition of affirmative
obligations on the residents' First Amendment rights to receive speech
is not permissible (Id. at 639).
Presumably, the comments cited this case as evidence that FDA's
restrictions on tobacco advertising sweep too broadly because they
affect the rights of both minors and adults to receive speech. Again,
however, the case is distinguishable. Under FDA's restrictions, adults
will be able to continue to receive tobacco advertising without any
obligation to take any affirmative steps. They will have to look a
little harder because, to advance FDA's interest in protecting the
health of minors, advertisements will generally not have images or
color, and such advertising will not be around schools or playgrounds.
However, the advertising should otherwise continue to be available in
newspapers, magazines, and billboards and appear unrestricted in adult
publications and venues. There is no indication in Project '80, Inc. v.
City of Pocatello, that the Ninth Circuit would find in such
restrictions an undue burden under the First Amendment.
This review of the case law shows that FDA's effort to tailor the
restrictions that it is adopting for cigarette and smokeless tobacco
advertising that clearly distinguishes them from the governmental
efforts to protect minors that have been struck down as sweeping too
broadly and as impinging on the rights of adults. Under FDA's
restrictions, there will still be a free flow of information to adults
and not massive censorship as some comments allege. Thus, these
comments do not provide a basis to conclude that FDA's restrictions
fail the third prong of the Central Hudson test.
(28) Several comments pointed out that the Supreme Court has stated
on several occasions that regulations that disregard numerous and
obvious less restrictive and more precise means of achieving the
government's asserted objectives are not narrowly tailored. These
comments suggested that there are several less restrictive alternatives
to the restrictions on advertising that FDA had proposed. One
alternative pointed to by the comments was better enforcement of laws
prohibiting sales to minors. The comments pointed out that Congress
passed legislation as part of the Alcohol, Drug Abuse, and Mental
Health Administration (ADAMHA) Reorganization Act of 1992, that
prohibits DHHS from providing block grants for the prevention and
treatment of substance abuse unless the State prohibits the sale and
distribution of tobacco products to persons under 18. The comments said
that FDA should give this new law a chance to work before imposing
restrictions on speech, particularly in light of the fact that DHHS
itself said in its 1995 proposed rule to implement this new law that
``[e]liminating virtually all sales [of tobacco products] to minors
does not even present particularly difficult enforcement problems''
(see 58 FR 45156 at 45165, August 26, 1993).
The other alternative, according to the comments, that exists to
the restrictions is an educational campaign that is sponsored either by
the Government or that is provided through voluntary counter speech by
the tobacco industry.
The agency recognizes that the various opinions by the Justices in
44 Liquormart reiterate the need to consider nonspeech restrictions.
Justice Stevens, speaking for himself and Justices Kennedy, Ginsburg,
and Souter stated that the legislature ``cannot satisfy the requirement
that its restriction on speech be no more extensive than necessary,''
given that alternative forms of regulation, such as taxation or limits
on purchases that did not involve restrictions on speech, could achieve
the goal of promoting temperance as well as, or better, than,

[[Page 44499]]

its ban. Moreover, Justice O'Connor in a concurrence, joined by the
Chief Justice, and Justices Souter and Breyer stated:
The availability of less burdensome alternatives to reach the
stated goal signals that the fit between the legislature's ends and
the means chosen to accomplish those ends may be too imprecise to
withstand First Amendment scrutiny.
(116 S.Ct. at 1521)
(29) One comment, however, argued that, for two reasons, there is
no plausible claim that FDA has disregarded reasonable alternatives.
First, the comment pointed out that the Federal Government has engaged
in an incremental effort for 30 years to strike the appropriate balance
in regulating the sale of tobacco products. This effort was successful
in bringing down overall smoking rates, but youth smoking rates
remained stable during the 1980's and have recently begun to rise.
Because previous measures have failed, the comment said, it was now
appropriate for FDA to take stricter action to reduce the use of
tobacco products by minors. Second, the comment noted that a lack of
narrow tailoring often manifests itself in a restraint that is either
grossly underinclusive or overinclusive. The comment said that FDA had
been neither here.
In Florida Bar v. Went For It, Inc., 115 S.Ct. at 2380, the Supreme
Court made clear that the question whether a restriction on commercial
speech is reasonably well-tailored turns, at least in part, on the
existence of ``numerous and obvious less burdensome alternatives to
restrictions on commercial speech * * *.'' (See 115 S.Ct. at 2380
(citing Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 418 n.13
(1993)).) FDA has considered the alternatives suggested by the comments
and finds that none of them is an appropriate alternative to the
restrictions that FDA is adopting.
First, the Government has engaged in a 30-year effort to eliminate
young people's access to and use of tobacco products. The industry,
through its voluntary code and various education programs, has
professed to be part of the solution. However, tobacco can be easily
obtained by young people (between 516 million and 947 million packs of
cigarettes sold illegally per year to children (1992-1993) (60 FR 41314
at 41315)). Moreover, although adult smoking rates have declined
dramatically since the publication of the first Surgeon General's
Report in 1964 (from over 42.4 percent in 1965 to 25 percent in 1993)
(60 FR 41314 at 41317), young people's smoking rates failed to decline
during the decade of the 1980's and began to rise in 1991. Between 1991
and 1995, the proportion of 8th and 10th graders who reported smoking
in the 30 days before the survey had risen by one-third, to about 19
percent and 28 percent, respectively. Smoking among high school seniors
had increased by more than one-fifth since 1992, with 33.5 percent
saying that they had smoked in the 30 days before the survey. \198\
Thus, past efforts involving age restrictions and warning messages on
packages and advertising have not been sufficient to reduce the demand
for tobacco by young people. The restrictions on advertising are
designed to affect the demand.
---------------------------------------------------------------------------

\198\ ``Teen Smoking, Marijuana Use Increase Sharply, Study
Shows; HHS Sees Alarming `Culturewide' Change in Progress,'' The
Washington Times, p. A2, December 16, 1995; quoting from ``Results
from the 1995 Monitoring the Future Survey,'' National Institute on
Drug Abuse Briefing for Donna E. Shalala, Ph.D., Secretary of Health
and Human Services, December 13, 1995.
---------------------------------------------------------------------------

Second, the agency proposed a sufficiently comprehensive set of
regulatory restrictions to address the problem of tobacco use by young
people, to wit: (1) Provisions that restrict and prevent sales of
tobacco products to young people; (2) provisions that reduce the appeal
of tobacco products for young people that is created by advertising and
promotions; and (3) a program to provide educational messages for young
people to help them resist tobacco use. Thus, the agency has not relied
solely on regulations that have an impact upon the speech of the
tobacco industry but has included provisions to address the activity
itself.
Third, while it is true that better enforcement of laws restricting
sales to minors is complementary to FDA's approach, it does not
eliminate the need for this action. As DHHS recognized in its final
rule implementing the ADAMHA Reorganization Act of 1992, DHHS's action
under that statute and FDA's regulations both address the need to
reduce minors' access to tobacco products. FDA's action, however, in
addition to reducing access, attempts, through the restrictions on
advertising, to reduce ``the powerful appeal of tobacco products to
children and adolescents'' (61 FR 1492, January 19, 1996). \199\
---------------------------------------------------------------------------

\199\ It is true that in its August 25, 1993, proposal (58 FR
45156), DHHS stated, as the comments say, that eliminating virtually
all sales to minors does not present particularly difficult
enforcement problems. This statement did not imply, however, that
achieving this goal would be easy, nor did it reflect consideration
of what ancillary measures would be useful to help to achieve this
goal. It was, rather, a statement of DHHS' view that this goal could
be achieved.
---------------------------------------------------------------------------

Advertising, as explained in sections VI.B. and VI.D. of this
document, plays a role in the decision of children and adolescents to
use cigarettes and smokeless tobacco. As long as advertising continues
to play that role, young people will be motivated to obtain access to
tobacco products and to attempt to circumvent any access restrictions.
Thus, the restrictions on speech are necessary to prevent advertising
from undermining FDA's proposed restrictions on access. First, the
agency notes that the voluntary educational campaigns conducted by
tobacco companies have not been effective in reducing underage tobacco
use. This fact is evidenced by the increase in prevalence of tobacco
use among young people. (See, e.g., 60 FR 41314 at 41315.) Second, the
agency finds that any educational campaign is likely to be undermined
if the young people to whom it is aimed continue to be the target of
advertising that fosters the perception that experimentation with
tobacco by young people is expected and accepted.
The U.S. Court of Appeals for the Fifth Circuit considered a
suggestion similar to that of an educational campaign in Dunagin v.
City of Oxford, Miss. and found it not to be an alternative to
restrictions on advertising:
We do not believe that a less restrictive time, place, and
manner restriction, such as a disclaimer warning of the dangers of
alcohol, would be effective. The state's concern is not that the
public is unaware of the dangers of alcohol * * * The concern
instead is that advertising will unduly promote alcohol consumption
despite known dangers.
(See 718 F.2d at 751; see also Posadas de Puerto Rico Ass'n v. Tourism
Co. of Puerto Rico, 478 U.S. at 344.) This is exactly FDA's concern
about the effect of advertising on underage tobacco use, and why an
educational campaign, which may complement advertising restrictions, is
not an alternative to them.
Thus, the agency concludes that there are no less burdensome
alternatives to restrictions on advertising. In this respect, this
proceeding is distinguishable from that considered in Rubin v. Coors,
which was cited by a number of the comments. In Rubin v. Coors, the
Supreme Court pointed to the fact that the respondent cited several
options that could advance the Government's asserted interest in a
manner less intrusive to respondent's First Amendment rights than the

[[Page 44500]]

statutory provision the Government had adopted (115 S.Ct. at 1593).
\200\ Here, as in section VI.E. of this document, there are none
believed to be nearly as effective.
---------------------------------------------------------------------------

\200\ One alternative that the respondents in Rubin v. Coors
advanced was prohibiting marketing efforts emphasizing high alcohol
strength (115 S.Ct. at 1593.) What FDA is doing here is analogous to
that alternative. It is restricting marketing efforts that have
particular appeal to the young.
---------------------------------------------------------------------------

In U.S. v. Edge Broadcasting Co., 509 U.S. 418, 430 (1993), the
Supreme Court said that ``the requirement of narrow tailoring is met if
`the * * * regulation promotes a substantial Government interest that
would be achieved less effectively absent the regulation,' provided
that it did not burden substantially more speech than necessary to
further the government's legitimate interests.''
FDA's restrictions on cigarette and smokeless tobacco advertising
clearly meet this test. FDA's restrictions directly and materially
advance its compelling interest in the health of children and
adolescents under the age of 18. The discussion of the lack of less
restrictive alternatives demonstrates that the agency's goals would be
achieved less effectively in the absence of these restrictions.
Finally, as the discussion on narrow tailoring and in the review of the
comments on each of the regulations on advertising that follows makes
clear, FDA is restricting only those aspects of advertising that have
particular appeal to the young. Thus, the agency has crafted the
advertising provisions with specificity to allow unrestricted
advertising in those venues that are not seen by or used by children
and adolescents. Accordingly, publications with adult readership and
adult establishments may have unlimited print advertising. Moreover,
companies are free to offer nontobacco items and events in their
corporate names or unbranded. Companies, thus, can reward adult usage
by providing these incentives but may not do so in a format (with brand
identification and imagery) which is appealing to young people.
However, the agency has been unable to determine additional areas
for unrestricted advertising. Thus, other than adult establishments,
such as bars, there are no areas at other retail establishments that
are not visible to young people. Billboards are ubiquitous and
accessible to all ages. Nontobacco items can be restricted to
dissemination to adults, but they would still serve as walking
billboards. Finally, there are no adult only sponsored events--children
are at the events or watching them on television. As described more
fully in section VI.E.8. of this document, in the case of auto racing,
attendance by young people is on the rise.
2. Section 897.30(a)--Permissible Forms of Labeling and Advertising
Proposed Sec. 897.30(a) would have established the scope of
permissible forms of labeling and advertising for cigarettes and
smokeless tobacco. Proposed Sec. 897.30(a)(1) would have defined
permissible forms of advertising as newspapers, magazines, periodicals,
or other publications (whether periodic or limited distribution);
billboards, posters, placards; and nonpoint of sale promotional
material (including direct mail). Proposed Sec. 897.30(a)(2) would have
defined permissible forms of labeling as point of sale promotional
material; audio and/or video formats delivered at a point of sale; and
entries and teams in sponsored events.
In response to the comments, FDA has revised Sec. 897.30(a) so that
it no longer distinguishes between advertising and labeling, deletes
teams and entries as permissible advertising, describes the procedure
that FDA will follow when it is informed by advertisers of their intent
to advertise in a medium not listed in the regulation.
In addition, the first sentence of Sec. 897.30(a), which states
that this subpart does not apply to cigarette or smokeless tobacco
product package labels, has been redesignated as Sec. 897.30(c).
(30) Several comments were received addressing the issue of
permissible advertising outlets. Comments from the tobacco and
advertising industries opposed the 1995 proposed rule. These comments
criticized the 1995 proposed rule for not defining the term
``advertising'' and called the 1995 proposed rule unprecedented in the
scope of its limitations on the forms of media, a violation of the
First Amendment, a violation of the Administrative Procedure Act (APA),
and beyond FDA's statutory authority. Supporters of the 1995 proposed
rule, including health and public interest groups, stated that it is a
reasonable measure given the effect of advertising on children and that
it provides manufacturers with a wide variety of means for
communicating with their customers. Some supporting comments urged that
the prohibition of certain media, such as the Internet, be stated
explicitly.
Several comments from the tobacco industry expressed concern that
FDA did not define the term ``advertising'' ``because Sec. 897.30(a)(1)
would limit the media in which cigarettes may be `advertised,' the
definition of `advertising' as used by FDA is crucial; yet the term is
not defined in the proposed regulations.''
Moreover, they expressed concern that the definition was so
sweeping that it could literally ``include reports to shareholders or
potential shareholders; communications among manufacturers,
wholesalers, distributors, and retailers; or even communications to the
news media insofar as they might be deemed a 'commercial use.'''
Other comments requested that the agency clarify the definition to
ban product placements in movies and commercials shown in movie
theaters. Several comments stated that Sec. 897.30 should be extended
to include tobacco product packages to reduce the means of a child
expressing affinity with the image associated with a particular brand.
One comment recommended tombstone packaging without an identifiable
logo.
The agency carefully considered whether it should attempt to define
the term ``advertising'' more explicitly than it did. ``Advertising''
as a term is constantly evolving, as new media and new techniques of
marketing emerge. Although its boundaries are understood (and were
provided in the preamble to the 1995 proposed rule), there is no one
accepted definition. FTC is the Federal agency with general
responsibility for regulating most consumer advertising. Yet neither
FTC nor any of its rules define the general term ``advertising.'' The
agency agrees with the approach taken by FTC and continues to believe
that the term ``advertising'' should not be defined any more
specifically. Thus, FDA finds that the description of advertising in
the preamble to the 1995 proposed rule is appropriate:
Labeling and advertising are used throughout this subpart to
include all commercial uses of the brand name of a product (alone or
in conjunction with other words), logo, symbol, motto, selling
message, or any other indicia of product identification similar or
identical to that used for any brand of cigarette or smokeless
tobacco product. However, labeling and advertising would exclude
package labels, which would be covered under proposed subpart C.
(60 FR 41314 at 41334)
The agency also agrees with comments that state that it must
provide some context for the application of so open ended a definition.
For example, comments contended that ``commercial use'' could be
interpreted to include such items as trade advertising (communication
between

[[Page 44501]]

manufacturers, wholesalers, distributors, and retailers), shareholder
reports, and possibly even communications with the news media. This was
not FDA's intent. This rule is a consumer based regulation; it is not
the intention of FDA to include purely business related communications.
Thus, noncommercial uses would not be affected. These would include
such uses as unpaid press statements, signs on factories noting
locations, business cards, and stockholder reports. While many of these
uses would be ordinary and necessary business expenses, they would not
be commercial uses in the context of the rule's restrictions on tobacco
advertising affecting minors' tobacco use.
Furthermore, the preamble to the 1995 proposed rule explained that
the agency intends to permit advertising with imagery and color in
publications that are read primarily by adults. For that reason, under
Sec. 897.32(a), advertisements in publications (whether periodic or
limited distribution) with primarily adult readership are not
restricted to a text-only format. Trade advertising in trade press
publications and trade show publications, trade catalogs, price sheets,
and other publications for wholesalers, distributors, and retailers
that will not be seen by consumers, including minors, are unaffected by
the rule.
Also, the agency does not believe that the term ``advertising''
needs to be defined to clarify what is not a permissible advertising
outlet. The 1995 proposed rule clearly specifies what advertising
outlets are included within the regulation's coverage. However, the
agency has been persuaded to make more clear its procedures for new or
uncovered media. These procedures are described in this section.
The agency does not agree with comments that the rule needs to be
clarified regarding infomercials or advertorials (program length
commercials). Television infomercials are not allowed under the
statutory broadcast ban, and magazine advertorials would be treated
like any other magazine advertising. The agency recognizes that
commercial advertising messages (videos) shown in a movie theater are
not addressed by the 1995 proposed rule. If this becomes a desired
medium, the companies would need to notify FDA 30 days prior to using a
new medium. Finally, product placements in movies, music videos, and
television, if not placed at the expense of a tobacco manufacturer,
distributor, or retailer, would not be affected by this rule. The
agency does not intend to regulate a film producer's artistic
expression--i.e., what the producer chooses to display in movies.
The agency has decided not to include restrictions on tobacco
product packaging. The agency has attempted to narrowly tailor this
rule and therefore has not included packaging restrictions at this
time.
(31) Several comments from the advertising industry expressed
concern that the wording of Sec. 897.30(a)(1) would ban all advertising
for tobacco products that is not expressly permitted. If so, the
comment states, the rule would be arbitrary and capricious because the
agency did not present evidence that these unnamed advertising
techniques influence young people. Another comment pointed out that the
channels available to tobacco companies for communicating with adults
already have been severely restricted by Congress' ban on television
and radio advertising.
In contrast, comments from organizations of health professionals
and a public interest group supported the scope of permissible
advertising. One specific comment stated that, ``The media listed in
Sec. 897.30 provide manufacturers with a wide variety of means for
communicating with their customers.''
The agency has determined that the scope of the permissible outlets
for tobacco advertising in the 1995 proposed rule is reasonable. The
permissible forms are the known current forums for tobacco labeling and
advertising and account for the vast majority of advertising
expenditures. While the format of much of current tobacco advertising
is being restricted to a text-only format, almost all of the current
media outlets being used for tobacco advertising will still be
permissible. Legal users will continue to be able to receive
information about cigarettes and smokeless tobacco, in a text-only
format in most cases, in virtually all the same media currently used
for tobacco advertising. Moreover, if an advertiser intends to use a
new media outlet not included in the list of permissible advertising,
its responsibility is to notify FDA and provide the agency with
information about the media and the extent to which the advertising is
seen by young people. FDA will review any submission and make a
determination whether provisions of the final regulation provide
sufficient information for the advertiser to know how to disseminate
its advertising or whether the regulations need to be amended.
Advertising in any new media will be subject to the text-only format
requirement if it is a medium used by young people. Therefore, FDA has
created a new Sec. 897.30(a)(2) to reflect this new process.
The agency believes this approach is reasonable and is fully
consistent with its statutory authority and with the First Amendment.
In Central Hudson Gas & Electric Co., 447 U.S. at 571, n.13, the
Supreme Court suggested that the Public Service Commission might
consider a system of previewing advertising campaigns to ensure that
they will not defeat conservation policy. The Court pointed out that
``commercial speech is such a sturdy brand of expression that
traditional prior restraint doctrine may not apply to it'' (Id.). Given
the agency's significant interest in ensuring that the restrictions on
access that it is imposing are not undermined, FDA finds that the
requirement that firms consult with it before using a new advertising
medium is a limited means of regulating commercial expression that is
likely to vindicate FDA's public health interests. This approach will
not prohibit the tobacco industry from advertising in new media but
will protect young people by giving the agency an opportunity to review
the problems presented by a new media and to design new regulations or
adapt current ones.
(32) One comment from a public interest group concerned with
electronic media urged FDA to explicitly prohibit tobacco advertising
over the Internet, Worldwide Web, and other on-line services and
interactive media. The comment stated that children and adolescents are
increasingly using on-line services with up to 4 million Americans
under age 18 using, or with access to, on-line services. The comment
stated further that the interactive nature of the on-line services
gives advertisements numerous advantages over traditional print
advertisements. The comment emphasized that a ban on tobacco
advertising over these media is necessary because the text-only format
would not be as effective in reducing the appeal of tobacco advertising
to minors given the interactive nature of these media.
One comment from an organization of health professionals stated
that one tobacco company advertises its mail-order business through a
Web site on the Internet and offers links to other tobacco-related
sites. The comment wondered why this type of advertisement was not
banned by FCC

[[Page 44502]]

since the Internet operates over telephone lines, a form of electronic
media that is regulated by FCC and from which cigarette advertising is
banned.
A few comments dealt with on-line advertising and recommended that
the rule should limit format to black text on a plain background,
require advertisers to demonstrate that significant numbers of children
do not access ad sites, require use of any available blocking
technology, and define ``conspicuous'' and ``prominent'' as they
pertain to interactive media.
Some of these comments have suggested that advertising of tobacco
products in on-line media should be banned under the Federal Cigarette
Labeling and Advertising Act's (the Cigarette Act) (15 U.S.C. 1331) and
the Comprehensive Smokeless Tobacco Health Education Act of 1996's (the
Smokeless Act) (15 U.S.C. 4401) prohibition of advertising on any media
subject to the jurisdiction of FCC. The agency leaves the issue of
jurisdiction and the applicability of the broadcast ban to the
Department of Justice, which has the appropriate jurisdiction over the
Cigarette Act, and to FTC, which has along with the Department of
Justice jurisdiction over the Smokeless Act. Were these agencies not to
take action and were, tobacco advertising to continue in on-line media,
then FDA is available to meet with advertisers regarding their
responsibility under the final rule.
The agency recognizes the growing importance and use of on-line
media and the Internet for communications of all sorts, including
tobacco sales and advertising. On-line media are not included within
the list of permissible outlets for tobacco advertising because the
agency does not have sufficient information on the technology to
include regulations in the final rule. However, advertisers interested
in advertising on the Internet should notify the agency, after the rule
is final, and provide the agency with sufficient information about use
by young people so that the agency can make a proper determination.
This notification is for discussion purposes only, and is not in any
way intended to imply, or create a need for, prior approval.
The agency recognizes the concern expressed by one comment that a
text-only format, without additional requirements, may not be as
effective in protecting young people from on-line advertising as it
would be for print advertising because of the interactive nature of on-
line media. The agency would consider the unique qualities of on-line
media and the Internet in evaluating any requests to use these media.
Any other statement about specific requirements for this new media or
any other media would constitute speculation at this point. \201\
---------------------------------------------------------------------------

\201\ In addition to the substantive changes, the following
changes in language have been made: (1) Deletion of ``only'' in
Sec. 897.30(a)(1); (2) substitution of (a)(2) for (b) in 897.30; and
(3) deletion of ``and'' before ``in point of sale'' in
Sec. 897.30(a)(1).
---------------------------------------------------------------------------

Section 897.30(a)(1) provides a comprehensive listing of the
permissible forms of advertising and labeling. The evidence that FDA
has gathered in this proceeding establishes the need for and importance
of such a comprehensive listing. In addition to the general evidence
and support provided by expert opinion, advertising theory, studies and
surveys, empirical studies, anecdotal evidence, industry statements,
and two consensus reports (the IOM Report and the 1994 SGR) described
in section VI.D.5. of this document, FDA has found specific support for
a comprehensive listing in:
Empirical Studies--Various economic and econometric studies of
international and cross-country data show that restrictions on
advertising and promotional activities can result in a decline in
tobacco use (see section VI.D.6.a. of this document).
Country Experience--The experience of countries, such as Norway and
Finland, shows that comprehensive advertising restrictions can
positively affect the smoking rates of young people over time (see
section VI.D.6.a. of this document).
Advertising Theory--Each separate advertising media plays a
critical role in shaping young people's beliefs about tobacco use, and
ultimately their use of tobacco products (see sections VI.D.3.a.
through VI.D.3.e. of this document). Therefore, regulation of
advertising must address each type of media. As will be described in
the following sections of the regulation, the restrictions on each
media are necessary to reduce the appeal of tobacco for young people
and to prevent unrestricted tobacco advertising from undermining the
regulation's access provisions. Moreover, as international experience
indicates (see section VI.D.6. of this document), when regulations that
are not comprehensive are implemented, tobacco money can migrate to
unregulated advertising venues (e.g., if publications are prohibited,
money expended on sponsorship will increase) and can undermine the
force of the regulation. Thus, in order to be effective, restrictions
must be as comprehensive as possible.
Based on all of the foregoing, FDA concludes that the comprehensive
listing of permissible advertising in Sec. 897.30(a)(1) will directly
and materially advance the agency's efforts to reduce consumption of
tobacco products by children and adolescents under the age of 18.
3. Section 897.30(b)--Billboards
The agency proposed in Sec. 897.30(b) to prohibit outdoor
advertising, including but not limited to billboards, posters, or
placards, placed within 1,000 feet of any public playground or
playground in a public park, elementary school, or secondary school.
FDA proposed this provision because these are places where children and
adolescents spend a great deal of time and should therefore be free of
advertising for these products. The agency tentatively concluded that
this was a reasonable restriction and noted that the cigarette
industry's voluntary ``Cigarette Advertising and Promotion Code,'' (the
Code) revised in 1990, contains a similar provision concerning schools
and playgrounds (60 FR 41314 at 41334 through 41335).
(33) FDA received over 2,500 comments concerning this part of the
1995 proposed rule. Comments opposing this measure pointed out that the
tobacco industry has established a voluntary code similar to the
proposed provision with which advertisers already comply, and that
therefore, there is no reason to make this measure mandatory. These
comments also stated that outdoor advertising does not target children
and adolescents, and that parents, siblings, and friends have a much
greater influence than billboards and posters on a young person's
desire to start smoking. Further, they stated that there is no evidence
that this measure would reduce any teenager's desire to smoke.
Most comments supported this provision, stating that children and
adolescents should not be subjected to visual images promoting tobacco
use around those areas where they attend school or play. The comments
argued that children and adolescents want to be like the attractive
models in the advertising, and, thus, the advertisements directly
influence them to start using tobacco.
In the Federal Register of March 20, 1996 (61 FR 11349), the agency
reopened the comment period for the August 1995 proposed rule to place
on the public record a memorandum that provided further explanation of
the

[[Page 44503]]

agency's proposal to ban outdoor advertising within 1,000 feet of
schools and playgrounds. The document provided an additional 30 days in
which to comment on this new information. The memorandum stated that
the agency was aware of the industry's voluntary 500-foot ban on
advertising from schools and playgrounds but also that it was
cognizant, based on the experience of its employees, that billboards
can loom large in the sight of children and adolescents at that
distance and thus would be able to capture their attention. The agency
also noted that 1,000 feet is about 3 blocks and that signage kept that
far away from schools and playgrounds would not loom as large, if it
would be visible at all. Moreover, the 1,000 feet will protect children
as they travel to and from these locations.
In response to the comments, FDA has modified the provision to
clarify the coverage of the provision. Thus, the final rule states that
the 1,000-foot area is to be measured from the perimeter of the
playground or school. Moreover, a definition of playground is included
as well as an indication that the relevant area of a playground in a
larger public park is limited to the play area itself. Section
897.30(b) reads:
No outdoor advertising for cigarettes or smokeless tobacco,
including billboards, posters, or placards, may be placed within
1,000 feet of the perimeter of any public playground or playground
area in a public park (e.g., a public park with equipment such as
swings and seesaws, baseball diamonds, or basketball courts),
elementary school, or secondary school.
(34) Several comments asked FDA to define what is meant by the term
``playground.'' The comments stated that the term could be construed to
include literally any place of outdoor recreation where children may
play (i.e., a paved parking lot, a tennis court, or a city park), even
places used primarily by persons 18 years of age or older. One of the
comments noted that the industry code refers to ``children's
playgrounds'' (i.e., playgrounds designed primarily for use by
children), but that Sec. 897.30(b) refers to ``any playground.''
Some comments suggested that the term ``playground'' should include
the playgrounds of city parks, recreation facilities, theme parks
(e.g., Disneyland), and national parks.
The agency agrees that it needs to clarify what is meant by the
term ``playground.'' A typical dictionary definition of ``playground''
states that it is: (1) An outdoor area set aside for recreation and
play, especially one having equipment such as seesaws and swings; or
(2) a field or area of unrestricted activity. The intent of the
proposal was not to preclude outdoor advertising within 1,000 feet of
any area that would fall under this broad definition, but to preclude
cigarette and smokeless tobacco advertising around those areas where
children and adolescents are likely to spend a lot of time. Clearly,
areas around schools with equipment such as swings and seesaws are
areas where children are likely to play. Public parks for family
recreational purposes with play equipment, and facilities for
activities such as baseball or basketball are also areas where children
and adolescents are likely to be present for hours at a time.
However, private enterprises, such as theme parks and recreational
facilities, are not necessarily intended only for children and
adolescents. Those that are, may require the presence of an adult for
entry. There are usually entrance fees or required purchases for use of
these areas. In addition, children and adolescents may not be present
in these areas on any regular basis (e.g., an annual visit to a theme
park). Therefore, the agency will not include these areas in the
regulation. Moreover, because all outdoor advertising must be in black
and white text, the agency sees no need to extend the prohibition
beyond elementary and secondary schools and public playgrounds at this
time.
The concern expressed that a decision by private parties to build a
playground could destroy the value of a billboard sign should no longer
exist. Because the agency is limiting its definition of playground to
those publicly owned playgrounds, any interested party could object to
the establishment of the playground.
FDA is modifying Sec. 897.30(b) to state that outdoor advertising
is prohibited within 1,000 feet of the perimeter of any public
playground or playground area in a public park (e.g., areas with
equipment such as swings and seesaws, baseball diamonds, basketball
courts), elementary school or secondary school. The agency concludes
that this modification in Sec. 897.30(b) is adequate to clarify the
term ``playground,'' and that a more specific definition for
``playground'' is not necessary at this time.
The agency notes that the definition makes clear that, when an area
is set aside for a playground within a public park, the 1,000 feet is
measured from the perimeter of the play area and not from the larger
park.
(35) Several comments contended that the regulation should specify
that the 1,000-foot rule should be measured from the perimeter of the
property to avoid confusion. One comment asked that the provision be
more clear as to what types of schools would be included within the
definition.
The agency agrees with the first comment. The intent of the 1995
proposed rule was that the distance would be measured from the
perimeter of the school or playground. Any other measurement could
defeat the purpose of the regulation. For example, measuring from the
edge of a building or from the center of a playground could allow
outdoor advertising to be placed closer to the perimeter where children
may be assembled or playing. In addition, for large schools or
playgrounds, the outdoor advertising could feasibly be near the
perimeter of the school or playground if the distance is measured from
somewhere other than the perimeter. Therefore, to clarify the intent of
the provision, FDA is modifying Sec. 897.30(b) to state that no outdoor
advertising may be placed within 1,000 feet of the perimeter of any
playground, elementary school, or secondary school.
However, the agency does not believe that it needs to provide a
definition of elementary and secondary schools, as those terms, as
commonly used, include all such schools (kindergarten through 12th
grade) whether public, private, or parochial.
(36) One comment stated that the tobacco industry Code of
Advertising Practices (the Code) applies to outdoor advertising on
billboards, and that Sec. 897.30(b) applies to all outdoor signage,
including signage on the exterior of retail establishments that sell
tobacco, and conceivably even to advertising on buses, taxis, and other
vehicles that might venture within the 1,000-foot zone.
Another comment stated that FDA should consider regulations that
eliminate tobacco advertising via traveling vans and trailers because
trailers and vans are mobile billboards and can be strategically placed
to gain maximum exposure among young people.
FDA agrees that Sec. 897.30(b) applies to more forms of advertising
media than does the tobacco industry code (i.e., all outdoor
advertising, not just billboards). FDA's regulation restricts all
outdoor advertising of tobacco products, including, but not limited to,
billboards, posters, and placards. However, the intent and purpose of
Sec. 897.30(b) is not

[[Page 44504]]

to prohibit signage on taxis and buses that are not located in, but may
pass through, the school or play zone. Such signage is usually
temporary or transient and does not present the same concern of a
permanent sign.
(37) Several comments questioned the factual basis for the proposed
ban on outdoor advertising of cigarettes and smokeless tobacco within
1,000 feet of schools and playgrounds and stated that ``employee''
experience is not a sufficient basis. One comment argued that FDA
should give little weight to employee experience in light of the fact
that cigarette manufacturers submitted expert testimony that children
and adolescents pay relatively little attention to billboard
advertising at any distance. In addition, some comments argued that
FDA's analysis related solely to billboards, and that it had presented
no evidence or analysis justifying a ban on store signage. Finally,
several comments stated that the agency failed to take into account the
``visibility'' of the outdoor advertising. These comments suggested
that any regulation must take into account whether obstructions exist
(e.g., trees, winding roads, signage placed facing away from the
prohibited area).
The agency disagrees that it has not provided an adequate basis for
its proposed regulation. In addition to the analysis provided by the
agency in its March 20, 1996, Federal Register document, the agency
received two comments during the comment period with evidence regarding
this issue. A professor of biophysics and optometry stated that he
believed that there was a rational and quantitative basis for deciding
on a given distance if that distance was to be based on the visibility
of words on a billboard. Specifically, he stated that children and
adolescents typically have 20/15 visual acuity. Therefore, it is
possible, using a mathematical formula using a right-angled triangle
and the definition of the tangent trigonometric function to compute the
distance at which words are visible. He computed the distances from
which it would be possible to see both words 1 foot high and 2 feet
high. In addition, he computed the distances for a ``normal'' visual
acuity of 20/20. If one were to average these numbers, the result would
be approximately 1,200 feet, which could be rounded to 1,000 feet.

Table 1a.
------------------------------------------------------------------------
1-foot high letters 2-foot high letters
------------------------------------------------------------------------
20/15 vision 917 feet 1,833 feet
20/20 vision 687.8 feet 1,376
------------------------------------------------------------------------

(38) Another comment reminded the agency that two separate laws
passed by Congress had provided for a 1,000-foot zone around schools as
a means to protect youngsters from dangerous and unsafe behavior. The
Controlled Substances Act (21 U.S.C. 860) provides additional penalties
for anyone distributing or manufacturing drugs within 1,000 feet of
schools, playgrounds, and universities, and 18 U.S.C. 922 prohibited
possession of a firearm within 1,000 feet of schools. \202\ Moreover,
the comment contained scores of pictures of advertising billboards and
signs within 500 and 1,000 feet of school and playgrounds as well as
statements by children indicating that the signs are ubiquitous and
attractive. The pictures and statements may only be anecdotal evidence
of the proliferation of tobacco advertising near schools and
playgrounds, but the number of children who provided pictures in such a
short period of time indicates that the problem of advertising in
proximity to schools and playgrounds is not isolated.
---------------------------------------------------------------------------

\202\ Although this statute was overturned in United States v.
Lopez, 115 S.Ct. 1624 (1995), as inappropriate under the Commerce
Clause, the congressional determination that 1,000 feet was an
appropriate distance was not disturbed.
---------------------------------------------------------------------------

Moreover, the agency also disagrees that it has no basis for
including other outdoor signage, including signs on stores, in the
regulation. The agency provided evidence in the administrative record
and comments refer to evidence, \203\ which showed that in a test area,
those stores within 1,000 feet of schools had a significantly greater
percentage of windows covered with tobacco signs than those further
away. Moreover, the two RJR memoranda by sales representatives,
described in section VI.D.3.d. of this document, mention the importance
of supplying stores near high schools with ``young adult'' material.
---------------------------------------------------------------------------

\203\ Rogers, T., E. C. Teighey, E. M. Tencoti, J. L. Butler,
and L. Weiner, ``Community Mobilization to Reduce Point-of-Purchase
Advertising of Tobacco,'' Health Education Quarterly, 1995, in
press.
---------------------------------------------------------------------------

This provides sufficient support for the agency's concern with
signage on stores near schools. Young people are more likely to
frequent stores near schools, especially older adolescents, and these
venues should therefore be free of advertising for tobacco products.
The agency also finds that it cannot address the comments' concerns
with obstructions. It would not be possible to qualify a regulation to
account for the fact that trees may obstruct a sign when they are in
full bloom but not in winter, or that children may be able to see
signage as streets wind or that face away from the school or playground
as they walk to and from school. The line that the agency has drawn is
narrowly tailored (see Board of Trustees of State University of New
York v. Fox 492 U.S. at 480) and consistent with how a standard needs
to be crafted for it to be enforceable.
Finally, FDA finds that the expert testimony referred to in the
industry comment that indicates that young people do not pay attention
to billboards is contradicted by other evidence in the record. The
Roper Starch study mentioned in section VI.D.3.d. of this document,
submitted by RJR, reported that 51 percent of 10 to 17 year olds
surveyed reported that they had seen or heard of Joe Camel from a
billboard advertisement. For this reason, FDA is not accepting the
suggestion in the comment.
(39) A number of comments from the tobacco and outdoor advertising
industries stated that the tobacco industry had adopted a code in 1990,
which encouraged all billboard companies to establish and manage a
program to prohibit alcohol and tobacco advertisements within 500 feet
of places of worship and primary and secondary schools. They noted that
over 16,000 billboards nationwide have been voluntarily identified as
``off limits'' for these categories of advertising. As a consequence,
the comments asserted that Government action is unnecessary.
One of the comments stated that the fact that members of an
industry have elected to submit to a code of advertising practices does
not make it reasonable for the government to impose mandatory
advertising restrictions backed by criminal sanctions. It stated that
private parties may voluntarily take actions that the Constitution
forbids the Government to mandate. The comment argued that few
industries would risk any self-regulation if their decision to do so
might establish a predicate for even greater Federal regulation.
Conversely, several comments raised concerns about the voluntary
code and cited numerous examples of violations that continued after the
sponsors and the billboard companies had been informed of the
violations. One

[[Page 44505]]

comment stated that a survey found that in California tobacco
advertising is more prevalent at stores within 1,000 feet of schools
than at stores farther from schools. The comment asserted that
statewide findings also revealed that there is more exterior store
advertising in areas where at least 30 percent of the neighborhood is
18 years old or younger, and that the advertisements are placed near
the candy or at a child's eye view (3 feet or below).
The agency is aware that the Code of Advertising Practices has not
been uniformly observed, as several comments pointed out. Moreover, the
industry code is significantly less inclusive than the proposed
regulation as it covers only billboard advertising and not other forms
of outdoor advertising such as posters and placards. These other forms
are likely to be placed near retail establishments and in some cases,
according to comments, have appeared on school fences. The agency finds
that all outdoor advertising must be included in the regulation in
order to provide comprehensive coverage. There is little difference
between a billboard and a large poster to a child. Both are
advertisements, and both are visible, so that children see them as they
go to and from school and play.
In addition, the Code prohibits outdoor advertising only within 500
feet of schools, an area only a block or a block and a half from the
school (there are 10 to 12 city blocks to a mile). One block will not
provide sufficient protection as it would not cover the areas where
many children congregate with their friends. Moreover, a child's vision
does not stop at one block from school. A prohibition of 1,000 feet
will ensure the absence of signs for 2 to 3 blocks from a school or
playground which can be seen from these locations where children spend
a significant amount of time each day. (Several comments stated that
FDA had misused its math to calculate block distances in its March 20,
1996, Federal Register document (61 FR 11349).) If the misstatement
caused any confusion, the agency regrets it but does not believe that
the one-half block difference undermined the rationale.)
(40) One series of comments supported FDA's 1995 proposal, stating
that the restriction on billboards near schools should not be
compromised, nor the distance reduced.
A number of comments argued that the proposed regulation did not go
far enough. One comment recommended excluding outdoor tobacco
advertising from neighborhoods where children live. Another comment
stated the belief that the ban on billboards should be at least double
the proposed 1,000 feet from schools, while others argued that outdoor
advertising should be prohibited completely.
These comments stressed the importance of billboards and other
outdoor advertising in creating cigarette brand awareness among
children. For example, one comment discussed the results of a survey
conducted for Advertising Age, which showed that 46 percent of children
8 to 13 years old said they most often saw cigarette advertising on
billboards, outpacing magazines. It stated that 34 percent of children
14 to 18 years old cited billboards as the predominant advertising
medium for tobacco products. \204\ The comment stated further that all
billboards, regardless of placement, are seen by significant numbers of
children, therefore, it clearly makes sense that, as a means to protect
children from tobacco advertising, such advertisements should be
prohibited from billboards and other outdoor advertisements. The
comment emphasized its point by quoting from the billboard industry's
own marketing material (``Outdoor: It's not a medium, it's a large''),
``You can't zap it. You can't ignore it * * * It asks little time, but
leaves a long impression.'' The comment stated that the same
publication notes, ``Outdoor is right up there. Day and night. Lurking.
Waiting for another ambush.''
---------------------------------------------------------------------------

\204\ Levin, G., ``Poll Shows Camel Ads are Effective With Kids;
Preteens Best Recognize Brand,'' Advertising Age, p. 12, April 27,
1992.
---------------------------------------------------------------------------

One tobacco company presented evidence of the effectiveness of
billboards in bringing tobacco advertising to children. RJR, in its
comment on the 1995 proposed rule, as stated in section VI.D.3.d. of
this document, attached a study conducted for it to test children's
recognition of advertising characters and slogans (Roper Starch study).
This study involved 1,117 children 10 to 17 years of age, with 86
percent of them recognizing Joe Camel using aided and unaided recall.
When asked where they had seen Joe Camel, 51 percent said on
billboards. \205\ That amount of recall shows that billboards represent
a very effective advertising medium and belies the industry's assertion
that billboards are not an effective source of advertising information
for children.
---------------------------------------------------------------------------

\205\ ``Advertising Character and Slogan Survey,'' pp. 10, 22.
---------------------------------------------------------------------------

Finally, one comment from a public interest group warned that, the
more complex a rule is, the more difficult enforcement becomes. It
stated that spacing limitations, such as the proposed 1,000-foot zone
around schools, begs a series of questions, for example: How is that
distance measured, from what point to what point. It stated that these
questions would make it virtually impossible for citizens to play an
active role in enforcing this rule. The comment stated that without
citizen participation, billboard control is extremely difficult, and
that this situation has, in fact, contributed to the industry's
disregard for local and State billboard control laws.
The agency finds that the comments, as well as the evidence spelled
out in the 1995 proposal, have provided ample support to establish that
outdoor advertising has a significant impact on children and
adolescents. While the comments have presented significant evidence in
support of a ban on all outdoor advertising, the agency is not
convinced that a ban or a restriction on tobacco advertising of more
than 1,000 feet would be appropriate. As discussed elsewhere in this
document, the agency is requiring that all permissible outdoor
advertising be in a black and white, text-only, format. Therefore, some
of the concerns raised by the comments requesting a complete ban on
outdoor tobacco advertising or of expanding the ban are addressed by
that provision. Moreover, the agency's regulations are an attempt to
balance the rights of adults to receive information about a legal
product with its desire to protect children from the unavoidable appeal
of advertising. Thus, although the line could be drawn elsewhere, the
agency finds that the 1,000 feet limitation should ensure adequate
protection from visible advertising where children spend a significant
amount of time but will permit adults to get information.
(41) One comment stated that FDA's action violated the APA because
the agency offered no evidence in support of its claim that children
spend a great deal of time in areas as far as 1,000 feet from the
places specified in Sec. 897.30(b). It added that the justification for
text-only advertising undercuts FDA's justification for its 1,000-foot
ban.
Another comment stated that although tobacco product advertising is
disseminated through a broad spectrum of media, outdoor advertising is
the only such medium that is subject to additional specific
prohibitions under the 1995 proposed rule beyond the

[[Page 44506]]

prohibitions applicable to all tobacco product advertising. It stated
that the record does not contain evidence that would establish either
that these prohibited outdoor advertising signs are viewed more often
by minors than other advertising media, or that outdoor advertising in
general has a greater impact on minors than other media. There is
nothing, the comments argued, that indicates that the mandatory content
restrictions and affirmative disclosure requirements imposed by the
proposal would be less effective in outdoor advertising of tobacco
products than when such an advertisement is placed in a rock and roll
magazine, or in an exempt publication with 1 million adolescent
readers.
One of the comments stated that because the text-only requirement
itself is intended to render the advertising unattractive to young
people, the additional ``protection'' offered by the 1,000-foot rule
would be wholly gratuitous.
Several comments argued that there is no proof that this additional
area of ban will reduce any teenager's desire to use tobacco: a desire
that has withstood the ban of TV and radio advertisements and a massive
educational program. The comment stated that the 1,000-foot rule seems
particularly gratuitous in view of the fact that it would ban
advertising that FDA, by virtue of its proposed text-only requirement,
already has stripped of the features FDA deems make it appealing to
young people.
FDA disagrees with these comments. The agency's bases for the text-
only requirement for billboards and for the 1,000-foot ban are
reasonable and supportable, and they are not in conflict. The text-only
format requirement will reduce the appeal of cigarette and smokeless
tobacco product advertising to persons younger than 18 years of age
without affecting the information conveyed to adults (60 FR 41314 at
41335). It is an attempt to narrowly tailor the restriction by
balancing the need to restrict advertising's appeal to children with
the preservation of the informational function of advertising for
adults.
The prohibition on outdoor advertising within 1,000 feet of schools
and playgrounds is designed to address a different problem. The concern
is not the appeal of the advertising. If the problem were only appeal,
the 1,000-foot restriction would not be necessary because the text-only
requirement would eliminate this concern. The concern is the nature of
billboards themselves. Billboards near schools and playgrounds ensure
that children are exposed to their messages for a prolonged period of
time. As the Supreme Court recognized in Packer Corp. v. Utah, 285 U.S.
105, 110 (1934), billboards are seen without the exercise of choice or
volition, and viewers have the message thrust upon them by all the arts
and devices that skill can produce. This is particularly true of
billboards that are readily visible (i.e., within 1,000 feet) when
children play or study at a playground or school, places where by
design children spend a lot of time, or when children walk to and from
a school or playground. Confronted daily and unavoidably with the
advertised message, even in text-only, a child gets a sense of
familiarity, normalcy and acceptability of the message and the product
that is advertised.
(42) Several comments stated that placing a circle with a radius of
1,000 feet drawn from the perimeter of each school and playground would
establish a ``forbidden zone'' that would be at least 2,000 feet in
diameter (i.e., over one-third of a mile). They stated that in many
communities, this would be tantamount to a de facto ban, for there
would be virtually no outdoor location that could escape the rule's
prohibition.
Several comments pointed out that even if advertisers wanted to
disseminate advertisements on billboards that complied with the FDA
proposal, there would be virtually no locations where such outdoor
advertising signs could be located in some cities. They submitted
results of computer assisted surveys of nine cities showing the areas
where outdoor advertising of tobacco products would be allowed under
the 1995 proposal. The survey showed that outdoor tobacco advertising
would be prohibited in 94 percent and 78 percent of the respective land
mass of Manhattan and Boston under the proposal. The comment stated
that this range approximates the high and low percentages that could be
anticipated in other metropolitan areas in the United States. Moreover,
when it correlated the data collected from the study and other data
regarding the actual location of billboards, the comment found that,
even under the most expansive view, not a single billboard in Manhattan
(including the commercial corridor of Times Square), and no more than
24 actual billboard locations in the entire city of Boston, would be
permitted to display tobacco advertisements.
The comment stated further that even if the rule permits a few
locations where tobacco advertising would be allowed in a given
municipality, there is no commercial utility in a limited number of
outdoor advertising signs where the location of the advertisement is
dictated by the 1,000-foot rule, rather than by market demographics and
vehicle circulation. According to the comments, these latter factors
are what actually control billboard placement. It concluded that, as a
practical matter, FDA's proposed outdoor advertising restrictions would
eliminate billboards as a medium for tobacco advertising even in those
jurisdictions where a small number of such signs theoretically would be
available.
FDA has carefully considered the possibility that its restrictions
effectively outlaw outdoor advertising in most urban areas. The agency
has concluded, however, that if this situation comes to pass, it would
be a consequence of the density of population in cities. FDA's intent
in adopting Sec. 897.30(b) is to restrict the accessible and intrusive
communication of information about cigarettes and smokeless tobacco to
children and adolescents at school and at play. It was not to provide
for distances that would have the effect of banning outdoor signs from
urban areas. By limiting the restriction to 1,000 feet, FDA has tried
to make it no more extensive than necessary to achieve its intended
end. FDA has considered the cost of its restriction but concludes that
a narrower restriction would not adequately advance its purpose of
protecting young people from unavoidable advertising in settings in
which they are essentially a captive audience.
The 1,000-foot restriction on outdoor advertising will serve to
remove what has been shown is an effective means for tobacco companies
to communicate with young people in a direct and unavoidable manner.
Eliminating such billboards will thus mean eliminating a means by which
the industry has influenced young people to engage in tobacco use
behavior. Therefore, the agency concludes that Sec. 897.30(b) is a
necessary part of its effort to reduce underage use of tobacco
products.
Several comments from the tobacco industry and from retailers
pointed out that Sec. 897.30(b) would prevent retail establishments
within the 1,000-foot zone from informing potential customers that
tobacco (or particular brands thereof) are available for purchase
therein and at what prices. These comments stated that this restriction
not only would hurt the retailers but would increase, in turn, the

[[Page 44507]]

search costs for adult smokers. The comments stated that retailers in
the small slivers of a city in which outdoor advertising would continue
to be permitted would be afforded an unfair competitive advantage.
One comment added that convenience stores located within 1,000 feet
of a school or playground would not even be able to put a small black
on white placard on top of a gas pump that merely indicates the price
of tobacco, but that a billboard across the street and located a little
over 1,000 feet away from the same school or playground could carry the
brand name of a tobacco product in black letters as tall as the store's
front door. The comment urged FDA to recognize this distinction.
The agency acknowledges that some retailers may be prohibited from
placing advertising concerning tobacco products on or around their
retail establishments, while others, perhaps just across the street,
can. Any minimum distance that the agency establishes will preclude
some retailers from outdoor advertising at their retail establishments
but not others. However, FDA has determined that it is necessary to
keep outdoor advertising away from areas where children are likely to
congregate daily.
FDA notes that the Supreme Court cases that have considered
restrictions on speech have recognized that such restrictions may not
be perfectly tailored, see, e.g., Board of Trustees of State University
of NY v. Fox, 492 U.S. at 479. Thus, while in a few instances there may
be inequities created by the line FDA has drawn, because there is a
reasonable fit, as explained in section VI.E.1. of this document,
between FDA's ends and the restrictions that it is adopting, these
minor problems do not doom FDA's rule (Id. at 480).
FDA's prohibition on signage on stores within 1,000 feet of schools
and playgrounds will advance the agency's interest in protecting the
health of children. Several of the studies submitted with comments
showed that there is more signage in and around stores near schools and
playgrounds than in stores generally. The ban on outdoor advertising
within 1,000 feet of schools and playgrounds will ensure that signage
near schools will be removed and thus minimize any sense of familiarity
that would develop.
Thus, even though the agency has carefully considered these
comments, it concludes that it is appropriate to establish a minimum
distance from schools and playgrounds within which all outdoor
advertising is prohibited.
(43) A number of comments argued that the prohibition on tobacco
billboards within 1,000 feet of schools violates the Commerce Clause as
recently interpreted by the Supreme Court in United States v. Lopez,
115 S.Ct. 1624 (1995). In Lopez, the Supreme Court held that Congress
lacked the power under the Commerce Clause to criminalize the
possession of a gun within 1,000 feet of a school. One comment argued
that the Congress's commerce power only permits it to regulate, for
example, the interstate transit of advertisements, but that once the
advertisement is within a state, it is private property and not subject
to regulation under the Commerce Clause.
The agency disagrees. Under the Commerce Clause, Congress may
``regulate those activities having a substantial relation to interstate
commerce, * * *, i.e., those activities that substantially affect
interstate commerce.'' (See Lopez, 115 S.Ct. at 1629-30 (citation
omitted).) As the Supreme Court noted in Lopez, ``the possession of a
gun in a local school zone is in no sense an economic activity that
might, through repetition elsewhere, substantially affect any sort of
interstate commerce'' (Id. at 1634; see also id. at 1640 (Kennedy, J.,
concurring)). As all advertising is inherently commercial in that it
proposes a sale, the placement of tobacco billboards in a local school
zone is economic activity that does substantially affect interstate
commerce because it affects the demand for tobacco and smokeless
tobacco. That the advertisements are private property after
transportation in interstate commerce does not alter this analysis.
Indeed, ``[a]ctivities conducted within State lines do not by this fact
alone escape the sweep of the Commerce Clause. Interstate commerce may
be dependent upon them.'' (See United States v. Rock Royal Co-op.,
Inc., 307 U.S. 533, 569 (1939); see also Wickard v. Filburn, 317 U.S.
111, 127-28 (1942) (holding that, under Commerce Clause, Congress could
control farmer's production of wheat for home consumption because
cumulative effect of such consumption by many farmers might alter
supply and demand in interstate wheat market).) As such, regulation of
the placement of billboards advertising tobacco products does not
violate the Commerce Clause. \206\
---------------------------------------------------------------------------

\206\ Moreover, cigarettes and smokeless tobacco products are
nicotine delivery devices. Congress plainly provided for medical
devices to be federally regulated as indicated by the provision
allowing seizure of devices without proof of interstate shipment
(section 304 of the act) (21 U.S.C. 334)) and by a presumption that
devices are in interstate commerce (section 709 of the act (21
U.S.C. 379)).
---------------------------------------------------------------------------

(44) A number of comments argued that Sec. 897.30(b) would violate
the First Amendment. These comments argued that, given the requirement
for black text-only on a white background, the restriction on
billboards within 1,000 feet of schools and playgrounds would not
directly and materially advance a substantial government interest. The
comments also argued that the billboard restriction could not be
considered to be narrowly tailored. One comment from a public interest
group, however, argued that FDA's proposal is fully constitutional
because it is much more limited than the restrictions on billboards
upheld in Penn Advertising v. Mayor and City Council of Baltimore, 63
F.3d 1318 (4th Cir. 1995) vacated, remanded 64 U.S.L.W. 3868 (U.S. July
1, 1996), and Metromedia, Inc. v. San Diego, 453 U.S. 490 (1981). The
comment pointed out that in Metromedia, Inc., the Supreme Court held
that the City's interest in traffic safety and aesthetics were
sufficient to justify a ban on commercial outdoor advertising (453 U.S.
at 551, n. 23). Here, the comment said, the interest that FDA has
asserted is more weighty.
FDA disagrees with the comments that argued that Sec. 897.30(b)
violates the First Amendment. As explained, this restriction does
advance FDA's interest beyond what is accomplished by the text-only
restriction. As explained in sections VI.B. and VI.D. of this document,
the regular exposure of children to tobacco advertising, even in text-
only form, builds a sense of familiarity and acceptability that,
reports and studies say, contributes materially to the decisions of
young people to experiment with and use tobacco products. Thus
restrictions that eliminate such exposure will eliminate one factor
that contributes to the process by which children and adolescents
decide to smoke or use smokeless tobacco and, consequently, will
directly advance FDA's interest.
Moreover, the restriction that FDA is adopting is narrowly tailored
to advance its interest. FDA's concern is with the advertising that can
be seen from schools and playgrounds, the place at which children and
adolescents spend a significant amount of time each day. Three blocks
or 1,000 feet is about the distance at which signs are readily visible.
Thus, FDA has restricted outdoor advertising within this distance of
schools and playgrounds.

[[Page 44508]]

The result of FDA's restriction is that children will not be
confronted with tobacco advertising as they study and play, and thus
there will be a corresponding reduction in the ability of tobacco
advertisers to create the impression of acceptance and familiarity that
is influential with youngsters. Consequently, there is a reasonable fit
between FDA's interest in protecting the health of children and the
restriction on outdoor advertising that it is adopting (see City of
Cincinnati v. Discovery Network, Inc., 507 U.S. at 416; Board of
Trustees of State University of New York v. Fox, 492 U.S. at 480).
Thus, FDA concludes that, in fashioning the restriction on
billboards, it has fully met its obligations under the First Amendment.
In summary, FDA finds that Sec. 897.30(b) will contribute in a
direct and material way to reducing underage tobacco use. The evidence
establishes that billboards are one of the most effective forms of
advertising for young people, and that their elimination near schools
and playgrounds will directly and materially advance FDA's goals.
Studies--A Roper Starch survey submitted by R. J. Reynolds found
that billboards were the most mentioned source of information about Joe
Camel for children (see section VI.D.3.d. of this document), and a
study conducted for Advertising Age (April 27, 1992) discussed in this
section showed that 46 percent of children 8 to 13 and 34 percent of
children 14 to 18 said that billboards are a predominant form of
advertising for tobacco.
Advertising Theory--Billboards near schools and playgrounds give
the child a sense of familiarity, normalcy, and acceptability of the
message on the product. Therefore, regulation of the format and even
the location of some billboards and other outdoor signs within 1,000
feet of a school or playground, is essential. As discussed in this
section, comments submitted in this rulemaking include photographs that
evidence the intrusive effect of billboards and signage around schools
and playgrounds.
Evidence of Children's Visual Range--Data provided by a professor
of biophysics and optometry, detailed in this section, support a
finding that 1,000 feet is an appropriate distance to remove signage
that would be visible and readable to students.
Congressional Finding--As detailed in this section, Congress
mandated a 1,000 foot drug free zone around schools and playgrounds
(Controlled Substances Act (21 U.S.C. 860)) as an appropriate area in
which to protect young people from drug dealing near schools and
playgrounds.
Finally, the agency has tailored the ban as narrowly as possible by
defining playgrounds narrowly and, as noted above, by restricting the
area of the ban to that consistent with children's visual range.
4. Section 897.32(a)--Text-Only Format
Under proposed Sec. 897.32(a), cigarette and smokeless tobacco
product labeling and advertising, as described in Sec. 897.30(a) and
(b), would be required to use black text on a white background and
nothing else. The agency tentatively concluded that this text-only
requirement would reduce the appeal of cigarette and smokeless tobacco
product labeling and advertising to persons younger than 18 years of
age and preserve advertising's informative aspects--that is, to provide
useful information to consumers legally able to purchase these
products.
In response to comments, the agency has decided to permit another
exception to the requirement that all permissible advertising appear in
text-only. Thus, it has created an exception for advertising in adult
facilities that meet the criteria of Sec. 897.16(c)(2)(ii) provided the
advertising is affixed to the wall or fixture in the facility and is
not visible from outside the facility. FDA has added this provision, as
paragraph (a)(1) of Sec. 897.32 and renumbered the exception for adult
publications as Sec. 897.32(a)(2)(i) and (a)(2)(ii).
Several comments suggested that FDA should provide an appropriate
definition of ``text-only'' for permissible audio and video
advertising, specifically static black text on a white background with
no music or sounds. Therefore, proposed Sec. 897.32 has been revised in
consideration of comments received. A new Sec. 897.32(b) has been added
to provide guidance for audio/video advertising. Proposed
Sec. 897.32(b) has been redesignated as (c), and proposed
Sec. 897.32(c) and (d) have been eliminated. New Sec. 897.32(b) has
been added to provide explicit format requirements for one form of
permissible advertising that had been left out of the proposed
regulation. \207\
---------------------------------------------------------------------------

\207\ In addition to the substantive changes made to
Sec. 897.32, the following changes in language have been made: (1)
Addition of ``Except as provided.* * * section,'' to Sec. 897.32(a);
(2) addition of ``any'' to Sec. 897.32(a); (3) amended language in
Sec. 897.32(a)(2) starting with ``any publication'' and ending with
``an adult publication'' and, in the last sentence, ``an adult
publication,''; (4) two changes to Sec. 897.32(a)(2)(i) ``younger
than 18 years of age'' and ``15 percent or less''; and (5) deletion
of ``labeling'' from Sec. 897.32(c).
---------------------------------------------------------------------------

Many comments were received specifically addressing the text-only
proposal. That children and adolescents should not use tobacco products
was the one point of agreement among them. However, many comments from
adult smokers and nonsmokers, retailers, tobacco farmers, elected
officials, and the tobacco, advertising, newspaper, and magazine
industries strongly objected to the text-only requirement. Their major
objections were that: (1) Cigarette advertising does not cause young
people to start smoking; (2) the proposed advertising restrictions
would violate the First Amendment; and (3) the restrictions would have
the effect of a virtual ban on cigarette advertising. Some comments
expressed the concern or suspicion that FDA was using this proposal,
ostensibly directed at minors, as a pretext to try to ban cigarette
advertising generally.
In contrast, nearly three-quarters of the comments--mostly from
parents, teenagers, public health officials, teachers, doctors, public
interest groups, medical organizations, and some individuals in the
advertising business--supported the proposal for text-only
advertisements. The major reason presented for their support was the
need to eliminate the appeal for tobacco that the advertising creates
among children and adolescents. Some supporters urged even stronger
action such as a total ban on all tobacco advertising. Some comments
expressed the opinion that even though the proposed regulations may
also affect adults, any resulting reductions in smoking by adults would
not necessarily be bad.
(45) A number of comments questioned the validity of the evidence
cited by FDA as support for the proposal. Many of these comments came
from groups representing the tobacco, advertising, and publishing
industries. These comments argued that there is no evidence that
advertising with color and images encourages use of tobacco by minors
or that advertising converts nonsmokers or nonchewers into smokers or
chewers. Moreover, these other comments argued that there is no
evidence that limiting advertisements to text-only is essential to
reduce youth smoking and that there is no evidence that black and white
text will reduce underage smoking.
In contrast, a number of supportive comments stated that the
evidence cited by FDA, as well as studies published

[[Page 44509]]

since the proposal, demonstrate the special susceptibility of children
and adolescents to pictures, cartoons, photographs, other graphic
images and colors.
Specifically, many comments observed that the appearance of Joe
Camel in traditional advertising forums (magazines, billboards)
attracts children and adolescents. One child wrote that his father gave
him two sports magazines. ``There were eight smoking ads in them * * *
the last one had two pictures of Joe Camel smoking. This can attract
kids to start smoking.''
Studies cited in the preamble to the 1995 proposed rule and in
section IV.B. of this document, demonstrate the impact that images and
colors, cartoons, and pictures and other graphic material have on
children and adolescents. This does not mean that the same
characteristics of advertising do not appeal to or affect adults.
However, the effect of these techniques on children and adolescents is
magnified because of their usual level of involvement in advertising as
in everything else. \208\ As detailed more fully in section VI.B. of
this document, children and adolescents respond to stimuli that
interest them, and that provides them with information that is
important. Young people do not have the information processing skills
that adults possess, and as a result more often than not, the
information that is relevant to them comes in the form of images and
colors rather than with a lot of words. This fact provides an
explanation why 86 percent of children and adolescents smoke the three
most heavily advertised brands (all are promoted with attractive
imagery), even though they are generally price sensitive. \209\ Adults
buy generic products for price reasons or low tar brands for health
concerns. \210\ Advertising's colorful images are not as relevant to
them as cost. Given these factors, FDA finds that the text-only
requirement will significantly reduce the appeal of cigarette and
smokeless tobacco advertising to young people and reduce its influence
on them.
---------------------------------------------------------------------------

\208\ One such study tested the effect of different forms of
advertising on children and found that they preferred pictures to
text-only. (See Huang, P. P., D. Burton, H. L'Howe, and D. M. Sosin,
``Black-White Differences in Appeal of Cigarette Advertisements
Among Adolescents,'' Tobacco Control, vol. 1, pp. 249-255; 1992.)
\209\ ``Changes in the Cigarette Brand Preferences of Adolescent
Smokers--United States, 1989-1993,'' in MMWR, CDC, DHHS, vol. 43,
pp. 577-581, 1994.
\210\ Teinowitz, I., ``Add RJR to List of Cig Price Cuts,''
Advertising Age, pp. 3, 46, April 26, 1993.
---------------------------------------------------------------------------

(46) Many comments, especially from the magazine, newspaper,
advertising, and tobacco industries, stated that the proposal will
operate as a virtual ban on most types of cigarette and smokeless
tobacco advertisements. These comments argued that the text-only format
requirement will eliminate tobacco companies' ability to attract the
attention of potential customers and to convey brand messages and will
render advertising invisible to adults. Therefore, tobacco advertisers
would be far less likely to advertise in the text-only format. Also,
not having a clear standard for when the text-only requirement applies
(see also definition of adult publication) will cause tobacco
advertisers to avoid more publications than may be necessary to ensure
that they do not violate the rule. Many of these comments also argued
that advertising would become ineffective. One comment said that
advertising that passes unnoticed amounts to no advertising at all.
This comment also asserted that, as a result of the text-only proposal,
no viable alternative channels of communication would exist.
Comments from the tobacco and advertising industry suggested that
the advertising industry would suffer revenue, profit, and job losses
as a result of the text-only format; employees involved in graphics
arts would especially be affected; and suppliers providing services and
products to advertising agencies would also be adversely affected.
A number of comments supporting the proposal recommended a total
ban on all tobacco advertising. Many comments stated that a ban on all
tobacco advertising and marketing would be reasonable because the
tobacco industry will use any available loopholes to market tobacco
products and will test any partial ban.
Tobacco companies will be able to continue advertising in most of
the same forums in a text-only format. Advertising with colors,
pictures, and graphics will still be allowed in adult publications.
Tobacco advertisers will still be able to convey information to adults
about taste, price, and product development using text-only
advertising. Many current advertisements for low tar cigarettes rely
heavily on text formats.
The agency is not limiting fonts, font styles, or size of type
because it believes that the tobacco industry and its advertising firms
can use their creativity with a variety of print formats to produce
text-only advertising that will effectively communicate their messages,
including brand messages, to adults. However, the agency is also
convinced that print advertising, no matter how creative, will not be
able to provide the attractive imagery that young people look for in
advertising to explain the importance of a product to them, e.g., what
to wear, whom to hang out with, how to look cool (see discussion of the
importance of color and imagery in the introduction to this section).
Moreover, although the restriction to text-only advertisements may
tend to solidify market position, it will not give any one company new
competitive advantage over another since all companies must play by the
same rules. Thus, the economic impact of the rule on the advertising
business will be mitigated by a shifting of resources to create new
advertising in compliance with the rule and to advertising for other
businesses (see section XV. of this document entitled ``Analysis of
Impacts'' for more information).
The agency does not support a total ban on all tobacco advertising
as was suggested by a number of comments. The agency has been able to
tailor the restrictions that it is adopting, by requirements such as
the text-only advertisements requirement, to eliminate the appeal of
tobacco advertising for children and adolescents while still allowing a
means for companies to communicate with adult tobacco users. The use of
text-only will mean that there can be continued advertising that is
less likely to attract young people but that can convey information to
adults.
(47) Several comments stated that limiting point of sale
advertising to text-only would effectively ban point of sale
advertising and impair retailers' ability to market tobacco products to
adult customers.
Many comments noted the places one sees (and placement of) Joe
Camel at point of sale, the nature of the items on which his image
appears, and his ubiquitousness in and around stores, as evidence of
the intent of at least one tobacco company to try to attract young
people. A physician commented that he:
recently was returning from an evening [of] helping to care for
[a] patient who was dying of emphysema [a lung ailment caused by
cigarette smoking]. I decided to stop at a convenience store * * * I
was confronted with no less than 14 advertisements for cigarettes.
From the Camel Joe sign beckoning in the parking lot * * * a
customer is bombarded with ads urging them to buy cigarettes.
Another comment stated that ``advertisements on convenience store
doors are placed well below adult eye-level and features such popular
advertising cartoons as Joe and

[[Page 44510]]

Josephine Camel. It seems counter-intuitive to assume that such
advertising is intended for adults.'' Another comment stated, ``Tobacco
companies say they do not want to entice our children to smoke, then
why are Joe Camel ads above the candy counters?'' One comment noted
that at a major retailer near the commenter's neighborhood, Joe Camel
posters are right behind an exhibit of pogs, a popular children's
collectible toy.
Manufacturers and retailers are not prohibited from promoting
tobacco products at the retail level. Adult consumers looking for price
and product information about cigarettes and smokeless tobacco will be
able to find that information by searching even without the images to
attract them. Text-only point of sale advertising, like magazines or
billboards, will be effective in communicating this information. Thus,
FDA is not banning point of sale advertising.
While text-only point of sale advertising can be effective with
adults, it will have less allure and be less appealing to children and
adolescents. Children and adolescents, who are less willing to process
print information in a leisurely setting (such as reading a magazine),
will not find textual material appealing in the momentary time setting
of a retail purchase.
(48) A comment from an advertising industry association stated
that:
* * * FDA's prohibition on all direct mail promotion of tobacco
products except for ``tombstone'' messages * * * is even more
onerous than that imposed on publications, since at least some
publications will be permitted to carry non-tombstone advertising.
The disparate treatment of direct mail exposes the real purpose of
the FDA to censor messages to adults, because that medium by
definition can be addressed to a specific audience, i.e., adults,
with little risk of inadvertent viewing by minors.
This comment also noted that this form of direct advertising is not
insignificant to the industry and given the small likelihood of youth
access to it, should not be severely restricted. The comment noted that
total industry spending on direct mail advertising was $33 million in
1993.
Some comments from mail-order firms noted that the text-only
requirement would adversely affect catalogs for tobacco and related
products, making them less appealing and less effective for marketing
to adult smokers. One comment from the owner of a small (55 employees)
tobacco products manufacturing business said the text-only requirement
for its catalog, along with several other aspects of the 1995 proposed
rule, would destroy his business:
It offends me as a good American running a clean, honest
business that a cadre of bureaucrats in Washington, DC would propose
a rule that could ruin my life's work. FDA has given no more thought
to the impact on my business than I might give to swatting a
mosquito.
A supportive comment stated that the tobacco industry has made
increasing use of direct mail promotions, including contests,
questionnaires, coupons, offers, and even birthday cards. It stated
that no company can be certain its mailing lists do not include minors.
In a 1993 survey of 12 to 17 year olds, 7.6 percent indicated they had
received mail personally addressed to them from a tobacco company. This
could project out to 1.6 million persons aged 12 to 17. This comment
noted that a major tobacco company sent free packs of cigarettes to
people on its mailing list as a holiday present ``from the Camel
family'' and has not changed its practice despite the fact that as many
as 1.6 million 12 to 17 year olds could be on tobacco company mailing
lists.
Direct mail is a high involvement medium, that is, it requires the
recipient to study the text in order to get the central message. In
those circumstances, text-only can be effective with recipients who
have an interest in the offer. There is less of a need to attract a
consumer's attention with a direct mail promotion, including a catalog,
than with a point of sale or magazine advertisement. A consumer opening
a direct mail promotion he/she is interested in is in a high-
involvement mode and is prepared to read the enclosed material and
catalog. Although the material may be more easily ignored, current
tobacco users who want to buy by direct mail can get the information
from textual material.
Mailings in text-only to current customers and to other adult
smokers are permitted under the rule. On the other hand, if a direct
mail promotion or catalog is seen by a child, the text-only format
would make it much less appealing and less interesting. This is
especially important since there is evidence that as many as 1.6
million children aged 12 to 17 receive direct mail tobacco promotions.
Thus, text-only direct mail is important to accomplish the purpose of
this rulemaking. Moreover, contrary to being censorship, as some
comments stated, the text-only format for direct mail will allow
advertisers to send adults an encyclopedia of information about any
aspect of smoking or tobacco products while protecting children from
the effects of advertising.
Although direct mail catalog advertising will be less interesting,
sales should only be minimally affected. As the final rule does not
include a prohibition on mail-order sales, the only restriction will be
the text-only format. In addition, this should be less of an impediment
than a total ban to small mail order company owners such as the
commenter.
This compromise represents the agency's attempt to narrowly tailor
its rule. Based on comments received from the industry, most mail-order
customers purchase tobacco products for price, convenience, and
uniqueness and to stockpile a long term supply. The agency believes
that creative and effective advertising for adults can be designed in
the text-only format for catalogs, especially for catalogs targeted to
consumers purchasing tobacco products for these reasons. Therefore, FDA
is not exempting direct mail promotion of tobacco products from the
text-only requirement.
(49) One comment suggested that FDA create an exception for direct
mail similar to that for publications. The comment said that direct
marketers can target mailings so that children and adolescents are
protected to, at the very least, the same degree that the regulations
provide for the publishing industry.
FDA has considered this request but finds that it cannot grant it.
The agency based the threshold for publications on the ground that
publications with youth readership of less than 15 percent are not of
interest to young people and thus would be unlikely to be read by them.
The same cannot be said of direct mail advertisements that come
addressed with the child's name on it. (As explained in this section,
surveys show that a significant portion of tobacco direct mail
advertising is sent directly to individuals under the age of 18.) The
appearance of the child's name in the address will cause the child to
look at the advertisement and thus will cause the message to be thrust
on the child in a manner similar to messages on billboards or point of
purchase (see Packer Corp. v. Utah, 285 U.S. 105, 110 (1934)). Thus,
direct mail advertising is more similar in nature to billboards and
point of purchase advertising than are publications. Consequently, as
with the former types of advertising, FDA has concluded that to reduce
the appeal of direct mail advertising to those youngsters who view it,
it is appropriate

[[Page 44511]]

to require that this type of advertising be in the text-only format.
(50) A few comments said that in the same way the agency attempted
to carve out an exception for publications with primarily adult
readers, it should permit a similar exception for advertising in bars,
clubs, etc., with customers over 21 years of age.
The agency agrees with these comments. The agency recognizes the
need to precisely tailor its regulations and thus, has created an
exception for advertising in adult only (18 years of age and older)
facilities permitted to sell tobacco products from vending machines and
self-service under Sec. 897.16(c)(2)(ii). These facilities, which are
required to ensure that no one under the age of 18 is present, or
permitted to enter, the facility at any time, may display permissible
advertising, i.e., with color and imagery, provided that the
advertising is not visible from outside the facility and is affixed to
a wall or fixture within the facility. These conditions will ensure
that the advertising does not become a surrogate for outdoor
advertising and is not carried from the facility.
(51) The agency received some comments from opponents and
supporters of the 1995 proposed rule that stated that this provision
might be counterproductive and result in increased demand for
cigarettes and smokeless tobacco by minors. One comment from an
association of advertising agencies stated that a reduction in spending
on cigarette advertising, resulting from the proposal, could make
cigarettes less expensive and increase demand for these products. In
contrast, another comment from a tobacco company stated that reduced
competition due to the text-only restrictions could lead to price
increases for some brands which would harm the adult purchasers of
those brands.
Some comments stated that the health warnings in cigarette
advertising would become less effective in the proposed text-only
format. This consequence could result in fewer people giving up smoking
because of information in the health warnings. Some comments argued
that the text-only format might actually attract more attention from
minors because these advertisements would be so different from most
advertising.
The agency finds that, on balance, the evidence does not support a
conclusion that the text-only requirement will be counterproductive.
This finding is based in part on the contradictory comments regarding
the price of cigarettes. Some comments from the advertising industry
argued that tobacco companies would use the savings from doing less
advertising to reduce the price of cigarettes, which would increase
demand especially among young people who are price sensitive. Other
comments from the tobacco industry argued that the requirement would
reduce competition, which could lead to higher prices for adult
consumers. This conflict points out the speculative, and therefore
unconvincing, nature of the claims that the restrictions will be
counterproductive.
Also, despite concerns expressed by the tobacco industry and others
that the text-only format would make the Surgeon General's health
warning less effective, there is evidence from the focus groups
conducted by the agency that this warning is not very effective with
young people now. \211\ The text-only format will not interfere with
the ability of the Surgeon General's warning to warn adults of the
health hazards of smoking. This format will, however, reduce the appeal
to young people that advertising creates and therefore will lessen the
need for the warning for young people.
---------------------------------------------------------------------------

\211\ Focus group report in administrative record, December 1,
1995, 60 FR 61670.
---------------------------------------------------------------------------

The agency has considered the concern of some comments that the
text-only format will be so unlike most advertising that young people
will be attracted to it. Whatever attraction the novelty has for young
people, the agency has concluded that it should be less than the
attraction of the current imagery in tobacco advertising.
(52) A number of comments, especially from the tobacco industry,
expressed concern about the 1995 proposed rule's adverse impact on
competition. Many comments stated that advertising is critical to
competition, brand choice, and product innovation. Comments from the
tobacco industry stated that the primary purposes of its advertising
are to promote brand competition and to maintain brand loyalty. Many of
these comments argued that the text-only format would stamp out
competition and freeze market shares. Some comments also stated that
the 1995 proposed rule would serve as a barrier to new and improved
products and product innovation, especially to products like lower tar
cigarettes.
Although all firms will be subject to the same rules, some firms
may still gain an advantage by dominant market position or by being
more creative in their text-only advertising or more effective in their
placement of advertising. Tobacco companies will still be able to
advertise in virtually all the same forums they use now, but companies
may gain competitive advantages by developing new marketing techniques
aimed at adults that are within the rules. All industries have to adapt
to changing competitive circumstances, whether caused by government
regulations, demanded by the public, self-imposed as in professional
sports, affected by international competition and changing
technologies, or in reaction to changes in consumer preferences.
Creative companies can succeed by adapting better than their
competitors within the new framework.
Additionally, these advertising restrictions could make it more
difficult for a new competitive tobacco company to be formed and to
enter the market. But, there are much greater barriers to entry for a
new firm in terms of the nature of the tobacco business, capital
requirements, and the existing large firms already in the business.
Nevertheless, to the extent that the regulations do produce
anticompetitive effects, these are outweighed by the public health
benefits of the rule.
Finally, information on new products and on product innovations
need not be ``stamped out.'' This kind of information can be conveyed
in the text-only format. One example of a new product that the tobacco
industry claims might not have been developed if this rule had been in
effect is the low tar cigarette. Yet advertising for low tar brands
tends to use much more text than regular brands because the information
is factual and specific. Therefore, the agency continues to find the
text-only requirement to be an appropriately tailored remedy.
(53) Comments offered differing views on the function of
advertising. Some stated that imagery is necessary to attract and hold
the attention of adult smokers in order to convey useful information
about the product and to effectively differentiate brands, while others
saw images as being too appealing to children. These latter comments
argued that FDA's rule is seeking to regulate only the presentation of
the advertising that attracts children (the imagery), not its content.
One small business owner said the proposed ban on imagery would
make established advertising logos with pictures worthless, not just
for the major tobacco companies but also for small firms in tobacco
related businesses. Others stated that the 1995 proposed

[[Page 44512]]

rule is not strong enough. One comment said that FDA is mistaken in
asserting that the black and white text format removes imagery and
emotive content from the advertisement. It said that the regulation
should also limit the type styles, font sizes, and shapes of borders
and letters.
The agency continues to believe that it has created an
appropriately tailored remedy. The tobacco and advertising industries
argue that FDA's ban on imagery and color is overinclusive and not
narrowly tailored. FDA disagrees, however. The restriction on the use
of images and color preserves informational advertising because of its
utility to adults while eliminating the aspects of advertising that are
most attractive to young people. The agency is regulating only the
manner in which advertising is presented, not the information contained
in it. Also, the agency is allowing imagery in advertising in adult
publications.
There is undoubtedly an impact on businesses that have established
logos, pictures, and other graphics associated with their businesses or
products. However, all businesses are subject to the same requirements,
and thus no one business should receive any competitive advantage.
The agency does not agree with comments recommending restrictions
on type styles, fonts, etc. Such a restriction on advertising is, given
the currently available evidence, more restrictive than necessary.
Text-only advertising should be sufficient to reduce the appeal of
advertising based on imagery to children and adolescents, however
creatively the text is displayed. The agency concludes that the
elimination of imagery and color directly and materially advances its
interest in protecting the health of young people by making tobacco
advertising much less appealing to them and, therefore, it makes it
less likely that they will be influenced to use tobacco products.
(54) Several comments requested that FDA provide specific
regulation for audio and video formats. Specifically, the comments
requested that audio be confined to a text-only format appropriate for
audio (words) unaccompanied by music or sound and that video be limited
to black text on a white background only. Restrictions, such as these,
the comments continued, would apply the spirit of the text-only format
to these media. Finally, one comment expressed the concern that without
these restrictions, tobacco companies might create and disseminate
music tapes, similar to one distributed by RJR with music by ``The Hard
Pack.'' This would, the comment stated, provide aural imagery for young
people.
The agency agrees that it should provide more specific guidance for
permissible audio and video media and that this guidance should be a
logical application of the text-only requirement. Therefore, the agency
has amended Sec. 897.32 to add a new paragraph (b), which requires
text-only black and white text in video advertising, which should be
static, and text-only, no music, in audio advertisements.
(55) Several comments challenged FDA's proposal to limit most
advertising to the use of the text-only, black print on white
background format on the grounds that this limitation would violate the
First Amendment. These comments relied most heavily on three cases:
Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626 (1985), in
which the Supreme Court struck down a restriction on the use of
pictures in attorney advertising; Shapero v. Kentucky Bar Association,
486 U.S. 466 (1988), in which the Supreme Court held that the State may
not restrict lawyer solicitations to those least likely to be read by
the recipient; and In re R. M. J., 455 U.S. 191 (1984), a case in which
the Court struck down a requirement that lawyers use a fixed format in
their advertising. One comment, however, argued that FDA's restriction
is fully consistent with the First Amendment.
In Zauderer v. Office of Disciplinary Counsel, 471 U.S. at 647, the
Supreme Court said that ``the burden is on the State to present a
substantial governmental interest justifying the restriction * * * and
to demonstrate that the restriction vindicates that interest through
[narrowly tailored] means.'' \212\ FDA will apply this test here.
---------------------------------------------------------------------------

\212\ Zauderer actually states ``* * * through the least
restrictive available means.'' However, in Board of Trustees of
State University of N.Y. v. Fox, 492 U.S. at 479-481, the Court
clarified this phrase as requiring narrowly tailored means.
---------------------------------------------------------------------------

As explained in section VI.C.4. of this document, FDA has not
merely a substantial, but a compelling, interest in the health of
minors. It is this interest that led it to propose the restriction on
the use of images and color in cigarette and smokeless tobacco
advertising.
Several comments argued, however, that the restriction on images
and color do not further FDA's interest. These comments argued that
there is no evidence that the use of color and images in advertising
increases tobacco use among young people.
FDA has fully addressed this assertion. The available evidence
demonstrates that pictures and colors have particular appeal to
children and adolescents under 18 years of age, and that they are more
important to underage individuals than other aspects of the
advertisement. \213\ Young people pay attention to peripheral cues in
an advertisement, such as the models that appear in them, color, and
scenery, and it is these components that tobacco advertisers use to
create the images that are so important to people under the age of 18.
Thus, the restriction on images and colors will have a particular
effect on the appeal of advertisements to young people and make these
advertisements a significantly less effective means of communicating to
this group.
---------------------------------------------------------------------------

\213\ See, e.g., Petty, R. E., and J. T. Cacioppo, Communication
and Persuasion: Central and Peripheral Routes to Attitude Change,
Springer-Verlag, New York, 1986.
---------------------------------------------------------------------------

(56) Several comments also argued that FDA's restriction on the use
of colors and images is not narrowly tailored, pointing to the fact
that the agency proposed to eliminate the use of all visual images and
graphic designs in cigarette and smokeless tobacco advertisements.
These comments misinterpret the rule. FDA has not restricted all
use of color and images. FDA has provided that these mechanisms may
continue to be used in publications with primarily adult readership and
in adult-only establishments. The agency has endeavored to restrict as
little speech as possible. FDA has found, however, that it could not
limit the appeal of cigarette and smokeless tobacco advertising to the
young if it did not restrict the use of image and color.
Each of the cases relied upon by the comments is fundamentally
distinguishable from the current situation. In each of these cases, the
body seeking to restrict the advertising in question failed to present
any evidence that the restriction was addressing an actual harm (see
Zauderer, 471 U.S. at 648-649; Shapero, 486 U.S. at 479-80; (see also
Florida Bar v. Went For It, Inc., 115 S.Ct. at 2378 (``Finally, the
State in Shapero assembled no evidence attempting to demonstrate any
actual harm caused by targeted direct mail.''); In re R. M. J., 455
U.S. at 206). Here, in contrast, the record fully establishes the
reality of the harm, and that FDA's interest will be directly and
materially advanced by the

[[Page 44513]]

restriction on colors and images. For these reasons, FDA finds no merit
to these comments.
In summary, FDA finds that the evidence amassed during this
investigation and provided by comments provides ample support for its
requirement that all forms of advertising that children see and are
exposed to can have an effect upon their attitudes about tobacco use.
The empirical studies and surveys, expert opinion, anecdotal
evidence, industry statements, and consensus report described in
section VI.D.5. of this document implicate advertising as an important
source of information for young people's attitudes about, and use of,
tobacco products. This evidence shows that any regulation that hopes to
be successful must be comprehensive and include some type of
restriction upon all forms of advertising and promotions. FDA's
regulation provides restrictions that will contribute directly and
materially to that end but that are tailored as narrowly as possible.
Except in the limited case of outdoor advertising within 1,000 feet of
schools, no informational advertising will be disturbed. However, those
aspects of advertising that have particular appeal to young people will
be banned.
Color and Imagery--Color and imagery are necessary ingredients for
advertising in conditions of ``low involvement,'' such as occurs when
skimming a magazine or seeing a billboard (see sections VI.B.1.b. and
VI.B.1 c. of this document).
FDA's restriction will eliminate the color and imagery but will
permit information to be communicated. This requirement is as important
for in-store advertising, billboards, and direct mail, as it is for
traditional publications. As discussed in this section, young people
get their information and product imagery from all these sources: (1)
Point of sale advertising confronts young people when they go to make a
purchase. The imagery is as large as life and presents the child with
an enticement at the time when purchase is immediately available. It
can as effectively impart information to adults with words. (2) Direct
mail can frequently wind up in the hands of a young person or be
addressed personally to the child or adolescent. One study found that
7.6 percent of children 12 to 17 years questioned had received mail
personally addressed to them from a tobacco company (1.6 million
teens).
Billboards--Billboards provide a major source of information about
tobacco for young people. One study published in Advertising Age (April
27, 1992), found that 46 percent of children 8 to 13 years old and 34
percent of children 14 to 18 cited billboards as the predominant
advertising medium for tobacco products (see section VI.E.3. of this
document). The Starch Survey conducted for R.J. Reynolds found that 51
percent of children 10 to 17 who recognized Joe Camel as a tobacco
mascot, reported seeing him on billboards (see section VI.D.3.d. of
this document).
Cross-Country and International Studies--Studies described evidence
that regulations that are stringent and comprehensive will have a
greater impact on overall tobacco use and young people's use than
weaker or less comprehensive ones (see section VI.D.6.a. of this
document). The text-only requirement, while not as stringent as a ban,
will accomplish its purpose while preserving the informational function
of advertising.
Finally, the regulation is narrowly tailored. It permits adult
publications and adult locations to display advertising with images and
colors. The agency has attempted to define these venues with as much
precision as possible but recognizes that there may be some
difficulties in application. It, therefore, has made it clear that it
will work with the industry to try to establish as clear rules as
possible. In-store, outdoor, and direct mail advertising do not lend
themselves to such tailoring. Nonetheless, the agency is confident that
adults seeking information about products can be adequately informed at
time of purchase or by mail order catalogue using text-only.
5. Section 897.32(a)--Definition of ``Adult Publication''
The preamble to the 1995 proposed rule explained that the agency
was interested in permitting advertising in publications that are read
primarily by adults to continue to use imagery and color. For that
reason, under proposed Sec. 897.32(a), advertisements in publications
with primarily adult readership would not be restricted to a text-only
format. The agency proposed to define such publications as those: (1)
Whose readers age 18 or older constitute 85 percent or more of the
publication's total readership, \214\ or (2) that are read by fewer
than 2 million people under the age of 18, whichever method ensures the
fewest young readers. The agency defined the readership of a
publication as the total number of people that read any given copy of
that publication and stated in the preamble that it should be measured
according to industry standards and, at a minimum, by asking a
nationally projectable survey of people what publications they read or
looked at during any given time. The preamble to the 1995 proposed rule
noted that a reader is one who said that he or she read the last issue
of a publication. The 1995 proposed rule provided that before
disseminating advertising containing images and colors, it would be the
company's obligation to establish that the publication meets the
criteria for a primarily adult readership.
---------------------------------------------------------------------------

\214\ This portion of the definition was edited in the final
rule to make the two provisions parallel. Thus, Sec. 897.32(a)(2)(i)
now reads, ``whose readers younger than 18 years of age constitute
15 percent or less of the total readership as measured by competent
and reliable survey evidence.''
---------------------------------------------------------------------------

Numerous comments were received by the agency regarding the
exception from the text-only requirement for adult publications and the
definition of an adult publication. Comments from the newspaper,
magazine, and advertising industries were particularly critical of the
readership thresholds chosen for the definition of an adult publication
and were especially concerned about whether there would be any reliable
and practical way to determine readership levels for most publications.
Many comments from individuals who supported the text-only requirement
saw this exception as a possible loophole for the tobacco industry to
escape the text-only restrictions.
In a notice published in the Federal Register of March 20, 1996 (61
FR 11349), the agency reopened the comment period to place on the
public record a memorandum that provided further explanation of the
agency's proposal to exempt publications with primarily adult
readership from the text-only requirement. The document provided an
additional 30 days to comment on this new information. The memorandum
stated that the agency had selected the 85 percent per 2-million
threshold based on the public perception that certain magazines are
likely to be of interest to young people under the age of 18. The
agency extrapolated from the readership percentages for those
publications to the proposed threshold levels. Data supporting this
line had been placed in the administrative record for the proposed rule
(vol. 105, document 1550) and additional readership data was

[[Page 44514]]

provided during the comment period. The agency noted additionally that
at some point the number of underage readers is so great that the
publication can no longer be considered to be of no interest to those
under 18, regardless of the percentage of the readership. The agency
selected 2,000,000 as that level. \215\
---------------------------------------------------------------------------

\215\ See section XV. of this document, Analysis of Impacts, for
a discussion of publications that would be affected.
---------------------------------------------------------------------------

(57) Some comments objected to the proposed readership thresholds,
calling them arbitrary and stating that FDA provided no basis, no
rational justification, and no evidence for them. One tobacco industry
comment stated that it used an FTC methodology based on readership and
the number of pages of advertising to conclude that magazines with
greater readership by minors tend to have less cigarette advertising
than other publications.
Some comments also objected to the 2 million minor readers
threshold because it would subject some adult-oriented magazines to the
tombstone format even though their percentage of minor readers is very
low. One comment cited the following examples and readership figures:
People Magazine (3,020,000 minors: 7.8 percent of all readers) and
Better Homes and Gardens (2,042,000 minors: 5.5 percent of all
readers); Time (1,972,000 minors; 7.66 percent of all readers) and
Newsweek (1,911,000 minors; 8.01 percent of all readers) are also close
to the threshold. In addition, some comments suggested that FDA's
explanation that 2,000,000 is a large number is not adequate basis for
regulation.
Some comments stated that the proposed thresholds were unfair to
the up to 85 percent, or more in some cases, of a publication's readers
who were adults. ``Such a regulation is inconsistent with the principle
that the government may not 'reduce the adult population * * * to
reading only what is fit for children.'''
In contrast, comments supporting the proposal stated that just
because the line (i.e., thresholds) could be drawn differently was not
important as long as FDA can rationally explain why it drew the line
where it did. One comment suggested that FDA should require the text-
only format in the 10 most read magazines by young people in addition
to the present proposal. Some comments recommended requiring the text-
only format for advertisements in all publications.
One comment stated that no tobacco advertising, even text-only,
should be allowed whatsoever in publications with youth readership, and
adult publications should have text-only tobacco advertisements. This
comment also said that the agency should monitor this exception to
ensure that tobacco companies don't increase advertising in national
adult publications that are widely read by the entire family including
children and adolescents and to be wary of tobacco companies creating
their own adult publications saturated with tobacco advertising.
Other comments supporting the proposal stated that some degree of
overinclusiveness is acceptable and expected because of the
difficulties in fine-tuning any regulation. Other comments saw any
exception for any publications as a potential loophole that could be
used by tobacco companies to continue using imagery in advertising.
They said that experience in other countries with tobacco advertising
restrictions showed that ``the tobacco industry used all of its
creativity to manipulate the system to take advantage of whatever
opportunities were still available to reach their target audience,
particularly young, impressionable individuals.''
The comments received, especially from the magazine and newspaper
industries, made clear that both defining an adult publication and
determining whether a particular publication meets the definition are
difficult issues. However, while these comments were helpful in
pointing out the difficulty of defining an adult publication, they did
not offer any realistic alternative definition in terms of a
readership-by-minors threshold. Because of the concern about tobacco
use by children and adolescents, which was voiced by virtually all
comments pro or con, the agency believes it has sufficient evidence to
justify a text-only requirement. However, the agency's concern is with
advertising that affects minors and with tailoring the restrictions in
this final rule to burden as little speech as possible. Therefore, FDA
concludes that an exception from the text-only requirement for
publications that are read primarily by adults is still reasonable and
feasible.
The agency has decided to retain the exception for adult
publications and to retain the readership thresholds in this final
rule. The 15 percent young readers threshold is reasonable based on
readership data submitted with comments. The 15 percent threshold would
require text-only advertising in the following sports and racing
magazines: Sports Illustrated (18 percent), Car and Driver (18.3
percent), Motor Trend (22.1), and Road & Track (20.6 percent) and in
the following general circulation magazines: Rolling Stone (18.5
percent), Vogue (18 percent), Mademoiselle (19.7 percent), and Glamour
(17.1 percent). \216\ The agency's judgment is based on common public
perception that these are the types of magazines that young people
under the age of 18 will find of interest and read. Thus, based on
public perceptions and inductively given the nature of the magazines
involved, FDA finds a 15 percent cut-off to be appropriate.
---------------------------------------------------------------------------

\216\ Barents Group, LLC, citing Publishers Information Bureau
and Mediamark Research, Inc., pp. 53-54.
---------------------------------------------------------------------------

The 2 million number is justified based upon the agency's concern
for young people. The agency finds that at some point, the number of
underage readers is so great that the magazine can no longer be
considered to not be of interest to children and adolescents under 18
years of age. This threshold would require text-only advertising in a
publication like People, where the percentage of readers who are minors
is only 7.8 percent, but where the number of readers under 18 years of
age is 3,020,000. Publications like Time, Newsweek, Family Circle, and
Popular Mechanics, however, would not be subject to the text-only
format under either threshold; based on how these publications are
affected, FDA concludes that, on balance, the thresholds are
reasonable. \217\ The agency's concern is not with the ``intended''
audience of the publication because there is no magic curtain between
the interests of young adults and adolescents. The agency's concern is
to protect children from the appeal of advertising that they cannot
avoid. Fifteen percent youth readership or 2 million young readers
narrowly addresses this concern.
---------------------------------------------------------------------------

\217\ Id.
---------------------------------------------------------------------------

The agency does not agree with comments that the rule should be
made more restrictive by, for example, allowing only text-only
advertising in adult publications and no advertising at all in other
publications. The text-only format will reduce the appeal of tobacco
advertising to young people while allowing communication of important
information to adults. The agency will continue to monitor the effect
on young people of text-only advertising as well as the exception
created for adult publications and will consider taking any additional
action that is appropriate.

[[Page 44515]]

Finally, the agency finds no basis to the comments' concern that
the regulations will reduce the reading level of adults to those of
children. The agency has crafted the exception for adult publications
specifically to minimize the effect of the regulations on adults.
Moreover, text-only, or the absence of color and imagery, will have
significantly less impact on adults than on young people. As discussed
more fully in the introduction to this section, adults generally have
more capacity to engage in high involvement search than do young
people. Furthermore, full information will be available to them in the
text format. The First Amendment demands no more.
(58) Several comments recognized that FDA made the March 20, 1996,
Federal Register document and the associated data in the record
publicly available to meet its obligation under the APA to provide
interested parties with an opportunity to comment meaningfully on the
proposed rule. These comments stated, however, that one of the
memoranda, dated March 11, 1996, placed on the public record by the
Federal Register document makes clear that FDA had readership numbers
in mind when it developed the proposal, but that the agency had failed
to disclose those numbers to the public. The comments said that these
numbers are neither reflected in the memorandum added to the record in
the March 20, 1996, Federal Register document nor the administrative
record that FDA has made publicly available. The comments said that the
memorandum in question refers to readership numbers that were in
comments submitted by the tobacco industry, and thus these numbers
could not have been the numbers that FDA considered in developing its
proposal. The comments said that FDA's failure to disclose this
information rendered the proceeding arbitrary and capricious.
These comments are in error. FDA placed the information that it
relied upon in developing the tentative 15-percent threshold on public
display at approximately the time that it published the proposed rule.
The data appear at pages 95T030074-75 of the administrative record
(vol. 105, number 1550). (The numbers are similar but not identical to
those supplied by the industry.) As one comment pointed out, in
Connecticut Light and Power Co. v. Nuclear Reg Com'n., 673 F.2d 525,
530 (D.C. Cir.), cert. denied 459 U.S. 835 (1982), the United States
Court of Appeals for the District of Columbia Circuit stated, ``In
order to allow for useful criticism, it is especially important for the
agency to identify and make available technical studies and data that
it has employed in reaching the decisions to propose particular
rules.'' The agency fully complied with this expectation by including
the data that it had reviewed in the material that it made publicly
available. Thus, the agency finds the claims in the comments summarized
here to be without any basis in fact.
(59) Several comments asserted that the memorandum added to the
record in the March 20, 1996, Federal Register document did not provide
a reasoned explanation for the threshold that FDA had proposed. Several
comments argued that there is no principle in, or discernible from, the
memorandum that leads to the choice of 15 percent, as opposed to 49
percent, as the ceiling for the percentage of underage readers a
publication could have and still be considered primarily adult. One
comment said that FDA's reasoning was circular. Other comments said
that FDA had pointed to no facts in the March 20, 1996, Federal
Register document or the attendant memorandum that supports its
judgment. These comments stated that FDA merely applied an arbitrarily
chosen 15 percent figure to readership data and concluded that it had
hit the right number. Some comments questioned why a publication with
84 percent adult readership was problematic, while a publication with
86 percent adult readership was not. Of all the comments that
criticized FDA's proposed threshold, only one provided any alternative.
This comment cited the tobacco industry's voluntary Cigarette
Advertising and Promotion Code, Advertising 1(a), which prohibits
advertising in publications directed primarily to those under 21 years
of age.
In contrast to the foregoing comments, which were from the tobacco
and advertising industries, a comment from a coalition of groups
concerned about smoking and health stated that the agency's tentative
judgment was unbiased, reasonable, and narrowly tailored to meet FDA's
stated goal of limiting the specific forms of advertising that have the
greatest impact on children to those publications that do not have a
regular heavy readership of children.
FDA has carefully reviewed these comments. Based on this review,
FDA first considered whether its March 20, 1996, Federal Register
document and the memorandum added to the record under that notice had
adequately explained the basis for the proposed threshold.
The legislative history of the APA states that agency notice must
be sufficient to fairly apprise interested parties of the issues
involved, so that they may present responsive data or arguments thereto
(S. Doc. 248, 79th Cong., 2d sess. 200 (1946)). The notice must
disclose in detail the thinking that has animated the form of the
proposed rule and the data on which that rule is based. (See Home Box
Office, Inc. v. FCC, 567 F.2d 9 (D.C. Cir. 1977).) In Connecticut Light
& Power v. Nuclear Reg. Com'n, 673 F.2d at 530, the court held that a
notice of proposed rulemaking should provide an accurate picture of the
agency's reasoning, so that interested persons may comment meaningfully
on the proposed rule.
The March 20, 1996, Federal Register document and the associated
data in the record clearly meet this standard. As stated in this
section, FDA made clear that its tentative judgment was based on a
review of available data (from Simons Market Research) on the
readership profiles of various publications. By dividing the
publications based on whether, in the FDA employees' experience, the
publications were publicly perceived as being of interest to minors or
not and then examining readership information on each publication, FDA
employees found that the publications that were viewed as being of
interest to young people had readerships that included individuals
under the age of 18 at a level of 15 percent or higher. FDA also found
that the information on additional publications that it received during
the comment period produced results that were consistent with the
pattern that emerged from its initial review. \218\
---------------------------------------------------------------------------

\218\ See memorandum of March 11, 1996, added to the
administrative record in the March 20, 1996, Federal Register.
---------------------------------------------------------------------------

Thus, FDA's reasoning is not circular. FDA based the threshold on
its tentative finding, from the work that its employees had done, that
the publications viewed as of interest to young people had readerships
that were more than 15 percent under 18. Significantly, while the
comments of the tobacco and advertising industry disagreed with the
basis for the proposed threshold in various ways, none presented any
data showing that publications with a youth readership of 15 percent or
more are not viewed by consumers as of interest to young people.
It is important to keep in mind that the purpose of the threshold
is to ensure

[[Page 44516]]

that no more speech than necessary is burdened by FDA's restriction on
advertising. Given that FDA wants to ensure that its restriction is as
narrowly tailored as possible, in response to the criticisms in the
comments, FDA considered whether there was a more appropriate basis on
which to craft the restriction. Unfortunately, the comments criticizing
the proposal were not helpful. The only suggested alternative to the
proposed threshold that they put forward was the provision in the Code.
This provision is inadequate on its face, however, because it is based
on a minimum age of 21, rather than 18, which is the minimum provided
in the laws of all the States and section 1926 of the PHS Act.
Moreover, the comment that suggested this alternative gave no
indication of how the age group to which a publication is primarily
directed would be determined.
As a matter of common sense, FDA focused on the percentage of
readers under the age of 18 in the general population and on comparing
that percentage to the percentage of readers under 18 years of age for
a particular publication. Certain conclusions can logically be drawn on
the basis of such a comparison. If the percentage of young readers of a
publication is greater than the percentage of young people in the
general population, the publication can be viewed as having particular
appeal to young readers. A publication with a youth readership
percentage that is approximately equal to the percentage of young
people in the general population can be viewed as one of general
appeal, including appeal to young readers. A publication with a lower
percentage of young readers than in the general population, however,
would obviously be one of limited appeal to young people, and thus one
that could appropriately be considered of interest primarily to adults.
Given the logic of this approach, FDA turned to the U.S. census.
What the agency found is that young people between the ages of 5 and 17
constitute approximately 15 percent of the U.S. population. \219\ Since
this percentage is the same as the one that FDA used in developing the
proposal, this approach fully supports the approach that FDA proposed.
(Although 5 and 6 year olds may not be reading magazines, utilizing
this age group builds in a margin for error.) It ratifies the judgments
that FDA employees made in arriving at the proposed threshold.
---------------------------------------------------------------------------

\219\ U.S. Bureau of the Census, Population Paper Listing 21,
1994.
---------------------------------------------------------------------------

Some may assert that it is mere coincidence that the two approaches
produce the same result. FDA disagrees. The congruence of the two
approaches, the FDA employee anecdotal search and the use of the census
data, is attributable to the basic validity of the premise underlying
FDA's initial approach. Magazines have reputations as to the audiences
to which they appeal, and those reputations are generally earned based
on the nature of their contents. Thus, contrary to the assertions in
some of the comments, the 15 percent threshold is well-supported and
appropriate.
As for the question as to why a publication with 84 percent adult
readership would be problematic, while a publication with 86 percent
adult readership would not, the agency turns to the case law on narrow
tailoring, which is, as stated in section VI.E. of this document, what
this exercise is about. In Board of Trustees of State University of
N.Y. v. Fox, the Supreme Court stated:
In sum, while we have insisted that ``the free flow of
commercial information is valuable enough to justify would-be
regulators the costs of distinguishing * * * the harmless from the
harmful,'' * * * we have not gone so far as to impose upon them the
burden of demonstrating that the distinguishment is 100% complete,
or that the manner of restriction is absolutely the least severe
that will achieve the desired end. What our decisions require is a
``fit between the legislature's ends and the means to accomplish
those ends,'' * * * --a fit that is not necessarily perfect but
reasonable * * *.
(492 U.S. at 480 (citations omitted))
FDA has done its best to distinguish publications that are likely
to be read by children and adolescents from those that are not. FDA
finds that, if its restriction on advertising is to be meaningful, it
must be based on a line that is enforceable. While only 2 percentage
points separate a publication with 84 percent adult readership from one
with 86 percent (although those 2 percentage points can mean a
difference of tens of thousands of youngsters), the underrepresentation
of underage readers in the readership of the latter publication
establishes its limited appeal to young readers, and thus that it is
less likely to be read by them.
For the foregoing reasons, FDA is adopting the 15-percent
threshold.
(60) Comments from an association of magazine publishers and others
expressed a number of concerns about the adequacy of current data for
determining whether a publication met the definition of an adult
publication. Some comments said that current data and methodology to
determine youth readership, while adequate for marketing purposes, are
totally inadequate to justify their use as measuring devices for the
imposition of criminal or civil liability on the exercise of First
Amendment rights. These comments noted that the vast majority of
magazines do not subscribe to either adult or youth surveys. Two
comments stated that only about 2 percent of all magazines participate
in the two major adult audience surveys. One comment stated that
participation in the youth readership surveys, Simmons's STARS and
MediaMark Research Inc.'s (MRI's) TEENMARK, is even more limited, just
over one-half of one percent of all magazines.
One comment noted that to comply with the 1995 proposed rule,
publications must identify readers of all ages but that current
audience measurement systems do not provide this comprehensive coverage
especially for readers younger than 12 years of age. Another comment
noted that since the survey organizations do not survey individuals on
college campuses, in the armed services, or in institutional settings,
adult readership would be underestimated. Several comments noted the
difficulty in determining readership data for any one issue of a
magazine. Another comment noted that multi-issue advertisements would
be a problem for publications right around the threshold if the
publication crosses back and forth.
Several comments noted that the survey organizations would have to
make substantial methodological changes to the surveys to meet the 1995
proposed rule's standard. One comment said that some problems would
include adding magazines to the surveys, and dealing with unreliable
results. Another comment asked who would decide the research design for
the surveys since different research methodologies could be competent
and reliable yet result in different conclusions. Another comment said
that it could be prohibitively expensive to increase audience samples
to create a legally enforceable standard, and that changes to audience
measurement procedures could undermine the usefulness of the surveys
for their designed marketing information purpose.
One supporting comment from an association of addiction specialists
stated that ``the agency should require the industry to monitor with
surveys of ad recall (correlated with tobacco use

[[Page 44517]]

and intention to use patterns) among the population under age 18 years
to help the agency understand the extent to which image-based messages
continue to reach the young.''
One comment pointed out that it would be virtually impossible to
determine a legally enforceable standard for the 15 percent youth
readership threshold since there is substantial variation in audience
estimates between survey organizations and over time. Several comments
noted that FDA's definition of a reader is not consistent with the
definition used by Simmons and MRI.
Some comments suggested that a more realistic measure of who reads
a publication would be who subscribes to it. Other comments opposed
this alternative stating that the key criteria should be regular
readership, not paid subscribers. One comment said that ``[t]his
alteration of the proposed exemption would destroy the intent and
purpose of the advertising limitation.''
Several comments said that the proposal would violate due process
by punishing publishers or advertisers who are unable to determine
whether their conduct violates the law because the survey data are not
sufficiently comprehensive and reliable. Several comments, including
one from an association of newspaper publishers, expressed concern
about who would determine readership. One comment asked whether a
newspaper would be subject to criminal liability based on readership
data it supplies, and whether the responsibility for ascertaining
whether a publication qualifies as an adult publication would be on
those running the advertisements.
The agency recognizes the limitations of current readership data
and the difficulties of using current readership surveys to meet the
requirements of this rule. However, the agency concludes that the
exception from the text-only format for adult publications is feasible
as well as reasonable. First of all, the burden of proof for
determining youth readership is placed by the rule on the tobacco
company doing the advertising, not on the publication or the
advertising agency. Under Sec. 897.32(a)(2), the tobacco company will
need to be able to demonstrate that a publication in which it is
running an advertisement with images and colors meets the definition of
an adult publication. Therefore, only the tobacco company will be
subject to any penalties for improperly placing advertisements, even if
it used data provided by the publication as part of its determination.
Second, either of the two methodologies can be used to measure
readership. In addition, the agency has modified Sec. 897.32(a)(1) and
(a)(2) to make clear that any other competent and reliable private
sector survey evidence may be used. A tobacco company may use one of
the two major customary and reasonable readership surveys (such as MRI
and Simmons). The agency does not believe that there is only one
acceptable methodology. The agency is willing to accept the standard
methodology currently used by MRI and Simmons as evidence. Moreover,
the agency is willing to use the age range of 12 to 17, which appears
to be the current standard for defining youth, in determining youth
readership.
If a particular publication is not currently covered by one of the
major surveys, it is the tobacco company's responsibility to develop
the readership data necessary to justify a decision to advertise in
that publication. The company could request a survey by one of the
major survey firms, or it could develop an acceptable alternative. In
either case, the agency will be available to work with the company. The
company will always have the alternative to advertise in any
publication in the text-only format.
The agency also acknowledges the difficulty in determining the
youth readership for any particular issue of a publication. Thus, data
from a survey for the most recent issues of a publication can serve as
proof of readership for comparable upcoming issues unless a particular
upcoming issue is being targeted at younger readers. The survey
schedule used by the major survey organizations would be acceptable to
the agency. A tobacco company could utilize a more frequent survey
schedule if it believed the readership had changed in its favor. A
rolling average of a certain number of issues could be used, for
example, to determine youth readership. The problem of multi-issue
contracts for advertising could be solved by a survey for a comparable
period of time (e.g., winter months) preceding the contract.
The agency is willing to accept the definitions of a reader that
are customarily used by the major survey organizations. The agency does
not agree that using subscribers to a publication in lieu of readers is
a better measure. Many children who read a publication will not be
listed as subscribers (for example, Sports Illustrated has a youth
readership of 18 to 20 percent but a youth subscriber rate of only 6.5
or 7 percent). \220\ Also, adults are more likely to subscribe for
their families, thereby creating an underestimation of youth exposure.
---------------------------------------------------------------------------

\220\ Interview on ``The News Hour With Jim Lehrer,'' Public
Broadcasting Systems, May 16, 1996.
---------------------------------------------------------------------------

(61) Several comments assumed that the purpose of the March 20,
1996, Federal Register document was to justify the restriction on
advertising format that the agency had proposed for other than adult-
oriented publications. These comments argued that explaining how the
agency arrived at the 15 percent and 2 million readership thresholds
does not approach the factual justification necessary to restrict First
Amendment freedoms.
Other comments asserted that FDA's assumption that certain
magazines were of interest to those under 18, as the starting point in
arriving at the 15 percent threshold, shows that the limits were
content based. These comments argued that basing restrictions on
content violated the First Amendment.
The comments misunderstood FDA's purpose in proposing, and in
adopting, the 15 percent and 2 million under 18 readership thresholds
and of the memoranda added to the public record in the March 20, 1996,
Federal Register document that indicated how the agency tentatively
arrived at those thresholds. As discussed in section VI.D. of this
document, the evidence in this proceeding establishes the effect of
cigarette and smokeless tobacco advertising on those under 18 years of
age. This evidence fully justifies FDA's decision to restrict the
advertising for these products.
However, in imposing such a restriction on commercial speech, FDA
has an obligation to ensure that the restriction is no more broad than
necessary to serve the agency's substantial interests (Board of
Trustees of State University of N.Y. v. Fox, 492 U.S. at 476). The
purpose of the memorandum was to document FDA's efforts to tailor the
restriction to ensure that it did not restrict advertising in those
publications that were not likely to be read by children or adolescents
and thus were not likely to have an effect on the group that FDA is
trying to protect. Consequently, contrary to the claims of the first
group of comments, the agency's goal in the memorandum was not to
justify a restriction on First Amendment freedoms but to explain how it
sought to ensure, and why its tentative decision was that, the limits
it proposed to place on the coverage of the

[[Page 44518]]

restriction are reasonable (see Id. at 480).
On the other hand, other comments that opposed FDA's proposed
restriction on format said that the threshold would have different
impacts on similar publications. One comment provided the following
examples of publications that would be considered ``youth oriented'' or
primarily adult under the 15 percent threshold (the comment argued that
the effects of the 2 million readership threshold were not relevant to
the rationality of the 15 percent threshold):

Table 1b.--Examples of Publications
------------------------------------------------------------------------
Primarily Adult Oriented
Youth Oriented Publications Publications
------------------------------------------------------------------------
Popular Science........................... Popular Mechanics
Soap Opera Weekly......................... Soap Opera Digest
Outdoor Life.............................. Field and Stream
Cable Guide............................... TV Guide
Mademoiselle.............................. Cosmopolitan
------------------------------------------------------------------------

The positions taken by these comments makes clear that the
thresholds were not content based. If the thresholds were content
based, then publications that have similar content would be subject to
the same restriction. They are not. The reason they are not is that
FDA's goal in arriving at the thresholds was to ensure that cigarette
and smokeless tobacco advertisements that are likely to be seen by
children and adolescents are the kinds of advertisements that are
likely to appeal to them. The agency's only way of judging the
likelihood that an advertisement that appears in a publication will be
seen by those under the age of 18 is by considering the readership
profile of that publication. Thus, the agency has tailored the
threshold to either reflect the percentage of readership that are under
18 years of age or to ensure that publications with an extensive youth
readership are covered.
The comments that complained about the differing impact of FDA's
threshold on similar publications, given the purpose of the threshold,
serve to underline its significance. The information submitted by the
comments shows that there are significant differences in the readership
of similar publications and thus in the likelihood that the material
contained in these publications will be seen by young people. The
treatment of publications under the agency's restriction reflects the
latter fact, not the former.
Popular Science magazine has a readership that is 6 percent more
youthful than Popular Mechanics; Soap Opera Weekly has a 3 percent more
youthful readership than Soap Opera Digest; and there is a 9 percent
bigger youth audience for Outdoor Life than for Field and Stream. These
differences are not minor or meaningless and demonstrate that, although
the 15 percent threshold is not perfect, it will serve, as it was
designed to, protect those under 18. TV Guide and Cosmopolitan are not
excluded although, as mass distribution magazines the percentage of
young readers is less than 15 percent, because they attract over 2
million young readers--a number of young people too large to ignore.
\221\
---------------------------------------------------------------------------

\221\ Barents Group, LLC, citing Publishing Information Bureau
and Mediamark Research, Inc., pp. 53-54.
---------------------------------------------------------------------------

(62) Many comments, especially from the magazine and newspaper
industries, expressed concerns about the impact of this proposal on
their way of doing business. One comment stated that the proposed text-
only format would provide financial disincentives for magazines and
newspapers to attract young readers, especially if the publication were
near the borderline of being required to use the text-only format. This
comment suggested that the provision would affect editorial and content
decisions regarding young readers.
Some comments noted that newspapers have been struggling to attract
young readers raised on television, but that success in doing this
might cause the loss of significant tobacco advertising revenue. One
newspaper industry association comment stated that the rule would
discourage newspaper programs promoting youth reading and literacy.
Some comments stated that the loss of advertising revenue could cause
publications to decrease content and increase prices. Some comments
thought the result of these effects of the rule would be losses in jobs
in the newspaper and magazine industries.
The agency is not sure what impact the exception for adult
publications will have on incentives for magazines and newspapers to
attract young readers, on editorial content, and on youth literacy
programs. The comments that raised these issues mostly speculated about
these effects and did not provide any data as to how many of the
thousands of newspapers and magazines in the United States carry
tobacco advertising, or on what portion of their total advertising
revenue comes from tobacco companies. Many business factors affect a
publication's decisions regarding its target audience and editorial
content, and these are likely to change for a variety of reasons. Those
publications affected by this regulation will have to adjust just as
they would if a major advertiser reduced its advertising. Under the
rule, all publications could still accept text-only advertising. The
cigarette and smokeless tobacco industries are capable of designing
their advertising to be attractive to adult readers (see section
VI.E.4. of this document). Thus, it seems as likely that the effects of
the rule in these areas will be minimal and will be far outweighed by
the overall benefits of reducing youth smoking. The effect of the rule
on prices and jobs in the magazine and newspaper industries is
addressed in the section on the economic impact of the rule.
(63) Several comments argued that FDA's restrictions on the format
of advertising, and the standard that it proposed for deciding whether
a publication has a predominantly adult readership, interfere with the
rights of newspapers and magazines to decide what to print. One comment
said that some publications will not want to give up revenue from
tobacco advertising. Therefore, the comment continued, these
publications will base decisions about editorial content on how
appealing a particular story would be to readers under the age of 18.
Because of the impact of the restrictions on editorial content, the
comment concluded, they should be subject to strict scrutiny rather
than the more limited scrutiny given to commercial speech.
FDA finds no merit to this argument. A similar argument was made in
Pittsburgh Press Co. v. Pittsburgh Com'n on Human Relations, 413 U.S.
376 (1973). The newspaper company in that case, which involved a First
Amendment challenge to a municipal ordinance that prohibited a
newspaper from carrying gender-designated advertising for nonexempt job
opportunities, argued that the focus of the case must be on the
exercise of editorial judgment by the newspaper rather than on the
commercial nature of the ads in question.
The Supreme Court rejected this argument. The Court said that under
some circumstances, at least, a newspaper's editorial judgments in
connection with an advertisement take on the character of the
advertisement. In those cases, ``[t]he scope of the newspaper's First
Amendment protection may be affected by the content of the
advertisement''

[[Page 44519]]

(Pittsburgh Press Co., 413 U.S. at 386). The Court said that, at least
under some circumstances, a commercial advertisement remains commercial
in the hands of the media (Id. at 387). The Court found that nothing
about the decision to accept a commercial advertisement for placement
in a gender-designated column lifts the newspaper's actions from the
category of commercial speech. The Court said that the ad was in
practical effect a commercial statement (Id. at 387-88; see also United
States v. Hunter, 459 F.2d 205, 212 (4th Cir. 1972) (``But it has been
held that a newspaper will not be insulated from the otherwise valid
regulation of economic activity merely because it also engages in
constitutionally protected dissemination of ideas'')).
Here, the question that is raised is whether or not a publication
will decide to put itself in a position of being able to accept an
advertisement that is particularly appealing to individuals under 18
years of age or not. Nothing about this judgment distinguishes it from
the commercial speech itself. Because nothing about FDA's restrictions
would prevent the publication from carrying a cigarette or smokeless
tobacco advertisement no matter what judgment the publication makes,
essentially the editorial judgment comes down to the question of what
will be the format of the advertisement that it will carry. This
judgment clearly comes within the category of commercial speech, and
FDA has fully justified its regulation of commercial speech under the
Central Hudson test.
6. Advertising--Sec. 897.32 Requirements for Disclosure of Important
Information
a. Established name and intended use--Sec. 897.32(c). Proposed
Sec. 897.32(b) (now renumbered as Sec. 897.32(c)) provided that each
manufacturer, distributor, and retailer (of tobacco and smokeless
tobacco) advertising or causing to be advertised, disseminating or
causing to be disseminated, advertising, but not labeling, permitted
under Sec. 897.30(a), shall include, as provided in section 502(r) of
the act, the product's established name and a statement of its intended
use as follows: ``Tobacco--A Nicotine Delivery Device,'' ``Cigarette
Tobacco--A Nicotine-Delivery Device,'' or ``Loose Leaf Chewing
Tobacco,'' ``Plug Chewing Tobacco,'' ``Twist Chewing Tobacco,'' ``Moist
Snuff'' or ``Dry Snuff,'' whichever is appropriate for the product,
followed by the words ``A Nicotine-Delivery Device.''
The preamble to the 1995 proposed rule explained that section
502(r)(1) of the act requires, for any restricted device, that all
advertising or other descriptive printed material contain a true
statement of the device's established name. Under section 502(r)(2) of
the act, a restricted device is misbranded unless all advertising
contains ``a brief statement of the intended uses of the device.'' The
agency explained in the preamble to the 1995 proposed rule that it is
necessary to require that the product's established name and intended
uses be placed on all advertising, under section 520(e) of the act, as
a measure that affirmatively identifies the products to persons reading
the advertising (the other brief statement requirements under section
502(r)(2) of the act are discussed in section IV.E.6.b. of this
document).
The agency did not receive any comments on the ``established name''
provision and has thus codified the provision in the final rule as
Sec. 897.32(c). The agency has modified the ``intended use'' provision
in this final rule to require that cigarette and smokeless tobacco
advertising contain the statement ``A Nicotine-Delivery Device for
Persons 18 or Older.'' For clarity, the agency has referenced subpart D
generally rather than Sec. 897.30(a) specifically. As stated in the
1995 proposed rule, the established name requirement applies to both
tobacco and smokeless tobacco.
(64) Several comments opposed the proposed ``intended use''
provision. One tobacco industry comment stated that FDA's proposal is
not authorized under section 502(r) of the act because: (1) The
``intended use'' of tobacco products is for smoking taste and pleasure,
not a ``nicotine delivery device;'' (2) the ``intended use'' provision
of the act does not require that manufacturers list all information
related to all purposes for which a drug is intended; and (3) FDA is
not free to prescribe an ``intended use'' of its own invention. The
comment also argued that FDA's statement, which communicates only that
a cigarette yields nicotine, is not a statement of ``intended use'' and
is of no value to consumers who obtain more complete nicotine
information that cigarette manufacturers already provide in
advertising.
The agency disagrees with the comments stating that it is not free
to prescribe an intended use. As discussed in this section, the agency
is required by section 502(r)(2) of the act to require a brief
statement of intended use for all restricted devices.
Additionally, it is within FDA's primary jurisdiction and expertise
to determine a device's intended use. FDA has decades of experience
evaluating the intended uses of FDA-regulated products, including
restricted devices, prescription and over-the-counter drugs, biological
products, and dietary supplements through its review and approval
process for those products.
As described in the 1996 Jurisdictional Determination annexed
hereto, the available evidence demonstrates that manufacturers intend
to affect the structure and function of the body by delivering
pharmacologically active doses of nicotine to the consumer. Although
the agency proposed that the intended use include the language
``Nicotine Delivery Device,'' the agency has determined, based on the
comments received, that a more accurate statement of the intended use
would provide more value to consumers. Because cigarettes and smokeless
tobacco products can legally be sold only to those persons 18 years of
age and older, the agency believes the intended use statement should
reflect the target population for which the product is intended. Often,
the intended use statement for a drug or device includes the patient
population by whom the product may be used. Accordingly, the intended
use statement has been revised to require the following language on all
advertisements for cigarette and smokeless tobacco: ``A Nicotine-
Delivery Device For Persons 18 or Older.''
b. Section 897.32(d) Brief statement. Proposed Sec. 897.32(c) and
(d) would have required that each manufacturer, distributor, and
retailer of cigarettes include in all advertising, but not labeling, a
brief statement, printed in black text on a white background that was
readable, clear, conspicuous, prominent, and contiguous to the Surgeon
General's warning. Because the Smokeless Act preempts other statements
about tobacco use and health in advertising, the 1995 proposed rule
stated that the provision only applied to cigarettes (and not smokeless
tobacco). The 1995 proposed rule provided one brief statement as an
example (``ABOUT 1 OUT OF 3 KIDS WHO BECOME SMOKERS WILL DIE FROM THEIR
SMOKING'') (60 FR 41314 at 41338). The agency requested comment on what
other information should be included in the brief statements concerning
relevant

[[Page 44520]]

warnings, precautions, side effects, and contraindications and on how
best to ensure that the statement will be clear, conspicuous, and
prominently displayed. The agency also requested comment on whether it
should require a listing of the component parts or ingredients of these
restricted devices.
The preamble to the 1995 proposed rule explained that the agency
was proposing to require this brief statement under section 502(r)(2)
of the act. The preamble stated that the act specifically excludes
labeling from the requirements in section 502(r) of the act. The 1995
proposed rule stated that the agency would specify the design, content,
and format of the brief statements, in part based on focus groups with
young people, to ensure that the information would be communicated
effectively to young people.
The agency received numerous comments on this brief statement, and
about half of the comments supported the provision and half opposed it.
Most of the comments that supported the brief statement requirement
recommended other information to be included in the brief statement,
and offered suggestions on how best to ensure that the statement will
be clear, conspicuous, and prominently displayed.
During the comment period, FDA performed extensive focus group
testing on the brief statement to evaluate the content and various
formats for the brief statement to determine if the information would
be communicated effectively to young people. Those results were placed
on the public record and made available for comment, 1 month prior to
the close of the comment period. FDA received a few comments on the
focus group results from the tobacco industry and concerned
individuals.
The final rule does not specify a particular statement to be placed
in all cigarette advertisements, as proposed in Sec. 897.32(c), nor
does it require the brief statement to be targeted to young people.
Rather, the agency has concluded that the current Surgeon General's
warnings contain important health information, concerning the risks
related to the use of cigarettes, of the sort required under section
502(r) of the act and, consequently, has decided not to require a
specific, different statement. Specifically, the Surgeon General's
warnings currently required to be included in cigarette advertisements
and on cigarette packages contain the following information: Cigarettes
cause lung cancer, heart disease and emphysema, may complicate
pregnancies, and contain carbon monoxide; smoking by pregnant women may
result in fetal injury, premature birth and low birth weight; and
quitting reduces serious risks.
The agency has also considered the fact that there is a heightened
public awareness by adults of the addictiveness of cigarettes, as well
as the serious health effects that can result from their use. Much of
this awareness stems from: (1) The publicity of the numerous Surgeon
General's reports that have issued in the last few decades, (2) the
campaigns supported by health groups and State and local governments,
as well as (3) the attention generated by the agency's investigation of
these products.
Under the current circumstances, the agency has determined that the
current Surgeon General's warnings, which must be in virtually all
advertisements, contain the type of important health information
required under section 502(r) of the act. Accordingly, the agency has
determined that advertisements that contain the current Surgeon
General's warnings meet section 502(r) of the act.
Finally, because the agency has determined that the Surgeon
General's warnings are adequate, and those warnings must be displayed
in a format prescribed by law, there is no longer any need for proposed
Sec. 897.32(d), which required that the brief statement be readable,
clear, conspicuous, prominent, and contiguous to the Surgeon General's
warning.
(65) One comment argued that the proposed warning requirement for
tobacco is not a warning, nor is it part of a brief statement, as those
terms are used in section 502(r) of the act. The comment stated that
because FDA proposes to allow tobacco to be marketed as devices subject
only to general controls, one of which is the brief statement
provision, then the ``brief statement'' must be capable of providing,
with other general controls, ``reasonable assurance of the safety and
effectiveness'' of tobacco under the act. The comment argued that
because FDA regards tobacco as having ``dangerous health consequences''
(60 FR 41314 at 41349), and does not believe that tobacco can be ``safe
and effective'' for anyone, then FDA's proposed ``brief statement''
provision is not within the scope of the act. The comment stated that
the only warning that is consistent with FDA's view would be one that
warned against anyone using the device at all.
The comment miscomprehends the purpose of the brief statement,
which is to provide information about the risks and benefits regarding
the product. This provision is not intended to serve, on its own, as a
mechanism to provide reasonable assurance of safety for these products.
(66) One comment argued that even if FDA could validly require a
brief statement for tobacco as an exercise of its statutory authority,
the imposition of a warning requirement as part of the brief statement
is invalid because advertisements for tobacco are already required to
bear the Surgeon General's warning under 15 U.S.C. 1333(a)(2) and
(a)(3). In addition, the comment stated that FDA is not authorized to
require that the information be presented ``in a lurid fashion to
achieve an ulterior purpose'' or as ``a threat intended to scare
people,'' and that the warning information is meant only for the
purposes of enabling the physician or patient to make a rational risk/
benefit judgment.
Another comment argued that the contention that the Surgeon
General's warning is ``ineffective'' is without merit. The agency
agrees that the current Surgeon General's warnings contain the type of
important health information that advertisements must contain under
section 502(r)(2) of the act. Accordingly, the agency has determined
that advertisements that contain the current Surgeon General's warnings
sufficiently meet the brief statement requirement of the act.
(67) One comment stated that the brief statement provision would
``cause so much visual clutter in tobacco advertising as to render
effective communication nearly impossible.''
Another comment stated that FDA will be unable to justify the
economic burdens on communication with adults that are created by the
brief statement requirement because, in order to include all the
mandated statements, advertisers would be required to purchase
additional space and thus would have to reduce, because of budgetary
pressures, the number of advertisements they could place.
Because the agency has determined that the current Surgeon
General's warnings will be sufficient as a brief statement, the issue
raised by these comments is no longer pertinent.
(68) Several comments which supported the 1995 proposed rule
suggested alternative statements and submitted recommended language for
the brief statement. Many comments suggested specific types of
information

[[Page 44521]]

for inclusion in the brief statement. Several comments provided
recommendations on how the statement could be ``clear and
conspicuous.'' One comment stated that messages must be carefully
pretested on members of the target audience to ensure that labels: (1)
Attract attention; (2) are personally relevant; and (3) do not elicit
psychological reactance, i.e., behaviors directly counter to those
desired due to irritation, rebellion, or misinterpretation. The comment
recommended that messages be varied periodically to ensure that they
remain attention-getting and pertinent.
Several comments recommended that the rule be more specific in what
is meant by ``readable, clear, conspicuous, prominent'' by giving
either a detailed set of format specifications of the lettering and
background or by giving a set of performance criteria. One comment
enclosed an unpublished review on warnings, which recommended that
warnings should attract attention of the target audience by using high
contrast and color; separating warnings from other information;
considering size (relative to other information in the display) and
location (since people tend to scan left to right and top to bottom
warnings should be located near the top or to the left, depending on
the overall design of the display); and by using signal words to
capture attention, such as ``CAUTION,'' OR ``WARNING,'' pictorials,
rotational warnings to avoid habituation, and auditory warnings. In
addition, the review stated that warnings should describe the hazard,
without ``overwarning,'' and describe the nature of the injury, illness
or property damage that could result from the hazard. The review
recommended that written warnings should be organized with an attention
getting icon and signal word at the top, then hazard information, then
instructions. Finally, the review recommended that warnings should
instruct about appropriate and inappropriate behaviors, motivate people
to comply, be as brief as possible, and should last and be available as
long as needed.
One comment recommended that the relevant warnings, precautions,
side effects, and contraindications be in a language understandable and
appealing to even the youngest potential tobacco user. Several comments
recommended that a minimum size should be required, expressed as a
percentage of the advertisement (e.g., 25 percent of the
advertisement). Several comments recommended that a border be placed
around the brief statement and suggested other graphic enhancements to
make the information in the brief statement more noticeable.
The agency recognizes that there are several ways to communicate
the requirement for ``relevant warnings, precautions, side effects, and
contraindications'' set forth in section 502(r) of the act. In this
case, however, the agency has determined that the current Surgeon
General's warnings are sufficient as at least one way of complying with
section 502(r) of the act. In addition, the agency appreciates the
numerous suggestions on how to make the brief statement readable,
clear, conspicuous, and prominent. However, since no additional
information will be required at this time, and the format for the
Surgeon General's warnings is determined by law, the agency has deleted
proposed Sec. 897.32(d).
(69) One comment stated that FDA's attempt to gather information
through the focus group studies about adolescents' perceptions of the
adequacy of the Surgeon General's warnings for use in designing its own
additional warning underscores the direct conflict between the
Cigarette Act and the proposed regulation.
This comment has misinterpreted the purpose and the results of the
focus group testing. FDA's focus groups were intended to explore how
adolescents perceive various messages. The Surgeon General's warnings,
as well as other warnings, were tested with the focus groups merely to
serve as a basis for reactions to messages that currently exist in the
public domain.
(70) FDA received few comments concerning the focus group results.
In general, these comments questioned the validity and usefulness of
focus groups. Further, some comments asserted that the warnings
preferred by the young people in the focus groups may have unintended
consequences.
As discussed in this section, the focus groups tested a variety of
specific brief statements that were intended to be directed towards
young people. However, the agency has decided that the final rule will
not specify a particular brief statement, but will accept the current
Surgeon General's warnings as sufficient. Moreover, section 502(r) of
the act does not require that the brief statement be directed to young
people, but rather that it provide ``a brief statement of the intended
uses of the device and relevant warnings, precautions, side effects,
and contraindications.'' This function is adequately filled by the
intended use statements required by Sec. 897.32(c) and the Surgeon
General's warnings. Thus, because the final rule is not based on the
focus group results, the agency need not address the previous comments
concerning the focus group results.
7. Section 897.34(a) and (b)--Promotions, Nontobacco Items, and
Contests and Games of Chance
The agency proposed in Sec. 897.34(a) to prohibit the sale or
distribution of all nontobacco items that are identified with a
cigarette or smokeless tobacco product brand name or other identifying
characteristic. FDA stated in the 1995 proposal that this requirement
is intended to reach such items as tee shirts, caps, and sporting goods
and other items bearing tobacco brand names or other indicia of product
identification (60 FR 41314 at 41336).
As discussed in the preamble to the 1995 proposed rule (60 FR 41314
at 41336), a Gallup survey found that about one-half of adolescent
smokers, and one-quarter of all nonsmokers, own at least one
promotional item. The IOM found that this form of advertising is
particularly effective with young people. Young people have relatively
little disposable income, so promotions are appealing because they
represent a means of ``getting something for nothing.'' In many cases,
the items--tee shirts, caps, and sporting goods--are particularly
attractive to young people. Some items, when used or worn by young
people, also create a new advertising medium--the ``walking
billboard''--which can come into schools or other locations where
advertising is usually prohibited (60 FR 41314 at 41336). Moreover,
this form of advertising has grown in importance over the last 20
years. The portion of annual expenditures of the cigarette industry
devoted to these promotions rose from 2.1 percent in 1975 to 8.5
percent in 1980. \222\
---------------------------------------------------------------------------

\222\ IOM Report, p. 109.
---------------------------------------------------------------------------

On the basis of the evidence before it, the agency tentatively
concluded that the ban on nontobacco items was necessary to eliminate
the something-for-nothing appeal of these items, as well as to prevent
wearers or users of these items from becoming image-laden walking
advertisements.
FDA proposed in Sec. 897.34(b) to prohibit all proof of purchase
transactions of nontobacco items as well as all lotteries, contests,
and games of chance associated with a tobacco purchase. The agency
stated that, because contests and lotteries are

[[Page 44522]]

usually conducted through the mail, it was not able to devise
regulations that would reduce a young person's access to contests or
lotteries.
(71) FDA received a substantial number of comments concerning the
1995 proposed rule to prohibit these promotional activities. Comments
opposing these provisions argued that tobacco companies should be
allowed to advertise in a fair manner however they wish. Many comments
from individuals stated that they like the ``freebies.'' They contended
that the agency does not have authority to regulate the clothes people
wear or to ban contests and promotional activities that are only
available to adults. A number of comments from individuals stated that
what they did with their lives was their business.
Comments also objected to the agency's proposed ban on contests and
games of chance. These comments stated that existing laws and
regulations already provide a sufficient regulatory framework.
The majority of comments, however, supported these provisions and
stated that children and adolescents should not be ``walking
billboards.'' Moreover, these comments argued that even though young
people cannot participate in the contests, they can easily get caught
up in the excitement of promotional activities. Comments declared that
prohibiting tobacco product-related gifts, items, contests, and games
of chance will break the enticing connection between sports and tobacco
use.
The agency agrees with the comments that said that existing laws
and regulations of lotteries, contests, and games of chance are
sufficient. First, there appears to be little evidence about these
practices and young people's participation in them. Secondly, current
laws prohibit all games of chance and the like that are advertised on a
product label or that are conditioned on the sale of the product.
Therefore, participation, if any, by minors is not necessarily related
to a purchase. Third, any promotional material associated with the
advertising of the games, which is of primary concern, will be required
to appear in text-only format. Therefore, the agency has modified this
section to delete the ban on these practices. In addition, the agency
has modified Sec. 897.34(a) to clarify that responsibility for
complying with this provision rests with the manufacturer and the
distributor of imported tobacco, but not other distributors or
retailers.
(72) Comments differed on whether proposed Sec. 897.34(a) is beyond
FDA's authority under the act. The comments addressed a number and
variety of legal issues. One comment stated that FDA has no authority
to ban the items and services covered by Sec. 897.34(a). It stated that
items and services (e.g., travel agencies) bearing indicia of tobacco
product identification are not foods, drugs, cosmetics, or devices as
defined in the act and, therefore, are outside the agency's
jurisdiction.
Another comment stated that nontobacco items cannot be regulated as
advertising in the way FDA proposes because: (a) The 1995 proposed rule
extends to goods and services provided to product users in connection
with cigarette purchases, most of which are not displayed or
disseminated to the general public, and thus do not constitute
advertising (see Marcyan v. Nissen Corp., 578 F. Supp. 485, 507 (N.D.
Ind. 1982), aff'd sub nom. Marcyan v. Marcy Gymnasium Equip. Co., 725
F.2d 687 (7th Cir. 1983)); and (b) many of the types of items covered
by Sec. 897.34(a) are promotional items but not advertising (e.g., a
logo-bearing mug given away or sold by a manufacturer is not an
advertisement).
One comment, which favored the provision, provided support for the
classification of promotional items as advertising. The comment
referenced Public Citizen v. FTC, 869 F.2d 1541 at 1556 (D.C. Cir.
1989), in which the U.S. Court of Appeals for the D.C. Circuit held
that the Smokeless Act requirement that ``advertisements'' carry health
warnings ``plainly covers utilitarian items [nontobacco items] that are
distributed for promotional purposes.'' FTC defined utilitarian objects
as items that are sold or given or caused to be sold or given by any
manufacturer, packager, or importer to consumers for their personal use
and that display the brand name, logo, or selling message of any
tobacco product (16 CFR 307.3n). FDA's interpretation of what is
covered by Sec. 897.34(a) and (b) is consistent with this definition.
The comment also stated that as a result of that court case, FTC's
smokeless tobacco rules now require that utilitarian items promoting
smokeless tobacco bear specific health warnings required of all
smokeless tobacco advertising (16 CFR 307.9). \223\
---------------------------------------------------------------------------

\223\ The FTC comment also indicated that although nontobacco
items are ``advertising'' under the Smokeless Act, a different
legislative history exempts these items from the Cigarette Act. The
comment stated that the definition of advertising under the
Cigarette Act is understood to exempt utilitarian items because of
legislative history expressly stating Congress's intent to preserve
the arrangement under consent agreements entered into by the tobacco
industry in 1972 and 1981 (Public Citizen, 869 F.2d at 1555).
---------------------------------------------------------------------------

Another comment pointed out that the Public Citizen case provides
ample legal precedent not only for the conclusion that promotional
materials are advertising, but also that they have a direct impact on a
minor's tobacco use. The court, relying on evidence compiled by the
FTC, found that ``in the case of adolescents, utilitarian items might
be among the most effective forms of promotion'' (869 F.2d at 1549 n.
15). In addition, the lower court provided an additional rationale for
restriction based upon the items' longevity and durability.
[P]rinted advertising is customarily quickly read (if at all)
and discarded (as, of course, are product packages) by typical
consumers. ``Utilitarian objects,'' on the other hand * * * are
retained, precisely because they continue to have utility. They are
also likely to be made of durable substances: fabric, plastic,
glass, or metal. They may be around for years. And each use of them
brings a new reminder of the sponsor and his product * * *
(688 F. Supp. 667, 680 (D.D.C. 1988), aff'd, 869 F.2d 1541 (D.C. Cir.
1989))
The agency finds that the reasoning in the Public Citizen case is
persuasive and compels the conclusion that branded nontobacco items are
advertising. It also finds that young people acquire and use these
products.
Moreover, the agency finds nothing in the Marcyan v. Nissan Corp.
case is to the contrary. In relevant parts, that case involved an
endorsement that appeared in the front of a users' manual. The court
held that this endorsement did not constitute ``advertising'' because
it is not ``distributed to the general public for the purpose of
promoting plaintiffs' products: it is a user's manual and is provided
to a purchaser of the defendants' equipment together with the equipment
in order to describe its proper use'' (578 F.2d at 507). Promotional
items are distributed or sold to the general public. They are festooned
with the product's brand name or identification, and they are intended
to remind the user and others who see the item about the product. As
the court in Public Citizen found, ``each use of them brings a new
reminder of the sponsor and his product'' (688 F. Supp. at 670).
Therefore, the comments' suggestion that these advertising items are
beyond FDA's jurisdiction is plainly wrong.
(73) One comment, which had argued that promotional items were not
drugs or devices nor were they advertising, objected as well to FDA's
alternative

[[Page 44523]]

categorization of these items as labeling. The comment stated that
nontobacco items could constitute ``labeling'' only if there were a
``textual relationship'' between them and the product (Kordel v. United
States, 335 U.S. 345, 350 (1948)). The comment argued further that
items that provide no more substantive information than a brand name,
logo, or recognizable color or pattern of colors simply do not explain
the use of the product, and therefore do not constitute labeling. The
comment concluded that if the items are not advertising or labeling,
FDA would not have authority to take the actions required by this
provision.
The agency agrees that these promotional items are neither devices
nor drugs; however, this fact is not relevant to the agency's authority
to proscribe their use. As explained earlier in this document, FDA has
authority to impose restrictions on the access to and promotion of
devices under section 520(e) of the act, and this authority provides
the basis for restrictions on advertising, including those that FDA is
imposing on promotional items. FDA also derives authority for these
restrictions from section 502 of the act. Likewise, it is not relevant
in this instance whether the items are described as advertising or
labeling. The agency has the authority to restrict them because they
promote the use of restricted devices, cigarettes and smokeless
tobacco, by young people and thus undercut the restrictions on access
to these products that FDA has imposed. Therefore, FDA has authority to
regulate how these promotional items are used by manufacturers,
distributors, and retailers of the restricted devices.
(74) Many comments challenged FDA's evidentiary basis for this
provision. Those opposing the provision made the point that promotional
items do not cause young people to use tobacco, and that banning them
will not reduce tobacco use. These comments fall into two categories:
Those that rely on theoretical or policy arguments and those that
provide or criticize studies or other evidence.
a. Theoretical or policy considerations. Several comments argued
generally that it is well-documented that the significant factors
associated with regular underage tobacco use are peer pressure and
smoking by friends, older siblings and parents. They noted that FDA
cited no evidence that the use of a tobacco trademark on a nontobacco
product, such as a lighter or jacket, has any impact on underage
tobacco consumption, or that its removal will reduce youth tobacco use.
Consequently, they argue, banning the use of tobacco brand names on
nontobacco products will fail to achieve FDA's goal of curbing teen
smoking.
One comment maintained that people, including those under age 18,
do not wear these items in order to advertise anything or to be
``walking billboards.'' Rather, according to this comment, they wear
them to make a public statement, because they find the items
aesthetically pleasing, or for other reasons. Moreover, the comment
argued, FDA has no authority to regulate the attire of adults, school
students, or anyone else.
In addition, the comment argued, the goal of these programs is to
reinforce brand loyalty among existing customers. Their purpose is to
expand market share among existing smokers, not to induce nonsmokers to
start smoking. These programs are, by their very nature, aimed at
people who already are smokers, that is, the merchandise is provided
only to consumers who have accumulated and submitted significant
numbers of proofs of purchase. No one would be persuaded to start
smoking by a cents-off coupon or by the offer of a free cigarette
lighter, but a smoker might be tempted by the offer. The comment argued
that in the hard fought battles for market share among cigarette
companies, discounts and premiums represent a way to promote and retain
brand loyalty and to weaken loyalty to competitors' brands.
Some comments bolstered their arguments with a citation to the
decision of the Supreme Court of Canada, which, they claimed,
invalidated a similar ban. The Canadian court concluded that there was
no direct or indirect evidence of any causal connection between the
objective of decreasing tobacco consumption and the absolute
prohibition on the use of a tobacco trademark on articles other than
tobacco products. These comments argued that FDA should follow the
Canadian judgment (see section VI.D.3.f. of this document for a
complete discussion of this case).
On the other hand, one comment stated that U.S. and international
experience provide substantial support for a ban. It stated that in the
United States, nontobacco items were heavily used by RJR to market its
Camel tobacco to young people.
In addition, one comment that supported FDA's action stated that
young people participate to a marked extent in tobacco company
promotions. It noted that these promotions all use attractive imagery
and prizes that are intrinsically interesting to adolescents. Other
comments stated that these promotions are particularly effective with
young people, who have less disposable income. The items are a way for
young people to get something for nothing and provide added incentive
for young people to purchase tobacco products. One comment that
supported this provision stated that these items can become ``walking
billboards,'' that can come into schools and other places where tobacco
advertising is generally prohibited.
Another comment stated that the ban serves as an important
corollary to the advertising restrictions, specifically, it argued that
the impact of removing tobacco product advertisements from minors'
magazines would surely be reduced if minors themselves continued
wearing the advertisements on their heads and bodies. The comment
asserted that there is a correlation between participation in a
promotion and susceptibility to tobacco use.
b. Studies and evidence. One comment referenced a new study \224\
that found that participation in tobacco company promotions by 12 to 17
year olds is more predictive of susceptibility to use tobacco products
than smoking by those close to the individual. The measure of
``participation'' was the possession of a catalog, the ownership of any
promotional item, or the saving of coupons that could be redeemed for
promotional items. The study found that catalog ownership was the most
common form of participation in tobacco company promotions.
---------------------------------------------------------------------------

\224\ Evans, N., et al., ``Influence of Tobacco Marketing and
Exposure to Smokers on Adolescent Susceptibility to Smoking,''
Journal of the National Cancer Institute, vol. 87, pp. 1538-1545,
1995.
---------------------------------------------------------------------------

A comment that opposed this provision argued that FDA had cited no
credible studies that demonstrate either that these items are
especially appealing to young people, or that possessing these items
causes young people to start smoking or to smoke more. It stated that
although FDA relied on a study by Dr. John Slade \225\ that reported
that there is an association between participating in promotions and a
person's susceptibility to tobacco use, FDA did not describe the study
thoroughly. The comment stated that the notion of susceptibility is
itself problematic. It stated that even if this study is taken at face
value, it does not support FDA's conclusions. While the study reported
that 83.5 percent of

[[Page 44524]]

respondents age 12 to 17 were aware of at least one tobacco company
promotion, it also reported that only 10.6 percent of respondents owned
a nontobacco promotional item. These numbers, the comment asserted, do
not support the theory that nontobacco items are appealing to youth or
have a discernible impact on youth smoking rates.
---------------------------------------------------------------------------

\225\ Slade, J., et al., ``Teenagers Participate in Tobacco
Promotions,'' presented at the 9th World Conference on Tobacco and
Health, October 10-14, 1994.
---------------------------------------------------------------------------

Moreover, the comment took exception with Dr. Slade's finding that
25.6 percent of 12 to 13 year olds and 42.7 percent of 16 to 17 year
olds participate in promotional programs such as Camel Cash or Marlboro
miles. The comment stated:
the reason for these apparently high percentages is clear from
the most cursory analysis of the data * * * [I]n this supposedly
random survey, fully 45.7 percent of the households of 12-13 year
olds interviewed had someone at home who smoked (37.9 percent in
households of 16-17 year olds), and yet, in reality only 25 percent
of the American public--half the rate of the population relied upon
by Dr. Slade--smoke. [Thus], the unrepresentative sample population
Dr. Slade employed created a significant bias, which distorts the
results of this survey and renders them entirely unreliable.
Finally, one comment stated that the primary basis for the
provision appeared to be data \226\ that allegedly show that 44 percent
of teenage smokers and 27 percent of teenage nonsmokers have received
nontobacco promotional items. The comment stated that the study is
irrelevant because it drew no conclusion as to the significance of the
number, nor did it indicate how the teenagers received the items.
---------------------------------------------------------------------------

\226\ ``Teenage Attitudes and Behavior Concerning Tobacco--
Report of the Findings,'' the George H. Gallup International
Institute, Princeton, NJ, p. 59, September 1992.
---------------------------------------------------------------------------

In response, the agency concludes that the evidence presents a
compelling case to prohibit the sale and distribution of all nontobacco
items that are identified with a cigarette or smokeless tobacco product
brand name or other identifying characteristic. The evidence
establishes that these nontobacco items are readily available to young
people and are attractive and appealing to them with as many as 40 to
50 percent of young smokers having at least one item (60 FR 41314 at
41336). The imagery and the item itself create a badge product for the
young person and permit him/her the means to portray identification.
FDA has shown that tobacco advertising plays out over many media,
and that any media can effectively carry the advertising message.
Moreover, the agency recognizes that the tobacco industry has exploited
loopholes in partial bans of advertising to move its imagery to
different media. When advertising has been banned or severely
restricted, the attractive imagery can be and has been replicated on
nontobacco items that go anywhere, are seen everywhere, and are
permanent, durable, and unavoidable. By transferring the imagery to
nontobacco items, the companies have ``thwarted'' the attempts to
reduce the appeal of tobacco products to children.
In addition, items, unlike advertisements in publications and on
billboards, have little informational value. They exist solely to
entertain, and to provide a badge that, as the Tobacco Institute
asserted, allows the wearer to make a statement about his ``social
group'' for all to see. But because tobacco is not a normal consumer
product, it should not be treated like a frivolity. Advertising that
seeks to increase a person's identification with and enjoyment of an
addictive deadly habit has the ability, particularly among young
people, to undermine the restriction on access that FDA is imposing.
For these reasons, the agency continues to find sufficient evidence to
support a ban on these items.
Finally, regarding the unpublished paper by Dr. Slade, the comment
has confused the household smoking rate with the overall population
smoking rate. The smoking rate per household can be as high as twice
the overall adult smoking rate. For example, if the smoking rate for
adults were 25 percent and assuming two adults per household and only
one of the pair smokes, then the household smoking rate could be as
high as double that of the individual rate. Therefore the range of
possible household smoking rates would be 25 percent to 50 percent,
with 44 percent being quite plausible.
Lastly, the comments that state that peer pressure and smoking by
friends and family are significant factors in influencing a young
person's tobacco use, rather than promotional items, fail to recognize
that if a young person is influenced by what a peer says about tobacco
use, he or she will also likely be influenced by that same peer wearing
a tobacco promotional item.
(75) One comment from a small smokeless tobacco company expressed
concern because much of the packaging used for its products also bears
its corporate logo. Moreover, several of its brand names include words
in its corporate logo. Thus, the comment argues that FDA might find
that its corporate logo is an ``indicium of product identification''
covered by the restrictions in Sec. 897.34. The comment stated that
promotional items are a small but important part of its advertising and
promotional activity, and these items allow its customers to feel like
a part of an extended family. It would be unfair, the comment argued,
as well as harmful to the company, if FDA were to determine that a
corporate logo may not be used on promotional items.
One comment stated that the total merchandising and ban in
Sec. 897.34(a) is unreasonably broad in scope. It stated that it
virtually limits all merchandising, because all colors or patterns of
colors are associated with some brand or another of tobacco product.
The comment stated that the proposed regulation is so confusingly vague
that one could argue that a ``distributor'' would be prohibited from
using the color red in any event for any product category, brand, or
corporation because Marlboro brand tobacco products utilize the color
red.
Another comment stated that because the definitions of
``cigarette'' and ``smokeless tobacco product'' are limited to tobacco
products with nicotine, the agency should consider the possibility that
a tobacco company could market a nicotine-free brand extension of a
cigarette or a smokeless tobacco product and advertise this product
free of restrictions. The comment stated that the advertising for such
a product could have carryover value for the nicotine containing
versions of the product thereby undermining the intent of the
regulations.
The agency agrees that it needs to clarify the scope of
Sec. 897.34(a). The regulation covers any item with indicia of the
brand identity. If the corporate logo is not an indicium of a brand
identity, its use would not be prohibited in nontobacco labeling or
advertising. On the other hand, if a corporate logo includes an
identifiable brand name or image, it must comply with the restrictions.
Any other position would permit a company to evade the intent of this
regulation by using a corporate logo to continue to display brand
imagery. For example, RJR may continue to sell or distribute hats and
tee shirts with the name ``R. J. Reynolds'' on them, but not the name
``Camel.'' Nor can it put the Camel inside the Reynolds logo. The
agency, therefore, has amended Sec. 897.34(a) to state that the indicia
of product identification cannot be identical or similar to, or
identifiable

[[Page 44525]]

with those used ``for any brand of ciagarettes or smokeless tobacco''.
In addition, it is not the agency's intention to ban the use of
registered or recognizable colors for all advertising. Only the owner
or user of the brand identification is prohibited from using that color
or pattern of colors in a manner so as to advertise tobacco or
smokeless tobacco. For example, Philip Morris would be prohibited from
using the distinctive red, black, and white pattern of colors which
identify Marlboro, but neither RJR nor Joe's Garage would be prohibited
by the regulations from using those colors.
Finally, in response to the last comment, the agency has restricted
the coverage of this regulation to promotions of cigarettes and
smokeless tobacco products containing nicotine. It has no evidence
justifying a broader coverage of the regulation to nicotine-free
products at this time. However, a company could not give a nontobacco
product (a nicotine free product) a tobacco brand name. This is exactly
what this section of the final rule forbids.
(76) Several comments argued that Sec. 897.34(a) constituted a
restriction on symbolic expression that cannot be characterized as
commercial speech. The comments argued that these items do not propose
a commercial transaction. One comment argued that in Cohen v.
California, 403 U.S. 15 (1971), the Supreme Court recognized that
otherwise objectionable words worn on a jacket are fully protected
speech.
FDA finds no merit to these comments. Section 897.34(a) on its face
is limited only to manufacturers and to distributors of imported
cigarettes or smokeless tobacco. It does not limit the rights of
individuals to express themselves by wearing an article of clothing
that bears a picture of a cigarette or a logo. \227\ What it does limit
is the ability of manufacturers and some distributors of tobacco and
smokeless tobacco to do what is the essence of commercial speech--to
take actions to call public attention to the products whose logo the
items bear, so as to arouse a desire to buy those products. (See Public
Citizen v. FTC, 869 F.2d at 1554.) Because this is what the nontobacco
items that are the subject of Sec. 897.34(a) are designed to do, they
share all the characteristics of the pamphlets that the Supreme Court
in Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 66-67 (1983),
found to be commercial speech. Consequently, FDA may regulate the
nontobacco items as commercial speech, as long as its regulation passes
muster under the Central Hudson test (see 463 U.S. at 68).
---------------------------------------------------------------------------

\227\ The fact that individuals would be free to make their own
articles of clothing with brand names of tobacco products on them
does not make the regulations fatally underinclusive. (See U.S. v.
Edge Broadcasting Co., 509 U.S. 434 (``Accordingly, the Government
may be said to advance its purpose by substantially reducing lottery
advertising, even where it is not wholly eradicated.'').)
---------------------------------------------------------------------------

(77) Some comments challenged the constitutionality of the
prohibition on the use of a cigarette or smokeless tobacco brand logo
on nontobacco products under the Central Hudson test. The comments
argued that the prohibition does not directly advance FDA's interest
because the prohibition is unrelated to the goal of protecting
children. The comments also argued that the prohibition is not narrowly
tailored because it is not limited to children and not limited to
products that are particularly attractive to children.
Several comments disagreed and argued that the prohibition is a
constitutionally permissible restriction on speech. One of these
comments pointed to the finding in the IOM's Report Growing Up Tobacco
Free of the effectiveness of this type of advertising with young
people. The comment said that FDA would therefore be justified in
prohibiting its use.
FDA has carefully considered these comments. The agency concludes
that the prohibition on the use of a cigarette or smokeless tobacco
brand logo on nontobacco items is a permissible restriction under the
First Amendment.
First, this restriction will directly advance FDA's interest in
protecting the health of people under 18 years of age. In Public
Citizen v. FTC, 869 F.2d at 1549 n. 15, the Court of Appeals for the
D.C. Circuit recognized that the nontobacco ``utilitarian items might
be among the most effective forms of promotion with respect to
adolescents.'' This judgment is consistent with much of the other
evidence in the administrative record. A 1992 Gallup survey found that
44 percent of all adolescent smokers and 27 percent of adolescent
nonsmokers owned at least one promotional item from a tobacco company.
\228\ Testing by RJR in 1988 found that nontobacco items performed best
among young adults. \229\
---------------------------------------------------------------------------

\228\ ``Teenage Attitudes and Behavior Concerning Tobacco--
Report of the Findings,'' The George H. Gallup International
Institute, Princeton, NJ, pp. 17, 59, September 1992.
\229\ Bolger, M. R., Marketing Research Report, entitled Camel
``Big Idea'' Focus Groups-Round II, September 21, 1988.
---------------------------------------------------------------------------

The IOM Report pointed out that the ubiquity of nontobacco items
conveys the impression that tobacco use is the norm. \230\ As stated in
section VI.D.3.c. of this document, this impression, that tobacco use
is widespread and accepted, fosters experimentation with tobacco and
smokeless tobacco by young people. This fact led the IOM to recommend
that the use of tobacco product logos on nontobacco items be
prohibited. \231\ The IOM said that this and several other related
steps (including requiring the use of the text-only format) were
necessary to eliminate those features of advertising that tend to
encourage tobacco use by children and youths.
---------------------------------------------------------------------------

\230\ IOM Report, p. 110.
\231\ Id., p. 133.
---------------------------------------------------------------------------

Thus, the prohibition on the use of these logos will directly
advance FDA's interest. The IOM's recommendation provides significant
evidence of this fact.
Second, even though FDA is prohibiting the use of brand logos on
nontobacco items, this restriction meets the requirement of narrow
tailoring. The Supreme Court has held that a ban may satisfy this
requirement if the agency's judgment is that it is ``perhaps the only
effective approach'' (Board of Trustees of the State of N.Y. v. Fox,
492 U.S. at 479). In this case, FDA has determined that a ban of these
items is necessary for several reasons. The appeal of something for
nothing items for youngsters is great, and the extent of the appeal
makes it virtually impossible to distinguish among items, as suggested
by one comment. As the IOM pointed out, these items, when worn or used
by children, are capable of penetrating areas of a child's world that
might be off-limits to other forms of advertising. \232\ Because they
penetrate the young persons' world, they are very effective in creating
the sense that tobacco use is widely accepted, which, as stated in
section VI.D.3.c. of this document, is extremely important to children
and adolescents. These items act like a badge that marks an individual
as a member of a group, another attribute that makes them particularly
attractive for young people. There is no way to limit the distribution
of these items to adults only. The industry claims that it already is
taking sufficient action to ensure that only adults get these items
\233\ but as the evidence

[[Page 44526]]

indicates, a substantial number of young people have them. As noted in
this section, almost one-half of young smokers and one-quarter of
nonsmokers have one or more items. Moreover, even were items to be
distributed to adults only, this would not prevent the wearers from
becoming walking advertisements that would continue to display the
attractive imagery.
---------------------------------------------------------------------------

\232\ Id., p. 110.
\233\ The Cigarette Advertising and Promotion Code, subscribed
to by the major cigarette manufacturers, contains three provisions
that address the necessity of preventing anyone under the age of 21
from getting promotional items.
---------------------------------------------------------------------------

For all these reasons, FDA finds that all nontobacco items that
bear cigarette or smokeless tobacco brand logos are capable of playing
a significant role in a young person's decision to engage in tobacco
use. Because no distinction among these products is apparent, and no
way of limiting their availability to adults is possible, FDA finds
that the most direct and effective means of controlling their appeal to
adolescents and children under the age of 18 is to prohibit
manufacturers, distributors, and retailers of tobacco products from
distributing or selling them.
(78) One comment opposed Sec. 897.34(a) because the comment argued
that the provision would impose restrictions on an otherwise lawful use
of trademarks. It stated that Sec. 897.34(a) would prohibit the right
of any trademark owner to use a trademark for the sole reason that the
trademark is used by another party on tobacco products. The comment
stated that Sec. 897.34(a) also would prevent large distributors and
retailers, who handle a wide variety of both tobacco and nontobacco
products, from distributing or selling any product which happened to
bear the same or similar mark as that used on a tobacco product. The
comment stated that, for example, grocery markets could not stock or
sell Beechnut baby food or chewing gum because Beechnut also is used as
a trademark for chewing tobacco even though the manufacturers are two
different companies with the same name. It stated that the Lanham Act
(15 U.S.C. 1051 (1996)) would, and in fact does, permit such
identically branded products to coexist in the marketplace because of
the absence of any likelihood that these products would be associated
or confused with each other.
FDA recognizes that Sec. 897.34(a) as proposed created unintended
confusion and therefore will amend the provision to clarify the
agency's meaning. Changes have been made that are intended to clarify
Sec. 897.34(a) so that retailers and distributors of domestic tobacco
products are not included, thus avoiding the problem identified with
the comment and making it possible for grocers to sell Beechnut baby
food and Beechnut tobacco products.
(79) Several comments stated that Sec. 897.34(a) would unlawfully
constrain the separate and distinct activity of trademark
diversification in connection with products that are unrelated to the
marketing of tobacco products by cigarette manufacturers. One comment
contended that general bans on the licensing of brand logos pertaining
to tobacco products are incompatible with long-established principles
of international trademark law. The comment asserted that the use of
such trademarks in a nontobacco context is not an indirect means of
advertising or promoting tobacco products. The comment stated further
that it is an increasingly common practice in many industries to ``spin
off'' new products by marketing them under a trademark that has
acquired some cachet or represents quality. It stated that such
licensed products are not marketed in an effort to sell the ``root''
product, rather, the trademark has some ``detachable'' qualities that
help build demand for the licensed goods. It stated that the same is
true of marketing a nontobacco product under the trademark of a tobacco
product.
FDA cannot agree with the comments' claims. While the agency
recognizes that the use of these trademarks on hats and tee shirts
promotes the underlying tobacco product by continuing the extensive
imaging in these venues. Moreover, as the court in Public Citizen, 869
F.2d at 1549, n. 15, recognized, branded nontobacco items might be the
most effective type of promotion to young people. Therefore, failure to
include this form of advertising and promotion in the regulation, would
weaken considerably FDA's efforts to reduce the appeal of these
products to young people under 18, and would undermine the agency's
access restrictions.
The agency also disagrees with the comment's suggestion that
Sec. 897.34(a) effects a taking (or deprivation of a property right) by
prohibiting the use of tobacco trademarks to market nontobacco
products. Section 897.34(a) clearly relates to commercial speech and
the comment is merely attempting to cloak commercial messages with the
issues of registrability and value of well-known trademarks. As
discussed in section XI. of this document, the agency has determined
that this regulation does not effect a taking compensable under the
Fifth Amendment.
One comment that supported FDA's proposal stated that smokeless
tobacco makers circumvent the FTC regulation that covers the use of
brand names of smokeless tobacco products on promotional items such as
caps and tee-shirts. For instance, rather than stop making such items,
U.S. Tobacco has registered Skoal Bandit Racing, Skoal--Copenhagen Pro
Rodeo, and Skoal Music as service marks and places these names on many
of the items it offers the public, thereby evading FTC's regulation.
The comment stated that this experience demonstrates the need for
regulations of this sort to be comprehensive.
The comment stated further that there may be other relatively easy
ways around Sec. 897.34(a). It stated that if the rights to a brand
name were transferred to an entity that was not a manufacturer,
distributor, or retailer that this separate entity could then license
back the use of the brand name to the tobacco company and proceed to
market, license, distribute, or sell other goods and services using
that same brand name. The comment stated that one way to close this
loophole would be to require manufacturers to own the trademarks and
the rights to all associated symbols for each brand they produce.
FDA disagrees with these comments and believes that the concerns
expressed are misplaced. Section 897.34(a) prohibits all use of the
Skoal brand name on nontobacco items, whether used alone, i.e.,
``SKOAL,'' or with other words, such as ``Skoal Racing Bandit.'' In
addition, the provision forbids not just the use of the brand name,
logo, etc. by the manufacturer but also the marketing, licensing,
distributing, selling of them, or the causing of any of those
activities; thus, effectively preventing the type of license-transfer
arrangement described in the comment.
(80) Several comments stated that FDA cannot ban contests and
lotteries under section 520(e) of the act, because they are not
devices. Moreover, the comments stated that existing laws and
regulations provide adequate protection and to the extent that the
participation of minors in these activities is a problem the States
already have ample power to regulate them.
In addition, a comment stated that FDA offered no evidence, or
citation to studies, that contests, lotteries, or games involving
tobacco products have particular appeal to adolescents. Moreover, the
comment stated, that any inability to quantify participation by youth
does not mean that the agency

[[Page 44527]]

can ban an entire form of promotion to adults.
One comment pointed out that, by law, customers wishing to
participate in games of chance or similar promotional activities must
be adults. The comment stated that banning such activity bears no
relationship to achieving FDA's stated purpose. The sole effect of
FDA's ban would be to unjustly impair the relationship between tobacco
manufacturers, retailers, and their adult customers.
One comment stated that the agency should not prohibit all use of
contests or games of chance by the tobacco industry because regulations
already exist and are enforced by the Bureau of Alcohol, Tobacco, and
Firearms (BATF).
Another comment stated that the proposed rule misunderstands the
nature of such activities, misrepresents the appeal of promotions, and
assumes without proof that promotions induce young people to smoke. It
stated that promotional activities are not undertaken to encourage
people, young or old, to smoke, but rather to introduce existing
smokers to the brand being promoted and to provide them with incentives
to choose that brand over others. Moreover, participation in such games
is expressly limited to smokers who are 21 years of age or older.
Conversely, one comment provided support for the 1995 proposed
rule. It stated that, while it is unlikely that anyone under 18 years
of age actually has ever received any of the major prizes or offers
from the give-aways, the award of prizes is not the point of these
marketing tools. It stated that the consumer's participation in the
fantasy of the prize in association with the brand being promoted is
the reason these contests are used.
FDA has been persuaded by the comments to modify Sec. 897.34(b)
regarding lotteries and games of chance in connection with nontobacco
items. Federal law already prohibits ``any certificate, coupon, or
other device purporting to be or to represent a ticket, chance, share,
or an interest in, or dependent on, the event of a lottery to be
contained in, attached to, or stamped, marked, written, or printed on
any package of tobacco products'' (26 U.S.C. 5723(C)). BATF has issued
regulations enforcing this provision (27 CFR 270.311).
In addition, although no Federal agency has issued specific
restrictions on games of chance and lotteries in connection with
advertising of tobacco products, Federal and State law prohibit games,
contests, and lotteries if based on product purchase (18 U.S.C. 1302-
1307, 1341 (1995)). Given these existing Federal requirements, the
agency has concluded that there is no need to add FDA regulations.
Therefore, Sec. 897.34(b) has been modified to delete the provision
concerning lotteries and games of chance but to continue to the
prohibition of gifts and proof of purchase acquisitions.
It must be understood, however, that advertising for games,
lotteries, or contests may not contain any indicia of product
identification other than black text on a white background, since the
advertisement for a contest in the name of a tobacco brand, or
identifiable as a tobacco brand, is restricted to text-only format as
required in Sec. 897.32(a). The agency points out that, as part of the
review of the regulation that it plans to undertake in 2 years, FDA
intends to consider the effect of games of chance and lotteries on
young people and determine whether additional regulations are
necessary.
Based on the evidence amassed during its investigation, and the
surveys described in the preamble to the 1995 proposed rule (60 FR
41314 at 41336) and submitted during the comment period, FDA has
concluded that nontobacco items (identified with a tobacco brand),
either sold, given away, or provided for proof of purchase are an
instrumental form of advertising in affecting young people's attitudes
towards and use of tobacco. Moreover, banning this form of advertising
is essential to reduce tobacco consumption by young people. This form
of advertising has grown in importance over the last 20 years. As
discussed in this section, expenditures rose from 2.1 percent in 1975
to 8.5 percent in 1980 (60 FR 41314).
Studies--A Gallup survey found that about one-half of young smokers
and one quarter of all non-smokers, own at least one promotional item
(60 FR 41314 at 41336). Another study, detailed more fully in this
section, found that participation in tobacco company promotions (owning
an item, collecting coupons for gifts, or having a catalogue) by 12 to
17 year olds is more predictive of susceptibility to use of tobacco
products than smoking by those close to the individual. Another study,
by Slade, found that 25.6 percent of 12 to 13 year olds and 42.7
percent of 16 to 17 year olds participate in promotional programs such
as Camel Cash and Marlboro miles (60 FR 41314 at 41336).
Evidence Provided by Industry Members--Two separate studies done
for R.J. Reynolds, and described in this section, found that tee shirts
were a significant source of information about tobacco for some young
people and that these items performed best among young people.
A ban on this type of advertising will prevent the ``something for
nothing appeal'' of give aways and proofs of purchase and will
eliminate the walking billboard, who can enter schools and other
locations where advertising is inappropriate. Thus, FDA concludes that
the restriction it is adopting on this type of promotional material
will directly advance FDA's efforts to substantially reduce consumption
of tobacco products by children and adolescents under 18.
8. Section 897.34(c)--Sponsorship of Events
Proposed Sec. 897.34(c) provided that ``no manufacturer,
distributor, or retailer shall sponsor or cause to be sponsored any
athletic, musical, artistic or other social or cultural event, in the
brand name, logo, motto, selling message, recognizable color or pattern
of colors, or any other indicia of a product identification similar or
identical to those used for tobacco or smokeless tobacco products.''
Proposed Sec. 897.34(c) would have permitted a manufacturer,
distributor, or retailer to sponsor or cause to be sponsored any
athletic, musical, artistic or other social or cultural event in the
name of the corporation that manufactures the tobacco product, provided
that both the registered corporate name and the corporation were in
existence before January 1, 1995.
The preamble to the 1995 proposed rule explained that sponsorship
by cigarette and smokeless tobacco companies associates tobacco use
with exciting, glamorous, or fun events such as car racing and rodeos,
and provides an opportunity for ``embedded advertising'' that actively
creates a ``friendly familiarity'' between tobacco and sports
enthusiasts, many of whom are children and adolescents. The preamble to
the 1995 proposed rule cited several studies that demonstrate the
impact of sponsorship on consumer attitudes (60 FR 41314 at 41337
through 41338). The proposed restriction was intended to break the link
between tobacco company-sponsored events and use of tobacco and reduce
the ``friendly familiarity'' that sponsorship generates for a brand.
(81) FDA received a substantial number of comments concerning the
agency's 1995 proposal on sponsorship, including comments submitted by
the

[[Page 44528]]

tobacco industry, motorsport industry, advertising agencies, adult
smokers, medical professionals, public interest groups, and racecar
drivers. Approximately 300,000 individuals submitted a form letter that
was produced by 1 tobacco manufacturer. The form letter inaccurately
referred to the 1995 proposal as a ``ban on tobacco sponsorship of
events including concerts, State fairs and consumer promotions''
whereas the agency proposed to permit tobacco company sponsorship of
all events to continue as long as they are in the corporate name. Other
comments submitted by the tobacco industry, adult smokers, and
motorsport industry strongly objected to the provision. In contrast,
those comments submitted by public interest groups, medical
professionals, and some racecar drivers strongly supported the
provision.
In response to comments, the agency has modified this provision to
prohibit all sponsored entries and teams using the brand name in
addition to the prohibitions that were proposed. Moreover, the final
rule clarifies that the corporate entity that can sponsor events, teams
and entries must not only be registered but that the registration must
be in active use in the United States, and the corporate name cannot
include any indicia of product identification ``that are identical or
similar to, or identifiable with, those used for any brand of
cigarettes or smokeless tobacco.''
(82) Several comments addressed the issue of whether young people
attend, or even see, sponsorship events. Some comments opposed the
provision, arguing that sponsored events (such as motorsport events and
seniors golf tournaments) are created for and attended by adult
smokers, and that there is no credible evidence that these events are
targeted at, created for, attended by, or even seen by significant
numbers of children and adolescents. One comment stated that ``contrary
to FDA's assertions,'' the industry takes special steps to ensure that
material distributed at events is not attractive to minors. One comment
stated that ``[r]ecent industry studies demonstrate that the
overwhelming majority of fans at motorsports events are adults,'' and
that ``for example, 97 percent of NASCAR Winston Cup Series race
attendees are 18 years of age and older [and] [m]ore than 90 percent of
NHRA Winston Drag Racing Series attendees are 21 years old and older.''
The underlying studies were not, however, cited or attached to the
comment.
One comment added that motorsport events are not seen by
``significant'' numbers of children under the print media standard
proposed by FDA (i.e., the ``15 percent/2 million benchmark''). The
comment argued that:
[o]n the one hand, the agency concedes that image advertising is
permissible in publications with a primarily adult readership
because ``the effect of such advertising on young people would be
nominal,'' but on the other hand, it attempts to measure the impact
of cigarette brand sponsorships * * * by using statistics on the
viewing audience of sponsored motorsport events without recognizing
that these figures demonstrate the fact that the vast majority of
viewers of such events are adults.
The comment stated that:
[I]n fact, the 64.05 million underage viewers of the 354
motorsport broadcasts studied represents only 7 percent of the total
viewing audience of these broadcasts. This averages out to 180,806
underage viewers per event. These figures are far below the 15
percent and two million readership benchmarks that are permitted for
image advertising in print media.
* * *
The comment also stated that FDA made no attempt to measure the
percentage of adolescents in the live gate of sponsored events, and
that industry estimates indicate that the overwhelming percentage of
fans attending motorsport events are adults.
One comment stated that the price of a typical ticket to a stock
car race event is expensive enough to preclude adults from taking their
children to events and to preclude children themselves from attending
these events.
Other comments supported the provision, stating that tennis
tournaments, sports car, motorcycle and powerboat racing, and rodeos
all are aimed at sports enthusiasts, many of whom are children or
teenagers, and that rock concerts and country music festivals are
``magnets'' for adolescents.
One comment stated that:
[it] is also no coincidence that when the tobacco industry
sponsors events where the audience is almost entirely educated
adults, the sponsorship is in the name of the corporation (i.e., art
exhibits, modern dance companies), but when the event fits the
psychological image the tobacco industry needs to attract
adolescents, the sponsorship is in the name of the brand most likely
to appeal to those children (Virginia Slims, Marlboro, Winston,
Skoal Bandit).
The agency, which acknowledges the comments' reports on the number
of young people at events, did not receive any data to support or
refute these numbers. However, recent reports in the press indicate
that the number of young people attending these events may be growing.
In NASCAR we found a great kids' business. I was astounded by
their information, statistics and demographics regarding kids. [Fred
Siebert, president of Hanna-Barbera, Inc., explaining why the
company is sponsoring a cartoon race car to appear in NASCAR races
emblazoned with Fred Flintstone and other cartoons on the hood.]
After reviewing the 1995 NASCAR season, we concluded that a sizable
number of attendees at NASCAR events were families with kids ages 6-
11. Yet we felt NASCAR was not specifically serving that audience.
[Gary Bechtel, owner Diamond Ridge Motorsports, who will field a
NASCAR car and team named Cartoon Network Wacky Racing.] \234\
---------------------------------------------------------------------------

\234\ ``Diamond Ridge Motorsports and Hanna-Barbera, Inc., to
form Wacky Racing Team Changing Face of NASCAR; Deal Launches
Cartoon Network Consumer Branding Initiative,'' Business Wire,
November 10, 1995.
---------------------------------------------------------------------------

* * * * *
We looked at NASCAR and saw how quickly it was growing
nationally and the fact that so many families go to the races it
seemed like a natural fit. \235\
---------------------------------------------------------------------------

\235\ ``Automobile Racing's Widening Appeal Gets the Flintstones
in Sponsor Table,'' The Times Union, p. B11, March 30, 1996.
---------------------------------------------------------------------------

Moreover, the agency finds that 64.05 million underage viewers (or
180,806 underage viewers per event) is clearly not ``insignificant.''
As discussed in the preamble to the 1995 proposed rule, the ``Sponsor's
Report,'' which estimated the value of all product exposure for most
U.S. automobile races, found that 354 motorsport broadcasts ``had a
total viewing audience of 915 million people, of whom 64 million were
children and adolescents.'' The preamble to the 1995 proposed rule
stated: ``the impact of sponsoring televised events such as these
automobile races is perhaps most apparent when one realizes that over
10 million people attended these events, while 90 times that number
viewed them on television'' (60 FR 41314 at 41337). In addition, recent
news accounts indicate that televising of races has increased both in
volume and diversity. For example, television can often support three
major races in 1 day. The two cable ESPN channels had 150 hours of auto
racing programming in May, 1996, including 95 hours of live races, time
trials, qualifying and practice laps. \236\
---------------------------------------------------------------------------

\236\ Moore, S., ``Ladies and Gentlemen, Start Your
Televisions,'' Washington Post, May 26, 1996.
---------------------------------------------------------------------------

The effect of sponsored events on the young people who attend or
see these events is enormous. Advertising affects young people's
opinion of tobacco products, first, by creating attractive and exciting
images that can serve as a ``badge'' or identification, second, by
utilizing multiple and prolonged exposure in a variety of media,
thereby

[[Page 44529]]

creating an impression of prevalence and normalcy about tobacco use,
and finally, by associating the product with varied positive events and
images. The sponsorship of events by tobacco companies uniquely
achieves all three objectives. Sponsorship creates an association
between the exciting, glamorous or fun event with the sponsoring
entity. Whether at the live gate, or on television, young people will
repeatedly see and begin to associate the event, which they are
enjoying, with the imagery and appeal of the product. All of the
attendant concerns of hero worship of the sports figures and
glamorization of the product by identification with the event are
present, whether there are thousands or hundreds of thousands of young
people in attendance. Race car drivers are extremely popular with young
people and often are looked up to as heroes. According to one promoter
of NASCAR properties, ``We've found that boys look to NASCAR drivers
the same way they do to heroes, such as firemen, policemen,
professional fighters, or astronauts.'' \237\
---------------------------------------------------------------------------

\237\ Williams, S., ``NASCAR Races into Kid's Licensing,
National Association for Stockcar Auto Racing Seeking Promotional
Appeal and Other Products,'' Children's Business, vol. 9, No. 7, p.
28, July 1, 1994.
---------------------------------------------------------------------------

Furthermore, sponsorship events present a prolonged period of time
in which to expose the audience, including young people, to the
imagery. Sponsorship events do not provide people with a momentary
glimpse at the imagery, but from 1 to 2 or 3 hours of constant
attractive imagery. The audience has more than enough time to associate
the images of the sporting event or the concert with the product.
The agency agrees that there may be some events (such as seniors
golf tournaments) that are primarily attended by adult audiences. The
agency also does not claim that all sponsorship events are attended
primarily by young people, but that the exposure (which includes
television broadcasts) of young people to sponsored events is
substantial. Even if a small percentage of young people attend certain
sponsorship events, the amount of television exposure that young people
receive is substantial.
In addition, the agency recognizes that numbers or percentages of
the audience less than 18 may be lower than the threshold established
for ``adult'' publications. However, the type of exposure in these two
media are dramatically different. Young people reading or flipping
through a magazine may momentarily glance at advertisements if they are
interesting or eye-catching, and as a result, the exposure, if any, to
one particular advertisement may be brief (the average time spent
viewing an advertisement is about 9 seconds \238\). However, young
people who attend sponsorship events or view them on television are
unavoidably bombarded with posters, signs, hats, t-shirts, cars, and
the like, linked with a fun, exciting, or glamorous event that they
enjoy for a prolonged period of time. Often, celebrities participating
in these events are wearing clothes and hats bearing the brand name and
attractive imagery, and young people come to associate athletes who
they admire with tobacco products. The amount of time viewed and the
positive association with the event are incalculable as persuasive
messages. Thus, the agency rejects the idea of setting a minimum
attendance threshold for brand name advertising.
---------------------------------------------------------------------------

\238\ Fischer, P., J. Richards, and E. Berman, ``Recall and Eye
Tracking Study of Adolescents Viewing Tobacco Advertisements,''
JAMA, vol. 261, pp. 84-89, 1989.
---------------------------------------------------------------------------

(83) FDA received many comments addressing its use of the concept
of ``friendly familiarity'' in connection with tobacco sponsorship of
events. Several comments stated that FDA misunderstood the theory,
\239\ arguing that sponsorships and promotions do not cause young
people to smoke, and that FDA has failed to meet its burden of
demonstrating that a ban of such activities will result in any decrease
in underage smoking. In fact, according to this comment, the studies
demonstrate that young people are most familiar with the brands of
tobacco that are most heavily advertised.
---------------------------------------------------------------------------

\239\ The comment stated that ``[t]he need to establish a
`friendly familiarity' with a brand name is not about deciding to
smoke * * * nor about deciding to use a commodity at all--the
decision to make a category purchase within a mature product
category is ALREADY made before advertising affects the brand choice
within the category.''
---------------------------------------------------------------------------

One comment asserted that since motorsport advertising and
promotion comprises a small percentage of overall tobacco advertising
(on the order of 4 or 5 percent of total tobacco advertising), there is
little support for the conclusion that tobacco sponsorship of
motorsports has any significant effect on the rate of youth smoking.
One comment from a 26-year old ex-smoker (who began smoking at age
10, and smoked for 13 years) and NASCAR racing fan stated:
[M]y favorite driver is sponsored by a beer company. I don't
drink and I'm not going to start because my favorite driver has that
sponsor. However- if I DID drink already, I may switch brands to
support my driver. All the advertising in the world will not sway me
(or most-intelligent people) to do something I wouldn't do anyway.
In contrast, several comments labeled the 1995 proposed rule a
``reasonable measure'' and stated that ``the evidence cited by FDA in
support of this proposal is substantial and entirely consistent with
the best available evidence.'' One comment supported FDA's sponsorship
restrictions because sponsorship heightens product visibility, molds
consumer attitudes, links the product with a particular lifestyle, and
thus increases sales.
One comment commended FDA for drawing a ``reasonable line--one that
allows tobacco companies to continue to sponsor events and therefore to
reap the corporate good will that flows from sponsorship, but compels
the companies to jettison the hard-sell message that now typifies these
events.''
Several comments stated that the events sponsored by tobacco
companies have a direct and powerful impact on young people because
they are fun, exciting, and glamorous, and events such as tennis
tournaments (Virginia Slims), sports car (NASCAR), motorcycles and
powerboat racing, rodeos, rock concerts, and country music festivals
are aimed at sports and music enthusiasts, including children or
teenagers. The comment stated that when minors view these events,
either in-person or on the television, they are: ``inundated with
images of the brandname or product logo (which are pasted on uniforms,
vehicles, signs and virtually every surface imaginable), creating a
direct and compelling association between the product and an enjoyable
event.''
The comment stated that children and young adults are particularly
vulnerable to this sort of product advertising, because adolescence is
the time of life during which identities are shaped. The comment
further stated that there is ample evidence that demonstrates that the
sponsorship of events leads to strong associations between the event
and the brandname, that in turn influences the purchasing decisions of
minors.
One comment stated that Virginia Slims' sponsorship of tennis was
vital to the image advertising Philip Morris used to sell Virginia
Slims tobacco to adolescent girls, and that Marlboro sponsorship of
racing events is no less effective with adolescent boys. The comment
stated that sports sponsorship has a secondary impact because ``[the
athletes who participate in the sponsored event, whether they be race

[[Page 44530]]

car drivers or tennis players, become walking advertisements and role
models.'' The comment stated that ``[a]s reflected by the Industry's
own Code, everyone agrees that athletes should not endorse tobacco
products because of her potential impact on children, but being a
spokesperson for the Virginia Slims Tennis Tournament, NASCAR racing,
etcetera is no less effective.''
The agency finds that the evidence regarding the effect of
advertising and sponsorship on children's smoking behavior is
persuasive and more than sufficient to justify this regulation. The
preamble to the 1995 proposed rule described the available evidence and
explained why the agency is regulating sponsored events. The evidence
demonstrates that sponsorship of sporting events by tobacco companies
can lead young people to associate brand names with certain life styles
or activities and can affect their purchasing decisions (60 FR 41314 at
41336 through 41338). The industry, in its comments, has questioned the
relevance of the evidence but has failed to demonstrate that FDA's
tentative views were wrong (the industry's criticisms of the individual
studies are described below).
Sponsorship events actively create an association between tobacco
and event enthusiasts. People under the age of 18 are still forming
attitudes and beliefs about tobacco use, see smoking and smokeless
tobacco use as a coping mechanism, a gauge of maturity, a way to enter
a new peer group, or as a means to display independence (60 FR 41314 at
41329). This final rule is intended to break the link between tobacco
brand-sponsored events and images and use of tobacco by young people.
In addition, the tobacco industry itself has recognized the
vulnerability of young people to advertising featuring sports heroes
and other celebrities. In its 1994 Code, the cigarette industry
promised that ``No sports or celebrity testimonials shall be used or
those of others who would have special appeal to persons under 21 years
of age.'' \240\ The impact of tobacco's association with the race
driver, the car, or the event is no less powerful and no less
persuasive.
---------------------------------------------------------------------------

\240\ Cigarette Advertising and Promotion Code, 1990.
---------------------------------------------------------------------------

Finally, although motorsport advertising comprises only a small
percent of overall tobacco advertising, its effect, like that of
magazines, or hats and tee shirts, is cumulative. Each separate
advertising venue, in and of itself, does not produce the entire
effect. However, taken together, the effect of each advertising
exposure is magnified beyond each discrete exposure, to create the
impression that cigarette and smokeless tobacco use is widespread and
widely accepted. These impressions, as stated in section IV.D.3.c. of
this document, are very influential to children and adolescents.
(84) Several comments criticized in detail the studies relied on by
FDA to show the effect that sponsorship has on young people.
One comment stated that the studies relied on by FDA (40 FR 41331
and 41332) do not provide scientifically valid support for the
conclusion that there is a causal relationship between the promotional
and sponsorship activities banned under Sec. 897.34(c) and the problem
of underage smoking.
The agency proposed to regulate sponsored events based upon its
tentative finding that the best evidence supported such regulation.
Although the comments argued that the studies are inadequate, the
comments offered no new evidence to suggest that the conclusions are
invalid.
(85) One comment argued that although the conclusion reached by an
unpublished paper by John Slade \241\ is that 7 percent of the viewing
audiences for NASCAR races are youths, the NASCAR Demographics brochure
states that ``NASCAR records of the age of persons who attend
motorsport events show that only 3 percent are youths.'' The comment
stated that this does not constitute a principled basis for outlawing
tobacco company sponsorship of these races even if every other
assumption FDA makes about the impact of event sponsorship were true.
---------------------------------------------------------------------------

\241\ 60 FR 41314 at 41337, n. 225; citing Slade, J., ``Tobacco
Product Advertising During Motorsports Broadcasts: A Quantitative
Assessment,'' presentation at the 9th World Conference on Tobacco
and Health, October 10-14, 1994.
---------------------------------------------------------------------------

The agency disagrees with the comments on the paper by Dr. Slade.
Slade's paper established that these events are attended by and seen by
a large number of young people. The study measured its stated
objective, it establishes the important fact that children are being
unavoidably exposed over and over again to attractive and appealing
images associated with tobacco products at NASCAR events. The study
establishes that young people are present at events where a popular
sport is associated with tobacco on signs, cars, people, etc.
The agency also disagrees with the comment that suggested that the
price of tickets to motorsport events was sufficiently high to preclude
adults from taking their children to see them. In fact, some motorsport
events allow children to attend free of charge or offer discount
tickets for children. \242\
---------------------------------------------------------------------------

\242\ See, e.g., Rosewater, A., ``Retirement is no Drag for
Prudhomme,'' Plain Dealer, p. 7D, June 4, 1996; ``Fun Book 96/ This
Spectator Sport: Easy Over,'' Newsday, p. 80, May 19, 1996;
Schmiedel, M., ``Motor Sports World Motorcycle Trials in Exeter Next
Weekend,'' The Providence Journal-Bulletin, p. 13D, May 19, 1996.
---------------------------------------------------------------------------

(86) One comment stated that the study performed by Aitken, et al.
\243\ (the Aitken study) did not attempt to gauge whether exposure to
tobacco-sponsored events or teams engendered favorable feelings for
tobacco products in the surveyed young people and stated that the study
only addressed the effect of factors such as sex, age, and
socioeconomic status on awareness of cigarette sponsorships. The
comment also stated that the Aitken study did not test the effect of
sponsorship activities in this country, and that FDA ignores the fact
that tobacco companies sponsor a wider variety of more popular sports
in the United Kingdom, such as ``snooker, cricket and darts.'' Finally,
the comment accused FDA of ``selective reading,'' citing FDA's omission
of a statement made by the authors when discussing past studies that
even though minors may be aware of the sponsorships, ``[t]his of course
does not mean that cigarette advertising plays a part in inducing
children to start smoking.'' The comment also criticized the author of
the study for stating that even though very few of the primary
schoolchildren named John Player Special or Marlboro as being
associated with racing, ``[t]his suggests that linkages or associations
between brand names (or their visual cues) and exciting sports are
often unconscious, or at the very least, not readily retrieved by
consciousness (Aitken et al., p. 209).'' The comment claims ``[t]hat
astonishingly biased hypothesis was not tested by any questions that
attempted to probe the ``unconscious'' or the ``consciousness'' of the
interviewees.''
---------------------------------------------------------------------------

\243\ 60 FR 41314 at 41337, n. 226; citing Aitken, P. P., D. S.
Leathar, and S. I. Squair, ``Children's Awareness of Cigarette Brand
Sponsorship of Sports and Games in the UK,'' Health Education
Research, Theory and Practice, vol. 1, pp. 203-211, 1986.
---------------------------------------------------------------------------

The agency disagrees with the comment's criticism of the Aitken
study. This study conducted in the United Kingdom demonstrated that
primary schoolchildren who said that they intended to smoke when they
were older tended to be more favorably disposed to cigarette
advertising. Moreover, Aitken's comment that this

[[Page 44531]]

study did not mean that advertising plays a part in inducing children
to start smoking`` is an accurate statement of the study. The purpose
of the study was to examine the effect of sponsorship on children's
awareness of tobacco sponsorship and brand name identification with
that sport, not on their smoking behavior. This fact is not a flaw but
a description of the study design and the study's limitations. The
study, however, is quite useful in showing the effect of sponsored
events on young people's awareness of brands.
In addition, the comment selectively quoted a portion of the Aitken
study (regarding linkages), while ignoring the reason the statement was
made. The author of the study made this statement in the context of the
finding that whereas only 9 percent of the primary schoolchildren named
John Player Special or Marlboro as sponsoring or being associated with
racing cars, 47 percent of primary schoolchildren chose John Player
Special or Marlboro as being liked by ``someone who likes excitement
and fast racing cars.'' The authors also found that linkages or
associations between cigarette brand names (or their visual cues) and
exciting sponsored sports can be elicited by simple advertisements,
even among children who do not have a critical awareness of the purpose
of commercial sponsorship. This type of linkage is the primary issue,
rather than whether such information is ``conscious'' or
``unconscious'' in nature.
(87) One comment stated that the study performed by Ledworth \244\
(the Ledworth study), which found that even a fairly brief exposure to
tobacco sponsored sporting events on television may increase children's
brand awareness, failed to control for other sources of information
that could result in brand awareness (i.e., if a family member smokes),
and that even the author of the study stated that further investigation
needed to be done to determine whether tobacco sports sponsorship
persuades children to smoke. The comment also stated that FDA cannot
extrapolate the study results to the United States because the study
was based on foreign sponsorship and viewership practices, which differ
significantly from those in this country. The comment stated that the
differences are highlighted by the fact that 74 percent of the surveyed
children watched at least part of the snooker match, and that the child
viewership of NASCAR is ``* * * significantly more limited, at most,
even by Slade's number, to 7 percent.''
---------------------------------------------------------------------------

\244\ 60 FR 41314 at 41338, n. 227; citing Ledworth, F., ``Does
Tobacco Sports Sponsorship on Television Act as Advertising to
Children,'' Health Education Journal, vol. 43, no. 4, 1984.
---------------------------------------------------------------------------

The agency disagrees with the comment's criticism of the Ledworth
study. The Ledworth study demonstrates the power of association between
an event and brand awareness among young people. The study is evidence
of the important link formed by that association.
(88) One comment stated that the study performed by Hock et al.
\245\ (the Hock study), which showed that nonsmoking boys who saw a
tobacco sponsorship advertisement had a diminished concern that tobacco
hurt sports performance, ``has no real relevance to the issue of event
sponsorship and suffers from obvious, significant methodological
flaws.'' The comment explained that the video viewed by one of the
groups contained an advertisement promoting a cigarette company's
sponsorship of a sporting event and thus reports the effect of a
particular advertisement, not the effects of the types of sponsorships
at issue here. The comment also stated that American tobacco companies
are not permitted to advertise sponsorships in this fashion under 15
U.S.C. 1335 (the television advertising ban). The comment argued that
the portion of the conclusion quoted by FDA overstates the results of
the flawed research because the authors themselves emphasized that
``nonsmokers''' general attitudes to smoking were not significantly
affected by exposure to sponsorship events. Finally, the comment argued
that, among the group of smokers, the authors reported that exposure to
the sponsorship advertisement did not affect the smokers' brand
choices, and that the authors cautioned that ``these findings do not,
in themselves, constitute a case for legislation.''
---------------------------------------------------------------------------

\245\ Hock, J., P. Gendall, and M. Stockdale, ``Some Effects of
Tobacco Sponsorship Advertisements on Young Males,'' International
Journal of Advertising, vol. 12, pp. 25-35, January 1993.
---------------------------------------------------------------------------

The agency disagrees with the comment's criticism of the Hock
study. Although the advertisement used in the Hock study may have been
different than advertisements that appear in the United States, and
only a single advertisement was tested, these factors alone do not
render the author's conclusions invalid. Again, most importantly, the
study provides evidence that brand sponsorship produces awareness of
the product and the brand in young viewers. The agency also disagrees
with the comment's assertion that FDA overstated the findings of the
study. The agency specifically acknowledged in the preamble to the 1995
proposed rule that exposure to the particular advertisement did not
affect overall attitudes toward smoking (60 FR 41314 at 41338).
Moreover, the agency disagrees with the comment regarding brand
preferences of smokers. As the study authors noted, the study primarily
focused on nonsmokers. Thus, the fact that there were few smokers in
the study makes it more difficult to find significant effects on
smokers. In addition, the authors note more than once that the effects
of sponsorship appear to be primarily on nonsmokers.
The important point of this study and the others cited by the
agency is that sponsorship of events helps create a positive
association between the event and the tobacco company. The child
relates the event to the product and this contributes to the perception
that tobacco use is acceptable and not dangerous. This attitude helps
an environment that fosters experimentation with tobacco products.
Finally, the comment asserted that FDA's reliance on the two-page
memorandum from Nigel Gray \246\ is ``not only disingenuous, but
demonstrates that FDA has not evaluated the data on which it purports
to rely.'' The comment stated that ``the statistics cited in this study
lack any explanation or support.'' The comment also states that ``[the
conclusions stated in the memorandum are at odds with those in the
studies by Aitken and Hock cited by FDA.'' The comment stated that the
author cited a ``Western Australian survey'' that found that 65 percent
of 10 to 11 year olds surveyed believed that tobacco sponsorship of
sports is advertising for tobacco, whereas the Aitken study ``found
that only 4 percent of 10 to 11 year olds identified advertising as a
component of sports sponsorships by tobacco companies.'' The comment
also argued that the study by Hock found no effect of the sponsorship
advertisement on brand choice, whereas the memorandum by Gray revealed
that sponsorship did effect brand choice.
---------------------------------------------------------------------------

\246\ 60 FR 41314 at 41338, n. 228; citing memorandum from Gray,
N., (Anti-Cancer Council of Victoria), to all members of the Federal
Parliament, December 15, 1989.
---------------------------------------------------------------------------

The agency recognizes that there are problems with the two-page
memorandum from Nigel Gray because the data on which it was based have
not been made available. Therefore, the

[[Page 44532]]

agency has placed no weight on its findings and does not rely on it in
the final rule.
On the other hand, the memorandum cannot be used to diminish the
usefulness of the other studies that have been cited. A careful reading
of the data presented by the Aitken study reveals that indeed 17
percent of 10 to 11 year olds identified advertising as a component of
sports sponsorship by tobacco companies. While it is true, as the
comment indicated, that 4 percent mentioned only the advertising
component, the comment has overlooked the fact that an additional 13
percent of 10 to 11 year olds mentioned both advertising and economic
components.
In summary, these studies provide ample support that brand name
sports sponsorship produces, for young people, memorable associations
between the sport and the tobacco product and brand name. As shown in
section VI.B.1. of this document, young people pay attention to and
rely on peripheral cues such as the color and the imagery of
advertising for some of their information about products. Tobacco
sponsorship creates powerful images of fun and excitement to add to
that ``information'' mix.
(89) FDA had proposed that entries, such as racing cars, or events
or teams that participate in events be permitted to display a brand
name in a black and white text only format. Thus, although the Skoal
500 would be prohibited, the Skoal Bandit racing car could participate
in a race event.
Several comments supported the provision's requirement for teams
and entries but recommended that the agency go further to restrict
labeling on entries and teams in sponsored events. One comment, which
was submitted by a ``participant in motorsport events,'' stated that
``even when the Marlboro name, for example, is removed from a racing
car body, the distinctive color scheme still sends the Marlboro
message, loud and clear.''
One comment stated that ``under the rationale applied to the
regulation on event sponsorship, * * * FDA would be justified in
restricting tobacco companies from entry and team sponsorship.'' The
comment recommended that FDA ``limit the scope of the terms `entries'
and 'sponsored events,' for the breadth of possible entries and
possible events is enormous.'' The comment stated that for instance,
professional sporting events such as football, basketball, baseball,
and hockey games, should be excluded from `sponsored events,' so that
tobacco product brand names cannot be used as the name of a
professional sports team.'' The comment stated that the term
``entries'' is ambiguous because, for example, a race car competing in
a sponsored race would qualify as an ``entry'' under the proposed rule,
``but would the Company X Choir be considered an `entry' when it
appears in a sponsored concert?''
The agency has carefully considered the comments and has decided to
delete ``entries and teams in sponsored events'' from the list of
permissible advertising media in Sec. 897.30(a) and to specifically
include teams and entries within the scope of the ban on sponsored
events. The agency is persuaded that sponsored teams and entries, such
as cars: (1) Create the same associations with sports figures and other
``heroes,'' (2) create a linkage between a tobacco product and an
enjoyable and exciting event when they appear as part of an event, (3)
are displayed for a significant period of time. They have the same
potential to create images and influence children and adolescents as
does sponsorship of events, and (4) are able to leave the event and be
seen at fairs and malls and other places frequented by young people.
The agency appreciates the comment's suggestions that color and
imagery are as problematic as the brand name but advises that the
comment has misinterpreted the 1995 proposed rule. Proposed
Sec. 897.34(c) stated that sponsorship would be prohibited in ``the
brand name, logo, motto, selling message, recognizable color or pattern
of colors, or any other indicia of a product identification similar or
identical to those used for tobacco or smokeless tobacco products.''
Thus, a car sponsored by Philip Morris may not be named after the
Marlboro brand nor be painted in the distinctive tri-color pattern.
(90) Some comments addressed the issue of whether sponsorship is
advertising. One comment argued that the International Events Group's
(IEG) ``IEG Complete Guide to Sponsorship'' states that sponsorship is
not advertising, and that the guide explains that advertising involves
the delivery of messages about specific product attributes, while
sponsorship merely shapes the consumer's image of the brand. Moreover,
to the extent the IEG is identifying sponsorship as advertising, the
comment asserted that the IEG guide is a publication by an organization
that depends on sponsored events for its existence, and is not in the
business of conducting objective, statistically sound studies on the
effects of sponsorship. Thus, the comment asserted, FDA has not cited
any scientific study supporting the theory that sponsorship is
advertising.
The comment argued that the position that sponsorship and
advertising are one and the same is inconsistent with pronouncements
from Congress and from the FTC. The comment argued that both Congress
and the FTC have recognized that advertising includes messages about
product attributes or appealing visual imagery, and the use of a brand
name to identify an event includes neither. The comment asserted that
``nothing in the [FTC]'s findings suggests a rationale that would apply
to the mere display of a logo, trademark, or other product identifier
when divorced from a selling message.'' The comment asserted that
Congress has never classified sponsorship of events using brand names
as advertising, and that the few times it has addressed this issue,
Congress has issued laws that distinguish advertising from other forms
of promotion that do not have the same impact as advertising.
The comment referred to an FTC order In the Matter of Lorillard
Tobacco, 80 FTC 455, 457 (1972), which the comment argues defines
``advertising'' to include only those practices that typically contain
a selling message; and United States v. R.J. Reynolds Tobacco Company,
No. 76-Civ-814 (JMC) (SDNY 1981), which the comment argued confirms the
Government's view that the selling message in advertising, not the mere
display of a logo, was the focus of its concern.
In addition, the comment argued that another Federal agency agrees
with this interpretation. The comment stated that the FCC, expressly
permits ``logos or logograms'' as long as such announcements do not
contain ``comparative or qualitative descriptions, price information,
calls to action, or inducements to buy, sell, rent or lease.''
In contrast, some comments supported the assertion that sponsorship
is very effective advertising. One comment included in its appendices
the transcript of an ABC News Day One story broadcast August 10, 1995,
that reported on the commercial value of sponsorship. The comment also
included a recent story in Winston Cup Scene (October 19, 1995) which
describes the advertising value that sponsors expect to receive from
their sponsorships.

[[Page 44533]]

Contrary to the comments cited, the FTC asserted, in its comment,
that sponsorship is advertising, citing its 1992 consent order
involving the Pinkerton Tobacco Co., (Consent Order) C-3364 (1992).
The comment also stated that in 1995, the Department of Justice
announced consent decrees resolving allegations that Philip Morris,
Inc., and the owners of Madison Square Garden in New York City violated
the Cigarette Act's ban prohibiting advertising for tobacco on
television and other media regulated by FCC through the display of
cigarette brand names and logos at live sporting events that were
broadcast on television (United States v. Madison Square Garden, L. P.,
No. 95-2228 (S.D.N.Y., April 7, 1995); United States v. Philip Morris,
Inc., No. 95-1077 (D.D.C. June 6, 1995)). The consent decrees prohibit
Philip Morris and Madison Square Garden from placing cigarette
advertising in places regularly in the camera's focus where they might
be seen on television.
The agency finds that sponsorship is advertising within the scope
of this regulation. The claim by the comments that the Lorillard and
Reynolds Tobacco consent orders demonstrate that the FTC does not find
sponsorship to be advertising is incorrect. The two cited cases are
consent orders that did not provide a definition of advertising but
limited the coverage of the consent order to the specific types of
advertising mentioned in the order. The two orders clearly excluded
categories of obvious advertising from the coverage of the order (see,
e.g., point of sale advertisements less than 36 square inches).
Although the agency acknowledges that the ``IEG Complete Guide to
Sponsorship'' (IEG guide) states that sponsorship is not advertising,
IEG is creating a semantical distinction between one form of
advertising (traditional media advertising) from other types of
advertising (e.g., promotional items, sponsorship). The IEG guide
states that ``[w]hat sponsorship generally accomplishes better
[emphasis added] than advertising is establishing qualitative
attributes, such as shaping consumers' image of a brand, increasing
favorability ratings, and generating awareness.'' In addition, the IEG
guide states that sponsorship is more effective than advertising in
increasing ``propensity to purchase.'' This latter description of
sponsorship falls within the courts definition of advertising in Public
Citizen v. FTC, 869 F.2d at 1554, as ``any action to call attention to
a product so as to arouse a desire to buy.''
The agency finds for all these reasons that sponsorship can be
regulated as advertising under the act.
(91) Several comments argued that FDA does not have the authority
to restrict sponsorship events. One comment stated that FDA has no
authority to regulate cigarette advertising to ``break the link''
between sponsored events and use of tobacco, and reduce the ``friendly
familiarity'' that sponsorships generate among young people. The
comment stated that FDA can prohibit only false or misleading
restricted device advertising and cannot prohibit advertising that
simply links a name to a product. One comment stated that it is
difficult to understand how the sponsorship of the IndyCar Marlboro 500
or the National Hot Rod Association Winston Drag Racing Series,
promotional activities that would be prohibited under the 1995 proposed
rule, involve the ``misbranding'' of tobacco products.
Several comments addressed the issue of whether FDA's proposed ban
on brand name sponsorship violates the First Amendment. Several
comments argued that the proposed restrictions on advertising and
promotional activities are overly broad and violate the First Amendment
because the 1995 proposed rule would prohibit virtually all forms of
tobacco sponsorship and advertising at motorsport events, and FDA made
no attempt to limit the restrictions to advertisements directed at
minors. One comment argued that the provision would not directly and
materially advance the government's interest, because there is no
reasonable basis for asserting that sponsorship causes youth tobacco
use. The comment stated that FDA did not attempt to differentiate
between those events that attract children and adolescents and those
that attract adults. Thus, according to the comment, a ban on tobacco
sponsorship of an event that few or no children or adolescents attend
will not directly and materially advance a reduction in underage
tobacco use.
In contrast, one comment which supported the provision stated that
sponsored events have a direct and powerful impact on young people, and
thus there is a ``reasonable fit'' under the final two prongs of the
Central Hudson test. The comment argued that the 1995 proposed rule is
narrowly tailored because ``FDA has selected the approach that best
effectuates its goal of reducing tobacco consumption by minors, without
needlessly restricting the industry's ability to sponsor events and
garner the good will that flows from such sponsorship.''
FDA concludes that sponsorship of events and sponsored teams and
events is an advertising medium that is effective in influencing young
people's decision to engage in smoking behavior and tobacco use.
As explained in this section, the agency has authority to restrict
advertising of restricted devices like tobacco and smokeless tobacco
under sections 520(e) and 502(q) of the act. As the studies described
in this section \247\ demonstrate, sponsorship associates the
advertised brand with the event and thus shapes the image of the brand
and the individual's image of tobacco use. Sponsorship of rodeos and
car racing, for example, associates the product with events where risks
are high but socially approved and are taken by individuals who brave
the odds. \248\ This type of situation fits in very well with the image
concerns of adolescent males described in section VI.D.4.a. of this
document.
---------------------------------------------------------------------------

\247\ See e.g., Aitken, P. P., D. S. Leathar, and S. I. Squair,
``Children's Awareness of Cigarette Brand Sponsorship of Sports and
Games in the U.K.,'' Health Education Research, vol. 1, pp. 203-211,
1986.
\248\ IOM Report, p. 112.
---------------------------------------------------------------------------

Youths who attend the sponsored event are directly and unavoidably
confronted with messages for the sponsoring product. This exposure
creates a sense of familiarity and acceptance similar to that created
by billboards near schools and playgrounds.
In addition, the sponsored events are televised. As a result of
this fact, through mention of the sponsor and camera shots that pan the
place where the event is held, awareness of the brand is created, along
with the associations described above.
Given these factors, a restriction on sponsorship will be effective
in limiting the influences on children and adolescents to use tobacco
products and thus in protecting their health. Moreover, there is a
reasonable fit between the restriction and FDA's interest. The
restriction focuses on the use of the brand because of the association
between the brand and tobacco use. \249\ By building associations with
the brand, sponsorship and the advertising displayed at the event
creates a desirable image for young people that contributes to a
positive feeling about the product that sponsors

[[Page 44534]]

the event. This positive image not only provides a brand that the young
person might select but also adds to the young person's positive
feelings about using the product. It is the creation of this
association that FDA will prevent by restricting sponsorship.
---------------------------------------------------------------------------

\249\ Hock, J., P. Gendall, and M. Stockdale, ``Some Effects of
Tobacco Sponsorship Advertisements on Young Males,'' International
Journal of Advertising, vol. 12, No. 1, January 1993.
---------------------------------------------------------------------------

FDA is not aware of any way to limit the restriction to events that
are attended by young people. However, FDA has no desire to restrict
manufacturers' abilities to contribute to the community by sponsoring
athletic, cultural, or other events. Thus, the agency has narrowly
tailored the restriction on sponsorship to use of brand identification
because it presents the harm that FDA is trying to eliminate. For these
reasons, FDA concludes that its restrictions on sponsorship are
consistent with its legal authority and with the First Amendment.
(92) Several comments (including one from a participant in
motorsport events) argued that allowing tobacco companies to place
brand names and logos at highly visible locations during broadcast
sporting events has afforded tobacco companies the opportunity to
circumvent the Cigarette Act, which prohibited broadcast advertising of
cigarettes. One comment stated that tobacco companies receive millions
of dollars of free brand name television and radio exposure during
these events and use messages in these advertisements that are
particularly effective with children. One comment stated that ``the
degree to which sponsoring events gives tobacco companies television
time is staggering,'' and ``[j]ust in the televising of the Indiana 500
[sic], Marlboro received almost 3\1/2\ hours of television exposure and
146 mentions of its brand name.'' The comment cited cases where
Congress and the courts have already recognized and upheld the
importance and the constitutionality of keeping tobacco advertising off
the airwaves (Capital Broadcasting Co. v. Mitchell, 333 F. Supp. 582
(D.D.C. 1971), aff'd sub nom. Capital Broadcasting Co. v. Acting
Attorney General, 405 U.S. 1000 (1972)), and concluded that a reviewing
court would likely sustain the provision regarding event sponsorship
simply because it has become a pervasive tool used by the tobacco
industry to evade the restriction on television advertising.
The agency finds that there is adequate support for its ban on
brand name sponsorship of events. As stated in the preamble to the 1995
proposed rule and in response to an earlier comment, ``[t]he amount and
financial value of television exposure gained by a firm can be
substantial.'' The preamble to the 1995 proposed rule cited two studies
which discussed the impact of sponsoring televised events and concluded
that:
[t]he impact of sponsoring televised events such as these
automobile races is perhaps most apparent when one realizes that
over 10 million people attended these events, while 90 times that
number viewed them on television.
(60 FR 41314 at 41337)
By restricting brand name sponsorship of events, the final rule
will eliminate those brand name sponsored events that continue to
permit tobacco product brand names to appear on television.
(93) Several comments expressed concern that the 1995 proposed rule
was not sufficiently inclusive; specifically, it did not prohibit the
incorporation of an event in a brand name by someone other than the
tobacco company and did not explicitly ban the use of the name of a
foreign tobacco company in U.S. sport events. Some comments stated that
restricting sponsorship of entertainment and sporting events to
corporate name only for corporate sponsors that had been in existence
prior to January 1, 1995, ``leaves open many shadow entities
incorporated under tobacco brand names because tobacco transnationals
have been creating these front groups for years to escape promotion
restrictions in other countries.''
One comment stated that Canada, after it had banned brand name
sponsorship, found that industry used new ``corporations'' such as
Camel Racing PLC to continue sponsoring in a brand name. Thus, the
comments recommended that the regulation ensure that corporate
sponsorship of events be allowed only if the corporate name is the name
of the manufacturing entity and that the name has no similarity to a
brand name of any of that manufacturer's tobacco products.
Several comments expressed concern about a recent trend among U.S.
manufacturers to develop brands that are made by a corporate entity.
For example, one comment stated that RJR has developed a series of
brands with an art deco style of pack design and is selling them
through a wholly owned subsidiary named Moonlight Tobacco.
Another comment stated that Philip Morris has been test marketing a
brand called ``Dave's,'' which it produces through a boutique company
named ``Dave's Tobacco Company.'' These comments stated that the agency
should amend the 1995 proposed rule to prohibit any corporate name or
logo that had a brand name or product identification within it.
Finally, a comment stated that there are many other existing brand
names that are also corporate names, such as ``Rothmans'' and
``Sampoerna'' (a brand of clove cigarette (Kretek) imported from
Indonesia) that are manufactured overseas. This comment argued that
non-U.S. corporate names must also be included in the final rules
proscription.
The agency recognizes the concern expressed by the comments. As
stated in the preamble to the 1995 proposed rule, the requirement that
the corporation be in existence on January 1, 1995, is intended to
prevent manufacturers from circumventing this restriction by
incorporating separately each brand that they manufacture for use in
sponsorship (60 FR 41314 at 41336). The comments have suggested that
manufacturers may circumvent this restriction by the use of shadow
entities, many of which have already been incorporated under tobacco
brand names in other countries (or have been incorporated as events).
The agency agrees that the proposed restrictions do not prevent this
type of circumvention.
Thus, in response to the comments' suggestions, the agency has
modified the proposed regulations to reflect that the registered
corporate name and corporation must have been in existence and
registered in the United States and have been in active use in this
country before January 1, 1995. Thus, FDA has modified Sec. 897.34(c)
to state: ``Nothing in this paragraph prevents a manufacturer,
distributor, or retailer from sponsoring or causing to be sponsored any
athletic, musical, artistic, or other social or cultural event, or team
or entry, in the name of the corporation which manufactures the tobacco
product, provided that both the corporate name and the corporation were
registered, and in use in the United States prior to January 1, 1995, *
* *.'' This provision makes clear that manufacturers are free to
sponsor events in their corporate name but contains language that will
prevent the type of circumvention of the restriction that was posited
by the comments.
The agency also agrees with the comments that suggest that
manufacturers may also attempt to circumvent this restriction by
placing within the corporate name or logo elements of brand
identification such as names (Smokin' Joe), colors (the tricolor
decoration), etc. Tobacco products can be promoted using more than just
the brand name. In fact, the name may be less important than the
attractive

[[Page 44535]]

imagery, recognizable colors and patterns of colors (Marlboro),
characters and heroes (Joe Camel racecar drivers) all of which provide
the user with a desired image. A yellow motorcross bike with a head of
a Camel conveys the image of Joe Camel without the name of the product.
Therefore, it is necessary in order to break the link between the event
and the product to restrict the images in addition to the name. Thus,
FDA has modified Sec. 897.34(c) so that it concludes with the following
statement:
``* * * and that the corporate name does not include any brand
name (alone or in conjunction with any other word), logo, symbol,
motto, selling message, recognizable color or pattern of colors, or
any other indicia of product identification identical or similar to,
or identifiable with, those used for any brand of cigarettes or
smokeless tobacco products.
The agency also recognizes that at some time in the future,
corporate entities may be formed to sell tobacco products, which are
new to the tobacco business and in no way associated with current
manufacturers. Should those entities desire to sponsor events, they
would be precluded by the language of Sec. 897.34(c) from doing so. The
agency envisions that such entities could petition the agency, under 21
CFR part 10, for an exemption from this provision.
(94) One comment stated that FDA's proposed ban on brand-name
sponsorship is an unjustified limitation on the right of private
individuals to select their own sponsors.
This comment has misinterpreted the 1995 proposed rule. The rule
does not limit the ``right'' of private individuals to select sponsors.
Individuals are free to select any sponsor they choose. The rule,
however, prohibits the event from including any brand name, logo,
symbols, motto, selling message, or any other indicia of product
identification similar or identical to those used for any brand of
cigarette or smokeless tobacco. However, the final rule does not
prevent corporate sponsors that were in existence and registered in the
United States before January 1, 1995, from advertising in their
registered corporate names.
(95) Several comments stated that sponsorship restrictions would
have a negative impact on sports events. Approximately 300,000 copies
of one form letter were submitted as comments. All included the
statement: ``I am 21 years of age or older and oppose the new
regulations proposed by the Food and Drug Administration (Docket No.
95N-0253) that would prohibit tobacco company sponsorship of
entertainment and sporting events.'' The form letter also stated that
``If FDA gets control of tobacco and bans tobacco sponsorships, ticket
prices could rise as well. And there might be fewer events. All this
adds up to consumers being the big losers.''
One comment stated ``I oppose any attempt by President or FDA to
deny RJR the right to sponsor the Winston Cup Racing Series!'' One
comment stated ``[b]y banning the sponsorship of NASCAR, the races
won't get any money, and if they have to stop racing, that will make me
mad, and I am too old to be getting mad--75 years [old].''
One comment stated that because of the potential loss of economic
support, many events will not be viable if cigarette company
sponsorship is no longer available. Several comments argued that FDA's
proposed ban on sponsorship, promotional programs, and contests would
eliminate events enjoyed primarily by adults. One comment stated that
``[w]e believe that we and millions of other middle class fans like us,
will no longer be able to afford the NASCAR we love.'' One comment
stated that the provision ``will adversely affect the economy of the
tobacco industry and that affects many people in many States, not just
the racing industry and communities.''
One comment stated that the loss of sponsorship revenue to race
track owners, operators, and promoters would negatively affect the
motorsports industry because racing fans will suffer in the form of
increased ticket prices or decreased services at motorsports events,
and increased ticket prices will decrease attendance at race events,
forcing racetrack operators to cut jobs and other employee benefits,
further depressing the economies of hundreds of communities around the
nation. The comment also stated that since motorsports injects hundreds
of millions of dollars into local and regional economies, particularly
in rural and suburban communities that have been the hardest hit by
recession and job losses, FDA's proposed regulation would have a
substantial impact on local and regional economies across the country
and hurt the future of motorsports.
In contrast, one comment that supported the proposal was from a
``dedicated car racer,'' and stated that ``the truth is that car racing
will do just fine without tying its wonderful image to the interest of
the cancer promoters.'' The comment stated that:
in Europe where racing cars run without any cigarette
advertising whatsoever, people camp out for days trying to get into
the events, and that the recent Formula One European Grand Prix was
run in cold miserable, weather with packed stands and not a single
cigarette logo in sight.
The comment stated that ``I hope [FDA] will look out for the rest
of us and stand firm in favor of a ban on tobacco advertising at all
sporting events.''
One comment stated that ``many of the millions of dollars spent on
these promotions are available to the cigarette industry only because
3,000 children start smoking each day,'' and ``[t]his situation can be
viewed as an industry demanding a bounty of 3,000 lives per day in
exchange for its financial support of the sports, music, and other
entertainment appealing to children and youth.''
One comment stated that:
the abundance of other sponsors indicates that auto racing would
not fail if tobacco products are not allowed to be event sponsors
and if teams sponsored by tobacco products are restricted to black
and white uniform and car designs. Similar fears were expressed when
cigarette commercials were banned from electronic media, but they
proved groundless.
The comment stated that sponsors do not make a sport such as auto
racing or rodeo popular because auto racing and rodeo are ``compelling,
popular spectator sports in their own right.'' The comment stated that
``popular sports attract sponsors who want to advertise.'' The comment
stated that ``[t]he Olympics would remain a premier sporting event
without Coca-Cola or Kodak'' and ``NASCAR stock car racing is among the
most popular spectator sports to thrive.'' The comment stated that
``the audience is not there because of tobacco: tobacco is there
because of the audience.''
The agency advises that the concerns expressed by some of these
comments have misinterpreted the rule. The rule does not ``prohibit
tobacco company sponsorship of entertainment and sporting events'' or
``ban tobacco sponsorships, promotional programs, and contests.'' The
rule prohibits a sponsored event from being identified with a cigarette
or smokeless tobacco product brand name or any other cigarette or
smokeless tobacco brand identifying characteristic. All athletic,
musical, artistic, or other social or cultural events would be
permitted to be sponsored in the name of the tobacco company as long as
the other conditions in Sec. 897.34(c) are met.
In addition, the tobacco industry accounts for only 4 percent of
all sponsored events. This rule does not prohibit the other 96 percent
of

[[Page 44536]]

nontobacco forms of sponsorship (60 FR 41314 at 41337). Thus, even if
the restriction on sponsorship of tobacco products resulted in a
decrease of tobacco company sponsored events, the events will still
exist through the support of the nontobacco forms of sponsorship. The
agency agrees with the comment that ``auto racing would not fail if
tobacco products are not allowed to be event sponsors.'' Thus,
restricting tobacco product brand name sponsorship clearly will not
``ban all sponsorship events.''
Finally, recent news stories quote persons knowledgeable about car
racing saying racing would survive without tobacco sponsorship, for
example, one quote: ``If this happened 10 years ago, it would have been
crushing to the racing industry. Now people are lining up to take
Winston's place.'' \250\
---------------------------------------------------------------------------

\250\ Quoting Ardy Arani, a director of the Atlanta-based
Championship Group, a sports marketing agency in Jacobsen, G.,
``Mass Merchandisers Jostle With Tobacco Companies to Cash in on the
Auto Racing Craze,'' The New York Times, p. D71, February 21, 1996.
---------------------------------------------------------------------------

In conclusion, FDA finds that sponsorship of events (such as car
races, tennis matches, and rodeos) and entries in those events (race
cars and drivers, tennis players) can have a profound effect on young
people's attitude about and use of tobacco by providing multiple and
prolonged exposure to the brand name and logo in a variety of media,
thereby creating an impression of prevalence and normalcy about tobacco
use (see section VI.D.3.c. of this document), by associating the
product with varied positive events, images, and heroes, and by
creating attractive and exciting images that can serve as a ``badge''
or an identification (see section VI.D.4.a. of this document). The
industry itself recognizes the concern that sports figures as endorsers
can create problems of hero worship and emulation; its Code promises
not to employ sports or celebrity testimonials or those of others ``who
would have special appeal to persons under 21 years of age.''
Sponsorship creates no less of an association than an endorsement.
Moreover, FDA finds that restrictions on sponsorship identified with a
tobacco brand are necessary to reduce tobacco use by young people.
These findings are based on studies and recent reports that the number
of young people who attend these events or see them on television is
significant and growing.
Studies--Four different studies, one each by Slade, Aitken,
Ledworth, and Hock (60 FR 41314 at 41337 and 41338) and described
further in this section, provide evidence that sponsored events of all
types are attended, and seen on television, by a substantial number of
young people, and that the effect of the exposure is to increase brand
awareness and association between the brand and the event. This
attitude contributes to a sense of friendly familiarity about tobacco
use and a perception that tobacco use is acceptable and common place.
Surveys on attendance and TV audience, described further in this
section, establish that attendance by children at events and viewership
by children and adolescents on television are significant. The preamble
to the proposed rule used the number 64 million as an annual
approximation of underage viewers of motorsport events in addition to
those at the event (60 FR 41314 at 41337). In addition, newspaper
articles detailed in this section describe the increasing importance of
young people to sponsored events as a growing part of the live
audience. Moreover, although less data is available on other types of
sponsored events, comments received by the agency in response to the
proposed rule, and described further in this section, state that many
children and teenagers watch tennis, motorcycle and powerboat racing,
and rodeos on television and attend and watch on television rock
concerts and country music festivals.
Finally, the agency has tailored the restriction narrowly. The
agency recognizes the importance of corporate sponsorship in
engendering goodwill for a company with its customers and in providing
support to sports, the arts, and music. Therefore, the agency has
crafted the regulation to not interfere with this aspect of sponsorship
but has merely denied the companies the right to use brand and product
identification, which are most appealing to young people.
9. Proposed Sec. 897.36--False or Misleading Statements
The agency proposed in Sec. 897.36 that labeling or advertising of
any cigarette or smokeless tobacco product:
is false or misleading if the labeling or advertising contains
any express or implied false, deceptive, or misleading statement,
omits important information, lacks fair balance, or lacks
substantial evidence to support any claims made of the product.
This provision would have explicitly implemented sections 201(n),
501(a) (21 U.S.C. 351), and 502(q)(1) of the act. Section 897.36 was
meant to be illustrative rather than exhaustive.
The agency stated in the 1995 proposed rule that its regulations
concerning prescription drug advertising provide great specificity as
to what constitutes violative advertising (part 202 (21 CFR part 202))
but that this same degree of specificity is not practical in the case
of a widely used consumer product like tobacco because the advertising
for it contains an unlimited variety of claims that make categorization
difficult. Therefore, the agency tentatively concluded that it would
provide general guidance for the types of advertising claims that will
be considered violative, rather than to attempt to identify every
possible type of false and misleading claim (60 FR 41314 at 41339 and
41340).
(96) Several comments objected to various portions of the
definition, for example the phrases ``omits important information'' and
``lacks fair balance.'' They asserted that the phrases expand the
definition of what constitutes ``misleading'' advertising, are
subjective, and make compliance burdensome because the phrases are not
defined. Moreover, the comment complained that neither ``fair balance''
nor ``substantial evidence'' were appropriately included in the
definition of false and misleading.
Additionally, the comments argued that laws regarding false and
misleading advertising are well established, and that false and
misleading advertising is subject to the jurisdiction of the FTC. The
comment stated that it was, therefore, inappropriate for FDA to
establish vague and overreaching parameters of ``unfair and deceptive''
advertising.
One comment stated that what ``information'' is important is
undefined. It stated that there is always information that someone may
consider ``important'' (e.g., price, availability, freshness, taste
research), and that it would be unreasonable to allow FDA, or any
regulatory organization or entity, to review tobacco advertising in the
capacity of determining information that should have been included.
This comment argued that the legal precedent defining deceptive
advertising is already established and should not be changed by FDA.
One comment stated that by introducing the word ``important'' into
the proposed standard for misbranding of tobacco, FDA has impermissibly
gone beyond the ``materiality'' test for misbranding set forth by
Congress in section 201(n) of the act, acted arbitrarily and
capriciously, and proposed a new standard that is unconstitutionally
vague.

[[Page 44537]]

One comment stated that FDA also proposes that labeling or
advertising would be false or misleading if it ``lacks fair balance.''
It stated that FDA has obviously borrowed this concept from the
prescription drug regulations (Sec. 202.1(e)(5)(ii)), but it is
inapplicable to tobacco. The comment stated that, first, the ``fair
balance'' requirement for drugs is based not on the section 502 ``false
or misleading'' prohibition but rather on section 502(n)(3), which
requires that prescription drug advertising contain a ``true
statement'' relating to ``side effects, contraindications, and
effectiveness.''
The comment stated that, second, as the drug regulation makes
clear, the ``fair balance'' required is between information about a
product's therapeutic benefits and information about its adverse
effects when used. It stated that because no therapeutic claims are
made for tobacco, the ``fair balance'' concept is simply inapplicable.
One comment, however, stated that, under this regulation,
advertising for cigarettes and smokeless tobacco will be considered
false or misleading if it ``omits important information.'' It stated
that this is a reasonable rule, and that it should be part of the final
rule, but it is one that may be difficult for manufacturers to comply
with absent guidance from FDA.
FDA has been persuaded that the proposed general guidance in
proposed Sec. 897.36 on what might constitute false and misleading
advertising has created unintended confusion. Under section 502(a) and
(q)(1) of the act, any restricted device is misbranded if its
advertising or labeling is false or misleading in any particular.
Section 201(n) of the act states that:
If an article is alleged to be misbranded because the labeling
or advertising is misleading, then in determining whether the
labeling or advertising is misleading there shall be taken into
account (among other things) not only representations made or
suggested by statement, word, design, device, or any combination
thereof, but also the extent to which the labeling or advertising
fails to reveal facts material in the light of such representations
or material with respect to consequences which may result from the
use of the article to which the labeling or advertising relates
under the conditions of use prescribed in the labeling or
advertising thereof or under such conditions of use as are customary
or usual.
After review of the applicable provisions of the act concerning
labeling and advertising, the agency has determined that those
provisions are adequate and that the definition in proposed Sec. 897.36
is unnecessary. Because cigarette and smokeless tobacco advertising
remains subject to regulatory action if it is false or misleading in
any particular, FDA has decided to delete Sec. 897.36 from the final
rule.
(97) Some comments supporting proposed Sec. 897.36 recommended that
specific restrictions be placed on advertising that emphasizes tar and
nicotine levels and implies a weight benefit to tobacco products.
Other comments suggested requiring the disclosure of ingredients.
These comments argued that consumers do not know the ingredients of
these products or the functions that these ingredients serve. It added
that consumers do not know the doses of nicotine and other critical
materials that they ingest with these products. The comment stated that
terms such as ``light'' and ``low tar'' have little meaning in view of
the tendency of consumers to smoke cigarettes differently depending
upon the way nicotine delivery has been engineered. A comment from a
tobacco company opposed disclosure of ingredients fearing loss of
valuable trade secret information.
The agency has decided that these comments fall outside the scope
of this rulemaking. The agency did not propose labeling or advertising
restrictions concerning the levels of tar, nicotine, or other
components of cigarettes or smokeless tobacco, or perceived benefits of
tobacco products, only that labeling or advertising not be false or
misleading. It did not receive comments sufficient to warrant
restrictions addressing these issues. Consequently, advertising and
labeling claims will be evaluated on a case by case basis for
compliance with sections 201(n), 502(a), (q), and (r), 510(j) (21
U.S.C. 360(j)), and 520(e) of the act. Therefore, FDA is not modifying
part 897 to address these concerns at this time.

F. Additional First Amendment Issues

Finally, several general issues were raised by commenters
concerning the nature of the protection afforded commercial speech by
the First Amendment.
(98) One comment argued that the original understanding of the
First Amendment was that truthful commercial messages are fully
protected.
In response to this comment, FDA points out that the Supreme Court
took the position that the First Amendment does not protect commercial
speech (see Valentine v. Chrestensen, 316 U.S. 52 (1942)), until it
repudiated that position in Virginia State Bd. of Pharmacy v. Virginia
Citizens Consumer Council, Inc., 425 U.S. 748 (1976). Since 1976, the
Court has decided numerous cases, most recently Rubin v. Coors, Florida
Bar v. Went For It, Inc., and 44 Liquormart Inc. v. Rhode Island, that
address the level of protection afforded commercial speech by the First
Amendment. FDA has followed that case law in its development of this
final rule. Therefore, FDA has developed this final rule in accordance
with the applicable law.
(99) A comment filed by an association of advertising agencies
warned that the proposed regulations ``establish a dangerous precedent
that could open the floodgates to dramatic government intrusion into
the process of communication * * * and [are] a dangerous blueprint for
government censorship of other kinds of advertising.'' The comment
expressed concern that regulations of advertising for tobacco products
will permit, in fact will encourage, the future regulation of other
``controversial products.''
Tobacco products are not ``controversial'' products as these
comments contend. They represent the single most preventable cause of
death in the United States (1989 Report to the Surgeon General at p.
i). Not only is the harm caused by tobacco use real (the comment refers
to ``imagined harm''), but the product that produces the disease and
death is addictive. Moreover, tobacco use begins among young people,
who may be able to describe the risks of tobacco use, but who do not
personalize that risk to themselves. These young people begin to use
tobacco before they can adequately weigh the consequences of use and
thus, become addicted and subject to the real long term harms caused by
tobacco use. That is why all 50 States and the District of Columbia
outlaw the sale of tobacco products to those under 18 years of age.
Finally, as discussed in section VI.D. of this document, advertising
does affect young people's decision to use tobacco products in a
significant and material way. This is not an ``assertion'' made out of
whole cloth but a reality. Thus, regulation of tobacco advertising may
set a precedent for future government action, but it sets a high
threshold for such regulation.
The Supreme Court has granted ample protection to commercial
speech, but the Court has also stressed, nothing in the First Amendment
prevents the Government from ensuring ``that the stream of commercial
information flows cleanly as well as freely.'' (See Edenfield

[[Page 44538]]

v. Fane, 506 U.S. 761, 768.) One comment noted: ``This concern takes on
special force where, as here, crucial public health concerns are
implicated, and where a particularly powerful seller * * * has used its
virtually limitless resources to saturate the marketplace with its
promotional messages.''
The Government's interest in protecting the health of children and
teenagers through measures designed to prevent them from beginning a
lifetime of addiction and disease is of the highest order and is
sufficient justification for the restrictions finalized here.

VII. Education Campaign

In the Federal Register of August 11, 1995 (60 FR 41314), the Food
and Drug Administration (FDA) proposed to require that tobacco
companies establish a national education program, using television as
its predominant medium, to discourage children and adolescents from
using cigarettes and smokeless tobacco (the 1995 proposed rule). The
agency received more than 1,500 comments concerning the program, nearly
three-quarters of which favored going forward with it. The comments
raised many issues concerning the program as proposed, including
whether the proposed funding would be either equitable or sufficient,
whether industry's level of involvement would jeopardize its
effectiveness, whether current industry educational programs are
sufficient, about the design of the educational programs, the
manufacturer's obligations to carry them out, the agency's statutory
authority to require an education campaign under section 520(e) of the
Federal Food, Drug, and Cosmetic Act (the act)(21 U.S.C. 360j(e)), and
the constitutionality of the campaign as proposed.
The agency has reexamined its statutory authority for requiring an
education campaign and believes that section 518(a) of the act (21
U.S.C. 360h(a)) is more appropriate and practicable than the restricted
device authority in section 520(e) of the act under which FDA had
proposed the education campaign. Under section 518(a) of the act, if
the agency finds that a device presents an unreasonable risk of
substantial harm to the public health, that notification is necessary
to eliminate this risk, and that no more practicable means is available
under the act, then, after consultation with device manufacturers, the
agency may issue a notification order that requires them to notify the
appropriate persons in a form appropriate to eliminate the risk. The
agency has used section 518(a)'s separate, affirmative grant of
statutory authority on a number of occasions to compel medical device
manufacturers to provide notice to users or potential users of their
products about risks presented by their use or misuse.
The agency believes that, with respect to cigarettes and smokeless
tobacco, it could make the findings required by section 518(a) of the
act and so could order tobacco manufacturers to notify young people
about the substantial health risks that tobacco products present in a
form appropriate to eliminate the risk. That is, the agency believes
that it could find that cigarettes and smokeless tobacco present an
unreasonable risk of substantial harm to the public health, that
notification is necessary to eliminate this risk, and that no more
practicable means is available under the act.
The agency has concluded, therefore, that it will not require an
education campaign as part of this tobacco rule. The agency intends,
however, to send letters that indicate that the agency believes that it
could make the statutory findings necessary to issue notification
orders under section 518(a) of the act to cigarette and smokeless
tobacco manufacturers. As section 518(a) of the act requires, these
consultation letters will offer tobacco companies an opportunity to
consult with the agency about the necessity for, and specific
requirements of, any notification orders before the agency issues any
orders to the companies.
Because the education campaign will not be a requirement of this
final rule, the agency need not respond to the many comments that it
received concerning the proposed campaign. Nevertheless, because the
agency intends to pursue implementation of an education campaign using
the notification provision of section 518(a) of the act, the agency
will respond briefly to comments that questioned the effectiveness and
design of the proposed education campaign.
(1) The agency received comments questioning the effectiveness of
other educational campaigns and the agency's use of these campaigns to
support the position that a national educational campaign would be
effective in helping reduce tobacco use among young people. Comments
from the tobacco industry argued that studies cited by FDA are
scientifically flawed and therefore that the agency overstated the
likely effects of the provision. One industry comment argued that FDA
misinterpreted a study by Simonich \251\ (the Simonich study), cited in
the preamble to the 1995 proposed rule to demonstrate that the media
campaign conducted under the Fairness Doctrine (FD) reduced cigarette
consumption by 6.2 percent (60 FR 41314 at 41327). The comment
concluded that the data from the Simonich study indicated that the
overall effect of the Fairness Doctrine was merely a 0.4 percent
decline in per capita consumption.
---------------------------------------------------------------------------

\251\ Simonich, W. L., ``Government Antismoking Policies,''
Peter Lang Publishing, Inc., 1991.
---------------------------------------------------------------------------

FDA disagrees with the industry's interpretation of the Simonich
study. The agency believes that the Simonich study results, correctly
interpreted, indicate that the FD education campaign reduced per capita
cigarette consumption an average of 4.5 percent, \252\ that is, a 4.5
percent reduction in consumption over the period of time over which the
FD was in effect for entire quarters. Thus, the FD education campaign
did play an important role in reducing per capita cigarette
consumption.
---------------------------------------------------------------------------

\252\ Simonich modeled the effect of the FD as: %
Consumption = -0.063(Xt + .46416Xt-1 +
.46416^{2Xt-2 + .46416^{3Xt-3) where Xt
represents antismoking advertising expenditures in quarter t and -
0.063 is the coefficient for the FD stock variable obtained from the
analysis (Id., p. 153). FDA used Simonich's model and his
``Estimated Fairness Doctrine Real Advertising Expenditure per
Capita 14+'' data series (Id., pp. 250, and 259-260) to calculate
the quarterly percent reduction in per capita cigarette consumption
from March 1967 through April 1970. The average percent reduction in
consumption for this period was 4.5 percent.
---------------------------------------------------------------------------

(2) Comments also questioned the effectiveness of education
programs cited by the agency. The tobacco industry's comment argued
that California's $26 million multi-year media campaign actually
confirmed that televised education campaigns do not influence youth
smoking. Further, the comment stated that it was not possible to say
what impact, if any, a national media campaign's introduction or
termination had on consumption in Greece because Greece's educational
television and radio advertising campaign was only one element of an
overall education campaign.
With regard to the California media campaign, FDA notes that this
campaign was directed to adults, not young people. Moreover, the media
campaign was countered by increased per capita spending by the tobacco
industry in the types of imagery-based advertising that influences
children and adolescents. Therefore, the agency would have expected the
media campaign to have had a greater negative impact on tobacco use by
adults than by children and

[[Page 44539]]

adolescents. FDA continues to believe that California's efforts
indicate that education campaigns, over time, can counter and reduce
the impact of prosmoking efforts.
Further, while the comment correctly notes that Greece's national
effort to reduce smoking included posters, booklets, and similar
educational materials distributed through schools, health centers, and
other channels, the primary and most significant element of its program
consisted of antismoking messages broadcast on television and radio.
FDA continues to believe the Greek experience indicates, as stated in
the preamble to the 1995 proposed rule, that intensive education and
media messages about the health risks associated with tobacco use can
be effective.
(3) Many comments from the tobacco and media industries and from
adult smokers argued that an education campaign is unnecessary because
cigarette manufacturers, individually and through the Tobacco
Institute, have undertaken voluntarily a variety of educational
programs aimed at discouraging underage smoking, and because
antismoking lessons are taught in schools.
By contrast, other comments questioned industry's commitment to
reduce underage use of tobacco products. For example, several comments
emphasized that a voluntary program run by industry in the mid 1980's
failed to acknowledge that tobacco is addictive or causes disease.
FDA agrees with comments that the tobacco industry has failed to
include in its voluntary youth educational programs important
information, such as the addictive nature of tobacco and the
association between tobacco use and disease. FDA further agrees that
this lack of complete information about tobacco products makes it
necessary to require that messages about the risks of tobacco use be
directed to children and adolescents. The recently observed decline in
the proportion of youth who see smoking as dangerous, despite the
widespread dissemination through schools of information about the
health hazards associated with tobacco use, supports the need for an
immediate response to this problem. Moreover, recent evidence suggests
that school-based education programs most effectively reduce underage
smoking when used in conjunction with media messages.

VIII. Additional Regulatory Requirements

Subpart E of part 897 in the Food and Drug Administration's (FDA's)
August 11, 1995, proposed rule (60 FR 41314) would have consisted of
three provisions: Sec. 897.40 would have required manufacturers to
submit certain reports and would have required manufacturers,
distributors, and retailers to make records available to FDA upon
inspection; Sec. 897.42 would have instructed manufacturers,
distributors, and retailers to comply with any more stringent State or
local requirements relating to the sale, distribution, labeling,
advertising, or use of cigarettes and smokeless tobacco and would have
notified State and local governments how to request an advisory opinion
concerning the preemptive effect of part 897 on any particular State or
local requirement; and Sec. 897.44 would have required the agency to
take additional regulatory measures if, 7 years after the date of
publication of the final rule, the percentage of people under age 18
who smoke cigarettes had not decreased by 50 percent since 1994 and/or
the percentage of males under 18 who use smokeless tobacco had not
decreased by 50 percent since 1994.
Proposed Sec. 897.40 Records and Reports, would have implemented
sections 510(j) and 704(a) of the act (21 U.S.C. 360(j) and 374(a))
with respect to cigarettes and smokeless tobacco. Section 510(j) of the
act requires the submission of labels, labeling, and a representative
sampling of advertising to FDA, and section 704(a) of the act gives the
agency inspection authority, which also includes the authority to
examine records, files, papers, processes, controls, and facilities:
bearing on whether * * * restricted devices which are
adulterated or misbranded within the meaning of this Act, or which
may not be manufactured, introduced into interstate commerce, or
sold, or offered for sale by reason of any provision of this Act,
have been or are being manufactured, processed, packed, transported,
or held in any such place, or otherwise bearing on violation of this
Act.
Proposed Sec. 897.42 Preemption of State and Local Requirements and
Requests for Advisory Opinions, was intended to reflect the preemption
provision in section 521(a) of the act (21 U.S.C. 360k(a)); that
section states, in relevant part, that:
no State or political subdivision of a State may establish or
continue in effect with respect to a device intended for human use
any requirement--(1) which is different from, or in addition to, any
requirement applicable under this Act to the device, and (2) which
relates to the safety or effectiveness of the device or to any other
matter included in a requirement applicable to the device under this
Act.
Proposed Sec. 897.42 was also intended to recognize that many States
and local governments have enacted innovative and effective laws and
regulations pertaining to cigarettes and smokeless tobacco and to
encourage further activity in these areas (60 FR 41314 at 41340).
In proposed Sec. 897.44 Additional Regulatory Measures, FDA
recognized that many different factors influence a young person's
decision to start smoking or to use smokeless tobacco and that the
affected industries have historically shown their ability to find new
ways of promoting their products whenever restrictions were imposed (60
FR 41314 at 41341). Consequently, to guard against the possibility that
its comprehensive regulations might be circumvented and to give firms
an incentive to take appropriate actions to discourage cigarette and
smokeless tobacco sales to people under 18, the agency proposed to
require additional regulatory measures if the outcome-based objectives
specified in proposed Sec. 897.44 were not met.
In response to comments and upon further examination of existing
statutory and regulatory requirements, the agency has deleted
Secs. 897.40, 897.42, and 897.44 from the final rule.
Sec. 897.40--Records and Reports
Proposed Sec. 897.40(a) would have required each manufacturer to
submit, on an annual basis, copies of all labels (or a representative
sample of labels if the labels would be similar for multiple products),
copies of all labeling, and a representative sample of advertising.
Proposed Sec. 897.40(b) would have provided an address for such
materials.
(1) The agency received a number of comments from distributors,
wholesalers, and retailers stating that it would be too costly and
time-consuming, and thus too burdensome for small businesses to submit
the information required by proposed Sec. 897.40(a) and further, that
the information collected would not be useful in prohibiting young
people from using tobacco products.
These comments misread proposed Sec. 897.40(a) by interpreting the
section to apply to distributors of tobacco products. By its terms,
this provision only applied to manufacturers of cigarettes and
smokeless tobacco. FDA agrees with the comments that it is unnecessary
for the agency to receive labels, labeling, and a representative

[[Page 44540]]

sampling of advertising for cigarettes and smokeless tobacco handled by
distributors. In order to clarify this point further, FDA has deleted
proposed Sec. 897.40(a) and (b), and is explicitly exempting
distributors of cigarettes and smokeless tobacco from the registration
requirement in section 510 of the act. Exempting distributors from the
registration requirement results in their exemption from the record
submission requirements in section 510(j) of the act. The agency has
amended the existing device registration and listing regulations in
part 807 by adding a new provision, at Sec. 807.65(j), to reflect this
exemption.
FDA is authorized, under section 510(g)(4) of the act, to exempt
persons from the requirement of registering under section 510 of the
act. The agency agrees with the comments discussed above that stated
that reporting by distributors would be too burdensome and would not
result in any useful information. FDA believes that it will receive all
the information it needs from manufacturers, who are required to list
information with FDA under section 510 of the act. Further, there was
virtually no public comment supporting a registration and listing
requirement for distributors. Based on these considerations, FDA finds
that it is appropriate to exempt distributors of cigarettes and
smokeless tobacco, as defined in Sec. 897.3(c), from the registration
requirement in section 510 of the act as originally proposed because
compliance with section 510 of the act by distributors ``is not
necessary for the protection of the public health.''
A comment from the cigarette industry argued that Sec. 897.40(a)
was inconsistent with the recordkeeping requirements in part 807 (21
CFR part 807) (the device registration and listing regulations) by
requiring annual submissions. A comment from a public health
organization supported proposed Sec. 897.40, and stated that the
reporting requirements were the same as those faced by other
manufacturers of drug delivery devices.
Cigarette and smokeless tobacco manufacturers are required to
register and list under section 510 of the act. Upon consideration of
the industry comment, the agency believes it is more appropriate for
manufacturers to comply with the existing device registration and
listing requirements in part 807 than to create new requirements in
this regulation. Therefore, as stated earlier, FDA has deleted proposed
Sec. 897.40(a) and (b) from the rule.
(2) A comment from the country's largest association of health
professionals supported proposed Sec. 897.40, but suggested that FDA
expand the reporting requirements to have each manufacturer monitor
brand-specific uptake by children and adolescents. The comment
suggested that these data could be used to supplement information from
the Monitoring the Future project and other surveys that do not
currently contain brand-specific data. The comment also stated that
cigar and loose-leaf tobacco manufacturers should be required to
monitor and report on use of their products by people under 18.
The agency declines to accept the comment's suggestions. FDA
believes it is not necessary to obtain such data at this time. Rather,
it is more appropriate to allow the provisions of the final rule to
become effective and to monitor the effectiveness of the program before
considering the addition of new requirements. FDA also notes that it is
not asserting jurisdiction over cigars; cigar manufacturers are not
subject to the requirements of this rule.
Proposed Sec. 897.40(c) would have required manufacturers,
distributors, and retailers to make records and other information
available to FDA inspectors for purposes of inspection, review,
copying, or any other use related to the enforcement of the act.
(3) An industry comment argued that proposed Sec. 897.40(c)--which
required manufacturers, distributors, and retailers to ``make all
records and other information collected under this part and all records
and other information related to the events and persons identified in
such records'' available to FDA officials--so exceeds FDA's authority
that it fails the test set out in United States v. Morton Salt Co., 338
U.S. 632, 652 (1950), and, therefore, violates the Fourth and Fifth
Amendments to the Constitution. The comment argued that Sec. 897.40(c)
may require the release, for example, of marketing strategies, sales
figures, profits, personnel data, and proprietary information.
FDA disagrees with this comment, but nevertheless, the agency has
deleted Sec. 897.40(c). Part 897 does not add records requirements
beyond those applicable to devices generally under existing
regulations, e.g., part 803 (21 CFR part 803) (medical device
reporting), part 804 (21 CFR part 804) (medical device distributor
reporting), part 807 (registration and listing), and part 820 (21 CFR
part 820) (good manufacturing practice). Section 897.40(c), as
proposed, is therefore unnecessary, since FDA retains the records,
reports, and inspection authority with respect to cigarettes and
smokeless tobacco that it has with respect to other restricted devices.
This authority is found, for example, in sections 510, 519, 702, 703,
and 704 of the act (21 U.S.C. 360, 360i, 372, 373, and 374). In
particular, section 704 of the act explicitly authorizes the agency to
inspect records regarding restricted devices, including records and
reports (and the related research) required under section 519 of the
act, shipment data, and data as to the qualifications of technical and
professional personnel performing functions subject to the act, except
that such inspections may not extend to financial, sales, pricing, or
other personnel and research data.
Warrantless inspections of drug and device manufacturers authorized
by section 704 of the act are ``reasonable'' and therefore consistent
with the Fourth Amendment, in part because section 704 delineates the
scope of inspections with respect to prescription drugs and restricted
devices. (See United States v. Jamieson-McKames Pharmaceuticals, 651
F.2d 532, 538 and n.9 (8th Cir.), cert. denied, 455 U.S. 1016 (1981).)
In particular, section 704 of the act meets the test established by
the Supreme Court, and cited in the comment, that is applied to
scrutinize administrative subpoenas under the Fourth Amendment's
proscription of unreasonable searches and seizures and the Fifth
Amendment's Due Process Clause: ``the inquiry is within the authority
of the agency, the demand is not too indefinite and the information
sought is reasonably relevant'' (Morton Salt, 338 U.S. at 652
(regarding order requiring report about compliance with earlier agency
order); see also EEOC v. Shell Oil Co., 466 U.S. 54, 72 n.26 (1984)
(citing Morton Salt regarding administrative subpeona); Reich v.
Montana Sulphur and Chem. Co., 32 F.3d 440, 448 (9th Cir. 1994) (same),
cert. denied, 115 S.Ct 1355 (1995); Resolution Trust Corp. v. Walde, 18
F.3d 943, 946 (D.C. Cir. 1994) (same)).
The comment stressed that Sec. 897.40(c) as proposed failed to
satisfy the first part of the Morton Salt test because the act does not
grant FDA authority to regulate tobacco products and because Congress
has repeatedly refused to give FDA such authority. As discussed in
detail in the 1996 Jurisdictional Determination annexed hereto, FDA is
extending jurisdiction over tobacco products by a lawful application of
the act. Moreover, the records, reports, and

[[Page 44541]]

inspection provisions in sections 510, 519, 702, 703, and, in
particular, section 704 of the act, clearly specify the agency's
authority to inspect regarding restricted devices, including records
and reports required pursuant to section 519 of the act. An inspection
of records from manufacturers, distributors, or retailers regarding
tobacco products--which are restricted devices and which pursuant to
this rule are subject to the reporting requirements of parts 803 and
804--is therefore ``within the authority of the agency'' as required by
the Supreme Court in Morton Salt (338 U.S. at 652). Moreover, because
sections 704 and 519 of the act define the scope of such requests, by
their terms, such requests would meet the second and third parts of the
Morton Salt test, since they would not be ``too indefinite and the
information sought [would be] reasonably relevant'' to enforcement of
the provisions of part 897 (Id.).
Even in the absence of proposed Sec. 897.40(c), manufacturers,
distributors, and retailers of cigarettes and smokeless tobacco are
subject to the same records access and inspection requirements as are
any manufacturers, distributors, and retailers of restricted medical
devices. As discussed in this section, these requirements are fully
consistent with the Fourth and Fifth Amendments.
(4) Several comments from distributors and retailers asserted that
the recordkeeping requirements in proposed Sec. 897.40(c) would be
expensive and especially hard on small businesses. A few comments also
claimed that proposed Sec. 897.40(c) would not affect sales to children
and adolescents, but would instead result in lost business as
distributors or retailers would have to take the time to prepare and to
maintain records. A small number of comments simply opposed proposed
Sec. 897.40(c) without providing any reason or said it was
``offensive,'' ``intrusive,'' or would not produce any useful
information during an inspection.
As stated previously in this section, FDA has revised the rule to
delete Sec. 897.40(c) entirely. The agency believes that the existing
reporting requirements in other regulations (such as part 803 for
medical device reporting (as amended by this rule), part 804 for
medical device distributor reporting (as amended by this rule), part
807 for registration and listing (as amended, to exclude distributors
of cigarettes and smokeless tobacco), and part 820 for good
manufacturing practices) make proposed Sec. 897.40(c) unnecessary. The
agency has also amended the rule to exempt distributors of cigarettes
and smokeless tobacco from part 807. Thus, distributors are only
expected to comply with the medical device distributor reporting
requirements in part 804.
Retailers have no recordkeeping or reporting requirements under
part 897.
Notwithstanding these changes to the rule, FDA believes that the
comments misunderstand the purpose of recordkeeping and reporting. The
records and reports that were described in the 1995 proposed rule were
never intended to have a direct role in reducing illegal sales to
children and adolescents. Neither were they intended to divert
distributor or retailer staff to ministerial functions or to intrude
into business activities. To the contrary, records and reports can help
firms and FDA ensure compliance with the regulations. For
manufacturers, distributors, and retailers, records and reports
demonstrate whether they have complied with a particular requirement.
Records are especially valuable in this respect because FDA's
enforcement strategy relies heavily on site inspections to determine
whether a party has complied with a statutory or regulatory
requirement, and records can show or help an agency inspector determine
whether a firm has a good compliance history. Firms that have good
compliance histories usually are inspected less frequently than others,
whereas firms with poor compliance histories may be inspected more
frequently or more rigorously.
Inspections have other important benefits for firms. Inspections
can reveal areas where firms can improve their operations. Inspections
also apply to firms equally, regardless of their size, so firms that
manufacture, distribute, or sell the same or similar products meet the
same conditions or requirements. Furthermore, inspections, and FDA
enforcement generally, give consumers greater assurance in the products
they purchase because those products are held to the same standards or
requirements.
For FDA, records and reports can provide information on current
industry practices and trends, help identify potential problems in a
regulatory program or in a firm's or industry's practice, and even
conserve agency resources by letting the agency concentrate its
inspection efforts on firms with poor compliance histories.
Thus, for these reasons, FDA disagrees with those comments
suggesting that recordkeeping and reporting requirements or FDA
inspections will have no useful purpose.
Sec. 897.42--Preemption of State and Local Requirements and Requests
for Advisory Opinions
(5) FDA received several comments that opposed proposed
Sec. 897.42, claiming that it was inconsistent with the process for
requesting exemptions from the preemption requirement in section 521 of
the act. The agency also received some comments supporting proposed
Sec. 897.42 precisely because it would have recognized and would have
preserved more stringent State and local requirements.
After careful consideration and closer review of the act, the
agency has deleted proposed Sec. 897.42 from the rule. This issue is
addressed in greater detail in section X. of this document.
Under Sec. 897.44 of the 1995 proposed rule, FDA would have
established goals of a 50-percent reduction in cigarette use by
individuals under the age of 18 years; a 50-percent reduction in
smokeless tobacco use by males under the age of 18 years; and no
increase in smokeless tobacco use by females under the age of 18 years.
The agency stated it would take additional regulatory measures if these
goals were not met 7 years after the publication date of the final
rule.
FDA derived its outcome-based goals from the ``Healthy People
2000'' objectives. ``Healthy People 2000'' sets national health
promotion and disease prevention objectives for Americans. The report
was a joint effort by the U.S. Public Health Service (PHS), the
Institute of Medicine (IOM) at the National Academy of Sciences (NAS),
almost 300 national membership organizations such as the American
Medical Association (AMA), the American Academy of Pediatrics (AAP),
and the Blue Cross and Blue Shield Association, and all State health
departments. ``Healthy People 2000'' established a basic goal to reduce
by half the initiation of cigarette smoking by children and youth by
the year 2000.
The agency proposed measuring progress toward the stated goals by
use of an objective, scientifically valid, and generally accepted
survey, such as the Monitoring the Future Project (MTFP). MTFP, funded
by the National Institute on Drug Abuse (NIDA) and administered by the
Institute for Social Research at the University of Michigan, has
collected data on daily smoking by 12th graders every year since 1976
and on smokeless tobacco use by 12th graders for the years 1986 to 1989
and 1992 to 1995.
The agency did not include any specific additional requirements in
the

[[Page 44542]]

1995 proposed rule, but stated that FDA would propose specific
additional measures when it publishes a final rule and invited public
comment on what additional requirements should be considered.
The agency received a number of comments arguing that the agency
should wait until it knows specifically what progress has been made
toward the goals before proposing additional regulatory measures. This
approach would allow the agency to identify specific barriers to
achieving the goals and to tailor any additional requirements to these
barriers. Other comments argued that FDA must provide the public an
opportunity to comment on specific additional regulatory measures
before they would take effect. FDA has decided that there is merit to
these comments. At this time, therefore, the agency is not proposing
additional regulatory measures beyond the restrictions in this
regulation and the requirements under section 518 of the Federal Food,
Drug, and Cosmetic Act (the act) (21 U.S.C. 360h). The agency instead
plans to monitor industry compliance with the agency's requirements as
well as the progress made toward meeting the stated goals of reducing
the use of tobacco products by individuals under the age of 18 within 7
years. In the event that additional measures are necessary to achieve
the goals, the agency retains the authority to propose and issue
additional regulatory requirements in a future rulemaking proceeding.
FDA received approximately 60 individual comments related to this
provision, about evenly divided in support and opposition. Opposition
came primarily from the tobacco manufacturing and advertising
industries and from tobacco retailers. Comments from several State
legislators also opposed additional measures, as did one from a State
department of agriculture. Some comments maintained the provision was
invalid and unconstitutional; others objected that ``when regulations
fail, the answer is not more regulations.''
Support for the measure came from national health organizations,
State health departments, and individuals who identified themselves as
parents, public health professionals, educators, and former smokers.
Supporters stressed the importance of effective measures to improve the
health of current and future generations.
(6) One comment opposing the proposed provision contended that
imposing additional regulatory measures at the time that the final rule
is published would be unreasonable because it would not permit a
flexible response to future circumstances. It argued, for example, that
the same additional regulatory measures ``apparently would be triggered
at the specified date regardless of whether the reduction in the next 7
years is 49.8 percent or 2 percent.''
Several comments in support of the provision also advocated greater
flexibility, but for different reasons. Because of the serious adverse
health effects linked to the use of tobacco products, these comments
urged the agency not to wait 7 years to evaluate progress and institute
corrective measures. Instead, they recommended interim or ongoing
review of compliance with the regulations and progress toward achieving
the goals.
FDA agrees it is useful to put in place a system that will allow
flexibility in responding to future circumstances. Therefore, the
agency has decided to review on an ongoing basis the effectiveness of
specific provisions. It will rely on data from the MTFP and other
surveys recognized as using sound methodology to help measure
compliance with the provisions, detect loopholes, and evaluate progress
in achieving the goals. This will permit FDA to identify problem areas
in a timely manner and seek public comment on whether additional
measures should be considered.
(7) Some comments objected to any further restrictions. Others
argued specifically against further advertising restrictions, saying it
is illogical to impose such additional measures without first
considering and attacking other causes for continued smoking among
youth. A few comments were concerned that the proposed provision would
inevitably result in a complete ban of all tobacco products, with a few
of those charging that this was FDA's true intent.
One comment objected to the agency announcing as part of a final
rule specific measures it will impose, rather than simply propose, some
time in the future, maintaining that `` * * * the agency will have
failed to provide meaningful notice and opportunity to comment.''
Many comments supported additional regulatory measures, if needed,
to achieve the desired reductions in tobacco use by young people. Some
advocated further restrictions on advertising, including: (1)
Eliminating all tobacco product advertising except for point-of-
purchase announcements of product availability limited to black and
white text only; (2) prohibiting all point of purchase advertising; (3)
eliminating direct mail marketing for cigarettes and smokeless tobacco;
(4) prohibiting all outdoor advertising; (5) prohibiting advertising in
publications marketed to youths, and possibly revising the definition
of ``adult publications''; and (6) outlawing all marketing of
cigarettes and smokeless tobacco. One comment recommended plain
packaging of cigarettes, and one suggested broadening the proposed
education program.
Comments also proposed additional sales restrictions on tobacco
products, including stringent licensing requirements, increasing the
age of sale to 19, and selling cigarettes in cartons only.
FDA rejects the comments suggesting that the agency intends to
eventually ban all tobacco products, as the agency has repeatedly
stated that such an outcome is not the appropriate public health
response under the act. FDA is not proposing the additional
restrictions on advertising or access suggested in the comments because
FDA does not anticipate at this time that these additional measures
will be required.

IX. Implementation Dates

The Food and Drug Administration (FDA) has concluded that the
provisions of this rule should become effective 1 year after its date
of publication in the Federal Register, with three exceptions. A 6-
month effective date is established for the requirements in
Sec. 897.14(a) and (b) prohibiting retailers from selling cigarettes or
smokeless tobacco to persons under age 18 and requiring retailers to
check photographic identification of young purchasers for proof of age.
The requirement in Sec. 897.34(c) prohibiting sponsorships using
cigarette or smokeless tobacco brand names or other indicia of product
identification will be effective 2 years from the date of publication
of this final rule. Finally, manufacturers will be required to comply
with the registration and listing requirements in part 807, and the
good manufacturing practice requirements in part 820, 2 years from the
date of publication of this final rule.
Although the agency specifically requested comment on when the
various provisions in the proposed rule should become effective, FDA
received relatively few comments on this subject.
(1) One comment that opposed the rule argued that FDA should give
industry an opportunity in a hearing to challenge the ``factual
underpinnings''

[[Page 44543]]

of the rule before proceeding to implementation. In contrast, a
supporting comment strongly favored immediate action to implement the
rule, and a second comment stated that postponing implementation by
even a year ``means that another 500,000 young people will become
regular users of tobacco products.'' Another supporting comment
recommended that the effective date for provisions that prohibit sales
to persons under 18 be no more than 90 days from the date the final
regulations are issued, and that the effective date for provisions
affecting advertising and labeling be 6 months from the date the final
regulations are issued.
FDA is not persuaded that a hearing is needed on the ``factual
underpinnings'' of the rule. In the preamble to the 1995 proposed rule,
the agency provided its rationale and evidentiary basis for each
provision of the regulation; interested persons have had a full
opportunity to submit their comments and any factual supporting data
for the agency to consider. Informal notice and comment rulemaking does
not require more. Moreover, the agency believes that there would be
little to gain from holding such a hearing, and that this step would
needlessly delay implementation of the final rule. Full responses to
the challenges made by this and other comments on the factual bases for
the rule are provided in this document.
Because FDA has found that thousands of children purchase
cigarettes every day, the agency agrees with the supporting comments
that restrictions on such sales should be put into effect as soon as
possible. FDA recognizes, however, that the States also have laws
restricting youth access to tobacco products, some of which may be
preempted under section 521 of the act by this final regulation. The
agency intends to allow sufficient time for applications for exemption
from preemption to be requested, considered by the agency, and acted
upon. Therefore, FDA has determined that Sec. 897.14(a) and (b), which
prohibit the sale of tobacco products to individuals under the age of
18 and require retailers to examine a photographic identification to
ensure that the purchaser is at least 18 years of age, and is basic to
the goals of this final rule, will become effective 6 months from the
date of publication of this final rule in the Federal Register. This
should allow adequate time for the agency to process the applications
for exemption from preemption while not unduly delaying the
implementation of a very important part of the regulation.
(2) As for the recommendation by one comment that the advertising
and labeling provisions of the rule become effective 6 months after the
final rule is issued, FDA believes that this period of time is not
consistent with the agency's policy of allowing sufficient time for
affected entities to learn about and comply with new regulatory
requirements. Instead, based on its own experience and that of other
Government agencies in regulating product advertising and labeling, FDA
has arrived at a period of 1 year from the date of publication of this
final rule in the Federal Register for manufacturers, distributors, and
retailers to meet most of the requirements of the rule. In reaching
this conclusion, FDA has taken into consideration the time needed to
comply with all the requirements of the rule, including time for
designing new labeling and advertising, for printing or filming these
new materials, for affixing new product labels and disseminating new
advertising materials, and for using up existing inventories of
products, supplies of promotional materials, and coupons that do not
comply with the new requirements.
Examples of activities that will become violative and must cease 1
year from the date of publication of this rule in the Federal Register
include vending machine sales of cigarettes and smokeless tobacco and
sales from self-service displays (except in the narrowly-defined
locations that are exempted), sales of single cigarettes from opened
packages (``loosies''), sales of packages with fewer than 20
cigarettes, mail-order redemption of coupons for tobacco products,
distribution of free tobacco samples, and the sale or distribution of
nontobacco items showing the brand name (alone or in conjunction with
any other word), logo, symbol, motto, selling message, recognizable
color or pattern or colors, or any other indicia of product
identification identical or similar to, or identifiable with, those
used for any brand of cigarettes or smokeless tobacco. Examples of
additional requirements that must be met 1 year from the date of
publication include all advertising requirements (except as noted
below), and the requirement that manufacturers not use a trade or brand
name of a nontobacco product on a cigarette or smokeless tobacco
product except as specified in Sec. 897.16(a).
The agency is excepting from the 1-year implementation period the
requirement that manufacturers comply with the existing registration
and listing requirements, found in part 807. The agency recognizes that
manufacturers are not accustomed to complying with these recordkeeping
and reporting requirements and will require additional time in which to
develop appropriate compliance procedures. Therefore, FDA is granting
manufacturers 2 years from the date of publication of this final rule
to begin complying with the requirements under part 807. The same
reasoning has led the agency to allow manufacturers the same 2-year-
period to prepare before they are required to comply with the good
manufacturing practice requirements in part 820.
Finally, the agency is also excepting from the 1-year
implementation period the prohibitions in Sec. 897.34 (c) of
sponsorship using cigarette or smokeless tobacco brand names or other
indicia of product identification. The agency recognizes that
sponsorship of events is often arranged well in advance and that some
event promoters may be disadvantaged if they are not allowed adequate
time to replace tobacco sponsors who elect to cease sponsoring the
event, rather than switch to their corporate name. Accordingly, this
final rule provides that Sec. 897.34(c) will become effective 2 years
from the date of publication of this final rule.

X. Relationship Between the Rule and Other Federal and State Laws

This section of the document discusses issues concerning the
relationship between this rule and other Federal and State laws. More
specifically, sections X.A. and X.B. of this document analyze comments
that addressed the potential effect upon this rule of other Federal
statutes that contain express provisions that restrict some areas of
Federal regulation of tobacco products. Section X.C. of this document
analyzes comments that raised the issue of whether this rule conflicts
with the congressional purpose behind the current regulatory scheme for
tobacco products. Section X.D. of this document analyzes comments that
addressed the issue of whether Congress intended for the current
regulatory scheme for tobacco products to be exclusive, such that this
rule might be foreclosed. Finally, sections X.E. and X.F. of this
document analyze comments that addressed the preemptive effect under
the Federal Food, Drug, and Cosmetic Act (the act) that the Food and
Drug Administration's (FDA's) regulation of tobacco products as drug
delivery devices will have upon

[[Page 44544]]

State and local requirements and upon State product liability claims.

A. The Federal Cigarette Labeling and Advertising Act

(1) A number of comments argued that FDA's August 11, 1995,
proposed rule (60 FR 41314) (the 1995 proposed rule) is precluded by
section 5 of the Federal Cigarette Labeling and Advertising Act (the
Cigarette Act (15 U.S.C. 1334)). Other comments expressed the opposite
view, stating that 15 U.S.C. 1334 did not preclude the 1995 proposed
rule. Some of the comments that found no preclusion noted that the
scope of 15 U.S.C. 1334 is narrow, and applies only to cigarette
packages, thereby allowing for regulation of cigarette advertising and
promotion as contemplated by the 1995 proposed rule. After considering
all of the comments, FDA has concluded that none of the rule's
provisions, as embodied in the final rule, is expressly precluded by
the Cigarette Act. The following analysis explains this conclusion.
The Cigarette Act contains the following provisions pertaining to
regulation of cigarettes:
(a) No statement relating to smoking and health, other than the
statement required by [15 U.S.C. 1333], shall be required on any
cigarette package.
(b) No requirement or prohibition based on smoking and health
shall be imposed under State law with respect to the advertising or
promotion of any cigarettes the packages of which are labeled in
conformity with the provisions of this chapter.
(15 U.S.C. 1334 (emphasis added))
15 U.S.C. 1334(b) is expressly limited to requirements or
prohibitions imposed under State law, that relate to advertising or
promotion of cigarettes. Thus, 15 U.S.C. 1334(b) is inapplicable to
FDA's regulation under part 897 and does not foreclose FDA from
regulating cigarette advertising or promotion.
15 U.S.C. 1334(a), which applies to statements on the cigarette
package, extends to both Federal and State regulation. However, the
scope of 15 U.S.C. 1334(a) is narrow, precluding Federal and State
regulation of cigarettes only to the extent that such regulation would
require any statement (other than the statement required by 15 U.S.C.
1333) ``relating to smoking and health'' to appear on the cigarette
package.
There are two types of information that the final rule requires on
cigarette packages. The first is the ``established name,'' such as
``Cigarettes,'' which is required by section 502(e)(2) of the act (21
U.S.C. 352(e)(2)), and which the agency is implementing under
Sec. 897.24. The established name requirement is applicable to all
devices regulated under the act, and it serves merely to aid consumers
in the identification of the product.
The second type of information that the final rule requires on
cigarette packages is the statement of intended use and age restriction
required under Sec. 897.25. This statement informs consumers about the
products' intended uses and that the products may not be sold to
persons under the age of 18.
Neither the established name nor the statement of intended use and
age restriction is ``relat[ed] to smoking and health.'' Any indirect
relationship these requirements might have to smoking and health is
incidental and would be too ``tenuous, remote, or peripheral'' to
trigger preclusion under 15 U.S.C. 1334(a). (See District of Columbia
v. Greater Washington Bd. of Trade, 113 S. Ct. 580, 583 n.1 (1992)
(``Pre-emption does not occur * * * if the [law at issue] has only a
`tenuous, remote, or peripheral' connection with [the subject to which
preemption is applicable], as is the case with many laws of general
applicability'') (citations omitted).) To find otherwise could render
the limiting language of 15 U.S.C. 1334(a) meaningless. (See New York
State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins.
Co., 115 S. Ct. 1671, 1677 (1995) (finding that overly broad
construction of the phrase ``relate to'' ``would * * * read Congress's
words of limitation as mere sham, and [would] read the presumption
against pre-emption out of the law whenever Congress speaks to the
matter with generality'').)
The agency notes that the established name requirement under
Sec. 897.24 is analogous to requirements imposed by the Bureau of
Alcohol, Tobacco and Firearms (BATF) on cigarette packages. Under 26
U.S.C. 5723(b), ``[e]very package of tobacco products * * * shall * * *
bear the marks, labels, and notices, if any, that the Secretary by
regulation prescribes.'' Under this statutory provision, BATF has
issued regulations requiring, for instance, that ``[e]very package of
cigarettes shall * * * have adequately imprinted thereon, or on a label
securely affixed thereto, the designation `cigarettes', the quantity of
such product contained therein, and the classification for tax
purposes, i.e., for small cigarettes, either `small' or `Class A', and
for large cigarettes, either `large' or `Class B'.'' (See 27 CFR
270.215.) In the same way that the requirement under 27 CFR 270.215
does not run afoul of 15 U.S.C. 1334 because it does not relate to
smoking and health, the established name requirement under Sec. 897.24
is also not precluded.
Further guidance on the scope of preclusion under the Cigarette Act
can be found in the legislative history and purpose behind the
Cigarette Act. The history and purpose make clear that Congress
intended 15 U.S.C. 1334 to preclude only those ``statements'' that
constituted warning or cautionary statements on cigarette packages.
(See Cipollone v. Liggett Group, Inc., 112 S. Ct. 2608, 2618-19 (1992)
(finding that ``no statement relating to smoking and health'' language
in 1965 version of the Cigarette Act referred to the sort of warning
provided for in section 4 of that statute).) \253\ (See also H. Rept.
449, 89th Cong., 1st sess. (1965), reprinted in 1965 U.S. Code Cong. &
Admin. News 2350, 2350 (the Cigarette Act prohibits ``the requirement
of any other caution statement on the labeling of cigarettes under laws
administered by any Federal, State, or local authority'').)
---------------------------------------------------------------------------

\253\ Some of the comments take issue with FDA's application of
Federal-State preemption law, pointing out that the Supremacy Clause
and Tenth Amendment upon which this law is based have no application
in determining the relationship between different Federal statutes.
FDA is fully aware that Federal-State preemption law, as well as
those cases such as Cipollone that apply it, do not directly govern
the present situation concerning preclusion of Federal regulations
by Federal law. However, the principles contained in Federal-State
preemption law provide some general guidance for determining the
scope of preclusion intended by Congress, regardless of whether that
preclusion is directed at State or Federal law.
---------------------------------------------------------------------------

Clearly, neither Sec. 897.24 nor Sec. 897.25 is a warning or
cautionary statement of the type Congress intended to preclude under 15
U.S.C. 1334. Accordingly, the requirements under these sections of the
final rule are not foreclosed by the Cigarette Act.

B. The Comprehensive Smokeless Tobacco Health Education Act

(2) Several comments noted that the 1995 proposed rule would
prohibit advertisements for smokeless tobacco from appearing in certain
locations and media. One comment stated that any prohibition on
advertising under the 1995 proposed rule amounts to a ``compelled
absence of advertising,'' and is as much a ``statement relating to the
use of smokeless tobacco and health'' as is an explicit message
requirement. Thus, the comment asserted that such restrictions are
expressly precluded by the Comprehensive Smokeless Tobacco Health
Education Act (the Smokeless Act).

[[Page 44545]]

Another comment stated that FDA's proposed restrictions on the
advertising of smokeless tobacco are foreclosed because they directly
affect such advertising in a manner that is ``so nearly identical''
``in purpose and effect'' to the advertising requirements mandated by
the Smokeless Act that they fall within that statute's express
prohibition of any other Federal ``statement'' related to smoking and
health. In contrast, some comments stated the position that the 1995
proposed rule is not expressly precluded by the Smokeless Act.
After considering all comments, FDA has concluded that none of the
1995 proposed rule's provisions, with one exception, is expressly
precluded by the Smokeless Act. The following analysis explains this
conclusion.
The Smokeless Act contains the following provision pertaining to
regulation of smokeless tobacco:
No statement relating to the use of smokeless tobacco and
health, other than the statements required by [15 U.S.C. 4402],
shall be required by any Federal agency to appear on any package or
in any advertisement (unless the advertisement is an outdoor
billboard advertisement) of a smokeless tobacco product.
(15 U.S.C. 4406(a) (emphasis added))
15 U.S.C. 4406(a) precludes only ``statement[s].'' Most
requirements under the final rule, such as those that limit the
locations or media in which smokeless tobacco may be advertised, do not
constitute ``statements'' within the meaning of 15 U.S.C. 4406(a). (See
Banzhaf v. Federal Communications Commission, 405 F.2d 1082 (D.C. Cir.
1968) (holding that the FCC ruling was not precluded by the Cigarette
Act because the ruling did not require inclusion of any ``statement * *
* in the advertising of any cigarettes''), cert. denied, 396 U.S. 842
(1969).) Thus, those sections of the final rule that limit the location
or media in which smokeless tobacco may be advertised, as well as other
requirements in the final rule that do not actually mandate an
affirmative statement, are not expressly precluded by the Smokeless
Act.
Only three sections of the final rule actually require inclusion of
a ``statement'' on the packaging or in the advertising of smokeless
tobacco. These sections are Secs. 897.24, 897.25, and 897.32(c). In
addition, proposed Sec. 897.36, which is being omitted from the final
rule for reasons discussed later in this section, would have required
such a statement.
As with cigarettes, Sec. 897.24 requires that packages of smokeless
tobacco bear the products' established names. Section 897.25 mandates,
in part, that packages of smokeless tobacco bear a statement of the
products' intended uses and age restriction. Section 897.32(c) requires
that advertising for smokeless tobacco include the products'
established names and statements of their intended uses. (See section
502(r)(1) and (r)(2) of the act.)
For reasons similar to those discussed with regard to the Cigarette
Act, none of the statements required under Secs. 897.24, 897.25, and
897.32(c) are precluded under 15 U.S.C. 4406(a). (See section X.A. of
this document.) First, the required statements do not directly
``relat[e] to the use of smokeless tobacco and health.'' Second, the
required statements are not ``statements'' of the sort precluded by 15
U.S.C. 4406(a) because they do not convey any type of cautionary
message or warning of the sort Congress intended to foreclose.
Accordingly, the statements are not precluded by 15 U.S.C. 4406(a).
Proposed Sec. 897.36 would have declared the labeling or
advertising of cigarettes and smokeless tobacco to be false or
misleading if it contained ``any express or implied false, deceptive,
or misleading statement, omit[ted] important information, lack[ed] fair
balance, or lack[ed] substantial evidence to support any claims made
for the product.'' Upon review of the comments and reconsideration of
this provision, FDA believes that, in some instances, manufacturers of
smokeless tobacco might have been required under FDA's proposed rule to
incorporate a statement relating to the use of smokeless tobacco and
health on the package or in the advertising of a smokeless tobacco
product in order to correct an omission of important information or a
lack of fair balance. Similarly, cigarette manufacturers might have
been required to include a statement relating to smoking and health on
the cigarette package. Such requirements would be precluded under the
Smokeless Act or the Cigarette Act. Thus, FDA has omitted Sec. 897.36
from the final rule.
The agency notes, however, that tobacco products, like other
products regulated under the act, are still subject to section 502(a)
of the act, which provides, in part, that a device shall be deemed to
be misbranded ``[i]f its labeling is false or misleading in any
particular.'' Any requirement imposed under section 502(a) of the act
upon tobacco products is limited, however, to the extent that it is
precluded by the Smokeless Act or the Cigarette Act.

C. Conflict With Congressional Purpose Behind Current Regulatory Scheme
For Tobacco Products

A number of comments asserted that the 1995 proposed rule conflicts
with other Federal statutes that regulate tobacco products. These
comments focused on three specific statutes: The Cigarette Act, the
Smokeless Act, and the Public Health Service Act (the PHS Act)
1. The Cigarette Act and The Smokeless Act
(3) A number of comments argued that the 1995 proposed rule would
conflict with, and would nullify, some of the congressional objectives
behind the Cigarette Act and the Smokeless Act. Based on the alleged
conflict, some of the comments asserted that the general provisions of
the act must give way to the specific provisions of the Cigarette Act
and the Smokeless Act.
FDA disagrees. As explained in sections X.A. and X.B. of this
document, FDA regulation of tobacco products under the authority of the
act does not conflict with the Cigarette Act or the Smokeless Act, and
thus such regulation is clearly capable of coexisting with these
statutes. (See Connecticut National Bank v. Germain, 112 S. Ct. 1146,
1149 (1992) (``so long as there is no `positive repugnancy' between two
laws, a court must give effect to both'') (citation omitted); Morton v.
Mancari, 417 U.S. 535, 551 (1974) (``The courts are not at liberty to
pick and choose among congressional enactments, and when two statutes
are capable of coexistence, it is the duty of the courts, absent a
clearly expressed congressional intention to the contrary, to regard
each as effective'').)
The comments asserted a number of areas in which the 1995 proposed
rule would allegedly conflict with Federal law and congressional
intent:
(4) Numerous comments argued that the 1995 proposed rule is
precluded because Congress, through enactment of the Cigarette Act and
the Smokeless Act, intended to foreclose all Federal agencies other
than the Federal Trade Commission (FTC) and the Federal Communications
Commission (FCC) from regulating the labeling and advertising of
tobacco products. Some of the comments criticized the 1995 proposed
rule, asserting that it would cause tobacco product manufacturers to be
held to separate and conflicting standards of conduct by different
agencies, thus conflicting with congressional intent to prevent
``diverse, nonuniform, and confusing cigarette

[[Page 44546]]

labeling and advertising regulations.'' As a specific example of
potential separate and conflicting Federal standards, some of the
comments noted that proposed Sec. 897.34 would completely prohibit the
use of some promotional items that are exempted by FTC from the
congressionally mandated warning under the Cigarette Act.
FDA disagrees with these comments. When Congress enacted the
Cigarette Act and the Smokeless Act, it very carefully considered the
proper scope of preclusion applicable to Federal agencies in the
regulation of tobacco products. The express terms of 15 U.S.C. 1334(a)
and 15 U.S.C. 4406(a) clearly reflect the full scope of preclusion of
Federal agencies intended by Congress.
Had Congress believed more preclusion to be necessary, it could
have easily expanded the express scope of 15 U.S.C. 1334(a) and 15
U.S.C. 4406(a). (See Banzhaf, 405 F.2d at 1089 (Had Congress intended
to foreclose other types of Federal regulation, ``it might reasonably
be expected to have said so directly--especially where it was careful
to include a section entitled `Preemption' specifically forbidding
designated types of regulatory action''); Central Bank of Denver v.
First Interstate Bank, 114 S. Ct. 1439, 1448 (1994) (Congress knows how
to enact legislation expressly).) Indeed, Congress took this very
approach with respect to the scope of preemption applicable to States
under the Cigarette Act when it drafted 15 U.S.C. 1334(b) in a broad
manner to encompass ``requirement[s]'' and ``prohibition[s].''
The discrepancy in Congress' choice of words with regard to the
scope of 15 U.S.C. 1334(a) and (b) is significant in its implications.
By not including ``requirement or prohibition'' in 15 U.S.C. 1334(a)
and expressly foreclosing only ``statements'' relating to smoking and
health, Congress clearly intended to narrowly limit the scope of
foreclosure of regulation applicable to Federal agencies. (See Brown v.
Gardner, 115 S. Ct. 552, 556 (1994) (```[w]here Congress includes
particular language in one section of a statute but omits it in another
section of the same Act, it is generally presumed that Congress acts
intentionally and purposely in the disparate inclusion or exclusion''')
(citation omitted).) In a similar fashion, Congress demonstrated an
intent to restrict the scope of Federal preclusion under 15 U.S.C.
4406(a) by narrowly tailoring the language of that subsection.
Thus, given the narrow scope of 15 U.S.C. 1334(a) and 15 U.S.C.
4406(a), the Cigarette Act and the Smokeless Act do not foreclose
``separate'' Federal requirements, other than cautionary health-based
statements as discussed in sections X.A. and X.B. of this document.
Although the final rule imposes requirements on tobacco product
manufacturers, these requirements do not conflict with the Cigarette
Act or the Smokeless Act and, consequently, are not precluded by those
statutes. Moreover, that FTC might allow certain actions under its
statutory mandate does not preclude FDA from prohibiting such actions
under a different statutory mandate. (See New York Shipping Ass'n v.
Federal Maritime Comm'n, 854 F.2d 1338, 1367 (D.C. Cir. 1988) (``there
is no anomaly if conduct privileged under one statute is nonetheless
condemned by another''), cert. denied, 488 U.S. 1041 (1989).)
(5) Some of the comments asserted that Congress intended that the
sole health-based restraints that were to be imposed on the commerce of
tobacco products were to be those provided in the Cigarette Act and the
Smokeless Act.
FDA disagrees with this assertion. First, FDA clearly may exercise
legal authority to regulate tobacco products when the evidence
establishes that the products have intended uses that fall within the
act's definition of a ``drug.'' Indeed, the agency has done so in
several instances. (See, e.g., United States v. 354 Bulk Cartons * * *
Trim Reducing-Aid Cigarettes, 178 F. Supp. 847, 851 (D.N.J. 1959)
(cigarettes claimed to reduce weight were drugs because they were
intended to affect the structure or function of the body); United
States v. 46 Cartons, More or Less, Containing Fairfax Cigarettes, 113
F. Supp. 336, 338-39 (D.N.J. 1953) (cigarettes claimed to prevent
respiratory diseases were drugs because they were intended to treat or
prevent disease).) Moreover, the comments' assertion that health-based
constraints can be imposed upon tobacco products only under the
Cigarette Act and the Smokeless Act necessarily leads to the erroneous
conclusion that much Federal and State regulation, such as health-based
workplace smoking restrictions and health-based age limits on access,
is foreclosed. As other comments recognized, Congress obviously did not
intend for such broad preclusion to be the case. (See Banzhaf, 405 F.2d
at 1089 (finding that ``[n]othing in the [Cigarette Act] indicates that
Congress had any intent at all with respect to other types of
regulation by other agencies--much less that it specifically meant to
foreclose all such regulation'').)
(6) Some comments asserted that FDA's proposed restrictions on
certain advertising for tobacco products are at odds with congressional
intent to allow the continued use of advertising for these products in
conjunction with the statutorily required warnings.
FDA disagrees. As discussed in sections X.A. and X.B. of this
document, preclusion of Federal regulation of advertising for tobacco
products is very narrow in scope and does not encompass FDA's final
rule. Moreover, as one court has noted:
[T]here is no anomaly if conduct privileged under one statute is
nonetheless condemned by another; we expect persons in a complex
regulatory state to conform their behavior to the dictates of many
laws, each serving its own special purpose.
(New York Shipping Ass'n, 854 F.2d at 1367)
Thus, the mere fact that certain advertising for tobacco products is
permitted under the current regulatory scheme for those products does
not preclude FDA from placing restrictions on such advertising.
(7) Some comments alleged that the 1995 proposed rule would
conflict with Federal law and congressional intent because it would
have an impact on the commerce of tobacco products.
FDA disagrees. Any proscriptive regulation of tobacco products
inevitably imposes economic burdens upon commerce of those products.
Thus, following the comments' line of argument, all proscriptive
regulation of cigarettes is foreclosed by the Cigarette Act and the
Smokeless Act. As explained in this section, however, by enacting 15
U.S.C. 1334(a) and 15 U.S.C. 4406(a), Congress chose the proper level
of limitation on Federal regulations that it concluded was necessary to
protect the commerce of tobacco products from being unduly economically
burdened. Because requirements contained in the final rule are not
precluded under those provisions, the fact that the requirements will
have economic consequences upon the commerce of tobacco does not mean
those requirements are foreclosed.
(8) One comment argued that the 1995 proposed rule is precluded
because Congress could not have intended for any agency to have the
authority to prohibit the sale of cigarettes. The comment derived this
``intent'' from pieces of legislation enacted by Congress that provide
for the regulation of specific aspects of cigarettes but do not
prohibit their sale.
FDA disagrees. Enactment of legislation giving other agencies
authority over particular aspects of

[[Page 44547]]

cigarettes means only that Congress has decided to take those
particular actions; it does not imply that Congress has determined that
other Federal regulation is prohibited. Congress can implement policy
in only one way: passage of a bill by the House and the Senate that is
either signed by the President or approved by an overridden veto. (INS
v. Chadha, 462 U.S. 919, 954-58 (1983); Central Bank, 114 S. Ct. at
1453.) Because Congress has not adopted any legislation that
specifically prohibits FDA from regulating tobacco products, the final
rule is not precluded.
In summary, FDA's final rule has been narrowly tailored so that it
does not conflict with the existing statutory scheme governing tobacco
products, and the final rule is not precluded.
2. The PHS Act
Section 1926 of the PHS Act conditions a State's receipt of the
full amount of Federal block grants (to be used for prevention and
treatment of substance abuse) upon the recipient State having in effect
a law that makes it ``unlawful for any manufacturer, retailer, or
distributor of tobacco products to sell or distribute any such product
to any individual under the age of 18'' (42 U.S.C. 300x-26(a)(1)).
(9) Some of the comments argued that section 1926 of the PHS Act
demonstrates an intent on the part of Congress to preserve, and
encourage enforcement of, State youth access restrictions. The comments
asserted that because FDA regulation of youth access to tobacco
products would have a preemptive effect upon some State regulation in
this area, the 1995 proposed rule conflicts with this congressional
intent. Accordingly, argued the comments, section 1926 of the PHS Act
precludes FDA from regulating youth access.
While FDA agrees that section 1926 of the PHS Act indicates a
congressional intent to encourage States to establish age limits on the
purchase of tobacco products, neither the statute's language nor its
legislative history prohibits Federal regulation of youth access. The
restrictions in the final rule regarding the sale and distribution of
tobacco products do not conflict with section 1926 of the PHS Act, and,
in fact, facilitate the end result that Congress sought--reducing youth
smoking--by ``reducing the appeal of cigarettes and smokeless tobacco
to, and limiting access by, persons under 18 years of age.'' (See 60 FR
41314 at 41321.) Accordingly, FDA's regulation of youth access is not
precluded by the existence of section 1926 of the PHS Act. (See 61 FR
1492, January 19, 1996.)
(10) One comment asserted that the 1995 proposed rule is precluded
by section 1926 of the PHS Act because, ``in the legislative process
that led to enactment of [section 1926], Congress considered and
rejected a variety of specific requirements of the very type that FDA
now proposes.'' The Supreme Court, however, has made clear that courts
are ```reluctant to draw inferences from Congress' failure to act.'''
(Brecht v. Abrahamson, 113 S. Ct. 1710, 1719 (1993) (citations
omitted).) The mere fact that Congress, in enacting section 1926 of the
PHS Act, did not incorporate requirements of the type FDA is now
imposing in no way precludes FDA's final rule which was issued under
the agency's regulatory authority under the act.

D. Occupation of the Field

(11) Numerous comments asserted that the 1995 proposed rule is
impliedly precluded by the comprehensiveness of existing legislation
relating to regulation of tobacco products. Several comments argued
that Congress has specifically reserved the power to regulate tobacco
for itself, and thereby has occupied the field. A number of comments
asserted that the present system of congressional control over tobacco
products precludes FDA regulation absent a new mandate from Congress.
FDA disagrees with these comments. The statutes enacted by Congress
for regulation of tobacco products do not amount to a comprehensive
scheme. Rather, they address only a few specific aspects relating to
regulation of tobacco products. Moreover, even if Congress' actions in
this area were ``comprehensive,'' Congress clearly did not intend for
regulation under the Cigarette Act and the Smokeless Act to be
exclusive. (See Banzhaf, 405 F.2d at 1089 (finding that Congress did
not intend to foreclose Federal regulation of cigarettes outside the
narrow scope of preclusion contemplated by the Cigarette Act).) As
explained in greater detail in sections X.A., X.B., and X.C. of this
document, the statutes that the comments cite, whether viewed
individually or collectively, do not preclude FDA from regulating
tobacco products.
First, as some comments noted, Congress has not taken action to
exclude from FDA's jurisdiction tobacco products that fall within the
act's definitions of ``drug'' and ``device.'' The face of the statute
is the first place that a court must look to determine whether Congress
has spoken to a particular issue and whether congressional intent in
regard to that issue is clear. (Kofa v. INS, 60 F.3d 1084, 1088 (4th
Cir. 1995); Metropolitan Stevedore Co. v. Rambo, 115 S. Ct. 2144, 2147
(1995).) Under the act, FDA has jurisdiction over products that are
intended to address disease or to affect the structure or any function
of the body. (See section 201(g) and (h) of the act, 21 U.S.C. 321(g)
and (h); 60 FR 41314 at 41463.) Thus, the relevant language of the
act--``intended to affect the structure or any function of the body''--
does not on its face exclude tobacco products.
Congress is able to exclude and has excluded specific products,
including tobacco products, from a statute's reach when it wishes to do
so. For example, Congress has expressly excluded other products from
FDA's jurisdiction under the act. (See, e.g., section 201(i) of the act
(21 U.S.C. 321(i)) (excluding ``soap'' from definition of
``cosmetic''); section 201(s) of the act (excluding ``color additive''
from definition of ``food additive'').) Moreover, Congress has
expressly excluded tobacco products from the reach of other regulatory
statutes. (See, e.g., 15 U.S.C. 2052(a)(1)(B) (Consumer Product Safety
Act); 15 U.S.C. 1261(f)(2) (Federal Hazardous Substances Act); 15
U.S.C. 2602(2)(B)(iii) (Toxic Substances Control Act); 21 U.S.C. 802(6)
(Controlled Substances Act); 15 U.S.C. 1459(a)(1) (Fair Packaging and
Labeling Act).) Indeed, tobacco is excluded from the definition of
``dietary supplement'' under the act, but no similar exclusion appears
in the definition of ``drug'' or ``device.'' See section 201(g), (h),
and (ff) of the act (21 U.S.C. 321(g), (h), and (ff)). The absence of
an express exclusion for tobacco products from the act's definitions of
``drug'' and ``device'' eviscerates the contention that Congress
clearly intended to preclude FDA from regulating tobacco products.
Second, as recognized by some comments, the fact that statutes such
as the Cigarette Act and the Smokeless Act delegate some regulatory
authority over tobacco products to other Federal agencies does not
preclude FDA's rule. Numerous Federal agencies have overlapping and
complementary jurisdiction that arises from their differing missions
and expertise. (See, e.g., Rueth v. EPA, 13 F.3d 227, 228 (7th Cir.
1993) (EPA and Army Corps of Engineers have concurrent jurisdiction
under the Clean Water Act); Public Utility Dist. No. 1 v. Bonneville
Power Admin., 947 F.2d 386, 395 (9th Cir. 1991) (FERC has concurrent
jurisdiction

[[Page 44548]]

with other Federal agencies as well as States over hydroelectric
projects), cert. denied, 112 S. Ct. 1759 (1992); United Packinghouse,
Food and Allied Workers Int'l Union v. NLRB, 416 F.2d 1126, 1133-34
n.11 (D.C. Cir.) (NLRB and EEOC have concurrent jurisdiction over
racial discrimination claims), cert. denied, 396 U.S. 903 (1969).) As
discussed in section X.C. of this document, the fact that several
agencies are already charged with regulating certain aspects of tobacco
does not preclude FDA from asserting jurisdiction for different
purposes. (See Banzhaf, 405 F.2d at 1089 (``Nothing in the [Cigarette
Act] indicates that Congress had any intent at all with respect to
other types of regulation by other agencies--much less that it
specifically meant to foreclose all such regulation'').)
In conclusion, FDA's final rule is not precluded by the existing
regulatory scheme for tobacco products.

E. Preemption of State and Local Requirements Under Section 521(a) of
the Act

Under proposed Sec. 897.42, State or local requirements that are
more stringent than, and do not conflict with, requirements imposed
under FDA's final rule would not have been preempted under section 521
of the act (21 U.S.C. 360k).
(12) Several comments supported the intended exclusion from
preemption under proposed Sec. 897.42, noting that it is essential that
State and local officials retain the ability to enact and enforce laws
which they believe are most effective when actively enforced at the
local level.
In contrast, several comments took issue with the proposed
exclusion and asserted that regulation of tobacco products by FDA as
drug delivery devices would result in the preemption of State and local
laws. The comments characterized the ``blanket'' exclusion from
preemption under proposed Sec. 897.42 as being at odds with the
statutory preemption established by section 521(a) of the act and with
the exemption procedures established by section 521(b) and by FDA's
regulations.
Several comments argued that proposed Sec. 897.42 would conflict
with congressional intent behind the act. One comment noted that
preemption under section 521(a) of the act was intended to establish
national uniformity in medical device regulation, protecting such
products from onerous burdens on interstate commerce created by a
patchwork of State and local requirements. The comment argued that the
proposed exclusion from preemption would cause uniform Federal
standards to become displaced by diverse State and local requirements.
Another comment asserted that, by allowing more stringent State and
local requirements, proposed Sec. 897.42 was at odds with the act
because Congress did not intend for FDA's device regulations to be
minimum standards; rather, it intended for those regulations to be the
governing standards unless local circumstances justified an exception.
Finally, one comment pointed out that the 1995 proposed rule would
permit only those State and local requirements that are at least as
``stringent'' as the requirements imposed under FDA's rule. The comment
asserted that FDA may not preempt any State laws, however, without
first showing a ``clear and manifest congressional intent'' to
authorize preemption of those State laws.
As a preliminary matter, two points of clarification are necessary.
First, proposed Sec. 897.42 would not have caused State and local laws
to become Federal requirements, as one of the comments anticipated.
Rather, the 1995 proposed rule would have allowed State and local laws
to remain in force subject solely to State or local enforcement.
Second, proposed Sec. 897.42 would not have ``resuscitated'' State
and local laws that would otherwise be preempted by the Cigarette Act
or the Smokeless Act, as some of the comments anticipated. Instead, the
exclusion from preemption in proposed Sec. 897.42 would have applied
only to preemption under section 521 of the act.
Upon consideration of all of the comments relating to proposed
Sec. 897.42, the agency recognizes that significant concerns have been
raised with regard to the validity of FDA's proposed preemption
exclusion for all more stringent State and local legislative
enactments. Most notably, the agency concurs that the notice and
comment process of the current rulemaking does not provide the type of
opportunity for an oral hearing contemplated under section 521(b) of
the act. In light of this concern, FDA has deleted proposed
Sec. 897.42.
The agency's 1995 proposed rule to exclude all more stringent State
and local requirements from any preemptive effect under this rule was
based on a recognition of the pioneering and continuing role in the
area of regulation of youth access to tobacco products that States have
played, particularly certain active tobacco-control States. Federal
cooperation with, and continued reliance upon, innovative and
aggressive State and local enforcement efforts is essential.
FDA believes the requirements it is establishing in this final rule
set an appropriate floor for regulation of youth access to tobacco
products but do not, as a policy matter, reflect a judgment that more
stringent State or local requirements are inappropriate. For example,
FDA chose 18 as the age below which cigarettes and smokeless tobacco
may not be marketed to children and adolescents. This choice reflected
a finding that all but four States have a comparable restriction which
addresses the most vulnerable population. However, many comments argued
that a higher age would be more effective. While FDA has decided not to
establish an age above 18 in the final rule, the agency may, under the
exemption process established under section 521(b) of the act, defer to
those States that conclude that a higher age is more effective and that
apply for an exemption.
In implementing section 521 of the act, FDA has historically
interpreted that provision narrowly and found it to have preemptive
effect only for those State and local requirements that in fact clearly
impose specific requirements with respect to specific devices that are
manifestly in addition to analogous Federal requirements. (See
Sec. 808.1(d) (21 CFR 808.1(d)).) Moreover, section 521 of the act
``does not preempt State or local requirements that are equal to, or
substantially identical to, requirements imposed by or under the act''
(Sec. 808.1(d)(2)).
The agency's assertion of jurisdiction over tobacco products does
not preclude any State or local requirements other than those expressly
preempted by section 521(a) of the act. Moreover, consistent with FDA's
interpretation of section 521(a) of the act, only a limited number of
State and local requirements are preempted and even those may qualify
for exemption from preemption under section 521(b) of the act.
Examples of State and local laws FDA believes are preempted,
consistent with its longstanding approach to implementing section 521
of the act, are the following:
More stringent age restrictions--Three States restrict
cigarette sales to anyone under 19 years of age, and one State has 21
years as the minimum age. These restrictions are preempted because they
are more stringent than the final rule, which prohibits sales only to
individuals under age 18.

[[Page 44549]]

Restrictions on the distribution of free samples of tobacco
products--Approximately 40 States, the District of Columbia, and many
local governments restrict the distribution of free samples of tobacco
products. For example, Nebraska bans samples, coupons, and rebate
offers for smokeless tobacco. Oklahoma and several other States
prohibit the free distribution of tobacco to individuals under 18 and
within 500 feet of schools, playgrounds, or other locations used
primarily by individuals under 18. Approximately 12 States restrict
where free samples may be distributed. These restrictions are preempted
to the extent that they are different from, or in addition to, the
final rule, which prohibits any distribution of free samples.
Restrictions on placement of vending machines--Most States,
the District of Columbia, and several local governments impose
restrictions on the placement of vending machines. These restrictions
are preempted to the extent that they are different from, or in
addition to, the final rule, which prohibits the use of vending
machines except in certain locations and under certain conditions.
Restrictions on outdoor advertising--Restrictions on outdoor
advertising are preempted to the extent that they are different from,
or in addition to, the final rule, which restricts the location,
format, and content of such advertising. For example, Ordinance 307,
which was enacted by the Mayor and City Council of Baltimore, MD,
prohibits the placement of any sign that ``advertises cigarettes in a
publicly visible location,'' i.e., on ``outdoor billboards, sides of
building[s], and free standing signboards.'' This ordinance was upheld
by the Fourth Circuit in the face of a challenge based on preemption
under the Cigarette Act and on First Amendment grounds. (See Penn
Advertising of Baltimore, Inc. v. Mayor and City Council of Baltimore,
63 F.3d 1318 (4th Cir. 1995), vacated and remanded, 116 S. Ct. 2574
(1996).) Subsequently, the Supreme Court vacated judgment in Penn
Advertising and remanded the case to the United States Court of Appeals
for the Fourth Circuit for further consideration in light of 44
Liquormart, Inc. v. Rhode Island, 116 S. Ct. 1697 (1996). If Ordinance
307 is ultimately upheld in its present form, it will be preempted
under section 521 of the act to the extent that it is different from,
or in addition to, the final rule.
Prohibitions and restrictions relating to free-standing
displays--Prohibitions and restrictions relating to free-standing
displays are preempted to the extent that they are different from, or
in addition to, the final rule, which allows free-standing displays but
restricts the location, format, and content of such displays.
Requirements relating to identification checks for purposes of
age verification--Requirements relating to identification checks for
purposes of age verification are preempted to the extent that they are
different from, or in addition to, the final rule, which requires
identification checks for anyone under the age of 26.
Examples of State or local laws or regulations that are not
preempted include:
Equivalent age restrictions--Most States establish 18 years as
the minimum age for purchasing cigarettes or smokeless tobacco. These
restrictions are not preempted because they are equal to, or
substantially identical to, requirements imposed under the final rule.
(See Sec. 808.1(d)(2).)
Restrictions on the sale or distribution of tobacco products--
Several local governments restrict the locations (such as public parks,
public buildings, etc.) at which tobacco products may be sold or
distributed. These restrictions are not preempted because the final
rule does not establish specific counterpart regulations or other
specific requirements relating to the locations at which tobacco
products may be sold or distributed.
Restrictions on smoking in public places--Approximately 48
states, the District of Columbia, and many local governments have some
restrictions on smoking in public places. These restrictions are not
preempted because the final rule does not establish specific
counterpart regulations or other specific requirements relating to
restrictions on smoking in public places.
Penalties on underage persons who purchase tobacco products--
These penalties are not preempted because the final rule does not
establish specific counterpart regulations or other specific
requirements relating to penalties on underage persons who purchase
tobacco products.
Prohibition on use or possession of tobacco products by
underage persons--These prohibitions are not preempted because the
final rule does not establish specific counterpart regulations or other
specific requirements relating to prohibitions on the use or possession
of tobacco products by underage persons.
Age restrictions on persons who sell tobacco products--Some
local governments have statutes or regulations that establish a minimum
age for persons selling tobacco products. These restrictions are not
preempted because the final rule does not establish specific
counterpart regulations or other specific requirements relating to age
restrictions on persons who sell tobacco products.
Tobacco excise taxes--All 50 States and the District of
Columbia have excise taxes on cigarettes, and 42 States have excise
taxes on smokeless tobacco. These excise taxes are not preempted
because they are not ``requirements applicable to a device'' within the
meaning of section 521(a) of the act. (See Sec. 808.1(d)(8).)
Access-control mechanism requirements for vending machines--
Approximately six States and some local governments require access-
control mechanisms on vending machines, such as locking devices or
token acceptors. These requirements are not preempted because the final
rule does not establish specific counterpart regulations or other
specific requirements relating to access-control mechanisms for vending
machines.
Posting of signs--Approximately 24 States have statutes
requiring certain parties to post signs at vending machines stating
that sales to underage persons are prohibited. One State requires
owners or operators of vending machines to post signs warning of the
dangers of cigarette use during pregnancy. In addition, many local
governments require that signs be posted in areas in which smoking is
prohibited by law. These requirements are not preempted because the
final rule does not establish specific counterpart regulations or other
specific requirements relating to the posting of signs.
License requirements--Some local governments impose license
requirements upon retailers of tobacco products. These requirements are
not preempted because they are not ``requirements applicable to a
device'' within the meaning of section 521(a) of the act. (Cf.
Sec. 808.1(d)(3).)
The examples set forth above reflect the types of State or local
requirements of which the agency is currently aware. \254\ There may be
other State or local requirements pertaining to cigarettes and
smokeless tobacco. With regard to particular State or local
requirements that are not described above, any State, political
subdivision, or other interested party may, in accordance with
Sec. 808.5 (21 CFR 808.5),

[[Page 44550]]

request an advisory opinion from the agency as to whether such State or
local requirements are preempted.
---------------------------------------------------------------------------

\254\ State Legislated Actions on Tobacco Issues, Coalition on
Smoking OR Health, Bartelt, J., ed., December 31, 1995.
---------------------------------------------------------------------------

State and local requirements that are preempted by the requirements
of FDA's final rule may be exempted from preemption in accordance with
section 521(b) of the act and its implementing regulation, part 808 (21
CFR part 808). Section 521(b) of the act and part 808 provide that FDA
may, by regulation issued after notice and an opportunity for an oral
hearing, exempt a State or local device requirement from preemption
under such conditions as the Commissioner of Food and Drugs (the
Commissioner), may prescribe if the requirement is: (1) More stringent
than Federal requirements applicable to the device under the act; or
(2) required by compelling local conditions, and compliance with the
State or local requirement would not cause the device to be in
violation of any requirement applicable under the act.
By a separate document to be published in the Federal Register, FDA
will be informing all State and local governments that they may submit
applications to exempt from preemption under section 521(b) of the act
those State and local requirements pertaining to cigarettes and
smokeless tobacco that are preempted by the final rule. A State or
local requirement will be exempted from preemption under section 521(b)
of the act if the State or local requirement: meets the exemption
requirements established under that section and is consistent with the
goals in the final rule. Exemptions from preemption that FDA grants
apply only to preemption under section 521 of the act.
Because the issues raised by these applications for exemption will
be similar or related, the Commissioner has determined that it would be
advantageous for all concerned to propose a single regulation granting
or denying exemptions for each particular State or local requirement,
and, if necessary, to hold a single hearing covering all applications
for exemption from preemption for requirements pertaining to cigarettes
and smokeless tobacco. Although each application will be considered as
part of a single proceeding, each individual application will be
evaluated on its merits and the circumstances applicable to the
particular submitting jurisdiction.

F. Preemption of State Product Liability Claims Under Section 521(a) of
the Act

(13) Several comments asserted that, under section 521(a) of the
act, State product liability claims would be preempted if FDA asserts
jurisdiction over tobacco products as drug delivery devices.
Based on FDA's understanding of the theories of recovery advanced
in tobacco product liability cases, and the nature of the Federal
requirements being established in the final rule, FDA does not expect
any of these Federal requirements to preempt any tort claims relating
to tobacco products. The following analysis explains this conclusion.
The Supreme Court recently held that the scope of preemption under
section 521(a) with regard to State product liability claims is very
narrow. Indeed, a plurality of the Court noted that ``few, if any,
common-law duties have been pre-empted by [section 521(a)].''
Medtronic, Inc. v. Lohr, 64 U.S.L.W. 4625, 4634 (U.S. June 26, 1996)
(Nos. 95-754 and 95-886) (plurality opinion).
Preemption occurs ``only where a particular state requirement
threatens to interfere with a specific federal interest.'' Medtronic,
64 U.S.L.W. at 4634. Thus, State requirements of ``general
applicability'' such as State product liability claims are not
preempted, except where they have ``the effect of establishing a
substantive requirement for a specific device'' that is ``different
from, or in addition to,'' a specific requirement imposed under the act
(Sec. 808.1(d); Medtronic, 64 U.S.L.W. at 4633-34). Moreover, Federal
requirements must be ``applicable to the device'' in question, and they
preempt State product liability claims only if the Federal requirements
are ``specific counterpart regulations'' or ``specific'' to a
``particular device'' (Sec. 808.1(d); Medtronic, 64 U.S.L.W. at 4634).
In summary, FDA is aware of no tort claims against tobacco products
that will be preempted by the Federal requirements being established in
the final rule.

XI. Miscellaneous Constitutional Issues

A. Takings Under the Fifth Amendment

(1) Several industry, retail, and individual comments argued that
parts of the regulations effect takings compensable under the Fifth
Amendment's Takings Clause (the Takings Clause), which provides that
``private property [shall not] be taken for public use, without just
compensation.'' For example, comments argued that proposed Sec. 897.34
will restrict or even prohibit tobacco manufacturers' use of their
trademarks and copyrighted property, or that it will deprive industry
members both of the goodwill generated by their sponsorship of sports
and cultural events and of valuable tobacco trademarks. Comments argued
that Sec. 897.16(a) effects a taking of intellectual property because
it prohibits the use of nontobacco trademarks (with grandfathered
exceptions) to market tobacco products. Several comments argued that
Sec. 897.16(c) effects a taking of vending machines and self-service
displays, as well as contractual rights to place tobacco vending
machines on other people's property. Comments argued that the
requirement that advertising use only black text on white background in
Sec. 897.32(a) effects a taking because nonconforming signs--for buses
and on billboards, for example--will have to be destroyed, as would
tobacco advertisements on billboards and signs within 1,000 feet of
schools and public playgrounds under Sec. 897.30(b).
Comments also argued that the proposed ban on mail-order sales of
tobacco products would effect a taking of mail-order businesses. Mail-
order sales, however, are not prohibited under the final rule. Many
retailers argued that the prohibition of self-service displays and the
corresponding requirement that tobacco products be shelved behind sales
counters violate the Fifth Amendment.
The Food and Drug Administration (FDA) disagrees that any of these
provisions effects a taking in violation of the Fifth Amendment.
In its final form, Sec. 897.16(a) prohibits manufacturers from
using the trade or brand name of a nontobacco product as the trade or
brand name of a cigarette or smokeless tobacco product, with the
exception of those names on both tobacco and nontobacco products that
were sold in the United States on January 1, 1995. In its final form,
Sec. 897.16(c) prohibits the use of vending machines and self-service
displays to sell cigarettes and smokeless tobacco, except that vending
machines (including those that sell packaged, single cigarettes) and
self-service displays may be used to sell these tobacco products in
adult-only establishments. (As proposed in the 1995 proposed rule,
Sec. 897.16(c) would have prohibited their use entirely.)
In its final form, Sec. 897.30(b) prohibits tobacco product
advertisements within 1,000 feet of a public playground or a secondary
or elementary school. In its final form, Sec. 897.32(a) permits only
advertising that uses black text on a white background (except in adult
publications and in facilities where persons under 18 are not present
or permitted). In its final form, Sec. 897.34(a)

[[Page 44551]]

prohibits the sale of nontobacco items or services that bear the brand
names or other indicia of identification for cigarettes or smokeless
tobacco. In its final form, Sec. 897.34(c) prohibits the sponsorship of
athletic, musical, cultural, or other social or cultural events in the
brand names or other indicia of identification for cigarettes or
smokeless tobacco.
A takings analysis begins with a determination of what interest a
person has in the thing that is allegedly taken--in this case, in
vending machines and self-service displays, copyrighted material, and
trademarks and goodwill--and whether that interest ``can be considered
property for the purposes of the Taking Clause of the Fifth
Amendment.'' (See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001
(1984).) If a cognizable property interest is identified, the Supreme
Court has developed three factors for courts to consider in assessing
whether a regulatory taking has occurred: (1) The character of the
governmental action; (2) its economic impact; and (3) its interference
with reasonable investment-backed expectations (Id. at 1005).
1. The Interests at Issue
Some of the interests affected by the final rule--vending machines,
self-service displays, and existing nonconforming advertising on signs
and billboards, for example--is tangible property, whereas contract
rights, trademarks and goodwill, and copyrighted material (e.g., the
nonconforming copyrighted material on signs and billboards) affected by
these provisions are intangible property interests.
Tangible personal property--such as vending machines, self-service
displays, and signs and billboards advertising tobacco products--is
property for purposes of the Takings Clause (see United States v.
General Motors Corp., 323 U.S. 373, 383-84 (1945)), although personal
commercial property is afforded less protection than real property
under the Takings Clause (see, e.g., Lucas v. South Carolina Coastal
Council, 112 S. Ct. 2886, 2899 (1992)).
Intangible interests may be compensable under the Takings Clause as
well. For example, in Ruckelshaus, the Supreme Court determined that
trade secret information--which is intangible--was property compensable
under the Takings Clause. The Court noted that the extent of the
property right in trade secret information ``is defined by the extent
to which the owner of the secret protects his interest from disclosure
to others,'' (that is, it is property only insofar as others are
excluded from its use) and that it has ``many of the characteristics of
more tangible forms of property''--for example, trade secret
information is assignable, it can form the res of a trust, and it
passes to a trustee in bankruptcy (Ruckelshaus, 467 U.S. at 1002).
Vending machine owners may have contracts that give them exclusive
rights to sell tobacco products at a particular location. These
contract rights would typically be assignable, they may form the res of
a trust (see, e.g., Wadsworth v. Bank of California, 777 P.2d 975, 978
(Or. Ct. App. 1989)), and rights of action based upon them can become
part of a bankruptcy estate (e.g., In re Ryerson, 739 F.2d 1423, 1425
(9th Cir. 1984)). (See also U.C.C. 9-106.) Such vending machine owners'
contracts may therefore create contract rights that would be
compensable property under the Takings Clause.
Material can be copyrighted if it is an original work of
authorship--such as written, musical, pictorial, or graphic work--that
is fixed in a tangible medium of expression from which the work can be
reproduced (17 U.S.C. 102(a)). By Federal statute a copyright is
assignable (17 U.S.C. 201), and there are rights to exclusive use (17
U.S.C. 106), subject to certain limitations (17 U.S.C. 107-20) and
enforceable through infringement actions (e.g., 17 U.S.C. 501). A
copyright can form the res of a trust (Bartok v. Boosey & Hawkes, Inc.,
523 F.2d 941, 948 (2d Cir. 1975)) and it can become property of an
estate in bankruptcy (United States v. Inslaw, Inc., 932 F.2d 1467,
1471 (D.C. Cir. 1991), cert. denied, 502 U.S. 1048 (1992)). Sharing
many of the characteristics of more tangible property, a copyright is
also compensable property under the Takings Clause.
Trademarks are words, names, symbols, devices, or combinations
thereof that a person uses, or intends to use and has applied to
register, to identify or distinguish his or her goods from others on
the market and to identify their source (15 U.S.C. 1127). The primary
purpose of trademarks is to protect consumers by preventing deceitful
marketing of one product or service as another. As the Supreme Court
has stated,
[t]he law of unfair competition has its roots in the common-law
tort of deceit: its general concern is with protecting consumers
from confusion as to source. While that concern may result in the
creation of ``quasi-property rights'' in communicative symbols, the
focus is on the protection of consumers, not the protection of
producers as an incentive to product innovation.
(Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 157
(1989))
When associated with goodwill, trademarks also share--with trade
secret information and copyrights--the features of more tangible
property. For example, the Lanham Act (15 U.S.C. 1053 et seq.) allows
assignment of a trademark only ``with the goodwill of the business in
which the mark is used or with that part of the goodwill of the
business connected with the use of and symbolized by the mark'' (15
U.S.C. 1060). Indeed, when Congress amended the Lanham Act in 1988 to
allow intent-to-use applications for registration of trademarks, it
prohibited assignment of such applications to be ``consistent with the
principle that a mark may be validly assigned only with the business or
goodwill attached to the use of the mark'' (S. Rept. 515, 100th Cong.,
2d sess. 31 (1988), reprinted in 1988 U.S.C.C.A.N. 5577, 5593-5594).
Owners of trademarks also have rights of exclusive use of marks--
that is, against infringement--because ``[b]y applying a trademark to
goods produced by one other than the trademark's owner, the infringer
deprives the owner of the goodwill which he spent energy, time, and
money to obtain'' (Inwood Laboratories, Inc. v. Ives Laboratories,
Inc., 456 U.S. 844, 854 n.14 (1982)). ``Registration bestows upon the
owner of the mark the limited right to protect his goodwill from
possible harm by those uses of another as may engender a belief in the
mind of the public that the product identified by the infringing mark
is made or sponsored by the owner of the mark'' (Societe Comptoir de
L'Industrie Cotonniere Etablissements Boussac v. Alexander's Dep't
Stores, Inc., 299 F.2d 33, 36 (2d Cir. 1962)). Like trade secret
information, a trademark can be the res of a trust (see Coca-Cola
Bottling Co. v. Coca-Cola Co., 988 F.2d 414, 430-432 (3d Cir. 1993))
and it can pass to the trustee in bankruptcy (Inslaw, 932 F.2d at
1471).
The agency notes that a trademark itself, unaccompanied by
goodwill, lacks these characteristics of property. The agency therefore
believes that a trademark itself is not property cognizable under the
Takings Clause. Based on the foregoing analysis, however, the agency
believes that a trademark and the accompanying goodwill together are
property cognizable under the Takings Clause. These conclusions are
consonant with the recognition that a trademark has

[[Page 44552]]

value as property for the owner ``only in the sense that a man's right
to the continued enjoyment of his trade reputation and the good will
that flows from it, free from unwarranted interference by others, is a
property right, for the protection of which a trademark is an
instrumentality'' (Hanover Star Milling Co. v. Metcalf, 240 U.S. 403,
413 (1916); see also S. Rept. 1333, 79th Cong., 2d sess. (1946),
reprinted in 1946 U.S. Code Cong. & Admin. News 1274, 1277 (``the
protection of trade-marks is merely protection to goodwill'')).
Nevertheless, this conclusion must be reconciled with Supreme Court
precedent on takings of goodwill. In particular, the comments cited
Kimball Laundry Co. v. United States, 338 U.S. 1 (1949), for the
proposition that the Takings Clause requires compensation for a
regulatory taking of goodwill. The general rule is that the Takings
Clause does not require compensation for goodwill when the Government
takes a place of business because the business's goodwill may be
transferred to a new place of business (338 U.S. at 11-12 and 15; see
also General Motors, 323 U.S. at 379 (when Government permanently takes
land, ``compensation for that interest does not include * * * [even]
the loss of goodwill which inheres in the location of the land'')). In
Kimball, however, the Court allowed compensation for loss of a laundry
business's goodwill, or going-concern value, incident to the physical
taking of the laundry. It did so because the Government intended to
operate the laundry temporarily during wartime, after which the laundry
would revert to the business; the business could not invest in a new
laundry because it would someday be the owner of two laundries, neither
of which it could then operate profitably (338 U.S. at 14-15). The
Court therefore likened the situation to those in which the Government
takes a utility with the intention of operating it itself; the going-
concern value of the utility is taken in those cases and is therefore
compensable (Id. at 12-13).
Kimball and General Motors therefore indicate that goodwill is
compensable under the Takings Clause only when no business remains
after a taking to whose benefit the goodwill may inure. (See also
District of Columbia v. 13 Parcels of Land, 534 F.2d 337, 349 & n.7
(D.C. Cir. 1976).) With respect to goodwill associated with a
trademark, use of which is limited by a regulation, these cases
indicate that the property interest may be compensable only if the
regulation allows no goodwill to inure to the benefit of the owner.
For purposes of the following analysis of whether the regulations
effect a taking, the agency assumes that copyrighted material, the
interests in trademarks and associated goodwill, contracts, self-
service displays, vending machines, and tobacco advertising on signs
and billboards are property interests that may be compensable under the
Takings Clause if taken.
2. The Takings Analysis
[W]hat constitutes a ``taking'' for purposes of the Fifth
Amendment has proved to be a problem of considerable difficulty.
While this Court has recognized that the ``Fifth Amendment's
guarantee * * * [is] designed to bar Government from forcing some
people alone to bear public burdens which, in all fairness and
justice, should be borne by the public as a whole,'' this Court,
quite simply, has been unable to develop any ``set formula'' for
determining when ``justice and fairness'' require that economic
injuries caused by public action be compensated by the government,
rather than remain disproportionately concentrated on a few persons.
(Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 123-24
(1978) (citation omitted) (alterations and deletions in original);
Ruckelshaus, 467 U.S. at 1005)
Still, the Supreme Court has identified three factors for courts to
consider in assessing whether a regulatory taking has occurred: (1) The
character of the governmental action; (2) its economic impact; and (3)
its interference with reasonable investment-backed expectations
(Ruckelshaus, 467 U.S. at 1005; Penn Central, 438 U.S. at 124).
The force of any one of these factors may be ``so overwhelming * *
* that it disposes of the taking question'' (Ruckelshaus, 467 U.S. at
1005 (finding interference with reasonable investment-backed
expectations by use of trade secret information in pesticide approval
process to be decisive)). So, for example, if the economic impact is to
rob real property of ``all economically beneficial uses,'' the
regulation effects a taking (Lucas, 505 U.S. at 1019 (emphasis in
original); see also id. at 1027-1028 (limiting holding to real
property)). When examined in light of these three factors, FDA's
proposed regulations do not effect a compensable taking under the Fifth
Amendment of the Constitution.
3. The Character of the Governmental Action
With respect to the first factor, courts are more likely to find a
taking when the interference with property can be characterized as a
physical invasion by the Government (e.g., United States v. Causby, 328
U.S. 256, 261-62 (1946) (characterizing Government's use of flight path
just over property as physical invasion)) than when the interference is
caused by a regulatory program that ``adjust[s] the benefits and
burdens of economic life to promote the common good'' (Penn Central,
438 U.S. at 124). Courts have accorded particular deference to
governmental action taken to protect the public interest in health,
safety, and welfare. (See Keystone Bituminous Coal Ass'n v.
DeBenedictis, 480 U.S. 470, 488 (1987); Penn Central, 438 U.S. at 125-
26; Atlas Corp. v. United States, 895 F.2d 745, 757-58 (Fed. Cir.),
cert. denied, 498 U.S. 811 (1990).) In addition, the Supreme Court has
repeatedly rejected compensation claims when the Government has
regulated in order to prevent harmful activity:
The power which the States have of prohibiting such use by
individuals of their property as will be prejudicial to the health,
the morals, or the safety of the public, is not--and, consistently
with the existence and safety of organized society, cannot be--
burdened with the condition that the State must compensate such
individual owners for pecuniary losses they may sustain, by reason
of their not being permitted, by noxious use of their property, to
inflict injury upon the community.
(Mugler v. Kansas, 123 U.S. 623, 669 (1887) (holding that State law
prohibiting manufacture or sale of alcohol effected no taking of
brewery even though law entirely destroyed brewery's beneficial use);
see also Keystone, 480 U.S. 470 (1987) (no taking by law prohibiting
mining of coal); Goldblatt v. Town of Hempstead, 369 U.S. 590 (1962)
(no taking effected by regulation that closed gravel pit); Miller v.
Schoene, 276 U.S. 272 (1928) (no taking effected by State-ordered
felling of cedar trees); Hadacheck v. Sebastian, 239 U.S. 394 (1915)
(no taking effected by ordinance prohibiting operation of brickyard in
residential area); Reinman v. City of Little Rock, 237 U.S. 171 (1915)
(no taking effected by ordinance prohibiting stable in residential
area); Powell v. Pennsylvania, 127 U.S. 678 (1888) (no taking effected
by law preventing manufacture of margarine)).
First, the final rule's interference with property interests cannot
be characterized as a physical invasion of property. The final rule
prohibits some uses of some types of property, but the Government is
neither using nor acquiring property under the regulations (Penn
Central, 438 U.S. at 128). For example, certain uses of vending

[[Page 44553]]

machines, self-service displays, and signs and billboards are
prohibited, but the Government is itself neither using nor acquiring
them. The same is true of the intangible property at issue, contracts,
copyrights, and trademarks and the associated goodwill: The agency is
prohibiting certain uses--indeed, all uses of tobacco trademarks on
nontobacco items, including when tobacco companies have also registered
the tobacco mark as a mark for nontobacco products or services--but the
Government is not itself using these contract rights, copyrights, or
trademarks (and thereby tobacco companies' goodwill). It ``has taken
nothing for its own use'' (Connolly v. Pension Benefit Guar. Corp., 475
U.S. 211, 224 (1986)).
Second, these final regulations seek to promote the public health
by limiting access to tobacco products by consumers in the age group
most likely to become addicted to them: Those under the age of 18. The
regulations are intended to help reduce significantly the harms that
use of tobacco products among this age group causes. They do so by
prohibiting the sale of tobacco products to persons under the age of
18; that is, the regulations require modes of sale through which the
retailer can verify the age of the purchaser or to which only those 18
or over will have access. In particular, the final rule permits vending
machines and self-service displays and accompanying advertising only in
places to which young people do not have access.
The final regulations also limit promotion of tobacco products to
persons under the age of 18. They do so by prohibiting certain venues
for tobacco advertising, namely, within 1,000 feet of schools and
public playgrounds. They also require black text/white background
advertisements in remaining venues with the exception of adult
newspapers, magazines, periodicals, and other publications, and in
adult-only establishments. They also prohibit use of tobacco trademarks
on nontobacco products and in the sponsorship of events. As a
consequence, use of tobacco industry trademarks, copyrights, and
advertising techniques is limited, although not ended. Nonconforming
signs and billboards will be prohibited, thereby reducing the remaining
useful life of those currently in use when the regulations become
effective. Use of nontobacco trademarks is limited only by prohibiting
their use on tobacco products (except for nontobacco trademarks used on
tobacco products in the United States on January 1, 1995).
These regulations substantially advance, and are rationally related
to, FDA's legitimate interest in promoting the public health and
reducing harm by limiting both youth access to tobacco products and, as
discussed in the context of the First Amendment, their promotion to
youth. (See Keystone, 480 U.S. at 485; see also Pace Resources, Inc. v.
Shrewsbury Township, 808 F.2d 1023, 1030 (3d Cir.) (``[T]he
governmental action is entitled to a presumption that it does advance
the public interest.''), cert. denied, 482 U.S. 906 (1987).) Moreover,
they are directed at stopping activity that is illegal in every State:
Sales of tobacco products to those under the age of 18 (Keystone, 480
U.S. at 492 n.22). This factor of the takings analysis indicates that
these regulations effect no takings.
4. The Economic Impact of the Governmental Action
The second factor to consider is the economic impact of the
governmental action. ``There is no fixed formula to determine how much
diminution in market value is allowable without the fifth amendment
coming into play'' (Florida Rock Indus., Inc. v. United States, 791
F.2d 893, 901 (Fed. Cir. 1986), cert. denied, 479 U.S. 1053 (1987)). It
is clear, however, that a regulation's economic impact may be great
without rising to the level of a taking. (See Pace Resources, 808 F.2d
at 1031 (citing Hadacheck v. Sebastian, 239 U.S. 394 (1915)) (no taking
even given reduction in value from $800,000 to $60,000); Village of
Euclid v. Ambler Realty Co., 272 U.S. 365 (1926) (no taking despite 75
percent diminution in value).) Mere denial of the most profitable or
beneficial use of property does not require a finding that a taking has
occurred. (See Florida Rock, 791 F.2d at 901; see also Andrus v.
Allard, 444 U.S. 51, 66 (1979).) Rather, courts look for drastic
interference with a property's possible uses. (See Pace Resources, 808
F.2d at 1031.)
In assessing whether a regulation effects a taking, the Supreme
Court has considered whether the regulation denies an owner the
``economically viable use'' of his property. (See, e.g., Keystone, 480
U.S. at 499.) Courts focus on the remaining uses permitted and the
residual value of the property. (See Pace Resources, 808 F.2d at 1031.)
Although certain uses of copyrights and copyrighted material
developed by tobacco companies and of tobacco and nontobacco trademarks
will be prohibited or curtailed, other uses will remain once the final
rule takes effect. That is, under Sec. 897.16(a), nontobacco trademarks
may not be used to market tobacco products (with the exception of
trademarks that had such uses before January 1, 1995) and so they may
lose the (speculative) value of such licensing arrangements, but they
retain the vast bulk of their value as trademarks for the product or
brand for which they were originally developed, and they retain the
value of their potential use to market all legal, nontobacco products.
Under Secs. 897.30(b) and 897.32(a), some copyrighted advertising
material that appears on billboards or signs within 1,000 feet of a
school or playground or that is not black text/white background may be
rendered useless when the rule becomes effective (the copyrighted
design itself may be used in other venues, such as adult publications
or in adult-only establishments). Under Sec. 897.34(a), tobacco product
brand names and logos may be used only to market tobacco products; they
therefore lose the value of any use on nontobacco products and, under
Sec. 897.34(c), they lose the value of any use to sponsor events when
the rule becomes effective. By and large, however, tobacco copyrights
and trademarks will retain significant, economically viable uses when
the rule becomes effective.
Tobacco companies have, however, registered some of their tobacco
trademarks (e.g., Skoal Bandit on a race car as an entertainment
service mark, Marlboro on tennis caps), or marks that incorporate a
tobacco trademark (e.g., The Marlboro Country Store on, for example,
hats and boots; Skoal Pro Rodeo promoting and sponsoring rodeos;
Winston West promoting and sponsoring auto racing events), as marks for
nontobacco products, services, or events. Under Sec. 897.34, all use of
these registered nontobacco marks will be prohibited when the rule
becomes effective. With respect to these registered nontobacco
trademarks, and indeed with respect to all tobacco company trademarks,
their associated goodwill will remain with the tobacco companies and
will inure to their benefit in the sale of tobacco products.
Accordingly, this factor of the takings analysis indicates that the
final rule effects no taking of these interests.
Section 897.16(c) prohibits the use of tobacco product vending
machines and self-service displays except in adult-only establishments
(where graphic advertisements will also be permitted). This restricted
use may limit the number of venues in which these

[[Page 44554]]

vending machines and self-service displays may be used and may exclude
venues where their use is most profitable. The value of vending
machines and self-service displays may therefore drop. But diminutions
in property value do not establish a taking. (See Penn Central, 438
U.S. at 131.) Indeed, ``[g]overnment hardly could go on if to some
extent values incident to property could not be diminished without
paying for every such change in the general law'' (Pennsylvania Coal
Co. v. Mahon, 260 U.S. 393, 413 (1922)). Vending machines and self-
service displays may have to be moved from currently legal venues to
adult-only establishments or to warehouses, or they may need to be
retrofitted for use with other products if retrofitting is possible.
Although compliance may require vending machine and self-service
display owners to spend money, ``[r]equiring money to be spent is not a
taking of property'' (Atlas Corp., 895 F.2d at 756 (discussing
regulatory requirement that mining corporations reclaim uranium and
thorium tailings and decommission mills)). Finally, if there are not
sufficient numbers of adult-only establishments, some vending machines
and self-service displays may have no economically viable use because
of the final regulation, but a regulation that makes personal
commercial property ``economically worthless'' does not effect a per se
taking, as it would with real property. (See Lucas, 505 U.S. at 1027-
1028.) Contracts to offer exclusively tobacco products in vending
machines at nonadult-only establishments may also become ``economically
worthless'' once the regulation becomes effective. Likewise, although
Secs. 897.32(a) and 897.30(b) may shorten the useful life of
advertising materials on placards and billboards that are not black
text/white background or that are near schools and playgrounds (albeit
with a grace period of at least the delayed effective date) and such
materials may be ``economically worthless'' as a result, this does not
effect a taking per se.
In summary, examination of the economic impact factor of the
takings analysis suggests that the regulations, when they finally
become effective, will effect no takings of trademarks and goodwill,
copyrights, and many vending machines and self-service displays. It
leaves open the possibility, however, that the rule may effect a taking
of some vending machines and contracts, and of some self-service
displays and of nonconforming signs and billboards.
5. Interference with Reasonable Investment-backed Expectations
The final factor to consider is whether a company has a reasonable
investment-backed expectation in continuing to use the property at
issue, whether it be vending machines, self-service displays,
nonconforming signs and billboards, copyrighted material, or trademarks
and goodwill. To be reasonable, expectations must take into account the
power of the State to regulate in the public interest. (See Pace
Resources, 808 F.2d at 1033.) Reasonable expectations must also take
into account the regulatory environment, including the foreseeability
of changes in the regulatory scheme. ``In an industry that long has
been the focus of great public concern and significant government
regulation,'' Monsanto, 467 U.S. at 1008, the possibility is
substantial that there will be additional regulatory requirements.
``Those who do business in the regulated field cannot object if the
legislative scheme is buttressed by subsequent amendments to achieve
the legislative end'' (Connolly, 475 U.S. at 227 (citation omitted)).
Given a long history of Government regulation of an industry, its
members are ``on notice that [they] might be subjected to different
regulatory burdens over time'' (California Hous. Sec., Inc. v. United
States, 959 F.2d 955, 959 (Fed. Cir.), cert. denied, 506 U.S. 916
(1992)).
Commerce in tobacco products has been regulated for years on the
Federal, State, and local levels. For example, States first began
restricting tobacco sales to minors, distribution of free samples, and
vending machine sales in the 1970's. By 1994 all 50 States prohibited
tobacco sales to young people, 38 States restricted the distribution of
free tobacco products, and 28 States imposed restrictions on vending
machine sales (``State Legislated Actions on Tobacco Issues,''
Coalition on Smoking OR Health (Washington, DC 1994)). Tobacco
manufacturers as well as distributors and retailers who have chosen to
distribute or sell tobacco products have therefore had reasonable
notice that the regulatory scheme to limit use of tobacco products by
minors might change.
Moreover, the particular restrictions on access and on promotion
adopted in these regulations, or variations thereof, have been proposed
or considered for several years by Government bodies, including
Congress, the States, and public health agencies. (See, e.g., H. Rept.
5041, 101st Cong., 2d sess. (1990); H. Rept. 1250, 101st Cong., 1st
sess. (1989).) For example, on at least two occasions a tobacco
industry representative testified before Congress that pending
legislation would, like several previous legislative proposals,
effectively ban advertisements for tobacco products (``Tobacco Control
and Marketing: Hearings on H. Rept. 5041 Before the Subcommittee on
Health and the Environment of the House Committee on Energy and
Commerce,'' 101st Cong., 2d sess. 491-494 (1990) (statement of Charles
O. Whitley on behalf of The Tobacco Institute); ``Tobacco Issues:
Hearings on H. Rept. 1250 Before the Subcomm. on Transp. and Hazardous
Materials of the House Comm. on Energy and Commerce,'' 101st Cong., 1st
sess. 302 (1989) (statement of Charles O. Whitley on behalf of The
Tobacco Institute)), making for far more restrictive limits on
advertisements and promotion than those imposed by this rule. Given
these facts, a reasonable person should have expected the possibility
of regulations such as these. In addition, when sales to young people
are illegal, investments in promotions designed to appeal to young
people cannot be considered reasonable (see discussion of R. J.
Reynolds' use of promotional materials in the Joe Camel Campaign in
section VI. of this document). In any case, once the agency gave notice
of its proposed rulemaking with respect to tobacco, tobacco
manufacturers, distributors, and retailers had notice that certain
investments were risky, and they will enjoy the economic benefit of
those investments and of investments that they had previously made
until the rule is finally effective.
As discussed in section IV. of this document, the number of tobacco
product vending machines fell by half between 1988 and 1993 and, since
1990, virtually no new tobacco product vending machines have been
manufactured (60 FR 41314 at 41325); because the market in tobacco
product vending machines is declining, investment-backed expectations
in both vending machines and vending machine contracts are not
reasonable. Moreover, many self-service displays were given to
retailers by tobacco manufacturers (see 60 FR 41314 at 41323); to that
extent, the retailers have no investment-backed expectation in them.
Finally, the Supreme Court has stated that it is unreasonable to
have high investment-backed expectations in personal property:
[I]n the case of personal property, by reason of the State's
traditionally high degree of control over commercial dealings, [the

[[Page 44555]]

property owner] ought to be aware of the possibility that new
regulation might even render his property economically worthless (at
least if the property's only economically productive use is sale or
manufacture for sale).
(Lucas, 505 U.S. at 1027-1028)
Since all of the property at issue here--vending machines, self-
service displays, the advertising material on signs and billboards,
contract rights, copyrights, and trademarks and associated goodwill--is
personal property, there can be no reasonable investment-backed
expectation that regulation will not render them economically
worthless. Consideration of this factor of the takings analysis
indicates that the final rule effects no takings of any property.
6. Summary
With respect to trademarks and goodwill and copyrights, the three
factors in a takings analysis indicate that these regulations will
effect no takings. Only the economic impact of the rule on advertising
materials on signs and billboards and on some vending machines and
related contract rights and some self-service displays leaves open the
possibility that a taking may occur, but the impossibility of
reasonable investment-backed expectations with respect to personal
property used for sale strongly counters this factor, as stated by the
Supreme Court in Lucas, as does the harm-prevention character of this
regulation. Analysis of the three factors considered together shows
that these final regulations do not effect a taking of vending
machines, self-service displays, signs and billboards advertising
tobacco products, contract rights, or copyrights and trademarks and
goodwill. The agency concludes that the comments that argued that the
regulation effects takings are, for the above-stated reasons,
unpersuasive.

B. Substantive Due Process, Equal Protection, and Restrictions on Use
of Trade Names

(2) Comments argued that Sec. 897.16(a) (which restricts the use of
nontobacco trade or brand names as the trade or brand name of
cigarettes or smokeless tobacco) and Sec. 897.34(a) (which prohibits
the marketing of nontobacco items and services that bear tobacco brand
names and other symbols of cigarettes and smokeless tobacco) violate
the Due Process Clause of the Fifth Amendment to the Constitution and
the Equal Protection Clause of the Fourteenth Amendment. One comment
asserted that each of these provisions prevents companies from entering
a completely legal business using their own trade names but provided no
further explanation of its reasoning; FDA therefore understands it to
suggest that these provisions classify companies as either tobacco or
nontobacco companies, that this classification violates equal
protection, and that these provisions violate due process in that they
infringe on property interests in trade names by prohibiting companies
from entering legal businesses using their own trade names. Another
comment echoed this latter point and argued that the agency was denying
tobacco companies due process because it has no authority to prohibit
the lawful use of tobacco trademarks on other products.
The agency disagrees with these comments. The Fifth Amendment Due
Process Clause states that ``[n]o person shall * * * be deprived of
life, liberty, or property, without due process of law.'' Under due
process as applied to economic regulation, ``[i]t is enough that there
is an evil at hand for correction, and that it might be thought that
the particular legislative measure was a rational way to correct it''
(Williamson v. Lee Optical of Oklahoma, Inc., 348 U.S. 483, 488
(1955)). (The agency has addressed why it has the statutory authority
to issue this rule in section II. of this document.)
The Fourteenth Amendment's Equal Protection Clause states that
``[n]o State shall * * * deny to any person the equal protection of the
laws.'' By its terms, the Fourteenth Amendment does not apply to action
by the Federal Government, as it is directed at the States. But the
Supreme Court has held that the Fifth Amendment's Due Process Clause
includes an equal protection component equivalent to the Fourteenth
Amendment's Equal Protection Clause. (See Bolling v. Sharpe, 347 U.S.
497 (1954); see also Buckley v. Valeo, 424 U.S. 1, 93 (1976) (per
curiam) (``Equal protection analysis in the Fifth Amendment area is the
same as that under the Fourteenth Amendment'').) Under equal protection
review, an economic regulation is valid as long as the classification
that it makes is ``rationally related to a legitimate state interest''
(City of New Orleans v. Dukes, 427 U.S. 297, 303 (1976)).
Sections 897.16(a) and 897.34(a) easily pass muster under the
requirements of both due process and equal protection. FDA's interest
in the health and well-being of children and adolescents is certainly
legitimate (indeed, it is a compelling interest). (See New York v.
Ferber, 458 U.S. 747, 757-58 and n.9 (1982).) Moreover, because they
limit trade and brand name uses that enhance the appeal and promote the
use of cigarettes and smokeless tobacco to young people, the provisions
are rationally related to this interest and are a rational way to
reduce addiction to tobacco products and the health consequences that
follow.

C. Procedural Due Process Under the Fifth Amendment

(3) An industry comment asserted that the regulation of tobacco
manufacturers' use of their copyrights and trademarks affects a
property interest so as to require an adjudication; put another way,
the comment argued that use of rulemaking to adopt a regulation
effecting these property interests violates the Fifth Amendment Due
Process Clause, which states that ``[n]o person shall * * * be deprived
of life, liberty, or property, without due process of law.''
The agency disagrees. The agency has issued this final rule under
its ``authority to promulgate regulations for the efficient enforcement
of the Act'' under section 701(a) of the Federal Food, Drug, and
Cosmetic Act (the act) (21 U.S.C. 371(a)) and its authority under
section 520(e) of the act (21 U.S.C. 360j(e)) to issue regulations to
restrict the sale, distribution, or use of a device. The agency issues
such regulations under the rulemaking procedures established by the
Administrative Procedure Act (APA) in 5 U.S.C. 553 and its own
regulations in part 10 (21 CFR part 10), in particular Sec. 10.40.
Neither the act, the APA, nor the agency's regulations require a
hearing for a rulemaking under sections 701(a) and 520(e) of the act.
The comment nevertheless contended that due process requires that
tobacco manufacturers be provided the opportunity for a formal hearing
(i.e., more than just an opportunity to provide written comments). A
formal hearing is required, according to the comment, because FDA is
asserting jurisdiction over cigarettes and smokeless tobacco based upon
a determination of the intent of all tobacco manufacturers, but it is
relying on evidence of intent with regard to only a subset of tobacco
manufacturers.
As discussed in the 1996 Jurisdictional Determination annexed
hereto, the evidence shows that cigarettes and smokeless tobacco are
highly addictive, cause other psychoactive effects (such as relaxation
and stimulation), and affect weight

[[Page 44556]]

regulation, and that these effects are widely accepted in the
scientific community. Based on this evidence, it is foreseeable to any
reasonable manufacturer that consumers will use such products for their
addictive, psychoactive, and other pharmacological effects. The
evidence also shows that actual consumer use of these products for
their pharmacological effects is predominant and, in fact, nearly
exclusive. Based on this evidence of the foreseeable and actual
consumer use of these products for their pharmacological effects, the
agency has concluded that all cigarette and smokeless tobacco
manufacturers ``intend'' their products to affect the structure or
function of the body, and that these products are, therefore, nicotine
delivery devices under the act. In addition, the agency collected
evidence of the tobacco industry's statements, actions, and research
demonstrating awareness of the addictive and other pharmacological
effects of these products, the industry's knowledge that consumers use
these products for these effects, and the industry's deliberate
manipulation of levels of nicotine in these products to ensure that
adequate amounts of nicotine are delivered to consumers. These internal
documents are further evidence in support of the conclusion that
cigarette and smokeless tobacco manufacturers intend their products to
be drug delivery devices, but they are not necessary for that
conclusion. The agency, therefore, has not inferred the intent of one
company based exclusively on the internal documents of another.
Moreover, assuming that copyrights and trademarks are property
protected by the Fifth Amendment's Due Process Clause, due process does
not require that FDA provide tobacco manufacturers with a hearing
beyond the opportunity for notice and comment that it has already
provided. The Supreme Court has stated that the APA established ``the
maximum procedural requirements'' that the courts can impose upon
agencies in conducting rulemaking procedures and that the circumstances
in which courts may require additional procedures, ``if they exist, are
extremely rare'' (Vermont Yankee Nuclear Power Corp. v. Natural
Resources Defense Council, 435 U.S. 519, 524 (1978)). The Court further
stated that due process may ``in some circumstances'' require
``additional procedures'' beyond those required by the APA ``when an
agency is making a `quasi-judicial' determination by which a very small
number of persons are `exceptionally affected, in each case upon
individual grounds''' (Id. at 542 (quoting United States v. Florida
East Coast Ry., 410 U.S. 224, 242-245 (1973))).
By this test, due process does not require that the agency provide
tobacco manufacturers with a hearing. Simply put, the agency is not
making ``a quasi-judicial determination by which a very small number of
persons are exceptionally affected, in each case upon individual
grounds'' (Vermont Yankee, 435 U.S. at 542 (quotations omitted)). The
final rule at issue here prospectively limits the sale and promotion of
cigarettes and smokeless tobacco to individuals under the age of 18; it
imposes conditions on all manufacturers, distributors, and retailers of
tobacco products and will affect the access to tobacco products of
millions of individuals under the age of 18. The final rule is
therefore ``an agency statement of general * * * applicability and
future effect designed to implement, interpret, or prescribe law or
policy'' (5 U.S.C. 551(4)); in other words, it is a rule under the APA,
and the agency followed APA rulemaking in formulating it (5 U.S.C.
551(5)). Like the nuclear fuel cycle rulemaking in Vermont Yankee, 435
U.S. at 528-530, and the rulemaking about ambient air quality standards
for lead in Lead Indus. Ass'n v. Environmental Protection Agency, 647
F.2d 1130, 1136-1144 (D.C. Cir.), cert. denied, 449 U.S. 1042 (1980),
this process is ``a rulemaking proceeding in its purest form,'' and not
a ``quasi-judicial determination'' to which due process requirements
beyond the requirements of the APA might apply. (See Vermont Yankee,
435 U.S. at 542 n.16; Lead Indus. Ass'n, 647 F.2d at 1171 n.119.)
In any case, manufacturers have had ample opportunity during the
comment period for this rulemaking to submit evidence--including other
internal tobacco industry documents or affidavits from their
employees--that contradicts any evidence, including internal tobacco
industry documents, that the agency has placed in the administrative
record. And they have submitted voluminous comments with supporting
documentation to the agency. The manufacturers have therefore been
``afforded a meaningful opportunity to be heard and to controvert the
evidence. Fairness demands no more'' (Lead Indus. Ass'n, 647 F.2d at
1170 (quotations omitted)).
In summary, due process does not require that FDA provide
manufacturers with an adjudicative hearing. The notice and opportunity
for comment provided in this rulemaking are all that fairness and due
process require here. And, as discussed in greater detail in section
XII. of this document, this rulemaking meets all the requirements of
the APA for informal rulemaking.

XII. Procedural Issues

A. Introduction

The Food and Drug Administration (FDA) went to great lengths to
involve the public in this proceeding. On February 25, 1994, David A.
Kessler, Commissioner of Food and Drugs (the Commissioner) wrote to
Scott Ballin, chairman of the Coalition on Smoking OR Health, regarding
the possibility of FDA regulation of cigarettes in response to certain
petitions that had been filed with the agency. The Commissioner
explained:
[T]he agency has examined the current data and information on
the effects of nicotine in cigarettes * * *. Evidence brought to our
attention is accumulating that suggests that cigarette manufacturers
may intend that their products contain nicotine to satisfy an
addiction on the part of some of their customers * * *. This
evidence * * * suggests that cigarette vendors intend the obvious--
that many people buy cigarettes to satisfy their nicotine addiction.
Should the agency make this finding based on an appropriate record
or be able to prove these facts in court, it would have a legal
basis on which to regulate these products * * *.
In the months that followed, the Commissioner testified twice
before Congress regarding the accumulating evidence relating to the
intended use of cigarettes. \255\ That testimony was extensive and
detailed.
---------------------------------------------------------------------------

\255\ Statement by the Commissioner on Nicotine-Containing
Cigarettes, before the Subcommittee on Health and the Environment,
Committee on Energy and Commerce, U.S. House of Representatives
(Mar. 25, 1994); Statement by the Commissioner on the Control and
Manipulation of Nicotine in Cigarettes, before the Subcommittee on
Health and the Environment, Committee on Energy and Commerce, U.S.
House of Representatives (June 21, 1994).
---------------------------------------------------------------------------

In July and August of that year, FDA Associate Commissioner for
Regulatory Affairs, Ronald G. Chesemore wrote to the major cigarette
and smokeless tobacco companies requesting all documents relating to
``all research on nicotine * * *, including their pharmacological
effects, and all documents relevant to the nicotine'' in their
products. On August 1, 1994, FDA held a Drug Abuse Advisory Committee
meeting that was fully open to the public on the subject of the abuse
potential of nicotine.
On August 11, 1995, FDA provided the public with an extensive
Federal Register document setting forth its

[[Page 44557]]

rationale for proposing to restrict the sale of cigarettes and
smokeless tobacco in a 60 page discussion supported by 442 endnotes
(the 1995 proposed rule) (60 FR 41314 to 41375). The agency carefully
documented each of the essential propositions offered in support of its
reasoning. Indeed, most of the 442 endnotes in the 1995 proposed rule
contain multiple authorities for the agency's position and, in all
cases, the agency provided the reader with specific page references to
the numerous studies, reports, and industry documents on which it
relied.
In the same issue of the Federal Register in a document entitled
``Analysis Regarding The Food and Drug Administration's Jurisdiction
Over Nicotine-Containing Cigarettes and Smokeless Tobacco Products,''
FDA also provided an analysis of the agency's authority to assert
jurisdiction over cigarettes and smokeless tobacco based on the
evidence before the agency at that time (the 1995 Jurisdictional
Analysis) (60 FR 41453 to 41787). In the text of the 1995
Jurisdictional Analysis, the agency supported its reasoning with
appropriate citations to case law, statutes, and regulations. In
addition, the 1995 Jurisdictional Analysis was supported by over 600
footnotes, each of which provided the factual context for the agency's
legal position.
On August 16, 1995, the agency placed on public display some 20,000
pages of materials that it cited in the 1995 proposed rule and in the
1995 Jurisdictional Analysis. With the exception of three documents,
which the agency referenced only in the 1995 Jurisdictional Analysis,
the agency made available to the public all of the materials on which
it was relying on as of that time for support.
On September 29, 1995, the agency supplemented the administrative
record by putting on public display approximately 13,000 documents
comprising some 190,000 pages of factual and analytical materials the
agency considered in the course of issuing the 1995 proposed rule and
the 1995 Jurisdictional Analysis. Although it was under no legal
obligation to do so, the agency made these additional materials
available because of the importance of this proceeding.
The agency also made two other significant additions to the public
record. On December 1, 1995, the agency announced the findings of focus
group studies concerning possible brief statements to be included on
all cigarette advertising (60 FR 61670), and added to the record for
the rulemaking proceeding a report of these findings and approximately
1,500 pages of supporting documentation. Second, in the Federal
Register of March 20, 1996 (61 FR 11349), the agency published notice
of an additional 30 day comment period limited to specific documents
the agency added to the proposed rulemaking docket, and to the docket
in support of the agency's analysis of its jurisdiction (61 FR 11419).
These materials consisted of two declarations and a report from three
former tobacco industry employees, as well as FDA memoranda to the
record regarding adult publications and billboards.
In addition, the agency has added to the final record of this
proceeding a comparatively small number of documents that expand upon
or confirm information made available in the 1995 proposed rule or the
1995 Jurisdictional Analysis, or that address alleged deficiencies in
the agency's initial record.
The administrative record now also includes the comments received
from the public. The agency received over 700,000 comments, some
directed to the 1995 Jurisdictional Analysis, some directed to the 1995
proposed rule, and many with overlapping discussions. Though many
comments consisted of form letters, the agency received over 95,000
distinct or unique sets of comments. Five major cigarette manufacturers
jointly submitted 2,000 pages of comments and 45,000 pages of exhibits.
The major smokeless tobacco manufacturers jointly submitted 474 pages
of comments and 3,372 pages of exhibits. The initial comment period
remained open for 144 days.
(1) Despite the agency's extraordinary efforts to involve the
public in this proceeding, FDA received several comments regarding the
procedures the agency followed in providing notice of the 1995 proposed
rule and in publishing the 1995 Jurisdictional Analysis. Some of these
comments complained that the agency designated certain documents in the
administrative record as ``confidential,'' and that the shielding of
these documents denied the public a meaningful opportunity to
participate in the rulemaking process. One of these comments also
contended that FDA refused to disclose certain nonconfidential
information on which the agency had relied. Some comments also argued
that FDA failed to set forth a balanced view of the issues presented by
the 1995 proposed rule, thereby rendering the notice inadequate and
``misleading'' under the Administrative Procedure Act (the APA). In
their view, FDA concealed certain issues in order to deny the public
the right to participate in the rulemaking process. Finally, at least
one interested person maintained that the comment period for the 1995
proposed rule was so short as to be arbitrary and capricious.
As the discussion that follows in this section of the document
demonstrates, the agency's notice, the public availability of the
information the agency relied upon at the notice stage of this
proceeding, and the opportunity for comment, went well beyond the
requirements of the APA, well beyond what is required by case law
construing the APA, and well beyond the agency's own procedural
requirements for informal rulemaking.

B. Adequacy of the Record

(2) Several industry comments complained about the adequacy of the
record in support of the 1995 proposed rule. They contended that the
agency violated the APA, 5 U.S.C. 553(b) and (c), and the Due Process
Clause of the Fifth Amendment to the Constitution, by failing to
disclose all of the information the agency ``considered or relied upon
in the proceeding.'' \256\ In particular, these comments complained
that the public was deprived of the opportunity to comment meaningfully
because, according to these comments, the agency relied on confidential
documents and on substantial amounts of undisclosed data. One comment
went so far as to claim that ``a substantial portion'' of the material
FDA relied upon was not made available for public scrutiny.
---------------------------------------------------------------------------

\256\ Because the APA in this context provides the public at
least as much protection as the Due Process Clause of the
Constitution, the agency will address these procedural objections
solely under the APA. See Forester v. Consumer Prod. Safety Comm'n,
559 F.2d 774, 787 (D.C. Cir. 1977); Ass'n of Nat'l Advertisers,
Inc., v. Federal Trade Comm'n, 627 F.2d 1151, 1166 (D.C. Cir. 1979),
cert. denied, 447 U.S. 921 (1980).
---------------------------------------------------------------------------

The record in support of the 1995 proposed rule provided the public
not only with a ``reasonable opportunity'' for comment, but with an
extraordinary opportunity to examine the agency's position. The claim
that the agency withheld ``a substantial portion'' of the materials on
which it relied is simply unfounded.
1. The Administrative Record
In an informal rulemaking proceeding, the APA itself requires only
that the ``notice of proposed rule making'' include a statement of the
time, place, and nature of the proceeding, ``reference to the legal

[[Page 44558]]

authority under which the rule is proposed,'' and ``either the terms or
substance of the proposed rule or a description of the subjects and
issues involved'' (5 U.S.C. 553(b)). The APA, thus, does not expressly
require disclosure of the information on which the agency relies in
proposing a regulation.
Nevertheless, courts have implied under the APA a requirement that
an agency give notice of the information on which it actually relies to
support a proposed rule, and make that information available to the
extent it is not readily accessible to the public. (See Davis, K. and
R. Pierce, Jr., Administrative Law Treatise, vol. 3, section 7.3 at
305-09 (3d ed. 1994) (discussing one of the seminal cases on disclosure
of data relied on to support a rulemaking proceeding, Portland Cement
Ass'n v. Ruckelshaus, 486 F.2d 375 (D.C. Cir. 1973), cert. denied, 417
U.S. 921 (1974)).) No court, however, has required the degree of public
disclosure at the notice stage of a rulemaking proceeding that FDA
undertook here.
Indeed, the primary cases cited by the comments, namely, Portland
Cement Ass'n, supra, United States v. Nova Scotia Food Products Corp.,
568 F.2d 240 (2d Cir. 1977), and United States Lines, Inc. v. Federal
Maritime Comm'n, 584 F.2d 519 (D.C. Cir. 1978), address agency conduct
that bears little resemblance to FDA's efforts in this proceeding.
While FDA has provided a remarkable degree of factual support and
procedural openness, these cases involved instances in which agencies
provided the public with no information whatsoever or otherwise
excluded a study that was critical to the administrative proceeding. In
Portland Cement, the Environmental Protection Agency altogether failed
to provide the public an opportunity to comment on the test results and
procedures on which the agency relied as the critical'' basis for the
emission control level adopted by the agency. That is, the agency set
very specific pollution control limits, but failed to make public until
after the close of the comment period the details of crucial tests
relied upon to determine these limits (486 F.2d at 392).
In Nova Scotia Food Prods., ``all the scientific research was
collected by the agency, and none of it was disclosed to interested
parties as the material upon which the proposed rule would be
fashioned'' (568 F.2d at 251) (emphasis added). And in United States
Lines, where a common carrier challenged an order of the Federal
Maritime Commission amending a contract between two competitors, the
court found that the Commission had made ``critical findings'' on the
basis of data which was neither identified in its decision nor included
in the administrative record. Rather, the Commission based its decision
on ``reliable data reposing in the files of the Commission'' (584 F.2d
at 533). The reviewing court simply had no idea of the factors or data
on which the Commission had relied (Id.).
Thus, at best, the case law requires agencies to disclose studies
and data actually relied upon by the agency. Even then, the cases that
have struck down agency rulemaking are generally confined to instances
in which the agency provided woefully inadequate information to the
public or failed to disclose a critical piece of information. (See,
e.g., Kennecott Corp. v. Environmental Protection Agency, 684 F.2d
1007, 1018-19 (D.C. Cir. 1982) (agency acted arbitrarily and
capriciously when it failed to include in the public docket during the
comment period any documents supporting a particular proposed
regulation); compare Personal Watercraft Indus. Ass'n v. Department of
Commerce, 48 F.3d 540, 544-45 (D.C. Cir. 1995) (while agency must
disclose information critical to its decision to regulate a particular
activity, absent prejudice an agency may rely on studies developed
after close of comment period that are not critical to the underlying
proposal).)
Finally, FDA's own procedural regulations require that the agency
include with the notice of proposed rulemaking, among other things,
``references to all information on which the Commissioner relies for
the proposal * * *'' (Sec. 10.40(b)(vii) (21 CFR 10.40(b)(vii))
(emphasis added); see 21 CFR 10.3 (defining the term ``administrative
record'' to mean the materials on which the agency ``relies to support
the action''). Thus, even under the agency's own procedural
regulations, FDA is required--when it initiates informal rulemaking--to
supply the public only with the materials the agency is relying upon to
support the proposed action.
Here, the materials the agency relied on are the materials the
agency cited in the 1995 proposed rule and the 1995 Jurisdictional
Analysis. Not only did the agency provide these materials to the
public, but it also provided the roughly 190,000 pages of factual and
analytical materials the agency considered but did not rely upon in
either the 1995 proposed rule or the 1995 Jurisdictional Analysis.
Moreover, the agency provided over 1,000 endnotes and footnotes
directing readers to each and every document, including every study,
Government report, journal article, industry document, and agency
record on which FDA relied to support the 1995 proposed rule and the
1995 Jurisdictional Analysis.
Out of all this material, the only nonpublic materials on which the
agency relied were two confidential documents \257\ and two lines of
text the agency redacted from a document the agency placed on the
public record. \258\ The agency relied on this material only in the
context of the agency's 1995 Jurisdictional Analysis. None of these
documents is pivotal to the analysis of jurisdiction in that none
provides the sole or principal basis for the agency's conclusion that
cigarettes and smokeless tobacco are drug delivery devices under the
Federal Food, Drug, and Cosmetic Act (the act). Further, as discussed
in the 1996 Jurisdictional Determination annexed hereto, the decision
to keep these materials confidential did not in any way undermine the
quality of the public participation in this proceeding. In sum, the
procedures the agency followed in assembling a public record in this
proceeding simply are not in line with the facts described in cases
like Portland Cement, Nova Scotia Food Products, and United States
Lines.
---------------------------------------------------------------------------

\257\ The two confidential documents the agency directly
referenced are the 1991 Handbook on Leaf Blending and Product
Development (Confidential Document 75) and the unredacted summary of
notes of FDA trip visits (Confidential Document 74). The summary was
compiled from notes and handouts that are also designated as
confidential (Confidential Documents 69, 70, 71, 72, and 73). The
agency views the summary as a stand-alone document to the extent it
distills a large volume of disparate handwritten notes and handouts.
Also, the agency cited only to the summary itself. Nevertheless,
even if the summary were counted as five documents rather than one,
the agency at most relied on six confidential documents. The
agency's basis for relying on these documents in the 1995
Jurisdictional Analysis is discussed in detail in the 1996
Jurisdictional Determination, annexed hereto.
\258\ On page 255 of the 1995 Jurisdictional Analysis (60 FR
41453, 41716), the agency redacted several lines of text along with
a footnote that identified the sources for the redacted text. The
footnote consisted of references to two sources, both of which
appeared on the agency's public docket for the 1995 Jurisdictional
Analysis: J. E. Kiefer, ``Cigarette Filters for Altering the
Nicotine Content of Smoke'' (Report No. 71 5003 7), Tennesee Eastman
Co., pp. 1-2; August 18, 1971, and J. G. Curran, Jr., and E. G.
Miller, ``Factors Influencing the Elution of High Boiling Components
of Cigarette Smoke from Filters,'' Beitr. Tabakforsch, pp. 5 and 67,
1969. The Kiefer document appeared on the public docket with certain
trade secret information redacted from the document. The Curran
document was made available to the public in full.

---------------------------------------------------------------------------

[[Page 44559]]

2. The Agency's Use of Confidential Documents
a. Confidential documents on which the agency did not rely. The
agency placed in a confidential docket 75 documents from the
approximately 210,000 pages of materials the agency made available at
the opening of this proceeding. The agency identified each of these 75
documents for the public in an index filed on September 29, 1995, on
the public docket. (See 60 FR 66981 at 66982, December 27, 1995.) Of
these 75 documents, 73 were not even relied upon by the agency to
support either the 1995 proposed rule or the 1995 Jurisdictional
Analysis.
Sixty-one of these 73 confidential documents consisted either of
commercial information and trade secrets that the industry urged FDA to
keep confidential (Confidential Documents 1-12, 16-21, and 62-73), or
unpublished manuscripts for which the agency lacked the authors'
permission, as of September 29, 1995, to make them available for
widespread dissemination (Confidential Documents 22-52). The remaining
12 documents were either proprietary reports and other copyrighted
information--such as financial reports generated by Dun and
Bradstreet--which the agency lacked permission to reprint (Confidential
Documents 13-15, and 53-58), or confidential documents that supported a
pending new drug application (Confidential Documents 59-61).
Again, the agency did not rely on any of these 73 documents as
support for the 1995 proposed rule. Therefore, the agency was not even
required to include these documents in the administrative record of the
notice of proposed rulemaking. (See 21 CFR 10.40(b)(vii).) It likewise
follows that because the agency did not rely upon these documents, the
decision to protect them cannot be said to have unfairly interfered
with the public's ability to question the agency's rationale for the
rule. (See Mid-Tex Electric Coop., Inc. v. Federal Energy Regulatory
Comm'n, 773 F.2d 327, 344 (D.C. Cir. 1985) (agency's failure to
disclose two studies was ``manifestly harmless'' because the agency did
not rely on the studies to support any finding or conclusion);
Conference of State Bank Supervisors v. Office of Thrift Supervision,
792 F. Supp. 837, 843 (D.D.C. 1992) (there is no violation of the APA's
notice requirements where the agency has declined to disclose materials
on which it did not rely in proposing the rule); B.F. Goodrich Co. v.
Department of Transp., 541 F.2d 1178, 1184 (6th Cir. 1976) (only the
basic data ``upon which the agency relied in formulating the
regulation'' must be published for public comment), cert. denied, 430
U.S. 930 (1977); K. Davis, Administrative Law Treatise, section 7.3 at
307 (3d ed. 1994) (``If an agency does not attempt to support its final
rule by reference to an undisclosed study, it seems apparent that the
agency was not required to make the study available to potential
commentators.'').) The agency went well beyond existing requirements to
make publicly available thousands of additional documents for public
review--in recognition of the uniqueness and public importance of this
proceeding. This effort by the agency should not be used now as a basis
for suggesting that the agency was required to publish all information
that it had on hand.
Finally, at the close of this rulemaking proceeding and with the
publication of the annexed 1996 Jurisdictional Determination, the
agency will supplement the public docket with copies of those
confidential items for which the agency previously lacked permission to
publish, but for which permission has now been granted. Most of the
unpublished manuscripts in the confidential docket--none of which were
relied upon by the agency to support the rule--will be available
through this addition to the public record.
b. Confidential documents on which the agency relied. In support of
the 1995 Jurisdictional Analysis, FDA relied on only 2 of the 75
documents designated as confidential: A summary of notes taken by FDA
investigators during site visits to manufacturing plants run by Brown
and Williamson, Philip Morris, and R. J. Reynolds (Confidential
Document 74); and a 1991 Brown and Williamson handbook on leaf blending
and product development (Confidential Document 75). \259\ In addition,
the agency relied in its 1995 Jurisdictional Analysis on two lines of
text that were redacted from a document that appeared on the public
docket. \260\ The 1995 proposed rule itself did not rely on any of
these documents. \261\ A thorough discussion of these three documents,
and the agency's basis for relying on them to support its analysis of
jurisdiction, is provided in section VI. of the 1996 Jurisdictional
Determination, annexed hereto.
---------------------------------------------------------------------------

\259\ The agency did not acknowledge ownership of the handbook
in the 1995 Jurisdictional Analysis, or in the September 29, 1995,
index to the administrative record. However, in a set of comments
filed by Brown & Williamson, the company itself acknowledged
publicly its ownership of the handbook. (See Brown & Williamson
Tobacco Corp., Comment (Jan. 2, 1996), pp. 37-38).
\260\ Kiefer, J. E., ``Cigarette Filters for Altering the
Nicotine Content of Smoke,'' Tennessee Eastman Co., Report No.71
5003 7, pp. 1-2, August 18, 1971.
\261\ One comment noted that the agency relied in the 1995
proposed rule on undisclosed information gathered from former
industry sales representatives and managers. (See 60 FR 41314 at
41323.) The reference in the rule to interviews with former sales
representatives and managers appears in the discussion of proposed
Sec. 897.12 Additional Responsibilities of Manufacturers. The agency
used the information gathered from these individuals to support the
proposition that manufacturers direct their sales representatives to
police retailers' cigarette and smokeless tobacco displays.
Accordingly, the agency proposed to require sales representatives to
be responsible for removing violative visual displays and
advertising used in retail outlets. In light of comments received,
the agency has decided to revise Sec. 897.12 to eliminate this
requirement. Because manufacturer sales representatives will no
longer be held responsible for maintaining retailers' fixtures, the
agency's reliance on the interviews in the 1995 proposed rule, and
the issue of whether the agency should have made more information on
this matter available to the public, is moot. Davis, K. C., and R.
J. Pierce, Jr., Administrative Law Treatise, vol. 1, section 7.3 at
p. 307 (3d ed. 1994) (``If an agency does not attempt to support its
final rule by reference to an undisclosed study, it seems apparent
that the agency was not required to make the study available to
potential commentators''). Finally, as the agency explained in its
December 27, 1995, Federal Register notice, the agency has not made
such information available to the public because of the need to
protect the identity of individuals who came forward during the
agency's investigation and who might not otherwise have come forward
(see 60 FR 66981, 66982). As discussed in section VI. of the 1996
Jurisdictional Determination, FDA believes there are circumstances
in which an agency may rely on confidential information in a
rulemaking proceeding, and that there are ways in which an agency
may present such information in order to preserve the public's right
to a reasonable opportunity to participate in the proceeding (60 FR
66981). The agency, however, has not relied on any such material in
this final rulemaking.
---------------------------------------------------------------------------

3. The Claim that FDA Relied on ``Unknown'' Undisclosed Data
(3) An association representing the tobacco industry also claimed
that the agency withheld certain data and calculations used to
construct a series of charts showing that nicotine and tar levels in
smoke have risen steadily from 1982 to 1991. (See 60 FR 41453 at 41728
to 41731.) These charts appeared only in the context of the agency's
1995 Jurisdictional Analysis. A thorough discussion of how the agency
constructed these charts, and on what data the agency relied, is
provided in sections II. and VI. of the 1996 Jurisdictional
Determination, annexed hereto.

[[Page 44560]]

4. The Claim that FDA Failed to Include in the Record New Drug
Application (NDA) Data on Which it Relied
(4) One comment claimed that the agency relied on studies in seven
NDA's for the proposition that a high proportion of smokers are
addicted to nicotine, but failed to make adequate disclosure of these
NDA's. In particular, this comment stated that the agency failed to
include any information in the public docket for NDA 18-612 (Nicorette
gum, 2 milligrams (mg)) and NDA 20-385 (Nicotine nasal spray), and
included only summaries for five other NDA's the agency cited. To the
extent the agency relied on any of these NDA's, it did so only in the
context of the 1995 Jurisdictional Analysis. A comprehensive discussion
of the agency's reliance on this material is provided in section VI. of
the 1996 Jurisdictional Determination, annexed hereto.
5. The Agency's Reliance in the Final Rulemaking on New Materials
In an FDA informal rulemaking proceeding, the final administrative
record must contain the proposed rule, including all information that
the Commissioner identifies or files with the proposal, all comments
received on the proposal, including all information submitted as part
of the comments, and the notice issuing the final regulation, including
all information that the Commissioner identifies or files with the
final regulation (Sec. 10.40(g)). An agency may rely on information and
data that were not included at the proposal stage that expands on or
confirms information in the proposal or addresses alleged deficiencies
in the preexisting data, provided that no prejudice is shown. \262\
Otherwise, ``[r]ulemaking proceedings would never end if an agency's
response to comments must always be made the subject of additional
comments'' (Community Nutrition Inst. v. Block, 749 F.2d 50, at 58).
Accordingly, the agency has cited in this preamble and in the 1996
Jurisdictional Determination annexed hereto, a small amount of
information that is needed to respond fully to the comments or that
otherwise supplements the information contained in or filed with the
1995 proposed rule. These documents include published scientific
articles, reference texts, letters to tobacco industry counsel, an
abstract that the tobacco industry asked to include in the record,
three publicly released tobacco company documents, Congressional
hearing transcripts, and newspaper articles. The agency has placed this
cited information in the administrative record.
---------------------------------------------------------------------------

\262\ See, e.g., Personal Watercraft v. Department of Commerce,
48 F.3d 540, 544 (D.C. Cir. 1995) (``Agencies may develop additional
information in response to public comments and rely on that
information without starting anew unless prejudice is shown.'');
Solite Corp. v. Environmental Protection Agency, 952 F.2d 473, 484
(D.C. Cir. 1991) (``[C]onsistent with the APA, an agency may use
`supplementary' data, unavailable during the notice and comment
period, that expands on and confirms information contained in the
proposed rulemaking and addresses alleged deficiencies in the
preexisting data, so long as no prejudice is shown.''); Community
Nutrition Inst. v. Block, 749 F.2d 50, 57-58 (D.C. Cir. 1984)
(agency may rely on information that ``expanded on and confirmed''
information in the 1995 proposed rule and addressed alleged
deficiencies in the record); see also Davis, K. C. and R. J. Pierce,
Jr., Administrative Law Treatise, section 7.3 (3d ed. 1994).
---------------------------------------------------------------------------

C. Adequacy of the Notice

(5) Two industry comments argued that the public's participation in
the rulemaking process has been frustrated because the agency presented
a ``one-sided'' view in its 1995 notice of proposed rulemaking. They
claimed that FDA failed to satisfy the APA's notice requirement for
informal rulemaking because the agency neither disclosed nor discussed
the supposedly ``large body'' of information that is ``inconsistent
with, or otherwise not supportive of, the proposed rule.'' Further, the
agency did not, in their view, provide a ``reasoned explanation'' for
departing from past precedent on the issue of whether FDA should
regulate all cigarettes and smokeless tobacco.
These comments provided no legal authority to support the
proposition that, at the notice stage of a proceeding, the agency is
required to anticipate all challenges to its reasoning, and must
attempt to answer those challenges. Rather, at the notice stage of a
rulemaking proceeding, the agency's obligation is to include sufficient
detail on the content of the rule, and on the basis in law and fact for
the rule, to allow for meaningful and informed comment. (See American
Medical Ass'n v. Reno, 57 F.3d 1129, 1132 (D.C. Cir. 1995); Home Box
Office, Inc. v. Federal Communications Comm'n, 567 F.2d 9, 35-36 (D.C.
Cir.), cert. denied, 434 U.S. 829 (1977).)
More specifically, in an informal rulemaking proceeding, the APA
requires public notice of an agency's intention to issue a regulation
(5 U.S.C. 553(b)). The notice must include ``reference to the legal
authority under which the rule is proposed,'' and ``either the terms or
substance of the proposed rule or a description of the subjects and
issues involved'' (5 U.S.C. 553(b)(2) and (b)(3)). FDA's own
regulations require that a notice of proposed rulemaking include ``a
preamble that summarizes the proposal and the facts and policy
underlying it, * * * all information on which the Commissioner relies
for the proposal, * * * and cites the authority under which the
regulation is proposed'' (21 CFR 10.40(b)(vii)).
Under case law construing section 553 of the APA, notice of
informal rulemaking must be ``sufficiently descriptive of the 'subjects
and issues involved' so that interested parties may offer informed
criticism and comments'' (Ethyl Corp. v. Environmental Protection
Agency, 541 F.2d 1, 48 (D.C. Cir.) (en banc), cert. denied 426 U.S. 941
(1976)). Notice is sufficient under the APA ``if it affords interested
parties a reasonable opportunity to participate in the rulemaking
process'' (Forester, 559 F.2d at 787; accord State of South Carolina ex
rel. Tindal v. Block, 717 F.2d 874, 885 (4th Cir. 1983), cert. denied,
465 U. S. 1080 (1984)). And, insofar as the 1995 proposed rule relied
on a technical study or specific data essential to an understanding of
the rule, the notice should have disclosed this information to the
extent needed to allow for ``meaningful commentary'' (Connecticut Light
and Power Co. v. Nuclear Regulatory Comm'n, 673 F.2d 525, 530-31 (D.C.
Cir.), cert. denied, 459 U. S. 835 (1982)).
In this instance, the 1995 proposed rule met both the APA's notice
requirements (as interpreted by prevailing case law), as well as FDA's
own procedural requirements. The agency by any standard ``fulfilled its
obligation to make its views known to the public in a concrete and
focused form so as to make criticism or formulation of alternatives
possible'' (Air Transport Ass'n of America v. Civil Aeronautics Board,
732 F.2d 219, 225 (D.C. Cir. 1984) (quoting Home Box Office, Inc., 567
F.2d at 36)).
1. The Agency Provided Adequate Notice of the Key Legal and Factual
Issues
Although the APA's notice requirements could have been met by a far
briefer presentation, the agency chose to supply the public with a
notice that explored in full the wide range of factual and legal issues
presented. In doing so, the agency discussed the most significant
issues that the two industry comments claimed were missing from the
notice.
(6) The comments contended that the agency failed to discuss past
instances

[[Page 44561]]

in which it declined to exercise jurisdiction over cigarettes and
smokeless tobacco, including FDA's response to a 1977 citizen petition.
One comment in particular insisted that such a discussion would have
alerted the public to the idea that Congress enacted preemptive
legislation in reliance on FDA's past pronouncements, legislation which
the comments argue bars FDA from regulating these products.
The agency acknowledged in the 1995 Jurisdictional Analysis,
published in conjunction with the 1995 proposed rule, that it has in
the past refrained from exercising jurisdiction generally over all
cigarettes and smokeless tobacco (unless claims were made for the
product) (60 FR 41453 at 41482 n. 5). Among other things, the agency
referred readers to the published decision in Action on Smoking and
Health [ASH] v. Harris, 655 F.2d 236 (D.C. Cir. 1980). That decision
discussed, and indeed arose from, the 1977 citizen petition which, as
one comment claimed, the agency ``conscientiously avoid[ed]'' in order
to ``mislead[]'' the public. Not only does the ASH opinion discuss the
petition and the agency's position at that time with respect to
exercising jurisdiction generally over cigarettes, it also recounts for
the reader the agency's historical position on the issue (Id. at 237-
241). Moreover, the agency placed in the administrative record copies
of documents in which FDA declined to exercise jurisdiction, including
FDA's response to ASH's 1977 citizen petition. \263\
---------------------------------------------------------------------------

\263\ Letter from D. Kennedy (FDA) to J. Banzhaf (ASH) of Dec.
5, 1977, (denial of 1977 petition); Letter from J. E. Goyan (FDA) to
J. Banzhaf (ASH) of Nov. 25, 1980; Public Health Cigarette
Amendments of 1971, Hearings Before the Consumer Subcommittee of the
Committee on Commerce, U.S. Senate, 92d Cong., 2d sess., pp. 239-
246.
---------------------------------------------------------------------------

In addition, the agency attached as part of an appendix to its 1995
Jurisdictional Analysis copies of the Commissioner's testimony before
the House Subcommittee on Health and the Environment of the Committee
on Energy and Commerce on March 25, 1994 (Appendix 7). At the outset,
the Commissioner stated:
Although FDA has long recognized that the nicotine in tobacco
products produces drug-like effects, we never stepped in to regulate
most tobacco products as drugs. One of the obstacles has been a
legal one. A product is subject to regulation as a drug based
primarily on its intended use. * * * With certain exceptions, we
have not had sufficient evidence of such intent with regard to
nicotine in tobacco products. * * *
Mr. Chairman, we now have cause to reconsider this historical
view. * * * This question arises today because of an accumulation of
information in recent months and years. In my testimony today, I
will describe some of that information.
(Appendix 7 at 1-2 (footnote omitted)) This testimony, like the
reference to the ASH decision, adequately put the public on notice of
FDA's past position. \264\
---------------------------------------------------------------------------

\264\ As discussed in section IV. of the 1996 Jurisdictional
Determination, the agency's decision not to include a prolonged
discussion of past agency decisions is based on the fact that the
agency is now operating under a different set of facts. The agency
did not commit a procedural error by failing to chronicle
exhaustively decisions it made in a factually distinguishable
context. Moreover, one of the comments faulted the agency for
failing to give notice of the ``several'' citizen petitions filed
since 1977 that requested that the agency regulate cigarettes. In
fact, the agency incorporated by reference into the opening docket
for the 1995 Jurisdictional Analysis all significant dockets opened
since the conclusion of the ASH litigation that relate to the
agency's jurisdiction over cigarettes and other nicotine delivery
systems. The index the agency provided to the public on September
29, 1995, in conjunction with the public display of the
administrative record (as of that date), included a description of
nine dockets the agency incorporated by reference into the record
supporting the 1995 Jurisdictional Analysis.
---------------------------------------------------------------------------

Nor does FDA agree with the comment's argument that Congress, in
reliance on past FDA pronouncements, enacted legislation precluding FDA
from regulating tobacco products under the act. As discussed in detail
in sections IV. and V. of the annexed 1996 Jurisdictional
Determination, the agency has never categorically disclaimed
jurisdiction over tobacco products and Congress has never expressly
forbidden FDA from asserting jurisdiction over these products. The
agency has no affirmative obligation to posit in its notice of proposed
rulemaking arguments it believes are legally infirm. (Cf. Florida Power
and Light Co. v. United States, 846 F.2d 765, 771 (D.C. Cir. 1988),
cert. denied, 490 U.S. 1045 (1989).)
Two tobacco industry comments also claimed that the agency unfairly
underplayed the complexity of issues such as ``intended use,'' product
categorization, regulatory authority over combination products, and the
applicability of the medical device provisions of the act to cigarettes
and smokeless tobacco. Instead, one of these comments asserted that all
the agency had done was publish ``a tendentious anti-tobacco, pro-FDA-
regulation manifesto'' and, as such, the agency's notice was
``fraudulent.'' The agency disagrees with this characterization. More
to the point, the agency disagrees with the argument that the agency
somehow deprived the public of fair notice.
Again, to satisfy the APA's notice requirement, the agency must
specify with particularity the legal authority on which its proposal is
based (K. C. Davis & R. J. Pierce, Jr., Administrative Law Treatise
(vol. 1, 3d ed. 1994) section 7.3 at 299). Notice must be
``informative'' and must ``fairly apprise'' interested persons (Id. at
299 and 300). The agency need not, however, unravel for the public each
and every theoretical step in the analysis. (See Chemical Waste
Management, Inc. v. Environmental Protection Agency, 869 F.2d 1526,
1535 (D.C. Cir. 1989) (even where agency statement in notice of
rulemaking assumes rather than invites comments on an issue, notice is
sufficient if it provides interested parties ``with a clear indication
of the agency's intended course of action * * *.''); Center for Auto
Safety v. Peck, 751 F.2d 1336, 1361 (D.C. Cir. 1985) (``It is simply
not the case, however, that all of the essential postulates for an
agency rule must be contained in the record.'')).
Nevertheless, the agency provided the public a detailed explanation
of why it regards cigarettes and smokeless tobacco as drug/device
combination products, and why it believes the device provisions of the
act may, and should, be used to regulate these products. The agency set
forth its rationale for regulating these products as devices in both
the August 11, 1995, proposed rule (see 60 FR 41314 at 41348 to 41350)
and again in the August 11, 1995 Jurisdictional Analysis (see 60 FR
41453 at 41521 to 41525). Further, the agency identified the precise
statutory provisions under which it proposed to regulate these products
(see 60 FR 41314 at 41346 to 41352, and 41372).
The agency also put the public on notice, by referencing the
Intercenter Agreement between the Center for Drug Evaluation and
Research and the Center for Devices and Radiological Health, that
preloaded drug delivery systems are often regulated using the drug
authorities under the act. The agency adequately explained--for notice
purposes--why in this instance it proposed a different approach (60 FR
41314 at 41348 to 41350).
With respect to the application of the concept of ``intended use,''
the lengthy discussion in Part II of the 1995 Jurisdictional Analysis
provided the public with full disclosure of the agency's rationale for
regulating cigarettes and smokeless tobacco based on the ``intended
use'' of these products. The core facts and precedents on which

[[Page 44562]]

the agency relied were displayed in a manner the agency believes
invited maximum public scrutiny. The agency even provided the public
with 11 different examples (9 from the 1980's and 1990's) of the
application of the intended use concept to the determination of whether
a product, absent express claims, may be regulated as a drug or a
device (60 FR 41453 at 41527 to 41531). This level of explanation more
than satisfied the notice requirements of the APA as interpreted by the
relevant case law.
Finally, the quantity and quality of comments the agency received
on the 1995 proposed rule and the 1995 Jurisdictional Analysis suggest
that, in fact, the public was adequately notified of the relevant
issues. The agency received more comments in this proceeding than it
has ever received on any other subject, with over 700,000 comments
(including form letters) and over 95,000 distinct or unique sets of
comments. More important, the agency received hundreds of pages of
comments on the very issues the agency is said to have hidden from the
public. Indeed, the two industry comments who complained most
vigorously about the supposed deficiencies in the agency's notice of
proposed rulemaking themselves filed volumes of comments on the issues
they claim the agency concealed. \265\ Even the comments of interested
nonindustry persons evidenced fair notice of the agency's reasoning for
applying the device provisions of the act to cigarettes and smokeless
tobacco. \266\
---------------------------------------------------------------------------

\265\ See, e.g., Joint Comments of the Smokeless Tobacco
Manufacturers, Comment (January 2, 1996), at 43 to 73 (discussing
the agency's historical position on agency jurisdiction over tobacco
products), at 99-258 (discussing the agency's application of the
concept of intended use to tobacco products), and at 259-307
(analyzing the agency's position that cigarettes and smokeless
tobacco are combination products that may be regulated as restricted
devices); Joint Comments of Cigarette Manufacturers at, among other
places, Vol. I (discussing FDA's historical position on
jurisdiction), Vol. II (discussing the concept of intended use), and
Vol. V (discussing the regulation of cigarettes as medical devices).
\266\ See, e.g., Public Citizen Litigation Group, comment
(January 2, 1996); American Heart Association, comment (December 26,
1995).
---------------------------------------------------------------------------

In Chemical Waste Management, the plaintiff complained that the
Environmental Protection Agency's (EPA) notice of proposed rulemaking
treated a certain controversial issue ``as an accomplished fact'' (869
F.2d at 1535). Like two of the comments here, the plaintiff in Chemical
Waste Management argued that the APA required the agency to highlight
the fact that its position was subject to debate and to solicit
comments on the issue. The United States Court of Appeals for the
District of Columbia rejected this argument because EPA had provided
notice of its intended course and because the agency in fact received
numerous comments on the issue (869 F.2d at 1535). (See also Shell Oil
Co. v. EPA, 950 F.2d 741, 757 (D.C. Cir. 1991) (recognition of a
certain issue in comments may be used to infer that adequate notice of
the issue was given); Haralson v. Federal Home Loan Bank Board, 678 F.
Supp. 925, 926 (D.D.C. 1987) (same).)
As in cases such as Chemical Waste Management, the comments FDA
received demonstrate that there is no serious claim to be made that the
agency has concealed issues from the public. Interested persons
representing both sides in this controversial proceeding commented on
the very issues the agency supposedly underplayed in its notice of
proposed rulemaking. \267\
---------------------------------------------------------------------------

\267\ The agency also received a comment criticizing the agency
for failing to discuss the June 1994 Federal Trade Commission's
(FTC) decision regarding the ``Joe Camel'' advertising campaign. In
section VI. of this document, the agency discusses the FTC's
decision, showing that the FTC's decision in 1994 with respect to
the ``Joe Camel'' campaign was neither relevant to, nor
contradicted, FDA's discussion of the campaign in the 1995 proposed
rule.
---------------------------------------------------------------------------

The comments that challenge the adequacy of the agency's notice
confuse the merits of the issue with procedure. The supposed
deficiencies in FDA's legal reasoning, and the supposed failure to
discuss contrary authorities, raise substantive issues to be resolved
during the comment and response-to-comment phase of the proceeding. The
possibility that some of the agency's legal conclusions may be subject
to debate does not render the notice inadequate. (See Chemical Waste
Management, Inc., 869 F.2d at 1535; Natural Resources Defense Council,
Inc. v. Hodel, 618 F. Supp. 848, 864-65 (E.D. Cal. 1985).)
2. The Agency Provided a ``Reasoned Explanation'' for its Current
Position
Several tobacco industry comments also claimed that the agency
violated the APA's notice provisions by failing to include a ``reasoned
explanation'' for departing from past precedent on the issue of whether
to regulate all cigarettes and smokeless tobacco. In their view, the
1995 proposed rule and the 1995 Jurisdictional Analysis were
procedurally infirm because the agency did not adequately explain its
basis for past decisions not to regulate these products, and did not
distinguish those decisions from its present position. One of these
comments likewise asserted that the agency was required to include in
the administrative record each and every document ``that formed the
basis for, or was an expression or reflection of, FDA's consistent
position over more than 80 years that it does not have jurisdiction to
regulate cigarettes.'' The absence of this material, according to the
comment, demonstrates that the agency failed to consider ``obviously
relevant'' contrary information in proposing to regulate these
products.
The authorities cited in the comments at best require that, by the
close of an administrative proceeding, the agency must provide a
``reasoned explanation'' to the extent the agency has departed from a
prior formal position. (See, e.g., RKO Gen., Inc. v. FCC, 670 F.2d 215
(D.C. Cir. 1980) cert. denied, 456 U.S. 927 (1982) (challenge to final
order of Federal Communications Commission denying renewal of
television license); Baltimore and Annapolis R. R. v. Washington Metro.
Area Transit Comm'n, 642 F.2d 1365 (D.C. Cir. 1980) (challenge to final
order of transit commission); Greyhound Corp. v. ICC, 551 F.2d 414
(D.C. Cir. 1977) (challenge to final decision of the labor board);
International Union, United Auto Workers v. NLRB, 459 F.2d 1329 (D.C.
Cir. 1972) (challenge to final decision of labor board); see also Motor
Vehicle Mfrs. Assoc. v. State Farm Mutual Auto Ins., 463 U.S. 29, 43
(1983) (challenge to final rule rescinding passive restraint seatbelt
requirement contained in a Department of Transportation standard).)
None of these cases, which involved challenges to final agency orders
and final rules, holds that at the notice stage of a proceeding, when
an agency is proposing to depart from a prior position, the agency must
provide a comprehensive ``reasoned explanation.''
The agency nevertheless agrees that the rulemaking proceeding,
taken as a whole, should clearly and rationally justify changes in
existing policies. Thus, FDA included in its notice of proposed
rulemaking and 1995 Jurisdictional Analysis ample reference to its
prior policy and a more than ample discussion of the agency's rationale
for changing its policy. Indeed, the very intent of the 1995
Jurisdictional Analysis, and the 622 footnotes supporting the analysis,
was to provide the public with a full view of the evidence that
supports the need for the agency to take a different approach to the
regulation of these products.

[[Page 44563]]

As FDA made clear at the outset of its 1995 Jurisdictional
Analysis, its decision to propose to regulate these products, when in
the past it chose not to (except where claims were made), is based on
the fact that ``[t]he quality, quantity, and scope of the evidence
available to FDA today is far greater than any other time when FDA has
considered regulation of cigarettes and smokeless products.'' (60 FR
41453 at 41464, n. 1.) Footnote 5 of the 1995 Jurisdictional Analysis,
in particular, made clear that: (1) The agency in the past had declined
to exercise jurisdiction generally over these products; and (2) the
reason for taking a different position today is that the evidence
before the agency regarding the intended use of these products ``has
changed dramatically.'' (60 FR 41453 at 41482, n. 5). In addition, the
agency repeatedly stated that its analysis was based on ``evidence now
available to the agency'' (60 FR 41453 at 41464), ``current evidence''
(60 FR 41466), evidence accumulated since 1980 (60 FR 41482, n. 5), and
evidence that has emerged since 1980 or was not widely known until
recently (60 FR 41453 at 41483 to 41484, and 41539).
Neither the APA nor the case law cited in the comments requires an
agency to provide a thorough ``reasoned explanation'' for departing
from precedent at the notice stage of a proceeding. Rather, the APA at
best requires that the agency give notice of its proposal to take a
different position or view, and give enough information to allow the
public a reasonable opportunity to comment. Not until the close of the
proceeding, after public comment has been received, must the agency
ensure that it has provided a ``reasoned explanation.'' The agency
believes in this instance that its discussion at the notice stage met
the standard that courts ordinarily do not impose until the close of an
administrative proceeding. Nonetheless, the agency has provided a
detailed discussion of the legal and factual bases for taking its
current position in section IV. of the 1996 Jurisdictional
Determination, annexed hereto.
Finally, the agency does not agree that it was required to include
in the record, at the notice stage of the proceeding, each and every
prior agency ``decision, statement, and finding.'' Rather, the agency
appropriately included in the record enough documentation to give the
public notice of the agency's prior position, and notice of the
agency's prior reasoning for declining to exercise jurisdiction
generally over these products (absent express claims). For example, the
agency incorporated by reference into the administrative record
supporting the 1995 Jurisdictional Analysis all significant dockets
opened since the conclusion of the 1977 ASH litigation that relate to
the agency's jurisdiction over these products. In addition, the agency
included in the record in support of its 1995 Jurisdictional Analysis
its response to the original ASH citizen petition. The response to the
ASH petition outlines in detail the ``contrary'' view the agency
allegedly concealed, including full discussions of the agency's
enforcement history with respect to tobacco products and the agency's
significant past pronouncements on the subject. In any case, the
tobacco industry itself, through its comments, has introduced many of
the agency's earlier statements into the administrative record for this
proceeding. Thus, unlike the facts presented in cases such as Public
Citizen v. Heckler, 653 F. Supp. 1229 (D.D.C. 1986) or Walter O.
Boswell Memorial Hospital v. Heckler, 749 F.2d 788 (D.C. Cir. 1984), as
referenced in the comment, the administrative record for this
proceeding already contains the ``adverse'' information claimed to be
lacking, by virtue of the agency's inclusion of documents in the record
and the comments received by the agency.

D. Adequacy of the Comment Period

FDA received at least one comment urging that the comment period
was unreasonably short in light of the complexity of the proposed rule,
the number of materials the agency put on public display, and the
possible impact of the rule on the tobacco industry. This comment
argued that the agency acted arbitrarily and capriciously in deciding
to ``limit'' the comment period to 144 days from the publication of the
August 11, 1995, proposal and 95 days from the public release of the
documents FDA considered but did not rely upon.
Far from having ``limited'' the comment period, FDA provided more
than twice as much time for comment as the agency's regulations
require. (See 60 FR 53560, October 16, 1995 (extending comment period
for the proposed rule); 60 FR 53620, October 16, 1995 (extending
comment period on Jurisdictional Analysis).)
The APA requires only that an agency ``give interested persons an
opportunity to participate in the rule making through submission of
written data, views, or arguments * * *.'' (5 U.S.C. 553(c).) This is
all the APA requires; there is no statutory requirement concerning how
many days an agency must allow, nor is there a requirement that an
agency must extend the period at the request of an interested person.
(See Phillips Petroleum Co. v. EPA, 803 F.2d 545, 559 (10th Cir.
1986).)
FDA's own regulations generally afford the public 60 days to
comment on a proposed rule, unless the Commissioner shortens or
lengthens the period for good cause (21 CFR 10.40(b)(2)). Executive
Order 12889 implementing the North American Free Trade Agreement
prescribes a minimum comment period of 75 days on certain proposed
rules, except when good cause is shown for a shorter comment period.
(See 58 FR 69681, December 30, 1993.)
Here, the agency provided the public with 144 days from the
publication of the notice, 139 days from the release of the documents
the agency cited in support of the rule and the 1995 Jurisdictional
Analysis (on August 16, 1995), and 95 days from the release of the
materials the agency considered but did not directly rely upon (on
September 29, 1995). Thus, even when counting from the date the agency
released additional documents of no direct relevance to the 1995
proposed rule, the agency provided much more time for comment on the
notice of proposed rulemaking than its regulations, or the Executive
Order, require.
Further, on March 20, 1996, the Federal Register published a notice
providing an additional 30-day comment period limited to specific
documents the agency added to the proposed rulemaking docket (see 61 FR
11349, March 20, 1996) and to the docket in support of the agency's
analysis of its jurisdiction (see 61 FR 11419, March 20, 1996).
Although the agency expressly limited the scope of the matters on which
interested persons could comment, the March 20, 1996, action did
provide the public with yet another 30 days on which to comment on
issues related to such core subjects as the manipulation of the
nicotine content of cigarettes and smokeless tobacco. The March 20,
1996, action also reopened the comment period with respect to the
record in support of the agency's proposal to regulate the advertising
of these products in ``adult publications'' and billboard advertising.
The agency is not persuaded that any interested person has been
unfairly prejudiced by the length of the comment period. First, FDA
considers requests to extend the comment period on a case-by-case
basis. Here, on the one hand, the

[[Page 44564]]

authors of the comment (the Tobacco Institute together with five major
tobacco companies) presented in their request for additional time no
compelling reasons to extend the period (such as a new, material
study). On the other hand, FDA is faced with a matter raising serious
public health concerns. For those reasons, the agency denied the
request to extend the period for as long as had been requested (see 60
FR 53560).
Second, each of the five tobacco companies who submitted this joint
comment complaining about the length of the comment period also filed
suit against FDA 1 day before the Federal Register published FDA's
notice of proposed rulemaking. The timing appears to indicate that
these firms had been preparing to respond to an FDA proposal to
regulate cigarettes and smokeless tobacco for some time. In any case,
they were able, jointly, to submit 2,000 pages of comments and 45,000
pages of exhibits within the time allotted for commenting on the
Jurisdictional Analysis and the proposed rule. Their submissions far
outweigh any others. The agency, therefore, is not persuaded that these
interested persons suffered prejudice as a result of FDA's allowing
twice as much time as the agency's regulations require. (See Conference
of State Bank Supervisors v. Office of Thrift Supervision, 792 F. Supp.
837, 844 (D.D.C. 1992) (in light of the comments received, court
declined to find that 30-day comment period was insufficient to allow
opportunity for meaningful public participation); Phillips Petroleum
Co., 803 F.2d at 559 (citing cases in which courts have upheld notice
periods of 45 days or less).)
In sum, the agency believes it provided ample additional time for
comments--nearly 90 days more than is provided for in the agency's own
procedural regulation. Given that it received over 95,000 distinct sets
of comments, the agency is not persuaded that the length of the comment
period unfairly hampered the quality of the public debate on this
matter.

E. Conclusion

Because of the importance of the issues involved in this
proceeding, the agency compiled the most extensive administrative
record in support of a proposed rulemaking in its history. FDA employed
procedures that exceeded all legal requirements in giving the public a
reasonable opportunity to participate in this matter.

XIII. Executive Orders

A. Executive Order 12606: The Family

Executive Order 12606 (E.O. 12606) directs Federal agencies to
determine whether policies and regulations may have a significant
impact on family formation, maintenance, and general well-being. The
preamble to the 1995 proposed rule stated that the rule would have ``no
potential negative impact on family formation, maintenance, and general
well-being.'' Specifically, the Food and Drug Administration (FDA) said
that the rule would not affect family stability or marital commitments,
would not have a significant impact on family earnings, and would not
impede parental authority and rights in the education, nurture, or
supervision of children. To the contrary, the preamble to the 1995
proposed rule said that the rule would ``help the significant majority
of American families that seek to discourage their children from using
cigarettes and smokeless tobacco'' because ``[t]he pervasive promotion
and easy availability of these products * * * severely hinder the
individual family from carrying out this function by itself'' (60 FR
41314 at 41356).
In the Federal Register of August 11, 1995, the preamble to the
proposed rule (60 FR 41314) (the 1995 proposed rule) also stated that,
under section 1(g) of the Executive Order (which instructs agencies to
ask about a rule's ``message'' to young people concerning their
behavior, their personal responsibility, and societal norms), the rule
would ``help reduce the conflict between the anti-smoking messages
issued by Federal and State authorities and the pro-tobacco messages
seen in advertising'' that are attractive to children. This would
enable young people ``to understand how prevalent tobacco use is in
society and also appreciate how their decisions regarding cigarette and
smokeless tobacco use can affect their health'' (60 FR 41314 at 41356).
In the 1995 proposed rule, FDA invited comments and suggestions on
the rule's effect on the family.
FDA received several comments that disagreed with FDA's analysis.
(1) One comment said that the rule would have a significant
economic effect on family earnings through increased costs (in order to
comply with the rule) or the possible loss of jobs. Another comment
said that the rule would destroy some family businesses, especially
those dependent on vending machines selling cigarettes or on
sponsorships by cigarette or smokeless tobacco manufacturers.
The agency disagrees with the comments. FDA reiterates that the
rule does not affect sales to adults. It is narrowly drawn to reduce
young people's access to cigarettes and smokeless tobacco and to reduce
the appeal of those products to young people. In short, the rule is
intended to prevent illegal sales to young people, and the agency has
no evidence to suggest that a significant number of families depend on
such sales.
FDA also notes that the final rule, as amended, permits vending
machines in facilities that are inaccessible to young people and also
permits sponsorships under certain restrictions. These changes to the
rule should reduce the potential economic impact on families dependent
on vending machine earnings or sponsorships or enable them to adjust
their affairs to maintain family earnings.
(2) Several comments said that the rule interferes with parents'
ability to raise their children, but did not elaborate on how the rule
supposedly interfered in child-rearing.
The agency disagrees with the comments. The rule does not direct
parents to educate or raise their children in any particular manner
and, insofar as adults are concerned, does not regulate the use of
cigarettes or smokeless tobacco by adults. It does reduce both their
access and appeal to young people and, as a result, should help those
parents who are trying to prevent their children from becoming regular
users of these products. Thus, the rule does not interfere with
parental authority or the manner in which parents educate, nurture, or
supervise their children.
FDA, therefore, reiterates that the rule does not have a negative
impact on family formation, maintenance, and general well-being and is
consistent with Executive Order 12606.

B. Executive Order 12612: Federalism

Executive Order 12612 (E.O. 12612) requires Federal agencies to
carefully examine regulatory actions to determine if they have a
significant impact on the States, on the relationship between the
States and the Federal government, and on the distribution of power and
responsibilities among the various levels of government. E.O. 12612
directs Federal agencies that are formulating and implementing policies
to be guided by certain federalism principles, such as encouraging a
``healthy diversity in the public policies adopted by the people of the
several States according to their own

[[Page 44565]]

conditions, needs, and desires'' (section 2 of E.O. 12612).
Although Sec. 897.42 of the 1995 proposed rule would have excluded
from preemption under section 521 of the act more stringent State and
local requirements that do not conflict with requirements imposed under
FDA's final rule, FDA has deleted Sec. 897.42 from the final rule
because of significant concerns with regard to the validity of that
section's proposed preemption exclusion. See discussion in section X.
of this document. Thus, under the express provisions of section 521(a)
of the act, FDA regulation of cigarettes and smokeless tobacco as
nicotine-delivery devices will result in preemption of State and local
requirements governing the sale and distribution of cigarettes and
smokeless tobacco when such requirements are different from, or in
addition to, the requirements under FDA's final rule.
FDA received many comments on the 1995 proposed rule regarding its
possible impact on State and local governments. Most comments came from
individual State legislators in over 15 States (often using the same
text or paragraphs). FDA also received comments from United States
Senators and Representatives, four State governors, three lieutenant
governors, as well as a number of State and local health departments,
substance abuse programs, and law enforcement agencies. In addition,
FDA received comments from industry trade associations and individual
retailers. After careful consideration of these comments, FDA has
assessed the rule's impact on the States, on the relationship between
the States and the Federal government, and on the distribution of power
and responsibilities among the various levels of government. As
discussed below in this section, the agency concludes that the
preemptive effects of the final rule are consistent with E.O. 12612.
(3) Many comments, including several from legislators, expressed
opposition to the 1995 proposed rule on the grounds that the rule
adversely affected State sovereignty by infringing on States' rights to
regulate tobacco products, to protect their citizens, and to regulate
businesses within the State. Some comments from State legislators
criticized the rule, interpreting it as a statement that the State are
``unable to care for [their] own children,'' while other comments said
that legislators, not FDA, should address issues affecting private
citizens because legislators are elected officials who can be held
politically accountable by their constituents.
Some comments asserted that the 1995 proposed rule would prevent
States from experimenting with or trying different local approaches to
reduce the accessibility and appeal of cigarettes and smokeless tobacco
products. Some of these comments argued that their State laws were
either adequate or superior to the 1995 proposed rule, citing, for
example, State vending machine restrictions, State laws prohibiting
distribution of tobacco products to minors, and State proof-of-age
requirements. Moreover, some comments argued that FDA has failed to
show that youth access to, and use of, tobacco products is a national
(rather than State) concern warranting Federal action.
In contrast, several comments from State departments of health and
State attorneys general noted that tobacco regulation is not solely a
State issue. Moreover, some of the comments supported the rule for its
potential impact on public health and on illegal sales of tobacco
products to young people.
FDA recognizes the pioneering and continuing role in the area of
regulation of youth access to tobacco products that States have played,
particularly certain active tobacco-control States. Federal cooperation
with, and continued reliance upon, innovative and aggressive State and
local enforcement efforts is essential.
As explicitly recognized in E.O. 12612, however, Federal action
limiting the discretion of State and local governments is appropriate
``where constitutional authority for the action is clear and certain
and the national activity is necessitated by the presence of a problem
of national scope'' (section 3(b) of E.O. 12612). The final rule meets
both of these conditions. First, the constitutional authority for the
final rule is clearly rooted in the act which was enacted by Congress
under the authority of the Commerce Clause of the Constitution, art. I,
section 8, cl. 3. Second, youth access to cigarettes and smokeless
tobacco is a problem of national scope that necessitates the provisions
established by the final rule.
As discussed in the preamble to the 1995 proposed rule,
approximately 3 million children under the age of 18 are daily smokers
(60 FR 41314 at 41317). Moreover, every day, approximately another
3,000 young people become regular smokers (Id.). Children annually
consume hundreds of millions of cigarettes, with the estimates ranging
from 516 million to 947 million packages (Id.). Although most segments
of the American adult population have decreased their use of
cigarettes, smoking among young people has recently begun to rise (60
FR 41314 at 41315). With regard to smokeless tobacco, similar
statistics demonstrate the extent of the problem in this area--an
estimated 1 million adolescent males use smokeless tobacco (60 FR
41314). These figures clearly demonstrate a serious problem which
exists at a national level. The health effects associated with
cigarettes and smokeless tobacco are well established and have national
social and health implications that warrant Federal attention.
As discussed in section X. of this document, FDA believes the
requirements it is establishing in this final rule set an appropriate
floor for regulation of youth access to tobacco products but do not, as
a policy matter, reflect a judgement that more stringent State or local
requirements are inappropriate. Indeed, State and local governments may
apply for exemption from preemption under section 521(b) of the act
with regard to State and local requirements governing the sale and
distribution of cigarettes and smokeless tobacco. A State or local
requirement will be exempted from preemption under section 521(b) of
the act if the State or local requirement: meets the exemption
requirements established under that section, and is consistent with the
goals in the final rule. The availability of exemptions from preemption
established under section 521(b) of the act enables State and local
governments to preserve or enact more stringent requirements governing
the sale and distribution of cigarettes and smokeless tobacco.
(4) Several comments asserted that States should be free to decide
how to allocate their resources, including decisions as to whether any
resources should be spent on tobacco control. Other comments expressed
concern as to the rule's possible impact on State resources, explaining
that States lacked resources to enforce the rule or predicting that FDA
would lack sufficient resources to enforce the rule and, as a result,
would have States handle enforcement matters.
FDA believes that these concerns are unfounded. First, because FDA
is responsible for enforcing this rule, the rule should not require the
expenditure of State resources for its enforcement. Second, with regard
to State tobacco control, State and local governments will retain
flexibility to choose the

[[Page 44566]]

appropriate allocation of their resources in this area through the
availability of exemptions from preemption under section 521(b) of the
act.
(5) Several comments also expressed strong concern regarding the
rule's possible impact on the State economies, particularly with
respect to farmers, manufacturers, distributors, and retailers. A
detailed analysis of the rule's economic impact can be found in section
XV. of this document.
Section 3(d)(3) of E.O. 12612 directs Federal departments and
agencies to consult with appropriate officials and organizations
representing the States in developing those standards. Similarly,
section 4(d) of E.O. 12612 instructs Federal departments and agencies
to consult, to the extent practicable, with State officials and
organizations when the Federal department or agency ``foresees the
possibility of a conflict between State law and federally protected
interests within its area of regulatory responsibility.'' Moreover,
section 4(e) of E.O. 12612 requires Federal departments and agencies to
``provide all affected States notice and an opportunity for appropriate
participation in the proceedings'' when the Federal department or
agency proposes to act through rulemaking to preempt State law.
The proposed rule published in the Federal Register of August 11,
1995, notified States and local governments of the Federal interest in
regulating the sale and distribution of cigarettes and smokeless
tobacco in order to protect children and adolescents. FDA, through the
comment period on the proposed rule, gave State and local governments
notice and an opportunity to participate in the rulemaking process, as
required by E.O. 12612. This final rule, as well as the exemption
document, which appears elsewhere in this issue of the Federal
Register, provide additional notice to State and local governments.
Further opportunity for participation is provided by the availability
of exemptions from preemption set forth in section 521(b) of the act.
In conclusion, FDA has determined that the preemptive effects of
the final rule are consistent with E.O. 12612.

C. Executive Order 12630: Governmental Actions and Interference with
Constitutionally Protected Property Rights

Executive Order 12630 (E. O. 12630) directs Federal agencies to
``be sensitive to, anticipate, and account for, the obligations imposed
by the Just Compensation Clause of the Fifth Amendment in planning and
carrying out governmental actions so they do not result in the
imposition of unanticipated or undue additional burdens on the public
fisc'' (Section 3(a)). Section 3(c) of the order states that actions
taken to protect the public health and safety ``should be undertaken
only in response to real and substantial threats to public health and
safety, be designed to advance significantly the health and safety
purpose, and be no greater than is necessary to achieve the health and
safety purpose.'' Additionally, section 4(d) of E.O. 12630 requires, as
a prerequisite to any proposed action regulating private property use
for the protection of public health and safety, each agency to: (1)
Clearly identify the public health or safety risk created by the
private property use that is the subject of the proposed action; (2)
establish that the proposed action substantially advances the purpose
of protecting the public health and safety against the identified risk;
(3) establish, to the extent possible, that the restrictions imposed on
private property are not disproportionate to the extent to which the
use contributes to the overall risk; and (4) estimate, to the extent
possible, the potential cost to the Government should a court later
determine that the action constitutes a taking.
The agency, in the preamble to the 1995 proposed rule, considered
whether the rule would result in a ``taking'' of private property and
concluded that, while some requirements might affect private property,
the rule did not result in a ``taking'' of that property. (See 60 FR
41314 at 41357 through 41359.) In brief, the preamble to the 1995
proposed rule noted that the proposal would prohibit the use of a
nontobacco product trade name on a tobacco product, eliminate vending
machines and self-service displays, restrict outdoor advertising from
being placed within 1,000 feet of any elementary or secondary school or
playground, prohibit all brand identifiable nontobacco items (such as
hats and tee-shirts), and require established names and a brief
statement on labels, labeling, and/or advertising. Sponsorship, under
the 1995 proposed rule, would be limited to the corporate name. The
preamble to the 1995 proposed rule explained that the rule did not
result in a ``taking'' because the rule would not require the
Government to physically invade or occupy private property and would
not deny all economically viable uses of property. For example, the
preamble to the 1995 proposed rule also stated that some items, such as
vending machines, self-service displays, and nontobacco items, could be
adapted to other uses. The preamble to the 1995 proposed rule also
found that the rule substantially advanced the purpose of protecting
the public health and that the restrictions were not disproportionate
to the extent to which the use of the private property contributed to
the public health risk (60 FR 41314 at 41357 through 41359). FDA also
invited interested persons to submit information to enable the agency
to determine the potential cost to the Government if a court found that
the actions described in the 1995 proposed rule constituted a taking.
The final rule, as amended, prohibits the use of a trade name of a
nontobacco item for any tobacco product, restricts the placement of
vending machines and self-service displays, restricts outdoor
advertising from being placed within 1,000 feet of any elementary or
secondary school or playground, prohibits all brand identifiable
nontobacco items, such as hats and tee-shirts and requires established
names on labels, labeling, and/or advertising, and places certain
restrictions on sponsorship. Thus, the final rule, in many respects, is
more lenient than the 1995 proposed rule. For example, the 1995
proposed rule would have eliminated the use of vending machines; the
final rule permits vending machine sales to occur in locations that are
inaccessible to young people. The 1995 proposed rule would have
eliminated mail-order sales; the final rule permits such sales to
continue. So, given that the 1995 proposed rule did not result in a
``taking,'' the final rule, being more lenient than the 1995 proposed
rule, also should not result in a ``taking.''
Nevertheless, FDA received several comments asserting that the rule
would effect a ``taking'' of private property. Most comments did not
assign a specific monetary value to the private property which they
felt would be ``taken'' or, instead, gave values or figures applicable
to the entire industry rather than values or figures that would apply
to the market (which, in this case, would be sales to people under age
18) affected by the rule.
(6) Several comments, particularly from retailers, claimed that the
1995 proposed rule's restrictions on self-service displays constituted
a ``taking.'' A few comments explained that, for self-service displays,
requiring the displays to be moved behind the counter would be
analogous to a Government requiring an easement on real property and,
as a

[[Page 44567]]

result, would violate the Fifth Amendment. FDA also received a small
number of comments from firms that manufacture displays; these firms
argued that the rule would essentially force them out of business and
represent a ``taking'' of the business.
FDA disagrees with the comments. The final rule, as amended,
permits self-service displays (merchandisers only) in facilities that
are totally inaccessible to young people. Thus, in those facilities
where merchandisers will be permitted, the rule will not require the
merchandisers to be removed, and firms that manufacture merchandisers
will continue to have a market for their merchandisers.
Retailers might be able to avoid or reduce the rule's impact on
some merchandisers if those merchandisers could be adapted to other
uses. For example, a merchandiser that consisted of bare shelves could
be used to display products other than cigarettes and smokeless
tobacco. Other merchandisers could be moved and, as a result, would
retain their utility; for example, a counter display that stands near a
cash register could be moved behind the counter and still be used for
cigarettes and smokeless tobacco.
Additionally, as explained in greater detail in section XI. of this
document, reductions in personal property's value, even prohibitions on
all economically viable uses, and financial expenditures to comply with
a regulatory requirement do not necessarily establish a taking.
(7) Several comments asserted that the rule would eliminate the use
of vending machines. In the preamble to the 1995 proposed rule, FDA
cited an article from a vending machine publication to suggest that
vending machines could be converted to sell other products and so,
while the 1995 proposed rule would prohibit the use of vending machines
for cigarettes and smokeless tobacco, the ability to convert a vending
machine to other uses reduced the likelihood of a ``taking'' (60 FR
41314 at 41358). However, FDA received several comments explaining that
some cigarette vending machines, particularly older models, cannot be
adapted to other uses so that the 1995 proposed rule would destroy the
value of those older vending machines.
As discussed earlier in this document, the final rule permits
vending machines in facilities that are totally inaccessible to young
people. While this may limit the number of places where vending
machines may be used, may exclude vending machines from places where
they were used most profitably, or, for those vending machines that
cannot be moved, may compel the vending machine owner to convert the
machine to other uses, if possible, the final rule's restrictions do
not constitute a taking. Reductions in personal property's value, even
prohibitions on all economically viable uses, and financial
expenditures to comply with a regulatory requirement do not necessarily
establish a taking.
(8) Several comments asserted that the rule would reduce sales or
tax revenues, prompt companies to terminate employees, or suspend
sponsorship of events, thereby depriving States of revenues associated
with those sponsored events or eliminating the event itself. For
example, one State legislator claimed that the rule would adversely
affect automobile racing events in the State, leading to a loss of 8
million dollars in revenue and adversely affecting the State's tourism
department. Another State legislator asserted that the rule's
sponsorship restrictions would end rodeo events in the State.
FDA disagrees with the comments. While the rule's economic impacts
may be significant, those impacts do not necessarily result in a
taking. For example, the final rule does not require firms to terminate
employees or to stop sponsoring events. In fact, the final rule
expressly permits sponsorships in the corporate name. The concerns
expressed by the comments are also speculative and, to the extent that
they do occur, would result from decisions made by third parties rather
than by FDA. The Fifth Amendment requires just compensation for a
governmental taking of private property; it does not require
compensation for the consequential damages resulting from the exercise
of a lawful Government regulation on that property.
Indeed, as noted in the preamble to the 1995 proposed rule, courts
have generally required either a physical invasion of the property or a
denial of all economically beneficial or productive use of the property
and examined the degree to which the governmental action serves the
public good, the economic impact of that action, and whether the action
has interfered with ``reasonable investment-backed expectations'' (60
FR 41314 at 41357 through 41358). The preamble to the 1995 proposed
rule noted that deprivation of the most beneficial use of property does
not constitute a taking and that Government regulation often involves
adjustment of rights for the public good. If every Government
regulation resulted in a taking, then the Government would be
effectively required to ``regulate by purchase'' (60 FR 41314 at 41358
(citing Andrus v. Allard, 444 U.S. 51, 65 (1979)). Here, the agency is
not directing retailers to terminate staff, taking revenue belonging to
retailers, or ending sponsored events. It is only issuing regulations
to reduce illegal cigarette and smokeless tobacco to young people and
the appeal of such products to young people. Retailers would still
receive revenues from legal sales to adults; sponsorships in the
corporate name could occur.
Other cases support the notion that lawful regulatory action does
not constitute a taking merely because the Government action diminishes
the value of private property, reduces profits, or prevents the most
beneficial use of property (see Carlin Communications, Inc. v. Federal
Communications Comm'n, 837 F.2d 546, 557-558 n. 5 (2d Cir.), cert.
denied, 488 U.S. 924 (1988) (FCC regulation of ``dial-a-porn'' services
to protect minors did not constitute a taking); Galloway Farms, Inc. v.
United States, 834 F.2d 998 (Fed. Cir. 1987) (trade embargo, while
closing off certain markets, did not eliminate all economic value so no
taking occurred); Minnesota Ass'n of Health Care Facilities, Inc. v.
Minnesota Dep't of Public Welfare, 742 F.2d 442, 446 (8th Cir. 1984),
cert. denied, 469 U.S. 1215 (1985) (nursing home's decision to
participate in Medicaid program was voluntary and so a statute
pertaining to Medicaid rates did not constitute a taking); Carruth v.
United States, 627 F.2d 1068, 1081 (Ct. Cl. 1980) (regulation affecting
contaminated peanuts, while reducing their value, did not constitute a
taking); Warner-Lambert Co. v. Federal Trade Comm'n, 562 F.2d 749, 759
n. 45 (D.C. Cir. 1977), cert. denied, 435 U.S. 950 (1978) (FTC order
requiring corrective advertising did not constitute a taking)).
Furthermore, courts have generally declined to require compensation
for the loss of contracts that could not be completed following the
enactment of a new statute or regulation or action by the Government
and have not required compensation for the loss of future or
anticipated profits. In Omnia Commercial Co. v. United States, 261 U.S.
502 (1923), the Supreme Court had to decide whether the Government's
acquisition of a steel company's entire production of steel plate
constituted a taking of a firm's contract for a large quantity of steel
plate from the same steel company. The Court wrote that, ``There are
many laws and governmental

[[Page 44568]]

operations which injuriously affect the value of or destroy property--
for example, restrictions upon the height or character of buildings,
destruction of diseased cattle, trees, etc., to prevent contagion--but
for which no remedy is afforded. Contracts in this respect do not
differ from other kinds of property'' (Id. at pp. 508 through 509). The
Court reviewed earlier decisions and stated that:
The conclusion to be drawn * * * is, that for consequential loss
or injury resulting from lawful governmental action, the law affords
no remedy. The character of the power exercised is not material. * *
* If, under any power, a contract or other property is taken for
public use, the Government is liable; but, if injured or destroyed
by lawful action, without a taking, the Government is not liable.
(Id. at p. 510)
The Court held that while the Government took the steel, it did not
take the contract itself and that ``[f]rustration and appropriation are
essentially different things'' (Id. at p. 513). (See also Louisville &
Nashville R.R. Co. v. Mottley, 219 U.S. 467, 484 (1911); NL Industries,
Inc. v. United States, 839 F.2d 1578, 1579 (Fed. Cir.), cert. denied,
488 U.S. 820 (1988) (``frustration of a business by loss of a customer
was not a taking''); Carruth, 627 F.2d at 1081 (``[I]n cases where
there has been no direct appropriation of property by governmental
agencies, consequential damages resulting from the exercise of lawful
regulations are not compensable takings within the purview of the Fifth
Amendment'').)
Thus, FDA disagrees with the comments suggesting that the rule will
result in a taking of jobs or future revenues associated with sponsored
events.
(9) Several comments said that the 1995 proposed rule's
restrictions on the use of trade names constitute a taking of trade
names or the goodwill associated with a tradename or asserted that one
has a ``right'' to use a brand name in any manner.
As discussed in section XI. of this document, the agency disagrees
that any provision in this rule effects a taking of trademarks and
goodwill.

XIV. Environmental Impact

In the Federal Register of August 11, 1995 (60 FR 41314), the
preamble to the proposed rule stated that FDA had determined under
Sec. 25.24(a)(8), (a)(11), and (e)(6) that the proposed action was of a
type that does not individually or cumulatively have a significant
impact on the human environment. No new information or comments have
been received that would affect the agency's previous determination
that this action has no significant impact on the human environment,
and that neither an environmental assessment nor an environmental
impact statement is required.

XV. Analysis of Impacts

A. Introduction and Summary

The Food and Drug Administration (FDA) has examined the impacts of
the final rule under Executive Order 12866, under the Regulatory
Flexibility Act (5 U.S.C. 601-612), and under the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4). Executive Order 12866 directs
agencies to assess all costs and benefits of available regulatory
alternatives and, when regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety, and other advantages; and
distributive impacts and equity). If a rule has a significant economic
impact on a substantial number of small entities, the Regulatory
Flexibility Act requires agencies to analyze regulatory options that
would minimize any significant impact of such rule on small entities.
Section 202 of the Unfunded Mandates Reform Act requires that agencies
prepare an assessment of anticipated costs and benefits before
proposing any rule that may result in an expenditure by State, local
and tribal governments, in the aggregate, or by the private sector, of
$100,000,000 (adjusted annually for inflation) in any year. Section 205
of the Unfunded Mandates Reform Act also requires that the agency
identify and consider a reasonable number of regulatory alternatives
and from those alternatives select the least costly, most cost-
effective, or least burdensome alternative that achieves the objective
of the rule. The following analysis, in conjunction with the remainder
of this preamble, demonstrates that this rule is consistent with the
principles set forth in the Executive Order and in these two statutes.
FDA published its preliminary economic analysis in the preamble to
its 1995 proposed regulation. In response, the agency received
thousands of comments raising economic issues or concerns.
Representatives of affected industry sectors emphasized burdens in
excess of those estimated in the preliminary economic analysis. Other
comments stressed the considerable economic value of the expected
public health benefits. Although few comments provided quantifiable
data on projected economic impacts, whether benefits or burdens, a
report prepared by the Barents Group and presented as Volume 11 of the
Tobacco Institute submission provided a comprehensive critique of the
methodology, assumptions, and cost estimates presented in FDA's
preliminary economic analysis and developed alternative estimates of
regulatory costs. Other comments addressed selected economic issues.
FDA carefully examined and evaluated the reasoning and data presented
in these comments, accepted those that were persuasive, and presents
this revised analysis of the final rule.
In its preliminary analysis, FDA based the benefits of the 1995
proposed rule on a finding that compliance could help to achieve the
Department's ``Healthy People 2000'' goal of reducing underage tobacco
use by one-half. Comments received in response to the proposal have
reinforced the agency's conviction that this goal can be realized,
although it will require the active support and participation of State
and local governments and civic and community organizations, as well as
manufacturers and retail dispensers of tobacco products. In the Federal
Register of January 19, 1996 (61 FR 1492), the Substance Abuse and
Mental Health Services Administration (SAMHSA) issued a regulation
governing a program of State-operated enforcement activities to
restrict the sale or distribution of tobacco products to individuals
under the age of 18. SAMHSA predicted that its rule would cut the rate
of underage tobacco consumption by between one-tenth and one-third. FDA
can not separately quantify the incremental benefits of the respective
agency programs, due to the substantial interdependencies and
uncertainties regarding future compliance with these rules; but finds
that its final rule and the SAMHSA regulation are fully complementary
and, working together, will produce results that would more than equal
the sum of their independent efforts.
Each year, an estimated 1 million adolescents under the age of 18
begin to smoke cigarettes. The Centers for Disease Control and
Prevention (CDC) estimate that approximately one in three of these
adolescents will die of smoking-related diseases, and FDA has concluded
that this projection provides the best estimate of the excess fatality
rate. FDA finds that even overly conservative projections indicate that
achieving the ``Healthy People 2000'' goal of reducing underage tobacco
use by one-half would prevent well over

[[Page 44569]]

60,000 early deaths, gaining over 900,000 future life-years for each
year's cohort of teenagers who would otherwise begin to smoke. The
monetary value of these health benefits (at a 3 percent discount rate)
is estimated to total $28 to $43 billion per year and includes $2.6
billion in medical cost savings, $900 million in productivity gains
from reduced morbidity, and $24.6 to $39.7 billion per year in
willingness-to-pay values for averting premature fatalities. (Because
of the long periods involved, a 7 percent discount rate reduces the
total benefits to about $9.2 to $10.4 billion per year). If the
agency's goal were exceeded, these benefits would be even larger.
Moreover, if even a fraction of the goal were achieved, the benefits
would substantially outweigh the costs of the rule. As shown in Table
1c, halting the onset of smoking for only 1/20 of the 1 million
adolescents who become new smokers each year would provide annual
benefits valued at from $2.8 to $4.3 billion a year. In addition,
although FDA has not quantified the benefits of reducing the number of
serious illnesses attributable to the use of smokeless tobacco by
youngsters under the age of 18, the agency is convinced that these
benefits also will be substantial.

TABLE 1c.--ANNUAL ILLNESS-RELATED BENEFITS OF ALTERNATIVE EFFECTIVENESS RATES
(UNDISCOUNTED LIVES AND LIFE-YEARS; 3% DISCOUNT RATE FOR MONETARY VALUES)^{1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Fewer Mortality-Related Total Benefits
Teenagers Smoking Morbidity- Willingness-to-Pay ---------------------
who will Related Life-Years Medical Related ----------------------
Fraction of Teenage Cohort Deterred Smoke as Deaths Saved (No.) Savings Productivity Life-Yrs. Deaths Low High
Adults^{3 Averted ($bils.) Savings Saved Averted ($bils.) ($bils.)
(No.) (No.) ($bils.) ($bils.) ($bils.)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1/2^{2 250,000 60,200 905,300 2.6 0.9 24.6 39.7 28.1 43.2
1/3 167,000 40,100 603,600 1.8 0.6 16.4 26.4 18.7 28.8
1/5 100,000 24,100 362,100 1.1 0.4 9.8 15.9 11.2 17.3
1/10 50,000 12,000 181,100 0.5 0.2 4.9 7.9 5.6 8.6
1/20 25,000 6,000 90,500 0.3 0.1 2.5 4.0 2.8 4.3
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Totals may not add due to rounding.
\2\ Estimate used in analysis.
\3\ Assumes 50% of adolescents who are deterred from smoking continue to refrain as adults.

In its evaluation of the economic impact on industry, FDA also
includes those costs that might be attributable to the SAMHSA program,
as the rules of both agencies work collectively to reduce youth access
to tobacco products. As a result, the overall estimated compliance
costs of the rules range from $174 million to $187 million in one-time
costs and from $149 million to $185 million in annual operating costs
(see Table 2). Manufacturers of tobacco products will incur one-time
costs ranging from $78 million to $91 million, primarily for removing
prohibited point-of-sale promotional items and self-service displays,
and for changing package labels. As the responsibility for removing the
prohibited point-of-sale promotional and display items resides with the
owner, manufacturers and retailers may ultimately share the costs of
removal and replacement. FDA's cost estimates assume that manufacturers
will pay for most removal and installation activities and retailers
will pay for most replacement items. (If, in fact, retailers assume
most removal responsibilities, the estimated manufacturer costs fall by
about $47 million).

[[Page 44570]]

TABLE 2.--COSTS OF FDA AND SAMHSA REGULATIONS ($ mils.)^{1
----------------------------------------------------------------------------------------------------------------
Requirements By Sector One-Time Costs Annual Operating Costs
----------------------------------------------------------------------------------------------------------------
Tobacco Manufacturers 78-91 2
Point-of-Sale Advertising 30
Self-Service Ban 40
Label Changes 4-17
Paperwork Requirements 1.2
Training 1.5 0.2
Readership Surveys 2 1
----------------------------------------------------------------------------------------------------------------
Retail Establishments 96 78
Training 34 20
I.D. Checks 43
Self-Service Ban 57 11
Point-of-Sale Advertising 5
Vending Machines 3.5
----------------------------------------------------------------------------------------------------------------
Consumers 41-50
I.D. Checks 41-50
----------------------------------------------------------------------------------------------------------------
Government 28-55
States (SAMHSA) 25-50
FDA 3-5
----------------------------------------------------------------------------------------------------------------
TOTAL 174-187 149-185
----------------------------------------------------------------------------------------------------------------
\1\ Assumes manufacturers remove prohibited retail display. If retailers bear full burden, manufacturer one-time
costs fall by about $47 million and retailer one-time costs rise by about $17 million. Advertising
restrictions are considered under distributional effects. Excludes costs of short-term resource dislocation
and educational programs.

Retail establishments will incur an estimated $96 million in one-
time costs. About $57 million of these costs are due to the self-
service restriction, primarily for replacing display cases and other
functional promotional items. (If retailers rather than manufacturers
remove the prohibited point-of-sale advertising and display items, the
estimated retailer costs rise by about $17 million). The retail sector
will also incur about $78 million in annual costs. In addition to new
labor costs attributable to the self-service restrictions, both the FDA
and SAMHSA rules impose costs for training employees to verify customer
ages, for routinely checking I.D.'s of young purchasers, and for
foregoing profits due to reduced vending machine sales. Consumers will
bear costs of up to $50 million annually for incurring some delay in
checkout lines. Finally, enforcement of these rules may cost the FDA
from $3 million to $5 million per year and State governments from $25
million to $50 million per year for administering various SAMHSA
enforcement programs.
FDA could not, however, quantify every regulatory cost. For
example, the agency may require certain tobacco manufacturers to
broadcast educational messages under the agency's notification process.
Cost estimates for these activities will be developed in parallel with
the program elements. In addition, a number of commercial sectors will
experience costs for short-term dislocations of current business
activities. Neither FDA nor any of the industry comments on the
agency's proposal projected the magnitude of these costs, but they
would be mitigated for those businesses that anticipate the adjustments
in long-term business plans.
In addition to the costs described previously, the rule will create
significant distributional and transitional effects. Some industry
comments asserted that FDA had neglected the cost of lost sales
revenues in its preliminary economic analysis and one industry study
estimated these ``Illustrative Costs'' at from $1.3 billion to $3.3
billion per year. In fact, FDA had considered these sector-specific
revenue reductions, but described the impacts as distributional
effects, rather than as net societal costs. For example, any lost sales
experienced by suppliers of advertising were considered distributional
impacts, because dollars not spent on advertising will not be lost to
the U.S. economy, but will be spent on other goods and services. As
acknowledged by the authors of one of the economic impact analyses
commissioned by the tobacco manufacturing industry:
* * * when tobacco product manufacturers decrease their
advertising expenditures, the money not spent translates into
increased profits for the industry. The increased profits ultimately
end up in the hands of the companies' owners (shareholders) either
as direct payouts or as investments on their behalf in other lines
of business. In general, these profits are ultimately recycled into
increased consumption and investment by the owners of the companies.

Similarly, the anticipated slow but persistent decline in tobacco
product sales revenues are not societal costs, because the dollars not
spent on tobacco-related items will be spent on other goods or
services.
Nevertheless, FDA is aware that many tobacco-related industry
sectors will be adversely affected by this rule. Tobacco manufacturers
and suppliers will face increasingly smaller sales, because reduced
tobacco consumption by youth will lead, over time, to reduced tobacco
consumption by adults. The impact of this trend on industry revenues,
however, will be extremely gradual, requiring over a decade to reach an
annual decrease of even 4 percent. Also, if State and Federal excise
tax rates on tobacco products remain at current levels, tax revenues
would decrease slowly over time, falling by about $231 million and $196
million, respectively, by the 10th year following compliance with the
regulation.
Tobacco manufacturers spent $6.2 billion on advertising,
promotional, and marketing programs in 1993, and about 30 percent may
be substantially altered to reflect the various ``text only''

[[Page 44571]]

restrictions or other prohibitions. If tobacco companies choose to
reduce advertising and promotional activities due to the FDA
restrictions, the sectors affected would include advertising agencies
and communications media, owners of retail and outdoor advertising
space, and recipients of corporate brand-name sponsorships (especially
auto racing). These businesses would need to attract new revenues to
maintain current levels of profitability. Similarly, vending machine
operators will need to find substitute products to replace up to 3
percent of their sales revenues.
In summary, FDA finds that compliance with this rule will bring
significant health benefits to the U.S. population. The rule will also
exact long-term revenue losses on the tobacco industry and short-term
costs on various affiliated industry sectors. With regard to small
businesses, many near-term impacts will be small or transitory, but
some business will be adversely affected. For a small retail
convenience store not currently complying with this rule, the
additional first year costs could average $400. For those convenience
stores that already check customer identification, these costs average
$137, largely to relocate tobacco product displays. Moreover, the rule
will not produce significant economic problems at the national level,
as the long-term displacement within tobacco-related sectors will be
offset by increased output in other areas. Thus, under the Unfunded
Mandates Act, FDA concludes that the substantial benefits of this
regulation will greatly exceed the compliance costs that it imposes on
the U.S. economy. In addition, the agency has considered other
alternatives and determined that the current rule is the least
burdensome and most cost-effective alternative that would meet the
objectives of this rule.

B. Statement of Need for Action

The need for action stems from the agency's determination to
ameliorate the enormous toll on the public health that is directly
attributable to the consumption by adolescents of cigarettes and
smokeless tobacco. According to the nation's most knowledgeable health
experts, tobacco use is the most important preventable cause of
morbidity and premature mortality in the United States, accounting each
year for over 400,000 deaths (approximately 20 percent of all deaths).
Moreover, these morbidity and mortality burdens do not spare middle
aged adults--with the average smoking-related death responsible for the
loss of up to 15 life-years. \268\
---------------------------------------------------------------------------

\268\ Statement of Clyde Behney and Maria Hewitt on Smoking-
Related Deaths and Financial Costs: Office of Technology Assessment
Estimates for 1990 Before the Senate Finance Committee, pp. 1-2,
April 28, 1994.
---------------------------------------------------------------------------

In its guidelines for the preparation of Economic Impact Analyses,
OMB asks that Federal regulatory agencies determine whether a market
failure exists and if so, whether that market failure could be resolved
by measures other than Federal regulation. The basis for this request
derives from standard economic welfare theory, which by assuming that
each individual is the best judge of his/her own welfare, concludes
that perfectly competitive private markets provide the most efficient
use of societal resources. Accordingly, the lack of perfectly
competitive private markets (market failure) is frequently used to
justify the need for Government intervention. Common causes of such
market failures include monopoly power, inadequate information, and
market externalities or spillover effects.
While FDA agrees that various elements of market failure are
relevant to the problem of teenage use and tobacco addiction, the
agency also believes that this regulatory action would be justified
even in the absence of a traditional market failure. As noted
previously, the implications of the market failure logic are rooted in
a basic premise of the standard economic welfare model--that each
individual is the best judge of his/her own welfare. FDA, however, is
convinced that this principle does not apply to children and
adolescents. Even steadfast defenders of individual choice acknowledge
the difficulty of applying the ``market failure'' criterion to non
adults. Littlechild, for example, adds a footnote to the title of his
chapter on ``Smoking and Market Failure'' \269\ to note that ``[t]he
economic analysis of market failure deals with choice by adults.''
Although both Beales \270\ and Viscusi find that young persons balance
risks and rewards in making decisions on whether or not to smoke,
Viscusi explains that:
---------------------------------------------------------------------------

\269\ Littlechild, S. C., ``Smoking and Market Failure,'' in
``Smoking and Society: Toward a More Balanced Assessment,'' edited
by R. D. Tollison, Lexington Books, p. 271, 1986.
\270\ Beales III, J. Howard, ``Advertising and the Determinants
of Teenage Smoking Behavior,'' p. 44, 1993.
---------------------------------------------------------------------------

[n]evertheless, there are some classes of choices that have
major consequences, and for that reason society may wish to reserve
the privilege of making these choices until a particular age is
reached. These limits should, however, be set according to the age
at which individuals are believed to be capable of making reasonable
long-term decisions regarding their welfare, rather than some
arbitrary date independent of the choice context. The emerging
consensus of smoking restriction policies has focused age 18 as the
minimum age for the purchase of cigarettes. \271\

\271\ Viscusi, W. K., ``Smoking: Making the Risky Decision,''
Oxford University Press, New York, p. 149, 1992.
---------------------------------------------------------------------------

FDA concludes, therefore, that even if some children do make rational
choices, the agency's regulatory determinations must reflect the
societal conviction that children under the age of legal consent cannot
be assumed to act in their own best interest. \272\
---------------------------------------------------------------------------

\272\ Goodin, R. E., ``No Smoking: The Ethical Issues,''
University of Chicago Press, pp. 30-32, 1989.
---------------------------------------------------------------------------

In particular, FDA finds that the pervasiveness and imagery used in
industry advertising and promotional programs often obscure adolescent
perceptions of the significance of the associated health risks and the
strength of the addictive power of tobacco products. Section VI. of
this document describes numerous studies on the shortcomings of the
risk perceptions held by children. Health economist Victor R. Fuchs
describes the typical sequence:
There is considerable evidence that the [time discount] rate
falls as children mature. Infants and young children tend to live
very much for the present; the prospect of something only a week in
the future usually has little influence over their behavior. As
children get older their time horizons lengthen, but once adult
status is reached there seems to be little correlation between time
discount and age. \273\

\273\ Fuchs, V. R., ``How We Live,'' Harvard University Press,
Cambridge, MA, pp. 228-229, 1983.+
---------------------------------------------------------------------------

Thus, although most youngsters acknowledge the existence of tobacco-
related health risks, the agency finds that the abridged time horizons
of youth make them exceptionally vulnerable to the powerful imagery
advanced through targeted industry advertising and promotional
campaigns. In effect, these conditions constitute an implicit market
failure not adequately remedied by existing government action.
Moreover, the agency does not view these results as inconsistent
with the growing economic literature based on the Becker and Murphy
models of ``rational addiction.'' \274\ Although several empirical
studies have

[[Page 44572]]

demonstrated that, for the general population, cigarette consumption is
``rationally addictive'' in the sense that current consumption is
affected by both past and future consumption, \275\ Chaloupka notes
that this ``rationality'' does not hold for younger or less educated
persons, for whom past but not future consumption maintains a
significant effect on current consumption. He concludes, ``[t]he strong
effects of past consumption and weak effects of future consumption
among younger or less educated individuals support the a priori
expectation that these groups behave myopically.'' \276\
---------------------------------------------------------------------------

\274\ Becker, G. S., and K. M. Murphy, ``A Theory of Rational
Addiction,'' Journal of Political Economy, vol. 96, No. 4, pp. 675-
700, 1988.
\275\ Becker, G. S., M. Grossman, and K. M. Murphy, ``An
Empirical Analysis of Cigarette Addiction,'' The American Economic
Review, vol. 84, No. 3, pp. 396-418, June 1994; Chaloupka, F.,
``Rational Addictive Behavior and Cigarette Smoking,'' Journal of
Political Economy, vol. 99, No. 4, pp. 722-742, 1991; Keeler, T. E.,
T. W. Hu, P. G. Barnett, and W. G. Manning, ``Taxation, Regulation,
and Addiction: A Demand Function for Cigarettes Based on Time-Series
Evidence,'' Journal of Health Economics, vol. 12, pp. 1-18, 1993.
\276\ Chaloupka, F., ``Rational Addictive Behavior and Cigarette
Smoking,'' Journal of Political Economy, vol. 99, No. 4, p. 740,
1991.
---------------------------------------------------------------------------

FDA's justification of this regulation relies on the total costs
associated with childhood addiction to tobacco, rather than on the
external or spillover costs to nonusers. Nevertheless, a further market
failure would exist if the use of tobacco imposed such costs on
nonusers. Many studies have attempted to calculate the societal costs
of smoking, but few have addressed these externalities. The most
detailed research on the issue of whether smokers pay their own way is
the 1991 study by Manning, et al., \277\ which develops estimates of
the present value of the lifetime external costs attributable to
smoking. This study examines differences in costs of collectively
financed programs for smokers and nonsmokers, while simultaneously
controlling for other personal characteristics that could affect these
costs (e.g., age, sex, income, education, and other health habits,
etc.). The authors found that nonsmokers subsidize smokers' medical
care, but smokers (who die at earlier ages) subsidize nonsmokers'
pensions. On balance, they calculated that, before accounting for
excise taxes, smoking creates net external costs of about $0.15 per
pack of cigarettes in 1986 dollars ($0.33 per pack adjusted to 1995
dollars by the medical services price index). While acknowledging that
these estimates ignored external costs associated with lives lost due
to passive smoking, perinatal deaths due to smoking during pregnancy,
and deaths and injuries caused by smoking-related fires, the authors
concluded that there is no net externality, because the sum of all
smoking-related externalities is probably less than the added payments
imposed on smokers through current Federal and State cigarette excise
taxes. A Congressional Research Service Report to Congress concurred
with the study's conclusion, \278\ although many uncertainties remain
regarding the potential magnitude of the omitted cost elements.
---------------------------------------------------------------------------

\277\ Manning, W. G., E. B. Keeler, J. P. Newhouse, E. M. Sloss,
and J. Wasserman, ``The Costs of Poor Health Habits, A RAND Study,''
Harvard University Press, Cambridge, MA, 1991.
\278\ Gravelle, J. G., and D. Zimmerman, ``CRS Report for
Congress: Cigarette Taxes to Fund Health Care Reform: An Economic
Analysis,'' Congressional Research Service, p. 1, March 8, 1994.
---------------------------------------------------------------------------

C. Regulatory Benefits

1. Prevalence-Based Studies
The benefits of the regulation include the costs that would be
avoided by reducing the adverse health effects associated with the
consumption of tobacco products. Most research on the costs of smoking-
related illness has concentrated on the medical costs and productivity
losses associated with the prevalence of death and illness in a given
year. These prevalence-based studies typically measure three
components: (1) The contribution of smoking to annual levels of illness
and death, (2) the direct costs of providing extra medical care, and
(3) the indirect costs, or earnings foregone due to smoking-related
illness or death. \279\
---------------------------------------------------------------------------

\279\ See ``Smoking and Health in the Americas: A 1992 Report of
the Surgeon General in collaboration with the Pan American Health
Organization,'' Department of Health and Human Services (DHHS),
Public Health Service (PHS), CDC, National Center for Chronic
Disease Prevention and Health Promotion (NCCDPHP), Office on Smoking
and Health (OSH), pp. 105-112, 1992, (hereinafter referred to as
``1992 SGR'') for a full summary of these methodologies and
findings.
---------------------------------------------------------------------------

In a recent statement, the former U.S. Office of Technology
Assessment (OTA) declared that ``the greatest 'costs' of smoking are
immeasurable insofar as they are related to dying prematurely and
living with debilitating smoking-related chronic illness with attendant
poor quality of life.'' Nonetheless, OTA calculated that in 1990 the
national cost of smoking-related illness and death amounted to $68
billion and included $20.8 billion in direct health care costs, $6.9
billion in indirect morbidity costs, and $40.3 billion in lost future
earnings from premature death. \280\ More recently, the CDC estimated
the 1993 smoking-attributable costs for medical care, alone, at $50
billion. \281\ Unfortunately, these prevalence-based studies do not
answer many of the most important questions related to changes in
regulatory policy, because they present the aggregate cost of smoking-
related illness in a single year, rather than the lifetime cost of
illness for an individual smoker. As noted in the 1992 Report of the
Surgeon General, most prevalence-based studies fail to consider issues
concerning ``the economic impact of decreased prevalence of cigarette
smoking, the length of time before economic effects are realized, the
economic benefits of not smoking, and a comparison of the lifetime
illness costs of smokers with those of nonsmokers.'' \282\ In effect,
although these studies are designed to measure the smoking-related draw
on societal resources, they are not well-suited for analyzing the
consequences of regulation-induced changes in smoking behavior.
---------------------------------------------------------------------------

\280\ Statement of Clyde Behney and Maria Hewitt on Smoking-
Related Deaths and Financial Costs: Office of Technology Assessment
Estimates for 1990 Before the Senate Finance Committee, p. 2, April
28, 1994.
\281\ ``Medical-Care Expenditures Attributable to Cigarette
Smoking--United States, 1993,'' in Morbidity and Mortality Weekly
Reports (MMWR), CDC, DHHS, vol. 43, No. 26, pp. 469-472, July 8,
1994.
\282\ 1992 SGR, p. 111.
---------------------------------------------------------------------------

2. FDA's Methodology
An alternative methodology, termed incidence-based research,
compares the lifetime survival probabilities and expenditure patterns
for smokers and nonsmokers. As this approach models the individual
life-cycle consequences of tobacco consumption, FDA relied on these
incidence-based studies for its original analysis of the proposed rule
to value the beneficial effects of the rule over the lifetime of each
new cohort of potential smokers. The methodology incorporates the
following steps:
A projection of the extent to which the rule will reduce the
incidence, or the annual number, of new adolescent users of tobacco
products;
A projection of the extent to which the reduced rates of
adolescent tobacco consumption will translate to reduced rates of
lifetime tobacco consumption;
A projection of the extent to which the reduced rates of
lifetime tobacco consumption will decrease the number of premature
deaths and lost life-years; and
An exploration of various means of estimating the monetary
value of the expected health improvements.

[[Page 44573]]

The annual benefits of the 1995 proposed rule were measured as the
present value of the lifetime benefits gained by those youngsters, who
in the absence of the proposed regulation, would have become new
smokers. Upon review of the public comments, FDA found none that would
persuade the agency to revise its projections. In general, the relevant
comments expressed no objection to the basic methodology or model, but
some disputed the accuracy of the specific data estimates. The
following paragraphs describe the FDA assumptions that underlie these
benefit estimates and present the agency's response to the applicable
public comments.
3. Reduced Incidence of New Young Smokers
FDA's preliminary analysis assumed that 1 million youngsters become
new smokers each year. One trade association comment questioned this
figure, asserting that the relevant studies included individuals over
the age of 18. However, the 1985 National Health Interview Survey
reported 1.08 million 20-year old smokers, and the Combined National
Health Interview Surveys for 1987-1988 found that 92 percent of 20-year
old smokers had started smoking by age 18. Taking 92 percent of 1.08
million yields 993,600 new underage smokers per year. This figure is
supported by parallel estimates of the SAMHSA. Based on data from the
1994 National Household Survey on Drug Abuse, SAMHSA estimated that
1.29 million persons under age 20 became daily smokers in 1993, and
that 1.1 million of these persons were under the age of 18. As a
result, FDA retains confidence in its original estimate of 1 million
new smokers per year.
The regulation targets youngsters by restricting youth access to
tobacco products and by limiting advertising activities that affect
adolescents. Several communities have demonstrated that access
restrictions are extremely effective when vigorously applied at the
local level. Woodridge, IL, for example, achieved a compliance rate of
over 95 percent. Moreover, 2 years after that law was enacted, a survey
of 12- to 14-year-old students indicated that overall smoking rates
were down by over 50 percent (over 2/3 for regular smokers). \283\
---------------------------------------------------------------------------

\283\ Jason, L. A., P. Y. Ji, M. D. Anes, and S. H. Birkhead,
``Active Enforcement of Cigarette Control Laws in the Prevention of
Cigarette Sales to Minors,'' The Journal of the Amercian Medical
Association (JAMA), vol. 266, No. 22, p. 3159, December 11, 1991.
---------------------------------------------------------------------------

Advertising and promotional restrictions will augment these efforts
to limit the attractiveness of tobacco products to underage consumers.
As discussed in detail in section VI. of this document, no one study
has definitively quantified the precise impact of advertising or of
advertising restrictions. Nevertheless, much of the relevant research
indicates that advertising restrictions will reduce consumer demand.
For example, according to the 1989 report of the Surgeon General, ``The
most comprehensive review of both the direct and indirect mechanisms
concluded that the collective empirical, experiential, and logical
evidence makes it more likely than not that advertising and promotional
activities do stimulate cigarette consumption.'' \284\ Similarly, after
a careful examination of available studies, Clive Smee, Chief Economic
Adviser to the United Kingdom Department of Health determined that,
``the balance of evidence thus supports the conclusion that advertising
does have a positive effect on consumption.'' \285\ A detailed
evaluation of the effects of advertising on youth consumption of
tobacco products is provided in section VI. of this document.
---------------------------------------------------------------------------

\284\ DHHS, ``Reducing the Health Consequences of Smoking: 25
Years of Progress,'' A Report of the Surgeon General, U.S.
Department of Health and Human Services, Public Health Service,
Centers for Disease Control, National Center for Chronic Disease
Prevention and Health Promotion, Office on Smoking and Health, DHHS
publication No. (CDC) 89-8411, p. 517, 1989 (the 1989 SGR).
\285\ Leaney, K., ``Effect of Tobacco Advertising on Tobacco
Consumption: A Discussion Document Reviewing the Evidence,''
Economics and Operational Research Division, Department of Health,
London, p. 22, October 1992.
---------------------------------------------------------------------------

In Northern California, 24 cities and unincorporated areas in 5
counties adopted local youth tobacco access ordinances that prohibit
self-service merchandising and point-of-sale tobacco promotional
products in retail stores. Survey measures of the impact of these
ordinances by the Stop Tobacco Access for Minor Project (STAMP) found
that, on average, tobacco sales to minors dropped by 40 to 80 percent.
\286\
---------------------------------------------------------------------------

\286\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring only Vendor-Assisted Tobacco
Sales,'' North Bay Health Resources Center, Stop Tobacco Access to
Minors Program (STAMP), Petaluma, CA, p. 4, November 3, 1994.
---------------------------------------------------------------------------

In its analysis of the 1995 proposed rule, FDA argued that, while
quantitative estimates of the effectiveness of its regulation cannot be
made with certainty, comprehensive programs designed to discourage
youthful tobacco consumption could reasonably achieve the ``Healthy
People 2000'' goal of halting the onset of smoking for at least half,
or 500,000, of the 1,000,000 youngsters who presently start to smoke
each year. In the Federal Register of January 19, 1996 (61 FR 1492)
SAMHSA published a regulation governing a program of State-operated
enforcement activities that would restrict the sale or distribution of
tobacco products to individuals under 18 years of age. SAMHSA had
originally estimated that its program would reduce tobacco consumption
by youth and children by from one-third to two-thirds, but subsequently
determined that reductions of between one-tenth and one-third would be
``more realistic given the uncertainties implicit in varying levels of
State enforcement and the absence of meaningful controls on tobacco
advertising and promotion.'' \287\ While strongly supporting the
objectives of the SAMHSA program, FDA finds that achieving the
``Healthy People 2000'' goal will demand a full arsenal of controls to
complement and fortify the new State inspectional programs, including
restrictions on industry advertising and promotions and quite possibly
educational messages to counter the influence of ongoing marketing
activities.
---------------------------------------------------------------------------

\287\ 61 FR 1502, January 19, 1996.
---------------------------------------------------------------------------

Numerous public comments to the 1995 proposal addressed the issue
of the effectiveness of the regulation. Many argued that tobacco
advertising does not increase tobacco use, or that the enforcement of
existing or forthcoming State laws, alone, could accomplish reasonable
goals. In contrast, many others supported a comprehensive regulation,
contending that only vigorous enforcement of new restrictions would
bring significant results. As outlined earlier in the preamble in this
document, FDA has determined, based on a full examination of the
evidence, that the combined effect of the regulations (restricting
advertising and promotion, prohibiting self-service sales, providing
new labeling information, and imposing age verification obligations)
and educational programs will significantly diminish the allure as well
as the access to tobacco products by youth. The agency acknowledges the
imposing size of the required effort, but is confident that its goals
are reasonable and presents regulatory benefits based on the
presumption that the ``Healthy People 2000'' goals will be met.

[[Page 44574]]

FDA agrees, however, that these projections are uncertain and
therefore also presents estimates of benefits at effectiveness levels
that are considerably smaller. The agency conducted this exercise not
because its estimates are excessively speculative or arbitrary, as
suggested by one comment, but because sensitivity analyses are part of
generally accepted ``best practice'' for the conduct of cost-benefit
analysis and are recommended by OMB guidance. These results demonstrate
that even if the rule were only modestly effective in reducing tobacco
use, it yields justifiable benefits.
One comment urged the agency to demonstrate the effectiveness of
tobacco marketing restrictions over and above those for access
restrictions or public information campaigns. FDA is unable to forecast
the independent results of each regulatory provision, due to the high
degree of interdependence among the various requirements, but notes
that SAMHSA concluded that its access restrictions, alone, would reduce
underage tobacco consumption by one-tenth to one-third. If so,
accomplishing the ``Healthy People 2000'' goal implies that the FDA
rule would generate incremental tobacco use reductions of between 17
and 40 percent for youngsters under 18 years of age.
4. Reduced Number of Adult Smokers
The major beneficiaries of the rule are those individuals who would
otherwise begin using tobacco early in life and who, accordingly, are
unlikely to start using tobacco products as an adult. Evidence suggests
that this percentage will be high, as over half of adult smokers had
become daily cigarette smokers before the age of 18. Moreover, the 1994
Surgeon General's Report indicates that 82 percent of persons (aged 30
to 39) who ever smoked daily began to smoke before the age of 18. That
report concludes that ``if adolescents can be kept tobacco-free, most
will never start using tobacco.'' \288\ Although some comments
disagreed with that conclusion, FDA believes that the Surgeon General's
Report is correct. Nonetheless, to account for the possibility that
some would-be smokers who are prevented from smoking until they are age
18 may eventually start smoking as adults, FDA uses the more
conservative assumption that these rules will lead to a tobacco free
adult life for only one-half of the estimated 500,000 youngsters who
will be deterred from starting to smoke each year. Accordingly, FDA
calculates the annual benefits from the lifetime health gains
associated with preventing 250,000 adolescents from ever smoking as an
adult. Further, in response to comments that challenge this estimate,
FDA presents sensitivity analysis showing results using a wide range of
alternative rates.
---------------------------------------------------------------------------

\288\ 1994 SGR, pp. 5 and 65.
---------------------------------------------------------------------------

5. Lives Saved
Based largely on data from Peto, et al., who found that about half
of all adolescents who continue to smoke regularly throughout their
lives will eventually die from a smoking-related disease, \289\ CDC
estimates that about one in three adolescent smokers will die
prematurely. \290\ Although the CDC projection provides the best
estimate of this excess fatality rate, it does not provide a
distribution of the smoking-related fatalities over time. Consequently,
FDA derived this distribution by comparing age-specific differences in
the probability of survival for smokers and nonsmokers. The probability
of survival data for the agency's estimate are derived from the
American Cancer Society's Cancer Prevention Study II, as shown in Table
3.
---------------------------------------------------------------------------

\289\ Peto, R., A. D. Lopez, J. Boreham, M. Thun, and C. Heath,
Jr., ``Mortality from Smoking in Developing Countries, 1950-2000,''
Oxford University Press, p. A10, 1994. Indirect estimates from
national vital statistics.
\290\ Memorandum from Michael P. Eriksen (CDC) to Catherine
Lorraine (FDA) August 7, 1995 and CDC Fact Sheet; citing Pierce, J.
P., M. C. Fiore, T. E. Novotny, E. J. Hatziandreu, and R. M. Davis,
``Trends in Cigarette Smoking in the United States: Projections to
the Year 2000,'' JAMA, vol. 261, pp. 61-65, 1989; Unpublished data
from the 1986 National Mortality Followback Survey, CDC, OSH; Peto,
R., A. D. Lopez, J. Boreham, M. Thun, and C. Heath, ``Mortality from
Smoking in Developed Countries, 1950-2000: Indirect Estimates from
national Vital Statistics,'' Oxford University Press, Oxford, 1994.

TABLE 3.--PROBABILITY OF SURVIVAL BY AGE, SEX, AND SMOKING STATUS
(Probabilities of a 17-year-old surviving to age shown)
------------------------------------------------------------------------
Female
Age (Years) Male Male All Female All
Neversmokers Smokers Neversmokers Smokers
------------------------------------------------------------------------
35................ 1 1 1 1
45................ 0.986 0.966 0.988 0.984
55................ 0.951 0.893 0.962 0.939
65................ 0.867 0.733 0.901 0.831
75................ 0.689 0.466 0.760 0.630
85................ 0.336 0.159 0.453 0.289
------------------------------------------------------------------------
Source: Thomas Hodgson, ``Cigarette Smoking and Lifetime Medical
Expenditures,'' The Milbank Quarterly, vol. 70, No. 1, 1992, p. 91.
Based on data from the American Cancer Society's Cancer Prevention
Study II.

FDA initially multiplied differences in the probabilities of death
for smokers versus nonsmokers within each 10-year period by the number
of smokers remaining at the start of each 10-year period. Assuming an
equal number of males and females, the excess deaths among smokers in
all age groups totaled almost 28 percent of the 250,000 cohort. FDA
recognizes that this methodology probably understates the current risk
of smoking, because it arbitrarily assumes that the smoking-related
risks for females will continue to be smaller than for males, even
though female smoking patterns are presently comparable to those of
males. Nevertheless, FDA used this model to support its proposed
regulation and maintains the calculation to demonstrate the robustness
of the results. Moreover, because some comments suggested that these
data may not account for all potentially confounding variables, such as
alcohol consumption or other lifestyle differences, FDA further
adjusted the mortality estimate to 24 percent to reflect findings by
Manning et al., that such nontobacco versus tobacco lifestyle factors
may account for 13 percent of excess medical care expenditures. Thus,
the benefits projections presented below conservatively rely on the
probabilities

[[Page 44575]]

shown in Table 3, corrected by the 13 percent lifestyle influence
adjustment. In sum, they indicate that achieving the ``Healthy People
2000'' performance goal will prevent about 60,200 smoking-related
fatalities among each year's cohort of potential new smokers.
The economic assessment of health-related variables requires
discounting the value of future events to make them commensurate with
the value of present events. For this analysis, a 3 percent discount
rate is used to calculate the present value of the projections. (This
rate was recommended by the Panel on Cost-Effectiveness in Health and
Medicine, a nonfederal multidisciplinary group of experts in cost-
effectiveness analysis, convened by the Office of the Assistant
Secretary for Health in 1993. \291\ Since the Office of Management and
Budget (OMB) Circular A-94 recommends the use of 7 percent as a base
case, FDA presents summary estimates below for discount rates of both 3
percent and 7 percent.) On the assumption that it would be roughly 20
years for each year's cohort of new adults to reach the midpoint of the
35 to 45 age bracket and 60 years to reach the 75 to 85 age bracket,
these calculations indicate that the present value of these benefits
equate to 15,863 lives per year.
---------------------------------------------------------------------------

\291\ Gold, M. R., J. E. Siegel, L. B. Russell, and M. C.
Weinstein, ``Cost-effectiveness in Health and Medicine,'' Oxford
University Press, p. 232, 1996.
---------------------------------------------------------------------------

6. Life-Years Saved
The number of life-years that will be saved by preventing each
year's cohort of 250,000 adolescents from acquiring a smoking addiction
was calculated from the same age-specific survival differences between
smokers and nonsmokers. In each 10-year life span, the number of years
lived for each cohort of persons who would have been smokers but who
were deterred was compared to the number of years that would have been
lived by that same cohort if they had been smokers. The difference
between these two measures is the life-years saved for that 10-year
period. \292\ Deducting the 13-percent lifestyle adjustment indicates
that, over the full lifetime of each cohort, the regulations will gain
an estimated 905,000 life-years, which translates to almost 4 years per
smoker and 15 years per life saved. \293\ The present value of these
additional life-years equates to 211,391 life-years annually.
---------------------------------------------------------------------------

\292\ For each 10-year age interval, the number of life-years is
calculated as the number of people in each cohort (250,000) times
the probability of surviving until the end of that age interval
times 10 years of life, plus the number expected to die in that
interval times an assumed 5 years of life.
\293\ The calculation procedure probably understates total life-
years saved, because it misses smoking related-fatalities that occur
within the same 10-year age interval. However, because more of these
misses involve fatalities that, if avoided, would add few life-
years, the resulting 15-year average life-years saved may be high.
FDA's benefit estimates, however, remain understated because they
are based on total life-years saved, not average life-years saved.
---------------------------------------------------------------------------

7. Monetized Benefits of Reduced Tobacco Use
There is no fully appropriate means of assigning a dollar figure to
represent the attendant benefits of averting thousands of tobacco-
induced illnesses and fatalities. However, to quantify important
components of the expected economic gains, FDA developed estimates of
the value of the reduced medical costs and the increased worker
productivity that will result from fewer tobacco-related illnesses. In
addition, since productivity measures do not adequately address the
avoidance of premature death, FDA adopted a willingness-to-pay approach
to value the benefits of reduced tobacco-related fatalities.
8. Reduced Medical Costs
On average, at any given age, smokers incur higher medical costs
than nonsmokers. However, nonsmokers live longer and therefore continue
to incur medical costs over more years. Several analysts have reported
conflicting estimates of the net outcome of these factors, but the most
recent research is the incidence-based study by Hodgson, \294\ who
found that lifetime medical costs for male smokers were 32 percent
higher than for male neversmokers and lifetime medical costs for female
smokers were 24 percent higher than for female neversmokers. Hodgson
determined that the present value of the lifetime excess costs were
about $9,400 in 1990 dollars (future costs discounted at 3 percent).
\295\ As noted earlier, the incidence-based study by Manning, et al.,
implies that about 13 percent of the excess medical costs were
attributable to factors other than smoking. Accounting for this
reduction and adjusting by the consumer price index for medical care
raises the present value of Hodgson's excess medical cost per new
smoker to $10,590 in 1994 dollars. Thus, those 1,000,000 young people
under the age of 18, who currently become new smokers each year, are
responsible for excess lifetime medical costs measured at a present
value of $10.6 billion (1,000,000 x $10,590). Because FDA projects that
achieving the ``Healthy People 2000'' goals will prevent 250,000 of
these individuals from smoking as adults, the medical cost savings are
estimated at $2.6 billion per year.
---------------------------------------------------------------------------

\294\ Hodgson, T. A., ``Cigarette Smoking and Lifetime Medical
Expenditures,'' The Milbank Quarterly, vol. 70, No. 1, p. 97, 1992.
(Based on data from the American Cancer Society's Cancer Prevention
Study II).
\295\ Id. (Using the average of the male and female totals).
---------------------------------------------------------------------------

9. Reduced Morbidity Costs
An important cost of tobacco-related illness is the value of the
economic output that is lost while individuals are unable to work.
Thus, any future reduction in such lost work days contributes to the
economic benefits of the regulation. Several studies have calculated
prevalence-based estimates of U.S. productivity losses due to smoking-
related morbidity, but FDA knows of no incidence-based estimates.
Hodgson, however, has shown that, in certain situations, incidence
measures can be derived from available prevalence measures. For
example, he demonstrates that in a steady-state model the only
difference between prevalence and incidence-based costs is due to
discounting. \296\ Accordingly, FDA has adopted Hodgson's method to
develop a rough approximation of incidence-based costs from an
available prevalence-based estimate of morbidity costs.
---------------------------------------------------------------------------

\296\ Hodgson, T. A., ``Annual Costs of Illness Versus Lifetime
Costs of Illness and Implications of Structural Change,'' Drug
Information Journal, vol. 22, No. 3, p. 329, 1988.
---------------------------------------------------------------------------

Rice, et al., \297\ found that lost wages due to tobacco-related
work absences in the United States amounted to $9.3 billion in 1984.
This equates to $12.3 billion in 1994 dollars when adjusted by the
percentage change in average employee earnings since 1984. Although FDA
does not have a precise estimate of the life-cycle timing of these
morbidity effects, the relevant latency periods would certainly be
shorter than for mortality effects. Thus, to account for the deferred
manifestation of smoking-related morbidity effects, FDA assumed that
they would occur over a time horizon equal to 80 percent of that
previously measured for mortality effects. Although one comment
mistakenly assumed that FDA had made no adjustment for lifestyle
differentials between smokers and nonsmokers, in fact, these estimates
were further

[[Page 44576]]

reduced by 13 percent to reflect the Manning, et al., findings.
Finally, because the long-term decline in smoking prevalence has
exceeded the growth in population, FDA reduced the incidence-based
costs by another 20 percent. At a 3 percent discount rate, this
methodology implies that the incidence-based cost of smoking-related
morbidity, or the present value of the future costs to 1 year's cohort
of 1,000,000 new smokers, is about $3.5 billion. Thus, the estimated
annual morbidity-related savings associated with preventing 250,000 new
youths per year from smoking as adults is estimated at about $879
million.
---------------------------------------------------------------------------

\297\ Rice, D. P., et al., ``The Economic Costs of the Health
Effects of Smoking, 1984,'' The Milbank Quarterly, vol. 64, No. 4,
p. 526, 1986.
---------------------------------------------------------------------------

10. Benefits of Reduced Mortality Rates
From a societal welfare perspective, OMB guidance advises that the
best means of valuing benefits of reduced fatalities is to measure the
affected group's willingness-to-pay to avoid fatal risks.
Unfortunately, the specific willingness-to-pay of smokers is unknown,
because institutional arrangements in the markets for medical care
obscure direct measurement techniques. \298\ Nevertheless, many studies
have examined the public's willingness-to-pay to avoid other kinds of
life-threatening risks, especially workplace and transportation
hazards. An EPA-supported study \299\ found that most empirical results
support a range of $1.6 to $8.5 million (in 1986 dollars) per
statistical life saved, which translates to $2.2 to $11.6 million in
1994 dollars. However, the uncertainty surrounding such estimates is
substantial. Moreover, Viscusi has shown that smokers, on average, may
be willing to accept greater risks than nonsmokers. For example,
smokers may accept about one-half the average compensation paid to face
on-the-job-injury risks. \300\ FDA therefore has conservatively used
$2.5 million per statistical life, which is towards the low end of the
research findings, to estimate society's willingness-to-pay to avert a
fatal smoking-related illness. Thus, the annual benefits of avoiding
the discounted number of 15,863 premature fatalities would be $39.7
billion.
---------------------------------------------------------------------------

\298\ Schelling, T. C., ``Economics and Cigarettes,'' Preventive
Medicine, vol. 15, pp. 549-560, 1986.
\299\ Fisher, A., L. G. Chestnut, and D. M. Violette, ``The
Value of Reducing Risks of Death: A Note on New Evidence,'' Journal
of Policy Analysis and Management, vol. 8, No. 1, pp. 88-100, 1989.
\300\ Viscusi, W. K., ``Fatal Tradeoffs: Public and Private
Responsibilities for Risk,'' Oxford University Press, p. 24, 1992.
---------------------------------------------------------------------------

An alternative method of measuring willingness-to-pay is to
calculate a value for each life-year saved. This approach is
intuitively appealing because it places a greater value on the
avoidance of death at a younger than at an older age and is the
traditional means of assessing the cost-effectiveness of medical
interventions. Nevertheless, there have been few attempts to determine
the appropriate value of a life-year saved. OMB suggests several
methodologies, including annualizing with an appropriate discount rate
the estimated value of a statistical life over the average expected
life-years remaining. For example, at a 3-percent discount rate, a $2.5
million value per statistical life for an individual with 35 years of
remaining life-expectancy converts to about $116,500 per life year.
Since achieving the agency's goals were estimated to save 211,391
discounted life-years annually, this calculation yields annual benefits
of $24.6 billion.
FDA notes that even these values understate the full value of the
health impact, because they fail to quantify any reduction in either
the adverse effects attributable to passive smoking or the infant and
child fatalities caused by mothers' smoking. Moreover, these totals may
not capture the heavy toll of psychic loss to surviving family members,
or the corresponding economic losses among family members for the
mental health care of grief-related depression and other conditions
that often follow the premature death of middle aged adults. \301\
---------------------------------------------------------------------------

\301\ Harris, M., ``The Loss That is Forever The Lifelong Impact
of the Early Death of a Mother or Father,'' Penguin Books, 1995.
---------------------------------------------------------------------------

11. Reduced Fire Costs
Every year lighted tobacco products are responsible for starting
fires which cause millions of dollars in property damage and thousands
of casualties. In 1992, fires started by lighted tobacco products
caused 1,075 deaths and $318 million in direct property damage. \302\ A
reduction in the number of smokers, and the corresponding number of
cigarettes smoked, will result in a drop in the number of future fires.
In the 1995 proposal, FDA estimated that if the number of fires falls
by the same percentage as the expected reduction in cigarette sales,
this implies present value savings of $203 million for the value of
lives saved and $24 million for the value of averted property damage,
totaling $227 million annually over a 40-year period.
---------------------------------------------------------------------------

\302\ Miller, A. L., ``The U.S. Smoking-Material Fire Problem
Through 1992: The Role of Lighted Tobacco Products in Fire,''
National Fire Protection Association, p. 2, 1994.
---------------------------------------------------------------------------

One comment denied the existence of any association between fires
and cigarette consumption. FDA acknowledges that the relationship may
be nonlinear, but finds the asserted lack of a positive correlation
implausible. This comment further stated that residential fires caused
by smoking and deaths from residential fires caused by smoking
decreased from 1983 to 1992 by 39 percent and 40 percent, respectively,
or about 5.5 percent annually. Accounting for this trend would lower
FDA's fire cost estimate to a present value savings of $145 million for
the value of lives saved and $17 million for the value of averted
property damage, totaling $162 million annually over a 40-year period.
Even these estimated savings significantly underestimate the potential
benefits, however, because they exclude both nonfatal injuries and the
need for temporary housing.
12. Smokeless Tobacco
The Smokeless Tobacco Council, Inc., remarked that FDA had not
attempted to measure the benefits that would result from the decreased
use of smokeless tobacco products by underage youths. The introduction
to the 1995 proposed regulation, however, explained that the use of
smokeless tobacco causes severe health effects. While data are not
available on age-specific differences in the probability of survival
for smokeless tobacco users as compared to nonusers, the 1994 Surgeon
General Report indicates that the ``primary health consequences during
adolescence include leukoplakia, gum recession, nicotine addiction, and
increased risk of becoming a cigarette smoker. Leukoplakia and/or gum
recession occur in 40 to 60 percent of smokeless tobacco users.'' \303\
Oral leukoplakias have a 5-percent chance of becoming malignancies in 5
years. \304\ Cancers of the nasal cavity, pharynx, larynx, esophagus,
stomach, urinary tract and pancreas have also been linked to smokeless
tobacco use. \305\ Other effects include discoloration of teeth,
periodontal disease and excessive tooth wear and decay. \306\ One study
of female snuff users showed that it increased one's risk of developing
oral and

[[Page 44577]]

pharyngeal cancer between 1.5 to 4.2 times. \307\
---------------------------------------------------------------------------

\303\ 1994 SGR, p.39.
\304\ Id.
\305\ Goolsby, M. J., ``Smokeless Tobacco: The Health
Consequences of Snuff and Chewing Tobacco'', Nurse Practitioner,
vol. 17, No. 1, p. 31, January 1992.
\306\ Id.
\307\ Winn, D. M., W. J. Blot, C. M. Shy, L. W. Pickle, A.
Toledo, and J. F. Fraumeni, ``Snuff Dipping and Oral Cancer Among
Women in the Southern United States,'' The New England Journal of
Medicine, vol. 304, No. 13, pp. 745-749, Table 2, March 26, 1981.
---------------------------------------------------------------------------

If the provisions pertaining to smokeless tobacco are as effective
as those pertaining to cigarettes, the rule will prevent about 36,500
youths from becoming adult users of smokeless tobacco. This projection
assumes that the number of underage users will decrease by 50 percent
and one-half of those youths will remain nonusers after reaching 18
years of age. The estimate also assumes that the ratio of new underage
users to total underage users parallels that of cigarette users (i.e.,
approximately one-third) and that about 440,000 youths under the age of
18 are current users of smokeless tobacco products. \308\
---------------------------------------------------------------------------

\308\ Estimates of youth smokeless usage vary. This projection
relies on a conservative estimate of total youth (ages 12-17) usage
calculated from data in the Statistical Abstract of the U.S. 1995,
115th edition, Tables 16 and 218.
---------------------------------------------------------------------------

Leukoplakia and/or gum recession are estimated to occur in 40 to 60
percent of smokeless users. \309\ If even 50 percent of these cases
were caused by smokeless tobacco use, the previous assumptions imply
that these regulations will prevent from 7,300 to 11,000 cases of
leukoplakia and/or gum recessions per year. Although FDA can not
estimate the number of oral or other cancers prevented, the realized
number will be substantial.
---------------------------------------------------------------------------

\309\ 1994 SGR, p.39.
---------------------------------------------------------------------------

13. Summary of Benefits
The discussion above demonstrates the formidable magnitude of the
economic benefits available from smoking reduction efforts. As
described, FDA forecasts annual net medical cost savings of $2.6
billion and annual morbidity-related productivity savings of $900
million. From a willingness-to-pay perspective, the annual benefits of
reduced smoking-related disease mortality range from $24.6 to $39.7
billion. As a result, the value of the annual disease-related benefits
of achieving the ``Healthy People 2000'' goal is projected to range
from $28.1 to $43.2 billion. (Following Hodgson, this analysis uses a
3-percent discount rate. A 7-percent rate reduces these benefits to a
range of $9.2 to $10.4 billion). These totals do not include the
benefits expected from fewer fires (over $160 million annually),
reduced passive smoking, or infant death and morbidity associated with
mothers' smoking. Moreover, while FDA believes these effectiveness
projections are plausible, much lower rates still yield impressive
results. Table 1c of this section summarizes the disease-related health
benefits and illustrates that youth deterrence rates as small as 1/20,
which would prevent the adult addiction of at least 25,000 of each
year's cohort of 1,000,000 new adolescent smokers, would provide annual
benefit values measured in the billions of dollars. Moreover, the
higher risk estimates suggested by Peto, et al., could significantly
increase these values. In addition, while FDA could not quantify the
benefits that will result from the projected decline in the use of
smokeless tobacco, they would be considerable.

D. Regulatory Costs

A recently issued guideline for conducting economic analysis of
Federal regulations, prepared under the auspices of OMB, states that:
[T]he preferred measure of cost is the ``opportunity cost'' of
the resources used or the benefits foregone as a result of the
regulatory action. Opportunity costs include, but are not limited
to, private-sector compliance costs and government administrative
costs. Opportunity costs also include losses in consumers' or
producers' surpluses, discomfort or inconvenience, and loss of time
* * *. An important, but sometimes difficult, problem in cost
estimation is to distinguish between real costs and transfer
payments. Transfer payments are not social costs but rather are
payments that reflect a redistribution of wealth. While transfers
should not be included in the [Economic Analyses'] estimates of the
benefits and costs of a regulation, they may be important for
describing the distributional effects of a regulation. \310\
---------------------------------------------------------------------------

\310\ Economic Analysis of Federal Regulations Under Executive
Order 12866, January 11, 1996. Prepared by interagency group
convened by OMB and co-chaired by a Member of the Council of
Economic Advisers.
---------------------------------------------------------------------------

Accordingly, FDA finds that the final rule will impose new cost
burdens on manufacturers, retailers, consumers, and Government
regulators of tobacco products. In addition, certain industry sectors
will experience lost sales and employment, but these revenue losses
will be at least partly offset by gains to other sectors, as discussed
in the ``Distributional Effects'' section of this document. \311\ While
a number of industry comments argued that the agency's preliminary
analysis was deficient for not including these lost revenues in its
cost-benefit assessment, FDA finds that the revenue losses suggested by
these comments do not meet the previous definition of ``opportunity
cost;'' because they fail to provide the changes in net costs that are
necessary to estimate producer surplus, conventionally defined as sales
minus variable costs. This rule will affect producer surplus in several
industries and only net changes in these surplus' are social costs.
Calculating such changes would require a multi-market model of economic
changes over many years. Such general equilibrium models have not been
used by Federal agencies for regulatory analyses, are not specifically
recommended by the OMB guidance, and would be impractical to use,
especially where major markets are dominated by few firms.
---------------------------------------------------------------------------

\311\ This analysis evaluates the regulation following the
Kaldor-Hicks criteria for societal welfare maximization.
---------------------------------------------------------------------------

The most comprehensive critique of FDA's preliminary economic
analysis was prepared by the Barents Group, economic consultants to the
Tobacco Institute. While the Barents Group developed independent
estimates of economic costs, in many instances its methodology was
consistent with FDA's analysis of its 1995 proposal. Often, however,
the Barents Group had access to more recent data, or to additional data
provided by the affected industries. FDA's revised cost estimates rely
extensively on these new data, but as described below, the agency's
final cost estimates are far smaller than those presented by the
Barents Group.
1. Number of Affected Retail Establishments
A critical variable underlying the agency's cost estimates is the
number of retail outlets currently selling over-the-counter (OTC)
tobacco products. A major confounding factor is that the U.S. Census
publishes product line data only for establishments with payroll. For
its original estimate of the number of retail establishments selling
tobacco products, FDA relied on 1987 Census data to count the number of
affected payroll establishments and very conservatively included every
nonpayroll establishment in those categories that traditionally sell
tobacco products (general merchandise stores, grocery stores, service
stations, eating and drinking places, drug stores, and liquor stores).
FDA estimated that the number of establishments selling tobacco
products OTC included 275,000 payroll establishments and 215,000
nonpayroll establishments, for a total of 490,000 retail
establishments. To account for all other business categories that might
sell

[[Page 44578]]

OTC tobacco products, FDA estimated a total upper bound range of
600,000 establishments. FDA did not know how many locations currently
served by cigarette vending machines would convert to OTC operations
following implementation of the regulation, but estimated the number at
100,000, raising the upper bound total to 700,000 future
establishments.
FDA still has no definitive estimate of the number of retail
outlets selling tobacco products. For their economic analysis, the
Barents Group used 1992 U.S. Census estimates for the number of
affected retail establishments with payroll, but adopted an alternative
methodology to estimate the number of affected establishments without
payroll. The Barents Group subdivided retail businesses into 10
categories: General merchandise stores, supermarket/grocery stores,
convenience stores without gas, convenience stores with gas, gasoline
service stations, eating places, drinking places, drug and proprietary
stores, specialty tobacco stores, and miscellaneous retail stores.
Within each category, the Barents Group assumed that the percentage of
nonpayroll establishments selling tobacco products would be the same as
the percentage of payroll establishments selling tobacco products. As a
result, they concluded that the number of retail payroll establishments
selling tobacco products OTC is approximately 283,000, and the number
of retail nonpayroll establishments selling tobacco products OTC is
about 107,000, for a total of 390,000 retail outlets. The Barents
Group's subsequent calculations are less clear and not documented in
their appendix on methodology. Noting that FDA had estimated an upper
bound of 600,000 establishments selling OTC tobacco products, they
assumed the existence of an additional 100,000 to 200,000 nonretail
establishments, such as operations within manufacturing or service
businesses, that sell OTC tobacco products. Finally, the Barents Group
accepted FDA's estimate that about 100,000 current vending machine
locations would convert to OTC sales for tobacco products and proposed
total lower and upper bound estimates of from 500,000 to 700,000
establishments.
For this final economic analysis, FDA adopts the apparent mid-point
of the Barents Group's forecast of the number of establishments that
will sell tobacco products, or about 500,000 current establishments and
a total of 600,000 future establishments. FDA estimates by business
category are displayed in Table 4 and follow closely the methodology
presented by the Barents Group, except for slight adjustments to
eliminate nonstore outlets. Because Census data on the number of
establishments without payroll were not reported separately for
convenience stores, convenience stores with gas, or specialty tobacco
stores, these outlets are counted with the higher level outlet
categories.
2. Removing Self-Service and Other Prohibited Retail Displays
The 1995 proposed regulation restricted all point of purchase
advertising to ``text only'' and banned the use of all self-service
displays by requiring vendors to physically provide the regulated
tobacco product to purchasers. In its original analysis, FDA explained
that the proposed ban on self-service displays would affect many retail
stores selling tobacco products, although shoplifting concerns had
already caused a large number of these stores to place tobacco products
in areas not directly accessible to customers. Those retailers that
discontinued self-service displays typically modified their stores by
either: (1) Placing tobacco products behind or above store cashiers or
in locked cases located within close reach of store cashiers, (2)
placing tobacco products behind only one or two checkout lines, similar
to the ``cash only'' or ``less than 10 items'' lines commonly found in
supermarkets, (3) dispensing tobacco products from a controlled area of
the store, where store employees also conduct other administrative or
customer-service tasks, or (4) installing a signaling system, whereby
assigned store clerks bring requested tobacco products to individual
checkout stations. Each store's physical configuration dictates the
most cost-effective approach, but at least one regional survey found
that retail outlets readily complied with comparable local ordinances
without architectural remodeling or substantial refitting of checkout
counters or store aisles. \312\
---------------------------------------------------------------------------

\312\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring only Vendor-Assisted Tobacco
Sales,'' North Bay Health Resources Center, Stop Tobacco Access for
Minors Project (STAMP), Petaluma, CA, p. 5, November 3, 1994.

[[Page 44579]]

TABLE 4.--ESTIMATED NUMBER OF ESTABLISHMENTS CURRENTLY SELLING TOBACCO PRODUCTS OVER-THE-COUNTER
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Percentage of Retail Number of Retail Estimated Number of Estimated Total of
Number of Retail Establishments with Establishments with Total Number of Retail Retail Establishments Establishments Selling
Kind of Business Establishments with Payroll Selling Tobacco Payroll Selling Tobacco Establishments without without Payroll Selling Tobacco Products Over-
Payroll Products Products Payroll Tobacco Products^{(j) the-Counter^{(k)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4) (5) (6)
Retail Establishments:
General Merchandise 34,606 35.01% 12,117 28,010 ^{(f) 9,807 21,924
Supermarket/Grocery 126,785^{(a) 56.19% 71,240 97,061^{(g) 54,538 125,778
Convenience Stores 30,748 95.62% 29,400 - ^{(h) - 29,400
Convenience Stores with Gas 57,033^{(b) 91.02% 51,913 - ^{(h) - 51,913
Service Stations 71,336^{(c) 53.21% 37,958 14,248 7,581 45,539
Eating Places 377,760^{(d) 3.17% 11,992 96,538 3,065 15,057
Drinking Places 55,848 19.24% 10,745 27,733 5,336 16,081
Drug Stores 48,142 60.33% 29,046 3,031 1,829 30,875
Tobacco Stores 1,477 100.00% 1,477 - ^{(h) - 1,477
Miscellaneous Retail Stores 273,256^{(e) 9.15% 24,995 490,633^{(i) 44,879 69,874
Other Establishments - - - - - 100,000
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total 1,076,991 280,883 757,254 127,035 507,918
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(a) Category contains food stores (SIC 54) with payroll, excluding convenience food stores (SIC 541 pt) and convenience food/gasoline stores (SIC 541 pt).
(b) Category contains convenience food/gasoline stores (SIC 541 pt) and gasoline/convenience food stores (SIC 554 pt).
(c) Category excludes gasoline/convenience food stores (SIC 554 pt).
(d) Category contains eating and drinking places (SIC 58), excluding drinking places (SIC 5813).
(e) Category contains miscellaneous retail stores (SIC 59 ex. 591), excluding nonstore retailers (SIC 596) and tobacco stores and stands (SIC 5993).
(f) 1992 Nonemployer Statistics Series only provides data on variety and miscellaneous general merchandise establishments without payroll.
(g) 1992 Nonemployer Statistics Series only provides data on grocery stores, retail bakeries, and other food stores without payroll.
(h) 1992 Nonemployer Statistics Series does not provide data on establishments without payroll for these categories.
(i) Category contains miscellaneous retail stores (SIC 59 ex. 591), excluding nonstore retailers (SIC 596).
(j) Column (2) times Column (4).
(k) Column (3) plus Column (5).
Source: Columns (1)-(4) from U.S. Census of Retail Trade Merchandise Line Sales and Nonemployer Statistics Series; Columns (5) and (6) projections according to Barents Group LLC Appendix I
methodology.

[[Page 44580]]

Because prevailing business practice is for tobacco manufacturers
to assist and even pay for most product display equipment, \313\ FDA
had assumed that manufacturers would share with retailers any expense
of relocating displays and that the majority of the costs would be to
relocate self-service displays for cartons. FDA estimated one-time
costs of $22 million to be shared by manufacturers and retailers and
additional annual operating costs of $14 million to be incurred by
retailers (all in 1994 dollars). In stark contrast, the Barents Group
projected one-time costs of from $558 to $780 million in 1996 dollars
($520 to $728 million in current dollars), with 62 percent attributed
to the replacement of display items by retailers and the remaining 38
percent to manufacturers due to ``time costs involved in removing
banned display and promotional items, whether the work would be
performed directly by a manufacturer's employee or subcontracted out to
a display distributor.'' As explained below, FDA finds that many
aspects of the Barents Group's estimates are seriously flawed.
Nevertheless, the agency has adopted the basic framework of that
analysis and its revised estimates reflect the Barents Group's
methodology and data, unless specifically modified as discussed below.
---------------------------------------------------------------------------

\313\ Id.
---------------------------------------------------------------------------

a. The Barents Group's methodology. The Barents Group's cost
projections were based on estimates of an average outlet cost for each
of seven outlet categories. Each average outlet cost was multiplied by
the total number of outlets of that category in the United States to
produce national cost estimates. The actual outlet cost data were
collected by A. T. Kearney, Inc., still another business consulting
firm. The Barents Group explained that:
[O]ur estimates are based on a compliance audit study conducted
especially for this purpose by A. T. Kearney, Inc. A. T. Kearney
performed an in-depth study of the actions and efforts that would be
required of tobacco manufacturers' representatives, of point-of-sale
display item distributors, and of tobacco retailers in order to
bring stores into compliance with the proposed regulations. Detailed
surveys were conducted of seven categories of retail outlets in five
U.S. metropolitan areas, for a total of 88 retail outlets. Surveyors
performed a detailed inventory of the many types of tobacco product
displays and promotional materials which are currently found in
stores. The surveyors noted which items would need to be modified or
replaced.
A. T. Kearney reportedly completed a comprehensive on site
compliance protocol checklist at 88 establishments randomly selected in
5 general regions of the United States. The individual display items
were grouped into 41 discrete item categories and a lengthy discussion
of the methodology and results are presented as a Technical Appendix to
the Barents Group's comments.
b. The Barents Groups's miscalculations. To evaluate these results,
FDA carefully reviewed the A. T. Kearney survey data and the Barents
Group's extrapolation procedures and attempted to replicate the
aggregate estimates. In doing so, numerous computational discrepancies
were identified. For example, in calculating retailer time costs, the
Barents Group intended to use an estimated retail employee wage of
$9.51, but in fact used the estimated wage for a manufacturer's sales
representative of $25.70. (See Appendix Table ``Initial Compliance
Effort Costs per Retail Store.'') Also, the Barents Group's
calculations relied on incorrectly transposed data for the average
number of disposable displays per store and miscalculated compliance
effort costs for five of the seven types of business. Further, A. T.
Kearney reported that only one-third of the lighted signs and clocks
would need to be replaced by retailers, but the Barents Group's
calculations assumed that all would be replaced. Finally, A. T. Kearney
reported that retailers would not replace most promotional posters,
signs and displays, but the Barents Group's calculations assigned each
$85 in replacement costs. Correcting these errors reduces the Barents
Group's low and high cost estimates by $77 and $108 million,
respectively.
Even more important, in aggregating the unit costs for ``Compliance
Activity No. 19--Remove and replace interior newsstands and shopping
basket racks and baskets and shopping carts,'' A. T. Kearney committed
a major error that dominates the aggregated cost totals. In discussing
the costs for this item, A. T. Kearney focused on the need to replace
shopping basket racks, which ``* * * are free-standing units and
contain about 20 shopping baskets, that also contain the name or logo
of the cigarette manufacturer.'' Although it seems probable that the
logos or brand names affixed to these items could be either removed or
obscured, the survey data indicate that six supermarket/grocery stores,
three convenience stores, two tobacco stores and one convenience store
with gas would replace shopping basket racks. The detailed survey data
for supermarket/grocery stores, however, reveal that one store
supposedly possessed 71 racks, two stores 50 racks, and the remaining
three stores 41, 32, and 10 racks, respectively. Even a casual review
of these data suggests that individual hand-held shopping baskets
rather than basket racks were counted. Indeed, an FDA contractor
visited the five Washington, DC area outlets in which A. T. Kearney
observed the largest number of racks and found scores of plastic hand-
held baskets adorned with simple advertising stickers, but only a few
basket racks. \314\
---------------------------------------------------------------------------

\314\ Buck, E., ``Site Visit Report,'' April 24, 1996.
---------------------------------------------------------------------------

Although the advertising on these plastic baskets could easily be
removed or covered, or new plastic baskets purchased quite
inexpensively, the Barents Group's calculations inadvertently assumed
that a distribution services contractor would be hired to remove each
plastic hand-held shopping basket at a fee of $45 apiece and that a
retailer would spend 30 minutes plus an additional $89 replacement fee
for each plastic hand-held shopping basket in its possession. Thus, the
estimated cost attributed to each hand-held basket was $138 and the
cost for just the one outlet reporting 71 shopping baskets totaled
$9,850. Extrapolating to each outlet category, the A. T. Kearney
results implied that removing and replacing plastic hand-held baskets
would cost, on average, over $1,300 for each supermarket/grocery store
and $300 for each convenience store in the United States. Its projected
costs for removing and replacing the hand-held shopping baskets in all
supermarket/grocery stores in the United States ranged from $163
million to $229 million. For all outlet types, costs for these hand-
held baskets were estimated at $194 to $271 million, or 43 percent of
the national point-of-sale costs estimated by the Barents Group.
Based on site visits, FDA modified Kearney's field data for the
correct number of shopping basket racks in the Washington, DC area
establishments. Furthermore, FDA contractors determined that the hand-
held shopping baskets could easily be modified by a marketing
representative, who would take, at most, 5 minutes to affix new
stickers on each basket or rack. For a rack of 20 baskets, this task
was estimated to take a total of 105 minutes, plus about $42 for
stickers. These adjustments reduce the Barents Group's estimated one-
time costs by $180 to $252 million.

[[Page 44581]]

c. The Barents Group's extrapolation procedure. The Barents Group
contributed still another bias by their method of extrapolating these
survey results to the assumed range of 500,000 to 700,000 retail
establishments. A. T. Kearney surveyed stores in only seven business
categories: General Merchandise, Supermarket/Grocery, Tobacco
Specialty, Convenience Store without Gas, Convenience Store with Gas,
Service Station, and Drug Store. To represent all affected outlets, the
Barents Group apportioned the full upper and lower bounds for their
estimated number of establishments (500,000 and 700,000) among 10
business categories ``based on the fractions they represent in the
Census sample of with-payroll retail stores selling tobacco products.''
(Eating Places, Drinking Places, and Miscellaneous Retailers were added
for this outlet allocation, but were assigned no costs because they are
not ``* * * the types of retail outlets where the vast majority (more
than 90 percent) of tobacco product sales occur and where promotional
items are most prevalent.'' That is, the Barents Group used a
proportional adjustment to raise each establishment category count so
that the lower and upper bound totals sum to 500,000 and 700,000,
respectively. The estimated number of establishments in each category
was then multiplied by the average cost for each business category
using data from the A. T. Kearney site visits.
The implications of these inappropriate establishment number
extrapolations are considerable. For example, A. T. Kearney surveyed a
sample of 10 outlets from its first business category--General
Merchandise Stores. These 10 outlets, which include three K-Mart and
two Wal-Mart stores, averaged over 84,000 square feet of space, with
the smallest store measuring 40,000 square feet. The U.S. Census
reports only 12,117 such establishments with payroll. The Barents
Group's proportional adjustment automatically expanded this outlet type
count to between 21,299 and 29,818. (See Barents Group's Appendix
Table.) Thus, to generate a national estimate of costs, the Barents
Group applied the cost per establishment for its sample of very large
general merchandise stores to roughly double the number reported in the
U.S. Census for such establishments with payroll. This methodology
inappropriately bases the per outlet cost for thousands of small
nonpayroll and nonretail outlets on the per outlet cost reported for
very large general merchandise stores.
The identical problem holds for the Barents Group's projection of
the A. T. Kearney survey sample of 27 Supermarket/Grocery stores.
Although this sample includes a few moderately sized establishments (1
less than 1,000 square feet and 4 less than 5,000 square feet), 21 of
the establishments exceed 10,000 square feet and the average sized
facility is almost 35,000 square feet. Nevertheless, the Barents
Group's apportionment procedure inflates the number of establishments
in this category from the U.S. Census estimate of 71,240 with payroll
to 125,222 and 175,311, on the dubious assumption that thousands of
small nonpayroll or other nonretail establishments are best represented
by the A. T. Kearney sample of mostly large supermarkets/grocery
stores.
FDA's fundamental concern is not with the Barents Group's estimate
of 500,000 to 700,000 affected establishments (although the upper bound
of this estimate should be 600,000, because there would be no display
relocation costs for the additional 100,000 outlets assumed to be
established at existing vending machine locations), but with the
allocation of the small establishments among the largest business
categories surveyed by A. T. Kearney. To offset this bias, FDA
reallocated the number of establishments in the business categories
used to extrapolate the outlet cost estimates. As shown, in Table 5,
FDA takes the number of establishments in the first two business
categories--General Merchandise and Supermarket/Grocery stores--
directly from the U.S. Census number of establishments with payroll,
because there would be very few nonpayroll or nonretail establishments
equivalent to those surveyed. For outlet extrapolation purposes, FDA
assigns its estimated number of nonpayroll establishments in these two
business categories to the Convenience Store category, on the
assumption that this category is most representative of the small
establishments excluded from the Census product line data. Although the
Barents Group omitted all costs for Eating Places, Drinking Places, and
Miscellaneous Retail Stores, FDA groups these outlets under Other
Establishments and assumes certain minimal costs, as explained below.
This redistribution of the establishment category groupings reduces the
Barents Group's low cost estimate by $65 million and its high cost
estimate by $170 million.

TABLE 5.--ESTIMATED NUMBER OF ESTABLISHMENTS REMOVING SELF-SERVICE AND OTHER PROHIBITED RETAIL DISPLAYS
----------------------------------------------------------------------------------------------------------------
Number of Retail Estimated Number of Estimated Total Number
Establishments with Retail Establishments of Establishments
Kind of Business Payroll Selling Tobacco without Payroll Selling Selling Tobacco
Products Over-the- Tobacco Products Over- Products Over-the-
Counter the-Counter Counter
----------------------------------------------------------------------------------------------------------------
A. T. Kearney Categories:
General Merchandise 12,117 - ^{(A) 12,117
Supermarket/Grocery 71,240 - ^{(B) 71,240
Convenience Stores 29,400 64,345 ^{(C) 93,745
Convenience Stores with Gas 51,913 - ^{(D) 51,913
Service Stations 37,958 7,581 45,539
Drug Stores 29,046 1,829 30,875
Tobacco Stores 1,477 - ^{(E) 1,477
Other Establishments - - 201,012 ^{(F)
----------------------------------------------------------------------------------------------------------------
Total 233,151 73,755 507,918
----------------------------------------------------------------------------------------------------------------
(A) Variety and miscellaneous general merchandise stores are tallied as convenience stores.
(B) Food stores are tallied as convenience stores.

[[Page 44582]]

(C) This category includes food, variety, and miscellaneous general merchandise stores. The 1992 Nonemployer
Statistics Series does not provide information about convenience stores without payroll.
(D) The 1992 Nonemployer Statistics Series does not provide information about establishments without payroll for
this category.
(E) The 1992 Nonemployer Statistics Series does not provide information about establishments without payroll for
this category.
(F) Includes retail establishments excluded from the Kearney field audit and other establishments selling
tobacco products over-the-counter.

d. Further modifications. The Barents Group faulted FDA for not
including costs for the removal of banned display items or for the
replacement of banned point-of-sale promotional materials. Their
estimates assumed that manufacturers alone would bear these costs,
since the proposed regulation required that manufacturers remove all
prohibited advertising displays. The final regulation, however, places
this responsibility on the owners of the displays, which may frequently
be the retail establishments. FDA cannot forecast the ultimate
distribution of display ownership, but in view of current business
practices, assumes that the manufacturer representatives will at least
participate in the removal process. Nevertheless, this change in
regulatory responsibility is likely to shift a greater share of the
cost burden to retailers.
On the other hand, the Barents Group assumed that retailers alone
would replace those promotional items having a utilitarian function,
including display cases, signs, shopping carts or baskets, newspaper
racks, ash trays, and clocks. FDA believes that this assumption is
unfounded, because many retailers will modify rather than replace these
items and many manufacturers will share the replacement burden with
retailers. For example, one report describing the results of a local
self-service ban indicated that, ``tobacco distributors and tobacco
company sales representatives furnished behind-the-counter shelving and
locking cases for tobacco products to retailers at no charge in order
to assist retailers comply with self-service/vendor-assisted
regulations.'' \315\ Again, however, the future allocation of these
costs among manufacturers and retailers is unknown. For its initial
estimates, except as explained below, FDA maintains the Barents Group's
assumptions that removal costs are primarily borne by the manufacturer
and replacement costs by the retailer. In fact, both cost categories
will be shared and the implications of these assumptions are
illustrated below through sensitivity analysis.
---------------------------------------------------------------------------

\315\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring only Vendor-Assisted Tobacco
Sales,'' North Bay Health Resources Center, Stop Tobacco Access for
Minors Project (STAMP), Petaluma, CA, p. 5, November 3, 1994.
---------------------------------------------------------------------------

In February 1996, economic consultants to FDA attempted to
replicate the A. T. Kearney field audit in Boston (the Eastern Research
Group, Inc. (ERG),) \316\ and in Washington, DC (an independent
contractor). While most observations of the number of affected display
cases were reasonably consistent with the A. T. Kearney findings, the
observed number of exterior and interior promotional materials deviated
significantly from the A. T. Kearney audit data. One explanation may be
that the seasonal items available at the end of November had been
removed by the following February. As a result, FDA has not adjusted
its calculations to account for these discrepancies (except for the
cost of basket racks in the Washington, DC stores), but used certain
insights from these visits to revise the Barents Group's unit cost
assumptions, as follows:
---------------------------------------------------------------------------

\316\ ``ERG's Review of Docket Materials Concerning FDA's
Proposed Regulations Covering Tobacco Products: Final Site Visit
Report,'' Eastern Research Group, April 22, 1996.
---------------------------------------------------------------------------

(i) The agency rejects the Barents Group's assumption that
retailers rather than manufacturers will bear the costs of replacing
promotional unattached counter displays. Because many of these items
will be moved to visible locations behind counters, it is far more
likely that manufacturers, not retailers, would pay for replacements.
For its revised estimate, therefore, FDA assumes that manufacturers
will pay replacement costs for unattached counter displays. Although
total costs are unchanged, this assumption increases the costs for
manufacturers by $17 million and decreases the costs for retailers by
an equal amount.
(ii) A. T. Kearney and the Barents Group contradict themselves on
the cost of removing disposable display cases. A. T. Kearney describes
these units as temporary displays ``frequently found in association
with promotional offerings, sales, or seasonal themes,'' but assumes
that retailers will replace them with permanent self-standing retail
pack cases at $250 each. In contrast, the Barents Group calculations
imply that a distribution services company will remove each display for
a fee of $150 and retailers will replace each item for $50. FDA agrees
with the Barents Group that retailers will not replace temporary units
with permanent retail pack cases. Moreover, if a marketing
representative can throw away free-standing ash trays filled with sand,
as noted by A. T. Kearney, then a marketing representative can also
dismantle and throw away disposable displays made of cardboard and
plastic. FDA estimates, therefore, that instead of hiring a
distribution services company, the manufacturer's representative will
take no more than 15 minutes to remove each disposable unit, install a
new unattached counter display and restock any excess inventory in a
nonself-service area. This assumption decreases the estimated one-time
costs by $7 million.
(iii) The A. T. Kearney cost-estimating methodology for the self-
service ban implies that store modifications take place in a sequential
pattern, with no allowances for economies of scale. For example, the
outlet cost for hiring a distribution services contractor to relocate
or replace display cases was calculated as a fixed multiple of the
number of cases to be removed, even though many establishments must
remove several display cases. This approach overstates costs by
ignoring the significant scale economies achievable by performing all
compliance activities at one time. Thus, FDA modified A. T. Kearney's
distribution services costs for the removal, relocation and
installation of small attached, retail pack, and carton self-service
display cases by assuming that the first display unit in an outlet
would be removed at a unit charge of $90, $150, or $185, respectively,
but that each additional unit would be removed at one-half of these
costs. For those stores with different sizes of display cases, the
first unit was assumed to be the most expensive to remove (e.g., a
carton display would be considered the first item when there is also a
retail pack display or a small attached display). Adjusting for these
scale economies reduces the estimated total costs by $15 million.
(iv) A. T. Kearney assumed that many promotional items, such as
signs and clocks, would be removed by a distribution services company
hired by the manufacturer. FDA's consultants, however, found that
almost all of the promotional material observed could be easily removed
or modified by retail personnel or marketing representatives.

[[Page 44583]]

For example, rather than needing a contractor to remove the lighted
sign in one of the sampled outlets, ERG found that the front panel was
easily removable and could be quickly replaced by an acceptable panel.
Although a few signs may require substantial time to dismantle, most of
these items will take just a few minutes to remove. To account for this
range, FDA assumes that a manufacturer's representative will take 15
minutes to remove and dispose of the various exterior signs, banners,
clocks and news stand displays, as well as the interior lighted signs
and clocks, lowering total costs by $27 million.
(v) A. T. Kearney assumed that many display cases located in
nonself-service areas would be removed and replaced, because of
improper advertising. They assumed that the manufacturer would pay for
the removal of the old case and the installation of the new case, but
that the retailer would purchase the new display case. Contrary to this
finding, FDA consultants found no sites in the Boston or Washington, DC
regions where it was necessary to replace nonself-service displays.
Because in each instance, all visible advertising could be altered or
obscured, retailers would almost always opt to cover impermissible
advertising rather than to purchase new display cases costing up to
$300. Accordingly, FDA estimated that it would take 15 minutes and $5
worth of stickers to cover each small attached display; 25 minutes and
$10 worth of stickers to cover each retail pack display; and 35 minutes
and $15 worth of stickers to cover each carton display. This
modification decreases total costs by $20 million.
(vi) Even though the A. T. Kearney audit identified a number of
self-service display cases that did not fit in the nonself-service area
but could be retrofitted with locks, the Barents Group did not include
cost estimates for these items. FDA estimates that it would take 30
minutes of retailer time and cost about $10 for materials to add a lock
to these display cases, increasing the total one-time costs by $1.5
million.
(vii) In its analysis of the 1995 proposed regulation, FDA
acknowledged that the required reconfiguration of tobacco displays may
also impose added labor costs for some purchase transactions,
especially for those stores that move inventory to areas located away
from employee work stations. On the assumption that the ban on self-
service tobacco displays would require 10 seconds of additional labor
time for 75 percent of all retail transactions involving cartons, FDA
had estimated costs of about $14 million per year. Although a few
comments indicated that the self-service ban would increase labor
costs, the Barents Group did not include such costs in its assessment.
Nevertheless, FDA believes that some establishments, particularly those
selling a substantial number of cigarette cartons that could not be
stored within easy reach of a checkout station, could experience
increased annual labor costs. Thus, FDA recalculated its estimate based
on the updated retail employee compensation rate of $9.51 suggested by
the Barents Group and the new site visit data from the A. T. Kearney
study, which imply that only about 40 percent of cigarette cartons are
purchased at establishments that sell cigarette cartons from self-
service areas. These adjustments project additional annual labor costs
of about $10.9 million per year. \317\
---------------------------------------------------------------------------

\317\ Derived from assumption that 10 percent of carton
transactions are for multiple (2) cartons, and that cartons
constitute 85 percent of tobacco sales at supermarket/grocery
stores, general merchandise stores, drug stores, and tobacco stores,
and 10 percent of tobacco sales at other outlets. Tobacco sales data
from 1992 Census of Retail Trade, pp. 3-31. Kearney site visits
found that 80 percent of general merchandise stores, 33 percent of
supermarket/grocery stores, 25 percent of convenience stores, 17
percent of service stations, 30 percent of drug stores, 42 percent
of tobacco stores had self-service carton display cases.
---------------------------------------------------------------------------

Except for those adjustments, FDA used the information found in the
A. T. Kearney field audit to develop its revised estimate. For
comparison, the original Barents Group estimates of the number of
establishments and one-time point-of-sale costs (corrected for
miscalculations as described above) are shown in Table 6 and FDA
estimates of one-time costs in Table 7. Detailed summaries of the FDA
one-time cost estimates are presented in Table 8 and Table 9 and
indicate that costs related to self-service display cases comprise 73
percent of the total, followed by 18 percent for promotional materials
and 9 percent for nonself-service display cases. As explained above,
these estimates assume that manufacturers will bear the cost of
removing all promotional items and retailers will bear the cost of
replacing most functional items. Because the regulation places the
removal responsibility on owners of the materials, FDA does not know
how these obligations will be divided. However, if retail outlets,
rather than manufacturers, must remove these items, the overall cost to
manufacturers falls by about $47 million and the cost to retailers
increases by about $17 million. (Retail compensation rates are about
one-third of manufacturer rates, according to the Barents Group data).
The following discussion describes specific compliance costs for each
outlet category.

BILLING CODE 4160-01-F

[[Page 44584]]

TABLE 6.--BARENTS GROUP LLC ESTIMATE OF ONE-TIME POINT-OF-SALE REGULATORY COSTS ^{1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Number of Estimated Point-of-Sale Costs (Lower) Estimated Point-of-Sale Costs (Upper)
Establishments Average Cost -----------------------------------------------------------------------------------
Kind of Business ---------------------------- per Facility Retail Costs Manufacturer Total Costs Retail Costs Manufacturer Total Costs
Lower Upper ($) ($) Costs ($) ($) ($) Costs ($) ($)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
General Merchandise 21,299 29,818 1,067 13,268,172 9,449,404 22,717,576 18,575,066 13,228,900 31,803,966
Supermarket/Grocery 125,222 175,311 2,356 182,028,407 112,960,223 294,988,630 254,840,061 158,144,493 412,984,554
Convenience Stores 51,678 72,349 925 24,408,368 23,382,610 47,790,978 34,171,621 32,735,564 66,907,185
Convenience Stores with Gas 91,250 127,750 515 21,656,668 25,294,382 46,951,050 30,319,336 35,412,134 65,731,470
Service Stations 66,721 93,409 217 4,894,902 9,616,053 14,510,955 6,852,833 13,462,416 20,315,250
Drug Stores 51,056 71,478 167 4,472,540 4,054,323 8,526,863 6,261,520 5,676,020 11,937,541
Tobacco Stores 2,596 3,635 2,940 4,486,055 3,147,456 7,633,511 6,281,514 4,407,166 10,688,680
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total 409,822 573,750 255,215,112 187,904,451 443,119,563 357,301,952 263,066,694 620,368,645
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Totals may not add due to rounding.

TABLE 7.--FDA ESTIMATE OF ONE-TIME POINT-OF-SALE REGULATORY COSTS
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Point-of-Sale Costs^{2
Kind of Business Estimated Number of Average Cost Per -----------------------------------------------------------------------
Establishments^{1 Facility ($) Retail Costs ($) Manufacturer Costs ($) Total Costs ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
General Merchandise 12,117 919 7,874,058 3,263,894 11,137,952
Supermarket/Grocery 71,240 810 32,655,560 25,067,316 57,722,876
Convenience Stores 93,745 364 12,271,061 21,879,370 34,150,431
Convenience Stores with Gas 51,913 213 1,397,066 9,644,359 11,041,425
Service Stations 45,539 122 2,560,164 2,974,000 5,534,164
Drug Stores 30,875 160 2,978,007 1,966,563 4,944,570
Tobacco Stores 1,477 2,175 2,165,591 1,046,163 3,211,753
Other Establishments 210,012 19 522,765 3,384,741 3,907,506
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total 507,918 62,424,273 69,226,404 131,650,677
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Number of establishments from Table 5.
\2\ Totals may not add due to rounding.

[[Page 44585]]

[GRAPHIC] [TIFF OMITTED] TR28AU96.001

[[Page 44586]]

[GRAPHIC] [TIFF OMITTED] TR28AU96.002

[[Page 44587]]

[GRAPHIC] [TIFF OMITTED] TR28AU96.003

[[Page 44588]]

[GRAPHIC] [TIFF OMITTED] TR28AU96.004

BILLING CODE 4160-01-C

[[Page 44589]]

e. General merchandise stores. None of the general merchandise
stores in the A. T. Kearney sample had exterior promotional materials
and only a few had interior promotional materials. Eighty percent of
the stores had only self-service displays, with carton displays more
numerous than pack displays at these locations. The average per
facility one-time costs estimated by FDA were $919. Overall, 97 percent
of the outlet costs related to the replacement of self-service display
cases, although in some general merchandise stores, tobacco products
were stocked on shelves rather than in special display cases, which
suggests that the costs for this business category may be overstated.
f. Supermarket/grocery. Unlike general merchandise stores,
supermarkets had significant promotional materials. While both packs
and cartons were sold at most locations, over 75 percent of the stores
already had nonself-service display areas. FDA estimates per facility
costs at $810. Self-service display case removal and replacement amount
to 85 percent of the total cost, whereas promotional materials account
for 14 percent. Commenting on the feasibility of the proposed FDA self-
service ban, the Food Marketing Institute argued that most retail food
stores do not have adequate space at checkout lines for tobacco
products and rejected the practicability of alternative procedures.
They suggested that the only option available to many food retailers
would be to remodel and set-up a controlled area for the sale of
tobacco products, costing up to $50,000 per store. The A. T. Kearney
audit, however, found that a majority of supermarket/grocery stores
have already installed nonself-service areas for tobacco products and
would not need to reconfigure their stores. While some establishments
will incur costs above the average, the A. T. Kearney site visit data
suggest that most stores could comply by either moving inventory to
nonself-service areas or by purchasing new displays that are compatible
with existing store configurations.
g. Convenience stores. Stores in this category exhibited numerous
interior and exterior promotional items. All of the convenience stores
surveyed had nonself-service display cases and 50 percent had carton
displays. FDA estimates per facility costs of $364. Costs for removing
and replacing self-service display cases made up 59 percent of the
total, while costs for promotional materials and nonself-service
display cases were 28 percent and 14 percent, respectively.
The National Association of Convenience Stores (NACS) faulted FDA
on its assumption that the main cost of the self-service ban would be
to relocate tobacco product inventory, contending that their members
would incur thousands of dollars in reconfiguration costs. According to
NACS:
[i]t is largely irrelevant that retailers already keep packs
behind the counter. Many NACS members keep large quantities of packs
and cartons in self-service displays and would have to reconfigure
their stores to comply with the ban on self-service sales.
Based on an estimate from one member with a high volume of self-service
cigarette sales, NACS suggested it could cost $4,320 and $10,120,
respectively, to reconfigure a newer and older convenience store.
Based on other evidence, however, FDA does not believe that a large
number of stores will be forced to undergo extensive modifications and
finds that most convenience stores can adequately adapt space either
behind or above checkout counters. As noted earlier, one regional
survey reported that retail outlets readily complied with local self-
service restrictions without architectural remodeling or substantial
refitting of checkout counters or store aisles. \318\ Space above
counters is typically available for display cases either by suspending
a case from the ceiling or by supporting a case on beams from the
counter. In its survey, A. T. Kearney found at least some tobacco
products sold from nonself-service space in every convenience store.
Although it is possible that stores might incur added inventory
handling costs if this space were smaller than optimal, FDA concludes
that major reconfiguration would rarely be required and relies on the
A. T. Kearney survey data, as adjusted, to project average costs for
this sector.
---------------------------------------------------------------------------

\318\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco
Sales,'' North Bay Health Resources Center, Stop Tobacco Access for
Minors Project (STAMP), Petaluma, CA, p. 5, November 3, 1994.
---------------------------------------------------------------------------

h. Convenience stores with gas. Like convenience stores without
gas, these establishments had numerous interior and exterior
promotional materials. About 89 percent of the stores surveyed had
nonself-service display cases. FDA estimates per facility costs of
$213. Consistent with the findings of the Barents Group, the average
outlet cost for this sector is about one-half that of convenience
stores without gas.
In comments to the 1995 proposed rule, the Society of Independent
Gasoline Marketers of America (SIGMA) did not present specific data on
the cost to their members, but indicated that many members would be
required to reconfigure their stores. They stated that:
[m]any SIGMA members keep large quantities of packs and cartons
in self-service displays and would have to reconfigure their stores
to comply with the ban on self-service sales. At a minimum, these
members would have to install new cabinets to accommodate tobacco
products behind the counter. Many members would have to enlarge the
counter area to make room for the new cabinets.
In contrast, the A. T. Kearney field audit found few convenience stores
with gas that have self-service displays, other than unattached
promotional counter displays. Costs to remove or replace promotional
counter displays will be borne primarily by manufacturers, not
retailers. In sum, the costs for self-service display cases amount to
about 31 percent of the total, promotional material 30 percent, and
nonself-service display cases 39 percent.
i. Service stations. These establishments had both interior and
exterior promotional material. Seventy-five percent of the locations
surveyed had only nonself-service display cases and one-fourth had
carton displays. FDA estimates the per facility cost at $122.
j. Drug stores. Drug store outlets had few exterior and interior
promotional materials. As in general merchandise stores, tobacco
products were stocked on shelves in some locations. Ninety percent of
the stores surveyed by A. T. Kearney already had nonself-service
displays and approximately 70 percent had carton displays. FDA
estimated $160 cost per facility for this category of business. About
93 percent of the total one-time costs are for replacement of self-
service display cases.
k. Tobacco stores. These stores had substantial promotional
materials and multiple display cases. FDA estimates per facility costs
of $2,175. About 94 percent of the costs are for self-service display
cases, with promotional materials and nonself-service display cases
dividing the remaining 6 percent. While not reflected in the cost
totals, these establishments may choose to operate as ``adult only''
restricted areas to avoid replacing self-service display cases.
l. Other establishments. This category includes eating/drinking
establishments and miscellaneous retail stores, which

[[Page 44590]]

were excluded from the A. T. Kearney audit, plus the estimated 100,000
nonretail establishments that sell tobacco products OTC, such as
hotels, factories and sporting facilities. Due to the low volume of
tobacco product sales at these establishments, FDA assumed that only a
small quantity of packs and no cartons would be sold. Lacking detailed
data, FDA assigned costs of $19 per outlet, based on the costs of
removing promotional materials and relocating and replacing small
attached display cases, as reported for drug stores.
3. Label Changes
The final regulation requires that the tobacco product package
contain the established name of the tobacco product in a specified
size. FDA estimated the compliance costs for printing new labels in its
earlier analysis of the proposed regulation and has received no
comments that improve those original estimates.
Approximately 933 varieties of cigarettes are currently produced in
the United States. \319\ FDA does not have information on the number of
smokeless tobacco varieties, but assumes that the total number of
cigarette and smokeless tobacco varieties is roughly 1,000. Because
most varieties of cigarettes are packaged in both single packs and
cartons, the total number of labels is assumed to number about 2,000.
---------------------------------------------------------------------------

\319\ ``Tar, Nicotine, and Carbon Monoxide of the Smoke of 933
Varieties of Domestic Cigarettes,'' Federal Trade Commission, 1994.
---------------------------------------------------------------------------

FDA used two approaches to estimate the cost to industry of
changing these labels. The first approach relied on information
compiled by The Research Triangle Institute (RTI) for its report to FDA
on the cost of changing food labels. \320\ RTI reported a cost of about
$700 for a 1-color change in a lithographic printing process. FDA
multiplied this figure by 4 to account for a 2-color change on the
actual warning labels and an additional 2 colors for modifications to
the existing label to make room for the warning label. This calculation
yielded incremental printing costs of about $2,800 per label, or $5.6
million for all 2,000 varieties of affected tobacco products. Adjusting
this figure downward by RTI's methodology to account for the current
frequency of label redesign predicts that the total one-time cost of
completing these label changes within a 1-year compliance period would
be approximately $4 million.
---------------------------------------------------------------------------

\320\ French, M. T., D. M. Neighbors, L. K. Carswell, K. B.
Heller, and G. L. McDougal, ``Compliance Costs of Food Labeling
Regulations,'' Final Report, RTI Project Number 233U-3972-02 DFR,
January 1991.
---------------------------------------------------------------------------

The second approach was to use cost information provided in the
regulatory impact analysis of a roughly comparable Canadian regulation.
\321\ The Canadian Government estimated a cost of $30 million to change
labels for about 300 cigarette varieties. Most Canadian cigarettes are
likewise sold in two sizes, but about 20 percent are also sold in flip
top packages. \322\ Canadian labels, however, are typically printed
using a gravure method; which, according to RTI, is about 3.5 times as
expensive as the lithography process used in the United States.
Adjusting the Canadian estimate upward, to account for the larger
number of cigarette and smokeless tobacco varieties in the United
States; and downward, for the smaller number of packages per variety
and the smaller cost of the lithography printing process, provides a
$17 million estimate for the total cost of these label changes.
---------------------------------------------------------------------------

\321\ Department of National Health and Welfare, ``Tobacco
Products Control Regulations, amendment,'' Canada Gazette, Part II,
vol. 127, No. 16, pp. 3277-3294, August 11, 1993.
\322\ Kaiserman, M., Department of National Health and Welfare,
Canadian Government, personal communication, February 1, 1995.
---------------------------------------------------------------------------

4. Educational Program
FDA may issue notification orders under section 518(a) of the
Federal Food, Drug, and Cosmetic Act (the act) (21 U.S.C.360h(a)) to
require manufacturers of cigarettes and smokeless tobacco products to
fund consumer educational programs. While the precise details of these
orders are still under development, these orders may involve the
achievement of specific performance objectives by directing
manufacturers to initiate informational programs designed to transmit
messages that will reach the majority of young people. The 1995
proposed regulation directed manufacturers to spend at least $150
million annually on this program. While industry comments were
critical, many other comments suggested that this figure was too low.
One comment noted that $150 million is equivalent to about one week of
pro-tobacco expenditures and another that the industry gained $221
million in profits from underage sales. Still another pointed out that
the current dollar value of the informational advertising that was
conducted under the Fairness Doctrine would amount to about $300
million per year. One study appears to indicate that 75 percent of
adolescents aged 12 to 17 could have been reached in 1985 to 1986 with
multiple messages at a cost of about $17 million a year. \323\ FDA is
still evaluating various types of informational programs, with respect
to both effectiveness and practicality. Before a final decision is
reached, the agency will determine the costs of selected alternatives.
---------------------------------------------------------------------------

\323\ Bauman, K. E., J. D. Brown, E. S. Bryan, L. A. Fisher, C.
A. Padgett, and J. M. Sweeney, ``Three Mass Media Campaigns to
Prevent Adolescent Cigarette Smoking,'' Preventive Medicine, vol.
17, pp. 510-530, 1988.
---------------------------------------------------------------------------

5. Restricted Advertising and Promotional Activities
a. Tobacco industry. The determination of the societal costs
attributable to the restrictions on tobacco product advertising and
promotion is complex. While there is no doubt that individual
manufacturers realize enhanced goodwill asset values from advertising
programs, the industry has long held that advertising prompts brand-
switching, but does not increase aggregate sales. Of course, if this
were true, advertising would be unprofitable from the standpoint of the
industry as a whole and reduced levels would increase rather than
decrease aggregate industry profits. In addition, if the primary
motivation for tobacco advertising is to promote brand-switching, then,
as long as all firms are equally restricted from advertising, the above
mentioned loss in goodwill value will be substantially reduced.
In its comments, the tobacco industry claimed that tobacco
advertising and promotion have virtually no effect on youth
consumption. Although FDA does not accept this claim, the agency does
not consider the expected voluntary reduction in the consumption of
tobacco products to be a societal cost. Although industry sales will
fall, they will reflect new consumer preferences and consumer dollars
no longer used on tobacco products will be redirected to other more
highly valued areas. Thus, for the most part, the resulting reduction
in industry sales are not net costs and the potential magnitude of this
revenue transfer is discussed below under the heading of Distributional
Effects. Moreover, as shown in that discussion, any short-term
frictional or relocation impacts will be significantly moderated by the
gradual phase-in of the economic effects.
b. Advertising industries. In its original analysis, FDA argued
that advertising and promotional restrictions will impose no long term
net costs on society. The Barents Group's study found that the various
suppliers of

[[Page 44591]]

industry advertising will incur substantial regulatory costs. It
estimated that illustrative annual costs for this sector could reach
$722 million to $2.17 billion, or up to one-half of its estimate of the
total costs of the FDA proposal.
Upon review, FDA remains firmly convinced that its original
position was correct. That is, from the standpoint of assessing
societal costs and benefits, reduced revenues from tobacco advertising
and promotional activities are not net costs and are appropriately
considered a distributional impact. Indeed, FDA believes that a strong
argument can be made that, even irrespective of health benefits, these
advertising restrictions will decrease net societal costs by freeing
productive resources for alternative uses. This does not imply that no
individual business entities will be negatively impacted. Many of the
companies that currently benefit from tobacco promotions (e.g.,
advertising agencies, publishers, sporting event promoters) will suffer
lost revenues and those firms that specialize in those activities may
lose a substantial part of their business. Nevertheless, from a
societal perspective, these losses will be counterbalanced by an
increase in demand for other consumption and investment goods, so that
nontobacco-related entities will gain sales. Although overlooked in
most industry comments, this result is acknowledged within the comments
submitted for the Tobacco Institute by the Barents Group:
A key assumption in the simulations is that, when tobacco
product manufacturers decrease their advertising expenditures, the
money not spent translates into increased profits for the industry.
The increased profits ultimately end up in the hands of the
companies' owners (shareholders) either as direct payouts or as
investments on their behalf in other lines of business. In general,
these profits are ultimately recycled into increased consumption and
investment by the owners of the companies.
That report also reveals the underlying distributional nature of the
impacts by explaining that its modeling incorporates the assumption
that:
* * * in the long run economic losses in one sector of the
economy will be redistributed to other sectors of the economy, i.e.,
winners and losers will generally balance out for the economy as a
whole.
Further discussion of the impact of these revenue transfers is included
below under the section on ``Distributional Effects.''
c. Retail sector. In addition to the previously estimated direct
costs associated with the removal of prohibited point-of-purchase
advertising, promotional restrictions will impact the retail sector
because they will lead to a long-term decline in tobacco products sales
and a potential fall in promotional allowances (slotting fees) from
manufacturers. Once again, these impacts are not net societal costs,
since reduced tobacco product sales will be counterbalanced by
increased sales for other products or services; and smaller promotional
allowances, if they occur, are gains to tobacco manufacturers that
would be used for other purchases. Consequently, these impacts also are
examined below under ``Distributional Effects.''
d. Consumers. Advertising restrictions may impose costs on society
if they disrupt the dissemination of relevant information to consumers.
Firms engage in advertising to inform potential customers about their
product (informative advertising) or to persuade customers that a
product is desirable (persuasive advertising). According to the FTC's
Bureau of Economics, the benefits of advertising derive from:
* * * its role in increasing the flow and reducing the cost of
information to consumers * * * First, advertising provides
information about product characteristics that enables consumers to
make better choices among available goods * * * Second, theoretical
arguments and empirical studies indicate that advertising increases
new entry and price competition and hence reduces market power and
prices in at least some industries * * *. Third, advertising
facilitates the development of brand reputations. A reputation, in
turn, gives a firm an incentive to provide products that are of
consistently high quality, that live up to claims that are made for
them, and that satisfy consumers. \324\
---------------------------------------------------------------------------

\324\ Recommendations of the Staff of the Federal Trade
Commission, ``Omnibus Petition for Regulation of Unfair and
Deceptive Alcoholic Beverage Advertising and Marketing Practices,''
Appendix A, pp. 3-4, March 1985.
---------------------------------------------------------------------------

FDA has considered each of these issues. First, while agreeing that
many forms of advertising offer substantial benefits to consumers, the
agency nevertheless believes that consumers will lose little utility
from these particular advertising restrictions. The regulation does not
prohibit factual, written advertising. Thus, the rule will not impede
the dissemination of important information to most consumers. In its
preliminary analysis, the agency concluded that, ``[w]hile imagery and
promotional activities may be important determinants of consumer
perceptions and sales, they typically provide little meaningful
information on essential distinctions among competing tobacco
products'' (60 FR 41314 at 41368).
One industry comment strongly opposed this position, arguing that
advertising is important for product improvement and that past
restrictions on the advertising of ``low tar'' products retarded
product innovation. The crux of the argument is that color and/or
imagery are prerequisites for disseminating relevant quality
information and that, in its absence, consumers could not be adequately
informed about the merits of new products. FDA, however, is not
persuaded that manufacturers will be unable to convey vital
information. The agency finds that true product improvements in this
industry are rare, but where they exist, manufacturers could rely on
traditional ads in adult-oriented publications and on ``text only''
advertising elsewhere. Moreover, FDA and other public health agencies
would likely coordinate with companies in disseminating truly important
consumer safety information.
The implications of FTC's second point, which addresses the effect
of advertising restrictions on market power and prices, are less
certain, as various empirical studies have reached conflicting
conclusions. One industry comment insisted that FDA's regulation will
deprive consumers of the benefits of competition, stating that,
``[u]ndoubtedly the clearest measure of consumer benefit is the effect
of advertising on price.'' To support this view, the comment references
several studies that demonstrate the ability of advertising to reduce
product prices. The comment also contended that the ``[e]limination of
advertising will predictably consolidate the market as marginal brands
are abandoned and fewer brands are introduced'' and that, ``[o]ver time
this can also reduce the number of players, as companies with dominant
brands drive out others.''
FDA agrees that advertising can often lead to decreased product
prices, but notes that the other industries referenced (e.g.,
eyeglasses and pharmaceuticals) are much more competitive than tobacco
products. Moreover, economists have found that advertising can also
serve as a barrier to entry in oligopolistic industries. One author,
for example, determined that ready-to-eat breakfast foods companies
used advertising programs to support brand proliferation strategies in
order to dominate retail shelf space. \325\ These programs helped to
keep new firms out and prices high without necessarily

[[Page 44592]]

embodying improved quality. Thus, in certain circumstances,
oligopolistic firms can use extensive advertising to create barriers
for suppressing innovation and competition. FDA cannot determine
whether tobacco advertising restrictions would ultimately increase or
decrease product prices.
---------------------------------------------------------------------------

\325\ Sutton, J., ``Sunk Costs and Market Structure,'' The MIT
Press, Cambridge, Massachusetts, pp. 229-247, 1991.
---------------------------------------------------------------------------

Finally, FTC's third point, which emphasizes the positive aspects
of advertising in supporting brand reputations, is more relevant for
long-lived items, such as consumer durables, where purchases are
infrequent or personal experience is inadequate. Advertising is less
likely to play a key role in assuring high quality levels for tobacco
products, where consumer search costs are low and a brand's reputation
for quality is tested by consumers every day. For these products, high
quality will remain a prerequisite of commercial success irrespective
of advertising strategies.
Other analysts suggest still other potential attributes of product
advertising. For example, according to F. M. Scherer, author of a
widely read text on industrial organization:
Advertising is art, and some of it is good art, with cultural or
entertainment value in its own right. In addition, it can be argued
that consumers derive pleasure from the image advertising imparts to
products, above and beyond the satisfaction flowing in some organic
sense from the physical attributes of the products. There is no
simple case in logic for distinguishing between the utility people
obtain from what they think they are getting and what they actually
receive. As Galbraith observed, ``The New York housewife who was
forced to do without Macy's advertising would have a sense of loss
second only to that from doing without Macy's.'' \326\
---------------------------------------------------------------------------

\326\ Scherer, F. M., Industrial Market Structure and Economic
Performance, 2nd edition, Rand McNally College Publishing Co.,
Chicago, IL, p. 380, 1980.
---------------------------------------------------------------------------

Similarly, Becker and Murphy have argued that advertisements should
be considered ``goods'' if people are willing to pay for them and as
``bads'' if people must be paid to accept them. \327\ They explain
that, in general, the more easily the advertisements can be ignored,
the more likely it is that the ads themselves provide utility to
consumers. Newspaper and magazine advertisements, for example, must
provide positive consumer utility or they would be ignored by readers.
This final rule allows such advertisements to continue, some in their
current form, others in a text-only format. (In fact, industry outlays
for newspaper and magazine advertisements have dropped sharply in
recent years and currently constitute less than 5 percent of the
industry's total advertising and promotion budget). \328\ Conversely,
the extraordinary growth in industry advertising and promotion has
occurred in areas that are typically bundled with other products, or
placed in prominent public settings that are difficult to ignore. Thus,
there is considerable question about the contribution of these programs
to consumer utility.
---------------------------------------------------------------------------

\327\ Becker, G. S., and K. M. Murphy, ``A Simple Theory of
Advertising as a Good or Bad,'' Quarterly Journal of Economics, vol.
108, p. 941, November 1993.
\328\ Federal Trade Commission Report to Congress for 1993:
Pursuant to the Federal Cigarette Labeling and Advertising Act,
issued 1995.
---------------------------------------------------------------------------

6. Training
a. Retailers. The final regulation does not explicitly require
retail employees who sell tobacco products to be trained in checking
customer I.D.'s. FDA understands, however, that some training is
essential to effective performance. In its analysis of the proposed
regulation, FDA estimated total annual costs of $10 million for
employee training at retail outlets. This estimate assumed that an
average of 12 employees per store at 467,000 retail stores (assuming 1/
3 of 700,000 stores already conducted training) would receive 15
minutes of training at a compensation rate of $7.41/hour. The Barents
Group commented that FDA's analysis did not account for many individual
cost elements, resulting in a significant underestimate of total
training costs. It estimated one-time training costs of $184 to $257
million and recurring annual training costs of $48 to $67 million.
Specifically, the Barents Group stated that FDA relied on outdated
compensation data. FDA had obtained these data from a 1992 report
prepared by Price Waterhouse for the Tobacco Institute, but agrees that
more recent data are available and employs the suggested compensation
rate of $9.51 for its revised estimate. The Barents Group also claimed
that FDA failed to consider recurring training costs due to annual
employee turnover and annual updating, focusing instead on one-time
training costs only. This criticism is not valid. Table 2 of the
original analysis (60 FR 41314 at 41360) clearly lists training costs
for retail establishments as an annual operating cost and the text (60
FR 41314 at 41367) refers to a ``per year'' cost. Because employees
would be trained when first hired, this estimate implied a 100 percent
employee turnover rate.
To refine its analysis, however, FDA has disaggregated the cost
elements. Although the Barents Group accepted FDA's preliminary
estimate of 12 employees per retail store, FDA now believes that this
figure is accurate only for retail stores with payroll. Stores without
payroll constitute a significant percentage of the stores selling
tobacco products and, on average, are much smaller. As explained above,
FDA estimates that about 600,000 establishments will sell over-the-
counter tobacco products, including the 100,000 that replace those
vending machines that are removed. Table 10 presents the data that
underlie FDA's revised estimates of the number of employees who will be
trained. For existing retail establishments with payroll, FDA assumes
that training will be needed for all employees in the affected outlets,
except in General Merchandise and Supermarket/Grocery stores, where
one-third of the employees will be trained. For establishments without
payroll, nonretail establishments, and new establishments replacing
vending machines, Census data on the number of employees is not
available, but FDA assumes that an average of six employees will be
trained. As shown in Table 10, these calculations indicate that
training will be required for a total of 4.2 million workers.
The Barents Group further faulted FDA for underestimating the
training time that would be required to educate retail sales clerks
about recognizing proper forms of identification and handling related
customer service problems. It assumed that 2 hours of training would be
necessary. FDA, however, reviewed the time needed to present the
training materials from several corporate entities and finds that they
need not exceed one hour. For example, one large convenience store
corporation uses a 45 minute training videotape that covers the sale of
tobacco products, but also covers the sale of alcohol and possible
inhalants, including means for recognizing inebriated or drugged
individuals. Moreover, many establishments, especially small stores,
will provide no formal training, but will provide instruction during
the work day with minimal lost time. Thus, FDA believes that average
costs are reasonably based on a 1-hour training program.

[[Page 44593]]

TABLE 10.--NUMBER OF EMPLOYEES TO BE TRAINED
--------------------------------------------------------------------------------------------------------------------------------------------------------
Payroll Establishments Nonpayroll Establishments
------------------------------------------------------------------------------------------
Establishments Total
Kind of Business Establishments Employees Per Percent No. of Selling No. of Employees
Selling Tobacco Store Trained Employees Tobacco Employees Trained
Products Trained Products Trained^{1
--------------------------------------------------------------------------------------------------------------------------------------------------------
General Merchandise 12,117 60.1 33% 242,593 9,807 58,842 301,435
Supermarket/Grocery 71,240 20.9 33% 497,253 54,538 327,228 824,481
Convenience Store/no gas 29,400 5.6 100% 164,718 --- --- 164,718
Convience Store/gas 51,913 6.8 100% 353,868 --- --- 353,868
Gas Station 37,958 6.0 100% 228,002 7,581 45,486 273,488
Eating Place 11,992 16.5 100% 198,212 3,065 18,390 216,602
Drinking Place 10,745 5.4 100% 58,498 5,336 32,016 90,514
Drug/Proprietary Store 29,046 12.2 100% 354,730 1,829 10,974 365,704
Specialty Tobacco 1,477 3.7 100% 5,530 --- --- 5,530
Miscellaneous 24,995 5.2 100% 130,253 44,879 269,274 399,527
--------------------------------------------------------------------------------------------------------------------------------------------------------
Retail Subtotal 280,883 2,233,656 127,035 762,210 2,995,867
Nonretail^{2 600,000
Converted Vending Machines^{2 600,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total 4,195,867
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\Assumes 6 employees per establishment.
\2\Assumes 100,000 outlets with 6 employees to be trained.
Sources: Table 4 for description of establishment data; 1992 Census of Retail Trade, Subject Series: Establishment and Firm Size (Table 1) for
employment data; FDA estimates for percent trained.

Adopting FDA's original estimate that about one-third of all
affected establishments already provide employee training (also assumed
by the Barents Group), implies one-time employee training costs of
$26.6 million (4.2 million employees x 2/3 x $9.51). The Barents Group
suggested, however, that even employees who currently receive training
would need 5 extra minutes on the new regulations, which adds about
$1.0 million to the cost estimate. Next, the Barents Group included
costs for time spent by trainers, assuming that the training would be
provided by an outside source. FDA believes that a more typical
approach would have a store supervisor provide the training. Using
$13.64 as the compensation rate for a retail manager, as suggested by
the Barents Group, and adjusting for the assumed one-third current
compliance rate in existing establishments, yields a one-time cost for
trainer time of $6 million. Thus, FDA projects total one-time training
costs of about $33.5 million.
In addition, FDA estimates that employee turnover, using the
Barents Group suggested rate of 42 percent, will add annually recurring
training costs of about $11.2 million. Also, new employees will receive
I.D. check training as part of their initial orientation activities.
Since stores may provide this to several new employees at once, using
either written or video training materials, FDA estimates that retail
managers, on average, would spend about 1 additional hour per year
providing this training. This adds $6.0 million to the annual training
costs. The Barents Group also recommended annual reinforcement
training. An annual 10-minute reinforcement training period for
employees of those establishments that do not already have a training
program will cost about $2.9 million. In sum, these annual recurring
training costs total about $20 million.
The Barents Group also assumed that retail managers would need
extensive training to understand the new regulations. FDA estimated in
its 1995 proposal that manufacturers' representatives would need about
8 hours of training on their new responsibilities and the Barents Group
assumed that retail managers would need a similar duration of training.
FDA rejects this estimate, however, as the final provisions affecting
retailers are straight-forward and will be routinely communicated
through traditional industry channels.
b. Manufacturers representatives. In its preliminary economic
analysis, FDA estimated that 7,300 manufacturer representatives would
be trained for 8 hours at a cost of $25.00 per hour. After noting FDA's
``undocumented'' cost estimate, the Barents Group proceeded to apply
the identical number of training hours to their ``documented'' cost
estimate of $25.70 per hour. They also suggested a 15 percent labor
turnover premium, giving a total cost of $1.5 million. As the final
rule eliminates the monitoring burden for these employees, this
training cost should be correspondingly smaller. Nevertheless, these
manufacturer employees will still need to determine the types of
displays that remain permissible. FDA therefore accepts the $1.5
million cost estimate.
7. Access Restrictions
a. Manufacturers. Although voluntary decreases in the sale of
consumer products do not impose long-term net societal costs, mandatory
restraints on the access of consumers to desired products may imply
economic costs. Economists typically measure producer-related
inefficiencies attributable to product bans by calculating lost
``producers' surplus,'' which is a technical term for describing the
difference between the amount a producer is paid for each unit of a
good and the minimum amount the producer would accept to supply each
unit, or the area between the price and supply curve. Data derived from
Cummings, et al., indicate that youngsters under the age of 18 consume
316 million packs of cigarettes per year, leading to industry profits
of $118 million. \329\ On the assumption that the regulation would
reduce teenage smoking by one-half, these profits would fall by about
$59

[[Page 44594]]

million. However, because most of this profit stems from illegal sales
to youths, FDA has not counted this figure as a societal cost.
---------------------------------------------------------------------------

\329\ Cummings, K. M., T. Pechacek, and D. Shopland, ``The
Illegal Sale of Cigarettes to U.S. Minors: Estimates by State,''
American Journal of Public Health, vol. 84, No. 2, p. 301, February
1994, (derived by subtracting sales to 18-years-olds from the
reported 516 million packs consumed).
---------------------------------------------------------------------------

b. Consumers. Consumer surplus is a concept that represents the
amount by which the utility or enjoyment associated with a product
exceeds the price charged for the product. Because it reflects the
difference between the price the consumer is willing to pay and the
actual market price, it is used by economists to measure consumer
welfare losses imposed by product bans. However, FDA's rule imposes no
access restrictions on adults, who will be free to consume tobacco
products if they so desire. Thus, FDA has not included any value for
lost consumer surplus in its estimate of the societal costs of these
access restrictions.
8. I.D. Checks
a. Retailers. For the 1995 proposed regulation, FDA estimated that
retail establishments would bear annual compliance costs of $28 million
for consumer identification checks. This figure was derived by
multiplying the estimated retail employee compensation rate by the
extra time that might be needed to complete purchase transactions. The
estimate measured the cost to retailers for either increasing the
number of working hours of existing staff or for hiring new staff to
handle the added workload. The Barents Group commented on numerous
aspects of this compliance cost estimation, accepting several key FDA
assumptions, but rejecting others in deriving its estimate of $142
million per year.
In its preliminary analysis, FDA estimated the number of tobacco
product transactions for the 18 to 26 year-old age group based on data
that reflected the tobacco consumption of cigarette smokers 5 to 6
years after high school \330\ and the annual per capita consumption of
smokeless tobacco. \331\ The Barents Group faulted FDA for limiting
these transactions to 18 to 26 year-olds, asserting that the standard
practice for alcohol sales is to request identification for anyone who
appears to be 30 years old or younger. The Barents Group calculations
actually estimated compliance costs on the assumption that customers up
to age 34 would be asked for identification, because some older
consumers would appear to be only 30 years old.
---------------------------------------------------------------------------

\330\ 1994 SGR, p. 85.
\331\ U.S. Department of Commerce, Statistical Abstract of the
United States 1993, 113th edition, p. 137, 1993; DHHS, Office of
Inspector General, Spit Tobacco and Youth; Additional Analysis, June
1993.
---------------------------------------------------------------------------

FDA has not accepted this Barents Group assumption for several
reasons. First, the legal age of purchase for alcohol in all 50 States
is 21 years, whereas the rule for cigarettes and smokeless tobacco sets
18 as the legal age of purchase. This 3-year difference implies that
comparable cigarette and smokeless identification checks would be
expected only up through age 27. Also, the current policy and practice
of many retail stores is to request identification from tobacco
consumers only up to age 26. Requiring proof of age for anyone who
appears younger than 26 years of age was also recommended by a working
group of 26 State Attorneys General. \332\ Finally, the Barents Group's
use of age 34 to provide a margin of safety for identifying those under
the age of 30 is illogical, since the FDA rule requires retail stores
to identify consumers who are under the age of 26, not 30.
---------------------------------------------------------------------------

\332\ ``No Sale: Youth Tobacco and Responsible Retailing,''
Findings and Recommendations of Working Group of State Attorneys
General, p. 28, December 1994.
---------------------------------------------------------------------------

The Barents Group accepted the FDA assumption that an I.D. check
would take an average of 10 seconds, but referenced a study by A. T.
Kearney that found that the actual time needed to verify a photo I.D.
for a tobacco product sale averaged 8.3 seconds. Because FDA has no
better data, the agency adopts 8.3 seconds as the average time needed
to conduct an I.D. check. The Barents Group further commented that FDA
used outdated employee compensation data in its calculations. FDA's
revised totals use the Barents Group's employee compensation estimate
of $9.51/hour (1994 dollars) as the time value for retail sales
employees.
FDA originally assumed that only 75 percent of all retail
transactions for the 18 to 26 year-old age group would be extended due
to I.D. checks. The Barents Group argued that the correct percentage
should be 100 percent, as the rule would apply to all sales to the
relevant age group. FDA continues to believe that this assumption leads
to an over-estimate of the probable costs. First, not every moment of a
clerk's time is effectively utilized and a few seconds more per
transaction will not always result in lost labor productivity. Second,
many smokers patronize the same retail store almost daily and are well-
known to clerks. I.D. checks for these customers will take little extra
time. Finally, many customers will take less time to produce an I.D.,
once they realize that identification checks have become routine.
Nevertheless, FDA adopts the Barents Group's 100-percent assumption to
assure a full accounting of the relevant costs.
One comment claimed that FDA failed to include the cost of hiring
additional sales clerks. As noted above, the FDA calculation does
reflect the cost of the additional labor time that might be needed. The
Barents Group also inexplicably asserts that FDA failed to consider
I.D. checking costs as annual costs, instead listing them as a one-time
cost. Table 2 of the original analysis (60 FR 41314 at 41360), clearly
lists the $28 million identification check cost as an annual operating
cost and the accompanying text (60 FR 41314 at 41367) refers to the
figure as a ``per year'' cost. The Barents Group further faulted FDA
for not taking into account the cost of checking I.D.'s for those
youths under age 18, who will still attempt to buy cigarettes. While a
small percentage of underage smokers may opt for this course of action,
few would return to complying outlets. Thus, FDA believes that any
plausible estimate of the associated costs would be less than $1
million annually.
FDA originally estimated the number of tobacco product transactions
for the 18 to 26 year-old age group at 2.2 billion, but has updated its
estimate to 2.5 billion. \333\ Also, the 80-percent current
noncompliance rate that had been assumed for the 1995 proposal may be
too high, as the Surgeon General estimated that minors are unable to
make an OTC purchase of tobacco products about one-third of the time.
\334\ Nevertheless, FDA retains this assumption to calculate a cost to

[[Page 44595]]

retailers for I.D. checks of $43 million per year (2.5 billion
transactions x 8.3 seconds/transaction x $9.51/hour 3600
seconds/hour x 80 percent noncompliance rate). This revised estimate
exceeds FDA's original $28 million figure, but remains far below the
$142 million estimate of the Barents Group.
---------------------------------------------------------------------------

\333\ 1994 Population data for 18 to 26 year-olds from 1995
Statistical Abstract, Table 16. Cigarettes: Number of smokers for
age group calculated from Table 217 (1993 data). Average packs/yr.
and total packs/yr. for smokers aged 18 to 26 calculated from data
in Table 20, 1994 SGR, p. 85. (Those smoking 1 to 5 cigarettes/day
assumed to smoke 3, those smoking 20+ cigarettes/day assumed to
smoke 25). The resulting number of packs smoked by 18 to 26 yr.-olds
totals about 2.5 billion. If even 1 percent of these transactions
were for cartons, this number falls to about 2.3 billion. Smokeless:
Total units of smokeless products sold calculated from data in Spit
Tobacco and Youth: Additional Analysis, Dept. of Health and Human
Services, June 1993, Excise Tax calculations, Option 4; Units
consumed by youths from the Institute of Medicine Report (the IOM
Report) ``Growing Up Tobacco Free: Preventing Nicotine Addiction in
Children and Youths'', p. 8. 1994, Usage data and total units (cans
or pouches) consumed for age group for those aged 18 to 26 from
``Use of Smokeless Tobacco Among Adults-U.S., 1991'' in ``MMWR'',
CDC, DHHS, volume 42, No. 14, p. 264, 1993. The number of containers
sold for 18 to 26 yr. old age group totals about 0.2 billion.
\334\ IOM Report, p. 202.
---------------------------------------------------------------------------

b. Consumers. The Barents Group also criticized FDA for not
quantifying the costs to consumers for the extra time needed to undergo
I.D. verifications. They estimated this cost at $282 million a year.
FDA agrees that consumers would incur time costs and, for its revised
estimates, adopts the analytical framework suggested by the Barents
Group, which counts only the time lost by young customers. (The Barents
Group suggests that older consumers also would experience delays, but
FDA's estimates already account for the cost of additional clerk time
that would offset longer checkout lines. Younger customers, however,
must wait while their age is verified, even when additional checkout
clerks are available.) To estimate the time cost, FDA applies the same
methodology that was used to estimate the time cost for retail
employees. That is, 2.5 billion transactions taking an extra 8.3
seconds each for the 18 to 26 year-old age group, adjusted for a 20
percent current compliance rate. The Barents Group used an average
hourly private sector compensation rate ($15.13/hour) as the basis of
its consumer time cost estimate, but FDA finds this average rate too
high for young consumers and estimates a range of $9 to $11 per hour.
\335\ As a result, FDA's estimate of the cost to consumers for lost
time cost amounts to between $41 and $50 million per year.
---------------------------------------------------------------------------

\335\ Data from the 1995 Statistical Abstract of the United
States, Table 677 lists weekly earnings for full time wage and
salary workers for the group ``16 to 24 year-olds'' in 1994. Table
682 lists median hourly earnings for workers paid hourly rates for
the same group in 1994. Assuming a 40 percent increase for benefits,
the compensation rates for these two tables for 16 to 24 year-olds
are $9.98/hour and $7.87/hour, respectively.
Using these figures will result in a low estimate for the 18 to
26 year-old group because 25 and 26 year-olds earn more than 16 and
17 year-olds. Conversely, using a benefits/wage ratio of 40 percent
for 18 to 26 year-olds will overstate the costs because lower paid
workers (hourly and part-time workers, college students) are more
likely to have less generous benefits packages (little or none of
the following: paid vacation, sick leave, employer-paid health
insurance). FDA increased the estimated compensation rates to $9 to
$11/hour to assure it does not underestimate the true compensation
rate.
---------------------------------------------------------------------------

9. Vending Machines
In its comments on the costs of FDA's proposed vending machine ban,
the Barents Group reports that automatic vending machine operators will
lose $403 million in annual revenues. They then subtract an estimated
$281 million offset for future over-the-counter sales (calculated by
assuming an equal number of future packs sold and an $.80 price premium
for vending machine packs) to project a net $122 million of regulatory
costs to the retail sector. Although not acknowledged, this methodology
implicitly assumes that a redistribution of revenues (from vending
machine owners to over-the-counter sellers) does not generate added
societal costs. Elsewhere, the Barents Group includes distributional
impacts in cost totals. Nevertheless, even this $122 million estimate
is far too high.
The fundamental problem is that changes in revenue, as discussed
above, do not measure economic costs. The relevant economic measure of
regulatory costs to an industry is the change in producer surplus that
a firm makes from selling a good or service. Because producer surplus'
are difficult to measure, accounting profits are sometimes used as a
proxy. By examining only lost revenues, the Barents Group ignores the
difference in the operating costs of the alternative sales channel,
despite its recognition that ``[i]n general terms, the extra margin at
vending machines reflects the costs to vending machine owners of
operating these machines, in addition to a return on their labor effort
and capital investments.'' In other words, the reason that cigarettes
purchased from a vending machine are more expensive is that it costs
more to sell a pack of cigarettes by vending machine. Consequently, if
cigarette sales shift from more expensive-to-operate vending machines
to OTC, the loss of industry profits is much smaller than the loss of
industry revenues.
An approximate assessment of the net impact on retail profits
requires a comparison of the pretax profit margins for vending machine
operations as compared to OTC sales. The Barents Group cited survey
results from the National Automatic Merchandising Association (NAMA)
showing an average pretax profit margin of 3.8 percent in 1993 and 2.0
percent in 1992, for an average 2.9 percent for vending machine
operations. Because cigarette vending machine sales have decreased in
recent years, current profit margins might be even smaller.
Coincidentally, the Barents Group reports that the estimated average
industry profit margin for convenience stores is also 2.9 percent. If
this rate applies to cigarette sales at convenience stores and if all
lost vending machine cigarette sales were transferred to convenience
stores, the net pretax cost to the industry would be $3.5 million, not
$122 million ($403 million to $281 million) x 2.9 percent). Moreover,
NAMA reports that over 50 percent of all vending machines are located
in bars and taverns and many others in business establishments
frequented only by adults. The final rule permits vending machines in
those places where the owner can ensure that no young people under age
18 are present at any time. FDA does not know how many vending machines
will be moved to restricted areas in compliance with this rule, but the
number will further reduce this annual cost.
10. Readership Surveys
The Barents Group reported that 101 leading national magazines had
advertisements for tobacco products in 1994. In addition, Barents
obtained youth and adult readership data for 1994 from MediaMark
Research, Inc. (MediaMark), for 41 of these 101 magazines. Applying the
regulatory threshold of 2 million readers or 15 percent of total
readership below the age of 18, Barents projected that advertisements
in 32 of the 41 magazines (78 percent) would be restricted to ``text
only'' by the proposed regulation. In comparison, FDA examined
copyrighted youth and adult readership data from the Simmons Marketing
Bureau, Inc. (Simmons), another major marketing research firm, and
found that only 13 of the 27 magazines with tobacco ads (48 percent)
had youth readership over the threshold. A comparison of youth
readership levels from MediaMark and Simmons for magazines that had
tobacco advertisements in 1992 is shown in Table 11. \336\
---------------------------------------------------------------------------

\336\ Tobacco industry spending on magazine advertising was
calculated using tobacco advertising share data from Barents and
advertising revenues from Advertising Age. Advertising revenue was
unavailable for five small publications that accounted for less than
one percent of tobacco magazine advertising spending in 1994. To
estimate tobacco advertising expenditures in these five
publications, FDA assumed total advertising revenues for each
publication equal to $14,388, which is the lowest total revenue
reported in Advertising Age for 1994.

[[Page 44596]]

TABLE 11.--AVAILABLE YOUTH READERSHIP DATA FOR PUBLICATIONS
WITH TOBACCO ADVERTISEMENTS IN 1994
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated MediaMark Research Inc. (1994 Simmons Market Research Bureau, Inc.
Percentage of readership data) (1994 readership data)
1994 Tobacco ---------------------------------------------------------------------------
Publications with Youth and Adult Readership Data Industry Spending Percent of Percent of
on Magazine Number of Readers Readers Under 18 Number of Readers Readers Under 18
Advertisements Under 18 (000) (%) Under 18 (000) (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sports Illustrated^{1,2 10.0 5,201 18.0 4,614 17.1
People^{1,2 9.8 3,020 7.8 2,465 8.0
TV Guide^{1,2 6.5 6,739 13.2 7,102 15.6
Time 4.1 1,972 7.7 n/a n/a
Parade^{2 3.7 n/a n/a 6,059 6.9
Cosmopolitan^{1 3.1 2,279 12.8 1,410 11.4
Woman's Day 3.0 1,202 4.8 n/a n/a
Entertainment Weekly^{2 2.9 n/a n/a 674 15.3
Better Homes & Gardens^{1 2.4 2,042 5.5 785 3.4
Newsweek 2.4 1,911 8.0 n/a n/a
Family Circle 2.1 1,210 4.2 646 3.5
Field & Stream 2.1 1,760 11.1 815 7.9
Glamour^{1,2 2.0 2,216 17.1 1,540 17.4
Rolling Stone^{1,2 2.0 1,869 18.5 1,506 20.1
Ladies' Home Journal 1.7 838 4.4 n/a n/a
McCall's 1.7 1,274 6.7 506 3.7
Redbook 1.7 1,153 7.8 565 5.4
Car & Driver^{1 1.6 1,465 18.3 n/a n/a
Life^{1 1.6 2,665 12.9 n/a n/a
Popular Mechanics 1.5 1,617 14.5 744 10.3
Outdoor Life^{1 1.3 1,579 18.0 569 8.8
Us 1.2 814 13.8 n/a n/a
New Woman 1.1 685 14.0 n/a n/a
Road & Track^{1 1.1 1,234 20.6 n/a n/a
Soap Opera Digest 1.1 1,299 14.4 853 12.6
Mademoiselle^{1,2 1.0 1,369 19.7 959 18.5
Vogue^{1,2 1.0 2,237 18.0 1,300 17.4
Hot Rod^{1 0.8 2,295 28.0 n/a n/a
Ebony^{1 0.7 2,111 15.8 1,046 9.4
Gentlemen's Quarterly^{1 0.7 1,037 15.1 n/a n/a
Motor Trend^{1 0.7 1,393 22.1 n/a n/a
Premiere^{1 0.7 617 25.8 n/a n/a
Sport^{1,2 0.7 2,274 33.8 1,132 24.0
Elle^{1 0.6 819 17.8 409 14.4
Essence^{1 0.6 1,251 16.9 537 9.4
Sports Afield 0.6 n/a n/a 0 0.0
True Story 0.5 740 14.8 n/a n/a
Jet^{1 0.4 1,724 16.7 1,169 12.2
Popular Science^{1,2 0.4 1,906 20.8 874 16.1
Self^{1 0.4 786 16.2 n/a n/a
Harper's Bazaar^{1 0.3 718 18.2 n/a n/a
The Sporting News^{1,2 0.3 1,394 27.8 666 15.7
Cable Guide^{1 0.2 3,358 22.6 n/a n/a
Ski^{1,2 0.0 827 26.4 584 24.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\MediaMark youth readership exceeds regulatory threshold.
\2\Simmons youth readership exceeds regulatory threshold.
Source: Barents Group LLC Tables IV-1 and A-2; Simmons Market Research Bureau, Inc.; R. Craig Endicott, ``The Ad Age 300,'' Advertising Age, June 19,
1995.

The final regulation requires that specific youth and adult
readership data be available for any magazine that displays a tobacco
advertisement with color or imagery. Simmons currently conducts
interviews with adults in approximately 20,000 households annually and
subsequently returns to about 3,000 of these households to interview
their youth members. In general, however, marketing research firms
collect data on youth readership only for those magazines commonly read
by this age group. Thus, although 78 percent and 48 percent of the
magazines in the two youth readership samples described above exceeded
the regulatory readership threshold, these sample results likely
overestimate the percentage of magazines with current tobacco ads that
exceed the threshold.
Simmons now collects adult readership data for about 230 magazines
and youth readership for about 65 magazines. Because tobacco
manufacturers currently advertise in about 100 magazines, the industry
could often add magazines that are currently part of an ongoing adult
readership survey to a youth survey, saving approximately 60 percent of
the cost of collecting both adult and youth data.

[[Page 44597]]

Because FDA does not know how tobacco manufacturers will adapt their
marketing strategies to the new regulatory thresholds, it is difficult
to predict the number of new readership surveys that may be initiated.
It seems likely, however, that tobacco companies will both increase the
frequency of advertising in ``adult'' magazines that already carry
tobacco advertisements and find suitable ``adult'' magazines to replace
many of the other magazines.
One plausible scenario is that approximately one-half, or 50, of
the magazines with current tobacco ads would not qualify as ``adult''
publications, because they exceed the youth readership threshold; and
that the tobacco industry would choose to advertise in 50 other
``adult'' publications that do not currently carry tobacco ads. To
identify these 50 additional ``adult'' magazines, the industry might
need to collect new youth readership data for up to 100 magazines. In
addition, as noted above, of the original 100 magazines with current
tobacco advertising, youth readership data is now available for at
least 40. Thus, the tobacco industry may initially need to obtain new
youth readership data for the remaining 60 magazines. In total,
therefore, the tobacco industry might opt to obtain youth readership
data for an additional 160 publications in the first year that the rule
becomes effective. In subsequent years, this number might fall to about
100 surveys, as the industry would concentrate its survey efforts on
publications very likely to qualify.
If a marketing research firm collects youth readership data, the
cost may depend on the particular characteristics of the magazines
being surveyed. The tobacco industry could choose, however, to hire a
survey firm to develop and administer a questionnaire solely to gather
readership data for magazines with tobacco advertising. While FDA is
uncertain about which approach the industry would take, the agency
estimates that such new surveys might cost approximately $2 million in
one-time costs and $1 million in annual costs, based on an average cost
of about $650 and $350 per sample household.
11. Records and Reports
Manufacturers will need to comply with device regulations governing
submissions of representative labels and advertising, medical device
reporting (MDR's), establishment registration and product listing, and
current good manufacturing practices (CGMP's).
a. Labels and advertising. The rule requires that each manufacturer
annually submit to FDA copies of representative samples of labels and
advertising. While the agency expects about 1,000 product labels, FDA
has no direct evidence on the number of advertisements that will be
submitted. An approximate estimate, however, can be derived from the
number of advertising samples submitted by the pharmaceutical industry.
First, FDA calculated that of the $6.1 billion in advertising and
promotional outlays reported to the FTC by the tobacco industry, only
about $1.2 billion is spent on printed advertisements. (Derived by
subtracting categories for ``Coupons/Value Added,'' ``Promotional
Allowances,'' ``Specialties Items,'' and ``Free Samples'' from the
total $6.1 billion).
The pharmaceutical industry spends an estimated 22.5 percent of
sales on marketing, of which about one-quarter may be allocated to
advertising ethical pharmaceuticals. \337\ The approximately $50
million in annual sales of pharmaceutical manufacturers, therefore,
implies a $2.5 billion annual advertising budget. FDA estimates that it
currently receives about 25,000 pieces of pharmaceutical advertising
per year. As the pharmaceutical budget is roughly twice the size of the
$1.2 billion tobacco industry figure derived above, the agency might
receive half as many documents. Alternatively, reduced promotional
activities may prompt an increase in the number of printed
advertisements prepared by tobacco companies, although the Barents
Group assumed this number would decline. Therefore, FDA projects that
it will receive the same number of advertisements for tobacco products
as it currently receives for pharmaceutical products, or about 25,000
per year, plus about 1,000 labels.
---------------------------------------------------------------------------

\337\ U.S. Congress, Office of Technology Assessment,
``Pharmaceutical R&D: Costs, Risks and Rewards,'' OTA-H-522
Washington, DC: U.S. Government Printing Office, pp. 303-304,
February 1993.
---------------------------------------------------------------------------

Estimates of the time burden of these paperwork submissions ranged
from 20 minutes (The Barents Group) to 1 hour and estimates of the
hourly cost ranged from $25.00 (Tobacco Institute) to $45.26 (the
Barents Group). Using the high end of both ranges provides an upper
bound cost estimate of $1.2 million. This figure is significantly lower
than either the original FDA estimate, or the Barents Group estimate of
$55 to $57 million, largely because the final rule imposes no specific
paperwork requirements on retail establishments.
b. MDR's. The final rule will require MDR's for serious unexpected
incidents. FDA assumes that 31 manufacturing companies \338\ and 1,365
distributors \339\ will bear total one-time costs of $21,000 and
$231,000, respectively, for establishing and documenting procedures for
MDR reporting. These costs include 32 hours of effort per manufacturing
firm and 8 hours per distributor. Based on estimates previously
developed for the Medical Device User Facility and Manufacturer
Reporting Final Rule, these activities were distributed over wage rates
averaging $21.17. Annual costs for MDR reporting requirements are more
difficult to predict, because they depend on the number of adverse
event reports that will be submitted. FDA projects, however, that
followup investigation and reporting of a single event takes about 8
hours of labor and costs about $218. Thus, if 50 adverse event reports
were filed annually, the annual cost would be about $11,000. In
addition, if each manufacturing company submits a single baseline
report and annual updates, these costs would be about $2,100 annually,
based on unit costs of $54 and $14 per report, respectively. Annual
certification is necessary, but is typically a formality in terms of
data collection and reporting and is estimated to cost about $800 for
all manufacturers and $35,000 for all distributors assuming 1 hour of
professional and clerical time at $25.80 per hour.
---------------------------------------------------------------------------

\338\ 1992 U.S. Census of Manufactures, Industry Series, Tobacco
Products, Table 1a. A few U.S. agents designated to represent
foreign manufacturers would also need to file forms, but these costs
should be minimal.
\339\ Special Census Tabulation prepared by U.S. Bureau of
Census for U.S. Small Business Administration, Table 3--United
States (unpublished data).
---------------------------------------------------------------------------

c. Registration and listing. Registration and listing duties are
estimated to take 41 manufacturing establishments 2 hours each to
prepare at a unit cost of $42, totaling about $1,700 per year for the
industry.
d. CGMP's. The Tobacco Institute asserted that cigarette
manufacturers would need substantial time to comply with CGMP's as the
industry ``would need to adopt major new systems * * * [and] make major
changes to their procedures just to accommodate the recordkeeping
required.'' Conversely, the economics study prepared by the Barents
Group for the Tobacco Institute showed no additional costs for this
requirement. FDA agrees that these costs

[[Page 44598]]

should be minimal for facilities with good quality assurance programs.
Its CGMP's do not specify a specific format, but encompass a wide
variety of broad requirements for documenting operating procedures.
Contrary to the Tobacco Institute's claim that ``even a well-run
cigarette manufacturing facility would need to adopt major new
systems,'' CGMP's are, in fact, based on the activities of well-run
operations. Moreover, device CGMP's are currently under revision to
bring them even closer to ISO 9001, the generally recognized
international standard for quality assurance systems. Thus, while FDA
has little experience with day-to-day tobacco manufacturing procedures,
the agency does not anticipate the need for substantial quality system
redesign. Wholesalers and distributors also submitted comments
contending that the CGMP's would create added paperwork burdens, but
the agency has exempted these sectors from the CGMP requirements.
12. Government Enforcement
FDA estimates of internal costs for administering and enforcing
this regulation are extremely uncertain, as they will depend on the
working relationships to be established with State tobacco control
programs. As a best estimate, however, FDA projects that between 30 to
50 full-time employees (FTE's) will be needed to implement the rule.
Fully loaded employee costs vary with the type of employee (e.g., field
inspectors versus administrative), but an average of $100,000 per FTE
places the dollar cost at between $3 and $5 million per year. SAMHSA
has estimated that State programs will need between $25 and $50 million
annually to administer and enforce appropriate State operations.
13. Comparison of Benefits to Costs
FDA expects the net societal benefits of the rule to far exceed the
regulatory costs. Based on the analysis presented above, the estimated
one-time costs of the combined FDA and SAMHSA rules are $174 to $187
million and the estimated annual costs are $149 to $185 million. Taking
the midpoint of the ranges and annualizing the one-time costs at 3 and
7 percent, respectively, yields total annualized costs of $172 million
and $180 million. In contrast, the agency's best estimate of the
monetized regulatory benefits that would follow a 50 percent reduction
in underage tobacco use ranges from $28.1 to $43.2 billion at a 3
percent discount rate and from $9.2 to $10.4 billion at a 7 percent
discount rate. Thus, as shown in Table 12, the net benefits (benefits
minus costs) of a total effectiveness rate of 25 percent range from
$27.9 to $43 billion at a 3 percent discount rate and from $9.0 to
$10.2 billion at a 7 percent rate. Table 13 indicates that those
figures imply a cost per life-year saved of from $800 to $4,700 and a
cost per death avoided of from $11,000 to $52,000. As noted earlier,
these benefits are exclusive of the substantial health improvements
expected to result from the reduced consumption of smokeless tobacco.
The substantial differential between these estimated costs and
benefits withstands rigorous sensitivity analysis (see Table 12). For
example, SAMHSA estimated that its rule would reduce underage tobacco
use by from one-third to one-tenth. The approximate midpoint of that
estimate (20 percent) constitutes about 40 percent of the regulatory
benefit of reducing underage tobacco use by one-half. If, for
illustrative purposes, these results, as well as a proportional
fraction of the relevant costs, \340\ are attributed to SAMHSA, the
incremental net benefits of the FDA rule still range from $16.8 to
$25.8 billion at a 3 percent discount rate, and from $5.4 to $6.2
billion at a 7 percent discount rate.
---------------------------------------------------------------------------

\340\ Costs include 100 percent of SAMHSA's state enforcement
costs, plus 40 percent of retail training costs, vending machine
costs, and retail and consumer I.D. check costs.
---------------------------------------------------------------------------

Moreover, FDA assumed that reaching the ``Healthy People 2000''
goal would deter about one-quarter of the 1 million youth under age 18
who currently begin to smoke each year from ever smoking as an adult.
Thus, this goal implies a 25 percent overall effectiveness rate. If,
however, these rules prevent smoking as an adult for even 5 percent of
the teenagers who would otherwise become adult smokers, they would
produce estimated annual net benefits of from $5.4 billion to $8.5
billion at a 3 percent discount rate and from $1.7 billion to $1.9
billion at a 7 percent discount rate. Even if this latter scenario
attributed 40 percent of the benefits and relevant costs to SAMHSA, the
annual net benefits of the FDA rule would still range from $3.3 billion
to $5.1 billion at a 3 percent discount rate and from $1.0 billion to
$1.2 billion at a 7-percent discount rate. This last example implies a
cost per life-year saved of $3,500 to $21,100 and a cost per death
avoided of $47,000 to $234,246. These figures are well within the range
of values for health interventions typically considered cost-effective.

TABLE 12.--NET BENEFITS
($ Billions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Effectiveness Rates
-------------------------------------------------------------------------------------------------------------------------------------------
Discount 25% 15% 10% 5% 2.5%
Rate -------------------------------------------------------------------------------------------------------------------------------------------
Low High Low High Low High Low High Low High
--------------------------------------------------------------------------------------------------------------------------------------------------------
3%.......... 27.9 43.0 16.7 25.7 11.1 17.1 5.4 8.5 2.6 4.1
7%.......... 9.0 10.2 5.3 6.1 3.5 4.0 1.7 1.9 0.74 0.86
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illustrative Incremental Net Benefits\1\
--------------------------------------------------------------------------------------------------------------------------------------------------------

3%.......... 16.8 25.8 10.0 15.5 6.7 10.3 3.3 5.1 1.6 2.5
7%.......... 5.4 6.2 3.2 3.7 2.1 2.4 1.0 1.2 0.45 0.53
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Attributes 40% of benefits and associated costs to SAMHSA

[[Page 44599]]

TABLE 13.--COST EFFECTIVENESS
--------------------------------------------------------------------------------------------------------------------------------------------------------
Effectiveness Rates
-------------------------------------------------------------------------------------------------------------------------------------------
25% 15% 10% 5% 2.5%
Discount -------------------------------------------------------------------------------------------------------------------------------------------
Rate Cost/Life- Cost/Life- Cost/Life- Cost/Life- Cost/Life-
Year Saved Cost/Death Year Saved Cost/Death Year Saved Cost/Death Year Saved Cost/Death Year Saved Cost/Death
($) Avoided ($) ($) Avoided ($) ($) Avoided ($) ($) Avoided ($) ($) Avoided ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
3%.......... 815 10,862 1,358 18,103 2,038 27,155 4,075 54,310 8,151 108,621
7%.......... 4,722 52,423 7,870 87,372 11,804 131,059 23,609 262,117 47,218 524,235
--------------------------------------------------------------------------------------------------------------------------------------------------------
Illustrative Incremental Cost-effectiveness\1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
3%.......... 706 9,413 1,177 15,689 1,766 23,533 3,532 47,067 7,064 94,134
7%.......... 4,220 46,849 7,033 78,082 10,549 117,123 21,098 234,246 42,197 468,492
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Attributes 40% of benefits and associated costs to SAMHSA

E. Distributional Effects

These regulations will impose a variety of sector-specific
distributional effects. Those sectors affiliated with tobacco and
tobacco products will lose sales revenues and these losses will grow
over time. Businesses engaged in the provision of tobacco product
advertising may also face reduced revenues. Simultaneously, nontobacco-
related industries will gain sales, because dollars not spent for
tobacco products will be spent on other commodities.
1. Tobacco Manufacturers and Distributors
For its calculation of regulatory benefits, FDA estimates that
implementation of the regulations may reduce the cigarette consumption
of underage smokers by one-half within 7 years. As discussed earlier in
this section, based on data presented in Cummings, et al., FDA finds
that teenage smokers under the age of 18 consumed about 316 million
packs of cigarettes in 1994. A 50-percent cut in sales would drop the
number of packs sold by 158 million. Moreover, FDA has assumed that at
least one-half of those 500,000 teenagers who would be deterred from
starting to smoke each year would refrain from smoking as adults,
decreasing the number of adult smokers by 250,000 per year. Because
each adult smoker consumes about 500 packs per year, about 124 million
fewer packs would be sold per year.
Thus, achieving the agency's goal would reduce cigarette
consumption by 158 million packs in the first year (while only
teenagers are affected), 158 million plus 124 million packs in the
second year, 158 million plus 2 times 124 million packs in the third
year, and so on. Since 1994 cigarette shipments totaled 36.3 billion
packs, \341\ cigarette consumption would fall by about 0.4 percent in
the first year, 1.8 percent in the fifth year, and 3.5 percent in the
tenth year following implementation. (In fact, these reductions may
take even longer, because it may be several years before the 50-percent
effectiveness level is achieved, and because young adults smoke fewer
packs than older adults).
---------------------------------------------------------------------------

\341\ ``Tobacco Situation and Outlook Report,'' U.S.D.A.,
Economic Research Service, p. 4, April 1995.
---------------------------------------------------------------------------

Hence, annual tobacco revenues will decline slowly over time. The
U.S. Bureau of the Census estimates 1994 revenues for cigarette and
smokeless tobacco manufacturers at about $25.9 billion. \342\ Assuming
comparable reductions in smokeless tobacco, these calculations imply
that tobacco manufacturer revenues will fall by $128 million in the
first year (0.5 percent), $501 million in the fifth year (1.9 percent),
and $966 million in the tenth year (3.7 percent). While these
reductions are significant, the gradual phasing of the impacts will
significantly dissipate any associated economic disruption.
---------------------------------------------------------------------------

\342\ ``1994 Annual Survey of Manufactures: Value of Product
Shipments,'' U.S. Department of Commerce , Bureau of the Census,
Table 1, p. 210. ASM does not report data below the 5-digit SIC Code
Level. FDA assumed chewing tobacco represented the same percentage
of SIC Code 2131 (Chewing and Smoking Tobacco) in 1994 as it did in
1992 when it was classified at a 6-digit SIC code in the Census of
Manufacturers.
---------------------------------------------------------------------------

In a 1992 report prepared for the Tobacco Institute, Price
Waterhouse estimated that the tobacco manufacturing, warehousing and
wholesale trade sectors employed about 107,000 full-time workers. \343\
Thus, a constant production-to-employment ratio projects that a 3.7-
percent reduction in sales over a 10-year period would result in the
displacement of about 4,000 jobs, or 400 jobs annually among
manufacturers, warehousers, and wholesalers. Alternatively, a
University of Virginia study concluded that ``the Price Waterhouse
study for the Tobacco Institute provides estimates of tobacco's impact
that are high compared to other measures.'' \344\ That study referenced
a recent U.S. Department of Agriculture analysis by Gale that found
that manufacturing and wholesale trade activities employ only 83,000
full-time equivalent workers. \345\ If true, this finding reduces these
job loss estimates to about 3,000 jobs, or 300 annually.
---------------------------------------------------------------------------

\343\ ``The Economic Impact of the Tobacco Industry on the
United States in 1990,'' Price Waterhouse, p. ES-3, October 1992.
\344\ Knapp, J. L., ``Tobacco in Virginia,'' Weldon Cooper
Center for Public Service, University of Virginia, p. 5, December
1995.
\345\ Gale, F., ``What Tobacco Farming Means to Local
Economies,'' U.S. Department of Agriculture, Economic Research
Service, Agriculture Economic Report Number 694, p. 5, September
1994.
---------------------------------------------------------------------------

The smaller job loss estimate is generally confirmed by a recent
study by Warner, et al., who applied a computer simulation model to
forecast the regional impact of reductions in tobacco use. \346\ The
authors used ``a state-of-the-art macroeconomic model to simulate what
would happen if consumers reduced their tobacco expenditures, with the
same level of spending redistributed to other goods and services * *
*.'' One scenario assumed that tobacco control activities would reduce
the expected rate of tobacco purchases by 2.06 percent per year, or
roughly 5 times the estimated effect of the FDA rule. While this
scenario does not present direct impacts to the tobacco industry alone,
it forecasts job losses after 8 years of 6,401 for all U.S. wholesalers
and 5,957 for Southeast Tobacco Region

[[Page 44600]]

manufacturers. Accounting for the multiple of 5, comparable job losses
attributable to the FDA rule would total about 2,600 after 8 years, or
about 325 annually.
---------------------------------------------------------------------------

\346\ Warner, K. E., G. A. Fulton, P. Nicolas, and D. R. Grimes,
``Employment Implications of Declining Tobacco Product Sales for the
Regional Economies of the United States,'' JAMA, pp. 1241-1246,
April 24, 1996.
---------------------------------------------------------------------------

The Barents Group did not address the long-term gradual decline in
tobacco use projected by FDA. Nevertheless, it claimed that the agency
underestimated the economic impact on industry by failing to account
for the lost sales to adults that would result from the proposed ban on
vending machines and self-service displays and the required checking of
customer I.D.'s. The Barents Group argued that the added consumer
inconvenience imposed by these provisions was tantamount to an increase
in the effective price of tobacco products, which would rapidly
decrease the consumption of tobacco by adults. Relying on
``hypothetical scenarios'' that assume demand declines of 5 and 10
percent, the Barents Group forecast that the tobacco manufacturing
industry would lose from 1,800 to 3,700 jobs due to this increased
consumer inconvenience.
FDA believes these Barents projections are substantially
overstated. Impacts associated with cigarette consumption declines of 5
to 10 percent cannot possibly be attributed to the loss of vending
machines, because vending machine purchases make up less than 1 percent
of all cigarette purchases. Further, according to NAMA, there are only
141,000 cigarette vending machines currently in use (and that number is
falling rapidly), and the cost analysis prepared by the Barents Group
predicted that 100,000 of these machines would be replaced by new OTC
establishments. Thus, the Barents Group's own analysis eliminates any
added consumer inconvenience from three-quarters of the existing
inventory of machines. Moreover, the near-term impact on adult tobacco
consumption will be further moderated both because the final rule
allows vending machines in ``adult'' facilities, and because the added
inconvenience cost will be partially offset by the lower price of the
OTC product. These factors together make it extremely unlikely that
fewer vending machines will lead to a substantial near-term fall in
tobacco industry sales revenues.
The likelihood that tobacco sales will decline significantly due to
inconvenience imposed on adult customers by the self-service
restriction is similarly remote. While some purchasers would need more
time to complete a transaction, other purchasers would save time by no
longer having to search and retrieve a desired product. In the absence
of empirical evidence, the result is indeterminate; but FDA has seen no
convincing evidence or arguments to demonstrate that any delays caused
by the self-service restriction will significantly curtail adult
tobacco use.
Finally, although FDA calculated above that increased delays due to
I.D. checking could cost young adult consumers under the age of 26 up
to $50 million per year, even this cost would not lead to significant
consumption declines. As described, the increased checkout waiting time
for young purchasers was estimated to average about 8.3 seconds, which
translates to a cost of about 2.3 cents per transaction, or 1.35
percent of the cost of a pack of cigarettes. According to the Barents
Group, representative estimates of demand elasticities for cigarettes
range from -0.6 to -1.0. Young adults under the age of 26, however,
purchase only about 10 percent of all tobacco products. Thus, the fall
in total tobacco sales would be, at most, 0.1 percent, not the 5 to 10
percent assumed by the Barents Group. Moreover, even the 0.1 percent
figure is an overestimate, because those consumers irritated by the
delay will increase the volume of tobacco products purchased per
transaction. As a result, the number of cartons sold will rise, but the
decline in tobacco product sales revenues attributable to the
inconvenience effects of I.D. checks will be negligible.
2. Tobacco Growers
As explained above, total cigarette and chewing tobacco consumption
is expected to decrease by 0.5 percent in the first year, 1.9 percent
by the fifth year, and 3.7 percent by the tenth year, following
compliance with the regulation. Price Waterhouse estimated that, on a
full-time equivalent basis, about 153,000 farmers grew tobacco in 1990.
Based on these figures, constant production-to-employment ratios imply
employment losses among tobacco growers of about 5,700 after 10 years,
or about 570 annually. Alternatively, the Gale study for the U.S.
Department of Agriculture (USDA) \347\ estimated the number of full-
time equivalent tobacco farmers to be only 65,400, which would reduce
the job loss estimate to about 2,500 by the tenth year, or 250
annually.
---------------------------------------------------------------------------

\347\ Gale, F., ``What Tobacco Farming Means to Local
Economics,'' USDA, Economic Research Service, Agriculture Economic
Report Number 64, p. 5, September 1994.
---------------------------------------------------------------------------

This latter figure also closely fits the findings of Warner, et
al., who, as described above, used a ``state-of-the-art'' macroeconomic
simulation model to project the employment effects of declining tobacco
consumption. \348\ Assuming domestic tobacco consumption decreases of
2.06 percent per year, Warner, et al. predicted about 7,500 job losses
within an 8-year period for ``Southeast Tobacco Region'' farmers. As
this fall in tobacco use is roughly five times that projected by FDA,
the analogous job loss estimate would be about 1,500 over the 8-year
period, or about 190 per year.
---------------------------------------------------------------------------

\348\ Warner, K. E., G. A. Fulton, and D. R. Grimes,
``Employment Implications of Declining Tobacco Product Sales for the
Regional Economies of the United States,'' JAMA, pp. 1241-1246,
April 24, 1996.
---------------------------------------------------------------------------

According to the USDA study by Gale, ``[f]or most farms, tobacco
growing is a part-time, seasonal enterprise, and production per farm is
usually small. About two-thirds of tobacco farmers work off-farm.''
\349\ Citing 1987 Census of Agriculture data, Gale notes that only 65
percent of the farms growing tobacco in the United States reported
earning more than half of their receipts from tobacco, and of those
farms, approximately 80 percent had total farm sales under $20,000. He
explains that the availability of alternative land uses will dictate
the economic results:
---------------------------------------------------------------------------

\349\ Gale, F., ``What Tobacco Farming Means to Local
Economies,'' USDA, Economic Research Service, Agriculture Economic
Report Number 64, p. 1, September 1994.
---------------------------------------------------------------------------

The key factor in adjustment to a smaller tobacco industry is
the alternative uses available for land, labor, and capital used in
tobacco production * * * For the most part, concern is focused on
rural areas where tobacco is grown because this stage of production
has the most specialized resources with fewer attractive alternative
uses. In many areas, small farms that are unviable without tobacco
profits would cease production and their land would be absorbed into
larger neighboring farms or converted to other uses * * * In
marginal farming areas * * * much of the land devoted to tobacco
would be converted to residential, commercial, industrial, or
forestry uses, in which case it would still generate income for the
local economy * * * This land is already being converted to nonfarm
uses in rapidly growing areas like southern Maryland and Raleigh-
Durham, North Carolina. \350\
---------------------------------------------------------------------------

\350\ Id., p. iii.
---------------------------------------------------------------------------

FDA notes that the economic consequences of these trends will be
substantially mitigated by the very moderate pace of the projected
changes.
3. Vending Machine Operators
The final regulation prohibits all vending machine sales of
regulated tobacco products except for those machines located in a
facility where

[[Page 44601]]

persons under the age of 18 are not present at any time. In recent
years, cigarette vending sales have dropped precipitously, due to
numerous restrictive State and local ordinances. According to the NAMA:
[t]he 1986 cigarette location survey mirrored an industry with
about 700,000 cigarette vending machines on location. In 1994, the
vending industry was estimated to have between 141,000 and 400,000
cigarette machines. This represents a decline in the number of
cigarette vending machines on location of between 43 percent and 80
percent.
The U.S. Department of Commerce \351\ reports that 1992 sales of
tobacco products by automatic merchandising machine operators were
about $452 million, or 7.1 percent of that sector's total sales, but a
NAMA fact sheet shows this rate continuing to fall, dropping from 8.5
percent in 1990 to 2.7 percent in 1994. One trade magazine explains
that, ``[c]igarette vending, once an industry mainstay, is now a niche
business increasingly conducted by specialized enterprises.'' \352\
---------------------------------------------------------------------------

\351\ U.S. Department of Commerce, ``Merchandise Line Sales,''
1992 Census of Retail Trade, RC92-S-3RV, pp. 3-27, 3-31.
\352\ Vending Times, Census of the Industry Issue, p. 36-D,
1995.
---------------------------------------------------------------------------

Referring to 1992 Census data, NAMA declared that over 3,000
vending machine operators supply cigarettes, not including the bars,
restaurants, hotels, and bowling alleys that own their own machines. On
average, these mostly small firms receive 10 percent of their revenues
from cigarette sales, although some firms are even more dependent.
While some vending machines can be converted to sell other products,
one large cigarette machine manufacturer maintained that more than 85
percent of the existing machines can be converted only for new products
with packaging similar in dimension and form to cigarette packages.
While vending operators will need to develop new markets to replace
the already dwindling sales revenues from cigarette vending machines,
the overall economic impact will be mitigated somewhat by FDA's
decision to exempt ``adult only'' locations from the ban. According to
a 1995 NAMA survey, 58 percent of cigarette vending machines are
located in bars and cocktail lounges, 11 percent in factory/plant
locations, and 3 percent in business offices. \353\ Those locations
that do not permit the entry of youngsters under the age of 18 will be
exempted from the cigarette vending machine restriction.
---------------------------------------------------------------------------

\353\ National Automatic Merchandising Association, Cigarette
Vending Machine Location Study, conducted August 31, 1995.
---------------------------------------------------------------------------

4. Advertising Sector
In annual reports to FTC, manufacturers of cigarettes and smokeless
tobacco reported 1993 advertising and promotional/marketing
expenditures of $6.0 billion and $119 million, respectively (see Table
14). About $2.6 billion (43 percent) of these outlays went to consumers
as financial incentives to induce further sales (e.g., coupons, cents-
off, buy-one-get one free, free samples), and $1.6 billion (26 percent)
to retailers to enhance the sale of their product. The remaining $1.9
billion (31 percent) were related to consumer advertising activities
that will be significantly modified by the ``text only'' restrictions.

TABLE 14.--TOBACCO ADVERTISING/PROMOTIONAL EXPENDITURES
1993 (Millions of Dollars)^{1
------------------------------------------------------------------------
Promotion Type Cigarettes Smokeless Total
------------------------------------------------------------------------
Coupons/Value Added 2,559 32 2,591
Promotional Allowances 1,558 13 1,571
Point of Sale 401 13 414
Specialties Items 756 4 760
Outdoor 231 1 232
Magazines 235 7 242
Public Entertainment 84 23 107
Free Samples 40 16 56
Transit 39 0 39
Newspapers 36 1 37
Direct Mail 31 1 32
Endorsements 0 0 0
All Others 64 7 71
------------------------------------------------------------------------
Total 6,035 119 6,154
------------------------------------------------------------------------
\1\ Totals may not add due to rounding.
Source: U.S. Federal Trade Commission

FDA cannot project the ultimate industry response to these
advertising restrictions. On the one hand, the effectiveness of many
advertisements will fall. On the other hand, many alternative marketing
promotional activities will be prohibited or constrained even more
stringently, raising the relative desirability of the remaining
advertising options. Moreover, as described above, FDA may require new
informational programs that would generate a substantial increase in
advertising industry revenues. Nevertheless, if tobacco outlays fall,
there will be short-term dislocations as industry resources are
redirected to other uses. One firm that depends heavily on tobacco
advertising warned of severe economic burdens, pointing to income and
job losses for many of its employees and suppliers. Most advertising
suppliers, however, are not overly specialized with respect to
particular consumer products and would redirect resources to other
advertising purchasers, albeit at some revenue loss. While FDA is aware
that such demand shifts cause short-term disruption, the U.S. economy
creates and discards thousands of products each day. For most
advertising media, the ability to respond rapidly to

[[Page 44602]]

changing markets is a mainstay of economic survival.
a. Print media. The final regulation requires that advertising of
cigarettes or smokeless tobacco be restricted to black text on a white
background in those publications where youthful readers constitute more
than 15 percent of total readership or number more than 2 million. FDA
cannot reasonably forecast the future marketing strategies of tobacco
manufacturers, but foresees a possible fall in the $242 million worth
of magazine advertising and the $37 million worth of newspaper
advertising that tobacco manufacturers reported to the FTC in 1993.
These advertising revenues comprised about 1.1 percent and 0.1 percent
of the 1992 value of shipments for periodicals and newspapers,
respectively. \354\ The Barents Group identified 32 leading magazines
with tobacco advertising in 1994 that have youth readership levels
exceeding the regulatory threshold and found that these publications
received, on average, 7.3 percent of their total advertising revenues
from tobacco in 1994. They also predicted, based on the sharp downward
trend of these advertising outlays, a 21-percent drop in magazine
advertising and a 45-percent drop in newspaper advertising for tobacco
products by 1996, irrespective of the FDA regulation.
---------------------------------------------------------------------------

\354\ Statistical Abstract of the United States, p. 750, 1995.
---------------------------------------------------------------------------

The impact of these restrictions on the various advertising media
and agencies is difficult to determine. The Barents Group contended
that FDA had argued in its original analysis that ``regulations for
print media will have little or no adverse impact.'' In fact, FDA made
no such projection, although the agency did present several historical
examples of advertising bans (e.g., the broadcast ban on tobacco
products) where advertising revenues rebounded in spite of new legal
restrictions. The Barents Group also faulted FDA for not comparing
actual revenues after the broadcast ban to revenues ``that would have
been expected in the absence of the ban.'' FDA, however, does not
believe that this ``counter factual'' logic for estimating costs
precludes the agency from suggesting that income and employment would
not necessarily fall in the wake of new advertising restrictions.
Several comments declared that advertising outlays would fall
sharply and subscription prices rise. According to the Barents Group,
imagery is a prerequisite for effective promotion and, in its absence,
magazine and newspaper advertising revenues would fall by 25 to 75
percent. It also predicted that the reduced revenues would, in turn,
force publication subscription prices to rise.
FDA agrees that there will be adverse impacts on certain
publications, but notes that the tobacco industry is currently shifting
its advertising budget away from print media and that only 6 of the 32
affected magazines identified by the Barents Group received over 10
percent of their revenues from tobacco products. Moreover, as noted
earlier, while FDA cannot project the tobacco industry's marketing
strategies, the agency suggests that restricted promotion alternatives
could reestablish print advertising as a relatively attractive option
for conveying product information to adult readers; thereby slowing or
even reversing the recent slide in this type of tobacco advertising.
The Barents Group also asserted that the commercial printing
industry, as well as other industry sectors, would be harmed by
restrictions on coupons and ``retail value added'' promotions. These
expenditures, which account for $2.6 billion, or 42 percent of the
total tobacco advertising and promotional outlays reported to FTC in
1993, include outlays associated with cents-off coupons and multiple
pack promotions, such as ``buy one, get one free'' or ``buy two, get
one free;'' as well as other give-away promotions, such as ``buy
cigarettes and get a free promotional item.'' The former activity will
be permitted but the latter prohibited under the final regulation.
Although a comment submitted by the Tobacco Institute noted that,
``[a]nalytically, such spending is more akin to a price cut than to
advertising,'' \355\ the Barents Group, nonetheless, concluded that,
``[a] considerable part of this spending would likely be eliminated by
the proposed regulations.'' FDA, however, does not agree that the
printing industry will be significantly affected by changes in
``coupons and value added'' outlays. Cents-off coupons and multiple
pack promotions are the principal components of these promotions and
will continue to be available under the final rule.
---------------------------------------------------------------------------

\355\ Beales, J. H., ``Advertising and the Determinants of
Teenage Smoking Behavior,'' vol. 44, p. 13, 1993.
---------------------------------------------------------------------------

b. Advertising agencies and other suppliers. Advertising agency
revenues are directly tied to the level of advertising expenditures by
product manufacturers. If tobacco manufacturers reduce advertising
outlays, these agencies will lose income. The Barents Group found that,
in 1993, tobacco companies routed almost $1 billion through ad agencies
(less than 1 percent of the reported $131.3 billion spent on U.S. media
advertising in 1992). \356\ Assuming agency fees of 10 percent (while
overlooking the proposed $150 million educational campaign), it
suggested that advertising declines of 25 to 75 percent would decrease
agency annual revenues by $25 million to $77 million. Assuming a 50
percent drop ($140 million) in magazine and newspaper advertising, the
Barents Group next applied a simulation model to predict that supplier
firms among advertising agencies, government, business and professional
services, and commercial printers businesses would lose revenues of
from $12 to $23 million. While acknowledging that, ``* * * there will
be eventual offsetting revenue gains in other industries not shown * *
*,'' these other sectors were not identified and the offsetting
revenues not explicitly quantified. The Barents Group correctly noted
that the adjustments will involve short-term costs to the affected
sectors, but did not estimate the expected magnitude of these
adjustment costs.
---------------------------------------------------------------------------

\356\ Endicott, R. C., ``Top Advertisers Rebound, Spending to
$36 Billion,'' Advertising Age, vol. 64, No. 41, p. 1, September 29,
1993.
---------------------------------------------------------------------------

c. Outdoor advertising industry and public transit authorities. The
final rule restricts tobacco billboards and public transit advertising
to black text on a white background and bans all stationary outdoor
tobacco ads within a 1,000-foot radius of any school or public
playground. The Barents Group predicted that almost all urban areas
would be covered by the ban and expected almost no new outdoor tobacco
advertising ``even in permitted areas due to the relative
ineffectiveness of black-and-white text as an advertising medium.''
Further, explaining that the $232 million spent on outdoor advertising
in 1993 accounts for about 14 percent of all outdoor advertising in the
United States, the Barents Group found it unlikely that the industry
could find new means of maintaining its current revenues.
In fact, the billboard industry and public transit districts will
have to find replacements irrespective of this regulation. According to
the Barents Group projections, spending on outdoor advertising by
tobacco companies will fall by almost 40 percent between 1988 and 1996
(Appendix Table). One billboard trade source notes that, ``almost 60
percent of the industry's 1979 revenues were derived from

[[Page 44603]]

tobacco and alcohol advertisers. Today that number is down to 13
percent, replaced by retail, business and consumer services,
entertainment, and travel advertisers.'' \357\ Similarly, FDA's
preliminary economic analysis had recognized that Canada's billboard
industry had rapidly adjusted to a recently imposed advertising ban and
``quickly replaced $20 million in lost cigarette revenues with ads for
food, soap, toothpaste and beer.'' \358\
---------------------------------------------------------------------------

\357\ Burns, K., ``Driving Into the Future with New
Technology,'' Outdoor Advertising Magazine, p. 5, January/February
1995.
\358\ Wolfson, A., ``Canada's Ad Ban Puts Cigarettes Out of
Sight,'' The Courier-Journal, pp. A1, A4, August 1, 1994.
---------------------------------------------------------------------------

In 1993, tobacco industry spending on public transit ads ($39.1
million) contributed less than 1 percent to total public transit
revenues, having declined by 35 percent from 1990 to 1993.
Acknowledging that these expenditures would continue to fall,
irrespective of this rule, the Barents Group argued that since
relatively few transit authorities accept tobacco ads, the impact of
the regulation would be significant for those few.
d. Specialty item suppliers. The prohibition of nontobacco
specialty items bearing the name or logo of tobacco products will
affect a substantial number of specialty manufacturers. In earlier
comments to FTC, \359\ the Specialty Advertising Association
International noted that it ``represents 4,400 firms that manufacture
or sell utilitarian objects imprinted with advertising * * *
predominantly small businesses.'' It is likely that some of these firms
would, at least initially, lose part of this $760 million market and
would experience short-term costs while exploring other business
options.
---------------------------------------------------------------------------

\359\ 56 FR 11661 (March 20, 1991).
---------------------------------------------------------------------------

The Barents Group projected that manufacturer outlays for these
promotional items, in the absence of the FDA rule, would triple between
1993 and 1996, rising from $760 million to $2.2 billion, assumed that
the rule would cause revenue decreases of 25 to 75 percent, and modeled
the impacts among other affected industry sectors (e.g., miscellaneous
manufacturers producing matches and matchbooks, cigarette lighters,
pens and pencils, sporting goods, etc.). The revenue and employment
losses, therefore, were measured from a baseline that assumed a
tripling of future industry revenues. While these growth projections
may be optimistic, they demonstrate the rapid swings that typify the
market for many of these industries. Indeed, the Barents Group's
forecasts imply that even if the FDA rule were to reduce the 1996 level
of tobacco industry advertising on specialty items by 50 percent, these
outlays would still exceed the 1995 level.
In any case, FDA believes that the Barents Group's forecasted
impacts may be overestimated, as they primarily reflect static
outcomes, whereas firms supplying such products are constantly
adjusting production in response to rapidly shifting patterns of
demand. While these regulatory changes will impose short-term
dislocation costs, these costs will be significantly mitigated in view
of the extensive lead time provided. Again, the Barents Group noted
that FDA had not quantified these transitory costs, but it also
provided no estimate.
e. Sponsorship recipients. According to reports submitted to FTC,
U.S. tobacco companies spent $107 million on public entertainment,
primarily sporting events, in 1993. \360\ In comparison, total spending
on corporate sponsorships for sports, arts, and other entertainment by
all North American companies is estimated to reach $5.4 billion in
1996. \361\ FDA received numerous public comments asserting that the
loss of sponsorship revenues for sporting events would increase ticket
prices and, in turn, reduce spectator attendance. In particular,
comments pointed to the potential loss of jobs, employee benefits, and
business revenues associated with race track events.
---------------------------------------------------------------------------

\360\ Federal Trade Commission Report to Congress for 1993:
Pursuant to the Federal Cigarette Labeling and Advertising Act, p.
18, 1995; Federal Trade Commission Report to Congress: Pursuant to
the Comprehensive Smokeless Tobacco Health Education Act of 1986, p.
24, 1995.
\361\ EPM Communications, Inc. ``Entertainment Marketing
Letter,'' February 1, 1996. Based on IEG Sponsorship Report.
---------------------------------------------------------------------------

The Barents Group contended that a substantial part of the payments
made by tobacco manufacturers would be eliminated by a ban on tobacco
brand sponsorships, because few sponsors would agree to continue
sponsorships under corporate names. Acknowledging the lack of reliable
information on economic impacts; it, nonetheless, referenced several
studies showing that lost sponsorship dollars decrease revenues and
temporary jobs for local economies. The Barents Group predicted that,
as tobacco companies eliminate payments, other advertisers would
replace the major sponsorships, but leave reduced or no funding for the
less popular events. On this basis, it projected a 25 to 75 percent
reduction in sponsorship dollars, calculated to result in revenue
losses of $27 to $80 million.
Among the affected U.S. sporting events, the auto racing industry
receives the greatest amount of tobacco sponsorship revenues. The
Barents Group relied on various editions of the IEG Intelligence
Reports (IEG) to list these sponsorships. In reviewing the IEG data and
other sources, FDA found that about $29 million worth of 1995 tobacco
sponsorship revenues were designated for the National Association for
Stock Car Auto Racing (NASCAR); \362\ which amounted to about 8.3
percent of estimated NASCAR sponsorship revenues \363\ and about 1.4
percent of estimated NASCAR total revenues. \364\ The IEG data listed
Indy Car tobacco sponsorships totaling only about $13 million, although
these data did not cover all events.
---------------------------------------------------------------------------

\362\ 1995 IEG Intelligence Report lists $26.7 million in
tobacco sponsorships of NASCAR. Two tobacco-sponsored events did not
list the sponsorship fees, which FDA estimates at about $1 million
apiece.
\363\ Koenig, B., ``NASCAR takes Lead in Race for Sponsors:
Stock-car Racing Gains Corporate Funds as CART and IRL Lag in Money
and Ratings'', The Indianapolis Star, March 8, 1996, Business p.
F01.; MacCrae, M., ``Ricky Craven Collectibles Boost Intensive Fan
Interest in Driver'', Bangor Daily News, May 2, 1996.
\364\ Oliver, S., ``A Fan-Friendly Sport,'' Forbes, p. 70, July
3, 1995; Horovitz, B., ''Fine-Tuning an Image-New Sponsors Race to
NASCAR,'' USA Today, Final Edition, p. 1B, April 5, 1996.
---------------------------------------------------------------------------

As the majority of the NASCAR tobacco sponsorship revenues were
directed to the Winston Cup or other lead series, FDA agrees that a
major effect of the ban will be to decrease the price of sponsorships,
permitting smaller sponsors to ``trade up'' to the more prestigious
sponsorships left vacant by tobacco companies. Although new company
sponsors will be attracted by the lower overall sponsorship costs, this
``ripple effect'' will impose shortfalls for some smaller or lower
profile events. This economic impact will be somewhat mitigated,
however, by the rapid growth in nontobacco sponsorships. According to
IEG estimates, over the past year, motorsport sponsorship spending rose
by about 17 percent \365\ and total North American corporate
sponsorship spending by about 15 percent. \366\
---------------------------------------------------------------------------

\365\ MacCrae, M., ``Ricky Craven Collectibles Boost Intensive
Fan Interest in Driver,'' Bangor Daily News, May 2, 1996.
\366\ IEG's Complete Guide to Sponsorship, p. 3, 1995.

---------------------------------------------------------------------------

[[Page 44604]]

5. Retail Sector
In addition to incurring the economic costs described earlier,
certain segments of the retail industry will experience adverse
distributional impacts to the extent that they receive smaller
promotional allowances (slotting fees) from manufacturers. In 1993,
industry promotional allowances totaled $1.6 billion dollars. According
to FTC:
Promotional allowances are designed to encourage wholesalers and
retailers to stock and promote a company's products, including such
things as trade allowances and slotting allowances. Trade allowances
provide deals to cigarette wholesalers, dealers and merchants in the
form of free goods or price reductions in return for the purchase of
specific quantities of goods. Slotting allowances include fees that
the cigarette manufacturers pay retailers to encourage them to carry
a new product or to allocate premium shelf space to a product. Trade
contests and incentives, training programs, and trade shows may also
be counted as promotional allowances.
One major convenience store association, estimating that its members
currently receive about $5,000 per store, remarked that convenience
stores would ``bear a disproportionate burden should such allowances be
eliminated as a result of the ban on self-service displays.'' Other
retailers expressed similar concerns over the prohibition of self-
service displays and promotional advertising, fearing it would lead to
the elimination of these revenues.
The Barents Group argued that there were strong reasons to believe
that promotional allowances would fall sharply as ``tobacco products
are withdrawn to inaccessible areas of the store, [and] the products
taking their place will offer lower allowances.'' While acknowledging
that, ``[t]he possibility of promotional payments continuing may depend
on whether the proposed regulations would allow the tobacco packages
and cartons to be displayed from behind the check-out counter or from
some other secured location in the stores,'' they nonetheless presented
``illustrative'' revenue reductions of from 25 to 50 percent and
projected total revenue losses to the retail sector of $556 to $1,112
million. Using the higher percentage, their analysis implies that
pretax profit margins would fall 12.4 percent for the average sized
convenience store and even more for smaller stores. Moreover, they
predicted that about 2 percent of currently profitable convenience
stores would thereafter incur losses.
FDA suspects that many of these concerns are unwarranted as tobacco
manufacturers will continue to place significant value on having their
products situated in highly visible locations. Although desirable
locations behind counters or in locked display cases will be more
limited, there is little reason to believe that manufacturers would
stop competing for the best display space available. One comment
indicated that following a self-service ban in a local area of Northern
California, some retailers:
* * * reported losses of tobacco industry-paid slotting fees * *
* because of the removal of self-service promotional tobacco
displays, racks and kiosks; * * * other retailers reported they did
not loose [sic] tobacco industry-paid slotting fees if tobacco
displays, racks or kiosks are relocated behind the counter or if
they are replaced by locking cases * * * [There were] no reported
losses of other tobacco industry-paid advertising fees, promotional
allowances or other financial incentives paid to retailers for
advertising, promoting and marketing tobacco products in their
stores. \367\
---------------------------------------------------------------------------

\367\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco
Sales,'' North Bay Health Resources Center, Stop Tobacco Access for
Minors Program (STAMP), Petaluma, CA, pp. 2-3, November 3, 1994.
---------------------------------------------------------------------------

Because of the regional aspects of this ban, it was a ``worst case''
situation for retail stores. If self-service displays were a
prerequisite for promotional allowances, tobacco manufacturers would
have quickly transferred them to other near-by localities, where self-
service was permitted. The fact that this did not generally occur
demonstrates that factors other than self-service displays can support
manufacturer promotional payments to retailers.
Another comment noted that, ``[i]n at least some areas, cigarette
companies have continued payments to retailers for favored display
space. For instance, Philip Morris has provided clear, plastic cases
for the display of cigarette packs and cartons in some stores. These
cases are placed on a checkout counter but only accessed from the
clerk's side. This arrangement permits prominent display of cigarette
packs to customers who are thereby offered cigarettes at close range
while being unable to pick up packs or cartons themselves.'' In
discussing the effects of the Canadian advertising ban, a Canadian
study \368\ suggested that, ``[i]n the absence of advertising and
promotion outlets * * * the cigarette industry may be expected to
provide greater incentives to retailers to provide more and better
shelf space for their brands in order to provide availability to the
buyer in the store.'' Moreover, because FDA has not banned all point-
of-purchase tobacco advertising, ``text only'' advertising at retail
stores will be extremely important to tobacco product marketers.
---------------------------------------------------------------------------

\368\ ``When Packages Can't Speak: Possible impacts of plain and
generic packaging of tobacco products,'' Expert Panel Report,
Prepared at the request of Health Canada, p. 140, March 1995.
---------------------------------------------------------------------------

In addition, alternative opportunities for point of purchase (POP)
advertising have climbed briskly, as POP experts ``cite in-store
advertising as the fastest growing segment of the media industry.''
\369\ That same Northern California study expressly noted the
``[r]eplacement of self-service tobacco displays, racks and kiosks with
* * * non-tobacco products such as candy, gum and soft drinks for which
the retailer receives slotting fees from the manufacturers of these
products.'' \370\
---------------------------------------------------------------------------

\369\ ``P-O-P Scores with Marketers,'' Advertising Age, p. 2,
September 26, 1994.
\370\ Kropp, R., ``A Position Paper on Reducing Tobacco Sales to
Minors by Prohibiting the Sale of Tobacco Products by Means of Self-
Service Merchandising and Requiring Only Vendor-Assisted Tobacco
Sales,'' North Bay Health Resources Center, Stop Tobacco Access for
Minors Project (STAMP), Petaluma, CA, pp. 2-3, November 3, 1994.
---------------------------------------------------------------------------

In sum, FDA cannot predict with certainty the direction of future
payments by product manufacturers to retailers. The agency points out,
however, that this rule would affect neither the trade allowances that
are commonly paid to both wholesalers and retailers, nor the slotting
allowances paid to retailers to encourage them to carry a new product
or to assure the availability of a particular brand in a retail outlet.
Further, while many current promotional activities will be prohibited,
a substantial number will remain available. As the competitive
pressures that drive promotional allowances are unlikely to abate,
manufacturers will continue to compete vigorously through programs
involving both ``text only'' promotions and select product placements.
6. Other Private Sectors
FDA is aware of several recent studies that address the
contribution of tobacco to the U.S. economy; or alternatively, the
losses to the U.S. economy that would follow a decline in tobacco-
related expenditures. The Tobacco Institute's Price Waterhouse report
\371\ purports to measure the induced effect on the national economy of
spending by the tobacco core and supplier sector employees and their
families. That

[[Page 44605]]

report concluded that the induced or multiplier effects support 2.4
jobs for every 1 job in the core and supplier sectors combined, and
over $3 in compensation for every $1 in the other two sectors. However,
a review of that report, by Arthur Andersen Economic Consulting,
explained that such multipliers lead to ``massive and unrealistic
estimates.'' \372\ That review further emphasized that ``money now
being spent on tobacco would not disappear if demand for tobacco were
to fall,'' though the Price Waterhouse report implicitly made that
assumption. The Arthur Andersen review concluded that these multipliers
``provide no basis by themselves for predicting how many jobs would be
lost by a reduction in tobacco spending.'' FDA strongly supports this
latter view.
---------------------------------------------------------------------------

\371\ ``The Economic Impact of the Tobacco Industry on the
United States in 1990,'' Price Waterhouse, October 1992.
\372\ ``A Review of the Price Waterhouse Economic Impact Report
and Tobacco Institute Estimates of `Economic Losses from Increasing
the Federal Excise Tax','' Arthur Andersen Economic Consulting, p.
93, October 6, 1993.
---------------------------------------------------------------------------

The American Economics Group (AEG), in a new study submitted by the
Tobacco Institute, employed a national input-output model to project
broad sectoral and regional estimates of ``the induced impact of the
FDA proposed regulations nationwide.'' Applying the low and high
illustrative costs estimated by the Barents Group, AEG predicted job
losses of between 32,000 and 92,500. In addition to the printing and
publishing industries, significant employment cutbacks were found for
food, apparel and textiles, paper, metals, motor vehicles, and other
miscellaneous manufacturers.
FDA is skeptical of the results of this AEG study. First, the
input-output methodology employs an inherently static approach for
estimating economic impacts. Indeed, the Barents Group, in its second
report for the Tobacco Institute, explained that input-output models
will not capture changing economic conditions, because they fail to
account for changing market prices. Thus, ``the input-output approach
fails to measure the effects of reallocating displaced workers and
resources to other parts of the economy.'' Furthermore, the AEG study
suffers from the same fundamental problem as the earlier Price
Waterhouse analysis: It assumes that all reduced industry revenues are
lost to the economy. This methodology is simply inappropriate. Finally,
the AEG study is based upon the illustrative cost estimates of the
Barents Group. As described in detail above, these cost estimates are
unreasonably high. Although some tobacco advertising may decrease, a
significant portion will be redirected towards the remaining
permissible promotional activities.
In a second report, the Barents Group presented the results of
using its own cost estimates in a general equilibrium model to simulate
the impacts of the estimated reductions in advertising and promotional
spending on revenue and employment for 56 sectors of the U.S. economy.
This model predicted 21,000 to 44,000 U.S. job losses, largely among
wholesale and retail businesses, but also within advertising, printing,
apparel and miscellaneous manufacturing industries. FDA finds, however,
that this study also is subject to several serious deficiencies. In
particular, the Barents Group relies on its own illustrative cost
estimates as model inputs. As noted above, FDA believes these estimates
are far too high. Next, the study focuses solely on those industry
sectors predicted to lose jobs, while ignoring those sectors expected
to gain jobs. In fact, the study explicitly acknowledges that the
underlying model assumes that:
the aggregate level of employment is not changed in the long run
as a result of implementing the new regulations. In other words,
though particular jobs in particular industries are expected to
disappear permanently, the number of man-hours worked per year in
the economy as a whole is assumed not to change in the long run * *
*
The Barents Group selectively shows changes in revenue and employment
for the losers only.
Other analysts concluded that such models should not be used to
assess longer term national economic impacts, because resources
diverted from one use would be reallocated to the production of other
goods and services. As one economist explained ``[i]f the focus is
longer term, involving a period of, say, more than 2 years, then the
induced effect should not be included in the measure because money not
spent in one industry would find another outlet with equal
(undistinguishable) induced effects.'' \373\
---------------------------------------------------------------------------

\373\ Gray, H. P., and I. Walter, ``The Economic Contribution of
the Tobacco Industry,'' in Smoking and Society: Toward a More
Balanced Assessment, edited by R. D. Tollison, Lexington Books, p.
248, 1986.
---------------------------------------------------------------------------

Some comments addressed regional issues, pointing to the importance
of tobacco products to the economies of several states. Comments noted,
for example, that about 177,000 North Carolinians were employed by
tobacco and that Price Waterhouse estimated that the economic activity
of these workers supported total State employment of 260,000. FDA is
aware that tobacco growing states will experience some adverse economic
effects. Nevertheless, as discussed above, the agency finds that the
income and employment impacts associated with reduced tobacco
consumption will be extremely gradual. Moreover, reduced tobacco
consumption will minimally affect or even boost the economies of
nontobacco states. For example, a recent economic simulation of the
regional impacts of spending on tobacco products by Warner, et al.,
found that after 8 years, a 2 percent per year fall in tobacco
consumption (which substantially exceeds the FDA forecast for this
regulation) would cause the loss of 36,600 jobs for the Southeast
Tobacco region of the United States (0.2 percent of regional
employment); whereas the nontobacco regions of the United States would
gain 56,300 jobs. \374\ That study concluded that ``[t]he primary
concern about tobacco should be the enormity of its toll on health and
not its impact on employment.''
---------------------------------------------------------------------------

\374\ Warner, K. E., G. A. Fulton, P. Nicolas, and D. R. Grimes,
``Employment Implications of Declining Tobacco Product Sales for the
Regional Economies of the United States,'' JAMA, April 24, 1996.
---------------------------------------------------------------------------

7. Excise Tax Revenues
The rule will decrease State and Federal tobacco tax revenues as
fewer youths will become addicted to tobacco products. These excise tax
losses will increase as more youths become nonsmoking adults. According
to the Tobacco Institute, State cigarette excise taxes totaled $6.2
billion for the year ending June 30, 1993. \375\ As State excise taxes
on other tobacco products (including smokeless tobacco) are reported at
$226 million, FDA assumes that the value of all State excise taxes
affected by this regulation is about $6.4 billion annually. Federal
excise taxes on cigarettes totaled $5.5 billion for the year ending
June 30, 1993. Federal excise taxes on smokeless tobacco are expected
to be about $27 million, according to the Smokeless Tobacco Council. As
described above, FDA estimates that compliance will reduce tobacco
product sales by a gradually increasing rate over time; tobacco sales
will fall by 0.5 percent in the 1st year, 1.9 percent in the 5th year,
and 3.7 percent in the 10th year. Thus, the rule will decrease State
excise taxes on affected tobacco products by from $30 million in the
1st year to $231 million in the 10th year and Federal tobacco

[[Page 44606]]

taxes by from $25 million in the 1st year to $196 million in the 10th
year.
---------------------------------------------------------------------------

\375\ The Tobacco Institute, ``The Tax Burden on Tobacco,'' vol.
28, p. 4, 1993.
---------------------------------------------------------------------------

Since tobacco taxes represented less than 1 percent of total
revenues on both the State and Federal level in 1992, \376\ even the
estimated tenth year impact measures only 0.03 percent of all State tax
revenues and less than 0.02 percent of all Federal revenues.
Nonetheless, if necessary, governments could raise tobacco product
excise rates to offset these revenue losses. A full evaluation of the
fiscal consequences, however, would involve a variety of public health
ramifications. For example, State Medicaid programs will benefit from
reduced tobacco-related medical care expenditures, but will need to
finance additional nursing home expenditures associated with increased
life expectancy.
---------------------------------------------------------------------------

\376\ U.S. Department of Commerce, Statistical Abstract of the
United States 1994, 114th edition, No. 464, p. 298, 1994.
---------------------------------------------------------------------------

F. Small Business Impacts

The Regulatory Flexibility Act requires agencies to prepare a final
regulatory flexibility analysis if a rule will have a significant
economic impact on a substantial number of small entities. Analyses in
this section, as well as in other sections of this preamble, constitute
the agency's compliance with this requirement. According to the
Regulatory Flexibility Act, the final regulatory flexibility analysis
must contain ``a succinct statement of the need for, and objectives of,
the rule.'' Section XV.B. of this document explains that the need for
action stems from the enormous toll on the public health that is
directly attributable to the consumption of tobacco by children and
adolescents under the age of 18. As described, the primary objective of
the regulation is to achieve the ``Healthy People 2000'' goal of
reducing by one-half the number of youngsters who use tobacco.
The final regulatory flexibility analysis must also provide ``a
summary of the significant issues raised by the public comments in
response to the initial regulatory flexibility analysis, a summary of
the assessment of the agency of such issues, and a statement of any
changes made in the proposed rule as a result of such comments.'' The
analyses presented previously in this section addressed the first two
of these elements.
With respect to the changes made in the proposed rule as a result
of public comments, the agency has reconsidered several of its earlier
decisions, at least partly due to their projected effect on small
businesses. The preamble above describes these changes and presents the
agency's rationale for each modification. For example, the proposed
regulation banned all vending machine sales of tobacco products. In
response to public comment, the final regulation exempts from the ban
those vending machines in ``adult only'' locations. FDA does not know
how many small businesses will be able to take advantage of this
exemption, but it will maintain at least one line of sales for small
vending machine operators without jeopardizing the protection of young
people.
In addition, the proposed regulation prohibited direct mail-order
sales of tobacco products. The public comments, however, indicated that
many adults, especially those who are elderly or who have limited
mobility, would be substantially inconvenienced and several small
businesses would be adversely affected by this ban. Even more
importantly, studies suggest that teenagers purchase cigarettes from
vending machines or retail merchants rather than from nonretail
channels. FDA took these considerations into account and the final
regulation does not prohibit mail-order sales of cigarettes.
The final regulatory flexibility analysis must also include ``a
description of and an estimate of the number of small entities to which
the rule will apply or an explanation of why no such estimate is
available.'' U.S. Census data for 1993 indicate that most cigarette
manufacturers are large businesses, with only 4 employing fewer than
500 employees. \377\ The small business size standard established by
the U.S. Small Business Administration (SBA) for this industry is 1,000
employees. \378\ The Federal Trade Commission (FTC) provided a list of
52 cigarette importers and small cigarette manufacturers filing plans
with that agency, but could not distinguish manufacturers from
importers. \379\ The 1993 Census data show that 14 of the 20 firms
manufacturing chewing and smoking tobacco employ fewer than 500
employees, the SBA size standard for this sector. \380\ Also, most of
the nation's 124,000 tobacco farms are small; almost 99 percent of the
farms growing tobacco in 1992 had total farm sales under the SBA small
business size standard of $500,000, and almost 91 percent had total
farm sales under $50,000. \381\ Further, 1993 Census data show that
1,332 of 1,365 tobacco wholesale trade firms (98 percent) employ fewer
than the 100-employee threshold that constitutes a small business
according to the SBA. \382\ As noted above, the effect of the
regulation on tobacco manufacturing, growing, and wholesale trade
operations will be very gradual, taking over 10 years to reach a 4
percent reduction.
---------------------------------------------------------------------------

\377\ Special Census Tabulation prepared by U.S. Bureau of
Census for U.S. Small Business Administration, Table 3--United
States p. 68.
\378\ U.S. Small Business Administration, ``Table of Size
Standards,'' March 1, 1996.
\379\ Federal Trade Commission, ``Cigarette Importers and Small
Manufacturers Plans Filed, May 26, 1993-October 14, 1994.''
\380\ Special Census Tabulation prepared by U.S. Bureau of
Census for U.S. Small Business Administration, Table 3--United
States p. 69.
\381\ 1992 Census of Agriculture, U.S., vol. 1, excerpts from
pp. 109-110, 125-126.
\382\ Special Census Tabulation prepared by U. S. Bureau of
Census for U.S. Small Business Administration, Table 3--United
States.
---------------------------------------------------------------------------

The regulation will affect numerous retail establishments,
including food stores, small general merchandise stores, small tobacco
stores and small gasoline stations. Table 15 displays the relative
share of the tobacco market for the major types of tobacco-dispensing
outlets with payroll in 1992. As shown, food stores and service
stations received about 75 percent of all tobacco sales revenue and
tobacco products comprised 5 to 7 percent of the total sales of many of
these establishments. Table 16 indicates that the great majority of all
retail outlets in these sectors are small businesses.

[[Page 44607]]

TABLE 15.--SALES OF TOBACCO PRODUCTS AS A PERCENTAGE OF TOTAL SALES--1992
(Establishments with Payroll Only)
----------------------------------------------------------------------------------------------------------------
Tobacco Sales % of Total Sales
-----------------------------------------------------
Establishment Type Establishments
($ Mils) (%) Handling All
Tobacco Establishments
----------------------------------------------------------------------------------------------------------------
All 30,559 100 4.5 2.9
Food Stores 16,132 52 4.5 4.4
Service Stations 7,136 23 7.1 5.3
Drug and Proprietary 2,235 7 3.7 2.9
General Merchandise 3,182 10 2.4 1.3
Liquor Stores 1,045 3 8.0 5.1
Eating and Drinking 219 1 3.0 0.1
Tobacco Stores & Stands 610 2 78.1 78.1
----------------------------------------------------------------------------------------------------------------
Source: 1992 Census of Retail Trade, Merchandise Line Sales

[[Page 44608]]

TABLE 16.--NUMBER OF SMALL RETAIL BUSINESSES
--------------------------------------------------------------------------------------------------------------------------------------------------------
Firms With Payroll
Establishment Type ---------------------------------------------------------------------------------- Establishments Without Payroll
Total Small^{1
--------------------------------------------------------------------------------------------------------------------------------------------------------
All 588,505 473,668 275,432
Food Stores 127,575 104,541^{2 97,061
Service Stations 62,585 53,288^{3 14,248
Drug and Proprietary 28,606 25,396 3,031
General Merchandise 10,264 8,176 28,010
Liquor Stores 26,565 22,859 8,811
Eating and Drinking 331,703 258,381 124,271
Tobacco Stores & Stands 1,207 1,027 n.a.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Assumes Small Business Administration size standard of $20 million in annual sales for food stores, $6.5 million for service stations and $5 million
for all others.
\2\ Due to data limitations, includes firms with annual sales up to $25 million.
\3\ Due to data limitations, includes firms with annual sales up to $10 million.
Source: 1992 Census of Retail Trade, Establishment and Firm Size, 1992 Census of Retail Trade, Summary.

[[Page 44609]]

To illustrate the effects of this proposal on a typical small
retail store, FDA separately utilized Census data to estimate that the
average-sized convenience store sells 177 packages of tobacco products
daily, of which about 25 might be purchased by young adults aged 18 to
26. \383\ Based on the cost assumptions described previously, the
outlet's first year costs would total about $400, with the largest
single cost, $199, the labor cost for checking identification. For
those stores that already verify the age of young customers of tobacco
products, the additional costs fall to $137.
---------------------------------------------------------------------------

\383\ Based on data form the 1994 SGR, p. 85, and the ``Tobacco
Situation and Outlook Report'' April, 1995, p. 4, FDA estimates that
smokers aged 18 to 26 account for about 10 percent of all cigarettes
smoked. Alternatively, data from the Statistical Abstract, tables 16
and 218, show that smokers aged 18 to 26 comprise 18 percent of all
smokers. FDA used the midpoint of the 10 to 18 percent range to
avoid underestimating the cost to small retailers. In addition, data
from the 1996 Census of Retail Trade, Subject Series-Merchandise
Line Sales, pp. 3-9 on the number of convenience stores with payroll
and their total tobacco sales, and the average price per pack, were
used to estimate the average number of packs sold daily at
convenience stores to smokers aged 18 to 26.
---------------------------------------------------------------------------

This estimate does not account for the possible reduction in
promotional allowances, as FDA believes that competitive pressures will
continue to lead manufacturers to rely on promotional allowances to
compete for the best shelf space available for their products. Because
FDA rejected the idea of prohibiting any visible display of tobacco
products, retailers can retain slotting fees by choosing to display
tobacco products either behind counters or in transparent locked
display cases. Nevertheless, some small establishments might experience
reduced promotional payments following a ban on self-service marketing.
Census data for 1992 indicate that almost 4,000 of 4,800
merchandising machine operator businesses (83 percent) reported annual
receipts below the SBA size standard of $5 million. \384\ One trade
association noted that almost three quarters of all vending machine
operators had annual sales of less than $1 million. \385\ As explained
earlier, prohibiting all cigarette vending machines would initially
reduce the revenues of vending machine operators by an average of 2.8
percent. Because only about one-half of the merchandising machine
establishments sell cigarettes, some businesses specializing in
cigarette sales would experience greater revenue declines; although
this effect will be moderated to the extent that cigarette vending
machines are placed in areas restricted to adults, which would not be
prohibited by the final rule.
---------------------------------------------------------------------------

\384\ 1992 Census of Retail Trade, ``Establishment and Firm
Size,'' Table 4 p. 1-99.
\385\ ``1993: Industry Posts Best Growth in Four Years,''
Automatic Merchandiser, p. A2, August 1994.
---------------------------------------------------------------------------

The rule would also affect the distribution of specialty items
showing a tobacco product logo or name. Industry comments do not
provide precise data on the size distribution of these firms, but as
noted above, the Specialty Advertising Association International
indicates that 80 percent of the manufacturers and 95 percent of the
distributors in this industry have annual sales below $2 million. While
the marketplace in which these firms traditionally compete demands a
quick response to shifting consumer trends, this rule would have at
least short-term impact on some small firms.
FDA has received no data that would allow it to estimate the number
of small firms that are currently involved with some aspect of tobacco
advertising or the fraction of these firms that will be affected. In
1992, 861 of 904 year-round outdoor advertising firms (95 percent)
reported sales revenues of less than the SBA size standard of $5
million. \386\ The impact of this rule, however, is difficult to assess
without knowing how the tobacco industry will alter its advertising
strategies. Indeed, one of the largest outdoor advertising firms
recently decided to reject all tobacco business, potentially increasing
sales to the smaller firms. \387\
---------------------------------------------------------------------------

\386\ 1992 Census of Service Industries, pp. 1-145 and 1-195.
\387\ Collins, G., ``Major Advertising Company to Bar Billboard
Ads for Tobacco,'' New York Times, A15, May 3, 1996.
---------------------------------------------------------------------------

The regulation restricts tobacco advertising to ``text only'' in
magazines with youth readership above the regulatory threshold. Of the
identified 101 magazines with tobacco ads in 1994, 79 were published by
large firms (over 500 employees). Less than 3 percent of the total
revenue of the remaining 22 publications (which include, Inc., Rolling
Stone and Penthouse) was derived from tobacco ads. \388\ It is likely,
moreover, that many of these magazines could avoid the ``text only''
restriction for tobacco advertising by demonstrating a low youth
readership.
---------------------------------------------------------------------------

\388\ 1996 Directory of Corporate Affiliations U.S. Private
Companies, New Providence, NJ; Reed Elsevier, Inc.; ``Company
Profiles'' database, Information Access Co., Foster City, CA.
---------------------------------------------------------------------------

The regulation will also affect a substantial number of small race
tracks, although FDA does not know how many small tracks currently
receive significant revenues from tobacco sponsors. As discussed
previously, some small operations will likely lose promotional revenues
from tobacco companies, but the sport is growing rapidly and other
product manufacturers should make up a substantial part of the
shortfall.
The final regulatory flexibility analysis must include ``a
description of the projected reporting, recordkeeping and other
compliance requirements of the rule, including an estimate of the
classes of small entities which will be subject to the requirement and
the type of professional skills necessary for preparation of the report
or record.'' A full description of the requirements and classes of
affected small entities has been provided earlier in this section and a
quantitative review of the paperwork burdens imposed by the rule is
provided in section XVI. of this document. No special professional
skills will be required to prepare the reports or records required by
the regulation.
The final regulatory flexibility analysis must also include ``a
description of the steps the agency has taken to minimize the
significant economic impact on small entities consistent with the
stated objectives of applicable statutes, including a statement of the
factual, policy, and legal reasons for selecting the alternative
adopted in the final rule and why each one of the other significant
alternatives to the rule considered by the agency which affect the
impact on small entities was rejected.''
The earlier sections of this document provide a full explanation of
the agency's basis for selecting each provision of the final rule. In
each instance, FDA evaluated the implications of each reasonable
regulatory alternative and selected only those requirements that were
absolutely necessary to satisfy the agency's statutory goals. As
described, FDA found that its objectives for reducing the use of
tobacco by young people could not be achieved with a partial or one-
dimensional approach, but required a comprehensive set of regulatory
restrictions. Thus, the final set of selected provisions reflect a
careful examination of the relevant facts presented to the rulemaking
record, the agency's objective of curtailing the use of tobacco by
youngsters without creating unnecessary economic burdens, and a full
assessment of the agency's legal authorities. Because the rejected
alternatives would either provide less protection of public health, or
achieve

[[Page 44610]]

only minimal improvements at unwarranted cost, the agency found that
the approach selected for the final rule best fit its statutory
mandate.
As noted, earlier sections of the preamble fully describe the
agency's rationale for selecting each provision of the final rule and
for rejecting each alternative approach. Although many alternatives
were considered, specific exemptions based solely on business size were
not adopted, because FDA believes that children would too frequently
exploit such opportunities. Unlike certain other regulations where
restrictions on large firms alone might be acceptable, tobacco products
are purchased easily from small, as well as large firms. An exemption
for small retailers, for instance, would shift underage sales to those
locations, lessening or eliminating the benefits of the remaining
access restrictions. The following discussion summarizes the agency's
consideration of several other regulatory alternatives.

G. Other Alternatives

One regulatory alternative would have banned all tobacco
advertising; or alternatively, all tobacco advertising in selected
media, such as all written publications, or all outdoor billboards. FDA
rejected this approach in order to focus on those media and aspects of
advertising that children are routinely exposed to and that have the
greatest effect on youngsters. For example, the final rule permits
black and white ``text only'' tobacco advertising in all written
publications and color and imagery in magazines with fewer than 2
million youthful readers if youth constitute less than 15 percent of
the publication's readership. Billboards are permitted to show black
and white ``text only'' ads if located at least 1,000 feet from schools
or public playgrounds. Thus, the rule leaves the informational aspects
of advertising largely untouched.
Another suggested alternative was to combat underage tobacco use by
relying on either voluntary compliance or on better enforcement of laws
prohibiting sales to minors. As discussed earlier in this document, the
tobacco industry's voluntary advertising code has failed to stop
illegal sales to underage buyers. FDA agrees that these approaches can
be partially effective, but finds that they inadequately counter the
appeal of tobacco products for young people that is created by
advertising and promotions. Thus, the agency concludes that there is no
less burdensome alternative for achieving its goals that would exclude
appropriately tailored restrictions on tobacco advertising.
One alternative considered by the agency was a far more
prescriptive monitoring requirement for tobacco manufacturers. Under
this rule, each manufacturer of tobacco products would have been
required to adopt a system for monitoring the sales and distributions
of retail establishments. These monitoring systems were to: (1) Include
signed written agreements with each retailer, (2) contain adequate
organizational structure and personnel to monitor the labeling,
advertising, and sale of tobacco products at each retail distribution
point, and (3) establish, implement, and maintain procedures for
receiving and investigating reports regarding any improper labeling,
advertising, or distribution. The additional costs for this monitoring
were estimated at about $85 million per year. FDA rejected this
alternative, because it decided that the industry might employ its
resources more efficiently if permitted to choose among alternative
compliance modes.
Another suggested alternative would have required package inserts
containing educational information in cigarette and smokeless tobacco.
FDA had incomplete data to estimate the additional cost of this
requirement, but based on comments submitted by industry in response to
a Canadian proposal, tentatively projected one-time costs of about $490
million and annual operating costs of about $54 million. This
alternative was not selected because the agency was not certain that
the benefits of this provision would justify the compliance costs.
FDA also considered setting the permissible age for purchase at 19
rather than 18, because many 18-year-old adolescents are still in high
school and can easily purchase tobacco products for younger classmates.
This alternative would have added costs of about $34 million annually,
mostly due to lost producer profits. The final regulation restricts
access to regulated tobacco products for persons under the age of 18,
because most adult smokers have already become smokers by the age of
18, and because that age limit is already consistent with most State
and local laws.

H. Unfunded Mandates Reform Act of 1995

On the basis of the preceding discussion, under the Unfunded
Mandates Act, FDA concludes that the substantial benefits of this
regulation will greatly exceed the compliance costs that it imposes on
the U.S. economy. In addition, the agency has considered other
alternatives as discussed in section XV.G. of this document and
determined that the current rule is the least burdensome and the most
cost effective alternative that would meet the objectives of this rule.

XVI. Paperwork Reduction Act of 1995

The 1995 proposed rule would have collected information from
manufacturers, distributors, and retailers of cigarettes and smokeless
tobacco. Proposed Sec. 897.24 would have required such persons to use
established names for cigarettes and smokeless tobacco. Proposed
Sec. 897.29 would have required manufacturers to establish and maintain
educational programs. Proposed Sec. 897.32 would have required
manufacturers, distributors, and retailers to observe certain format
and content requirements for labeling and advertising. Proposed
Sec. 897.40 would have required manufacturers to submit labels,
labeling, and advertising to FDA.
The preamble to the 1995 proposed rule, in discussing the Paperwork
Reduction Act, also invited comments on four questions: (1) The
necessity and utility of the proposed information collection for the
proper performance of the agency's functions; (2) the accuracy of the
estimated burden; (3) ways to enhance the quality, utility, and clarity
of the information to be collected; and (4) the use of automated
collection techniques or other forms of information technology to
minimize the information collection burden (60 FR 41314 at 41356).

A. Comments on the Paperwork Reduction Act Statement

A small number of comments, primarily from a trade association
representing cigarette manufacturers and from distributors, addressed
FDA's Paperwork Reduction Act statement. In general, these comments
asserted that FDA's figures were incorrect or that the rule would
duplicate existing reporting requirements. Few comments provided any
figures or evidence to justify using different estimates.
(1) One comment, submitted by a trade association representing
major cigarette manufacturers, said FDA's Paperwork Reduction Act
statement underestimated the paperwork burden due to the exclusion of
burden on retailers. The comment asserted that FDA did not explain how
it calculated the number of respondents and burden hours for these
sections and that the absence of an explanation made it difficult to
assess the agency's estimate.

[[Page 44611]]

The comment explained that the agency's Paperwork Reduction Act
estimate said there would be 200,000 respondents for proposed
Sec. 897.40, but that the agency's analysis of impacts estimated that
700,000 retail stores sell tobacco products. The comment also asserted
that the average burden per response, under proposed Secs. 897.32 and
897.40, should be 1 hour instead of 20 minutes. Thus, the comment
concluded that if all 700,000 outlets spend only 60 minutes annually to
comply with all recordkeeping requirements, at a cost of $10 per hour,
retailers, alone, would spend 700,000 hours and $7 million to comply
with the recordkeeping requirements in Secs. 897.32 and 897.40.
The agency believes that the comment misinterprets the figures in
the proposed rule's Paperwork Reduction Act statement. To begin with,
the comment mistakenly equates the Paperwork Reduction Act statement's
reference to ``annual number of responses'' with the annual numbers of
people or firms that might be affected. The annual number of responses
simply refers to the annual number of things, whether those things are
pieces of labeling, labels, advertisements, or other items, that the
agency might receive under that particular regulatory requirement. So,
for example, if the agency expected to receive only 500 labels, the
``annual number of responses'' would be 500, regardless of whether the
number of firms who might be affected by the rule was greater or less
than 500.
Focusing on Secs. 897.32 and 897.40 (the provisions cited by the
comment), proposed Sec. 897.32 would have established specific format
and content requirements for labeling and advertising. For example,
proposed Sec. 897.32(a) would have required labeling and advertising to
use only black text on a white background; the only exception would be
advertising appearing in ``adult'' periodicals. Proposed Sec. 897.32(b)
would have required advertising to carry the product's established name
and a statement of intended use, and specified those names and the
statement of intended use. Proposed Sec. 897.32(c) would have required
advertising to carry a specific brief statement. The agency believed
that these proposed requirements and specific statements were so
precise that manufacturers, distributors, or retailers could determine
their regulatory obligations quickly. For example, it should be quite
simple to determine whether an advertisement uses black text on a white
background.
Proposed Sec. 897.40(a) would have required manufacturers to
provide copies of labels, labeling, and a representative sampling of
advertising to FDA. This, too, would not appear to be an extremely
time-consuming task, particularly when the rule permits manufacturers
to provide a representative sampling of advertising.
To estimate the time required to comply with proposed Secs. 897.32
and 897.40, the agency tried to examine other large-scale labeling and
reporting programs. FDA found that one Federal department conducts a
large-scale labeling program that receives approximately 200,000 labels
annually and that each label requires a maximum of 20 minutes to
review. Consequently, the 1995 proposed rule adopted the 200,000 figure
as the estimated number of responses. In the absence of better data,
the proposed rule assigned the maximum review time (20 minutes) to its
estimates for average burden per response.
FDA, however, has revised the 200,000 figure and now estimates that
approximately 25,000 pieces of labeling or advertising will be affected
by Sec. 897.32. (The agency has deleted Sec. 897.40 from the rule in
favor of other, preexisting regulations.) As described in greater
detail elsewhere in this document, the agency derived these figures by
using advertising expenditures by the cigarette and smokeless tobacco
industries and by the pharmaceutical industry, applying the ratio of
such expenditures against the 25,000 pieces of advertising that the
agency receives from the pharmaceutical industry, and projecting that
printed advertisements may increase due to the rule's effect on
promotional activities. Consequently, FDA now estimates that 25,000
pieces of labeling and advertising will be affected.
Thus, the agency does not agree that the estimated number of
responses should be 700,000 or more because the response rate is not
determined by the number of retailers. However, because the comment
estimated that firms would require 1 hour to comply, the agency will
use the 1 hour figure and has adjusted its paperwork estimates
accordingly.
(2) The same comment also asserted that FDA's recordkeeping
estimate was incorrect for manufacturers. The comment stated that FDA
did not explain how it calculated the burden hour response for
manufacturers under proposed Sec. 897.40 and asserted that
manufacturers would need 40 hours to document compliance with the
educational program requirements in proposed Sec. 897.29 alone. The
comment estimated that the recordkeeping costs for the manufacturers'
educational programs would be $25 per hour, for a total cost between
$55 and 57 million annually. The comment explained that the costs may
be even higher because highly skilled persons would be needed to comply
with the rule.
The comment misinterprets the agency's Paperwork Reduction Act
burden estimate. For Sec. 897.29, FDA estimated that 1,000 hours would
be needed to comply with the educational program requirements; this
estimate included all functions related to the development of an
educational program, including recordkeeping. Section 897.40(b), would
have required manufacturers, distributors, and retailers to make
records (including records on a manufacturer's educational program
efforts) available to FDA on inspection. Because the estimate for
proposed Sec. 897.29 included time spent on recordkeeping associated
with the educational program, the agency's estimates for proposed
Sec. 897.40 properly excluded time spent on maintaining educational
program records. Otherwise, this time would have been counted twice. In
any event, the comment is moot because FDA has deleted Sec. 897.29 and
Sec. 897.40 from the final rule.
(3) FDA received several comments from distributors, claiming that
the 1995 proposed rule would result in substantial paperwork and
provide duplicative information. The comments stated that the device
listing provisions of part 807 require each medical device wholesaler
to prepare and file reports of all regulated products. If each brand
and package style of cigarettes and smokeless tobacco are considered a
separate device, this would substantially increase paperwork and
duplicative reporting.
The comment correctly notes that part 807, as currently written,
requires distributors to register and list devices (21 CFR 807.20).
However, FDA has amended part 807 to exempt distributors of cigarettes
and smokeless tobacco. Thus, distributors do not have to comply with
part 807, nor do they have to comply with Sec. 897.40 because FDA has
deleted Sec. 897.40 from the final rule.
(4) Several comments, primarily from small businesses and
convenience stores, said that the 1995 proposed rule would have no
impact and that adding paperwork would not curb underage smoking.

[[Page 44612]]

The agency disagrees with the comments. The final rule restricts
young people's access to cigarettes and smokeless tobacco and reduces
their appeal to young people. FDA believes that the final rule, in
conjunction with State and local government efforts, will prevent large
numbers of young people from using or experimenting with these
products. Yet, insofar as any information collection burden is
concerned, FDA points out that the rule's paperwork requirements are a
function of the act and are being imposed to further the purposes of
the act and of this final rule, not in any attempt to curb underage
smoking by simply adding paperwork for paperwork's sake.
(5) One comment said that FDA could reduce the information
collection burden in proposed Sec. 897.29 (the educational program) by
requiring manufacturers to contribute to an educational fund that an
independent agency, such as FDA, CDC, or NIH, could use. The comment
said that this would create a positive incentive for companies to
change their marketing practices and would reduce the need for
extensive recordkeeping and regulatory oversight of manufacturers.
The agency has deleted the educational program provision from the
final rule. Consequently, the information collection burden associated
with proposed Sec. 897.29 no longer exists.
(6) In response to comments, FDA has amended the final rule to
include a medical device reporting requirement for manufacturers and
distributors at Secs. 803.19 and 804.25. For manufacturers, these
reports are limited to adverse events (resulting from product
contamination, a change in ingredient or in any manufacturing process,
or serious adverse events that are not well-known or well-documented by
the scientific community. For distributors, these reports are limited
to adverse events related to contamination. FDA estimates that it will
receive 50 reports and each report will require 8 hours to prepare. The
agency has amended the information collection burden to reflect these
changes to the rule.
(7) FDA has also revised the information collection figures for
Sec. 897.24 which requires an established name on labels. The revision
changes the number of respondents from 1,000 to 2,000 to reflect the
agency's position that there are 1,000 varieties of cigarettes and
smokeless tobacco products and that each variety has 2 labels, thus
resulting in 2,000 affected labels.
(8) FDA has also revised the information collection figures for
Sec. 897.32 to account for the survey evidence that is needed to
establish that a magazine, newspaper, or other periodical is an
``adult'' publication that is exempt from the requirement of black text
on a white background. The agency estimates that such surveys will
result in a capital cost of $2 million, with annual costs of $1
million. FDA estimates that 31 recordkeepers would be affected at a
total burden hour figure of 100,000 hours.

B. Information Collection Provisions in the Final Rule

This final rule contains information collection provisions that are
subject to review by the Office of Management and Budget (OMB) under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The title,
description, and respondent description of the information collection
requirements are shown below with the estimate of the annual reporting
and recordkeeping burden. Included in the estimate is the time for
reviewing instructions, searching existing data sources, gathering and
maintaining the data needed, and completing and reviewing the
collection of information.
Title: Regulations Restricting the Sale and Distribution of
Cigarettes and Smokeless Tobacco Products to Protect Children and
Adolescents.
Description: The final rule requires the collection of information
regarding cigarettes and smokeless tobacco. The final rule requires
manufacturers, importers, and distributors to report certain adverse
events to FDA and requires manufacturers to use established names for
cigarettes and smokeless tobacco. The final rule also requires
manufacturers, distributors, and retailers to observe certain format
and content requirements for labeling and advertising, and requires
manufacturers, distributors, and retailers to notify FDA if they intend
to use an advertising medium that is not listed in the regulations.
Description of Respondents: Businesses.

[[Page 44613]]

Table 17.--Estimated Annual Reporting and Disclosure Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual
21 CFR Section No. of Respondents Frequency Total Annual Hours per Total Hours Total Capital Costs Total Operating &
per Response Responses Response Maintenance Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
803.19 49 1 49 8 392 21,000 13,680
804.25 1 1 1 8 8 231,000 35,220
897.24 2,000 1 2,000 40 80,000 17,000,000 0
897.30 1 1 1 1 1 0 0
897.32 25,000 1 25,000 1 25,000 0 0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Burden 105,401 17,250,000 48,900
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 44614]]

Table 18.--Estimated Annual Recordkeeping Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
Annual
21 CFR Section No. of Frequency per Total Annual Hours per Total Hours Total Capital Costs Total Operating &
Recordkeepers Recordkeeping Records Recordkeeper Maintenance Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
897.32 31 1 31 3,226 100,000 2,000,000 1,000,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total Burden 100,000 2,000,000 1,000,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 44615]]

The 1995 proposed rule provided a 90-day comment period (extended
to 144 days in the Federal Register of October 16, 1995, 60 FR 53560).
As discussed previously, the revised burden hour estimates in the final
rule are based partially on comments received.
The information collection provisions in the proposed rule were
approved under OMB no. 0910-0312. Because of changes made since the
proposed rule, FDA has submitted the information collection provisions
of the final rule to OMB for review. Prior to the effective date of
this final rule, FDA will publish a notice in the Federal Register of
OMB's decision to approve, modify, or disapprove the information
collection provisions in the final rule.

XVII. Congressional Review

This final rule has been determined to be a major rule for purposes
of 5 U.S.C. 801 et seq., Subtitle E of the Small Business Regulatory
Enforcement Fairness Act of 1996 (Pub. L. 104-121). FDA is submitting
the information and reports as required by that statute.

List of Subjects

21 CFR Part 801

Labeling, Medical devices, Reporting and recordkeeping
requirements.

21 CFR Part 803

Imports, Medical devices, Reporting and recordkeeping requirements.

21 CFR Part 804

Imports, Medical devices, Reporting and recordkeeping requirements.

21 CFR Part 807

Confidential business information, Imports, Medical devices,
Reporting and recordkeeping requirements.

21 CFR Part 820

Medical devices, Reporting and recordkeeping requirements.

21 CFR Part 897

Advertising, Cigarettes, Labeling, Sale and distribution, Smokeless
tobacco.
Therefore, under the Federal Food, Drug, and Cosmetic Act and under
authority delegated to the Commissioner of Food and Drugs, 21 CFR parts
801, 803, 804, 807, and 820 are amended and a new part 897 is added as
follows:

PART 801--LABELING

1. The authority citation for 21 CFR part 801 continues to read as
follows:

Authority: Secs. 201, 301, 501, 502, 507, 519, 520, 701, 704 of
the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321, 331, 351,
352, 357, 360i, 360j, 371, 374).

2. Section 801.126 is added to subpart D to read as follows:

Sec. 801.126 Exemptions for cigarettes and smokeless tobacco.

Cigarettes and smokeless tobacco as defined in part 897 of this
chapter are exempt from section 502(f)(1) of the Federal Food, Drug,
and Cosmetic Act.

PART 803--MEDICAL DEVICE REPORTING

3. The authority citation for 21 CFR part 803 continues to read as
follows:

Authority: Secs. 502, 510, 519, 520, 701, 704 of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 352, 360, 360i, 360j, 371,
374).

4. Section 803.19 is amended by adding new paragraphs (f) and (g)
to read as follows:

Sec. 803.19 Exemptions, variances, and alternative reporting
requirements.

* * * * *
(f) Manufacturers as defined in part 897 of this chapter shall
submit medical device reports concerning cigarettes and smokeless
tobacco under this part only for serious adverse events that are not
well-known or well-documented by the scientific community, including
events related to contamination, or a change in any ingredient or any
manufacturing process.
(g) User facilities are exempt from submitting medical device
reports concerning cigarettes and smokeless tobacco under this part.

PART 804--MEDICAL DEVICE DISTRIBUTOR REPORTING

5. The authority citation for 21 CFR part 804 continues to read as
follows:

Authority: Secs. 502, 510, 519, 520, 701, 704 of the Federal
Food, Drug, and Cosmetic Act (21 U.S.C. 352, 360, 360i, 360j, 371,
374).

6. Section 804.25 is amended by adding a new paragraph (c) to read
as follows:

Sec. 804.25 Reports by distributors.

* * * * *
(c) Distributors as defined in part 897 of this chapter shall
submit medical device reports concerning cigarettes and smokeless
tobacco under this part only for adverse events related to
contamination.

PART 807--ESTABLISHMENT REGISTRATION AND DEVICE LISTING FOR
MANUFACTURERS AND DISTRIBUTORS OF DEVICES

7. The authority citation for 21 CFR part 807 continues to read as
follows:

Authority: Secs. 301, 501, 502, 510, 513, 515, 519, 520, 701,
704 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 331, 351,
352, 360, 360c, 360e, 360i, 360j, 371, 374).

8. Section 807.65 is amended by adding a new paragraph (j) to read
as follows:

Sec. 807.65 Exemptions for device establishments.

* * * * *
(j) Distributors of cigarettes or smokeless tobacco as defined in
part 897 of this chapter.

PART 820--GOOD MANUFACTURING PRACTICE FOR MEDICAL DEVICES: GENERAL

9. The authority citation for 21 CFR part 820 continues to read as
follows:

Authority: Secs. 501, 502, 515, 518, 519, 520, 701, 704 of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 351, 352, 360e,
360h, 360i, 360j, 371, 374).

10. Section 820.1 is amended by adding and reserving new paragraph
(e) and adding new paragraph (f) to read as follows:

Sec. 820.1 Scope.

* * * * *
(e) [Reserved]
(f) This part does not apply to distributors of cigarettes or
smokeless tobacco as defined in part 897 of this chapter.
11. New part 897 is added to read as follows:

PART 897--CIGARETTES AND SMOKELESS TOBACCO

Subpart A--General Provisions

Sec.
897.1 Scope.
897.2 Purpose.
897.3 Definitions.

Subpart B--Prohibition of Sale and Distribution to Persons Younger Than
18 Years of Age

897.10 General responsibilities of manufacturers, distributors, and
retailers.
897.12 Additional responsibilities of manufacturers.
897.14 Additional responsibilities of retailers.
897.16 Conditions of manufacture, sale, and distribution.

[[Page 44616]]

Subpart C--Labels

897.24 Established names for cigarettes and smokeless tobacco.
897.25 Statement of intended use and age restriction.

Subpart D--Labeling and Advertising

897.30 Scope of permissible forms of labeling and advertising.
897.32 Format and content requirements for labeling and
advertising.
897.34 Sale and distribution of nontobacco items and services,
gifts, and sponsorship of events.

Authority: Secs. 502, 510, 518, 519, 520, 701, 704, 903 of the
Federal Food, Drug, and Cosmetic Act (21 U.S.C. 352, 360, 360h,
360i, 360j, 371, 374, 393).

Subpart A--General Provisions

Sec. 897.1 Scope.

(a) This part sets out the restrictions under the Federal Food,
Drug, and Cosmetic Act (the act) on the sale, distribution, and use of
cigarettes and smokeless tobacco that contain nicotine.
(b) The failure to comply with any applicable provision in this
part in the sale, distribution, and use of cigarettes and smokeless
tobacco renders the product misbranded under the act.
(c) References in this part to regulatory sections of the Code of
Federal Regulations are to chapter I of Title 21, unless otherwise
noted.

Sec. 897.2 Purpose.

The purpose of this part is to establish restrictions on the sale,
distribution, and use of cigarettes and smokeless tobacco in order to
reduce the number of children and adolescents who use these products,
and to reduce the life-threatening consequences associated with tobacco
use.

Sec. 897.3 Definitions.

(a) Cigarette means any product which contains nicotine, is
intended to be burned under ordinary conditions of use, and consists
of:
(1) Any roll of tobacco wrapped in paper or in any substance not
containing tobacco; or
(2) Any roll of tobacco wrapped in any substance containing tobacco
which, because of its appearance, the type of tobacco used in the
filler, or its packaging and labeling, is likely to be offered to, or
purchased by, consumers as a cigarette described in paragraph (a)(1) of
this section.
(b) Cigarette tobacco means any product that consists of loose
tobacco that contains or delivers nicotine and is intended for use by
consumers in a cigarette. Unless otherwise stated, the requirements
pertaining to cigarettes shall also apply to cigarette tobacco.
(c) Distributor means any person who furthers the distribution of
cigarettes or smokeless tobacco, whether domestic or imported, at any
point from the original place of manufacture to the person who sells or
distributes the product to individuals for personal consumption. Common
carriers are not considered distributors for the purposes of this part.
(d) Manufacturer means any person, including any repacker and/or
relabeler, who manufactures, fabricates, assembles, processes, or
labels a finished cigarette or smokeless tobacco product.
(e) Nicotine means the chemical substance named 3-(1-Methyl-2-
pyrrolidinyl)pyridine or C10H14N2, including any salt or
complex of nicotine.
(f) Package means a pack, box, carton, or container of any kind in
which cigarettes or smokeless tobacco are offered for sale, sold, or
otherwise distributed to consumers.
(g) Point of sale means any location at which a consumer can
purchase or otherwise obtain cigarettes or smokeless tobacco for
personal consumption.
(h) Retailer means any person who sells cigarettes or smokeless
tobacco to individuals for personal consumption, or who operates a
facility where vending machines or self-service displays are permitted
under this part.
(i) Smokeless tobacco means any product that consists of cut,
ground, powdered, or leaf tobacco that contains nicotine and that is
intended to be placed in the oral cavity.

Subpart B--Prohibition of Sale and Distribution to Persons Younger
Than 18 Years of Age

Sec. 897.10 General responsibilities of manufacturers, distributors,
and retailers.

Each manufacturer, distributor, and retailer is responsible for
ensuring that the cigarettes or smokeless tobacco it manufactures,
labels, advertises, packages, distributes, sells, or otherwise holds
for sale comply with all applicable requirements under this part.

Sec. 897.12 Additional responsibilities of manufacturers.

In addition to the other responsibilities under this part, each
manufacturer shall remove from each point of sale all self-service
displays, advertising, labeling, and other items that the manufacturer
owns that do not comply with the requirements under this part.

Sec. 897.14 Additional responsibilities of retailers.

In addition to the other requirements under this part, each
retailer is responsible for ensuring that all sales of cigarettes or
smokeless tobacco to any person comply with the following requirements:
(a) No retailer may sell cigarettes or smokeless tobacco to any
person younger than 18 years of age;
(b)(1) Except as otherwise provided in Sec. 897.16(c)(2)(i) and in
paragraph (b)(2) of this section, each retailer shall verify by means
of photographic identification containing the bearer's date of birth
that no person purchasing the product is younger than 18 years of age;
(2) No such verification is required for any person over the age of
26;
(c) Except as otherwise provided in Sec. 897.16(c)(2)(ii), a
retailer may sell cigarettes or smokeless tobacco only in a direct,
face-to-face exchange without the assistance of any electronic or
mechanical device (such as a vending machine);
(d) No retailer may break or otherwise open any cigarette or
smokeless tobacco package to sell or distribute individual cigarettes
or a number of unpackaged cigarettes that is smaller than the quantity
in the minimum cigarette package size defined in Sec. 897.16(b), or any
quantity of cigarette tobacco or smokeless tobacco that is smaller than
the smallest package distributed by the manufacturer for individual
consumer use; and
(e) Each retailer shall ensure that all self-service displays,
advertising, labeling, and other items, that are located in the
retailer's establishment and that do not comply with the requirements
of this part, are removed or are brought into compliance with the
requirements under this part.

Sec. 897.16 Conditions of manufacture, sale, and distribution.

(a) Restriction on product names. A manufacturer shall not use a
trade or brand name of a nontobacco product as the trade or brand name
for a cigarette or smokeless tobacco product, except for a tobacco
product whose trade or brand name was on both a tobacco product and a
nontobacco product that were sold in the United States on January 1,
1995.
(b) Minimum cigarette package size. Except as otherwise provided
under this section, no manufacturer, distributor, or retailer may sell
or cause to be sold, or distribute or cause to be distributed, any
cigarette package that contains fewer than 20 cigarettes.

[[Page 44617]]

(c) Vending machines, self-service displays, mail-order sales, and
other ``impersonal'' modes of sale. (1) Except as otherwise provided
under this section, a retailer may sell cigarettes and smokeless
tobacco only in a direct, face-to-face exchange between the retailer
and the consumer. Examples of methods of sale that are not permitted
include vending machines and self-service displays.
(2) Exceptions. The following methods of sale are permitted:
(i) Mail-order sales, excluding mail-order redemption of coupons
and distribution of free samples through the mail; and
(ii) Vending machines (including vending machines that sell
packaged, single cigarettes) and self-service displays that are located
in facilities where the retailer ensures that no person younger than 18
years of age is present, or permitted to enter, at any time.
(d) Free samples. No manufacturer, distributor, or retailer may
distribute or cause to be distributed any free samples of cigarettes or
smokeless tobacco.
(e) Restrictions on labels, labeling, and advertising. No
manufacturer, distributor, or retailer may sell or distribute, or cause
to be sold or distributed, cigarettes or smokeless tobacco with labels,
labeling, or advertising not in compliance with subparts C and D of
this part, and other applicable requirements.

Subpart C--Labels

Sec. 897.24 Established names for cigarettes and smokeless tobacco.

Each cigarette or smokeless tobacco package shall bear, as provided
in section 502 of the act, the following established name:
``Cigarettes'', ``Cigarette Tobacco'', ``Loose Leaf Chewing Tobacco'',
``Plug Chewing Tobacco'', ``Twist Chewing Tobacco'', ``Moist Snuff'',
or ``Dry Snuff'', whichever name is appropriate.

Sec. 897.25 Statement of intended use and age restriction.

Each cigarette or smokeless tobacco package, that is offered for
sale, sold, or otherwise distributed shall bear the following
statement: ``Nicotine-Delivery Device for Persons 18 or Older''.

Subpart D--Labeling and Advertising

Sec. 897.30 Scope of permissible forms of labeling and advertising.

(a)(1) A manufacturer, distributor, or retailer may, in accordance
with this subpart D, disseminate or cause to be disseminated
advertising or labeling which bears a cigarette or smokeless tobacco
brand name (alone or in conjunction with any other word) or any other
indicia of tobacco product identification, in newspapers; in magazines;
in periodicals or other publications (whether periodic or limited
distribution); on billboards, posters, and placards; in nonpoint-of-
sale promotional material (including direct mail); in point-of-sale
promotional material; and in audio or video formats delivered at a
point-of-sale.
(2) A manufacturer, distributor, or retailer intending to
disseminate, or to cause to be disseminated, advertising or labeling
for cigarettes or smokeless tobacco in a medium that is not listed in
paragraph (a)(1) of this section, shall notify the agency 30 days prior
to the use of such medium. The notice shall describe the medium and
discuss the extent to which the advertising or labeling may be seen by
persons younger than 18 years of age. The manufacturer, distributor, or
retailer shall send this notice to the Division of Drug Marketing,
Advertising, and Communications, 5600 Fishers Lane (HFD-40), rm. 17B-
20, Rockville, MD 20857.
(b) No outdoor advertising for cigarettes or smokeless tobacco,
including billboards, posters, or placards, may be placed within 1,000
feet of the perimeter of any public playground or playground area in a
public park (e.g., a public park with equipment such as swings and
seesaws, baseball diamonds, or basketball courts), elementary school,
or secondary school.
(c) This subpart D does not apply to cigarette or smokeless tobacco
package labels.

Sec. 897.32 Format and content requirements for labeling and
advertising.

(a) Except as provided in paragraph (b) of this section, each
manufacturer, distributor, and retailer advertising or causing to be
advertised, disseminating or causing to be disseminated, any labeling
or advertising for cigarettes or smokeless tobacco shall use only black
text on a white background. This section does not apply to advertising:
(1) In any facility where vending machines and self- service
displays are permitted under this part, provided that the advertising
is not visible from outside the facility and that it is affixed to a
wall or fixture in the facility; or
(2) Appearing in any publication (whether periodic or limited
distribution) that the manufacturer, distributor, or retailer
demonstrates is an adult publication. For the purposes of this section,
an adult publication is a newspaper, magazine, periodical, or other
publication:
(i) Whose readers younger than 18 years of age constitute 15
percent or less of the total readership as measured by competent and
reliable survey evidence; and
(ii) That is read by fewer than 2 million persons younger than 18
years of age as measured by competent and reliable survey evidence.
(b) Labeling and advertising in an audio or video format shall be
limited as follows:
(1) Audio format shall be limited to words only with no music or
sound effects.
(2) Video formats shall be limited to static black text only on a
white background. Any audio with the video shall be limited to words
only with no music or sound effects.
(c) Each manufacturer, distributor, and retailer advertising or
causing to be advertised, disseminating or causing to be disseminated,
advertising permitted under this subpart D, shall include, as provided
in section 502 of the act, the product's established name and a
statement of its intended use as follows: ``Cigarettes--A Nicotine-
Delivery Device for Persons 18 or Older'', ``Cigarette Tobacco--A
Nicotine-Delivery Device for Persons 18 or Older'', or ``Loose Leaf
Chewing Tobacco'', ``Plug Chewing Tobacco'', ``Twist Chewing Tobacco'',
``Moist Snuff'' or ``Dry Snuff'', whichever is appropriate for the
product, followed by the words ``A Nicotine-Delivery Device for Persons
18 or Older''.

Sec. 897.34 Sale and distribution of nontobacco items and services,
gifts, and sponsorship of events.

(a) No manufacturer and no distributor of imported cigarettes or
smokeless tobacco may market, license, distribute, sell, or cause to be
marketed, licensed, distributed, or sold any item (other than
cigarettes or smokeless tobacco) or service, which bears the brand name
(alone or in conjunction with any other word), logo, symbol, motto,
selling message, recognizable color or pattern of colors, or any other
indicia of product identification identical or similar to, or
identifiable with, those used for any brand of cigarettes or smokeless
tobacco.
(b) No manufacturer, distributor, or retailer may offer or cause to
be offered any gift or item (other then cigarettes or smokeless
tobacco) to any person

[[Page 44618]]

purchasing cigarettes or smokeless tobacco in consideration of the
purchase thereof, or to any person in consideration of furnishing
evidence, such as credits, proofs-of-purchase, or coupons, of such a
purchase.
(c) No manufacturer, distributor, or retailer may sponsor or cause
to be sponsored any athletic, musical, artistic, or other social or
cultural event, or any entry or team in any event, in the brand name
(alone or in conjunction with any other word), logo, symbol, motto,
selling message, recognizable color or pattern of colors, or any other
indicia of product identification identical or similar to, or
identifiable with, those used for any brand of cigarettes or smokeless
tobacco. Nothing in this paragraph prevents a manufacturer,
distributor, or retailer from sponsoring or causing to be sponsored any
athletic, musical, artistic, or other social or cultural event, or team
or entry, in the name of the corporation which manufactures the tobacco
product, provided that both the corporate name and the corporation were
registered and in use in the United States prior to January 1, 1995,
and that the corporate name does not include any brand name (alone or
in conjunction with any other word), logo, symbol, motto, selling
message, recognizable color or pattern of colors, or any other indicia
of product identification identical or similar to, or identifiable
with, those used for any brand of cigarettes or smokeless tobacco.

Dated: August 22, 1996.
William B. Schultz,
Deputy Commissioner for Policy.

David A. Kessler,
Commissioner of Food and Drugs.

Donna E. Shalala,
Secretary of Health and Human Services.
NOTE: The following Annex will not appear in the Code of Federal
Regulations.
BILLING CODE 4160-01-F}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}}