On August 2, 2021 and March 3, 2022 we reported on Executive Order 14036 (E.O. 14036) and the subsequent Treasury report entitled, “Competition in the Markets for Beer, Wine, and Spirits” (Report), which, among other things, directed the Alcohol and Tobacco Tax and Trade Bureau (TTB) to consider: (1) initiating a rulemaking to update its trade practice regulations; (2) revising or rescinding any regulations that “unnecessarily inhibit competition”; and (3) “reducing any barriers that impede market access for smaller and independent brewers, winemakers, and distilleries.”

In accordance with this mandate, TTB issued an Advance Notice of Proposed Rulemaking, Notice No. 216, Consideration of Updates to Trade Practice Regulations (Notice), seeking public comment on those issues by March 9, 2023. The Notice states that “TTB has not revised the trade practice regulations in over 20 years and recognizes that the regulations may not take into account current marketplace realities.” This comment period is a significant opportunity for the industry members to collaborate with TTB on a rulemaking that could have a significant impact for years to come.

More specifically, TTB is considering updating regulations that implement key provisions of the Federal Alcohol Administration Act (FAA Act), such as the exclusive outlet, tied house, commercial bribery, and consignment sale provisions. In the context of these provisions, TTB is soliciting answers to several general questions related to updating the existing regulations, activities that impact competition, and the expanding digital marketplace. TTB has also outlined 16 specific topics of interest, as summarized below.

  1. Category management.

TTB seeks input on updating regulations to address the concern that industry members, acting as category managers or captains for retailers, are either making the buying decisions for retailers or strongly influencing the retailers’ buying decisions in a way that threatens retailer independence.

  1. Shelf plans.

TTB seeks input on (1) whether to remove the exception that allows industry members to provide retailers with shelf plans and shelf schematics; (2) whether the exception places, or has the potential to place, retailer independence at risk; (3) and what additional services place or have the potential to place a retailer’s independence at risk.

  1. Slotting allowances (slotting fee) arrangements.

TTB is considering whether to update regulations to include a definition of slotting fees and the extent to which the definition should account for (1) physical display space on retail premises or virtual display spaces; and/or (2) free or subsidized equipment that may only serve as display or to dispense the furnishing industry member’s products.

  1. Interest in a retail license or property.

TTB is considering whether to (1) amend regulations to include crowdfunding and/or minority interests in retail licenses/properties as interests that are not considered inducements; and (2) define a level of ownership interest that would not result in exclusion and, if so, what that interest should be.

  1. Third-party companies.

TTB seeks comment on how to amend regulations to address third-party inducements and delivery/fulfillment services.

  1. Consumer specialty items and point of sale advertising materials.

TTB is considering how to update the list of specialty items and point of sale advertising materials (e.g., drink lists and menus) allowed under the regulations to discourage their use for illicit purposes and to place monetary caps on these items.

  1. Tied house payment terms.

TTB seeks comment on extending the 30-day extension of credit to retailers to a longer period and what those payment terms should be without being considered an inducement.

  1. Consignment sales payment terms safe harbor.

TTB is considering whether to amend regulations to include specific safe harbor payment terms that would not result in a consignment sale arrangement.

  1. Definition of trade buyer.

TTB is considering whether to amend regulations to clarify that trade buyers include wholesalers and retailers, regardless of permit status, to avoid confusion about how trade buyer definitions apply to importers that wholesale (purchase for resale at wholesale) the products they import, but who are not required to obtain a separate wholesale basic permit.

  1. Private label arrangements.

TTB seeks comments on how its tied house and/or exclusive outlet regulations might address private label arrangements involving an industry member contracting with a retailer to produce products on the retailer’s behalf.

  1. Brand sharing with retail establishments.

TTB seeks comments on whether it should amend regulations to address brand sharing arrangements in which industry members directly or indirectly enter into arrangements to allow or require retailers to use their brand name as part of the name of the retail establishment.

TTB is considering how to amend regulations to clarify when event sponsorships may be exclusionary.

  1. Activities which result in exclusion or place retailer independence at risk.

TTB seeks comment on whether to (1) update regulations with respect to which practices place or have the potential to place retailer independence at risk, as well as which activities would result in exclusion; and (2) whether it should clarify or alter the definition of exclusion in terms of “purchasing less” of a competitor’s product to address, for example, situations in which new retail establishments may have never purchased from competing industry members that did not induce or require such purchases.

  1. Criteria for determining a risk to retailer independence.

TTB seeks comment on how to update its tied house, exclusive outlet, and commercial bribery regulations to provide additional clarity as to when a wholesaler or retailer’s independence is at risk.

  1. Third-party contracts.

TTB seeks comments on how to clarify that contracts between an industry member and a third-party, where the third-party controls the retailer, would result in a violation of the exclusive outlet regulations.

  1. Sales competitions.

TTB seeks comment on whether trade buyer sales representative incentives (e.g., cash, airline tickets, event tickets) are inducements that threaten trade buyer independence regardless of whether they are provided in secret.

While state law also plays a critical role in regulating the alcohol industry, TTB regulations have a significant influence on how states enforce or amend their laws. Thus, industry members should not pass up this opportunity to shape regulations that may not be changed for at least 20 years.