ALCOHOL LAW ADVISOR
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry
ALCOHOL LAW ADVISOR
Regulatory and Distribution Law Updates for the Alcohol Industry

TTB Issues Ruling on Category Management under Federal Tied-House Statute

By on February 12, 2016

Today the Alcohol & Tobacco Tax & Trade Bureau (TTB) released TTB Ruling 2016-1 (Ruling), addressing category management practices.  The Ruling seeks to clarify TTB’s position toward category management under the federal tied-house statute and regulations, which generally prohibit an alcohol beverage supplier or wholesaler from providing a “thing of value” to alcohol beverage retailers.

The federal tied-house statute and the TTB regulations implementing that provision require TTB to show both an “inducement” of a retailer leading to “exclusion” of competing products for TTB to find a tied-house violation.  TTB regulations also list specific activities that are exceptions to the general rule that providing anything of value to a retailer constitutes an “inducement.”  Those exceptions include shelf schematics.  See 27 C.F.R. § 6.99(b).

Ruling 2016-1 recites the history of the shelf schematics exception and exhibits an element of “buyer’s remorse,” as the narrative suggests that TTB’s predecessor, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), discounted the possibility of abuses that TTB seems to believe are occurring today.  The Ruling then makes it clear that TTB will strictly interpret the schematics regulation as applying only to the schematics themselves, and not “additional services.”  Current category management practices often involve other activities not directly linked to the provision of shelf schematics, although these other activities (at least arguably) relate to developing, creating and updating shelf plans.  Ruling 2016-1 lists the following examples of “additional services” that may prompt TTB scrutiny:

  1. Assuming a retailer’s purchasing or pricing decisions, or shelf stocking decisions involving a competitor’s product;
  2. Receiving and analyzing confidential and/or proprietary competitor information for a retailer;
  3. Furnishing to a retailer market data from third party vendors;
  4. Providing follow-up services to monitor and revise schematics that involve communicating with a retailer’s stores, vendors, representatives, wholesalers and suppliers concerning daily operational matters; and
  5. Furnishing a retailer with human resources to perform merchandising or other functions, with the exception of stocking, rotation or pricing as permitted by TTB regulations.

Ruling 2016-1 does not provide significant guidance on when category management services may lead to the exclusion of competing products.  Instead, the Ruling generally repeats and/or cites to TTB’s exclusion regulations, which were adopted in the mid-1990s.

In short, Ruling 2016-1 provides only modest specific guidance to the industry.  It does, however, signal quite clearly that TTB will likely direct enforcement resources at current category management practices.

Marc SoriniMarc Sorini
Marc E. Sorini concentrates on issues facing the alcohol beverage industry, with a particular focus on the supplier tier and non-beverage alcohol users. He heads the Firm's Alcohol Regulatory & Distribution Group and is recognized as one of the leading lawyers in his field. Read Marc Sorini's full bio.

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