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Regulating Sizes and Shapes ATF Proposal to Ban Non-Standard Containers

by Robert C. Lehrman

This article is reprinted from
The Bar, published by the American Bar Association.

A few years ago, ATF embarked upon a wide-ranging and controversial rulemaking that still has the potential to affect all beverages. Notice 872, published in early 1999, proposes to: 1) disallow "aggregate fill" packaging, and 2) prohibit alcohol beverage containers "likely to mislead the consumer" due to their shape, design, composition or customary use. ATF received approximately 80 comments by the close of the comment period on May 10, 1999. About 30 of the comments opposed the proposal, and all of them were submitted by persons affiliated with the alcohol beverage industry. E. & J. Gallo Winery was the only member of the industry that supported the proposal. Almost all of the other supportive comments were submitted by various councils on alcoholism. In the space below I will allow these comments to illustrate the arguments on each side of the proposal.

Aggregate Fill

For many decades ATF has regulated container sizes in the case of wines and distilled spirits (but not malt beverages). Under these rules, ATF has allowed only a handful of sizes, such as the common 750 ml. container, and these rules seem to disallow any container smaller than 50 ml. But in the late 1980s ATF approved a 15 ml. container on the theory that it would only be sold in groups of 25 units, and so the "aggregate fill" would equal the 375 ml. standard. In more recent years, this precedent has allowed distilled spirits to be packed in 25 ml. test tubes with 30 aggregated into each box.

Notice 872 proposes to prohibit "aggregate fill" packaging by asserting that the "standards of fill . . . apply to the container in direct contact with the distilled spirits [or wine] and may not be satisfied by an aggregation of multiple smaller containers into a single unit." ATF cites several reasons for proposing to disallow this sort of aggregation:

  1. frustrates revenue collections
  2. deceives consumers
  3. encourages complacency as to the dangers of alcohol abuse
  4. encourages inappropriate use
  5. retailers frequently break up the aggregated package and sell the units individually
  6. undermines State and local controls
  7. minors more easily obtain and use aggregate fill products
  8. the individual non-standard units are not adequately labeled

Mango Bottling, Inc. ("Mango"), which mainly packages distilled spirits in 25 ml. test tubes, strongly objected to both parts of ATF’s proposal. Mango said ATF’s first concern lacks a reasonable basis and pointed out that "[s]tate taxes are calculated and collected based on records of sales transactions, rather than the computation of physical containers." Mango said "ATF has never advised us that our packaging caused any tax assessment or collection problems" and "ATF has continued to approve our labels and packaging on 21 occasions over the last five years." The David Sherman Corporation ("Sherman") said "In the controlled atmosphere of a bonded wine premises, container size cannot possibly confuse inspectors enforcing the tax. The immediate container at the time of tax determination will almost always be a case or carton containing multiple container units."

In response to ATF’s sixth concern, Mango pointed to the "long standing and pervasive existence of ‘miniatures,’ for example, as proof that a container’s size in and of itself does not create an impediment to the enforcement of beverage alcohol laws at the state level." The National Association of Beverage Importers, Inc., ("NABI") questioned whether ATF ought to be addressing state concerns and said ATF "has not offered anything to suggest that the states are in need of federal assistance. . . ."

As for ATF’s seventh concern, Mango said "[w]e are unaware of any bona fide data or analyses demonstrating that our . . . packaging, or similar product containers, induce minors to consume alcohol." Mango related to ATF that in the absence of any "independent studies, collected data, or substantive analyses" to "substantiate the alleged need for these proposed regulatory changes" this initiative would constitute an improper taking. Mango advised that this rulemaking could put it out of business and said "It is a dangerous precedent for the federal government to do this without substantial, competent evidence that a person’s business or products are a danger to the health, safety and welfare of its citizens." The Distilled Spirits Council of the United States ("DISCUS") also complained about the lack of any evidentiary basis.

Mango refuted ATF’s eighth point, stating:

There is no confusion about the fact that our product contains alcohol. Our products contain all of the label information required of alcoholic beverages. In fact, our 750 ml. contains thirty-one (31) government warning statements. . . . If a consumer can read, they can identify our product as an alcoholic beverage. If they cannot read, they would not be able to recognize any other beverages that contain alcohol.

The Notice may be mistaken when it says "The individual containers do not carry the required government warning statement, so this basic health protection is lost when these aggregate packages are unwrapped." Current law already requires this Warning to be affixed to each "innermost sealed container."

The Presidents’ Forum and Shaw-Ross International Importers asked ATF to "grandfather" any aggregate fill packages already approved. Similarly, Mango argued that the proposal should "include language clarifying that all presently packaged beverage alcohol products marketed pursuant to an approved COLA should be deemed to have the Director’s approval ‘that the information on the label adequately dispels any misleading impression.’"

If finalized, this proposal could have some ironic and unintended consequences. If ATF follows through and bans aggregate packaging, companies like Mango may be forced to switch from 25 ml. packages to 50 ml. packages. These, of course, would contain 100 percent more alcohol. Mango addresses this aspect of its packaging by stating "[i]t takes over six (6) of our tubes to equal the alcohol of one (1) 50 ml. of a 100 proof product" and "[one] 50 ml. is much easier to conceal than six (6) of our tubes."

Shapes

Notice 872 also proposes to "standardize" the appearance of all alcohol beverage containers. The proposal would accomplish this by prohibiting "Any container that, by virtue of the material from which it is composed or by its shape or design, or that by its ordinary and customary use is likely to mislead the consumer as to the alcohol character of the product. . . ." The proposal expresses ATF’s concern about containers that might confuse consumers about the presence or absence of alcohol in any form. The proposal secondarily expresses concern about containers that might confuse consumers, regulators and the trade about the "alcohol character of the product." This part of the rule could conceivably be used to prohibit a malt beverage from being packed in a container that looks like a wine bottle, or a distilled spirit cooler from being packed in a container that looks like a beer bottle. ATF seems to acknowledge this aspect of the regulation, which was not addressed in the comments, when it stated "for wholesalers and retailers . . . who usually have local licenses that delineate the type of alcohol beverage they can sell, it is important that the markings, branding and labels are not misleading or confusing as to the true character of the alcohol beverage product." The proposal describes these two problems but makes no attempt to assess their magnitude.

The Center for Science in the Public Interest ("CSPI") submitted a comment expressing support for the intent of Notice 872. But the comment did not explain why CSPI supports the proposal. Instead, CSPI urged ATF to broaden the proposal so it would also cover misleading "color, label, name of product [and] packaging." CSPI, as well as 24 other organizations that submitted substantially identical comments, complained that the proposal would not affect the way cardboard six-pack and four-pack carriers are labeled. These 25 comments explained that the carriers routinely hide the Government Warning Statement and fail to make it clear that the products (such as hard ciders and malt beverage coolers) are alcohol beverages. In several places these comments lament the fact that the carriers are "brightly colored" and "attractive." The comments also complain about several new brand names (such as "Cherry Berry Cola" and "Bahama Mama") that suggest, according to CSPI, that the products contain no alcohol. The CSPI (and similar) comments have little if anything to say about container shapes or the other specific subjects of Notice 872.

It would seem that ATF will need to be very careful to limit the scope of this rulemaking. Otherwise, it could rapidly degenerate into banning a wide array of alcohol beverages. This danger can be seen in CSPI’s comment, urging ATF against allowing bright colors. It can also be seen in the comment of Valerie Benkman of Orinda, California. She urged ATF not to approve especially sweet products, such as ice creams containing spirits, because they may encourage consumption by children.

Notice 872 solicits data or studies dealing with the impact of container shapes, and one supporter of the proposal, the Mayor of Durham, North Carolina, made the startling admission that "[t]here is little empirical data available to support claims that [non-traditional] packaging contributes to underage drinking. . . ." The Marin Institute for the Prevention of Alcohol and Other Drug Problems also acknowledged that "we have not conducted scientific research on the topic. . . ."

With few if any stated reservations, the E. & J. Gallo Winery said it "strongly supports the proposed new regulations." Gallo apparently is not concerned that ATF would use the new rules as a basis for asserting that, for example, Gallo’s line of malt coolers must be packaged in containers that look more like traditional beer bottles. The Gallo comment does ask ATF to provide guidance as to the specific types of containers that it considers to be potentially misleading.

Carriage House Imports, Ltd. (along with Frederick Wildman and Sons, Ltd., Duggan’s Distillers, Joseph Victori Wines, Inc., Todhunter International, Inc. and several wholesalers) requested that ATF schedule hearings on the "entire proposal." All of these parties argued that current laws and regulations already ensure that alcohol beverages are adequately identified through the mandatory Government Warning, the mandatory alcohol content statement, and by other means. These comments point out that the proposal ignores the fact that in New York State, for example, there is not even a remote likelihood that a reasonable consumer could mistakenly purchase a spirits cooler instead of a soda – because the state’s package stores sell only alcohol beverages (with minimal exceptions). In closing, these comments raised the unhappy, expensive and time-consuming prospect of foreign and domestic producers shipping each and every container shape to Washington for federal scrutiny.

The Wine Institute expressed concerns about the "vagueness" of the proposal and The Scotch Whisky Association said it finds it "difficult, on the basis of this Notice, to understand on what grounds alcoholic beverage containers could be found misleading" if they meet ATF’s fairly stringent labeling requirements. The Association said it would not support the proposal unless "ATF can be more specific about its concerns and criteria." Wine Institute said this vagueness is "troubling to our members" and pointed out that "no mention is made of specific factors . . . that might contribute to or minimize consumer deception." Wine Institute said:

. . . factors such as labeling information, advertising, and retail positioning clearly play a part in whether a product, by virtue of its packaging and consumer presentation, is deceptive. Wine Institute suggests that the final regulations should not only specifically indicate how these and other objective factors play a part in determining whether a container is deceptive, but should also indicate how such factors might be used to remedy any claimed deception.

Wine Institute closed by stating "The goal of final regulations should be provisions that provide easily understandable objective criteria of sufficient clarity so that both ATF as well as wineries will know when a container will be found to be misleading." The comment said Notice 872 lacks that specificity and clarity. The Brown-Forman Corporation also complained about the lack of any standards, the proposal’s abundance of vagueness and ambiguity, and the potential for arbitrary and capricious enforcement. For example, the comment said "there is no requirement that [ATF] establish that a consumer was actually misled." Brown-Forman said ATF "can simply conjecture that a container ‘may’ be likely to mislead a consumer and this would be sufficient to keep a new container from being introduced into the market." Brown-Forman said these aspects of the proposal make it "frightening," because, among other problems, the proposal would allow ATF to reject a package after ATF has already approved it, after the product has been widely distributed, and well after a company has committed millions of dollars to the product. DISCUS described the proposal as "devoid of any standards for its application" and said "it thus violates fundamental due process principles . . . ." DISCUS also said:

The lack of any evidentiary basis for the Bureau’s instant proposals is disturbing given the fact that BATF withdrew two similar proposals regarding ‘misleading’ containers because the issue warranted further study. . . . To the best of our knowledge, the Bureau has not undertaken such a study that, by its own assessment, was necessary prior to proceeding further with such a rulemaking.

A comment from one of those rulemakings, almost 10 years ago, seems as if it were written yesterday when it expresses concern that ". . . a wine container which was considered perfectly acceptable at the time it was introduced to the marketplace might at a subsequent point in time be determined by BATF to be ‘misleading’. . . ."

NABI argued that it is unaware of any evidence linking non-traditional containers with alcohol abuse or underage drinking and stated: "Antialcohol advocates might be of the opinion that there is a linkage [but we] doubt that any evidence exists that establishes the linkage." NABI urged that the proposed ban would be more extensive than necessary, that it would not advance ATF’s legitimate objectives in any material way, and that less intrusive options such as labeling should be used. The current proposal does allow labeling to be a factor in deciding whether or not the product contains alcohol, but it does not seem to allow labeling to play any role in deciding whether the container’s shape or design could be misleading as to the type of alcohol contained therein. In other words, if a container "looks like a beer bottle," even though it prominently states "Vodka," 27 CFR § 5.42(c) would disallow the container. NABI also pointed out that the lack of published criteria would lead to "inconsistent approvals and endless appeals."

Others, such as the Presidents’ Forum, expressed concern that this proposal could block innovation in the alcohol beverage industry and lock the industry in the 1950s. The Packaging Machinery Manufacturers Institute ("PMMI") found little to like in the proposal. The PMMI said ATF seems to be exceeding its authority and said:

It is interesting to note that you arbitrarily accept the fact that it is acceptable to distribute alcoholic beverages in aluminum cans or glass containers, even though the vast majority of soft drinks and other non-alcoholic beverages are sold in similar containers. Yet it is somehow wrong to sell alcohol in containers manufactured from other materials.

Wine Institute shared this concern and said "singling out a container’s materials and design alone will only discourage product and container innovation." The same comment noted there are many container types commonly used for more than one kind of product and that "cooking oil as well as pesticides [are commonly] packed in the same aerosol containers." Sherman described a few innovations in alcohol beverage packaging over the past 50 years and said a rule that prohibits such innovation "will retard the growth of both producers and packaging companies, and will freeze the industry into obsolete technology and marketing."

Like PMMI, Sherman argued that ATF has no authority to prohibit misleading bottles or containers. But the Federal Alcohol Administration Act does give ATF authority to regulate the way alcohol beverages are "bottled, packaged , and labeled" in order to "prohibit deception" and "provide the consumer with adequate information as to the identity and quality of the products. . . ." ATF asserts this authority in the proposal, and the comments do not explain why this is inadequate.

Sherman also argued that the rule is not necessary, stating "Notice 872 never substantiates its repeated contentions that non-traditional packaging misleads consumers, threatens the revenue, and facilitates underage drinking." Sherman pointed out that every day, around the world, consumers confront alcoholic beverages sitting side-by-side with soft drinks, in nearly identical 12-ounce aluminum cans, and yet they readily distinguish the products.

Mango discounted the likelihood that the package size will confuse any significant number of its consumers. Mango said it is not aware of any non-alcoholic beverages or food products packed in containers similar to its test tubes.

And what if, for example, Ocean Spray eventually begins shipping large quantities of cranberry juice cocktail in bag-in-box containers? Would some consumers confuse them with the many wines long sold in similar containers? Could ATF ban bag-in-box containers under this proposal as a result? Mango said "ATF could prohibit any traditional alcohol container if another non-alcohol product manufacturer started using such containers for its non-alcohol products to the point where consumers might be misled." Mango said "A better alternative would be to specifically identify, through a rule, those particular . . . containers . . . first created to contain non-alcohol products."

Conclusion

The proposal also requests "alternative approaches to accomplish the objectives outlined" in Notice 872. It seems fairly clear that many of the cited problems could be adequately addressed through far less restrictive means such as additional and more prominent disclosures. For wine that looks like a common Popsicle, ATF could require "CONTAINS ALCOHOL" or a larger alcohol content statement. For the test tubes, ATF could require all mandatory information to be re-stated on each "immediate container." Moreover, for most of the products at issue, there needs to be a recognition that market forces already push the marketer to make it clear that the product contains alcohol – quite independent of any federal requirement. Many of these products would not stand a chance of competing against their non-alcoholic counterparts unless they somehow distinguish themselves such as by making it abundantly clear that they contain alcohol. For example, Blend’s ("The Original Adult Ice Cream Drink," containing 2.5 to 5 percent alcohol by volume) will have an even tougher time competing against Haagen-Dazs and Breyers unless the consumer clearly understands what sets it apart. The proposal refers to packaging that "obscures the identity of the product as containing alcohol." But why would the "underage consumer," supposedly hellbent on alcohol abuse, purchase these products in any case if current packaging really "obscures" the fact that it contains alcohol? Would the new rules make this better or worse?

Now that ATF seems to be moving toward regulating the size and shape of alcohol beverage containers, and others like CSPI are urging ATF to move further toward regulating package colors and "attractiveness," it is easy to understand the frustration of the Empire Brokerage, when it said "[m]y greatest concern . . . is the point where these regulations will stop."

(The footnotes in the original article are not included here.)

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