THE RENAISSANCE OF FEDERAL UNFAIR TRADE PRACTICES – CURRENT ISSUES AND STRATEGIES (Excerpt)
By: Robert Tobiassen, Compliance Consultant and Former Chief Counsel (TTB)
January 29, 2018
Introduction by John Hinman, Senior Partner, Hinman & Carmichael LLP
Rob Tobiassen has prosecuted, and advised on, hundreds of alcoholic beverage industry trade practice cases since 1978 when he first joined the Bureau of Alcohol Tobacco and Firearms. Rob rose through the ranks at the BATF (and then the TTB) to Chief Counsel before retiring in 2012. Rob is now providing his significant expertise to those of us engaged in advising our clients how to comply with the trade practice laws, and defending cases when circumstances dictate. This article is a primer on TTB Trade Practice enforcement principles and policies. Rob and I will be on a panel discussing trade enforcement issues at the upcoming NABCA Legal Symposium in Arlington VA on March 18-20, 2018.
The TTB has Substantially Picked up the Pace of Unfair Trade Practice Enforcement-and Pay to Play is at the top of the Agenda
TTB is making its presence known in the unfair trade practice arena. In July 2017, it announced a joint investigation by TTB and Florida State Authorities in the Miami area and then in September it followed with a joint investigation by TTB and Illinois State Authorities in Chicago, the Quad Cities, and Peoria. Both press releases from TTB emphasize these investigations are focusing on “pay to play” schemes. According to the press releases, “Pay to play,” also known as “slotting fees,” is an unlawful trade practice that hurts law-abiding industry members and limits consumer choice.
The TTB Now has the Money to Investigate, and has reorganized to use the new budget cost effectively
Congress gave TTB $5 million of specific funding for fiscal years 2017 and 2018 for “the costs of programs to enforce trade practice violations of the Federal Alcohol Administration Act.” This appropriation reflected an effort by many industry groups to ensure that TTB has adequate resources to enforce the unfair trade practice provisions of the Federal Alcohol Administration Act (FAA Act), Title 27, United States Code, Section 205(a) through (d). Trade practice investigations are extremely resource intensive. They are conducted by investigators and auditors who must obtain evidence through extensive field investigations involving interviews and analyses of business records, and significant attorney support from the Office of the Chief Counsel.
To position itself to conduct these investigations, TTB has reorganized the Trade Investigations Division (TID), Office of Field Operations. Since the TTB’s inception in 2003, the Trade Investigations Division has been charged with enforcing the unfair trade practice provisions. TID has six districts around the country. The Market Compliance Office (MCO), Office of Headquarters Operations was moved to TID and monitors trade practice matters. MCO has an Advertising and Trade Practices Program Manager, Lisa Gesser, who is available to answer your trade practices questions at TradePractices@ttb.gov. A new Office of Special Operations was established in TID. It is charged with initiating, conducting, and overseeing trade practice investigations. Staffing of that office includes nine Special Operations Investigators (SOI) and a supervisor. The SOIs are positioned around the country. TID investigators from the field district offices will be assigned to assist in investigations. Under this reorganization both monitoring and enforcement is centralized in one program division.
Looking back at what TTB has done in the past several years in enforcement of unfair trade practices provides a guidepost to the current and future investigations. Essentially, TTB has focused on two areas: the “slotting fee” payments for product placement and consignment sales for malt beverages (beer) in the context of “freshness dating” returns. An examination of the statutory requirements for a trade practice investigation sheds light on why TTB may be focusing on these investigations.
The reason for the appropriation and the reorganization is because the industry asked for the trade practice laws to be enforced. A permissive climate where enforcement is hit or miss encourages corrupt activity, and it is the TTB’s mission to root out corruption wherever it can.
Federal Unfair Trade Practices Under the FAA Act – What are they and how is a case made?
There are four unfair trade practices:
Exclusive Outlet (Section 205(a))
Tied-house (Section 205(b)) with seven specific types of means to induce.
Commercial Bribery (Section 205(c))
Consignment Sales (Section 205(d))
“Pay to play” schemes can fit under the first three practices. Here is how a violation is proven:
There are three statutory elements for a violation.