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Retail Law Advisor

Fast Forward: Anticipation Grows as ICSC RECon Global Conference Approaches

Posted in Real Estate, Retail

The annual ICSC RECon Global Retail conference is coming fast and we are poised to take it all in. This year’s conference takes place from May 18-20th at the Las Vegas Convention Center.

As we see it, this conference is the place to be if you participate in any part of the retail industry. As the largest US retail event, ICSC draws people from all sectors. Conversations cover the entire spectrum and we expect to see just about everyone associated with the broader industry. Join developers/landlords, retailers, franchisors/franchisees, lenders, private equity firms, and other professionals actively engaged in the retail industry who come to find opportunities to collaborate in this quick-fire environment. We also expect to see the trend towards globalization continue as more foreign developers and retailers take part in this program.

Retailers know that this conference brings the players together to facilitate introductions, enhance relationships and seal the deals that keep our economies in motion. We continue to witness confidence in retail and expect this year to be even better for our industry. Stay tuned, post-conference impressions will be posted here in early June. See you at RECon!

Indoor Play Spaces Draw Families to Shopping Centers

Posted in Retail

After freezing temperatures and heavy snowfall from October through March in many states this year, the conversations in preschool pick-up lines and pediatrician waiting rooms are all about indoor play spaces, including playgrounds in enclosed shopping centers. Parents and caregivers are eager to go anywhere to “get the energy out” of their young children, and retailers are taking note.

During the recession from 2009-2013, shopping center owners saw a decline in visitors to enclosed malls, and many began revising the tenant mix to provide more “experiences” to draw shoppers into the retail center. Some shopping centers moved to providing gourmet, high-end “food halls” such as Mario Batali’s Eataly in New York and Chicago and Hudson Eats at Brookfield Place in New York. Others began incorporating spa services including botox centers such as Venus Mini Med Spa and massage destinations like Massage Envy and Art of Reflexology. Other enclosed malls sought to attract shoppers with young children by developing indoor play spaces, and that investment seems to be paying off. Parenting magazines and Mommy blogs are paying attention, and in most large cities, caregivers of young children can find easily searchable lists of indoor play spaces including those in local malls.

In the past five years, Playtime, Inc., the leading designer of custom-made soft indoor play areas has provided indoor play areas for General Growth Properties, Simon Property Group, Taubman, CBL & Associates, Jones Lang LaSalle, and other retailers and developers. While Playtime, Inc. focuses on sculpted foam play areas with an antibacterial coating, other providers including International Play Company and Soft Play provide components that can be assembled into customized play spaces. The play areas are often sponsored by local hospitals or sports teams, and the shopping centers provide the floor space and maintenance. Taking any theme, such as geographic features or the sponsor’s business, the play areas also provide parent-friendly amenities like phone charging stations, picnic tables, and family bathrooms. Most play areas are located away from mall exits, have one entry point, and are self-supervised with signs reminding parents to watch their children. Some shopping centers have even clustered children’s retailers near the play areas, and have reported increased sales in those stores.

When shopping centers provide play spaces, they build themselves into the weekly schedules of parents with young children. Some parents even schedule play dates at the shopping center playgrounds. Having a regular visit to the mall changes a parent’s perspective on shopping and reduces the appeal of online shopping. Instead of a trip to the mall being a nightmare event that requires bribery and stocking the diaper bag with penny candy, it becomes a trip to the playground with a short stop for new shoes.

Enterprising shopping center owners have long provided attractions to customers and their children including fountains, visits with Santa, and indoor rides such as trains or carousels. However, the modern parent wants a place where children can actively engage with the play equipment and run around. Increasingly, shopping centers are adding kid-friendly attractions, and families are using the playgrounds protected from the heat of summer and the cold of winter. The move toward mall playgrounds is not only happening in America, but is an international trend. Mommy blogs in Singapore and China are also keeping track of mall playgrounds as shoppers are eager to have smog-free, climate-controlled play experiences for their children.

Bitcoins: Gold 2.0 or a Mirage?

Posted in Banking, Finance, Retail, Retail sales

The debate over Bitcoins is heating up. While the Winklevoss brothers call them “Gold 2.0”, Warren Buffett labels them a “mirage”. So what exactly are Bitcoins?

In simple terms, Bitcoins are a form of digital currency that can be transferred online directly between two parties. Bitcoin payments do not involve the third parties commonly associated with credit card payments, such as association networks, front- and back-end payment processors, issuing banks, and acquiring banks.

All Bitcoin transactions are recorded in a public ledger known as the block chain. The block chain is managed and validated with strict cryptographic rules in a process called “mining.” Mining also generates Bitcoins for those engaged in mining work. The average person, however, obtains Bitcoins by purchasing them through online exchanges or special ATMs.

There are currently 12 million Bitcoins in circulation, with the system designed to cap at 21 million. Outside of this self-imposed regulation, the U.S. government has also come up with its own rules. For example, the Financial Crimes Enforcement Network (FinCEN) issued a guide requiring Bitcoin administrators and exchangers, but not users, to register as money services businesses and to be subject to anti-money laundering laws. FinCEN subsequently clarified that retailers that accept Bitcoins for the sale of goods and services are users and, thus, are exempt from those regulations.

Many businesses have already begun to accept Bitcoins as payment. From online sites such as WordPress and Overstock, to brick and mortar shops such as Thelonious Monkfish, to hotels and sports teams, Bitcoins have appeared in expected and unexpected ways. Before your business joins this growing list, here are some disadvantages and advantages you should take into account:

Disadvantages:

  • Bitcoins are extremely volatile. In 2013, the value of a Bitcoin ranged from $13 to $1200. As of March 31, 2014, it was valued at around $450.
  • Bitcoins are not federally insured. Unlike deposits in your FDIC-insured bank, Bitcoin deposits are not protected if lost or stolen, which is a very real risk. The news is filled with stories of Bitcoin banks and exchanges losing millions of dollars in customers’ Bitcoins due to theft.

Advantages:

  • Bitcoin payments are faster and cheaper than debit and credit card payments. By eliminating most third parties, Bitcoin payments reduce transaction fees. Bitcoins also facilitate micropayments (transactions involving a very small amount of money) and international transfers. Moreover, the transactions are nearly instantaneous. Once a person clicks send, the payment is in the recipient’s Bitcoin wallet within a matter of minutes.
  • The barriers to entry are low. There is no need to change or upgrade your point-of-sale terminals in order to accept Bitcoins. You can accept them through a desktop program, a smart phone application, or a web browser.
  • Bitcoin transactions are irreversible, which means no more chargebacks.
  • Bitcoins avoid the need to collect and secure credit card data and, thus, reduce exposure for security breaches.

If you decide the pros outweigh the cons and want to start accepting Bitcoins, here are some important points to keep in mind:

  • Use up-to-date exchange rates to quote Bitcoin prices and do an immediate exchange to dollars once you receive payment to guard against sudden drops in Bitcoin value. Consider setting a time limit, like Overstock does, on when a customer can send its Bitcoin payment to your digital account.
  • Just like sales conducted with foreign money or gold, sales conducted with Bitcoins need to be reported as income.
  • Think about what refund and exchange policies you want in place and how they might affect the customer shopping experience.

While the popularity of Bitcoins appears to be on the rise, it remains to be seen whether they will ultimately prove to be Gold 2.0 or a mirage. Regardless of the final outcome, at least some retailers have already decided that the benefits of Bitcoins outweigh their risks.

Don’t Be Pinocchio: Avoid Liability for False Advertising

Posted in Compliance, Liability, Retail

Are you at risk of being sued for false advertising? In our media-saturated and highly competitive commercial environment, companies use a wide range of creative strategies to capture and retain consumer interest. These strategies often include making statements about other companies’ products or services. But when does such advertising go too far?

The Lanham Act is the primary federal law that prohibits “unfair competition,” including false advertising. Companies may assert claims under the Lanham Act based on deceptive or misleading statements made about their products, services, or commercial activities. A company injured by false advertising may seek a court order preventing improper conduct, requiring corrective advertising, and granting a monetary recovery.

On March 25, 2014, the U.S. Supreme Court in Lexmark International, Inc. v. Static Control Components, Inc. ruled that companies are not limited to asserting false advertising claims against their direct competitors. Instead, these claims can be brought by any company likely to be harmed by false or misleading advertising. The Supreme Court also reiterated the longstanding principle that individual consumers or purchasers of products or services cannot assert false advertising claims under the Lanham Act.

The facts in the Lexmark decision are instructive. As a manufacturer of computer printers, Lexmark designed replacement printer cartridges that prevented consumers from sending empty cartridges to other companies for refilling or resale. Static Control, however, designed special microchips that circumvented Lexmark’s design. These microchips allowed other companies to refill and resell empty Lexmark printer cartridges. Predictably, Lexmark was upset with this development and sued Static Control for copyright infringement. Static Control fought back with false advertising and antitrust claims. The false advertising claim was premised on Lexmark’s statements to consumers that Static Control’s microchips were illegal and violated Lexmark’s intellectual property rights. The Supreme Court held that Static Control could assert a false advertising claim against Lexmark, although Static Control still had the burden of proving this claim at trial.

As the Lexmark decision highlights, companies should exercise self-discipline in their business communications and advertising. In monitoring their own communications, companies should consider the following general principles:

  • Be Accurate: Advertising and public statements should be factually accurate and should not deceive or mislead the public.
  • Avoid Confusion: Advertising and public statements should avoid creating any potential confusion with other companies’ products or brands. In addition, other companies’ trademarks should be used in advertisements only to the limited extent necessary to identify a specific product or service for purposes of making a comparison.
  • Avoid False Associations: Companies should avoid creating or implying false or misleading associations between their products or services and those from other companies.
  • Avoid Unwarranted Criticism: Companies should avoid making false or malicious statements about other companies’ products or services, or accusing other companies of engaging in fraud or deception or violating laws.
  • Identify Sources: When making comparisons with other products or services, or statements about other companies’ products or services, companies should clearly identify the source of that information. Similarly, when a company makes factual claims about products or services, those claims should be supported by legitimate tests and studies.

Although these general principles provide an initial framework for assessing advertising and public statements, false advertising claims are highly fact specific. Therefore, companies should consider these principles and seek legal advice when appropriate—before being confronted with a lawsuit.

Medical Marijuana: The Latest Snapshot

Posted in Compliance, Retail

While the Super Bowl XLVIII matchup between the Denver Broncos and Seattle Seahawks may have been a major letdown for football fans hoping to witness an epic battle between the NFL’s top offense and its top defense, fans certainly had fun nicknaming the big matchup featuring teams from two states that recently legalized marijuana as the “Stoner Bowl,” with high hopes (pun intended) that Bob Marley would make a hologram appearance at halftime. But to the NFL, marijuana use is no laughing matter, as the league continues to impose stiff penalties on players who test positive for the drug. In fact, Broncos linebacker Von Miller missed several games earlier last season and Seahawks cornerback Brandon Browner was forced to miss the Super Bowl due to drug related suspensions. Despite these crackdowns, NFL Commissioner Roger Goodell suggested in the weeks leading up to the Super Bowl that the league would consider allowing injured players to use medical marijuana for head injuries if medical experts could demonstrate that the drug helps treat concussions.

The NFL’s openness to medical marijuana should come as no surprise as states around the country continue to shift towards loosening restrictions on both medical and recreational marijuana. In addition to Colorado and Washington, medical marijuana is currently legal in Alaska, Arizona, California, Connecticut, Delaware, Hawaii, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, Oregon, Rhode Island, Vermont and the District of Columbia. The following is a snapshot of recent legislative updates involving marijuana around the U.S.:

  • The District of Columbia Council approved a measure making possession of an ounce or less of marijuana a civil infraction punishable by a $25 fine and seizure of the drug, which some marijuana advocates view as a step towards outright legalization in the nation’s capital.
  • 281 marijuana dispensaries began the process of registering with state regulators in Oregon in the first week of a program that regulates the retail sale of medical cannabis in Oregon. However, some dispensaries may not be able to operate, as there is a move in the Oregon legislature to allow cities and counties to ban dispensaries from opening until May 1, 2015.
  • Voters in libertarian Alaska will vote on Aug. 19 on an initiative that would legalize recreational marijuana use for adults 21 or older, and tax it at $50 an ounce.
  • An effort is underway to put medical marijuana on a ballot in Ohio. Supporters have 50,000 of the 385,000 signatures required by July 2 to put an issue on the ballot this year.
  • New York Governor Andrew Cuomo announced earlier this year that he was going to implement executive actions that would allow the restricted use of medical marijuana. Meanwhile, a bill has been introduced in the New York State Assembly that would fully legalize and tax recreational marijuana.

Interestingly, there has been a movement to legalize marijuana for medical purposes in several southern states, one of the few areas of the country where opposition towards any form of legalization of the drug still remains. For example:

  • Florida voters will have a chance to vote on a ballot initiative this November on whether to legalize medical marijuana. That initiative looks likely to pass as 82% of Florida voters support legalizing medical marijuana, while only 16% oppose it.
  • Louisiana Governor Bobby Jindal, a former U.S. Assistant Secretary of Health and Human Services and a potential 2016 Republican Presidential candidate, recently indicated openness to allowing “tightly regulated” medical marijuana.
  • Georgia legislators took a step towards easing laws restricting medical marijuana when the Georgia House approved a measure that would allow people suffering from the side effects of cancer treatment, glaucoma and some seizure disorders to take products derived from cannabis oil to ease their symptoms.
  • Various bills have been introduced in the South Carolina legislature that would legalize some forms of medical marijuana.

Commercial landlords around the country may look at these developments and see medical marijuana clinics or retail marijuana shops as attractive tenants to fill vacant spaces. However, while states may be loosening marijuana restrictions, the drug remains illegal at the federal level. The Obama administration has indicated that it will not challenge these state laws and just recently enacted new regulations which would allow banks to provide financial services to marijuana-related businesses operating legally under state laws, but there is no certainty that a successor administration will take the same position. This disconnect between state and federal laws has kept medical marijuana shops from deducting operating expenses from their federal income taxes, thus slashing their profits. It remains to be seen whether marijuana related retailers will be viable tenants.

How the Teen Psyche Shapes the Market for Teenage Retailers

Posted in Retail, Retail sales

Creating brand loyalty among teenage shoppers is a challenge given the wide and rapid swings in their tastes. Despite this uphill climb, the rewards of becoming le gout du jour (and, hopefully, de la saison) for teenagers is not only highly profitable but also a sure-fire means of expanding a brand’s consumer base. The first shots across the bow have already taken place as retailers such as Uniqlo, H&M and Forever 21 have changed the way in which the game is played – namely, by lowering price points and offering a much broader variety of merchandise.

With the emergence of these new retailers, once major teenage fashion giants such as Abercrombie & Fitch, Aeropostale, and American Eagle have taken a drastic hit in sales and have realized that competition within the teenage market is as competitive as the bouts of yesteryear between Ali and Frazier. According to a survey conducted by Piper Jaffray & Co. of 5,200 teenagers in 2013, it appears that these brands simply do not currently resonate with teens. So, what gives?

Apparently, these retailers simply did not stay “on-trend”. In a demographic segment subject to the capriciousness of memes and the viral youtube video of the day, this morning’s fashion is that afternoon’s old news. In many respects, the traditional teenage retailers have failed to keep up with the times and needs of teenage consumers. Industry analysts note that merchandise within Abercrombie & Fitch, American Eagle, and Aeropostale contain large brand logos and are monolithically tailored to the “preppy” crowd; merchandise of the new retailers rarely contain any insignias and cater to a panoply of fashion genres. Today’s younger consumers develop their own conception of “cool” and craft their own unique identity, illustrated through their choices in clothing, art, and music. Thus, the omnichannel approach by the new retailers – namely, its clothing collaborations with famous musicians and/or celebrities, and ubiquitous presence on social media – resonates with teenagers and precipitated a boom in profits.

Those who study and comment upon teenage retail report that the business models of Uniqlo, H&M, and Forever 21 focus on cheap, trendy fashion, and recognize how fickle and cost-conscious teenagers are. Industry analysts opine that producing a variety of cheap, trendy products may not only shield these retailers from the detrimental effects of the eventual fashion misses (and resultant lackluster sales), but also allow these retailers to be especially sensitive to the slightest shifts in the winds of fashion. It would seem to behoove all retailers targeting the teenage market to keep a watchful eye (and a nimble hand) on trends and styles and avoid an “all-in” approach to a particular style and merchandise mix.

From Strips to Chips: How Recent Data Breaches Threaten to Impact Your Point of Sale

Posted in Intellectual Property, Risk Management, Technology

The costs of recent data breaches have been staggering. In Target’s case, 40 million credit and debit card accounts were hacked, and the personal information of 70 million people was stolen. The cost to Target: $17 million in net expenses and a 46% decline in profits in the fourth quarter that ended February 1, 2014. In the case of Neiman Marcus, 1.1 million cards were compromised. The cost to Neiman Marcus: $4.1 million to date.

To appreciate the potential and likely effects of these breaches on you, look at what various stakeholders, including the National Retail Federation, have been saying and doing. Loudly and clearly, they are advocating for the replacement of existing magnetic strips on credit cards with chip-and-PIN technology. After all, it’s what the rest of the world has been doing for years.

Would this new technology have prevented the Target and Neiman Marcus breaches? No. But it would have made it more difficult for thieves to use the stolen data afterwards. This is because chip cards, unlike magnetic strip cards, generate a different encrypted mathematical value every time they are used, making it harder for criminals to clone or counterfeit any stolen data. Plus, the requirement of a PIN at the point of sale provides a second layer of protection against unauthorized use.

So why hasn’t this chip-and-PIN technology been universally adopted here in the US? The primary reason is cost. With system-wide implementation estimated at $15-30 billion, it is no wonder that banks and retailers have historically waited for the other to act first. Retailers don’t want to spend the time and money buying and installing new terminals to read the chips unless the banks are issuing chip cards in significant numbers. And banks don’t want to issue the cards until retailers have terminals that can read the cards. It is a classic chicken-and-egg problem.

But the magnitude and highly publicized costs of recent data breaches may finally be enough to overcome this long-standing obstacle. The major card networks seem to be taking the lead and providing the much-needed incentive for both retailers and banks to act simultaneously. Under the new policies, liability for fraud would be placed on the party that prevents a chip transaction from taking place. For example, if a retailer has a chip reader and the card has only a magnetic strip, the bank would be liable for any resulting point-of-sale fraud. Conversely, if a chip card is presented to a retailer that has no chip reader (and the transaction has to go through using non-chip technology), the retailer would be liable. If this liability shift weren’t enough incentive for retailers, Visa has also promised to waive PCI DSS compliance validation requirements if retailers upgrade their terminals to read chip cards. Visa says these policy changes will take place by October 2015, giving retailers and banks a little under two years to get their affairs in order.

Not surprisingly, Target has been one of the first retailers to announce that it is jumping on board. It has already promised to invest $100 million in chip technology by early 2015. Other retailers would be wise to start doing the same. Otherwise, they could find themselves absorbing most, if not all, of the costs of point-of-sale card fraud in the near future.

Pop-up Retail

Posted in Landlords, Leasing, Retail, Tenant

Picture this: you’re the owner of a building in a bustling downtown hub and you find yourself with vacant retail space in a highly visible location. The previous tenant just left and you are still looking for the right long-term tenant, though you suspect the search could take several months. Or perhaps you are considering pursuing a zoning change to convert your retail space to office space, and although you aren’t in a position to sign a lease with a long-term retail tenant, you’d like the opportunity to collect rent from a short-term tenant while you pursue zoning relief. Imagine instead that you’re a store owner with too much space during the off-season and rather than commit to a sublease, you’d like to bring in a compatible retailer for just a few months to contribute to your rent payments until you can comfortably fill the entire space yourself.

In any of these scenarios, a pop-up store could be just what you’re looking for. “Pop-up” or “flash” retail refers to the trend of opening short-term storefront spaces to house up-and-coming retailers, or retailers who otherwise lack the physical presence necessary to raise their brand’s profile. The trend matches vacant capacity with demand for capacity in a way that benefits both landlords and retailers.

A few recent examples of retailers who have opened successful pop-up shops include the recently-launched Kate Spade Saturday concept, the stylish maternity label Hatch, and online eyewear retailer Warby Parker. And the trend isn’t limited to the sale of apparel and accessories – tech giants Google and Microsoft opened pop-up locations in time for the last holiday rush, as have headlining artists such as Kanye West, whose tours only stop in select cities for a few days at a time and can benefit from having a physical location where tickets and merchandise can be sold in the days or weeks preceding a show.

Fortunately, a few new online services make it easier than ever to jump on the pop-up bandwagon. Storefront bills itself as the “Airbnb” of retail, referring to the popular website that allows homeowners to rent their homes directly to guests. Although most of its listings are in San Francisco and New York, the site includes listings for locations in Boston and elsewhere in Massachusetts. Each listing includes photos, customer reviews, and a calendar showing rates and availability. Storefront charges a commission of 6 to 12 percent, and provides renters with general liability insurance. A similar service called Appear Here has emerged in the UK, proving that the pop-up phenomenon isn’t only happening stateside.

While pop-up retail presents an attractive opportunity for landlords and retailers alike, parties should be aware of how the trend relates to the language in their leases. Landlords looking to fill vacant spaces on a “flash” basis without using one of the online services described above might consider preparing an abbreviated “pop-up” form of lease which includes only the most critical lease provisions. With respect to pop-ups located within existing stores, we note that many leases restrict tenants from assigning their lease or subleasing a portion of their space to a third party without the landlord’s consent. However, given the novelty of the pop-up trend, many assignment and sublease provisions do not clearly address short-term arrangements between the tenant named in the lease and a retailer seeking shelf space in which to launch a “flash” retail presence. Landlords looking to avoid any ambiguity and retain approval rights over this type of arrangement may consider explicitly addressing pop-up retailers in their leases by specifying that these types of short-term arrangements are to be considered subleases subject to landlord’s consent.

Similarly, tenants should carefully review the provisions of their lease before welcoming pop-up retailers into their space so as to avoid any unintentional violation of their assignment and sublease provisions. Tenants entering into new leases may wish to explicitly address the issue of pop-ups and add an expedited pop-up approval mechanism to their leases for those types of deals. Be aware that in lieu of obtaining landlord’s consent up front, some tenants entering into pop-up arrangements with other retailers might retain the right to terminate the pop-up arrangement on relatively short notice, so that in the event a landlord alleges a breach of the lease, the tenant can terminate the pop-up arrangement before the landlord can exercise its remedies under the lease.

Given the pace at which the pop-up retail trend is moving, landlords and tenants should prospectively review their lease language to ensure that they are poised to take advantage of these fleeting opportunities – after all, in retail, as in many things, timing is everything.

Rapidly Changing Tobacco Regulations Across Massachusetts

Posted in Compliance, Retail, Retail sales

A significant number of Massachusetts cities and towns modified their tobacco regulations or bylaws during 2013 in an effort to minimize sales to minors and otherwise curb the use of tobacco products. In some towns, such as Canton, Ashland and Arlington, the legal age to purchase tobacco products was increased to 19, while in other communities, including Brookline, Watertown and Walpole, the legal age to purchase tobacco products was increased to 21. Some communities adopted regulations banning smoking in all public places and workplaces. Efforts have also been made to address the rising use of so-called “e-cigarettes” or “electronic cigarettes.”

Some Boards of Health, including those in Dedham and West Springfield, issued regulations prohibiting the sale of tobacco products by health care facilities. For example, the Dedham Board of Health stated: “…the sale of tobacco products… is incompatible with the mission of health care facilities because it is detrimental to the public health and undermines efforts to educate patients on the safe and effective use of medication.”  This Board of Health defined “health care facilities” to include not only traditional hospitals and doctor offices, but also retailers whose operations include a pharmacy or health clinic component. As a result, these regulations impact a wide range of retailers, including supermarkets, warehouse membership clubs and drug stores. In some instances, some of these retailers have resisted the breadth or so-called unintended consequences of the regulations, and have actively petitioned the Boards of Health to address their concerns, such as by proposing that the wholesale sale of tobacco (i.e., sale to re-sellers) be carved out of certain tobacco regulations or that the definition of health care facilities be narrowly tailored to exclude what they consider unintended operations (e.g., a vision center). In other instances, retailers have supported the regulations. For example, CVS Caremark has voluntarily elected to cease the sale of tobacco products nationwide.

The regulations finally adopted and issued by various local governments have often reflected the aggregate input of activists, doctors, students and businesses. These parties will likely want to pay close attention to further proposed changes to tobacco regulations in other Massachusetts cities and towns in 2014.

Massachusetts Food Waste Regulations Finalized: Waste-to-Energy Operations Make Headway under New Permitting Program

Posted in Environmental, Municipalities, Permitting

January was a milestone month for Massachusetts’ goal to divert food waste and other organic waste from landfills and to convert that waste to a productive fuel source. Massachusetts announced final regulations requiring the separation of food waste from other garbage just a few weeks after issuing a permit for the Commonwealth’s first operation to convert such waste to natural gas.

Late last month, the Massachusetts Department of Environmental Protection (“MassDEP”) issued its final regulations requiring companies and organizations generating more than one ton of food waste per week to divert their organic waste from landfills beginning October 1, 2014. The regulations apply to retailers, restaurants, hotels, shopping mall food courts, museums, entertainment venues such as concert halls and arenas, colleges, nursing homes, and other non-residential establishments (residences are exempt). Parties subject to the regulations must keep food scraps and vegetative materials out of the ordinary garbage. For those subject to the regulations, composting – or its equivalent – is now mandatory across the Commonwealth.

A few weeks before the final food waste regulations were released, MassDEP announced that it had issued the first permit for a waste-to-energy operation under its new Recycling, Composting, and Conversion (“RCC”) regulations. The first RCC permit authorizes Stop & Shop’s Freetown Distribution Center to install technology that converts unsold food products into a natural gas to be used to partially power the Distribution Center. In addition to the environmental benefits gained from diverting food waste, Stop & Shop’s Product Recovery Operation (“PRO”) will produce economic benefits for Stop & Shop in the form of energy production and reduced waste disposal costs. Stop & Shop will continue its practice of sending whatever unsold food product it can to food pantries before sending anything to the PRO for conversion. Goulston & Storrs provided legal counsel to assist Stop & Shop in obtaining its RCC permit as well as other state and local permits for the PRO.

The organic waste regulations and RCC program work hand-in-hand and create two linked environmental benefits. On the one hand, the food waste regulations will slow the rate at which Massachusetts landfills fill up and can no longer be used. On the other hand, MassDEP’s RCC regulations authorize and encourage the development of commercial operations to turn that diverted food waste into a valuable commodity: renewable natural gas. Hospitals, universities, arenas, or other large generators of food waste might find it viable to develop an operation similar to the PRO. Other waste generators, such as mall owners or hotels, may find economies of scale in a shared operation or may divert their waste to a third-party commercial operator with its own collection network.

MassDEP estimates that approximately 1700 businesses and non-profit organizations will generate enough food waste to be subject to the ban – check here to see if your organization is likely to be required to comply – and hopes that many more projects like the PRO come on line to accept and convert food waste to fuel.