We are writing to let you know about a recent (and interesting) “Made in USA” enforcement case.
As many of you know, the use of U.S.-origin claims in product labeling or advertising is governed by rules promulgated by the Federal Trade Commission. These rules set an incredibly high standard for unqualified U.S. origin claims, such as “Made in the USA”. Under this standard, a product must be “all or virtually all” made in the United States. “All or virtually all” means that all significant parts and processing that go into the product must be of U.S. origin; that is, the product may only contain a negligible amount of foreign content. This has generally be viewed to mean that the product was last substantially transformed in the United States and contains at least 95% U.S. content. If a product is last substantially transformed in the United States, but does not contain “all or virtually all” U.S. content, then a qualified U.S. origin claim is more appropriate (e.g., “Made in the U.S. of U.S. and imported parts” or “Assembled in USA”).
Earlier this week, the FTC announced that E.K. Ekcessories, Inc., a U.S.-based outdoor accessories retailer, agreed to settle charges that it falsely advertised, labeled and distributed certain products to consumers throughout the United States as “Made in the USA.” According to the FTC’s complaint (available here), the Company made a number of unqualified U.S.-origin on the packaging, on its website and in its product catalogs. The claims that were made included:
“Truly Made in USA [with an image of an American flag]”
“For 28 years, E.K. Ekcessories has been producing superior quality made accessories in our 60,000 sq. ft. facility in Logan, Utah”
“[O]ur source of pride and satisfaction abounds from a true ‘Made in USA’ product.”
“Made in USA”
The FTC alleged that in fact many of the products, or certain components of these products, were made outside of the United States and, thus, were not eligible to use these unqualified claims. The FTC also alleged that by distributing promotional materials to third-party retailers, the company provided the means and instrumentalities to those retailers for the commission of deceptive acts.
Under the proposed settlement agreement, which contains a 20-year Consent Order (available here), the company is prohibited from claiming that a product is made in the United States, or providing third-party retailers with promotional materials with which to make that claim, unless the product is “all or virtually all” made in the United States. More significantly, the company is required to contact all distributors who purchased or otherwise received any products from the company over a certain time period, and provide them with a notice and a copy of the Order. As you will see from the attached notice, the company is now in the uncomfortable position of having to ask its distributors to immediately stop using some of its marketing materials, and to affix stickers over the packaging of certain products to cover claims that the items are made in the United States.
The proposed agreement will be subject to public comment for 30 days, after which the FTC will decide whether it will make the Order final.
The use of U.S.-origin claims has become increasingly important for many companies in recent years. This case underscores the need to exercise caution when making such claims, whether on product packaging or on your website. The standard for making these claims differs from the traditional customs test and the standard for making unqualified U.S. claims is extremely high (and, arguably, counterintuitive). Companies need to review their packaging and marketing materials to ensure that any such claims are accurate and capable of being substantiated.
We have a great deal of experience advising clients on country of origin marking issues, including the use of “Made in USA” claims. If you have any questions about the case discussed above, or making U.S.-origin claims more generally, please let us know.