Recent FTC “Made in USA” Enforcement Actions

Dear Friends,

We are writing to let you know about increased enforcement activity at the federal level related to “Made in USA” claims.

In the past few weeks, the Federal Trade Commission (FTC) has resolved two administrative complaints filed against U.S. companies for allegedly making false U.S.-origin claims. 

In February, the FTC published an agreement containing a consent order involving a water filtration company based in Georgia.  The FTC’s complaint alleged that the company deceived its consumers with claims that its systems and parts are “Built in USA”, “Proudly Built in the USA” and “Built in USA Legendary brand of water filter” when in fact the company either imported its products or built them using significant imported components. 

Similarly, earlier this week, the FTC published an agreement containing a consent order involving a Texas company that sells metal pulleys for industrial use.  The complaint alleges that the company advertises its products online, in stores, at trade shows, through social media, etc. and uses unqualified U.S. origin claims, such as “Made in USA”, “Made in the USA American Product” and graphical depictions of the American flag, on the product and in its advertising.  The FTC alleged that many of the company’s products contained significant imported components (and some of the parts were imported from abroad already stamped “Made in USA”).

Without admitting wrong-doing, both companies agreed to enter into consent orders with the FTC to resolve the matters. These orders mandate compliance with the FTC’s Enforcement Policy Statement on U.S. Origin Claims going forward, and include certain reporting and recording requirements.  Each consent order remains in effect for 20 years.  Violations of the consent orders lead to significant monetary fines.  Additional information about each case can be found here and here.

These actions are important, as they may signal increased enforcement of this issue at the federal level.  As you know, the FTC has adopted strict guidelines for making unqualified U.S.-origin claims – the ‘all or virtually all’ U.S. content standard.  In recent years, however, there has not been a great deal of enforcement at the federal level.  These actions may signal that this will be changing.  Accordingly, every company should review its product markings, as well as its advertising (including social media), to make sure that any U.S.-origin claims (unqualified or qualified) comply with the FTC’s guidelines.  If your claims are in compliance, you should also consider reviewing the types of claims your competitors are making to help ensure there is a level playing field for everyone.

We regularly advise clients on these issues (and have represented companies in FTC enforcement actions) and would be happy to discuss this with you further.  If such a discussion would be helpful, just let us know.

We hope this is helpful.

Best regards,
Ted

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FTC Challenge to “Made in USA” and Other U.S. Origin Claims

Dear Friends,

We wanted to let you know about a lawsuit the Federal Trade Commission (FTC) recently filed contesting an Ohio company’s use of U.S.-origin claims.

The complaint, filed earlier this week in U.S. District Court for the Northern District of Ohio, alleges that the company deceived consumers by making unqualified U.S.-origin claims.  More specifically, the complaint alleges that the company used unqualified “Made in the USA” and “Proudly Made in the USA” claims for its glue products, when a significant proportion of the cost of the chemical inputs (~55%) are attributable to imported chemicals.  A copy of the complaint can be found here.

As you know, the FTC has strict requirements for making unqualified U.S.-origin claims, such as “Made in USA”.  Specifically, the FTC rules require, among other things that the product contain “all or virtually all” U.S. content (generally, viewed as 95%+ US content by cost) in order to be eligible for an unqualified U.S.-origin claim.

This case is important for a couple of reasons.

First, the case serves as an important reminder to all companies that utilize U.S.-origin claims on their products (or that sell other companies’ products that contain U.S.-origin claims) that they need to be extra vigilant in this area.  Given that the rules for making such claims can seem counterintuitive (e.g., just because a product is made, or even last substantially transformed, here in the United States does not automatically mean it can be labeled “Made in USA”), such claims are often a trap for the unwary.

Second, it is important to note that the FTC is pursuing this action through litigation.  Typically, the FTC’s policy is to police these types of claims administratively (i.e., closing the case without action if there is no violation, or getting the company to enter into an administrative consent order if there is a violation).  Here, the FTC could not resolve the matter administratively, so is forced to sue the company in U.S. district court.  This could result in the court considering whether the FTC’s “all or virtually all” U.S.-content test is appropriate/sustainable.

We will continue to monitor this case as it develops and keep you informed.  In the meantime, if you have any questions about making U.S.-origin claims (unqualified or qualified), please let us know.

Best regards,

Ted

Update: “Made in USA” and Other US Origin Claims

Dear Friends,

We are writing to provide an update on recent changes to California’s “Made in U.S.A.” standards.  As you may have heard, the Governor of California recently signed legislation which will go into effect January 1, 2016, amending California Business and Professions Code to allow products containing some non-U.S. content to be labeled “Made in USA.”

The amended provision is intended to close the gap between California’s previous “Made in U.S.A.” standard and the federal “Made in U.S.A.” standard—curing a discrepancy which existed on paper for many decades, but which only took on commercial significance in recent, as the plaintiffs bar filed a number of lawsuits challenging various companies compliance with the stricter California provision.

While the goal of the new California law is clear enough, whether it will be successful is another matter.  Interestingly, the new California statute does not replicate the fairly succinct and straightforward federal standard (which allows unqualified U.S. origin claims for products “all or virtually all made in the United States”).  The new California statute (attached) is a bit more cumbersome.  Stretching for several paragraphs, the new law:

  • retains the prohibition on U.S. origin claims for products entirely or substantially manufactured outside the U.S. (or containing parts which are entirely or substantially manufactured outside the U.S.);
  • creates an exception to that prohibition for products containing up to 5% non-U.S. content;
  • creates an exception to that prohibition for products containing up to 10% non-U.S. content, when the non-U.S. content is domestically unavailable; and
  • specifies that merchandise offered for sale outside of California “shall not be deemed mislabeled if the label conforms to the law of the forum state or country within which they are sold or offered for sale.”

Whether there remains any actionable daylight between these provisions will be up to the plaintiffs’ bar.  In the meanwhile, particularly in light of that final provision, cautious optimism seems reasonable.

If you have any questions about the impact of these developments on your business, please let us know.

Best regards,
Ted

“Made in USA” and Other US Origin Claims

Dear Friends:

We are writing to let you know about a recent development in a class action lawsuit involving “Made in U.S.A.” claims on goods sold in California that we brought to your attention back in June.

In a recent order denying a defendant’s motion to dismiss, the U.S. District Court for the Southern District of California concluded that products labeled “Made in U.S.A.” and sold in California must comply with both federal labeling laws and California’s state labeling standards (i.e., that the more permissive federal standard does not preempt the more restrictive state standard; both apply). A copy of this order is attached for your reference.

As you know, the U.S. Federal Trade Commission (“FTC”) has strict requirements for making unqualified U.S.-origin claims, such as “Made in U.S.A.” In order for a product to be eligible for an unqualified U.S.-origin claim, the FTC rules require that product to contain “all or virtually all” U.S. content (i.e., it can contain a de minimis amount of foreign content; generally viewed as requiring 95%+ U.S. content). As discussed in the email chain below, California’s “Made in U.S.A.” rules impose an even more stringent standard on products marked with an unqualified U.S.-origin claim (i.e., the product must contain 100% U.S. content). Thus, this decision means that companies selling products with a U.S.-origin claim nationally must ensure that the more stringent California standard is met – i.e., the products must contain 100% U.S. content/cannot contain any non-U.S. components.

This lawsuit serves as an important reminder to all companies that utilize U.S.-origin claims on their products (or that sell other companies’ products that contain a U.S.-origin claim) that the failure to comply with the FTC rules (and the more stringent California rules when the products are sold in California) could result in getting embroiled in a costly enforcement action.

If you have any questions regarding the use of U.S.-origin claims, please let us know.

Best regards,

Ted

Recent “Made in USA” Enforcement Case

Dear Friends:

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.

Best regards,

Ted