The Federal Trade Commission (FTC) issued its Made in USA Labeling Rule on August 13, 2021 (the “Rule”), which has led to significantly increased enforcement in the area. Since then, the FTC has taken actions to enforce the Rule against certain companies. Below is background on the Rule itself, links to enforcement actions taken by the FTC thus far, and key takeaways for companies that market and label their products as Made in USA.
Applicable Law – Making Made in USA Claims Under the Labeling Rule:
The Made in USA Labeling Rule (16 CFR Part 323) prohibits claims on labels that a product was made in the United States unless:
- the final assembly or processing of the product occurs in the United States;
- all significant processing that goes into the product occurs in the United States; and
- “all or virtually all” ingredients or components of the product are made and sourced in the United States.
The rule also allows the FTC to obtain civil penalties immediately upon a violation, rather than first issuing a cease-and-desist order to the violating entity. The financial penalties can be severe—up to $50,120 per violation, even for first-time violators.
Lastly, while the rule applies specifically to Made in USA claims on labels, the FTC has also enforced improper Made in USA claims made on company and retailer websites, social media, and other areas as violations Section 5 of the FTC Act (15 U.S.C. § 45), which prohibits unfair or deceptive acts or practices in or affecting commerce.
“Made in USA” is an “unqualified” claim. A “qualified” Made in USA claim describes the extent, amount, or type of a product’s domestic content or processing. For example, a “qualified” Made is USA claim may state that a product is “Made in USA of U.S. and imported parts.” In other words, a qualified Made in USA claim indicates that the product is not entirely of domestic origin. Companies may use qualified Made in USA claims as long as the claim can be substantiated and is not put in a context whereby a consumer may interpret it as an unqualified claim.
Made in USA Enforcement Actions To Date:
- Axis LED Group LLC (COVID PPE)
- Resident Home LLC (Mattresses)
- Lithionics Battery LLC (Batteries)
- Lions Not Sheep Products LLC (Clothing Apparel)
- Electrowarmth Products LLC (Heated Mattress Pads)
- Instant Brands LLC (Pyrex kitchenware, Section 5 enforcement only)
- Cycra (Motocross and ATV Parts)
- The FTC interprets the “all or virtually all” standard strictly. The FTC may view a relatively small amount of foreign material incorporated into a product labeled as Made in USA as a violation of the rule.
- Beware of Section 5 of the FTC Act: Companies must consider Made in USA claims in all forms of marketing. While the rule applies specifically to Made in USA claims on labels, the FTC has brought enforcement actions against companies for unsubstantiated Made in USA claims made on company or retailer websites, social media, and other areas under Section 5, even if the company is complying with the labeling rule. Prior to issuing the labeling rule, the FTC relied upon Section 5 for its Made in USA-related enforcement and that authority remains in addition to the labeling rule.
- Companies may have to make tough choices on imported material. Where preferred material is only available abroad or is significantly more expensive if sourced from the United States, companies may have to choose between including such material in their products and making unqualified Made in USA claims.
- When in doubt, companies should qualify their Made in USA claims. Companies can avoid having to comply with the “all or virtually all” standard if their labels accurately describe the work and/or material conducted in the U.S. and/or abroad.
- Enforcement actions remain a threat. The FTC has brought seven enforcement actions since August 2021 under the new rule and has settled all of them; however, each has involved a six-figure fine. The Biden administration has placed an emphasis on Made in USA labeling and marketing to consumers in all areas of the economy. Any company marketing its products as Made in USA or making a similar claim must ensure that it can substantiate those claims and must be aware of the potential consequences if claims cannot be supported.
- Claims must be substantiated for all products. Companies making general statements that their products are Made in USA, are “American Made,” or other similar statements must be careful that all of their products meet that standard. This is true even if the production of one or more of the company’s products is temporarily moved overseas or if a significant component becomes unavailable in the United States and is imported. Proper compliance requires constant vigilance and may require significant changes to marketing material, including social media postings, if a company can no longer support an overarching Made in USA claim for its products.