When can a marketer claim that its products are "Made in the USA" if the products contain foreign materials? A recent FTC action provides guidance. Here's what happened.
The FTC filed suit against Chemence Inc. ("Chemence"), an Ohio corporation, alleging that the company's unqualified "Made in the USA" and "Proudly Made in the USA" claims on the packaging for its superglue products are misleading because the glues contain a significant amount of imported chemicals.
The FTC's Enforcement Policy Statement on US Origin Claims (the "FTC's Policy Statement") says that unqualified U.S. origin claims should be substantiated by evidence that the product is "all, or virtually all" made in the United States. To meet this standard, the FTC requires that the final "substantial transformation" of the product (i.e., the last major step in processing or assembly) must take place in the United States, and the product must contain no more than a "de minimis, or negligible" amount of foreign content.
The FTC argued that Chemence's unqualified "Made in the USA" claims effectively communicated to consumers that its glue products, including raw materials, are all, or virtually all, made in the United States. This was misleading, the FTC argued, because a significant proportion of the costs of the chemical inputs to Chemence's glues - approximately 55% - was attributable to imported chemicals essential to the glues' adhesive function. The FTC suggested in its complaint that a more appropriate origin claim for Chemence's products would have been something similar to "Made in the USA with domestic and imported materials."
The FTC also alleged that Chemence provided promotional materials with the same deceptive "Made in USA" claims to third-party retailers to promote and sell its glues.
Background.
This action comes on the heels of three recent FTC investigations of "Made in USA" claims by other glue manufacturers in April, June, and September 2015. The FTC's objections to those manufacturers' claims were nearly identical to those asserted against Chemence. In those closing letters, the FTC acknowledged that the "substantial transformation" of raw material into glue had occurred in the United States. The FTC found the unqualified "Made in USA" claims deceptive, however, because the finished products were made from foreign raw materials that were significant to the final products. In determining the significance of the foreign raw materials, the FTC considered: (1) the percentage of manufacturing costs attributable to foreign raw materials; (2) the significance of the foreign raw materials to the final product in terms of function; and (3) how far removed from the finished product the foreign materials are (e.g., whether the foreign content was a direct input into the finished product or was incorporated further back in the manufacturing process).
Take-away.
The FTC's Policy Statement makes clear that there is no single "bright line" rule concerning when a product is or is not "all or virtually all" made in the U.S. Sellers must undertake a case-by-case analysis. When considering whether to make a "Made in USA" claim for a product assembled in the U.S. but which contains foreign materials, sellers must evaluate carefully whether the foreign materials are "significant" in terms of cost, function, and role in the manufacturing process.
Sellers should also be aware of state laws that diverge from the FTC's Policy Statement, such as California's law, which was recently amended to permit "Made in USA" claims if foreign parts constitute no more than five percent of the wholesale value of the product (or ten percent if the parts cannot be obtained domestically).
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