United States: Stuck In The Middle With The FTC

"...Clowns to the right of me, jokers to the left, here I am..."

-Stealers Wheel (1972)


Legal actions regarding "Made in the USA" claims, whether prosecuted by the Federal Trade Commission (FTC) or through various state unfair trade practices acts, often settle early in the proceedings. For example, in 2014, the FTC issued 16 "closing letters" wherein the target company agreed to revise its "Made in the USA" claim to clarify that its products, even those assembled in the United States, included imported components. In 2015, the FTC issued 28 such "closing letters"; and in 2016, to date, the FTC has issued 18.

Earlier this month, Chemence, Inc., the Ohio maker of Kwikfix, Hammer-Tite and Flash Glue, entered into a settlement with the FTC. Chemence was the third glue company that has resolved its claims issues with the FTC since 2015. Toagosei America, Inc., makers of the Crazy Glue brand, and Gorilla Glue both previously reached agreement with the FTC, with FTC issuing closing letters after both companies agreed to make clear that their products included some imported materials.

Chemence's path to resolution with the FTC was different. Chemence's refusal to resolve the matter through the "closing letter" process resulted in the FTC bringing an action in the Northern District of Ohio federal court back in February. Chemence advertised its superglue as "Proudly Made in the USA" or "Made in the USA" – but the FTC asserted that about 55% of the ingredients in Chemence's product was imported. The FTC thus alleged that the company's advertising was deceptive, in part because many of the imported chemicals were essential to the function of the superglue product. Chemence argued that the starting materials, including imported chemicals, go through a "substantial transformation" at the company's facility in Alpharetta, Georgia. Through that manufacturing process, the company created a new chemical with only trace amounts of foreign chemicals (less than 1%), which it described as being de minimis.

The litigation included Chemence's request for documents about the FTC's investigation into the glue industry that had commenced in 2014 and had led up to various actions involving superglue companies. Chemence's competitors, including Gorilla Glue and Toagosei America, Inc., sought protective orders to limit Chemence's access to documents that had been filed with the FTC by those companies during the 2014 investigation. Gorilla Glue asserted that Chemence's demand for the documents was being done so for its own competitive reasons unrelated to the litigation. Chemence countered that its discovery request would show that the FTC was holding companies to different standards for "Made in the USA" claims. Chemence also asserted that the FTC has never promulgated rules or issued clear standards about when and how "Made in the USA" claims can be made. (As we’ve blogged about in the past, the FTC has an enforcement policy related to such claims, which it issued back in 1997.)

Chemence alleged that the FTC "joined forces with Chemence's competitors to hide the very documents that establish that Chemence is the only company manufacturing super adhesives in the USA." Chemence also argued that the FTC gave the other glue companies a "complete pass" by allowing them to make USA-origin claims with certain disclosures. For example, in the closing letter to Gorilla Glue, the FTC said the company could state that its products were "made in the USA with domestic and imported materials" or "Made in Germany. Bottled in the USA."

So where did these arguments get Chemence? In the end, Chemence agreed to pay a settlement of $220,000 to the FTC and to only advertise its products as "Made in the USA" if the final assembly and all significant processing of its products "occurs in the United States." The settlement document that was filed with the court also requires that in order to make that claim, the company must source “all or virtually all ingredients" in the United States.

We are not privy to why Chemence, after fighting the fight, agreed to settle with the FTC on the terms set forth in the proposed settlement agreement that was recently filed with the court. As Stealers Wheel pointed out in that famous song, being stuck in the middle may not work to one's advantage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Daniel J. Herling
 
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