While it may seem obvious that a product not made in USA, cannot claim to be made in the USA, sometimes that simple notion gets lost in translation or forgotten as business gets booming. This month, the Federal Trade Commission (FTC) finalized its order against a manufacturer of popular kitchen and home products (the "Company") for making false "Made in USA" claims. The Order concludes an adjudicative proceeding that the FTC brought in January 2023 based on general marketing claims stating or implying that the Company's glass products are of U.S. origin. Between restrictions and a financial penalty, this action serves as a reminder that manufacturers must take care to ensure product origin claims are consistent with product manufacturing.
The FTC's First 2023 Made in USA Action
Per the FTC's Complaint, the Company presented a series of claims to convey that its products were made in USA. Beyond the simple "Made in USA" text, other example claims included, "Proudly Made in USA," "American as Apple Pie," and "1 of 10 products surprisingly still made in America." That was not always true, however. During the Covid-19 pandemic, a surge in product demand caused the Company to shift production of certain measuring cups from the U.S. to China. The China-made products still sold under SKUs that advertised the sets as made in the USA, while general advertising materials implied the same. Based on this conduct, the FTC filed a Complaint against the Company for engaging in false or misleading advertising, in violation of Section 5 of the FTC Act.
The matter soon resolved by entry of a Consent order in March 2023. Under the Order, the Company is prohibited from making misrepresentations regarding U.S.-Origin claims. As summarized by the FTC, the order contains three main advertising requirements:
- Restriction on unqualified claims: The company will be prohibited from making unqualified U.S.-origin claims for any product, unless it can show that the product's final assembly or processing-and all significant processing-takes place in the U.S., and that all or virtually all ingredients or components of the product are made and sourced in the U.S.
- Requirement for qualified claims: The company is required to include in any qualified Made in USA claims a clear and conspicuous disclosure about the extent to which the product contains foreign parts, ingredients or components, or processing.
- Requirement for assembly claims: The company must also ensure, when claiming a product is assembled in the U.S., that it is last substantially transformed in the U.S., its principal assembly takes place in the U.S., and U.S. assembly operations are substantial.
See FTC Press Release. In addition to these compliance measures, the Company was subject to a $129,416 judgment. By this action, the FTC demonstrates that it will continue to pursue manufacturers for improper Made in USA claims as it filed four actions in 2022. And the FTC will go after repeat offenders as appropriate. Accordingly, manufacturers and product developers should be familiar with the requirements surrounding making both qualified and unqualified Made in USA claims.
So What Does "Made in USA" Mean (According to the FTC)?
On August 13, 2021, the FTC's Made in USA Labeling Rule took effect, adopting the FTC's long-time standard that use of a Made in USA claim requires that "all or virtually all" of the product be made in the U.S. Per the rule, it is prohibited to "label any product as 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." 16 CFR Part 323.2. In short, a product advertised as Made in USA should contain only a de minimis, or negligible, amount of foreign content. This requirement extends to any mail order catalog or mail order promotional material that includes a seal, mark, tag, or stamp.
The FTC considers a number of factors in assessing whether the "all or virtually all" standard is met, including the site of final assembly or processing, how much of the product's total manufacturing costs are assigned to U.S. parts and processing, and how far removed any foreign content is from the finished product. The FTC advises that manufacturers should use the cost of goods sold or inventory costs of finished goods in analyzing whether the "all or virtually all" standard is satisfied.
The FTC requires a "reasonable basis" to support an unqualified claim that a product is Made in USA at the time it is made. This means a manufacturer or marketer needs competent and reliable evidence to support the claim that its product is "all or virtually all" made in the U.S. Manufacturers can rely on information from its supplies about the domestic content of parts, ingredients, or other elements of the final product, as long as the information is provided in good faith. This may require diligent inquiry by the product manufacturer-ignorance is no excuse.
Made for Nuances
Notably, a product need not expressly state "Made in USA" to convey a product originated in America. The FTC also looks at implied claims based on the overall net impression of the advertising, labeling, or promotional materials. This means that U.S. symbols or geographic references, such as a U.S. flag or map, may suggest a claim of U.S. origin either by itself or when paired with related text.
The FTC permits the use of a qualified Made in USA claim, which involves tailoring the claim to the extent, amount or type of a product's domestic origin. Qualified claims are not addressed by the Made in USA Labeling Rule and instead are guided by the FTC's Policy Statement. The most often-used version of an unqualified claim is "Made in USA with U.S. and imported parts." This example indicates that while the product may be manufactured in America, some major components of the product are foreign. The FTC also allow manufacturers to state "Assembled in USA" when the a product's principal assembly takes place in the U.S. and the assembly in the U.S. is substantial, including the product's last "substantial transformation." When employing a qualified or assembly claim, the same thorough analysis is required to determine how best to accurately reflect the parts or processing that is linked to the U.S.
While some manufacturers try to get "crafty" in using alternative variations of Made in USA claims, they must consider what a reasonable consumer would understand the claim to mean. For illustrative purposes, a company may use the claims "crafted in the USA" or "designed in the USA" to signal that the product idea came out of the USA, but if significant parts of the product or its assembly take place out of the U.S., such a claim could be deceiving. With all this in mind, it's critical to consider the claim language used and check-in periodically with product production and marketing teams, as well as suppliers to ensure that products are in fact made as advertised.
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