The Federal Trade Commission's Enforcement Policy Statement on U.S. Origin Claims says that, in order for an advertiser to make an unqualified "made in U.S.A." claim about a product, the advertiser must be able to substantiate that the product was "all or virtually all" made in the United States. (This standard was also recently codified in a new Made in USA Labeling Rule.)
What does "all or virtually all" mean? According to the FTC, it means that "all significant parts and processing that go into the product are of U.S. origin." But how should a manufacturer substantiate that the parts or other raw materials that it receives from suppliers were, in fact, made here?
Recently, the FTC revisited this issue in connection with an investigation into advertising by Sassy Baby, a maker of baby toys and other baby products. Apparently, Sassy Baby discovered that it had relied upon a supplier's false declaration of U.S. origin in order to substantiate some "made in U.S.A." claims that it was making in connection with the marketing of certain diaper waste bag products. When the company discovered the issue, it voluntarily reported it to the FTC, and then it immediately removed the claims from its product packaging and updated its marketing materials. While the FTC decided not to take enforcement action here (presumably due to the company's reliance on the supplier certification and its quick action to remediate the problem), in its closing letter, the agency used the opportunity to remind marketers about the substantiation that is required when obtaining parts and materials from suppliers.
In its letter, the FTC repeated the familiar standard that, in order to substantiate an unqualified U.S.-origin claim, the marketer must, "at the time the representation is made, possess and rely upon a reasonable basis that the product is in fact all or virtually all made in the United States." The FTC then explained that, depending on the context, supplier-provided certifications may constitute a "reasonable basis." Specifically, citing guidance that the FTC had first given back in the 90s, the FTC said, "If given in good faith, manufacturers and marketers can rely on information from suppliers about the domestic content in the parts, components, and other elements they produce. Rather than assume that the input is 100 percent U.S.-made, however, manufacturers and marketers would be wise to ask the supplier for specific information about the percentage of U.S. content before they make a U.S. origin claim."
The letter also reminded marketers that, in its business guidance from the 90s, the FTC even provided sample language for marketers to use when obtaining a certification from a supplier that the supplier's parts or materials were U.S.-made. In one of the examples given, the FTC said that it was reasonable to rely on a certification provided on a company purchase order that states, "We certify that our _____ have at least _____% U.S. content." Above this certification, the following statement appears: "Our company requires that suppliers certify the percentage of U.S. content in products supplied to us. If you are unable or unwilling to make such certification, we will not purchase from you."
Finally, the FTC's closing letter also reminded marketers that it's important to review their records "routinely" to ensure that they have appropriate substantiation for all advertising claims that they make.
What are some important take-aways here?
First, U.S.-origin claims are still a top priority at the FTC. If you're making U.S.-origin claims, you'd better make sure you've got substantiation to back them up. Second, it's not enough that you've got manufacturing facilities and employees in the United States. You've actually got to ensure that all significant parts and processing are of U.S.-origin as well. (In another recent closing letter, looking into advertising by Diamondback Toolbelts, the FTC reminded marketers that, while its appropriate to promote the fact that a marketer creates jobs and performs certain functions in the United States, advertising materials "should not state or imply that products are 'all or virtually all' made in the United States, unless the company can substantiate such claims.") Third, the FTC reaffirmed its old guidance that marketers can properly rely on a certification from a supplier in order to substantiate its U.S.-origin claims. Fourth, if you're getting certifications from suppliers, it's worth taking another look at the language that the FTC previously provided -- so you can make sure that your own certification has similar bells and whistles. And, finally, don't forget that ensuring that your advertising claims are substantiated is an ongoing process. You should have procedures in place to "routinely" check to make sure everything is up-to-date.
Originally Published by Advertising Law Updates
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