FTC Imposes $3.17 Million Civil Penalty For Violation Of Prior Made In USA Order

What You Need to Know

Key takeaway#1

Companies are advised that the FTC carefully scrutinizes compliance with prior orders and violations of prior FTC orders to settle investigations regarding improper claims can lead to costly civil penalties. 5 U.S.C. § 45(l).

Key takeaway#2

Companies are advised to ensure that all U.S. origin labels and claims satisfy the "all or virtually all" FTC standard.

Last week, based on a referral from the Federal Trade Commission ("FTC"), the Department of Justice ("DOJ") filed a complaint against Williams-Sonoma alleging that the company violated a previous Federal Trade Commission decision and order dated July 13, 2020 (the "2020 Order") pursuant to which Williams-Sonoma was prohibited from making unsubstantiated U.S. origin claims. The complaint alleged that, following entry of the 2020 Order, Williams-Sonoma made "numerous false and unsubstantiated representations that their home goods or other products are 'Made in USA' or otherwise of U.S. origin, when, in fact, they are wholly imported or contain significant imported components."

A few days later, DOJ filed a stipulated order imposing a civil penalty of $3.17 million for those 2020 Order violations pursuant to a provision that authorizes a federal court to award civil penalties in the amount $51,744 for each violation of an existing FTC order. 5 U.S.C. § 45(l). The order also contained another permanent injunction, which requires Williams-Sonoma to submit a compliance report 12 months after the order date certifying and explaining how the company has maintained compliance with the order. The company is also required to notify the FTC of certain changes that may occur for twenty years, and to respond to requests for documents or information following a fourteen-day notice from the FTC. The FTC Chair Lina Khan stated "[t]oday's record-setting civil penalty makes clear that firms committing Made-in-USA fraud will not get a free pass."

In August 2021, the FTC issued the Made in USA Labeling Rule, which affords the FTC another avenue through which it can impose civil penalties for unsubstantiated U.S. origin claims. 15 U.S.C. § 45(m)(1)(A). Specifically, the Rule defines an unqualified Made in USA claim as "any unqualified representation, express or implied, that a product or service, or a specified component thereof, is of U.S. origin, including, but not limited to, a representation that such a product or service is 'made,' 'manufactured,' 'built,' 'produced,' 'created,' or 'crafted' in the United States or in America, or any other unqualified U.S.-origin claim." 16 C.F.R. § 323.1. The Rule specifically prohibits companies from labeling products as Made in USA (including depictions of labels online or in catalogs) unless the products are "all or virtually all" made in the United States. This means that all significant parts (i.e. ingredients, parts, inputs, etc.) and processing that go into the product must be of United States origin, and the product's final assembly or processing must take place in the United States.

Similarly, as set forth in a guidance document summarizing the FTC's enforcement policy for U.S. origin claims, Section 5 of the FTC Act prohibits companies from advertising products as Made in USA unless it can satisfy the same standard set forth above. Additionally, qualified U.S. origin claims including "Made in USA of foreign inputs" or "Assembled in the USA" require that a product's final substantial transformation occur in the United States.

This settlement makes abundantly clear that the FTC will continue to carefully scrutinize U.S. origin claims, even after a company has entered into an order to settle an investigation regarding such claims. Companies would be well advised to ensure that all U.S. origin labels and claims satisfy the aforementioned standards.

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