FTC Continues Active Enforcement of “Made in USA” Claims

In recent years, the Federal Trade Commission has been closely scrutinizing “Made in USA” claims. An inspection of recent investigation and enforcement actions makes clear a trend that marketing campaigns featuring unqualified origin claims will be considered misleading if foreign components are “essential” to the “overall function” of the product being promoted.

The FTC is charged with preventing deceptive or unfair marketing practices under Section 5 of the Federal Trade Commission Act. A “Made in USA” advertisement will be found deceptive and misleading if it contains a material representation or omission of fact that is likely to mislead consumers acting reasonably under the circumstances.

While there is no bright-line rule, the Commission has traditionally implemented an “all-or-virtually-all” legal standard to determine whether consumers are likely to be misled by products advertised as “Made in USA.” Relevant factors include, whether all significant parts and processing that go into the product are of U.S. origin, the site of final assembly, the proportion of U.S. manufacturing costs, and remoteness of foreign content.

Final assembly must take place in the United States.

With more regularity, the FTC is applying the all-or-virtually-all standard more stringently. Recent closing letters have indicated that even though the cost of a foreign component may be negligible when compared to overall U.S. manufacturing costs, if the foreign component is “essential” to the function of the product than an unqualified origin claim may be considered a violation of the Act.

In a 2015 blog post, the FTC stated: “We’ll also consider factors like how much of the product’s total manufacturing costs can be assigned to U.S. parts and processing, how far removed any foreign content is from the finished product, and the importance of the foreign content or processing to the overall function of the product.”

Undoubtedly, U.S. origin claims are an area that the FTC seems to have developed a particular interest. According to a recent FTC complaint, a Texas-based manufacturer of metal pulleys made various unqualified “Made in the USA” representations. However integral components were imported from other countries.

Terms of settlement include the company being banned from making unqualified origin claims unless it can be proven via competent and reliable evidence that “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.”

Qualified U.S. origin claims – claims that are limited in scope or applicability – must always be accompanied by clear and conspicuous disclosures conveying the extent to which the product contains foreign parts, ingredients, and/or processing.

Acting FTC Chairman Maureen Ohlhausen recently stated that “[c]onsumers have the right to know that they can trust companies to be truthful when it comes to ‘Made in USA’ claims. This is an important issue for American business and their customers, and the FTC will remain vigilant in this area.”

Fundamental information on complying with the Made in USA guidelines and substantiation requirements can be seen, here and here.

Sample FTC staff closing letters can be seen, here.

This article should be of interest to companies that use foreign-made parts and claim American origin in their advertising. Contact an FTC defense lawyer if your company is interested in implementing preventative or remedial compliance controls, or if you are the subject of an investigation relating to unqualified or improperly qualified origin claims.

Richard B. Newman is an Internet marketing compliance and regulatory defense attorney at Hinch Newman LLP focusing on advertising and digital media matters. His practice includes conducting legal compliance reviews of advertising campaigns, representing clients in investigations and enforcement actions brought by the Federal Trade Commission and state Attorneys General, commercial litigation, advising clients on promotional marketing programs, and negotiating and drafting legal agreements.

HINCH NEWMAN LLP. ADVERTISING MATERIAL. These materials are provided for informational purposes only and are not to be considered legal advice, nor do they create a lawyer-client relationship. No person should act or rely on any information in this article without seeking the advice of an attorney. Information on previous case results does not guarantee a similar future result.