Proud that your products are “Made in the USA”? Before you wave the flag, know that an unqualified Made in USA claim means that your product must be “all or virtually all” made in the United States, and the Federal Trade Commission has bolstered its enforcement authority over deceptive Made in USA claims with a new proposal to allow civil penalties for violations of its Made in the USA standards.
We previously blogged about recent Made in USA actions and the FTC’s September 2019 Made in USA workshop to evaluate updates to the FTC’s long-standing Made in USA Enforcement Policy. The Enforcement Policy provides that to substantiate an unqualified Made in USA claim, a product must be wholly domestic or all or virtually all made in the United States — meaning that “all significant parts and processing that go into the product are of U.S. origin.” Qualified claims — for example, “Made in USA from imported leather” — may be acceptable if they include clear and conspicuous disclosure of the extent to which the product contains foreign parts, ingredients, components, and/or processing.
Commentators have often called for the Enforcement Policy to be codified, and it was no different at the September 2019 workshop. In June 2020, the FTC released a staff report on the Made in USA workshop and summarized the culmination of issues raised during the workshop as well as written submissions. The report explained that consumer perception evidence provided to the FTC failed to warrant changing the “all or virtually all” standard. In other words, at least a significant minority of consumers continued to expect a Made-in-USA-advertised product to be “all or virtually all” made in the United States. Many of the commentators agreed that the Commission should continue to focus its enforcement efforts on egregious offenders, while aggressively working to prevent misrepresentations through guidance and informal feedback to companies intending to comply. Some commentators were concerned that if the FTC pursued enforcement efforts against minor infractions, legitimate companies with viable Made in USA representations may choose not to advertise the claim because of the enforcement risk. Despite these comments, the report explained that commentators felt the FTC should be able to obtain civil penalties for egregious violations in the first instance.
Appearing to take these comments into account, in conjunction with issuing the staff report, the FTC announced a Notice of Proposed Rulemaking for the Made in USA Labeling Rule. Published in the Federal Register on July 16, 2020, the proposed Rule would incorporate much of the FTC’s 1997 Enforcement Policy — and the “all or virtually all” requirement — but most notably the Rule would allow the FTC to seek civil penalties for violations. The civil penalty amount, adjusted for inflation pursuant to 16 CFR Part 1, is currently $42,530 per violation.
The proposed Rule is currently open for comment, but if it passes as written, advertisers must be wary that any violations could result in steep penalties. With the FTC’s continued enforcement in the area, as recently as March 2020 against Williams-Sonoma, Inc., any doubts over the viability of a Made in USA representation should be discussed with competent counsel. If you are interested in submitting comments in the FTC’s rulemaking or gaining a better understanding as to how these rules apply to your marketing efforts, please reach out to us.