Last week the FTC announced it had settled with Chemence, Inc. (“Chemence”) and the company’s president over deceptive “Made in USA” claims. The company was required to pay $1.2 million to the FTC, which amounts to the highest monetary judgment ever for a Made in USA case.
By way of background, unqualified Made in USA claims require that all or virtually all of the product is made in the United States. Previous FTC guidance stemmed from a 1997 Enforcement Policy Statement, but last year the FTC announced a Notice of Proposed Rulemaking for the Made in USA Labeling Rule, which would codify much of the Enforcement Policy. Notably, the proposed Rule would allow the FTC to seek civil penalties for each violation. The Rule has not yet been made final, but the opportunity to comment ended in September 2020.
In keeping with its products, Chemence struggled to separate itself from FTC scrutiny in recent years. In February 2016, the FTC filed a complaint in the Northern District of Ohio alleging that Chemence violated Section 5(a) of the FTC Act by deceptively representing that its cyanoacrylates (i.e., superglues), including the materials used to make the glues, were all or virtually all made in the United States. On October 13, 2016, the Northern District of Ohio entered a Stipulated Order for Permanent Injunction and Monetary Judgment, which permanently enjoined Chemence from representing, expressly or by implication, that a product or service is of U.S. origin unless: (1) 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; or (2) a clear and conspicuous qualification appears immediately adjacent to the representation that accurately conveys the extent to which the product contains foreign parts, ingredients, and/or processing. The order also enjoined Chemence from providing others with the “means and instrumentalities” to make any representation prohibited above.
Despite the FTC’s Order, Chemence remained bonded to its unqualified Made in USA claims. During compliance reports required by the Order, Chemence maintained that it altered the labeling of its adhesive products. However, Chemence did not stick to its word. On February 9, 2021, the FTC filed a complaint against Chemence, and this time included the company’s president as a defendant, alleging that in numerous instances, post Order, Chemence supplied trade customers with pre-labeled and pre-packaged superglues containing unqualified “Made in USA” claims on promotional materials or labels.
Similar to the 2016 Order, the Final Order prohibits Chemence and its president from making (1) unqualified U.S. origin claims for any product, unless they can show that the product’s final assembly or processing—and all significant processing—takes place in the United States and that all or virtually all ingredients or components of the product are made and sourced in the United States; (2) any qualified Made in USA claim that doesn’t include a clear and conspicuous disclosure about the extent to which the product contains foreign parts, ingredients, components, or processing; (3) a claim that a product is assembled in the United States unless it is last substantially transformed in the United States, its principal assembly takes place in the United States, and U.S. assembly operations are substantial, among other things.
The FTC continues to target companies that make misleading Made in USA claims, and the FTC’s proposed rule would only increase its firepower. The Order also highlights the FTC’s recent push to include individual defendants in a Final Order for additional deterrent effect. Therefore, any Made in USA representations should be closely reviewed by counsel to avoid a sticky situation with the FTC.