On August 30, the Federal Trade Commission announced a complaint and proposed order for Ohio-based Electrowarmth Products, LLC and its owner, alleging they improperly claimed that their heated fabric truck bunk mattress pads were made in the United States, when in fact, the textile products have been wholly imported from China since 2019.
The complaint alleges violations under the Textile Fiber Products Identification Act, the Textile Rules, and the FTC Act. The FTC alleges that after Electrowarmth moved production to China and stopped using U.S.-produced textiles as part an effort to cut costs in 2019, it continued to use claims such as “Made in USA,” “Made in the USA since 1939,” and “made-in-America products” in marketing for heated mattress pads.
According to the agency, Electrowarmth further misled consumers when it asked the Chinese manufacturer to produce and package the products in “exactly the same” way as they had previously been manufactured in the U.S.
Under the proposed order, Electowarmth and its operator are prohibited from making any country-of-origin claim unless it is not misleading and they have a reasonable basis on which to substantiate the claim. Furthermore, the defendants are required to make certain disclosures about the country of origin for any product that is subject to the Textile Fiber Products Identification Act and to provide compliance reports to the FTC. The order also imposes a hefty $815,809 civil penalty, which is fully suspended because of the defendants’ inability to pay.
This case marks the fifth time the FTC has flexed its enforcement muscles under the Made in USA Labeling Rule since the rule took effect on August 13, 2021, and signals that Made in USA claims remain a key enforcement priority for the agency. The Made in USA Labeling Rule prohibits claims on labels that a product was made in the U.S. unless:
- 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 U.S.
The applicability of the rule beyond labeling and packaging claims to claims made in online and print marketing and advertisements was heavily opposed by the two Republican commissioners, Christine S. Wilson and Noah Joshua Phillips, from the outset. Wilson’s dissent argued that when Congress enacted the FTC’s rulemaking authority for Made in USA claims, it only intended to extend rulemaking authority to labels on the product itself, not to broadly cover claims made in marketing and advertising materials in general.
The rule also provides the FTC with the ability to seek civil penalties of up to $46,517 per violation, even for first-time violators. In the last year, the FTC settled four other actions against Resident Home LLC, Lithionics Battery, LLC, Lions Not Sheep Products, LLC, and ALG-Health LLC, which involved civil penalties ranging from $105,319 to $753,000. Notably, the three commissioners who voted in favor of the $753,000 penalty against Resident Home LLC cited the entity’s “repeat offender” status for making false Made in USA claims in justifying the amount of monetary relief pursuant to a damages theory under Section 19 of the FTC Act.
Phillips’ and Wilson’s dissent took the position that the amount of monetary relief exceeded the bounds of the agency’s Section 19 authority because it was punitive beyond addressing the amount of actual consumer injury that could be proved. Meanwhile, the three other lower-amount settlements were approved by unanimous votes.
The monetary penalty in the Electrowarmth case is the biggest to date, and the complaint alleges improper Made in USA claims on not only the labeling, but on webpage advertisements as well. The unanimity of the vote for the proposed order and the size of the penalty underscore that all of the commissioners take improper Made in USA claims seriously. Given the significant enforcement risk, companies should exercise care when employing country-of-origin claims not only on product labels and packaging, but in all advertising and marketing materials and media, including websites, apps, and social media.
If you have any questions about the implications of the FTC’s Made in USA Labeling Rule for your labeling or advertising practices, or are facing a potential investigation or enforcement action, please contact the authors.