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Highlights
- The Federal Trade Commission (FTC) continues its enforcement
priority regarding “Made in USA” claims. - For a marketer to substantiate an unqualified claim that a
product is made in the United States, the marketer must – at
the time they make the representation – rely upon a
reasonable basis that the product is “all or virtually
all” made in the United States. - Companies must comply with the “all or virtually all”
standard, including when temporarily shifting parts of its supply
chain overseas.
The Federal Trade Commission (FTC) has increasingly prosecuted
more deceptive U.S. origin claims under Section 5 of the FTC Act
since the start of the COVID-19 pandemic than in the previous
decade. This uptick in administrative enforcement increases the
cost of compliance surrounding ” Made in USA” claims, and
companies should take notice regarding any origin claims they
intend to make. In addition, in 2021, the FTC adopted the
“Made in USA” Labeling Rule (The Rule),1 which
codifies and clarifies the FTC’s longstanding position and
guidance on U.S. origin claims. The Rule establishes the FTC’s
ability to pursue potentially strict punishments for those who
violate the Rule’s mandates related to product labeling.
The FTC regulates U.S. origin claims under its general authority
to act against deceptive acts and practices.2 The FTC
has defined a deceptive advertisement or label under Section 5 as
one that contains a material representation or omission of fact
that is likely to mislead consumers acting reasonably under the
circumstances.3 And, the FTC has confirmed that a
business’s or marketer’s objective claim is deceptive if
the business or marketer lacks a reasonable basis for making such a
claim.4 Therefore, a “Made in USA” claim must
be truthful and substantiated prior to being made.5
FTC Continues to Ramp Up Enforcement of “Made in USA”
Claims
For a marketer to substantiate an unqualified claim that a
product is made in the United States, the marketer must – at
the time they make the representation – rely upon a
reasonable basis that the product is “all or virtually
all” made in the United States.6 There is no
hard-and-fast rule to prove compliance with the FTC’s “all
or virtually all” standard, but the product should contain no
(or negligible) foreign content.
As codified in The Rule, a marketer must satisfy three prongs to
label a product as “made,” “manufactured,”
“built,” “produced,” “created,” or
“crafted” in the United States: 1) final assembly or
processing of the product occurs in the United States, 2) all
significant processing that goes into the product occurs in the
United States and 3) “all or virtually all” ingredients
or components of the product are made and sourced in the United
States.7 16 CFR Part 323.2.
The FTC considers a number of factors when determining whether a
product meets this standard. The FTC will likewise examine the
percentage of a product’s total manufacturing costs that are
attributable to United States-related costs on a case-by-case
basis.8 The FTC will consider the “remoteness of
foreign content,” including the percentage of the
product’s foreign material cost in addition to the degree to
which foreign content is removed from the finished
product.9
Enforcement Activity
In the past several years of the FTC’s stronger enforcement
of U.S. origin claims, the FTC has alleged the following common
forms of misconduct to warrant regulatory intervention, including a
recent settlement with Instant Brands, a
manufacturer of kitchen and home products:
- Claiming home products were “Made in USA,” even
though the company had temporarily shifted its manufacturing
outside of the United States due to supply chain issues as a result
of the COVID-19 pandemic - Express representations that a product is “Made in
USA” or “Manufactured in America” while, in fact, a
significant portion, if not all, of the product is imported from
abroad and distributed directly to consumers - Providing third-party vendors with marketing materials that
falsely or deceptively misrepresent that the product originated or
was assembled in the United States when all or virtually all of the
product was not - Express representations that a product is of U.S. origin while,
in fact, foreign materials account for a significant portion of the
product’s material or manufacturing costs - Licensing and distribution of misleading seals, graphics or
promotional materials purporting to represent that a product is
approved as “American-made” while having no reasonable
basis to know that companies using the licensed promotional
materials sell products of U.S. origin
Business Guidance and Compliance
The FTC has released business guidance to assist companies in
complying with the “all or virtually all” standard.
Remember, companies have a continuing obligation to ensure that
their claims are truthful and substantiated, including when
temporarily changing a supply chain to outside the United
States.
For a company to make a lawful,
unqualified U.S. origin claim, the final
assembly of the product must occur within the United States, all
significant processing that goes into the product must occur in the
United States, and all or virtually all of the product’s parts,
ingredients or components, and processing must be made or sourced
in the United States.
For a company to make a lawful,
qualified U.S. origin claim, the company
must include a clear and conspicuous qualification that 1) appears
immediately adjacent to the representation and 2) accurately
conveys the extent to which the product contains foreign parts,
ingredients or components, and/or processing.
For a company to make a lawful claim that a product was
assembled in the United States, the
product must be last substantially transformed in the United
States, the product’s principal assembly must take place in the
United States, and the United States assembly operations must be
substantial.
Some of the key requirements – which all advertisers
should keep in mind when they are thinking about their disclosures
– include:
- When the claim is made in a television commercial or other
audio-visual advertising, the disclosure should be presented
simultaneously in both the audio and the video - Disclosures in interactive electronic mediums must be
unavoidable - On product labels, the disclosure must be presented on the
principal display panel
When qualifying a U.S. origin claim, the disclosure must appear
“immediately adjacent to the representation,” and it must
accurately convey “the extent to which the product contains
foreign parts, ingredients or components, and/or
processing.”
Footnotes
1 An analysis and copy of the “Made in USA”
Labeling Rule may be located in the Federal Register.
2 15 U.S.C. § 45(a)(2) (2020) (“The Commission
is hereby empowered and directed to prevent persons, partnerships,
or corporations…from using unfair methods of competition in or
affecting commerce and unfair or deceptive acts or practices in or
affecting commerce.”).
3 FTC, FTC Policy Statement on Deception (Oct. 14,
1983).
4 FTC, Policy Statement Regarding Advertising
Substantiation (Nov. 23, 1984).
5 FTC, Enforcement Policy Statement on U.S. Origin Claims
(Dec. 1, 1997).
6 Id.
7 16 CFR Part 323.2.
8 Id.
9 Id.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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