Made in USA claims and the FTC

Made in USAFor most products, with the exception of automobiles or items made from textile, wool, or fur, there is no requirement that manufacturers make a “Made in USA” claim regarding their products.  However, if a manufacturer chooses to make a “Made in USA” claim, then the manufacturer must comply with the FTC’s Made in USA standard in making such a claim.  Under the Made in USA standard, “Made in USA” means that “all or virtually all” of the product has been made in the United States.  Or, in other words, all the significant parts, processing, and labor that go into making the product must be of U.S. origin.  As a result, any products making a “Made in USA” claim may only contain negligible amounts of foreign conduct, if any at all.

FTC Enforcement Policy Statement and Guide to “Complying with the Made in USA Standard” Provide Guidance

The FTC’s Enforcement Policy Statement and its business guide, Complying with the Made in USA Standard, are meant to inform manufacturers about the requirements with the Made in USA standard by providing examples of situations when domestic origin claims would be accurate and when they would be inappropriate.  The following represents how the FTC typically evaluates “Made in USA” claims as it relates to product advertising, labeling, and packaging:

Textiles, Wool, Fur, and Automobile Labeling Acts

For textile and wool products, under the Textile and Wool Acts, the products must be labeled to identify the country where they were processed or manufactured, including that imported products must identify the country where they were processed or manufactured, products made entirely in the U.S. of materials also made in the U.S. must be labeled “Made in USA” or with an equivalent phrase, products made in the U.S. of imported materials must be labeled to show the processing or manufacturing that takes place in the U.S., as well as the imported component, and products manufactured in part in the U.S. and in part abroad must identify both aspects.  Additionally, print and online catalogs must disclose whether a textile was made in USA, imported, or both.

Next, as it relates to fur products, the Fur Products Labeling Act requires the country of origin of imported furs to be disclosed on all labels an in all advertising.

Finally, as it relates to automobiles, the American Automobile Labeling Act requires that each automobile manufactured on or after October 1, 1994, for sale in the U.S. bear a label disclosing where the car was assembled, the percentage of equipment that originated in the U.S. and Canada, and the country of origin of the engine and transmission.  Any representation that a car marketer makes that is required by the American Automobile Labeling Act is exempt from the FTC’s policy.  However, when a company makes claims in advertising or promotional materials that go beyond the American Automobile Labeling Act’s requirements, it is held to the FTC’s standard.

The FTC’s “All or Virtually All” Standard

For all other products making “Made in USA” claims, the FTC’s Made in USA “all or virtually all” standard applies.  The FTC has set forth that “Made in USA” claims may be either express or implied, and that in identifying implied claims “the Commission focuses on the overall impression of the advertising, label, or promotional material.  Depending on the context, U.S. symbols or geographic references (for example, U.S. flags, outlines of U.S. maps, or references to U.S. locations of headquarters or factories) may convey a claim of U.S. origin either by themselves, or in conjunction with other phrases or images.”

The FTC has said that “[o]rdinarily, the Commission will not consider a manufacturer or marketer’s use of an American brand name or trademark by itself as a U.S. origin claim.  Similarly, the Commission is not likely to interpret the mere listing of a company’s U.S. address on a package label in a non-prominent way as a claim of U.S. origin.”

The FTC will not pre-approve any “Made in USA” claims to be used in advertising or labeling.  The FTC has said, “A company doesn’t need approval from the Commission before making a Made in USA claim.  As with most other advertising claims, a manufacturer or marketer may make any claim as long as it is truthful and substantiated.”

Unqualified v. Qualified “Made in USA” Claims

Under the Made in USA standard, there are two categories of “Made in USA” claims: 1) unqualified “Made in USA” claims; and 2) qualified “Made in USA” claims.  Unqualified claims must comply with the “all or virtually all” requirement, which means that “all significant parts and processing that go into the product must be of U.S. origin. That is, the product should contain no — or negligible — foreign content.”  To substantiate an unqualified claim:

When a manufacturer or marketer makes an unqualified claim that a product is Made in USA, it should have — and rely on — a “reasonable basis” to support the claim at the time it is made.  This means a manufacturer or marketer needs competent and reliable evidence to back up the claim that its product is “all or virtually all” made in the U.S.

The FTC considers the following factors in determining whether a product is “all or virtually all” made in the U.S.: 1) the product’s final assembly or processing must take place in the U.S.; 2) how much of the product’s total manufacturing costs can be assigned to U.S. parts and processing; and 3) how far removed any foreign content is from the finished product.

For qualified claims, the FTC says, “A qualified Made in USA claim describes the extent, amount or type of a product’s domestic content or processing; it indicates that the product isn’t entirely of domestic origin.”  A qualified claim is appropriate for “products that include U.S. content or processing but don’t meet the criteria for making an unqualified Made in USA claim.”  Even still:

Because even qualified claims may imply more domestic content than exists, manufacturers or marketers must exercise care when making these claims. That is, avoid qualified claims unless the product has a significant amount of U.S. content or U.S. processing. A qualified Made in USA claim, like an unqualified claim, must be truthful and substantiated.

The FTC adopted the “all or virtually all” standard in 1997, and since that time has been keenly focused on “Made in USA” claims.  Some of the FTC’s notable enforcement actions regarding “Made in USA” claims include:

FTC’s Recent Enforcement Regarding “Made in USA” Claims

In 2016, the FTC has already pursued actions against several companies making “Made in USA” claims, including an enforcement action against Chemence, Inc., an Ohio corporation, alleging that the company is deceiving consumers by making “Made in USA” claims for their strong, fast-acting glues such as Kwik Frame, Kwik Fix, and Krylex, which are produced using a significant amount of imported chemicals.  According to the FTC’s complaint, Chemence’s unqualified “made in the USA” or “proudly made in the USA” claims tell consumers that its cyanoacrylate glue products are all, or virtually all, made in the United States.  However, the FTC alleges that a significant proportion of the costs of the chemical inputs to Chemence’s glues – approximately 55 percent – is attributable to imported chemicals that are essential to the glues’ function.  Therefore, the complaint alleges that Chemence’s unqualified claims are deceptive.

The FTC has also issued warnings to several other companies regarding their use of “Made in USA” claims, which companies agreed to make changes in their product claims to avoid further action from the FTC.  These companies included: Veilux (cameras and security systems); P&L Industries, Inc., d/b/a LaserLyte (laser sights, trainer targets, and other products); Nationwide Window & Siding Corp. (energy-saving windows); Leggett & Platt, Inc. (adjustable standing desks); Winholt Equipment Group (food service sinks); and Hexacon Electric Company (soldering iron temperature controllers).  Most recently, the FTC sent a closing letter to J.W. Manufacturing Company (floor mops), which set forth that the FTC would not pursue further actions against J.W. as it related to “certain mop heads [that] incorporate[d] significant imported fibers,” so long as J.W. implemented its proposed plan to:

(1) updating the company’s website to clarify that some mops incorporate imported fibers; (2) placing stickers that read “Made in USA with US and Foreign Materials” over unqualified claims on affected packaging; (3) ordering new packaging with qualified claims; and ( 4) contacting third-party distributors to provide updated claims and product descriptions.

For those companies manufacturing automobiles, textiles, wool, or fur, the statutory framework set forth by the various automobile, textile, wool, and fur labeling acts provide clear answers for what must be disclosed, but the Made in USA standard is a little less exacting.  While the standard sets forth an “all or virtually all” standard, the FTC’s analysis of whether a “Made in USA” claim is in line with the law is more discretionary.  As a result, companies making “Made in USA” claims need to be sure that almost all significant parts of a product, as well as its processing and manufacturing, are of U.S. origin, or run the risk of an FTC enforcement action.  Simply put, if it’s not entirely made from U.S. parts, then a product may only make a qualified “Made in USA” claim, if any.

* Photo Cred.: cnbc.com

Copyright 2016