FTC Settles With Marketer Over Qualified "Made in USA" Claim

The Federal Trade Commission's Enforcement Policy Statement on U.S. Origin Claims says that, in order to make an unqualified "made in USA" claim about a product, the advertiser must be able to substantiate that the product was "all or virtually all" made in the United States.  (The FTC also recently codified this standard in its Made in USA Labeling Rule.)  

Qualified "Made in USA" Claims

The FTC says that qualified "made in USA" claims -- such as "Made in USA of U.S. and imported parts," "Made in USA from imported leather," and "Made in USA from French components" -- are permissible as well.  The FTC explains that advertisers "may make any qualified claim about the U.S. content of its products so long as the claim is truthful and substantiated."  So, when you've got a product that was made here, but that includes some imported material, any U.S.-origin claim should be "adequately qualified to avoid consumer deception about the presence or amount of foreign content." 

Here's where it gets a little tricky.  If you can only make a U.S.-origin claim if a product is "all or virtually all" made in the United States, how do you substantiate a qualified claim?  If some or all of the components of the product are imported, then what does it mean to claim that the product was made here using foreign material?  The FTC provides guidance on that too.  When an advertiser makes a qualified U.S.-origin claim, the advertiser still must be able to substantiate that "the last assembly, processing, or finishing of the product occurred in the United States."  In other words, advertisers should only make a qualified U.S.-origin claim if the product was "last substantially transformed in the United States."  

Recent FTC Enforcement

This issue came up in a recent enforcement action that the FTC brought against a group of clothing accessory companies and their owner.  The FTC alleged that Chaucer Accessories, Bates Accessories, and Bates Retail Group (collectively, "Chaucer") falsely claimed that certain of their products were made in the United States by making claims such as "Made in USA," "Hand Crafted in USA," and "Made in USA from Global Materials."  

In announcing the settlement of the action, Samuel Levine, the Director of the FTC's Bureau of Consumer Protection, said, "'Made in USA' means what it says.  Falsely labeling products as 'Made in USA' hurts consumers and competition, and the FTC will continue to aggressively enforce the law to stop deceptive claims and hold violators accountable."  

The allegations related to the unqualified U.S.-origin claims are pretty unremarkable.  The FTC simply alleged that Chaucer advertised that its products were made here even though they were either wholly imported or contained significant imported content.  

The FTC also alleged that Chaucer's qualified U.S.-origin claim was false and misleading as well.  Specifically, the FTC alleged that Chaucer's claim that its belts were "Made in USA from Global Materials" was false because the only manufacturing that took place in the United States was that the belt straps were attached to the buckles.  According to the FTC, this doesn't qualify as substantially transforming the product because "attaching a buckle to a belt strap is a minimal assembly operation that does not change the name, character, or use of an imported belt strap." 

As part of the settlement, the defendants agreed not only to pay $191,481, but to send written notices to their customers who bought the relevant products to let them know that the FTC had sued them for making false claims and that, in fact, their products were not made in the United States.

Key Takeaways

Before you turn your attention to your July 4th menu and where you'll be watching fireworks this weekend, there are some important takeaways for all marketers who are making patriotic claims related to their products. 

• "Made in USA" claims are still a top priority at the FTC.  If you're making U.S.-origin claims, you'd better make sure you're complying with FTC standards.  And, with the new "Made in USA Labeling Rule," and the availability of civil penalties, the stakes are higher.  
• As this enforcement action makes clear, don't assume that if you make a qualified U.S.-origin claim, you're off the hook on substantiating that the product was made here.  Even with the qualification, you still need to ensure that the product was last substantially transformed in the United States.
• When making a (properly substantiated) qualified U.S.-origin claim, you'd also better be sure that the qualification is clear and conspicuous.  It's pretty clear from the order in this case that the FTC doesn't want that qualification to be in fine print.  Instead, the FTC wants the qualifying language to appear "immediately adjacent to the representation." 
• The FTC is also continuing to more aggressively seek damages from advertisers who don't follow the law.  The FTC got nearly $200K from the advertiser here, and you should expect that there are going to be fewer cases where all that the FTC wants from the advertiser is that it promises not to do it again.  
• The FTC also didn't just sue the advertiser here, but sued the owner and president as well.  This should serve as yet another warning to corporate executives that the FTC may, in appropriate circumstances, hold them responsible for false advertising by the companies they work for. 
• Finally, don't ignore the fact that the FTC required the defendants to notify all of their affected customers that they'd engaged in false advertising, which is probably not the best way to build customer trust.  This isn't the first time that the FTC has done this recently, and you should expect to see this requirement in more orders in the future.  

Have a great 4th of July weekend!