When Do "Made in USA" Claims Spark the FTC's Attention?
The Federal Trade Commission (FTC) is tasked with preventing deception and unfairness in the marketplace, including with respect to advertising. One type of deception that the FTC targets involves false claims in advertising that a product is "Made in USA." The FTC's Enforcement Policy Statement on U.S. Origin Claims("Policy Statement") provides guidance to companies on how to make truthful U.S. origin claims on labels, advertisements and other promotional materials. The Policy Statement describes the substantiation needed to make unqualified U.S. origin claims and provides examples of appropriately qualified claims.
The FTC has concluded that unqualified claims such as "Made in USA," "Proudly Made in the USA," or "Made in America," are perceived by consumers to mean that the advertised products are "all or virtually all" made in the United States. As a result, marketers making such unqualified claims about a product need to have a "reasonable basis" that the product is in fact "all or virtually all" made in the U.S. This generally means that all significant parts and processing that go into the product are of U.S. origin, and that the product contains no, or only a negligible amount of, foreign content. The FTC evaluates products on a case-by-case basis, taking into account several factors when determining whether a company has sufficient substantiation for "Made in USA" claims.
Notably, a product must have been last "substantially transformed" in the United States to be considered "all or virtually all" made in the U.S. This means that the last assembly, processing, or finishing of the product occurred in the U.S. The FTC also considers the percentage of the total cost of manufacturing the product that is attributable to costs of U.S. parts and processing versus foreign costs. There is no specific percentage at which a product can no longer be considered "all or virtually all" made in the U.S., but the FTC will consider the proportion of U.S. manufacturing costs along with the other factors in determining whether the claim is potentially deceptive. In addition to the percentage of foreign costs, the FTC also looks at the importance of the foreign content to the overall function of the product, and how far removed it is from the finished product. The less significant the component and the more steps back in the manufacturing process it is, the less likely it is that a consumer will be concerned with its origin.
Companies can make qualified U.S. origin claims, like "Made of U.S. and imported parts," as long as they are truthful and substantiated. Qualifications or disclosures on U.S. origin claims should use clear language, prominent type size and style, and be in proximity to the claim being qualified. General U.S. origin claims with qualifying information about foreign content, such as "Manufactured in the USA with French materials," should only be used when the last assembly, processing, or finishing of the product occurred in the United States. Companies can also make advertising claims that a particular part or process was "designed," "painted," or "written" in the U.S. if the claims are sufficiently specific such that a consumer would not consider them to be a general claim of U.S. origin (i.e., that the entire product is of U.S. origin). More general terms like "produced," or "manufactured" will generally require further qualification when describing a product that is not "all or virtually all" made in the U.S.
The FTC has and will take action against companies making deceptive U.S. origin claims. Settlements with the FTC have involved companies agreeing to corrective action to address deceptive claims, including updating websites, placing stickers with appropriately qualified advertising claims over unqualified claims, ordering new packaging, and implementing new procedures to avoid future mislabeling of the product. Companies have also been required to contact third-party distributors to provide updated advertisements and product descriptions.
While many companies settle with the FTC prior to the FTC bringing a formal action, earlier this year the FTC did initiate a lawsuit against glue manufacturer Chemence, Inc. in federal court in Ohio relative to "Made in USA" advertising. The FTC asserts that Chemence, in an effort to induce consumers to purchase its products, deceptively advertised them as "Made in the USA" when they are actually made in the USA with both domestic and a significant percentage of imported materials. In addition to injunctive relief prohibiting Chemence from making these claims, the lawsuit also seeks monetary relief. Chemence denies liability, asserting instead that it labels products as "Made in USA" when such products are synthesized, formulated, manufactured and packaged in its U.S. facility, and that the products undergo a substantial transformation of starting materials that results in a new chemical containing only trace amounts of foreign chemicals. Commentators note this lawsuit may be the first opportunity to test the FTC's position that consumers interpret the phrase "Made in USA" to mean that "all or virtually all" of its costs associated with the product are domestic, as opposed to the possible alternative meaning that the company's factory where the product is made is located in the United States.
Given the FTC's recent focus on "Made in USA" claims, manufacturers of products labeled or advertised with U.S. origin claims should carefully review the FTC's Policy Statement to confirm compliance with FTC guidelines. The FTC also provides a helpful business guide called Complying with the Made in USA Standard. These resources highlight that even implied claims of U.S. origin (such as an image of a U.S. flag or an outline of a map of the U.S. on the advertisement) could convey a general "Made in USA" claim, and therefore must be supported by the requisite substantiation.
For more information about U.S. origin claims, or advertising laws in general, please contact Michelle Corrigan, or the Stinson Leonard Street attorney with whom you regularly work.