When Bruce Springsteen intoned, "I was born in the USA," he probably wasn't concerned about Federal Trade Commission (FTC) regulations pertaining to his self-promoting U.S. origin claim. His song, after all, was an expression of patriotism. And besides, he was born in New Jersey.
For manufacturers these days, it's not uncommon to express their patriotism by claiming their products are "Made In USA." But, ongoing FTC enforcement action suggests that many firms are unaware - or even choose to ignore - the strict rules the FTC has set forth against making false or misleading claims that their product is of U.S. origin.
Under Section 5 of the Federal Trade Commission Act, the FTC is granted enforcement powers to prevent unfair or deceptive marketing practices. This also includes product origin claims. Accordingly, a product marketed as "Made In USA" must be "all or virtually all" made in the USA. Companies that do not abide by these regulations are at risk of significant FTC enforcement action including fines and other penalties.
In September 2018, the FTC settled a complaint against New York-based Patriot Puck for making false and misleading claims that its hockey pucks were "Made in America." In actual fact, the pucks were imported from China, with more than 400,000 of them imported to the U.S. since January 2016. In its settlement, Patriot Puck "agreed to stop its false "Made in USA" claims."
While this appears to be an unequivocal case of a company deliberately misleading consumers, there are many cases where companies simply do not know the nuances of FTC “Made In USA” regulations while running the risk of FTC scrutiny and enforcement action.
In its document "Complying With The Made In USA Standard," the FTC spells out two categories under which companies can make the "Made In USA” claim: the first is the Unqualified claim; and the second is the Qualified claim.
Under an Unqualified claim, the product must comply with the "all or virtually all" requirement. This 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.”
Other factors that determine the “all or virtually all” requirements include:
A Qualified “Made In USA” claim indicates that a product isn't completely of domestic origin by outlining the extent of a product's processing or content. FTC examples of Qualified claims are:
Qualified claims must be substantiated, truthful and specifically refer to the part or the process, not to the general manufacturing of the product.
Before you make a qualified claim, thoroughly examine your company’s parts and manufacturing ecosystem. Just because you buy parts from a distributor in the United States, it doesn’t mean those parts aren’t from a foreign source. The FTC will hold your firm accountable for such lapses.
Under the Tariff Act of 1930, the U.S. Customs Service requires that products manufactured overseas, or "substantially transformed abroad,” must be labelled or marked with the overseas country of origin. The Customs Service considers “substantial transformation” as the process that changes a product with a character, name, and use that is different than that which existed prior to the process. An example of this would be a company that imports sugar from Honduras, nuts from India, chocolate from Switzerland. Though the flour and butter are from U.S. sources. These ingredients would constitute a substantial transformation when combined to become chocolate chip cookies. Though the cookies themselves are produced in an American facility, the company is required to indicate the source of the ingredients on its packaging and in its marketing materials.
Equally important, the Customs Service requires "the foreign country of origin to be preceded by "Made in," "Product of," or words of similar meaning when any city or location that is not the country of origin appears on the product." For instance, stating a product is "Made in USA from Imported Parts" or "Assembled in USA" would not be misleading. Apple states that its iPhone is "Designed by Apple in California. Made in China." This meets the U.S. Customs Service requirements.
After an FTC review in 2017, Detroit-based watch company Shinola had to modify its labels, promotion and advertising to avoid misleading consumers about where its watches were made. The company had frequently claimed that its watches were "Built in Detroit" in promotional materials, and on the back of its watches.
But, the critical components that comprise the timepiece movements were manufactured in Thailand and Switzerland. The watches' hands, dials, and crystals were made in China.
Shinola took corrective action and kept its "Built in Detroit," claim while adding a new phrase "Swiss and imported parts" immediately below it on the watches, in its advertising and other promotional materials. These steps satisfied the FTC's concerns to ensure that consumers know that Shinola's watches contain significant foreign-made content. Under FTC regulations, almost 100 percent of a product's parts are required to be made in the U.S. for a manufacturer, marketer or company to claim "Built in USA.” Because of Shinola’s corrective actions, the FTC did not pursue enforcement action.
Almost all clothing, textile and wool household products require a Made in USA label if the final product is manufactured in the U.S. from fabric that’s manufactured in the U.S. This is regardless of where materials (such as the fiber or yarn) came from earlier in the manufacturing process.
The Customs Service requires that imported textile products must be labeled accordingly. For instance, a wool or textile product that’s partially manufactured in the U.S. and partially manufactured abroad must be labeled to indicate domestic and foreign processing.
All printed catalogs, mail order promotional materials - including online shopping sites and social media - must disclose if a product is manufactured in the U.S., imported or both.
Companies that manufacture fur products of foreign origin must disclose the country of origin of on all labels and in advertising.
Any automobile manufactured on or after October 1, 1994, for sale in the U.S. must include a label that discloses the percentage of U.S. and Canadian equipment; from which country the engine and transmission originate; and the location of assembly.
It’s easy to unintentionally make misleading US origin claims. To avoid FTC enforcement action please consider the following steps. Doing so will save your company time and money revising promotional materials, and the embarrassment of losing customer confidence.
Don’t assume that materials, components, or parts that are purchased from U.S. suppliers are of 100 percent US-origin.
Conduct due diligence with your suppliers to verify where they get their materials or components. Get it in writing from the suppliers.
Examine your manufacturing process to be reasonably confident that significant foreign content is included in your claims.
Inform and educate key stakeholders (internally and externally) to ensure that all advertising, promotional and and marketing materials, - including product labels - are compliant with regulations.
Online shopping sites, including your company website and all social media toolss, must be continually monitored to ensure there are no misleading statements or claims.
Within the last several years, the FTC has increased its enforcement actions against companies that mislead consumers with the “Made In USA” claim. If your firm is involved in manufacturing products with foreign content, or conducts processing operations abroad or locally, it is crucial that you are aware of these regulations. FTC enforcement action can have far-reaching consequences, that could lead to significant fines and penalties. It takes years to build trust with your customers. It only takes a label with misleading claims to destroy it.
Kronenberger Rosenfeld has successfully helped many clients to comply with the FTC's “Made In The USA Standard”. If you have questions, please contact me directly. I look forward to assisting you.Karl Kronenberger Partner 415-955-1155 Ext. 114
This entry was posted on Friday, July 26, 2019 and is filed under FTC Advertising Law Compliance, Internet Law News.