FTC Made in USA Lawyer Discusses Latest Agency Enforcement Matter

Hinch Newman LLP

A proposed FTC settlement that involves alleged false Made in USA representations and alleged deceptive COVID claims was recently filed by the Department of Justice on the FTC’s behalf against an individual and the two companies he purportedly controls.

According to the agency, at a time when COVID-related products are in high demand, the aforementioned individual and a coroporate entity began selling personal protective equipment in early 2020. Purportedly, the defendants positioned their products as “An American Solution” on a website and in social media.

More specifically, according to the FTC, the defendants claimed, “Our manufacturing facility was built in NW Ohio and is completely staffed by American workers, making [the company] one of the very few PPE facilities in America that is 100% Made in the USA.” As alleged by the agency, the defendants stated in social media that, “Our N95 masks are manufactured in USA designed to protect medical workers, first responders, military, and humanitarian workers. Every day that we come to work, we know we are building hospital-grade N95 face masks to protect those who protect us.”

The FTC also alleges that the defendants doubled down on those selling points by combining their Made in USA pitch with the claim that because their products were made in the United States, they provided protection from COVID that was superior to imported products. For example – as alleged by the Commission - in a social media post, the defendants warned that “imported products are not tested and could be unsafe,” and cautioned healthcare customers to “purchase American-made PPE and masks so that our heroic frontline workers do not have their safety put at risk by relying on foreign-made products.”

However, according to the complaint, in many cases, “Defendants received Chinese KN95s, unpacked the completed respirators, stripped off Chinese origin labels, printed ALG and NIOSH labels on the respirators, and then re-boxed the respirators in ALG packaging with MUSA labels.” The FTC says in other instances, products advertised with unqualified Made in USA claims underwent some finishing in the U.S., but incorporated all Chinese materials.

The complaint alleges that the defendants violated the FTC Act and the recently enacted Made in USA Labeling Rule, which prohibits labeling any product with an unqualified Made in USA claim unless: (i) all or virtually all ingredients or components of the product are made and sourced in the United States; (ii) all significant processing that goes into the product occurs in the U.S.; and (iii) the final assembly or processing of the product occurs in the United States.

The complaint also alleges that the defendants made misleading representations that they sold NIOSH-certified, U.S.-origin N95 respirators and that their PPE products were safer or provided superior protection from COVID-19 than imported products.

The pleading also challenges other alleged deceptive claims that go back to pre-COVID times. As early as 2015, the individual and another company purportedly marketed LED lights, tubes, and fixtures, including a line of LED bulbs – called “Patriot Tubes” – as made in the USA.

According to the FTC, the defendants stated that their “advances in manufacturing processes and efficiency have finally allowed us to produce USA-made products at competitive prices.” In 2016 the FTC received reports calling the defendants’ Made in USA claims into question.

As the complaint states, after the FTC staff conducted an investigation, “Defendant … admitted Patriot Tubes included significant Chinese components,” but claimed they were assembled in the United States.” According to the FTC, the individual ultimately acknowledged FTC guidance and caselaw that unqualified Made in USA claims must meet the established “all or virtually all” standard and agreed to market his products in the future consistent with that standard.

On January 18, 2017, FTC staff issued a letter on the public record stating the steps the individual and his company had agreed to take to correct their claims.

Since then, the FTC states that the defendants have marketed Patriot LED products as “Assembled in the USA.” However, according to the complaint, in many instances, employees have peeled Made in China stickers off LED products and replaced them with Made in USA labels despite the fact that the products allegedly underwent no manufacturing in the United States, other than occasional quality checks.

Note the declarations to the complaint at pages 59, 73 and 96.

To settle the case, the stipulated order requires the defendants - among other things - to pay a $157,683 civil penalty. A $2.8 million redress judgment is currently suspended due to their inability to pay. Should the defendants have made misrepresentations about their assets, the FTC will seek to have the suspension lifted and the full judgment due immediately.

Takeaway: Those that have received warning letters from the FTC - as well as those that employ express or implied U.S. origin claims in advertising materials – should consult with an FTC Made in USA lawyer to evaluate risk exposure and adjust representations accordingly. Misleading Made in USA or COVID claims can be very costly. The Made in USA Labeling Rule and the COVID-19 Consumer Protection Act provide the FTC with legal authority to seek civil penalties against companies that make deceptive Made in USA representations or violate the FTC Act by engaging in illegal conduct associated with the treatment, cure, prevention, mitigation or diagnosis of COVID. Additionally, choosing to ignore warning letters from FTC attorneys, closing letters or other indications of regulatory scrutiny into marketing practices is a very bad idea.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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