FTC Seeks Rule to Collect Civil Penalties for Made in USA Labeling Violations

Kelley Drye & Warren LLP
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Further to ongoing efforts to evaluate and regulate how companies advertise and label that their products are “Made in the USA,” last week the FTC issued a staff report and a proposed rule that would include the possibility of civil penalties up to $43,280 per violation.

FTC Chairman Joseph Simons joined Commissioners Rohit Chopra and Rebecca Slaughter in support of the proposed rule, which would prohibit marketers from including unqualified Made in USA claims on product labels unless they can show that:

  1. final assembly or processing of the product occurs in the United States;
  2. all significant processing that goes into the product occurs in the United States; and
  3. all or virtually all ingredients or components of the product are made and sourced in the United States.

Commissioner Noah Phillips, who voted against the rule, and Commissioner Christine Wilson, who voted to proceed with the notice and comment rulemaking process, each wrote separate dissenting opinions criticizing the broad scope of the proposed rule.

The proposed rule explicitly covers unqualified Made in USA claims appearing in seals, marks, tags, or stamps in mail order catalogs or mail order promotional materials, defined in the proposed rule as “any materials, used in the direct sale or direct offering for sale of any product or service, that are disseminated in print or by electronic means, and that solicit the purchase of such product or service by mail, telephone, electronic mail, or some other method without examining the actual product purchased.”

Commissioner Phillips wrote in his dissent that this scope is broader than the FTC’s statutory authority to issue a Made in USA labeling rule, which refers only to “labels on products.”  Commissioner Wilson similarly warned that going beyond the statutory text would mean the rule applies to online advertising or even hashtags, which she warned could be outside the FTC’s jurisdiction. “Expansive interpretations of our rulemaking authority will not engender confidence among members of Congress who have already expressed qualms about the FTC’s history of frolics and detours,” Wilson wrote.

The Staff Report reflects findings from its workshop reviewing Made in USA labeling policy and enforcement.  In particular, Staff cited a 2013 consumer perception study that indicates that Americans “agree that ‘Made in America’ means that all parts of a product, including any natural resources it contains, originated in the United States.”  Another study from the University of Chicago cited in the report found that consumers were willing to pay as much as 28 percent more for U.S.-made products.  Panelists reported that consumers prefer American made goods due to the “qualify of goods, promotion of U.S. jobs, social responsibility, and, to a lesser extent, general patriotism.”

Although the FTC gained rulemaking authority over Made in USA labeling in the early 1990s, the FTC has relied solely on its Section 5 authority to bring enforcement actions for violations of the law.  For example, the FTC has announced several settlements and, in the last two years, the Staff has issued over 40 closing letters regarding Made in USA claims.  The FTC’s new rulemaking effort reflects renewed interest among the commissioners to add deterrence through the threat of penalties for even first time offenses.  As Commissioner Chopra added, “the rule eliminates the perceived litigation risks associated with Section 13(b),” the FTC’s basis for obtaining consumer redress which has been scrutinized as covered extensively on this blog.

Companies making claims about the U.S. origin of their products and services should closely watch these developments. At a minimum, that should involve a review of existing claims, and some companies may choose to file comments in response to the proposed rule.

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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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