MarkIt to Market® - July 2020: Made in the USA: The Federal Trade Commission Proposes a New Rule to Protect U.S. Manufacturers and Consumers

Sterne, Kessler, Goldstein & Fox P.L.L.C.
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Sterne, Kessler, Goldstein & Fox P.L.L.C.

[author: Sahar A. Ahmed, Paralegal]

On June 22, 2020, the Federal Trade Commission (FTC) announced a Notice of Proposed Rulemaking pertaining to “Made in USA” claims, which applies to labels and marketing that fraudulently asserts that products are made in the United States. The proposed Rule would prohibit marketers from making what the FTC defines as unqualified claims (broad representations made without limitation) on labels unless: (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.

The proposed Rule would also allow the FTC to seek civil penalties or monetary damages for violations. Currently injunctive and equitable relief are the only remedies available to prevailing Complainants, which include not only competitor manufacturers, but also consumers.

Section 5 of the Federal Trade Commission Act allows for an administrative cause of action before the FTC to prohibit false or misleading claims that a product is of U.S. origin. The FTC requires that a product advertised as Made in USA be “all or virtually all” made in the U.S. These claims apply to explicit or implied country of origin statements on product labels, mail order catalogs, promotional materials, and “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.” See here.

The proposed Rule evidences the FTC’s intent to ramp up its enforcement practices of Made in USA actions in response to recent public scrutiny. Under the current rule, companies found guilty of fraudulent labeling and advertising practices do not face fines and are not required to report their wrongdoing to customers. As the Director of the FTC, Andrew Smith, acknowledged, “[w]hether a product is actually ‘Made in the USA’ is an important issue for consumers, manufacturers, retailers, and American workers.” See id. Four of the five commissioners agreed that a change is in order and approved publication of the proposed Rule. In a separate statement supporting his affirmative vote, Commissioner Rohit Chopra stressed the importance of providing increased relief to consumers, “including redress, disgorgement, and even damages.” See here.

By amending the rule to allow for the award of monetary damages instead of simply injunctive relief, the FTC incentivizes more people to come forward with Made in USA claims and provides stronger deterrence for wrongdoers. Once codified, the proposed Rule will benefit U.S. manufacturers and workers, protect consumers from low-quality or potentially dangerous products, and preserve the goodwill of the Made in the USA designation.

The proposed Rule was published in the Federal Register on July 16, 2020, with the public comment period ending on September 14, 2020.

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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