The latest Federal Trade Commission (FTC) Made in the USA (MUSA) case may be a bit of a head-scratcher that requires us to delve more deeply into FTC authorities and monetary recovery theories.
Since 2021, when the FTC promulgated the Made in the USA Rule (Rule), we have gotten accustomed to seeing MUSA cases that rely heavily upon the Rule, which allows the agency to seek monetary civil penalties. But there are some notable limits to the Rule’s application. First, it only applies to claims made on labels. Even though the agency developed a pretty broad definition of “labels,” this is a real limitation. In short, the Rule covers traditional labels as well as “mail order promotional material” that “includes a seal, mark, tag, or stamp labeling a product Made in the United States.” And it defines mail order promotional material 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.” The second thing to keep in mind is that the MUSA Rule only applies to unqualified MUSA claims – such as claims that a product is made, built or created in the United States.
Of course, the MUSA Rule is not the only FTC tool available; there is always the FTC Act’s prohibition on deceptive practices, and prior to the Rule, MUSA cases were routinely brought under the FTC Act. Getting monetary relief under the FTC Act is, however, more complicated than alleging a straightforward Rule violation.
The latest MUSA case is a good reminder that even without a Rule violation, the FTC can try to get money, but not of the penalty variety. In this case, the FTC charged a trio of companies (and their president) with MUSA violations in connection with the sale of clothing accessories such as leather and fabric belts and wallets. According to the complaint, the company sells directly to consumers and also sells products to third-party trade customers for resale as private-label products. As for the MUSA issues, the complaint alleges that the companies stated in promotional materials that their products are all or virtually all made in the United States, with website statements such as “Made in USA” or “Hand Crafted in the USA.” Similar statements appeared in catalogs and in third-party online marketplaces. The companies also at times provided their third-party trade customers with labeling and promotional materials that featured U.S.-origin claims.
Despite these statements, the FTC alleges that in numerous instances, some products were wholly imported or had significant imported content. For example, in some instances, belt straps were imported and then buckles were added in the United States. The complaint notes that U.S. Customs and Border Protection determined that the products were not “Made in USA from Global Materials” because “attaching a buckle to a belt strap is a minimal assembly operation that does not change the name, character, or use of an imported belt strap.”
The complaint alleges three different violations of the FTC Act – including a count that they provided the means and instrumentalities for others to engage in deceptive practices – with no Rule violation alleged. One has to imagine that the agency closely looked at every statement the companies made in a wide range of contexts to try to find activity that fit within the ambit of the Rule, but just couldn’t quite get there.
The order has the usual injunctive provisions you would expect from a MUSA case – but also, however, does impose a monetary judgment to the tune of $191,481 (which is quite the precise number we observe).
The money here is not a penalty – without a Rule allegation, there can be no penalties in a case like this. So the agency is doing what it had done in a few MUSA cases previously – seeking money through other means. Of course, since the Supreme Court decided AMG, Section 13(b) of the FTC Act no longer fits the bill, so instead, the agency relies on Section 19 of the FTC Act, which allows the FTC to seek monetary relief in connection with administrative litigation when the conduct at issue is dishonest or fraudulent. So keep in mind that even if the Rule doesn’t apply, there are other approaches the agency can take to get money.
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