The Federal Trade Commission (FTC) has increasingly prosecuted more deceptive U.S. origin claims under Section 5 of the FTC Act since the start of the COVID-19 pandemic than in the previous decade. This uptick in administrative enforcement increases the cost of compliance surrounding ” Made in USA” claims, and companies should take notice regarding any origin claims they intend to make. In addition, in 2021, the FTC adopted the “Made in USA” Labeling Rule (The Rule),1 which codifies and clarifies the FTC’s longstanding position and guidance on U.S. origin claims. The Rule establishes the FTC’s ability to pursue potentially strict punishments for those who violate the Rule’s mandates related to product labeling.
The FTC regulates U.S. origin claims under its general authority to act against deceptive acts and practices.2 The FTC has defined a deceptive advertisement or label under Section 5 as one that contains a material representation or omission of fact that is likely to mislead consumers acting reasonably under the circumstances.3 And, the FTC has confirmed that a business’s or marketer’s objective claim is deceptive if the business or marketer lacks a reasonable basis for making such a claim.4 Therefore, a “Made in USA” claim must be truthful and substantiated prior to being made.5
FTC Continues to Ramp Up Enforcement of “Made in USA” Claims
For a marketer to substantiate an unqualified claim that a product is made in the United States, the marketer must – at the time they make the representation – rely upon a reasonable basis that the product is “all or virtually all” made in the United States.6 There is no hard-and-fast rule to prove compliance with the FTC’s “all or virtually all” standard, but the product should contain no (or negligible) foreign content.
As codified in The Rule, a marketer must satisfy three prongs to label a product as “made,” “manufactured,” “built,” “produced,” “created,” or “crafted” in the United States: 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.7 16 CFR Part 323.2.
The FTC considers a number of factors when determining whether a product meets this standard. The FTC will likewise examine the percentage of a product’s total manufacturing costs that are attributable to United States-related costs on a case-by-case basis.8 The FTC will consider the “remoteness of foreign content,” including the percentage of the product’s foreign material cost in addition to the degree to which foreign content is removed from the finished product.9
In the past several years of the FTC’s stronger enforcement of U.S. origin claims, the FTC has alleged the following common forms of misconduct to warrant regulatory intervention, including a recent settlement with Instant Brands, a manufacturer of kitchen and home products:
- Claiming home products were “Made in USA,” even though the company had temporarily shifted its manufacturing outside of the United States due to supply chain issues as a result of the COVID-19 pandemic
- Express representations that a product is “Made in USA” or “Manufactured in America” while, in fact, a significant portion, if not all, of the product is imported from abroad and distributed directly to consumers
- Providing third-party vendors with marketing materials that falsely or deceptively misrepresent that the product originated or was assembled in the United States when all or virtually all of the product was not
- Express representations that a product is of U.S. origin while, in fact, foreign materials account for a significant portion of the product’s material or manufacturing costs
- Licensing and distribution of misleading seals, graphics or promotional materials purporting to represent that a product is approved as “American-made” while having no reasonable basis to know that companies using the licensed promotional materials sell products of U.S. origin
Business Guidance and Compliance
The FTC has released business guidance to assist companies in complying with the “all or virtually all” standard. Remember, companies have a continuing obligation to ensure that their claims are truthful and substantiated, including when temporarily changing a supply chain to outside the United States.
For a company to make a lawful, unqualified U.S. origin claim, the final assembly of the product must occur within the United States, all significant processing that goes into the product must occur in the United States, and all or virtually all of the product’s parts, ingredients or components, and processing must be made or sourced in the United States.
For a company to make a lawful, qualified U.S. origin claim, the company must include a clear and conspicuous qualification that 1) appears immediately adjacent to the representation and 2) accurately conveys the extent to which the product contains foreign parts, ingredients or components, and/or processing.
For a company to make a lawful claim that a product was assembled in the United States, the product must be last substantially transformed in the United States, the product’s principal assembly must take place in the United States, and the United States assembly operations must be substantial.
Some of the key requirements – which all advertisers should keep in mind when they are thinking about their disclosures – include:
- When the claim is made in a television commercial or other audio-visual advertising, the disclosure should be presented simultaneously in both the audio and the video
- Disclosures in interactive electronic mediums must be unavoidable
- On product labels, the disclosure must be presented on the principal display panel
When qualifying a U.S. origin claim, the disclosure must appear “immediately adjacent to the representation,” and it must accurately convey “the extent to which the product contains foreign parts, ingredients or components, and/or processing.”
2 15 U.S.C. § 45(a)(2) (2020) (“The Commission is hereby empowered and directed to prevent persons, partnerships, or corporations…from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.”).
3 FTC, FTC Policy Statement on Deception (Oct. 14, 1983).
4 FTC, Policy Statement Regarding Advertising Substantiation (Nov. 23, 1984).
5 FTC, Enforcement Policy Statement on U.S. Origin Claims (Dec. 1, 1997).
7 16 CFR Part 323.2.