How to Defend FTC U.S. Origin (Made in USA) Investigations Attorney  

FTC Made in USA (MUSA) Investigation Attorney

The marketing and advertising of U.S. origin (“Made in USA”) claims present complex patchwork of evolving laws and regulations, groundbreaking settlement amounts and shifting regulatory policy.  The foregoing are more than just trends.  Rather, they are signals of a fundamental transformation in the way that the Federal Trade Commission perceive the way that consumer understand Made in USA claims, how the FTC evaluates advertisements, and how the law and rules that the FTC enforces interact with those enforced by other agencies.

When it comes to false “Made in USA” claims, the Federal Trade Commission means business.  That is why the FTC continues to investigate and initiate legal action against manufacturers and marketers that do not play by the rules, assessing monetary penalties and returning money to consumers.

From a consumer protection standpoint, the FTC ‘s mission under Section 5 of the FTC Act is to prevent deception and unfairness in the marketplace.  An act or practice is deemed deceptive if it is likely to mislead consumers acting reasonably under the circumstances and is “material” – likely to affect a consumer’s decision to purchase or use the advertised product or service.  FTC policy states that a claim “need not mislead all – or even most – consumers to be deceptive pursuant to the FTC Act.  Instead, it only has to be “likely” to deceive some consumers acting reasonably.

The Federal Trade Commission Act gives the FTC the power to initiate investigations and law enforcement actions against false or misleading claims that a product is of U.S. origin.  Traditionally, the FTC has required that a product advertised as Made in USA be “all or virtually all” made in the U.S.

The following constitute ten (10) key strategies that manufacturers and marketers should consider when facing an FTC investigation or lawsuit in connection with the marking, labeling, packaging, advertising and all forms of marketing of products that state or imply that such products were manufactured, made or assembled in the United States (in whole or in part) or that state or imply that such product was manufactured, made or assembled by United States labor (in whole or in part).

Consult with an experienced FTC Made in USA investigation and defense attorney if your company has received an access letter or civil investigative demand.

#1        Utilize the Nuances of the Made in USA Labeling Rule

In 2021, the Federal Trade Commission finalized the Made in USA Labeling Rule.  The Labeling Rule codified the “all or virtually all” standard for unqualified U.S. origin claims on product labels, whether express or implied.

An express claim can include “Made in USA,” “Our products are American-made,” “USA,” “Manufactured in USA,” or “Built in USA.”  In identifying implied claims, the FTC focuses on the overall impression the advertising, label, or promotional material conveys to consumers (depending on the context, U.S. symbols or geographic references.  U.S. flags, outlines of U.S. maps, or references to U.S. locations of headquarters or factories may convey a claim of U.S. origin either by themselves, or in conjunction with other phrases or images.

Example: A manufacturer promotes its product in an advertisement that represents the “true American quality” of the product manufactured at its American factory. There is no express representation that the product is made in the U.S. However, the FTC believes that the net impression is that the product is of U.S. origin.

“Made in USA” means any unqualified representation, express or implied, that a product or service, or a specified component thereof, is of U.S. origin, including, but not limited to, a representation that such product or service is “made,” “manufactured,” “built,” “produced,” “created” or “crafted” in the United States or in America, or any other unqualified U.S.-origin claim.

Manufacturers and marketers are now subject to civil penalties if they use an unqualified Made in USA label on a product that is not “all or virtually all” made in the U.S., including in catalogs or online.  “All or virtually  all” means: (i) final assembly or processing must occur in the United States; (ii) all significant processing that goes into product must occur in the United States; (iii) all or virtually all ingredients or components of the product must be made and sourced in the United States (the product should contain no – or negligible/de minimis – foreign content).

According to FTC made in USA Guidelines, the definition of label extends far beyond labels physically affixed to a product.  The Made in USA Labeling Rule also encompasses packaging, labeling, advertising, marketing (including, but not limited to, digital or electronic mechanisms, such as Internet, email or social media), promotional materials, mail order catalogs, mail order promotional material that include a seal, mark, tag or stamp that identify a product with an unqualified U.S.-origin claim.

The FTC declined to adopt a bright-line, manufacturing cost percentage-based threshold, include an exemption for materials that are unavailable in the United States, incorporate the “substantial transformation” standard used by the U.S. Customs and Border Protection in various instances, or provide a safe harbor for good faith compliance efforts.

A seasoned FTC Made in USA Labeling Rule lawyer can assist with interpreting the Labeling Rule in the context of the specific legal regulatory matter and implement optimal defense arguments and strategies based thereon.

#2        Recognize the FTC Enforcement Policy Statement on U.S. Origin Claims

In 1997, the Federal Trade Commission published an Enforcement Policy Statement on U.S. Origin Claims designed to guide manufacturers and marketers that want to make an unqualified Made in USA claim under the “all or virtually all” standard and those who want to make a qualified Made in USA claim.

An “unqualified” claim is a claim without conditions or caveats.  A “qualified” claim is a claim with limitations or other explanations.

The Made in USA Policy Statement and the Labeling Rule apply to all products advertised or sold in the U.S., except for those specifically subject to country-of-origin labeling by other laws.  U.S. Customs and Border Protection may impose marking requirements on products exported to other countries, and those other countries may also have their own country-of-origin marking requirements.  Exporters should determine whether CBP or the country to which they are exporting imposes additional or different requirements

#3        Gather Evidence Concerning Due Diligence About American Suppliers and the Content in the Components They Supply

Manufacturers and marketers should not simply rely on information from American suppliers about the amount of domestic content in the parts, components, and other elements they buy and use for their final products.  However, if provided in good faith and appropriately addressed, manufacturers and marketers may be able to rely on information from suppliers about the domestic content in the parts, components, and other elements they produce.

Depending on context, supplier-provided certifications may constitute a “reasonable basis” for claim substantiation purposes.  Rather than assume the input is 100 percent U.S.-made, however, manufacturers and marketers would be wise to ask the supplier for specific information about the percentage of U.S. content before they make a U.S. origin claim.

Example: A company manufactures blenders in its U.S. plant, making most of the parts, including the blade, from U.S. materials. The motor, which constitutes 50 percent of the blender’s total manufacturing costs, is purchased from a U.S. supplier. The manufacturer knows the motor is assembled in a U.S. factory. Most of the parts of the blender are of U.S. origin. The final assembly is in the U.S. and the motor is assembled in the U.S. However, the blender is not considered “all or virtually all” American-made if the motor itself is made of imported parts that constitute a significant percentage of the appliance’s total manufacturing cost. Prior to claiming that the blender is Made in USA, the manufacturer should look to its motor supplier for more specific information about the motor’s origin.

Sample Certification: On its purchase order, a company states: “Our company requires suppliers to certify the percentage of U.S. content in products supplied to us. If you are unable or unwilling to make such certification, we will not buy from you.” Appearing under this statement is the sentence: “We certify that our ___ have at least ____ % U.S. content,” with space for the supplier to fill in the name of the product and its percentage of U.S. content. The company generally could rely on a certification like this to determine the appropriate country-of-origin designation for its product.

FTC Made in USA (MUSA) Investigation Attorney Tip:  Just because you buy parts from U.S. suppliers does not necessarily mean those parts are made in the USA.

In addition to obtaining certifications from suppliers, due diligence can also take the form of, without limitation, inspecting a supplier’s plant prior to initiating a business relationship in order to confirm it has capacity to manufacture the applicable product(s), terminating business relationships with suppliers that have provided a false declaration, policing third-party distributors in order to ensure that consumers are reasonably protected, routinely reviewing records to ensure the appropriate level of substantiation exists for all advertising claims, and quickly modifying marketing materials and packaging (including, but editing of photos) upon a change in circumstances that would impact the substantiation of claims.

Additionally, imported products have different rules.  If your product is imported, look to U.S. Customs and Border Protection for information on how to label it, and make sure your advertisements are consistent with your labels.

#4        Assess the Factors the FTC Considers to Determine Whether a Product is “All or Virtually All” Made in the U.S. to Pursue Closure of Investigation

Final assembly or processing must take place in the U.S.  The FTC then considers other factors, including the proportion of the product’s total manufacturing costs can be assigned to U.S. parts and processing, how far removed any foreign content is from the finished product, and the importance of the foreign content to the product’s form or function.

Critically analyze the percentage of domestic content in a particular product.  Manufacturers and marketers should use the cost of goods sold or inventory costs of finished goods in their analysis.  Those costs generally are limited to the total cost of all manufacturing materials, direct manufacturing labor and manufacturing overhead.

FTC Made in USA (MUSA) Lawyer Tip:  Costs do not tell the whole story. Sometimes, only a small portion of the total manufacturing costs are attributable to foreign processing, but that processing represents a significant amount of the product’s overall processing. The same could be true for some foreign parts. In these cases, the foreign content – processing or parts – is more than negligible, and, as a result, unqualified claims are inappropriate.

Example: A manufacturer produces watches at a plant in New Jersey using predominately U.S. parts and labor. Watches include movements – the parts that allow the watch to keep time. The manufacturer uses inexpensive Swiss movements in its watches. Movements account for a small proportion of the costs to make the watches. However, without the movements, the watches cannot tell time. Because movements are essential to the watches’ function, an unqualified Made in USA claim is likely deceptive.

Example: A table lamp is assembled in the U.S. from American-made brass, an American-made lampshade, and an imported base. The base accounts for a small percent of the total cost of making the lamp. An unqualified Made in USA claim is likely deceptive for two reasons. First, the base is not far enough removed in the manufacturing process from the finished product to be of little consequence.  Additionally, it is a significant part of the final product.

#5        Determine Whether any Foreign Content Was Incorporated Early in the Manufacturing Process

Foreign content incorporated early in the manufacturing process often will be less significant to consumers than content that is a direct part of the finished product or the parts or components produced by the immediate supplier.  To determine the percentage of U.S. content, manufacturers and marketers should look back far enough in the manufacturing process to be reasonably sure that any significant foreign content has been included in their assessment of foreign costs.

Example: The silicon used in a microchip within a computer is an early input into a computer’s manufacture and is likely to constitute a very small portion of the final product’s total cost. On the other hand, the wood in a less complex product like a wooden table is a direct and significant input. Whether the wood in a table is imported would be a significant factor in evaluating whether the finished product is “all or virtually all” made in the U.S. 

#6        Examine Whether Mitigating Arguments Exits in the Event Final Assembly or Processing Does Not Take Place in the U.S.

As touched upon above, the FTC does not consider other factors when determining whether a product is “all or virtually all” made in the U.S. unless final assembly or processing takes place in the U.S.  In some instances, however, assembly outside of the United States may constitute a de minimis finishing process.  While not a defense to an unsubstantiated unqualified U.S. origin claim, the totality of facts and content may lend themselves to mitigating argument.

#7        Accentuate the Positive Even if Unrelated to Representations at Issue

If handled properly, providing “color” to FTC staff about all the good things that a manufacturer or marketer has done to protect consumers can potentially go a long way toward averting formal enforcement proceeding and the imposition of money penalties.

For example and in addition to accentuating supplier-related due diligence, if there are qualified claims for products that include U.S. content or processing, but do not meet the criteria for making an unqualified Made in USA claim, highlighting the care taken to ensure that the product has a significant amount of U.S. content or U.S. processing, and that related claim are truthful and capable of being legally substantiated. 

Example: A treadmill is assembled in the U.S. The assembly represents significant work and constitutes a “substantial transformation” (a term used by U.S. Customs and Border Protection. The treadmill’s significant parts, including the motor, frame and electronic display are imported. A couple of incidental parts, such as the handlebar covers and the plastic on/off power key are manufactured in the U.S. Together, these parts account for approximately three percent (3%) of the total cost of all of the parts. As a result of the value of the U.S.-made parts being negligible compared to the value of all the parts, a “Made in USA of U.S. and Imported Parts” representation is likely deceptive. A representation such as “Made in U.S. from Imported Parts” or “Assembled in U.S.A.” may not be deceptive.

#8        Attempt to Limit Scope of Investigation to Specific Products in Product Line

 Manufacturers and marketers should not indicate, expressly or implicitly, that an entire  product line is of U.S. origin when only some products in the product line are made in the U.S. according to the “all or virtually all” standard.  Consider attempting to establish that the net impression of applicable domestic origin representations apply to specific products within a product line

#9        Address Claims and Considerations That Fall Outside of the Labeling Rule

 The FTC investigates and prosecutes manufacturers and marketers that make deceptive U.S.-origin claims that fall outside the Labeling Rule, pursuant to Section 5 of the Federal Trade Commission Act.  Express and implied claims must be properly substantiated.  There must exist a “reasonable basis” for claims before they are disseminated.  Manufacturers and marketers must possess “competent and reliable evidence” to back up claims.

The lack of a reasonable basis before an ad is disseminated violates Section 5 of the FTC Act.  Post-claim evidence of truthfulness is not exculpatory but may be considered for other limited purposes, depending upon context.

There is a continuing obligation to review claims (first-party and third-party distributors) to ensure properly substantiated – if something changes (e.g., begin sourcing components overseas) and no longer a reasonable basis to support claims (e.g., Made in USA), marketing materials must be updated

#10      Establish Why Civil Penalties and Enforcement are Not Warranted

 Manufacturers and marketers that falsely label their products as Made in USA may have to pay enhanced civil penalties or other monetary relief.  Civil penalties are a deterrent against Labeling Rule violations.

Civil penalties for violations of the Labeling Rule are assessed, per violation.  The nature of violations, including, but not limited to, actual or constructive (should have known) the conduct wrongful and intend to act despite such knowledge.  The degree of culpability, history of prior conduct, size of company, ability to pay, effect on ability to continue to do business, and such other matters as justice may require may be considered.

The FTC can also seek redress, damages and other relief.  Contact an experienced FTC defense lawyer to discuss strategies designed to minimize liability exposure in conjunction with the use of U.S. origin (Made in USA) claims.

FTC Made in USA Defense Lawyer

The Federal Trade Commission continues to investigate and prosecute manufacturers and marketers that make false or misleading claims about the domestic origin of their products in marketing, advertising, labeling and other promotional activities.

If your company has received a voluntary access letter or a civil investigative demand seeking information about whether it is engaged in unfair or deceptive acts or practices in violation of Section 5 of the FTC Act or the MUSA Labeling Rule pursuant to the provisions of Sections 6, 9, and 10 of the FTC Act, 15 U.S.C. §§ 46, 49, and 50, contact an FTC Made in USA defense lawyer to ensure that your matter is handled properly, from the start.

Informational purposes only. Not legal advice. May be considered attorney advertising.