Yesterday, the Federal Trade Commission adopted a new Made In USA Labeling Rule, which codifies the standards set forth in the FTC's 1997 Enforcement Policy Statement on U.S. Origin Claims.
Under the new rule, marketers are prohibited from labeling any product as being made in the United States unless:
- The final assembly or processing of the product occurs in the United States;
- All significant processing that goes into the product occurs in the United States; and
- All or virtually all ingredients or components are made or sourced in the United States.
The new rule applies not only to product labeling, but to any "mail order catalog" or "mail order promotional material" that includes a seal, mark, tag, or stamp that labels a product as having been made in the United States. The FTC defines mail order catalogs and 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."
Significantly, now that the FTC's "Made in USA" standard has been incorporated into an FTC rule, the agency now has the ability, for the first time, to seek civil penalties of up to $43,280 for each violation of the standard.
In a statement, FTC Commissioner Rohit Chopra said, “The final rule provides substantial benefits to the public by protecting businesses from losing sales to dishonest competitors and protecting purchasers seeking to purchase American-made goods. More broadly, this long-overdue rule is an important reminder that the Commission must do more to use the authorities explicitly authorized by Congress to protect market participants from fraud and abuse.” The rule did not have bipartisan support at the Commission, however, with the rule being enacted by a 3-2 vote along party lines. In a dissenting statement, Commissioner Christine S. Wilson said that she voted against the new rule because it exceeded the FTC's authority by promulgating a rule that "could be read to cover all advertising, not just labeling."
Does the rule only apply to labels?
Not really. By its terms, the new rule only applies to "labels." The issue, though, is that the FTC has defined that term to include any print or electronic materials that solicit the purchase of a product without examining the actual product. When issuing the rule, the FTC emphasized that it "does not cover MUSA claims in all advertising." Only time will tell how broadly the FTC actually interprets this provision, but it certainly seems like it could easily be interpreted to include virtually all online advertising, as well as many other types of advertising that include a company's url.
Did the FTC establish a minimum percentage of content that is required in order to make an unqualified U.S. origin claim?
No. While some commenters asked the FTC to adopt a percentage-based, bright-line test that would set forth the minimum amount of U.S. content that is required to comply with the rule, the FTC declined to do so. The FTC said that, "percentage-based, bright-line rules could allow deceptive unqualified claims in circumstances where the low cost of the foreign input does not correlate to the importance of that input to consumers."
What if certain components are not available in the U.S.?
The FTC said that, even if certain components of a product cannot be sourced from the U.S., they still must be included in the analysis of whether a product was made here. The FTC explained that, "consumer perception testing has consistently shown that consumers expect products labeled as MUSA to contain no more than a de minimis amount of foreign content" and that "there is no evidence that this takeaway varies in scenarios where some parts or inputs are not available in the United States."
Does the rule provide any protection for businesses that act in good faith?
Not really. The FTC declined to include an explicit carve-out for business that make false claims, but that have acted in good faith when doing so. The FTC said, "Courts have long held good faith is not a defense for a violation of Section 5 of the FTC Act, and the Commission intends to enforce the Rule consistent with this precedent." The FTC did clarify, however, that it will continue to: (1) advise marketers that, if provided in good faith, marketers can rely on information from suppliers about the domestic content in the parts, components, and other elements they produce, (2) generally conserve enforcement resources for intentional, repeated, or egregious offenders, and (3) provide informal staff counseling where appropriate.
"The final rule provides substantial benefits to the public by protecting businesses from losing sales to dishonest competitors and protecting purchasers seeking to purchase American-made goods" -- FTC Commissioner Rohit Chopra