FTC Approves Final Settlement over Unsubstantiated “Made in the USA” Claims

Last month, the Federal Trade Commission approved a final consent order settling charges it had brought against manufacturer E.K. Ekcessories, Inc. (“EK”) of Logan, Utah, regarding that company’s use of US-origin claims about its products.  EK manufactures a variety of consumer products, including iPhone cases, eyewear retainers, bottle holders, and dog collars.  In advertising its wares, EK made numerous statements regarding the origin of its products, including:

• “Truly Made in the USA”;
• “[O]ur source of pride and satisfaction abounds from a true ‘Made in USA’ product”; and
• “For 28 years E.K. Ekcessories has been producing superior quality made accessories in our 60,000 sq. ft facility in Logan, Utah.”

According to the FTC’s complaint, in reality many of EK’s products were not made domestically.

The FTC regulates “Made in the USA” claims on products advertised in the US pursuant to its power to combat deceptive practices under Section 5 of the FTC Act.  Other statutes separately require disclosure of US content on certain textile, wool, and fur products, and on automobiles.  The U.S. Customs Service also separately regulates country-of-origin statements on imported goods.  If a good is not imported, there is generally no requirement that the product be marked with its country of origin (i.e., “Made in the USA),” but if a manufacturer or retailer chooses to make such a claim, the FTC’s regulations will apply.

US-origin claims can be express or implied and can be qualified or unqualified.  Express claims include statements like “Our products are American made” and “Made in the USA.”  Implied claims are context-dependent.  Per the FTC, “[i]n identifying implied claims, [it] focuses on the overall net impression of an advertisement, label, or other promotional material.” Federal Trade Commission, Enforcement Policy Statement on US Origin Claims (December 1997), http://www.ftc.gov/os/1997/12/epsmadeusa.htm (last accessed Jan. 17, 2014).

This requires an examination of both the representation and the overall context, including the juxtaposition of phrases and images, and the nature of the transaction. Depending on the context, U.S. symbols or geographic references, such as U.S. flags, outlines of U.S. maps, or references to U.S. locations of headquarters or factories, may, by themselves or in conjunction with other phrases or images, convey a claim of U.S. origin. Whether any particular symbol or phrase, including an American flag, conveys an implied U.S. origin claim, will depend upon the circumstances in which the symbol or phrase is used.

Id. (emphasis added).

The FTC requires that a product subject to an unqualified US-origin claim be “all or virtually all” made in the United States. This means that “all significant parts and processing that go into the product must be of U.S. origin. That is, the product should contain no — or negligible — foreign content.” Federal Trade Commission, Complying with the Made in USA Standard (December 1998), http://www.business.ftc.gov/documents/bus03-complying-made-usa-standard (last accessed Jan. 17, 2014).  As a baseline, the product’s final assembly and processing must occur in the US.  The FTC then considers the proportion of total manufacturing costs that are attributable to US parts and processes and the remoteness in the manufacturing process of any foreign elements used in the product.  Relatively insignificant foreign elements introduced early in the process of creating a complex product are less likely to render a claim deceptive.

As a demonstration, the FTC offers two sample unqualified US-origin claims, one deceptive and the other not:

Example: A company produces propane barbecue grills at a plant in Nevada. The product’s major components include the gas valve, burner and aluminum housing, each of which is made in the U.S. The grill’s knobs and tubing are imported from Mexico. An unqualified Made in USA claim is not likely to be deceptive because the knobs and tubing make up a negligible portion of the product’s total manufacturing costs and are insignificant parts of the final product.

Example: A table lamp is assembled in the U.S. from American-made brass, an American-made Tiffany-style 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 deceptive for two reasons: The base is not far enough removed in the manufacturing process from the finished product to be of little consequence and it is a significant part of the final product.

Id.

If a product cannot meet this “all or virtually all” standard, a US-origin claim can still be made provided that it is adequately qualified.  The qualification must be clear, prominent in size and font, and proximate to the claim.  Beyond that requirement, the precise form of the qualification depends on the product and can be determined by the manufacturer or retailer.  Claims can be qualified by isolating the process that occurs in the US (“Designed in the US - Made in Finland”; “Assembled in the US from imported parts”) or the component made in the US (“Computer Made in Korea – Packaging Made in US”) or by specifying that only a certain percentage of the content is of US origin (e.g., “60% US content”).

In its complaint against E.K. Ekcessories, the FTC claimed that EK had made false, unsupported, and unqualified claims that its products were of US origin, both expressly and by implication.  The settlement order prohibits EK from making unqualified US-origin claims about its products unless they meet the “all or virtually all” standard.  EK is also prohibited from making any claim about its products’ origin unless the claim is true, not misleading, and substantiated at the time it is made.  As a remedy, EK must contact all distributors that bought or received the products in question between January 2010 and May 2013, notify each of the FTC order, request that they cease use of certain deceptive advertising materials, and, for certain products where deceptive claims are made on the packaging, provide stickers to cover the affected area.  The order will remain in effect for twenty years.

To avoid a similar fate, manufacturers and marketers that wish to make US-origin claims should be sure that the products described meet the “all or virtually all” standard or that the claims have been appropriately qualified.  And, as with all advertising, marketers must be aware of the scope of the claims made (including any reasonable implications) and make certain that they have adequate substantiation for all claims before making them.