Born in the USA? Product Origin Claims Nothing to Mess With

The interconnectedness of the global economy has resulted in consumers being faced with a wide selection of substitute products from many different countries. A ”Made in the United States” claim could be, and often is, a difference maker in the eyes of the consumer. This could be attributed to a patriotic trust factor in the quality standards or even the belief that buying domestically made products benefits the U.S. economy. The ability to sway consumers’ gaze away from identical or similar products towards your own is an immensely valuable asset — one which businesses want to use to their competitive advantage. As such, the Federal Trade Commission (“FTC”), in its quest to quash deceptive acts and practices, has kept a watchful eye on possible abuses of “Made in the United States” claims.

Background On Origin Claims Policy

In 1997, the FTC announced the Enforcement Policy Statement on U.S. Origin Claims (“Policy”) which, as its name suggests, provided guidance on U.S.-origin claims in advertising and labeling. [1] The Made in USA Labeling Rule (“MUSA Rule”), codified the Policy in 2021 and grants the FTC the authority to oversee the regulation of U.S.-origin claims regarding product labeling. See 16 C.F.R. § 323.The term “label” is not defined, however, the rule notes that “to the extent that any mail order catalogs or mail order promotional material include a seal, mark, tag, or stamp labeling a product Made in the United States, such label must comply with [the MUSA Rule].” 16 C.F.R. § 323.3. The terms mail order catalog and mail order promotional material are defined 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.” 16 C.F.R § 323.1(b). The combination of the MUSA Rule, the FTC’s authority to regulate unfair or deceptive acts or practices, and the Policy allow the FTC to tackle  “Made in the United States” claims throughout a large swath of mediums including product labels and packaging, websites, social media posts, television ads and more. 15 U.S.C. § 45.

The FTC defines the term “Made in the United States” as “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.” 16 C.F.R § 323.1(a). For an implied representation of U.S.-origin the FTC focuses on the “overall net impression” that is conveyed to consumers from the claim and context (i.e., “American Quality” printed over a U.S. flag shown on promotional materials for a product).

For businesses to properly make an unqualified U.S.-origin claim, the MUSA Rule states that:

1) the 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. [2]

The Policy fills the interpretation void left by “all or virtually all” through stating a product “should contain only a de minimis, or negligible, amount of foreign content.”

In examining the above requirements, the FTC considers other factors. One such factor is the proportion of U.S. manufacturing costs. The FTC, on a case-by-case basis, will examine “the percentage of the total cost of manufacturing the product that is attributable to U.S. costs (i.e., U.S. parts and processing) and to foreign costs.” The Policy provides guidance on calculating such manufacturing costs, instructing businesses to examine the cost of manufacturing materials, direct manufacturing labor, and manufacturing overhead.

The FTC also considers the remoteness of foreign content, examining the significance and importance of the foreign content to the finished product. The manufacturing process of a product is scrutinized as the FTC looks for when the foreign content is incorporated into the product. For example, in a more complex and intricate manufacturing process, the use of foreign content has a diluted significance when introduced in an early stage in comparison to a simple process where the input of foreign content is more significant to the finished product.

When a business cannot meet the standard delineated by the FTC for an unqualified U.S.-origin claim but has a substantial amount of U.S. content or processing, a qualified claim may be appropriate. A qualified claim, though narrower than its unqualified counterpart, allows a business to communicate to consumers that U.S. content is utilized or incorporated in their product while disclosing the existence of foreign content. The qualification must appear immediately adjacent to the representation and be clear and conspicuous. “Made in the USA of U.S. and imported parts” is an example of a common qualified U.S.-origin claim. However, qualified U.S.-origin claims can be more specific and tailored to individual components or processes, all of which must be truthful and substantiated.

The Price You Can Pay for Incorrect Origin Claims

It is essential for businesses to conduct an internal audit of their manufacturing process when making U.S.-origin claims. With global supply chain issues prevalent, businesses may swap or contract with new suppliers to meet the consumer demand for their products. As such, businesses should vet their suppliers and the origins of those products as any foreign content could affect the FTC’s examination of a U.S.-origin claim. The result could be costly as the FTC can seek up to $50,120 in civil penalties per violation from a business.

A recent example of FTC enforcement came in January 2023 when the FTC ordered Instant Brands, maker of Pyrex kitchen products, to pay $129,416 for making U.S.-origin claims on products that were produced in China. During the COVID-19 pandemic, demand for Pyrex products climbed and, in order to fulfill consumer demand, Pyrex utilized manufacturers from China for certain products which were then sold on Amazon. The Chinese produced products were marked “Made in China,” however, Pyrex continued to market the products on Amazon as “Made in USA,” thus violating the MUSA Rule.

In a similar vein, in a recent closing letter to a furniture company, the FTC stressed the importance of specificity when making U.S.-origin claims. [3] Echoing the Policy, the FTC stated “consumers generally interpret U.S.-origin claims in marketing materials to cover all products advertised in those materials.” If one product in a product line does not meet the threshold for an unqualified claim, the unqualified U.S.-origin for the product line then becomes improper. Thus, the FTC suggests that businesses “specify which products are covered or directly link claims to particular products”.

Conclusion

Imported products and various industries (such as the Textile, Wool, and Fur industries) have specific disclosure and origin rules businesses should be aware of. However, most industries do not require disclosure of U.S.-made products. In fact, a U.S.-origin claim can be a valuable asset for a business as they look for an edge in today’s saturated product markets. By analyzing their manufacturing process and the components of their products, a business can then determine if an unqualified or qualified U.S.-origin claim is appropriate or, alternatively, a business can qualify or remove improper U.S.-origin claims they are currently making before they are subject to a costly enforcement action.

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[1] FTC, Issuance of Enforcement Policy Statement on “Made in USA” and Other U.S. Origin Claims, 62 Fed. Reg. 63756, 63768 (Dec. 2, 1997) www.ftc.gov/legal-library/browse/enforcement-policy-statement-us-origin-claims#e16.

[2] 16 C.F.R §323.2

[3] www.ftc.gov/system/files/ftc_gov/pdf/arnold-lumber-closing-letter.pdf