Manufacture This

The blog of the Alliance for American Manufacturing

Made in USA claims must be evidenced by far more than just a patriotic label.

The following is a guest post written by Dustin Painter and Kristi Wolff of Kelly Drye & Warren, LLP. 

Are you manufacturing consumer products in America? Are you making a "Made in USA" claim when you market your product in America? Know that those claims are subject to the U.S. Federal Trade Commission's (FTC) Made in USA Enforcement Policy as well as state laws aimed at protecting consumers from deceptive advertising. 

A quick primer: the FTC is an independent agency of the U.S. Federal Government. The FTC's primary mission is to "protect consumers." The FTC regulates "Made in USA" claims under its authority found in Section 5 of the Federal Trade Commission Act, which prohibits "unfair or deceptive acts or practices." With few exceptions, the FTC's enforcement authority covers all advertising -- including business-to-business advertising -- for all products.

What types of "advertising" does the FTC regulate?

"Advertising" includes product labeling, websites, print ads and brochures, and essentially any representation made with the intent to sell or complete sale of a product. 

When is an advertisement deceptive?

An advertisement is deceptive if it contains a representation or omission of fact that is likely to mislead consumers acting reasonably under the circumstances, and that representation or omission is material -- meaning it is likely to affect the consumer's choice or conduct with regard to the product.

What is the FTC's Made in USA Enforcement Policy?  

The FTC issued a formal policy statement and guide for businesses to help marketers understand how it will interpret "Made in USA" claims.

The FTC considers Made in USA claims to fall into two categories:

  1. "unqualified" claims, which are U.S.-origin claims made without any limitation -- like "Made in the USA"-- and
  2.  "qualified" claims, like "assembled in the USA," which aim to limit the extent of the U.S. origin claimed in the marketing.

The FTC applies the "all or virtually all" standard to unqualified Made in USA claims.  Marketers that claim their products are Made in the USA must be able to substantiate that all or virtually all of a product's parts and processing are of U.S.-origin. Marketers making unqualified claims are telling consumers that their product contains no -- or negligible -- foreign content or processing. When assessing the validity of an unqualified Made in USA claim, the FTC will look to see that a product's final assembly or processing occurred in the United States and at factors like the cost of U.S. parts and processing and how far removed any foreign content is from the finished product.  

Where products cannot satisfy the “all or virtually all” standard, a “qualified claim” such as “Assembled in USA” may be appropriate.  Assembled in the USA claims can be made when a product's principal and final assembly occurs in the United States and that assembly is "substantial." At very least, a product's last "substantial transformation" should occur in the United States in order to substantiate an Assembled in the USA claim. A substantial transformation occurs when manufacturing or other operations result in a new and different product with a new name, character and use that is different from that of its inputs. The substantial transformation standard is used by U.S. Customs to determine a product's country of origin.  

The FTC will generally not consider simple “screwdriver assembly” of foreign components in the United States to be sufficient to substantiate an Assembled in the USA claim. In its guide for businesses, the FTC provides the following example:

"All major components of a computer, including the motherboard and hard drive, are imported.  The computer's components then are put together in a simple 'screwdriver' operation in the U.S...."

Because the components are not substantially transformed under the Customs standard, the FTC would interpret the "Assembled in the USA" claim to be deceptive. 

How does the FTC determine if a Made in USA claim is deceptive?

When considering whether an advertising claim is deceptive, the FTC considers the net impression, i.e., the entire advertisement, transaction, or course of dealing.  This includes express claims, such as text that expressly states “Made in USA" and implied claims, such as flags, map graphics, or similar patriotic depictions. The FTC also considers the audience that is likely to view the advertising and will take into account the knowledge of that group.  

How can I talk about providing American jobs if I can’t meet the “all or virtually all” standard? 

Companies can talk about providing American jobs. When they do so, however, they need to be careful about not overstating the degree to which their products meet the “all or virtually all” standard. Carefully review implied claims in advertising and use disclosures if necessary to avoid being misleading.

Are there penalties if a Made in USA claim cannot be substantiated?   

There may be. Unsubstantiated claims may result in FTC settlement orders, requiring marketers to fix deceptive advertisements and prohibiting them from making them again. They can also result in civil penalties for repeat offenders, lawsuits from industry competitors and may open a marketer up to consumer civil suits under state false advertising and consumer protection laws. 

Bottom line:

Familiarize yourself with the FTC's Enforcement Policy and applicable state laws to ensure the origin claims applied to your product can be substantiated.