FTC Settlement Shows Agency Remains Focused on “Made in USA” Claims
The Federal Trade Commission has announced a proposed settlement and consent order in its investigation of a US-based water filtration company, iSpring Water Systems, concerning that company’s representations that its products are "Proudly Built in the USA," which is considered an unqualified "Made in USA" claim that the products were all or virtually all USA-made. These representations appeared on the company’s own websites, as well as those of other online retailers who sold the products. The FTC alleges that many of the company’s products were wholly imported and/or produced with significant foreign inputs, and therefore, the unqualified US-origin claims are false and misleading. While iSpring has neither admitted, nor denied, the allegations, it has agreed to drop the "Made in USA" references, and to make only qualified "Made in USA" claims which clearly and conspicuously identify the extent to which foreign parts, ingredients or processing are utilized. As with most FTC consent orders, the company has agreed that for a period of 20 years, it will comply with the FTC’s "Made in USA" policies, and that it will be subject to significant penalties for violating those policies.
This case, along with FTC’s successful prosecution of the recent US v. Chemence, Inc. case and nearly 100 “closing letters” issued by FTC over the past 2 years concerning investigations into "Made in USA" representations, illustrates that the FTC continues to devote significant resources towards the investigation of "Made in USA" claims. Consumer demand for American-made products is increasing exponentially, and companies are growing eager to source goods that are made domestically. Even prior to the inauguration of the new Administration and its emphasis on "America First," companies such as Fiat Chrysler, Carrier, and many others were moving at a fevered pitch to begin “reshoring” manufacturing operations to the US. While this is certainly a welcome boon to employment, and companies will want to jump on the bandwagon in terms of marketing their products as American-Made, there are tricky, and often vague, rules about when a company can use the phrase "Made in USA" (and similar claims) in advertising and on product labels and packaging. This will undoubtedly result in more scrutiny of such claims by the FTC.
The gold standard is the unqualified "Made in USA" claim, but the rules that allow "Made in USA" claims are not well-defined and are fraught with subtle complexities. As noted above, at the federal level, the FTC is increasing its enforcement activities (administratively and through litigation), and in California, the pace of consumer class action filings has not slowed despite recent "safe harbor" amendments to the California law. Moreover, while investment in production in the US will most definitely accelerate in the coming months and years, it is unlikely that every component of a product that is "made" in the US will also be domestically produced. As a result, unqualified "Made in USA" claims may be difficult to achieve; rather, qualified claims will often be required, such as "Made in USA of Imported Parts" or similar statements. The complexities associated with determining when a company can use an unqualified "Made in USA" claim involve detailed cost accounting analyses of production costs (labor, materials, and overhead), as well as "substantial transformation" analyses that focus on where, when, and how various components, parts, ingredients, and other constituents join together to form a finished product. Products from virtually all industries are affected by these rules, and include personal care products, electronics, machinery, textiles, glassware, home furnishings, lighting and electrical products, toys, footwear, luggage and accessories, paper goods, kitchenware, appliances, and many other product categories.
Arent Fox recommends that any company seeking to move production to the US perform a pre-preemptive due diligence analysis as to whether products manufactured in the US are eligible for unqualified "Made in USA" claims. Our firm is uniquely qualified to assist in "Made in USA" claim evaluations, including due diligence, audits, advertising reviews, and FTC and California compliance opinions.