The Federal Trade Commission recently enacted the Made in USA Labeling Rule and updated its “Complying with the Made in USA Standard” business guidance.  Both reinforce the “all or virtually all” standard. 

The following constitute key strategies that advertisers and manufacturers should consider when considering compliance and remediation programs, or when facing an FTC or state Attorney General investigation or lawsuit in connection with the marking, labeling, packaging, advertising and all forms of marketing of products that state or imply that such products were manufactured, made or assembled in the United States (in whole or in part) or that state or imply that such product was manufactured, made or assembled by United States labor (in whole or in part).

What is the Made in USA Labeling Rule?

In August 2021, the FTC finalized the Made in USA Labeling Rule that codified the “all or virtually all” standard for unqualified U.S. origin claims on product labels, as well as photos or depictions of such labels in online or other marketing, whether express or implied.  

The definition of label extends far beyond labels physically affixed to a product.  The Made in USA Labeling Rule also encompasses packaging, labeling, advertising, marketing (including, but not limited to, digital or electronic mechanisms, such as Internet, email or social media), promotional materials, mail order catalogues, mail order promotional material that include a seal, mark, tag or stamp that identify a product with an unqualified U.S.-origin claim.

Violators are subject to civil penalties exceeding $50,000 per occurrence of other monetary relief if they use an unqualified Made in USA label on a product that is not “all or virtually all” made in the U.S.

What is the Difference Between an Express and an Implied MUSA Claim?

“Made in USA” means 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.

In identifying implied claims, the FTC focuses on the overall impression the advertising, label, or promotional material conveys to consumers.  Depending on the context, U.S. symbols or geographic references, U.S. flags, outlines of U.S. maps, or references to U.S. locations of headquarters or factories may convey a claim of U.S. origin either by themselves, or in conjunction with other phrases or images.

What is the “All or Virtually All” Standard? 

The FTC requires that a product advertised as Made in USA be “all or virtually all” made in the U.S.  To meet the “all or virtually all” standard, a multi-factor test is applied.  

“All or virtually all” means that 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 of the product are made and sourced in the United States.  That is, the product should contain no - or negligible/de minimis- foreign content.

Additionally and in general, any foreign costs must be minimal, any foreign parts or materials must be used early in production, and any foreign parts or materials cannot materially affect how a product looks or works.

There is no specific percentage of foreign costs allowed under the “all or virtually all” standard. Even if foreign costs are well under 5%, an unqualified MUSA claim could still potentially be considered deceptive.  Basically, if a product includes any foreign content, there is risk to making an unqualified claim unless that content is extremely negligible. 

The percentage of content attributable to foreign costs or input is only one factor the FTC considers when analyzing whether MUSA claims are deceptive.  There are situations where the amount of imported content is de minimis from a cost perspective, but the input is important to the form or function of the product.

Unqualified Made in USA representations on labels are extremely dangerous.

Is There a Continuing Obligation to Ensure Compliance with the FTC Made in USA Labeling Rule and FTC Act?

Yes.

Advertisers and manufacturers have an continuing obligation to review express and implied Made in USA claims on markings, labeling, packaging, advertising and marketing materials, including, but not limited to, verbal or written statements, illustrations or depictions designed to effect a sale or create an interest in the purchasing of products or services, whether appearing in a brochure, newspaper, magazine, pamphlet, leaflet, circular, mailer, book insert, free-standing insert, letter, catalogue, poster, chart, billboard, public transit card, point of purchase material (including, but not limited to, a display or an item worn by salespeople), package insert, package label, fact sheet, film, slide, radio, broadcast or cable television, audio program transmitted over a telephone system, program-length commercial (“informercial”), and Internet advertising, email, or in any other medium, pages and information on websites (including, but not limited to, company websites). 

The continuing obligation to review claims of domesticity, including, but not limited to, manufacturing and design, pertains, without limitation, to the Made in USA Labeling Rule and to more general advertising claims governed by Section 5 of the FTC Act.  The former comes with hefty monetary civil violations, per violation.

A skillfully designed and implemented compliance assessment of your use of express and implied Made in USA representations (and other advertising-related representations) on affected marking, labeling, packaging, advertising and marketing materials by a client-focused FTC Made in USA lawyer is of paramount importance should an advertiser or manufacturer desire to avoid competitor complaints, consumer complaints and regulatory scrutiny that often lead to access letters, civil investigative demands and enforcement targeting MUSA claims.  Do not overlook the implementation of written policies and procedures surrounding Made in USA claims or policing the actions of dealers and distributors.

Be Careful About Claims Pertaining to Specific Processes or Parts

Claims that a particular manufacturing or other process was performed in the U.S. or that a particular part was manufactured in the U.S. must be truthful, substantiated, and clearly refer to the specific process or part, not to the general manufacture of the product, to avoid implying more U.S. content than exists.

Advertisers and manufacturers should be cautious about using general terms, such as “produced,” “created,” or “manufactured” in the U.S.  Words like these are unlikely to convey a message limited to a particular process.  Additional qualification is necessary to describe a product that is not “all or virtually all” made in the U.S.

Additionally, if a qualified claim references “U.S. parts,” the advertiser or manufacturer should be prepared to substantiate those parts are “all or virtually all” Made in USA.

Finally, if a product is of foreign origin - that is, it has been substantially transformed abroad -  advertisers and manufacturers also should make sure they satisfy Customs legal regulations that require such products to be marked with a foreign country of origin.

Assess the Factors the FTC Considers to Determine Whether a Product is “All or Virtually All” Made in the U.S. 

Final assembly or processing must take place in the U.S.  

The FTC then considers other factors, including the proportion of the product’s total manufacturing costs can be assigned to U.S. parts and processing, how far removed any foreign content is from the finished product, and the importance of the foreign content to the product’s form or function.

The percentage of domestic content in a particular product should be analyzed.  Advertisers and manufacturers should use the cost of goods sold or inventory costs of finished goods in their analysis.  Those costs generally are limited to the total cost of all manufacturing materials, direct manufacturing labor and manufacturing overhead.

FTC Made in USA (MUSA) Attorney Tip:  Costs do not tell the whole story.  Sometimes, only a small portion of the total manufacturing costs are attributable to foreign processing, but that processing represents a significant amount of the product’s overall processing.  The same could be true for some foreign parts.  In these cases, the foreign content – processing or parts – is more than negligible, and, as a result, unqualified claims are inappropriate.

When is an “Assembled in USA” Claim Appropriate?

A product that includes foreign components may be represented to be “Assembled in USA” without qualification when its principal assembly takes place in the U.S. and the assembly is substantial.  For the “assembly” claim to be valid, the product’s last “substantial transformation” also should have occurred in the U.S.  

Just Because a Product Undergoes Final Processing in the U.S. Does Not Mean That an Unqualified MUSA Claim is Appropriate

Advertisers and manufacturers should not assume that just because a product undergoes final processing in the United States that an unqualified MUSA claim is appropriate.  One must look at the supply chain and raw materials. 

If an advertiser or manufacturer is able to demonstrate that it completed the significant final manufacturing steps (“substantial transformation”) in the United States, then the product may not be considered to be imported.  However, that does not necessarily mean a company can make an unqualified statement of Made in USA in conjunction with marking, labeling, packaging, advertising or marketing.

Consult with an experienced Made in USA attorney if you are interested in the implementation of preventative compliance or remediation protocols, or if you are the subject of a Made in USA-related lawsuit or regulatory matter.

Assess Whether Foreign Content was Incorporated Early in the Manufacturing Process

Foreign content that is incorporated early in the manufacturing process may arguably be less significant to consumers than content that is a direct part of a finished product or the components produced by the immediate supplier.  To determine the percentage of U.S. content, advertisers and manufacturers should look back far enough in the manufacturing process to be reasonably sure that any significant foreign content has been included in their assessment of foreign costs.

Do Not Make Unqualified Made in USA Claims for Imported Products

Never make unqualified MUSA claims on/in labels, marking, packaging, advertising or marketing for imported products.  

Full stop.

What is a Qualified MUSA Claim and Why are They Important?

A qualified Made in USA claim is a lower-risk claim that describes the extent, amount or type of a product’s domestic content or processing.  It expresses limitations or explanations, and indicates that the product is not entirely of domestic origin.  For example, “Made in USA of U.S. and imported parts” or “Chair assembled in USA from Italian Leather and Mexican Frame.”

A qualified Made in USA claim may be appropriate for products that include U.S. content or processing, but do not meet the criteria for making an unqualified Made in USA claim.  For example, if a company’s product is last substantially transformed in the U.S. but does not meet the “all or virtually all” standard, in may – depending upon the circumstances – make a claim that highlight U.S. operations.  

Qualified claims may not imply more domestic content than was actually used to manufacture the product.  Qualified claims should be avoided unless the product has a significant amount of U.S. content or U.S. processing.  

The proper right wording of a qualified MUSA claim will depend upon the company’s marketing objectives and the product at issue.  Advertisers and manufacturers should seek the advice of a, FTC CID lawyer when making qualified claims in order to ensure compliance with applicable legal regulations.  As with unqualified Made in USA claims, unqualified claims must be truthful and substantiated.

FTC Made in USA Investigation and Enforcement are a Priority Under Current Administration

The Federal Trade Commission's Made in USA investigation and enforcement programs remain a priority under the current administration.  False or deceptive Made in USA claims can also lead to inquiries from, without limitation, state attorneys general and plaintiffs’ attorneys.

As a result, advertisers and manufacturers (even those that conduct significant manufacturing functions and create jobs in the United States) must be aware of the basic legal regulatory requirements, including, but not limited to ensuring that a reasonable basis exists for all express and implied representations and that all such claims are adequately substantiated.  Note, advertisers and manufacturers must possess such proof prior to disseminating any/all such representations.

The performance of manufacturing functions and the creation of jobs in the United States is something that advertisers and manufacturers may wish to lawfully promote.

Attempt to Limit Scope of Investigation to a Specific Product Line if a Regulatory Inquiry is Made

Advertisers and manufacturers should not indicate, expressly or implicitly, that an entire product line is of U.S. origin when only some products in the product line are made in the U.S. according to the “all or virtually all” standard.  In the event of a regulatory investigation, consider attempting to establish that the net impression of applicable domestic origin representations applies to specific products within a product line.

If a Regulatory Inquiry is Made Accentuate the Positive at Inception Even if Unrelated to Representations at Issue

If handled properly by an experienced Made in USA lawyer, informing FTC of state Attorneys General  staff about positive things that an advertiser or manufacturer has done to protect consumers and  create jobs in the U.S. may potentially mitigate liability exposure in the event of an investigation or an enforcement proceeding based upon MUSA claims.

For example and without limitation, consider the type of products at issue, good faith efforts to inspect and vet supplier operations, whether the advertiser or manufacturer has a reasonable basis for its claims (for example and without limitation, immediate supplier due diligence and verifications/certifications concerning the origin of the materials that it provides), whether the advertiser or manufacturer creates jobs in the U.S., and what remediation efforts have been implemented, whether there exist significant manufacturing functions in the U.S., and whether there are qualified claims for products that include U.S. content or processing.

In the Event of a Regulatory Investigation Examine Whether Mitigating Arguments Exist in the Event Final Assembly or Processing Does Not Take Place in the U.S.

The FTC does not consider other factors when determining whether a product is “all or virtually all” made in the U.S. unless final assembly or processing takes place in the U.S.  In some instances, however, assembly outside of the United States may constitute a de minimis finishing process.  While not a defense to an unsubstantiated unqualified U.S. origin claim, the totality of facts and content may lend themselves to mitigating arguments.

In the Event of a Regulatory Investigation Address Claims and Considerations That Fall Outside of the Labeling Rule

The FTC also investigates and prosecutes advertisers and manufacturers that make deceptive U.S.-origin claims that fall outside the Labeling Rule, pursuant to Section 5 of the Federal Trade Commission Act.  Express and implied claims must be properly substantiated.  There must exist a “reasonable basis” for claims before they are disseminated.  “Competent and reliable evidence” must exist to back-up claims.

The lack of a reasonable basis before an ad is disseminated violates Section 5 of the FTC Act.  Post-claim evidence of truthfulness is not exculpatory but may be considered for other limited purposes, depending upon context.

There is a continuing obligation to review claims (first-party and third-party distributors) to ensure properly substantiated – if something changes (e.g., begin sourcing components overseas) and no longer a reasonable basis to support claims (e.g., Made in USA), marketing materials must be updated.

In the Event of a Regulatory Inquiry or Enforcement Action Establish Why Civil Penalties and Enforcement are Not Warranted

Advertisers and manufacturers that falsely label their products as Made in USA may have to pay enhanced civil penalties or other monetary relief.  Civil penalties are a deterrent against Labeling Rule violations.

Civil penalties for violations of the Labeling Rule are assessed, per violation.  The nature of violations, including, but not limited to, actual or constructive (should have known) knowledge that the conduct wrongful and intent to act despite such knowledge are relevant.  The degree of culpability, history of prior conduct, size of company, ability to pay, effect on ability to continue to do business, and such other matters as justice may require may be considered.

The FTC can also seek redress, damages and other relief.  Contact an experienced FTC Made in USA lawyer to discuss strategies designed to minimize liability exposure in conjunction with the use of Made in USA claims.

Maintain Records Concerning Due Diligence About American Suppliers and the Content in the Components They Supply

Advertisers and manufacturers should never simply rely on information from American suppliers about the amount of domestic content in the parts, components, and other elements they buy and use for their final products.  However, if provided in good faith and appropriately addressed, advertisers and manufacturers may be permitted to rely on information from suppliers about the domestic content in the parts, components, and other elements they produce.

Depending on context, supplier-provided certifications may constitute a “reasonable basis” for claim substantiation purposes.  Rather than assume the input is 100% U.S.-made, however, advertisers and manufacturers would be wise to ask the supplier for specific information about the percentage of U.S. content before they make a U.S. origin claim.

FTC Made in USA (MUSA) Investigation Lawyer Tip:  Just because you buy parts from U.S. suppliers does not necessarily mean those parts are made in the USA.

In addition to obtaining certifications from suppliers, due diligence can also take the form of, without limitation, inspecting a supplier’s plant prior to initiating a business relationship in order to confirm it has capacity to manufacture the applicable product(s), terminating business relationships with suppliers that have provided a false declaration, policing third-party distributors in order to ensure that consumers are reasonably protected, routinely reviewing records to ensure the appropriate level of substantiation exists for all advertising claims, and quickly modifying marketing materials and packaging (including, but editing of photos) upon a change in circumstances that would impact the substantiation of claims.

Notably, imported products have different rules.  If your product is imported, look to U.S. Customs and Border Protection for information on how to label it, and make sure your advertisements are consistent with your labels.

You may also wish to consider maintaining careful records regarding the dates MUSA claims were disseminated and discontinued in the event that you discover a legal regulatory violation and want to attempt to limit potential liability exposure.

Do States Have Made in USA Legislation?

Yes.

Many states have adopted laws that govern the usage of Made in USA claims.  Some are consistent with the FTC “all or virtually all” standard.

In California, unqualified “Made in USA” claims are governed by Cal. Bus. & Prof. Code §17533.7.  Previously, California’s law basically required 100% of a product’s content to be domestically sourced in the U.S.  In 2015 the California legislature revised this standard to permit products sold in California to be marked as “Made in USA” or “Made in America” provided that the foreign materials or parts do not exceed 5% of the final wholesale value of the merchandise, or if the foreign components or parts do not constitute more than 10% of the final wholesale value of the product and the manufacturer can demonstrate that the foreign components or parts are unavailable in the United States.  The determination that the components or parts cannot be made, manufactured, produced, or obtained within the United States from a domestic source may not be based on the cost of the components or parts. 

The FTC has declined to include an exemption for materials that are unavailable in the United States.  Notably, the FTC has also refused to adopt a bright-line manufacturing cost percentage-based threshold, incorporate the “substantial transformation” standard used by the U.S. Customs and Border Protection in various instances, or provide a safe harbor for good faith compliance efforts.

Consult with an Experienced Made in USA Lawyer

The Federal Trade Commission means business when it comes to unqualified “Made in USA” claims.  That is why the FTC continues to investigate, initiate legal action and assess monetary penalties (and/or other monetary relief) against advertisers and manufacturers that engage in unfair or deceptive acts or practices in violation of Section 5 of the FTC Act of the Made in USA Labeling Rule.

Seasoned FTC and state Attorneys General Made in USA advertising counsel can assist with interpreting the Labeling Rule in the context of implementing compliance protocols, as well as an access letter, civil investigative demand or enforcement matter by applying these and other optimal defense arguments and strategies.