September 21, 2021

Volume XI, Number 264


September 20, 2021

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FTC Responds to Rampant Made in USA Fraud

The U.S. Federal Trade Commission (FTC) recently finalized a rule, which became effective August 13, 2021, to deter what the FTC refers to as “Rampant Made in USA Fraud.” The rule does not impose any new requirements on advertisers, but codifies the FTC’s long-established enforcement policy regarding unqualified claims that (i) expressly state products are of U.S. origin (e.g., “Made in USA”) or (ii) imply products are of U.S. origin. The rule signals to advertisers that U.S. origin claims will continue to be an enforcement priority for the FTC. Further, under the new rule the FTC may now seek civil penalties of up to $43,280 per violation. Accordingly, advertisers should confirm they meet certain requirements prior to making any express or implied claim that products are of U.S. origin.

Before this rule, the FTC promulgated guidance to advertisers for making unqualified U.S. origin claims, and until now, it enforced such claims under Section 5 of the FTC Act, which generally prohibits unfair and deceptive advertising. Under that authority, the FTC pursued significant remedies for advertisers wrongly touting U.S. origin claims, and recently obtained a $1.2 million settlement against a glue manufacturer alleged to have falsely claimed its products were “Made in USA.”

Consistent with prior FTC guidance, the new rule codifies the principle that any unqualified claim, express or implied, that a product, service, or specified component thereof, is of U.S. origin, must contain no more than a “de minimis” or “negligible” amount of foreign content. More specifically, product labels and advertising may not contain an express or implied unqualified U.S. origin claim about a product, service, or specified component thereof, unless:

(1) 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.

Notably, the FTC declined to define the “all or virtually all” element in the rule, and acknowledged there is no bright line rule for determining whether that has been met. Rather, the FTC’s prior guidance, orders, and staff closing letters will serve as guidance to assess this element. Specifically, the FTC will continue to consider a number of factors, including “the portion of the product’s total manufacturing costs attributable to U.S. parts and processing; how far removed from the finished product any foreign content is; and the importance of the foreign content to the form or function of the product.”

The new rule does not cover qualified claims (e.g., those indicating the amount of U.S. content, that parts or materials are imported, or claims about specific processes or parts). The FTC will continue to enforce such qualified claims under its general authority under Section 5 of the FTC Act, and advertisers should still consult the FTC’s prior guidance before making qualified claims of U.S. origin.

In any case, advertisers should carefully assess whether their labels or advertisements make an express or implied claim of U.S. origin, and if yes, whether it complies with the FTC’s new rule and prior guidance.

©2021 Pierce Atwood LLP. All rights reserved.National Law Review, Volume XI, Number 228

About this Author

Kasey Boucher Associate Pierce Atwood Business Mergers & Acquisitions, Technology Transactions & Outsourcing Trademark Intellectual Property & Technology

Kasey Boucher is an intellectual property and business attorney, and works with clients of all sizes, ranging from early-stage companies to leading companies within their respective industries.

Kasey represents clients on all aspects of trademark matters, including searching, prosecuting, and enforcing trademarks and brands. She assists clients with the protection, enforcement, and licensing of copyrights. In addition, Kasey advises companies on various aspects of advertising and unfair competition laws, including advertising claims, sweepstakes and contests, as well as consumer...

Jonathan Gelchinsky Trademark Lawyer Pierce Atwood Law Firm

Jon Gelchinsky specializes in the protection and enforcement of trademark rights for businesses of all sizes. His diverse trademark practice includes counseling clients on the selection of new marks, clearance searching, U.S. and international registration, licensing, enforcement, oppositions, and litigation. He also assists clients with the protection, enforcement, and licensing of copyrights. Over the past two decades, Jon has represented a wide range of clients in a variety of industries, including consumer products, musical instruments, medical devices, pharmaceuticals, computer...

Matthew D. Stein Partner Portland ME Technology Transactions & Outsourcing, Intellectual Property & Technology

Social networking, cloud computing, software development and licensing, data and application hosting, data privacy and security mean that today's businesses, large and small, face an increasingly complex and competitive landscape in the new information economy. Matt Stein understands the real world challenges and opportunities presented by these emerging technologies and provides clients with thoughtful, pragmatic advice in the areas of copyright, trademark, licensing, data privacy and security, rights of publicity and information technology.

Matt focuses his practice on two key...

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