December 9, 2022

Volume XII, Number 343

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FTC Takes First Actions Under New Made in USA Labeling Rule, Fining Battery Companies for Violations

The Federal Trade Commission (FTC) recently cracked down on Lithionics Battery, LLC, and Lions Not Sheep Products, LLC, for violating the FTC’s Made in USA Labeling Rule. These are some of the first enforcement actions after the FTC codified its longstanding informal Made in USA guidance, which makes it easier for the FTC to seek damages and levy fines. Under the proposed settlement, Lithionics will pay a $100,000 fine for falsely labeling batteries as US-made, while Lions Not Sheep will be required to pay $211,335 for falsely labeling clothing as US-made. 

The Made in USA Labeling Rule

Under the Made in USA Labeling Rule, marketers suspected of making unqualified Made in USA claims must prove that their products:

  1. are all or virtually all made in the US;

  2. that all significant processing occurred in the US; and

  3. that the final assembly occurred in the US.

Although Congress enacted legislation authorizing the FTC to seek relief for Made in USA fraud almost thirty years ago, the FTC long remained silent on enforcement due to a general consensus that this specific type of fraud should not be penalized. The 2021 Made in USA Labeling Rule alters this perspective, codifying the FTC’s enforcement policy. With the Commission now being allowed to levy fines, seek damages, penalties, and/or redress on marketers who deceptively and fraudulently represent that their products are made in the US, the FTC has stepped up its enforcement efforts.

The FTC’s Recent Allegations with Lithionics and Lions Not Sheep

Lithionics

Lithionics is a Florida-based company best known for its battery products. The company has become a regular brand throughout American households. It designs and sells products for vehicles, as well as amusement parks.

The FTC alleged that Lithionics has been in violation of the Made in USA Labeling Rule since at least 2018 by intentionally misrepresenting the origin of Lithionics products. According to the Complaint, Lithionics’ products are labeled “Proudly Designed and Built in the USA” and feature an American flag. The claims were also featured across company websites, social media platforms, videos, and printed catalogs. However, according to the FTC, “all Lithionics battery and battery module products contain imported lithium ion cells” and “other significant imported components,” which, if true, would render Lithionics’ Made in USA claims false or unsubstantiated under the Made in USA Labeling Rule.”

Under the proposed order, Lithionics and its owner must stop making these claims unless they can prove their statements are true. As noted above, the company must also pay $100,000 for the alleged activity.

Lions Not Sheep

Lions Not Sheep is a self-proclaimed lifestyle brand that sells sweatshirts, hats, and shirts online.

In its allegations against Lions Not Sheep, the FTC alleged that the company has violated the Made in USA Labeling Rule since May 2021. According to the Complaint, the company intentionally removed tags disclosing that items were made in a foreign country. Instead of leaving the original tags, the FTC alleged that the company replaced them with Made in USA tags despite the products being “wholly imported with limited finishing work performed in the United States.” To make matters worse, the FTC found a video posted on the internet featuring the company’s owner blatantly claiming he could hide the fact that his shirts were made in China.

In addition to charging the company with violating the Made in the USA Labeling Rule, the FTC charged the company with violating mandatory country-of-origin labeling rules, which require all products covered by the Textile Act to include labels disclosing the manufacturer or marketer name and country where the product was manufactured. The company will be prohibited from making these claims and forced to pay $211,335.

Primary Takeaway

With the FTC now levying significant fines under the new Made in USA rule, the potential cost of non-compliance has also significantly increased. Companies should provide notice to their marketing teams and carefully review any existing claims to ensure that Made in USA claims are adequately substantiated and that marketing materials are not conveying unintended implied claims.

© 2022 ArentFox Schiff LLPNational Law Review, Volume XII, Number 196
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About this Author

Anthony V. Lupo Attorney Fashion and Technology Washington DC ArentFoxSchiff
CHAIRMAN

Anthony’s diverse client base includes Discovery Channel, Pixar, and Oprah Winfrey Network in the entertainment industry; Diane von Furstenberg, Yves Saint Laurent, Valentino, Fila, Lacoste, Diesel, and Christian Louboutin in the fashion industry; and Tesla, PlayStation, and LG in the technology space. For fashion and retail industry clients, Anthony often acts as their US general counsel. He hosts the number one fashion legal blog, Fashion Counsel, and Forbes recently recognized him as the ‘father of...

202-857-6353
Dan Jasnow Associate ArentFox Schiff LLP
Associate

Dan is a regulatory attorney who helps clients protect and promote their brands.

With a background in intellectual property, marketing, and trade practice regulations, Dan helps clients understand and mitigate risk as they develop and launch new products and services, expand into new markets, and engage with consumers in-store and online.

212-492-3302
Destiny Planter Attorney Copyright Law ArentFox Schiff Washington DC
Associate

Prior to joining ArentFox Schiff, Destiny was awarded the Frances Phillips Fellowship. She used this opportunity to work with the African Network for the Prevention and Protection against Child Abuse and Neglect and volunteer in orphanages in Kenya and Ghana. She then joined the Carolina College Advising Corps at Ben L. Smith High School in Greensboro, North Carolina, where she worked to increase the rates of college enrollment and completion among low-income, first-generation college and underrepresented high school students.

While in law...

202-857-6077
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