November 4, 2013

Recent "Made in USA" Lessons

Seller Beware: Consumer Protection Insights for Industry,

Both the Federal Trade Commission (FTC) and National Advertising Division (NAD) recently announced actions involving Made in USA claims that provide important guidance for marketers of products touted as Made in the USA.

The FTC settled charges against E.K. Ekcessories, Inc., a maker of a wide range of accessories, including waterproof iPhone accessories, ID and credential holders, dog collars, and tow straps. In its complaint, the FTC alleged that E.K. Ekcessories not only made product-specific US origin claims on packaging, but also that it made US origin claims for all of its products. For example, E.K. Ekcessories' website featured an American flag logo with the phrase, "Truly Made in the USA" and its product catalog included statements such as "[O]ur source of pride and satisfaction abounds from a true 'Made in USA' product." However, the FTC alleged that many of the company's products contained substantial foreign content.

Under the FTC's USOrigin Claims Enforcement Policy Statement, before making an unqualified Made in USA claim for a product, the marketer must be able to substantiate that the product is "all or virtually all" made in the United States -- in other words, "all significant parts and processing must be of US origin, and the product should contain no (or negligible) foreign content." The FTC's complaint alleged three counts: (1) that E.K. Ekcessories made false or misleading Made in USA claims; (2) that E.K. Ekcessories lacked substantiation for Made in USA claims that it was making; and (3) by providing promotional materials to retailers for use in marketing its products, E.K. Ekcessories provided the "means and instrumentalities" to those retailers for committing deceptive acts. In addition to prohibiting E.K. Ekcessories from making deceptive US origin claims about its products in the future, the settlement requires the company to provide notice of the settlement to its distributors and provide them with stickers to cover up the Made in USA claims on product packaging.

In the NAD case, a consumer asked the NAD to review a print advertisement by STIHL Incorporated that featured 30 handheld power tools with the claim, "All These, Built in America." The claim included the following footnote: "A majority of STIHL Products are built in the United States from domestic and foreign components." The NAD concluded that a reasonable consumer could interpret "Built in America" to be an unqualified Made in USA claim, but that the featured STIHL tools contained sufficient US content and processing to be used in a qualified Made in USA claim under the FTC's Policy Statement. According to the NAD, the substance of the footnote was sufficient to qualify the claim because it adequately informed consumers about the amount of US content and processing; however, because the footnote was in very small type at the bottom of a full-page newspaper ad, it was not clear and conspicuous. The NAD recommended that the disclaimer be presented in a larger, more readable font and in closer proximity to the claim.

What should advertisers take away from the FTC and NAD actions? As noted in this Business Center post, US origin claims are important to consumers and deceptive claims risk an enforcement action. If the FTC does bring an enforcement action and believes that a Made in USA claim is deceptive, the Commission may require corrective actions with respect to existing product packaging. Before disseminating US origin claims, companies should ensure they have adequate substantiation to satisfy the FTC's standards and be cautious about where and how claims are made to minimize the risk that they leave consumers with the wrong impression.

© Arnold & Porter Kaye Scholer LLP 2013 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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