"Made in USA" Update: FTC Closing Letter Provides Guidance on the "All or Virtually All" Standard
Seller Beware: Consumer Protection Insights for Industry
As our readers know (see, e.g., here, here, and), under the FTC's Enforcement Policy Statement on US Origin Claims, companies can make "Made in USA" claims when "all or virtually all" of a product was made in the United States, or in other words, when there is no or negligible foreign content. To satisfy this standard, the final assembly or processing must take place in the United States. In addition, the FTC will look at factors such as:
- the portion of manufacturing costs attributable to foreign parts and processing,
- whether the foreign parts and processing are significant to the final product, and
- how far removed in the manufacturing process the foreign content is.
The FTC has declined to adopt a bright-line rule, such as the one recently adopted in California based on the percentage of the product's value attributable to foreign parts.
A recent FTC staff closing letter highlights the second factor: even an inexpensive component can preclude an unqualified Made in USA claim if the FTC considers it "essential" to the product's function. The product in question, a cloth diaper cleaning device, includes a foreign-made clip that is used to fasten the diaper to the device. Although the FTC acknowledged that the cost of the clip "may be small relative to overall manufacturing costs," it nevertheless concluded that the product's unqualified "Made in USA" claim could deceive consumers because "the clip is essential to the function" of the product. The manufacturer of the cloth diaper cleaning device agreed to take corrective action, including re-labeling the product with the qualified claim "Made in USA from US and Imported Parts."
The FTC's compliance guidelines provide some additional guidance to advertisers on when a component may be "essential" to a product's function. In one example, the FTC says that a grill could be labeled "Made in USA" even if its knobs and tubing are imported, because these are "insignificant parts of the final product." Similarly, if the plastic case for a clock radio is made of imported petroleum, but the radio is otherwise made in the United States of U.S. components, a "Made in USA" label would be appropriate because the petroleum is "an insignificant part of," and "far enough removed from," the finished product. Although knobs, tubing, and plastic cases are arguably "essential" in the sense that the products would not function well (if at all) without them, their contribution to the product's overall functioning is relatively minor. In contrast, the FTC's guidance says that an unqualified "Made in USA" claim would be deceptive for a table lamp with an American-made shade and a foreign-made base, in part because the base is "a significant part of the final product." Like the lamp, the diaper cleaner has a small number of parts, and the foreign-made part is a prominent part of the product with a major role in its functioning.
The lesson: Before making an unqualified "Made in USA" claim for a product with inexpensive foreign components, companies should carefully examine whether such components might nonetheless be considered essential to the product's function.
© Arnold & Porter Kaye Scholer LLP 2015 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.