Most of our posts regarding “Made in USA” claims relate to FTC investigations and enforcement actions. Private plaintiffs, however, also closely watch those claims. For example, in 2018 plaintiffs filed a class action lawsuit against New Balance Athletics Inc. challenging qualified “Made in USA” claims. Although the plaintiffs acknowledged that New Balance qualified the claim in some places to indicate that the domestic value is at least 70%, they alleged that the general impression is that the products are American made. To resolve that litigation, a California federal judge recently granted preliminary approval to a proposed $750,000 settlement.

In Dashnaw v. New Balance Athletics, Inc., consumers alleged that New Balance mischaracterized its line of “Made in USA” sneakers because as little as 70% of the product was made with domestic components or labor. The claim appeared in advertising, on the shoes, and on the shoe boxes. The complaint acknowledged that New Balance disclosed in some places that its “Made in USA” sneakers contain a domestic value of 70% or greater, but alleged that an “Made in USA” claim appeared in places like the shoe and the shoe box. Because 30% of the value of those shoes could be attributed to a foreign country, plaintiffs alleged that the claims violated both California law, requiring that foreign materials must not exceed 5% of the final wholesale value, and FTC guidelines, stating that a product must be “all or virtually all” made in the United States.

The case was transferred from state court to the U.S. District Court for the Southern District of California, where the parties initiated settlement discussions. In April, the parties proposed a settlement of $750,000, with $215,000 going to settlement administration costs and compensation and $535,000 to consumers, with each consumer receiving up to $10. Judge Lorenz denied the settlement stating that the proposed amount was not enough for the estimated 1 million class action members. In response, the parties explained that a 5% participation rate among class members would result in full compensation and even with a 10-15% participation rate, each class member would receive 35-50% of the maximum damages the class could receive at trial, which they called a “reasonable settlement amount.” Judge Lorenz granted preliminary approval to the proposed settlement of $750,000 on January 25, 2019.

This case reminds advertisers that when using a disclosure to qualify a Made in USA claim or any other claim, the disclosure must appear consistently to maximize effectiveness. The FTC has also cautioned that even qualified claims may imply more domestic content than exists, so advertisers should avoid qualified claims unless the product has a significant amount of U.S. content or U.S. processing.

The FTC’s “Hey Nineteen” blog post caught our attention this past week, and not just for its witty title. One of those reasons is the reference to continued interest in “Made in USA” claims.  As we’ve written about here, “Made in America” has been a frequent enforcement target in recent years and 2018 generally continued this trend.  Here’s how it stacked up:

The FTC completed 25 investigations, settling four enforcement actions and issuing 21 closing letters.

Similarly, in 2017 the FTC settled two enforcement actions and issued 22 closing letters. All indications are that these trends will continue in 2019.

So what can companies do to avoid being the subject of an upcoming FTC Business Center blog post? Here are some tips:

Tip #1: Audit Inventory Management Systems and Processes

Mistakes can launch FTC investigations, as one company learned this past year.

In response to inquiries from the FTC, Prime-Line Products Company, a maker of corner shields, stated that after depleting its inventory of US-made corner shields, it substituted identical imported corner shields. Then, apparently inadvertently, the company continued to apply the “Made in USA” label.

Eventually, the FTC closed its investigation without bringing an enforcement action against the company. But the case serves as a reminder to companies employing the “Made in USA” label to closely manage inventory.  If only a percentage of supply is sourced to the US, companies should create internal processes to avoid mislabeling inventory.

Of course, inventory management can become challenging, especially when working with multiple dealers, distributors, or resellers that may not be familiar with inventory changes. Companies should proactively develop a compliance plan to ensure marketing remains accurate in all sales channels.

Tip #2: Train Employees

Employees, from marketing and sales to the warehouse floor, are the first line of defense against false “Made in USA” claims. Employees should be aware of when “Made in USA” claims may be made, and should be trained on processes for alerting management if they observe any inadvertent errors.

As detailed in multiple closing letters, companies targeted by FTC investigations told the FTC that they would retrain staff on proper, non-deceptive claims. This common-sense approach is advisable for all companies.  All training materials should conform to the standards laid out by the FTC in its Complying with the Made in USA Standard guidance, but should also be practical and easy-to-use.  Checklists, webinars, and workplace posters are good options for educating a company’s workforce.

Tip #3: Qualify Advertising Claims

Last year’s cases show that investigations skewed toward plain, unqualified “Made in USA” claims. Qualified claims, which provide more detail about a component made domestically or process that occurred domestically, may take up more space or obscure a company’s marketing message.  Nevertheless, when it comes to “Made in USA” labeling, accuracy counts.

In one example from the last year, The Gillette Company, LLC, was the target of an FTC inquiry due to its “Boston Made Since 1901” advertising. The FTC closed its investigation, but the example is instructive.  Gillette has deep roots in Boston and sought to use this information in an advertisement.  But without a qualification, the FTC viewed the advertisement as asserting that all of Gillette’s products are made in the US.  Gillette stated that it would re-focus its advertising campaign to highlight its Boston-based employees and manufacturing and the FTC closed the matter.

Tip #4: Size Doesn’t Matter

When it comes to enforcement of the “Made in USA” standards, there is no safe harbor for small businesses. Companies large and small were the target of investigations in 2018.

That included large companies, like Hallmark Cards, Incorporated, and IKEA Purchasing Services (US), Inc. The FTC closed investigations into each of these companies via a closing letter, without further action.

Meanwhile, the FTC’s major enforcement actions of the year were primarily against small or mid-size companies. Underground Sports Inc. d/b/a Patriot Puck imported just 400,000 hockey pucks since January 2016, but faced a significant enforcement action.  Notably, American-made claims featured prominently in these companies’ advertising.  Indeed, their conduct was so objectionable, that following announcement of these settlements, discussion has arisen regarding monetary penalties for false “Made in USA” claims.

Tip #5: Act Now!  Financial Penalties May Be Coming

FTC commissioners are very publicly debating the merits of imposing financial penalties for false “Made in USA” claims.

A leading advocate has been Commissioner Rohit Chopra, who argued in a dissent that settlements have been too lenient and are not deterring similar conduct.  But, as reported in December in this blog, Chairman Joseph Simons too is focused on the potential need to impose monetary relief.  At a hearing before the Senate Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security, Simons said, “Now we’re exploring whether we can find a good case that would be appropriate for monetary relief to serve as an additional deterrent.”

Given the political interest in increasing the penalties for false claims, companies may want to (make and actually stick to) a New Year’s resolution to make sure their “Made in USA” claims are substantiated. If you’re new to this area or need a refresher, check out our webinar and materials here.

On November 27, the FTC Commissioners testified on a range of issues before the Senate Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security. One excerpt that caught our attention was their comments on “Made in USA” advertising and the potential for increased scrutiny.

Here’s an excerpt of the Q&A between Sen. Shelly Moore Capito (R-WV) and the FTC Commissioners (emphasis added):

CAPITO: Okay, last question I have on fraudulent marketing would be the… fraudulent Made in America label. How prevalent is this? And what are some of the means you’re going to try to curb this practice?

SIMONS: This is fairly prevalent. We get hundreds of these, hundreds of complaints a year, that people are improperly using the Made in the USA label. We are committed to investigating those, and usually a lot of times what happens is the firm, the company doesn’t even realize that it’s a violation. So we explain to them it’s a violation and they stop it.

Sometimes companies do it intentionally, sometimes we tell them and they don’t stop and those people we sue. And one of the things that we’re exploring now, as a general rule, we have only gotten injunctive relief in cases like this previously. Now we’re exploring whether we can find a good case that would be appropriate for monetary relief to serve as an additional deterrent.

CHOPRA: I just want to add here that I think there are manufacturers out there who hire American workers and who purposely do that because they want to put the flag on their product. And for those who lie, this cheapens the Made in the USA label so it’s not just hurting American consumers, it’s hurting every American manufacturer who is trying to do right. So I want us to be much more aggressive with this, actually. And if you and Senator Cortez-Masto want to team up, finding civil penalties for some of these bad actors, we can make sure we increase compliance levels. And I got to tell you — right now there’s a country of origin labeling issues in agriculture, country of origin issues in product marketing. We have to do more to put a stop to this because this is extremely unfair to honest companies.

Continue Reading FTC Testimony Signals Possible Increase in “Made in USA” Advertising Scrutiny

The U.S. Senate Committee on Commerce, Science, and Transportation has scheduled a reading this week of the proposed S. 118 Reinforcing American-Made Products Act of 2017.   The bill proposes to amend the Violent Crime Control and Law Enforcement Act of 1994 to require the Federal Trade Commission’s regulation of the labeling of products as “Made in the U.S.A.” or “Made in America” to supersede any state laws regarding the extent to which a product is introduced, delivered, sold, advertised, or offered for sale in interstate or foreign commerce with such a label in order to represent that the product was in whole or substantial part of domestic origin.  The bill’s sponsors include the following: Sens. Mike Lee (R-Utah), Shelley Moore Capito (R-W.V.), Susan Collins (R-Maine), Deb Fischer (R-Neb.), Angus King (I-Maine).

The FTC has been a consistent enforcer of its “Made in USA” advertising policies in recent years, having issued 57 investigation closing letters between 2014 and 2016 alone. In 2017, the agency has already released ten closing letters regarding “Made in USA” claims to companies selling everything from pillows to water filters to standing desks. As domestic manufacturing has received more attention from the Trump administration, many companies are wondering whether they can say their product is “Made in the USA” and, for some, whether they can sell that product to the government under the provisions of the Buy American Act.

We will tackle just these issues in our upcoming webinar “Buy American, Hire American: Is Your (Or Your Competitor’s) Product Really ‘Made in the USA’?” on Wednesday, May 17, at Noon-1:00 Eastern.  More information and registration details are here.

Massachusetts-based New Balance has long made “Made in the USA” a cornerstone claim for their athletic wear.  The graphic below, from the company’s website, explains exactly what New Balance means by “Made in the USA” – but recently, the company has taken further steps to make clear the importance of this claim to their brand.

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As reported on NPR, New Balance has developed a shoe that is 100% made in the USA.  However, the company fears that the potential finalization of the Trans-Pacific Partnership (TPP), an international trade agreement that would reduce or eliminate tariffs for certain goods flowing to and from the U.S. and eleven other countries, including countries where many competitors make athletic shoes, could create new competitive pressures.  Because of the TPP, tariffs on shoes from countries such as Vietnam will eventually be eliminated, thereby making it cheaper to bring those products to the U.S.  Per New Balance’s argument, this would make it harder to compete with its U.S.-based factories – thus, the decision to oppose the deal.  Notably, TPP has yet to be finalized and there are hotly-contested views regarding trade on both sides of the political aisle.

This is just one example in which a trade deal can impact a company’s business decisions, including advertising claims.  If your company is interested in learning more about the potential impact of the TPP on your business,  please contact us to learn how Kelley Drye’s nationally-ranked International Trade Practice Group can help.

This week, the FTC filed a lawsuit against Chemence, Inc., alleging that the company is misleading consumers by claiming that many of their glues are made in the USA.

In order for a company to make an unqualified “Made in USA” claim, a product must be “all or virtually all” made in this country. Although Chemence advertised that its glues were “proudly made in the USA,” the FTC alleges that a significant proportion of the Chemencecosts of the chemical components of the glues – approximately 55% – are attributable to imported chemicals that are essential to the glues’ function. Therefore, the company has fallen far short of the “all or virtually all” standard.

Chemence doesn’t just make its own products, though. The company also makes glues that are sold under retailer brand names, and it provides those retailers with marketing materials to help promote those glues. Because those marketing materials also include “Made in USA” claims, the FTC alleges that Chemence has provided others with the “means and instrumentalities” to deceive consumers.

As we’ve noted in previous posts – all of which were proudly written in the USA – the FTC has been actively investigating these types of claims. Most of those investigations, though, have ended in closing letters, with the companies agreeing to make modifications to their claims. This case demonstrates that there can be more serious consequences for failing to comply with the FTC’s standards.  

Last week, Lands’ End tried a second time to dismiss a “Made in U.S.A.” class action with the novel argument that, because the company had already reimbursed the plaintiff for the necktie she purchased, she is not injured and lacks standing.

As background, in October 2014, plaintiff Elaine Oxina filed the putative class action in the U.S. District Court for the Southern District of California, alleging that Lands’ End falsely represented that the necktie she purchased, which label states “Made in China,” was “Made in USA,” in violation of the Lanham Act and California’s Consumer Legal Remedies Act, Unfair Competition Law, and “Made in U.S.A.” statute. In June 2015, the court granted Lands’ End’s motion to dismiss the first amended complaint (which omitted the Lanham Act claim), concluding that Ms. Oxina lacked standing to bring the case under California’s “Made in U.S.A.” statute because Lands’ End made the alleged “Made in U.S.A.” representation online, and the statute applies only to “Made in U.S.A.” claims that appear on the merchandise or the merchandise’s container.

Not easily discouraged, Ms. Oxina filed a second amended complaint at the end of July, alleging that Lands’ End violated California’s consumer protection statutes in general by deceptively advertising a product labeled as “Made in China” as “Made in U.S.A.” Additionally, she claims that she sent Lands’ End a letter in June demanding that the company initiate a corrective advertising campaign and alert affected customers, but it did not comply with her request.

In the motion to dismiss filed last week, Lands’ End argues that, because the company sent Ms. Oxina a refund check for the purchased necktie, plus interest, eight days before she filed the second amended complaint, she lacks the injury necessary to file an action for damages, and therefore lacks Article III standing. Although “Made in U.S.A.” class action lawsuits are popular in California right now, it will be interesting to see whether Lands’ End’s argument passes muster, and whether companies can avoid an alleged violation – of California’s “Made in U.S.A.” statute or its consumer protection statutes in general – by simply reimbursing the aggrieved consumer.