Our Consumer Protection/FTC team is examining the Federal Trade Commission’s Made in USA labeling rule and the lessons businesses can learn from the remedies sought by the FTC in its first enforcement action.
- The rule requires companies to be able to substantiate unqualified claims that a product is “Made in the USA.”
- FTC enforcement action imposes more than $105,000 in civil penalties, more than three times the company’s profits on the products at issue
- The Made in USA rule applies to promotional materials, not just the physical label of a product
On April 12, 2022, the Federal Trade Commission (FTC) filed its first complaint and proposed a stipulation order in federal court exercising its authority under its 2021 Made in USA labeling rule. The complaint alleges that a battery retailer affixed “Made in USA” labels to its products and claimed the same on social media and in other advertisements when it knew its products included “imported components important”. The complaint also named the business owner individually. If approved, the stipulated order will require the parties to refrain from misrepresenting the country of origin of their products and pay civil penalties of $105,319.56—thrice corporate profits attributable to his allegedly illegal acts.
The Made in USA Labeling Rule
The FTC’s Made in USA labeling rule went into effect on August 13, 2021 and prohibits claims that a product was made in the United States. unless:
- Final assembly or processing of the product takes place in the United States,
- All major processing that goes into the product takes place in the United States, and
- All or nearly all of the product’s ingredients or components are manufactured and sourced in the United States.
The rule was enacted under FTC Section 5a, 15 USC 45a – a section added by Congress in 1994 to allow the FTC to create rules governing the use of “Made in the USA” labels. or “Made in America”. It should be noted that despite Article 5a specifically stating that the law would only apply to “labels[s] or equivalent”, the rule applies the term more broadly than the labels located on the packaging of a product and extends it to “mail-order catalogs” and “mail-order promotional material”, that it defines as including:
any material, used in the direct sale or direct offer for sale of any product or service, which is disseminated in print or electronically, and which solicits the purchase of that product or service by mail, telephone, courier electronic or other method without examining the actual product purchased.
The rule therefore governs any “seal, mark, label or stamp labeling a product made in the United States” both on the packaging of a product itself as well such as in advertising and marketing materials. The rule was not unanimously approved. Both Republican commissioners voted against. Commissioner Christine S. Wilson issued a dissenting opinion arguing that when Congress enacted Section 5a, it intended to extend regulatory authority only to these labels on a product— and not claims made in advertising or marketing materials in general. Wilson’s concerns echo those Commissioner Noah Joshua Phillips voiced in a similar dissent in June 2020, when the FTC issued the notice of the then-proposed rulemaking.
Although the rule provides the FTC with enhanced remedies for violations, including civil penalties of up to $46,517 per violation, the substance of the rule reflects the FTC’s enforcement policy statement on claims of American origins, which has been in effect since 1997, including the “all or substantially all” standard. The 1997 policy statement specified that “for a product to be considered ‘all or substantially all’ manufactured in the United States, final assembly or processing of the product must take place in the United States.” The FTC would also consider other facts, such as “the portion of the product’s total manufacturing costs that is attributable to parts and processing in the USA”. and how far away from the finished product is any foreign content. The FTC has found that claims that do not meet this standard violate Section 5 of the FTC Act. The FTC continues to refer to the 1997 policy statement as a guide on how to navigate the 2021 Made in USA labeling rule.
The FTC’s first enforcement action
On April 12, 2022, the FTC filed a lawsuit against a Florida-based battery retailer, Lithionics Battery LLC, and its owner, Steven Tartaglia, in the Middle District of Florida. On the same day, the FTC filed a stipulated order to settle the allegations in this complaint.
The complaint alleges that between 2018 and August 2021, Lithionics affixed a label to its products featuring an American flag in conjunction with the words “Made in USA.” Similar images and depictions have been found on social media and Lithionics marketing materials. For example, the Lithionics website claimed that the battery systems sold were “designed and manufactured in [their] Factory in Clearwater, Florida, USA. Lithionics also published a chart in its marketing materials comparing its products to “imports”, highlighting to customers why Lithionics battery systems were better than other imported products. In videos posted on the Lithionics YouTube page, Tartaglia himself described the company’s practice of printing Made in USA labels and applying them to Lithionics products. These statements were made while the import documents listed Tartaglia “as the consignee and point of contact for receiving Lithionics’ shipments of lithium energy storage batteries arriving from Hong Kong.” Because Lithionics batteries incorporated other important imported components, the FTC says these country of origin statements were false, violating both the Made in USA labeling rule and Section 5 of the FTC Act. .
The FTC’s proposed settlement illustrates the breadth of remedies the FTC may seek under the rule. If approved by the court, the FTC’s order would, among other things, prohibit defendants from making misleading claims about the country of origin of Lithionics products and require defendants to pay jointly and severally civil penalties of $105 $319.56. The proposed order does not provide remedies for consumers. However, it requires defendants to inform consumers who purchased Lithionics’ batteries between August 13 and August 30, 2021 that the products were “not all or substantially all ‘Made in the United States,'” but rather “contain major imported components, including, in the case of battery and battery module products, imported lithium-ion cells. August 13-30, 2021 is the period between the finalization of the Made in USA labeling rule and the date that defendants ceased affixing their own Made in USA labels to Lithionics products.
While the Lithionic the case features the traditional product label that Congress might have had in mind when it enacted Section 5a of the FTC Act, the FTC’s citation of representations on the YouTube page of the company and marketing materials certainly illustrate Wilson and Phillips’ concerns about the FTC’s broad application of the rule. To avoid liability under the rule and the resulting civil penalties, companies must ensure that they are able to substantiate country of origin claims on any label or packaging or in any advertising or marketing materials. in accordance with the three elements of the rule. .
Download the PDF of the notice