The U.S. Federal Trade Commission (FTC) recently imposed a $2 million penalty against an agricultural and industrial equipment company for falsely claiming that certain of its products are “Made in USA.” This is the seventh such penalty since August 2021, when a new rule that enabled the agency to seek civil penalties for false, unqualified U.S.-origin claims went into effect. The penalty reflects the FTC’s more aggressive approach to enforcement in this area. Additional details about the company and the penalty are available in the FTC’s blog post. We have provided below a summary of the facts and an overview of some key takeaways.
The company involved manufactures and distributes various types of equipment, such as lawn mowers, tractors, and utility vehicles, in addition to associated replacement parts. The FTC alleged that thousands of replacement parts were labeled as “Made in USA” when, in fact, the parts were manufactured overseas and imported into the United States. The company had recently moved manufacturing of certain parts from the United States to other countries but failed to update the labeling of those products after moving production. The company was alleged to have sold millions of parts with false Made in USA labels.
It is worth emphasizing that although U.S. customs law requires every article of foreign origin to be marked with its country of origin, U.S.-origin claims are voluntary (except when required for automobiles, textile, wool, and fur products). If a U.S.-origin claim is made, it must meet the FTC’s rules and standards.
The FTC’s standard for making unqualified U.S.-origin claims, such as “Made in USA,” is very high. Such claims are permitted only if:
- final assembly or processing of the product occurs in the United States;
- all significant processing that goes into the product occurs in the United States; and
- all or virtually all ingredients or components of the product are made and sourced in the United States.
The FTC codified this standard, known as the “Made in USA Labeling Rule,” in its regulations in August 2021.1 By codifying the standard in regulations, it became easier for the FTC to impose monetary penalties on companies that fail to comply. Under the regulations, the FTC may seek civil penalties of up to $51,744 per violation for making false, unqualified Made in USA claims. A violation can be each label, claim, etc.
This recent FTC penalty action is noteworthy for several reasons. First, it is the largest penalty assessed for a violation of the FTC’s Made in USA Labeling Rule since it went into effect in August 2021. It is also the seventh penalty assessed since this rule went into effect and, therefore, further reflects a shift in the FTC’s approach to Made in USA enforcement. Historically, the FTC focused on having the company correct the issue going forward and not on imposing penalties. Since August 2021, however, the FTC has assessed more than $4.3 million in penalties. In short, enforcement actions are increasing in number and in the severity of consequences.
In view of the heightened enforcement activity, companies that make U.S.-origin claims (whether on the products or in advertising) should ensure that the products involved satisfy the FTC’s rules and standards. This is particularly important for companies that have relocated portions of their supply chains in recent years due to the global pandemic, geopolitical issues, or otherwise.
1 See 16 C.F.R. Part 323. This standard is based on the FTC’s longstanding Enforcement Policy Statement on U.S. Origin Claims (December 1, 1997).
