Client Alert - When a Manufacturer May Claim Its Products Are "Made in the U.S.A"
Country of origin markings inform consumers about the source of the goods they are purchasing. For political and other reasons, American consumers often wish to purchase goods that are 'MADE IN U.S.A.' The Federal Trade Commission ('FTC') has primary responsibility for regulating 'MADE IN U.S.A.' claims in the United States.
The Federal Trade Commission Act
The FTC regulates claims of origin in connection with all goods advertised and sold in the United States and prohibits misrepresentations regarding the geographic origin of goods which deceive consumers. The FTC is authorized to regulate claims of U.S. origin pursuant to Section 5 of the Federal Trade Commission Act.
Most of the FTC's regulatory efforts with respect to country of origin markings focus on claims of U.S. origin and the 'MADE IN U.S.A.' marking. The FTC will find a claim of origin in an advertisement, label or other promotional material deceptive if it contains a material representation or omission that is likely to mislead a reasonable consumer. The principles established by the FTC apply to all forms of marketing and promotional activities, including marketing conducted on the Internet or by e mail. The FTC regulates all products advertised or sold in the United States except for products specifically subject to the country-of-origin labeling requirements of the Textile Fiber Products Identification Act, the Wool Products Labeling Act, the Fur Products Labeling Act, and the American Automobile Labeling Act.
The 'All or Virtually All' Standard
Under the FTC's standard, an unqualified 'MADE IN U.S.A.' claim must be supported by a reasonable basis that the product is 'all, or virtually all,' made in the United States. To qualify, all of a product's significant parts and processing must be of U.S. origin, i.e., the product may only contain a de minimis or negligible amount of non-U.S. content. U.S. origin means made in the 'United States,' including the 50 states, the District of Columbia, and U.S. territories and possessions. A manufacturer must have competent and reliable evidence to support the claim that its product is 'all or virtually all' made in the United States. Manufacturers may not assume that content provided by suppliers is 100% U.S. made. It is advisable to ask suppliers for the percentage of U.S. content before making a U.S. origin claim.
A manufacturer should look back far enough in the manufacturing process to be reasonably sure that any significant content has been included in the assessment of non-U.S. inputs. Content originating outside the U.S. which is incorporated into a product early in the manufacturing process is less likely to be significant to consumers than such content that is a direct part of the finished product or its components.
The FTC does not impose an affirmative duty to mark goods 'MADE IN U.S.A.' even where the 'all or virtually all' standard is satisfied. However, in certain circumstances, failure to indicate origin may lead consumers to falsely conclude that the goods are of U.S. origin. For example, in Baldwin Bracelet Corp. v. Federal Trade Commission, 325 F.2d 1012 (C.A. D.C. 1963), a failure to indicate the origin of watch bands made of metal purchased in the United States exported to Hong Kong to be fabricated into watch bands, and finished in the Virgin Islands was found to be an 'unfair and deceptive act' under the Federal Trade Commission Act since, in the absence of markings to the contrary, consumers would assume the watch bands were of U.S. origin.
When is the 'All or Virtually All' Standard Satisfied?
As a threshold matter, the FTC requires that a product's 'last substantial transformation' has occurred in the United States. However, even where a product is last substantially transformed in the United States, if the product is thereafter assembled or processed outside the United States, the FTC may conclude that the product is not 'all or virtually all' made in the United States. In addition to this threshold inquiry, the FTC considers additional factors:
- The FTC considers the percentage of the total cost of manufacturing
attributable to U.S. and to non-U.S. costs. There is no fixed percentage
beyond which a product is considered 'all or virtually all' made in the
United States. This inquiry is made on a case-by-case basis. Manufacturing
costs include the total cost of all manufacturing materials, direct manufacturing
labor and manufacturing overhead. The FTC considers how far removed non-U.S.
content is from a finished product. Content that is further back in the manufacturing
process will generally be less significant to consumers. The FTC considers
how much of the total value of a finished product is attributable to non-U.S. content.
Types of Claims
A claim of U.S. origin may be an express claim such as 'MADE IN U.S.A.' or 'OUR PRODUCTS ARE AMERICAN MADE' or an implied claim created by the overall impression of an advertisement, label or promotional material which includes the juxtaposition of phrases and images, and the nature of the transaction. For example, U.S. symbols or geographic references, such as U.S. flags, U.S. maps, or references to U.S. locations of headquarters or factories, may convey a claim of U.S. origin in certain circumstances. A claim of origin may also be qualified , i.e., 'MADE IN U.S.A. OF U.S. AND IMPORTED PARTS,' 'MADE IN U.S.A. OF 65% U.S. CONTENT' or 'MADE IN U.S.A. FROM IMPORTED LEATHER.' Other types of claims include claims which refer to a particular manufacturing process such as 'ASSEMBLED IN THE U.S.A.,' or comparative claims such as 'CONTAINS MORE U.S. CONTENT THAN ANY OF OUR COMPETITORS.' All these claims must be truthful, substantiated, clear and specific enough so as not to be deceptive to consumers.
The FTC does not require pre-approval of 'MADE IN U.S.A.' claims; a manufacturer may make any claim as long as it is truthful and substantiated. In the past, the FTC has issued advisory opinions to manufacturers seeking advice on compliance with the 'MADE IN U.S.A.' standard. However, the FTC has not issued an advisory opinion in several years, and is steering away from this practice.
The FTC actively monitors 'MADE IN U.S.A.' claims made in print, broadcast, and Internet advertising, and on product labels, packaging, and products. Moreover, the FTC coordinates with state Attorneys General and with the U.S. Customs Service. Additionally, manufacturers are encouraged to report noncompliance with FTC regulations directly to the FTC by calling (202) FTC-HELP or by contacting the FTC by mail or email.
The FTC has entered into consent orders with manufacturers relating to violations of Â§ 5 of the Federal Trade Commission Act in connection with misrepresentations that their products are made in the United States when they actually contain content not originating in the United States. While the consent orders vary from case to case, the following principles are generally followed:
- Manufacturers are prohibited from misrepresenting the extent to
which their products are made in the United States.
- A 'safe harbor' provision allows companies to represent that the
products covered by the consent orders are made in the U.S.A. as
long as the 'all or virtually all' standard is satisfied. The consent orders
include recordkeeping requirements designed to assist the FTC
in monitoring compliance with the terms of the consent orders.
- The consent orders generally do not constitute an admission
by the manufacturer of a violation of the FTC's regulations.
- Violations of the consent orders may result in civil penalties of up to $11,000 per day.
Some federal statutes provide for mandatory country of origin markings on specific products, i.e., The Fur Products Labeling Act, 15 U.S.C.A. Â§ 69, The Textile Fiber Products Identification Act, 15 U.S.C.A. Â§ 70, The Wool Products Labeling Act, 15 U.S.C.A. Â§ 68, and The American Automobile Labeling Act, 49 U.S.C.A. Â§ 32304.
A cause of action for false designation of origin may also violate state law. For example, a California statute provides a state law claim against manufacturers who misuse the 'MADE IN U.S.A.' claim. Additionally, a false designation of origin may also be actionable under state unfair competition law.
Country of Origin Marking Requirements for Imported Goods
The United States Customs Service regulates country of origin markings on goods imported into the United States and defines the country of origin to be the last country in which a 'substantial transformation' of the goods took place. Additionally, the Lanham Act forbids the importation of goods bearing a name or mark calculated to induce the public to believe that an article manufactured abroad is manufactured in the United States, or that it is manufactured in a country other than the true country of manufacture. Finally, the North American Free Trade Agreement ('NAFTA') establishes preferential rules of origin and eliminates tariffs on goods 'originating' in the NAFTA region (the United States, Canada and Mexico). This client alert does not purport to cover these requirements, which may affirmatively require country of origin markings for imported goods.
Country of origin markings are regulated by various agencies and bodies of law. However, the FTC is primarily responsible for the regulation of goods advertised and sold in the United States as 'MADE IN U.S.A.' Generally, as long as a country of origin marking, including a 'MADE IN U.S.A' claim, is accurate and clearly stated so as to avoid deception to consumers, it will be found to comply with the law. Such markings must be founded and supported by reliable evidence. Compliance with the law will help to ensure that consumers know the origin of the products they are purchasing.