Reed Smith Client Alerts

On July 14, 2021, the Federal Trade Commission (FTC or Commission) published in the Federal Register (86 Fed. Reg. 37022-35) its Final Rule for “Made in USA” and other unqualified U.S. origin claims on product labels (the Rule). The FTC states that the Rule does not impose any new requirements on businesses, but it codifies the FTC’s long-standing enforcement policy statement regarding U.S. origin claims. The Rule will appear under a new part in the Code of Federal Regulations, 16 C.F.R. part 323. The purpose of the Rule is to prevent unfair or deceptive acts or practices relating to “Made in USA” product labeling. By codifying this guidance into a formal rule, the FTC believes it can increase deterrence of “Made in USA” fraud.

On July 16, 2020, the FTC published a Notice of Proposed Rulemaking seeking comments on the Rule. In response, the FTC received hundreds of comments. The Commission majority voting to approve the final rule believes that the Rule represents a proper exercise of the FTC’s rulemaking authority under 15 U.S.C. section 45 (a), and it provides clarity, deters bad actors, and confirms and codifies the “all or virtually all” standard.

In reaffirming the “all or virtually all” standard for domestic sourcing of content when making an unqualified “Made in USA” claim, the FTC rejected several proposed alternatives: (1) a percentage-of-costs standard; (2) a standard that makes allowances for imported parts or materials not available in the United States; (3) a Customs and Border Protection’s “substantial transformation” test standard; and (4) a standard that implements a safe harbor for “good faith” efforts to comply. Instead, the Rule codifies the Commission’s prior policy statement, decisions, and orders and prohibits unqualified “Made in USA” claims on labels unless (1) final assembly or processing of the product occurs in the United States; (2) all significant processing that goes into the product occurs in the United States; and (3) all or virtually all ingredients or components of the product are made and sourced in the United States.

FTC Commissioner Christine Wilson issued a dissenting statement regarding the Rule. Although Commissioner Wilson supports the FTC’s prosecution of “Made in USA” fraud, she believes that the Rule exceeds the authority of the FTC. According to Commissioner Wilson, the Rule is not supported by the plain language of 15 U.S.C. section 45(a), which Congress intended to extend to the rulemaking authority of “Made in USA” claims found on labels, not to claims made in advertising or marketing. The debate around the concept of labeling and of the Rule’s application may become an area of significance once the Rule becomes effective on August 13, 2021.

The Rule’s operative prohibition talks about “labeling” – not “advertising.” See 16 C.F.R. section 323.2. Then why is there a debate about whether the Rule is applied beyond labels? The Commission broadens application of the Rule by making it applicable to “any mail order catalog or mail order promotional material,” which includes a “seal, mark, tag, or stamp labeling a product Made in the United States.” 16 C.F.R. section 323.3. The Rule defines “mail order catalog and mail order promotional materials” as “any materials, used in the direct sale or direct offering for sale of any product or service, that are disseminated in print or by electronic means, and that solicit the purchase of such product or service by mail, telephone, electronic mail, or some other method without examining the actual product purchased.” 16 C.F.R. section 323.1(b). This definition would appear to place television and YouTube videos outside of the scope of the Rule, even if they would still be subject to an action under section 5 of the FTC Act for deceptive acts and practices. It may be that advertisements in social media are also outside the scope of the Rule. But clearly, the Rule applies beyond simply physical labels.