Remember that old song chorus that goes “you don’t tug on Superman’s cape, you don’t spit into the wind”, among some other not-so-good ideas? Let me add one more: you don’t claim products are “Made in USA” if they’re actually imports that were made elsewhere.
That seemingly obvious point was brought home in the Federal Trade Commission’s recent settlement of its complaint against iSpring Water Systems, LLC. That company sold its water filtration products through internet sites, advertising them as “Built in USA”. According to the FTC’s complaint, however, “in many instances, Respondent’s products are wholly imported. In other instances, Respondent sources significant inputs to its products from overseas.”
The FTC considered these statements to constitute “false or unsubstantiated representations” that the advertised products “are all or virtually all made in the United States”, in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. §§ 41-58. That statute prohibits “unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce”, and gives the FTC enforcement authority.
Assuming that the assertions in the complaint are true, characterizing foreign-made articles as “Built in USA” would appear to misrepresent their origin. It’s not enough that the vendor is located in the U.S., or the goods are present in this country when offered for sale. Since imported articles must be marked with their correct country of origin, there may be a related U.S. Customs and Border Protection concern here as well.
State of Confusion
A less obvious point is that even products made in the United States may not qualify for an unqualified claim of being “Built in USA” or the equivalent. Instead, the FTC has established several requirements that products must meet before being labeled this way. As summarized in the complaint, these are that “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.”
If a product does not meet these standards, it may be advertised with a “qualified” origin claim. This must take the form of a “clear and conspicuous” statement “that accurately conveys the extent to which the product contains foreign parts, ingredients, and/or processing.”
These FTC guidelines are restrictive. The agency has never issued regulations to formalize them, nor does it issue interpretive rulings. Thus, domestic producers that use imported materials and components must determine on their own whether their products meet the “all or almost all” standard and to what extent any processing outside the United States is “significant”. Providing a qualification (for example, “Product Assembled in United States with Domestic and Foreign Components”) will give a sort of safe harbor, as long as the representations are correct.
The Settlement Agreement Provides General Guidance
A better understanding of the FTC’s position can be gleaned from enforcement cases, such as iSpring. The settlement agreement sets forth requirements the company must meet to avoid running afoul of the FTC in the future.
It cannot, of course, continue to misrepresent its products’ origin. Products made in the United States with imported materials must include a factually-correct qualification. Additionally, iSpring must have “a reasonable basis” for any representation it makes “regarding the country of origin of any product or service” and maintain supporting records.
While these terms were adopted to resolve a specific controversy, they also give general guidance to domestic manufacturers on how to structure and document their products’ origin claims. Notwithstanding the arguably imprecise standards it has adopted, the FTC expects origin claims to be correct. Even an origin claim that the FTC considers incorrect may be treated less harshly if a party had a “reasonable basis” for making it and provides support documentation.
The Federal Register notice announcing the settlement and seeking public comments is available here.
