The Federal Trade Commission (“FTC”) recently settled an enforcement action against an advertiser for $753,000 for deceptive “Assembled in USA” product claims, the first such settlement following the FTC’s recent adoption of a new rule addressing unqualified “Made in USA” labeling claims. (See Made in USA Labeling Rule.)
Effective August 13, 2021, the new rule, codified at 16 C.F.R. Part 323, prohibits labeling any product as “Made in the United States” unless “the 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.” See id. § 323.2. The regulation is not limited to simply claims of “made” in the U.S., and instead defines “Made in the United States” as “any unqualified representation, express or implied, that a product or service, or a specified component thereof, is of U.S. origin, including, but not limited to, a representation that such product or service is ‘made,’ ‘manufactured,’ ‘built,’ ‘produced,’ ‘created,’ or ‘crafted’ in the United States or in America, or any other unqualified U.S.-origin claim.” See id. § 323.1(a). The new rule puts into formal regulation the FTC’s “all or virtually all” standard for unqualified “Made in USA” claims, codifying existing FTC guidance on the point and, in the FTC’s words, does not seek to impose any new obligations on market participants that were not already required per such guidance. (See FTC’s 1997 Enforcement Policy on U.S. Origin Claims.) The new rule additionally permits the FTC to seek civil penalties of up to $43,280 per violation. Importantly, the new rule does not apply to qualified claims, which are still subject to Section 5 of the FTC Act.
The new rule is already being enforced by the FTC. On October 8, 2021, the FTC settled its charges against mattress company Resident Home LLC (“Resident Home”) and its owner, Ran Reske for alleged false, misleading, or unsupported advertising claims that their imported DreamCloud mattresses were made from 100% USA-made materials.
Nectar Brand LLC (parent of Resident Home) had previously agreed to a 2018 FTC administrative order resolving allegations that it falsely advertised imported mattresses as “Assembled in USA.” In connection with the same, Reske, under penalty of perjury, had stated that Resident Home never made U.S.-origin claims about its DreamCloud mattress which, according to the FTC, proved to be untrue. The FTC alleged that in promotional materials, Resident Home and Reske claimed that their DreamCloud mattresses were “proudly made with 100 percent USA-made premium quality materials,” when in reality all DreamCloud mattresses were finished overseas and, in some cases, are wholly imported or use significant imported materials.
In connection with the settlement, the FTC’s proposed order prohibits Resident Home and Reske from making unqualified U.S.-origin claims for any product unless they can show that (i) the product’s final assembly, final processing, and all significant processing takes place in the United States, and (ii) all or virtually all ingredients or components of the product are made and sourced in the United States (tracking the requirements of the newly-codified rule). The proposed order further mandates that for qualified claims, Resident Home and Reske must include a clear disclosure about the extent to which the product contains foreign parts, ingredients, components, or processing and, if they want to say a product is assembled in the United States, they must ensure that it is last substantially transformed in the United States, that its principal assembly takes place in the United States, and that United States assembly operations are substantial.
The settlement provides guidance to advertisers not only as notice of the FTC’s intention to enforce the newly-codified rule, but also as to the type of advertising claims that the FTC’s is targeting in connection with such enforcement. It bears noting that Resident Home’s parent company and Reske were the subject of prior FTC investigation and administrative order relating to earlier “Made in the USA” claims; therefore, the FTC’s recent investigation of Resident Home and Reske perhaps does not come as a tremendous surprise. But the development of formal codification of earlier FTC guidance, and prompt enforcement thereof with significant monetary penalties, should nevertheless serve as a warning to advertisers to verify their own compliance with the current law.