ADventures in Law

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<img class="alignright wp-image-5327" src="https://adttorneys.bakerhostetlerblogs.com/wp-content/uploads/sites/33/2019/05/US-Flag-Barcode-GettyImages-1033245324_1200x630.jpg" alt="" width="438" height="230" />Today the Federal Trade Commission (FTC) hosted a half-day workshop looking at Made in USA claims and the FTC’s guidance and enforcement. For those who want to watch “all or substantially all” of the event, the videos and materials can be accessed <a href="https://ftc-workshop-made-in-the-usa.videoshowcase.net/made-in-the-usa-an-ftc-workshop?category=27700">here</a>. Some highlights and suggested next steps are below. By way of general background, the FTC has a <a href="https://www.ftc.gov/public-statements/1997/12/enforcement-policy-statement-us-origin-claims">Made in USA Enforcement Policy</a> and related <a href="https://www.ftc.gov/tips-advice/business-center/guidance/complying-made-usa-standard">Business Guidance</a> regarding its belief as to what claims run afoul of Section 5. The standard in a nutshell is that products advertised as Made in USA (or what the FTC has said are the equivalent claims Manufactured in USA, Produced in the USA, Built in the USA, and/or waving flags and eagles) is that the product must be “all or virtually all” of domestic origin, meaning that looking at the cost of goods sold, all but de minimis costs can be from foreign sources, including manufacturing costs and component parts. Many companies with U.S. manufacturing facilities make Made in USA claims, not appreciating that the FTC expects them to analyze their input costs as well and not focus only on where the product is “made” or “substantially transformed.” Because of this, the FTC has undertaken a fairly novel approach to enforcement. It engages in business and consumer education and brings several enforcement actions a year in egregious cases; but it also engages in significant less formal enforcement efforts, sending companies warning letters and giving them an opportunity to come into compliance short of a formal investigation and consent order process. The FTC documents these efforts on its <a href="https://www.ftc.gov/tips-advice/business-center/legal-resources?type=closing_letter&amp;field_consumer_protection_topics_tid=234">Closing Letters page</a>.

Andrew Smith kicked off the event. Jim Kohm, director of the Enforcement Division, introduced Hampton Newsome, Julia Ensor and Laura Koss (his staff moderating the panel) with self-deprecating humor, noting that when you hire people smarter than you are, your job gets to be highlighting where the bathrooms are – and proceeding to give such directions. Newsome, Ensor and Koss are longtime enforcement staff attorneys, with Ensor currently having day-to-day responsibility for managing the Made in USA enforcement program. The panelists consisted of manufacturing companies, retailers, trade associations and consumer advocates.

The panel first discussed consumer research conducted in this area, including consumer perception research the FTC has conducted and consumer sentiment research about purchase intentions regarding domestic products. Much of the later discussion centered on the standard itself. Some of the manufacturing participants urged the FTC to harmonize its standard with customs and international standards to one of “substantial transformation.” This group urged allowing companies to make domestic origin claims when the major manufacturing takes place in the U.S. without the additional focus on origin of component or input parts. They were looking for a standard that would be harmonized to allow for global commerce.

By way of example, one jewelry manufacturer who crafted all of his products in the U.S. said he could not label his products Made in USA for sale in the U.S. because some of the metals used are not available from any U.S. source. He went on to say that for export, he has to label these same products as Made in USA. Consumer groups urged continuing the current high-bar standard, positing that when U.S. consumers see a Made in USA claim, they believe the entirety of the product came from U.S. sources. The panel discussed the California standard, and some said they felt the FTC standard was stricter, in part because the FTC looks not only at the percentage of domestic content but also at whether the foreign inputs relate to the core or essence of the product. The FTC staff continued to urge companies and groups to conduct ongoing consumer perception research, because how consumers appreciate these claims may change over time, and whatever standard the FTC uses should track current consumer understanding and expectations.

There was some interesting discussion, but no firm conclusions drawn, about why consumers want Made in USA products – whether it was for quality reasons or because they want to support U.S. workers. There was also some discussion of whether the standard should be the same for all products – whether consumers have a different understanding of a domestic origin claim if it is made about a wallet versus an electronic item. The panel seemed to agree that having standards that vary by product, even if consumer expectations differed across product categories, would not be workable.

There was a spirited debate over remedies and how the FTC should enforce the Made in USA standard. The consumer advocates were concerned that the Made in USA cases typically did not result in consumer redress. The FTC staff noted that even if a product purchased by a consumer was not all or virtually all of domestic origin, in such cases the consumer still got the product. TINA posited that in such a case the good was worthless and there should be full redress (saying that “kosher chicken” that is not kosher is worthless, so presumably “made in USA chicken” that is not of domestic origin is also worthless). The FTC staff asked the panel if it would be better to bring fewer cases but perhaps litigate in an effort to get more significant relief, or whether it would be a better use of resources to continue the existing program. Some panelists felt fewer cases with more significant penalties would result in better deterrence. This is clearly an area of interest to the FTC staff, and one Kohm at the wrap-up said he was going to consider further.

So what’s next? If you have a dog in this fight or a horse in this race, watching the video cast is worthwhile. If you want to see a change to the standard, investing in quality consumer perception research that supports your goal will likely gain significant attention. If you have a position on the appropriate level of enforcement and use of FTC resources behind the Made in USA program, this may be an area of considerable attention by the FTC staff, which has <a href="https://www.regulations.gov/docket?D=FTC-2019-0063">encouraged comments</a>, accepted through Oct. 11.

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Are Made in USA Chickens Worthless? These and Other Deep Questions from the FTC’s Made in USA Workshop