TINA’s Take: FTC Takes Crucial Step Forward in Holding Deceptive Made in USA Marketers Accountable

UPDATE 7/2/21: In a 3-2 vote, the FTC in July 2021 finalized its Made in USA Labeling Rule. Our original story follows.

WHAT’S UP

The FTC has proposed a made in the USA labeling rule that would allow the agency to seek civil penalties (up to $43,280 per violation) against first-time offenders who, under the current regulatory regime, are typically given a free pass regardless of the degree to which they misled consumers. Such civil penalties could be used for customer refunds, meaning more money for consumers who fall victim to deceptive made in the USA marketing campaigns exposed by the FTC.

HOW WE GOT HERE

This week’s announcement comes 10 months after TINA.org filed a petition with the FTC in August urging the agency to “turn on the penalty switch” in its enforcement of deceptive made in the USA marketing by issuing a formal rule. TINA.org wrote:

Such a rule would provide a deterrent effect by changing the risk-benefit analysis of deceptive marketers, thereby increasing the Commission’s positive impact on the marketplace. A rule would also command the respect of violators who flout the FTC’s admonishments. Furthermore, it would allow the Commission to actually punish flagrant offenders.

Historically, the FTC has issued closing letters to companies making deceptive made in the USA claims, which, despite marketers’ promises memorialized in the letters to follow the law, has not always been effective at preventing future misleading U.S.-origin claims (see Target, Williams-Sonoma). Since 1996, the FTC has issued 171 closing letters regarding deceptive USA-made claims, all in the last 11 years. Compare that with 30 enforcement actions, only four of which resulted in a cash settlement.

The largest cash settlement to date occurred just a few months ago, in March, when Williams-Sonoma was required to pay $1 million to the FTC. That sum alone represents roughly two-thirds of the combined $1,535,000 in financial penalties the FTC has been able to obtain in deceptive made in the USA cases in the last 24 years. (Of note, the FTC’s administrative action against Williams-Sonoma followed a TINA.org complaint to the agency regarding the company’s repeated use of false and deceptive U.S.-origin claims in its marketing.)

The announcement of the proposed rule also comes after a made in the USA workshop hosted by the FTC last fall that coincided with a request by the agency for public comments on whether and how it should change its made in the USA enforcement program. TINA.org participated in the workshop and submitted a comment (the only consumer group to do so), which reiterated its position that the FTC needs a made in the USA rule and explained how a 1994 statute enacted by Congress helps pave the way.

THE MARKETING PITCH IN QUESTION

The FTC is proposing that the rule apply to product labels, as well as seals, marks, tags or stamps in mail order marketing (i.e., print or electronic advertising that solicit purchases without the consumer examining the actual product that’s for sale) that indicate the product is made in the United States. The proposed rule would not apply to what the FTC calls qualified claims, with qualifying language such as “made in the USA with imported parts.”

The issue of what forms of marketing should be subject to the rule is one that not everyone sees eye to eye on. The FTC vote approving the publication of the proposed made in the USA labeling rule was 4-to-1, with Commissioner Noah Phillips dissenting, taking the position that the proposed rule should only apply to physical product labels and not be extended to other forms of advertising. (Commissioner Christine Wilson expressed a similar view.)

The FTC says the proposed rule “does not supersede, alter or affect” any other federal or state statute or regulation relating to country-of-origin labels. This includes the FTC’s long-held standard that products marketed with unqualified made in the USA claims must be “all or virtually all” made here.

WHAT’S NEXT

The FTC will open it up for public comment once again. TINA.org will continue to participate in the process and anticipates filing a comment pushing for a made in the USA rule that applies to physical labels, as well as online marketing. This is especially important in a COVID-19 world, where more people — including those who have shown a preference for American-made products — are shopping online.

As TINA.org noted in its comment:

Adopting a construction of “label, or the equivalent thereof” that would categorically exclude all marketing material, no matter how it is disseminated and no matter what it says about a product’s origin, would create an unnecessary loophole in an FTC Made in the USA rule.

And the last thing deceptive marketers need is a loophole.

Read TINA.org’s original petition to the FTC here.