This summer, the Federal Trade Commission (FTC) released final rules codifying its long-standing standard for âMade in USAâ product labels.[i] The Commission has also announced its 2022 timetable for the deployment of a new version of the green guides which focus on environmental claims.[ii] But for advertisers’ legal advisers, figuring out how to stay out of the hot water with the FTC and avoid competitor lawsuits is more difficult than just following the latest FTC guidelines.
Behind the backdrop and out of the spotlight of federal court, the Better Business Bureau’s National Advertising Division (NAD) and its National Advertising Review Board (NARB) grapple with advice from the FTC through arguments that test the outer limits of advertising claims standards. Recent challenges between competitors through this self-regulatory dispute resolution mechanism reveal that these latest FTC rules still leave a lot of gray area to cover.
Made in USA: “All or Almost All”
The test for an unconditional claim of US origin is – and always has been – whether âall or substantially allâ of the product originates in the United States.[iii]
This long-standing standard emerged from FTC case law developed in the 1940s.[iv] In 1997 and 1998, the Commission issued guidelines explaining what it means to be âall or virtually allâ domestically produced.[v] Through these guidelines, the FTC insisted that no “clear line” rule existed to determine whether a product met the standard. Instead, three factors must be taken into account in determining the validity of a claim: (1) whether the final assembly or processing of the product took place in the United States; (2) the portion of the total cost of manufacturing the product that is attributable to parts and processing in the United States; and (3) how far away any foreign content is from the finished product.[vi]
Although it can be read as a simple test of balancing the factors, the first and third factors have more specific requirements. For final assembly, the 1997 guidelines explained: “[A] the product presented as “Made in USA” must have undergone its final assembly or its transformation in the United States. In particular, the product must at a minimum have undergone a last substantial transformation in the United States.[vii] Foreign content also has a predefined limit: a product made in the United States “should contain only one de minimis, or negligible, amount of foreign content.[viii]
One complication is that these factors and requirements are connective and not disjunctive. As a recent federal court had to explain to a litigant, simply having the final assembly in the United States is “a necessary but not sufficient condition to meet the ‘all or nearly’ standard.[ix]
As part of its program to prevent misleading “Made in USA” claims, the FTC finalized a new rule that went into effect on August 13.[x] Part of the purpose of these new measures is to add a civil sanction to deter “rampant Made in USA fraud” and to protect “small businesses that rely on the Made in USA label, but do not have them. resources to defend against imitators â.[xi]
The other objective is to officially codify the “Made in USA” standard into a final to reign.[xii] A product will not officially meet the âall or mostâ standard unless: â(1) final assembly or processing of the product occurs in the United States, (2) any significant transformation that goes into the product occurs. produced in the United States, and (3) all or substantially all of the ingredients or components of the product are manufactured and originate in the United States.[xiii] Although there is still some flexibility in the definition of “final assembly” or “major processing”, all three factors now function as mandatory check boxes that must be checked before applying a “Made in USA” label. “.
While these new, as well as old, standards may provide some clarity to advertisers, a review of recent NAD / NARB cases struggling with the “Made in USA” standard reveals that disputes over the veracity of domestic claims s ” deviate far from the three factors or requirements into broader questions that remain largely unanswered by the new regulations. For example, depictions of American flags on a website for mop pads made in China suggested that a “Made in USA” claim could be made implicitly to consumers, whether or not the advertiser intended to do so or not. allegation.[xiv] The JB Weld saga, discussed below, addressed a threshold question and looked at where a product made in the United States ends and its foreign packaging begins.[xv]
Product or packaging?
JB Weld manufactures glue products and touts the fact that their products are “Made in the USA” and “have always been made in the USA”.[xvi] A competitor disputed the validity of these claims and the NAD recommended that JB Weld stop using them. The NAD estimated that while the glue can be made domestically, the tube, cap, and applicator are all made elsewhere. Because these elements contain the glue and allow its use by consumers, they are part of the âproductâ which must be âall or almostâ produced nationally.[xvii]
On appeal to the NARB, JB Weld argued that the glue in the tube is the product and what really matters to consumers.[xviii] The NARB has poetically translated in its own words: “[L]Long after the caps, applicators and tubes have been thrown away … the consumer is concerned about the continued performance of the substance found in a tube.”[xix] JB Weld offered the toothpaste analogy: â[T]The tube and cap are ânecessaryâ for use and are not thrown away until the paste is exhausted, butâ¦ their place of origin is not an important consideration for the consumer. “[xx]
On the front of the product’s package, JB Weld touted its “reclosable / lean-free cap,” which the panel said demonstrated “the importance of the cap to the consumer.” This persuaded the NARB to determine that applicator caps, tubes and syringes should be considered as part of the “product” in an “all or virtually all” analysis. “[A] a sufficient number of reasonable consumers would consider the caps, tubes, syringes and / or applicators to be part of the âproductâ covered by the advertiser’s national origin claims. “[xxi]
As noted earlier, one of the factors in the FTC’s âMade in USAâ framework is the percentage of the total cost of manufacturing that is done overseas.[xxii] JB Weld did not feel comfortable revealing this cost data because he viewed his production prices as confidential and undercover information.[xxiii] So even though the tube, cap, and applicator were small fractions of the overall product cost, he couldn’t turn that factor in his favor. After rejecting the NARB’s recommendation, JB Weld was referred to the FTC.[xxiv]
In March 2020, an attorney for FTC staff issued a public letter advising him that he would not pursue any further investigation or action regarding JB Weld’s claims.[xxv] This was in part due to corrective actions taken by JB Weld to update its packaging and change the domestic claims on its company’s general literature.[xxvi] However, the FTC also refused further investigation because the FTC disagreed with the NARB and its interpretation of the tube, cap and applicators as part of the product. “FTC staff believe it is unlikely that reasonable consumers interpreted the unqualified US origin claims on these adhesive products as covering accessory and discarded packaging.”[xxvii]
The Commission noted its lack of policy guidance specifically on this subject, but confirmed that it had not previously required manufacturers to account for the origin of the packaging and cited a 1968 opinion deciding that “a domestically produced vinegar maker need not disclose the origin of imported plastic containers in the absence of an affirmative statement that the bottles were made in the United States.”[xxviii] The letter from the FTC referred to the caps, tube and applicator as âaccessoryâ packaging that âhad no independent value to consumers and was generally thrown away after exhaustionâ.[xxix]
While FTC staff’s opinion on the glue tubes is now clear, it remains difficult to assess what to take away from the decision, especially given its deviation from the NARB decision. The FTC letter did not address one of the key findings of the NARB; that is, JB Weld’s claims regarding the cap meant that it had value to the consumer as part of the product. Therefore, it is difficult to predict whether future claims regarding the characteristics of the package – âeasy openâ or âno spillâ – will then require that these foreign-made packages meet the âall or virtually allâ standard. “. When determining what elements of a product count as âproduct,â advertisers may need to weigh what is typically thrown away during depletion versus what has independent value to consumers.[xxx]
For now, comparing the new FTC rules to the JB Weld dispute suggests a disconnect between the promulgated rules and their interpretation and application by the NAD and NARB. For open questions that remain in other advertising areas like Green Guides, advertisers will simply have to wait until 2022 to determine if the FTC clarifies NAD / NARB borderline cases.
[i] 86 Fed. Reg. 37031.
[ii] 86 Fed. Reg. 35239
[iii] 62 Fed. Reg. 63756.
[iv] See, e.g., In re Vulcan Lamp Works, Inc., 32 FTC 7 (1940).
[v] 62 Fed. Reg. 63756; FTC, Made in USA 23-24 (1998) Compliant, https: //www.ftc.gov/tips-advice/business-center/guidance/complying-made -….
[vi] 62 Fed. Reg. 63756.
[vii] 62 Fed. Reg. 63765.
[viii] 62 Fed. Reg. 63765.
[ix] Benshot, LLC v Lucky Shot US LLC, n Â° 18-C-1716, 2019 WL 527829 (ED Wis. 8 February 2019), at * 5.
[x] âFTC Deterrent US Made Creepy Fraud Regulations,â FTC (July 1, 2021), https://www.ftc.gov/news-events/press-releases/2021/07/ftc-issues -rule-d ….
[xi] User ID.
[xii] 86 Fed. Reg. 37023.
[xiii] 86 Fed. Reg. 37031.
[xiv] Geerpres, Inc. (ADVANTEX Disposable Disposable Microfiber Mop Pad), Report # 6340, NAD / CARU Reports (January 2020).
[xv] JB Weld Company, LLC (epoxy, silicone adhesives and sealants), NARB Panel # 251 (July 13, 2019).
[xvi] JB Weld Company, LLC (epoxy, silicone adhesives and sealants), NARB Panel # 251 (July 13, 2019), p. 2.
[xvii] User ID. to 2-3.
[xviii] User ID. to 3-4.
[xix] Identifier. to 4 (emphasis in original).
[xxii] Identifier. at 5.
[xxiii] Identifier. to 5-6.
[xxiv] User ID. to 6.
[xxv] Letter from Julia Solomon Ensor, Staff Att’y, FTC, to Neil C. Jones, Nelson Mullins Riley & Scarborough LLP (March 19, 2020), https://www.ftc.gov/system/files/documents/public_statements/ 1569323 / p07 ….
[xxvi] Identifier. at 2 hours.
[xxviii] Identifier. at 2 # 4 (citing FTC Advisory Opinion # 368, Disclosure of Origin of Imported Plastic Vinegar Bottles (October 9, 1969), https://www.ftc.gov/sites/default/ files / documents / commission_decision_vo. …
[xxix] Identifier. at 2 hours.