This summer, the Federal Trade Commission (FTC) published final rules that codify their longstanding standard for “Made in USA” product labels.[i] The Commission has also announced its 2022 timetable for the launch of a new version of the Green Guides focusing on environmental claims.[ii] But it is harder for advertisers’ legal advisors to understand how to stay away from hot water at the FTC and avoid the bullseye of competitors in litigation than just following the latest FTC guidelines.
Behind the background and outside of the federal court’s limelight, the National Advertising Division (NAD) of the Better Business Bureau and the National Advertising Review Board (NARB) wrestle with leading the FTC through arguments that test the outer boundaries of advertising claims standards. Recent challenges between competitors through this self-regulatory dispute settlement mechanism show that these latest rules still leave many gray areas open to the FTC.
Made in the USA: ‘All or Virtually All’
The test for an unqualified claim of US origin is – and has been historical – whether “all or virtually all” of the product originated in the United States.[iii]
This long-standing standard emerged from FTC jurisprudence developed in the 1940s.[iv] In 1997 and 1998 the Commission issued guidelines explaining what it means to be “all or practically all” domestically manufactured.[v] Through these guidelines, the FTC insisted that there is no “light line” rule to determine whether a product meets the standard. Instead, three factors should be considered 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 proportion of the total cost of the product that is attributable to US parts and processing; and (3) how far any extraneous content is from the final product.[vi]
Although it reads like a simple factor balancing test, the first and third factors have more specific requirements. For the final assembly, the instructions from 1997 stated: “[A] Products that are advertised as “Made in USA” must have been fully assembled or processed in the USA. In particular, the product must have been significantly modified at least last in the United States. “[vii] Foreign content also has a pre-defined limit: A product made in the USA “should only a de minimisor negligible amount of third-party content. “[viii]
One complication is that these factors and requirements are conjunctive rather than disjunctive. As a federal court recently told a litigant, mere final assembly in the United States is “a necessary but not a sufficient condition to meet the ‘all or virtually all’ standard”.[ix]
As part of its program to prevent “Made in USA” misleading claims, the FTC finalized a new rule that went into effect August 13th.[x] Part of the goal of these new measures is to add a civil sanction to deter “rampant Made in USA fraud” and “protect small businesses that rely on the Made in USA label but don’t have the resources to defend against imitators ”.[xi]
The other goal is to officially incorporate the “Made in USA” standard final Rule.[xii] A product does not officially meet the “all or virtually all” standard unless: “(1) the final assembly or processing of the product takes place in the United States; (2) all significant processing that goes into the product takes place in the United States, and (3) all or virtually all of the ingredients or components of the product are made and sourced in the United States. “[xiii] While there is still some flexibility in defining “final assembly” or “significant processing”, the three factors now function as required check boxes to be ticked prior to affixing a “Made in USA” label.
While these new – but also old – standards can provide some clarity for advertisers, a review of recent NAD / NARB cases wrestling with the “Made in USA” standard shows that disputes over the veracity of domestic claims are far from deviating from the three factors or converting requirements into broader questions that remain largely unanswered by the new regulations. For example, displays of American flags on a website for Chinese-made mop pads suggested that consumers could be implicitly made a “Made in USA” claim whether or not the advertiser intended to do so.[xiv] The JB Weld saga discussed below addressed a threshold question and considered where a US-made product ends and its overseas packaging begins.[xv]
Product or packaging?
JB Weld makes adhesive products and promotes that its products are “Made in USA” and “Always made in the USA”.[xvi] A competitor questioned the validity of these claims and NAD recommended that JB Weld stop using them. The NAD argued that although the glue could be made domestically, the tube, cap, and applicator are all made elsewhere. Since these elements contain the glue and can be used by consumers, they form part of the “product” that “all or almost all” must be made domestically.[xvii]
Citing the NARB, JB Weld argued that the glue in the tube is the product and what is really important to consumers.[xviii] The NARB translated poetically into its own words: “[L]After throwing away the caps, applicators and tubes, the consumer is concerned about the ongoing performance of the substance found within the pipe.”[xix] JB Weld offered the analogy to toothpaste: “[T]The tube and cap are ‘necessary’ for use and are not thrown away until the paste is used up, but … their place of origin is not important to the consumer. “[xx]
On the front of the product packaging, JB Weld promoted its “resealable / no waste cap” which, in the opinion of the panel, demonstrated “the importance of the cap to the consumer”. This led NARB to decide that the 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 as part of the ‘product’ falling under the advertiser’s domestic indications of origin. “[xxi]
As mentioned earlier, one factor in the FTC’s “Made in USA” concept is the percentage of total manufacturing costs that are incurred overseas.[xxii] JB Weld was not comfortable disclosing this cost data because it considered its production prices to be highly confidential trade secret information.[xxiii] Even if the tube, cap and applicator make up only a small fraction of the total cost of the product, that factor could not be used in its favor. After the NARB’s recommendation was rejected, JB Weld was referred to the FTC.[xxiv]
In March 2020, an FTC attorney issued a public letter advising them not to conduct any further investigation or action into JB Weld’s claims.[xxv] This was due in part to JB Weld’s own remedial action to update its packaging and to change the domestic denominations of origin in the company’s general literature.[xxvi] However, the FTC also declined 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 any reasonable consumer would interpret the unqualified US origin indications on these adhesive products to cover the randomly discarded packaging.”[xxvii]
The Commission noted that there were no policy guidelines specific to this issue, but confirmed that it had not yet required manufacturers to disclose the origin of packaging and cited a 1968 opinion which said that “A manufacturer of domestically produced vinegar does not have to disclose the origin”. imported plastic containers with no affirmative assurance that the bottles were made in the United States. “[xxviii] The FTC letter described the caps, tube and applicator as “casual” packaging that “had no independent value to consumers and was typically discarded after use”.[xxix]
While FTC staff’s opinion on tubes of glue is now clear, it remains difficult to gauge what to take from the decision, especially given the move away from the NARB decision. The FTC letter did not address one of the NARB’s key findings; namely, JB Weld’s claims about the cap meant that it had value to the consumer as part of the product. Accordingly, it is difficult to predict whether future claims about packaging characteristics – “easy to open” or “leak free” – will require such overseas-made packaging to meet the “all or virtually all” standard. In determining which elements of a product qualify as the “product”, advertisers may need to weigh what is normally discarded at exhaustion and what has independent value to consumers.[xxx]
The comparison of the new FTC rules with the dispute over JB Weld initially indicates a discrepancy between the announced rules and their interpretation and application by the NAD and NARB. For open questions that remain in other advertising spaces like the Green Guides, advertisers simply have to wait until 2022 to see if the FTC clears up the NAD / NARB fringe cases.
[iii] 62 Reg.No. 63756.
[iv] See, for example, In re Vulcan Lamp Works, Inc., 32 FTC 7 (1940).
[v] 62 Reg.No. 63756; FTC, according to the Made in USA Standard 23-24 (1998), https://www.ftc.gov/tips-advice/business-center/guidance/complying-made-usa-standard.
[vii] 62 Reg.No. 63765.
[ix] Benshot, LLC v Lucky Shot US LLC, No. 18-C-1716, 2019 WL 527829 (ED Wis. February 8, 2019), at * 5.
[x] “FTC Issues Rule To Deter Unrestrained Fraud In The US,” FTC (July 1, 2021), https://www.ftc.gov/news-events/press-releases/2021/07/ftc-issues-rule -deter – rampant-made-usa-fraud.
[xii] 86 Reg.No. 37023.
[xiv] Geerpres, Inc. (ADVANTEX Disposable Microfiber Mop Pad), Report # 6340, NAD / CARU reports (Jan. 2020).
[xv] JB Weld Company, LLC (epoxy, adhesives, and silicone sealants), NARB Panel No. 251 (July 13, 2019).
[xvi] JB Weld Company, LLC (epoxy, adhesives, and silicone sealants), NARB Panel No. 251 (July 13, 2019), at 2.
[xix] ID card. at 4 (emphasis in the original).
[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 / p074204_j-b_weld_closing_letter_1.pdf.
[xxviii] ID card. at 2 n.4 (with reference to FTC Advisory Opinion No. 368, Disclosure of Origin of Imported Plastic Essig Bottles (October 9, 1969), https://www.ftc.gov/sites/default/files/documents/commission_decision_volumes / volume-76 / ftc_volume_decision_76_july _-_ december_1969pages_1039-1125.pdf.