Jim Flynn

Jim Flynn, Money & the Law

There once was a time when “Made in USA” was a powerful brand, and perhaps it still is. However, globalization has complicated the situation since many products, even though assembled in the United States, incorporate substantial foreign material and labor.

As you might expect, this has led to rules about when the seller of a product can label it “Made in USA.” The cop on the beat here for most products is the Federal Trade Commission, which takes the position that, for a product to be labeled “Made in USA” without qualification, the product “must be all or virtually all made in the U.S.”

A reasonable next question is: So what is that supposed to mean? Well, per the FTC, it means “all significant parts and processing that go into the product must be of U.S. origin. That is, the product should contain no — or negligible — foreign content.” In particular, a product, to make the unqualified “Made in USA” cut, must have been finally assembled or finally processed in the U.S.

The FTC rule also allows for “qualified” statements of U.S. origin. Here, the FTC provides helpful instructions like: “ … avoid qualified claims unless the product has a significant amount of U.S. content or U.S. processing.” And a qualified claim, like an unqualified claim, “must be truthful and substantiated.” The FTC gives the following example of an acceptable qualified claim: “Couch assembled in USA from Italian leather and Mexican frame.”

To further clutter the legal landscape, there are federal laws on the books dealing with specific products. Examples here include the Textile Fiber Products Identification Act, the Wool Products Labeling Act and the American Automobile Labeling Act. This latter statute requires vehicles to come with a disclosure stating where final assembly occurred; the percentage of equipment originating in the U.S. and Canada; and the country of origin of the engine and transmission. (You will find this information on every new-vehicle window sticker.)

As a reminder that “Made in USA” labeling comes with strings attached, in December the FTC announced the settlement of an administrative enforcement proceeding against a company called Chemence and its president, James Cooke. Chemence makes various glue products (including finger nail glue). It sells some of these products under its own trademarks and also sells some of its products to third parties whose trademarks appear on packaging prepared by Chemence. The FTC action accuses Chemence of making unqualified “Made in USA” representations for its products when, in fact, they contain substantial foreign content and involve substantial foreign processing. Under the settlement, Chemence and Cooke must pay a $1.2 million fine to the FTC and will be on a short regulatory leash requiring regular reports of actions taken to truthfully label Chemence’s products.

The settlement also contains an interesting twist, requiring Chemence to notify all its customers for whom it manufactured products of the FTC action. The content of the notice is part of the settlement and it will state: “ … the Federal Trade Commission, the nation’s consumer protection agency, has sued us for deceptive false advertising. According to the FTC, we made misleading claims that our glues were all or virtually all made in the United States. To settle the FTC’s lawsuit, we’re contacting our customers to tell them that our cyanoacrylate glue products contain significant imported ingredients and therefore should have been labeled with qualified claims — for example, ‘Made in USA with Globally Sourced Materials.’”

Jim Flynn is with the Colorado Springs firm of Flynn & Wright. Email: moneylaw@jtflynn.com.

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