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End of an Era of “No Consequences” for “Made in USA” Fraudsters, as New FTC Labelling Rule Comes into Effect

Client Updates

In a win for consumers and small businesses, a new labelling rule enables the Federal Trade Commission (“FTC”) to seek – for the first time – civil penalties for false, unqualified claims on labels stating that a product originated in the United States.1 The Made in USA “MUSA” Labeling Rule went into effect on August 13, 2021 and codifies the FTC’s long-standing “all or virtually all standard” for products with labels indicating, without qualification, that a particular good or part was made in the United States.2  By formally codifying the MUSA Rule, the FTC may now pursue a broader set of remedies than in years past, including the ability to seek redress, damages, and civil penalties of up to $43,280 per violation.The Rule aims to shelter consumers from misleading labeling practices and sanction fraudulent imitators in favor of small businesses relying on the MUSA label.4  The MUSA Rule’s adoption signals a “long overdue” shift to the labelling regulatory landscape, shaped by decades of weak enforcement practices, in which, as FTC Commissioner Rohit Chopra notes, “violators faced essentially no consequences whatsoever.”5 This shift fits squarely into the Biden Administration’s reinvigoration of the FTC’s rulemaking authority to promote competition in the American economy.6 Notably, this enhancement in the FTC’s enforcement authority does not translate to increased obligations for manufacturers and sellers.7

Key Provisions of the Made in USA Labeling Rule

Under the Made in USA Labeling Rule, and in line with the FTC’s long-standing guidance,8 marketers are prohibited from including unqualified MUSA claims on labels unless:

  1. Final assembly or processing of the product occurs in the United States;
  2. all significant processing for the product occurs in the United States; and
  3. all or virtually all of the product's ingredients or components are made and sourced in the United States.9

Manufacturers and sellers should note that the MUSA Rule applies only to unqualified “Made in USA” labeling claims, express or implied. A label claiming that a product is “60% U.S. content” or “assembled in USA from Italian Leather and Mexican Frame” is considered a qualified labeling claim and is thus not controlled by the provisions of the MUSA Rule.10

And for the purposes of the Rule, “label” encompasses both physical and digital labels, including, for example, labels delivered in both print and electronic forms affixed to promotional materials or mail order catalogs.11 As stated above, an entity that does not comply with these provisions risks facing the newly-authorized enforcement powers of the FTC – namely, the Commission’s ability to levy a fine up to $43,280 per violation, and seek redress and damages.12

The Commission also took care to note that the new Rule does not supersede, alter, or affect any other federal statute or regulation relating to country-of-origin labels.13 This followed considerable interest from farmers, ranchers, and others in the meat and agricultural industry during the rulemaking process, who submitted comments arguing in favor of stricter standards.14  Immediately following the final vote on the MUSA Rule, Secretary Tom Vilsack of the U.S. Department of Agriculture announced the initiation of a “top-to-bottom review of the ‘Product of USA’ label that will, among other things, help us to determine what that label means to consumers.”15

The Move Away from Decades of Lax MUSA Claim Enforcement by the FTC

Though the adoption of the MUSA Rule is relatively recent, the publication of its core provisions, including the “all or virtually all standard,” occurred in 1997, when the FTC released its informal 1997 Enforcement Policy Statement on U.S. Origin Claims.16 So why, then, the protracted delay in authorizing the FTC’s power to seek civil remedies for violations?  As Commissioner Chopra notes, “[f]or decades, there has been a bipartisan consensus among Commissioners that Made in USA fraud should not be penalized.”17 In fact, in 1994, Congress enacted legislation authorizing the FTC to seek penalties and other remedies for MUSA fraud, but only after formally codifying a rule.18 The FTC neither proposed nor enacted such a formally-codified rule.  As a result, the past quarter century included a “highly permissive” MUSA fraud policy, “where violators faced essentially no consequences whatsoever,” even in cases of blatant MUSA abuse, according to Commissioner Chopra.19

In recent years, this highly permissive fraud policy began to change course, even before the adoption of the MUSA Rule.  Though the FTC was previously unauthorized to levy civil penalties on violators directly through a formally-codified rule, the Commission, under Chopra’s leadership, relied on its general authority established by Section 5 of the FTC Act to bring a few high-profile enforcement actions against MUSA violators.20  For example, on December 22, 2020, the FTC announced its securing of the highest monetary judgment in history for a MUSA case.21 Under the terms of the settlement, Chemence, Inc., a superglue manufacturer, was ordered to pay $1.2 million to the FTC for including unqualified “Made in USA” claims on pre-labeled glues, despite foreign materials accounting for over 80% of the materials costs and over 50% of the overall manufacturing costs.22  Nevertheless, Commissioner Chopra made clear the need for imposing civil penalties for first-time offenses through the codification of a formal MUSA Rule in order to ensure that the FTC “deter wrongful conduct in the first instance.”23  

FTC Chair Lina Khan, nominated by President Biden and sworn in on June 15, 2021, joined Commissioner Chopra in voting for the adoption of the MUSA Rule.24  Commissioner Chopra is set to depart from the FTC and assume his role as the next Director of the Consumer Financial Protection Bureau under the Biden Administration.25  FTC Chair Khan, who previously served as a legal advisor to Commissioner Chopra, is expected to continue to advance aggressive FTC enforcement policies to promote economic competition and increased consumer protection.

Key Takeaways for Businesses

The FTC’s new Made in USA Labeling Rule imposes no new obligations on market participants, given that it codifies the Commission’s long-standing enforcement policy with respect to U.S.-origin claims.  Further, the MUSA Rule does not supersede any other federal statute or regulation relating to country-of-origin labels, such as “Product of USA” labels regulated by the U.S. Department of Agriculture.  Even with the apparent lack of increased obligations and expansive labeling regulation changes, businesses should recognize that it is now more critical than ever that U.S.-origin marketing claims comply with the MUSA Rule – or risk facing the newly-authorized enforcement powers of the FTC, and a hefty fine up to $43,280 per violation.

Market participants with unqualified “Made in USA” labeling claims should verify the following to ensure their compliance with the MUSA Rule: 1) final assembly or processing of the product occurs in the United States; 2) all significant processing for the product occurs in the United States; and, 3) all or virtually all of the product's ingredients or components are made and sourced in the United States.26


1 FTC Issues Rule to Deter Rampant Made in USA Fraud, FTC (July 1, 2021), https://www.ftc.gov/news-events/press-releases/2021/07/ftc-issues-rule-deter-rampant-made-usa-fraud.

2 Made in USA Labeling Rule, 16 C.F.R. § 323.1.

3 FTC Issues Rule to Deter Rampant Made in USA Fraud, supra note 1.

4 Id; Statement of Commissioner Rohit Chopra Joined by Chair Lina Khan and Commissioner Rebecca Kelly Slaughter Regarding the Adoption of the Final Made in USA Rule, FTC 1, 1 (July 1, 2021). https://www.ftc.gov/system/files/documents/public_statements/1591518/final_chopra_statement_regarding_the_adoption_of_the_final_made_in_usa_rule.pdf.

5 Statement of Commissioner Rohit Chopra Joined by Chair Lina Khan and Commissioner Rebecca Kelly Slaughter Regarding the Adoption of the Final Made in USA Rule, supra note 4, at 1.

6 Exec. Order on Promoting Competition in the American Economy No. 14036 (July 9, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/.

7 Id.

8 “Made in USA” and Other U.S. Origin Claims, 62 Fed. Reg. 63756 (Dec. 2, 1997).

9 Made in USA Labeling Rule, 16 C.F.R. § 323.1.

10 Complying with the Made in USA Standard, FTC 1, 9 (Dec. 1998).

11 Made in USA Labeling Rule, 86 Fed. Reg. 37022 (July 14, 2021).

12 FTC Issues Rule to Deter Rampant Made in USA Fraud, supra note 1.

13 Made in USA Labeling Rule, supra note 10.

14 Id.

15 USDA Announces Efforts to Promote Transparency in Product of the USA Labeling, USDA (July 1, 2021), https://www.usda.gov/media/press-releases/2021/07/01/usda-announces-efforts-promote-transparency-product-usa-labeling.

16 Under the “all or virtually all” standard, a product must be all or virtually all made in the United States in order to substantiate an unqualified MUSA claim. See “Enforcement Policy Statement on U.S. Origin Claims, FTC (Dec. 1, 1997), https://www.ftc.gov/public-statements/1997/12/enforcement-policy-statement-us-origin-claims; see also “Made in USA” and Other U.S. Origin Claims, supra note 7.

17 Statement of Commissioner Rohit Chopra Joined by Chair Lina Khan and Commissioner Rebecca Kelly Slaughter Regarding the Adoption of the Final Made in USA Rule, supra note 1, at 1.

18 Id.

19 Id.

20 Under Section 5 of the FTC Act, the FTC may “prosecute any inquiry necessary to its duties in any part of the United States.” A Brief Overview of the Federal Trade Commission's Investigative, Law Enforcement, and Rulemaking Authority, FTC (last modified May 2021), https://www.ftc.gov/about-ftc/what-we-do/enforcement-authority. See also FTC Act § 3, 15 U.S.C. § 43.

21 FTC Order Stops the Manufacturer of Superglues, and Company President, from Again Marketing Products with Misleading ‘Made in USA’ Claims, FTC (Dec. 22, 2020), https://www.ftc.gov/news-events/press-releases/2020/12/ftc-order-stops-manufacturer-superglues-company-president-again.

22 Id.

23 Rohit Chopra, Activating Civil Penalties for Made in USA Fraud, FTC 1, 1 (April 17, 2019), https://www.ftc.gov/system/files/documents/public_statements/1514808/chopra_-_activating_civil_penalties_for_made_in_usa_fraud_4-17-19.pdf.

24 Statement of Commissioner Rohit Chopra Joined by Chair Lina Khan and Commissioner Rebecca Kelly Slaughter Regarding the Adoption of the Final Made in USA Rule, supra note 4, at 1.

25 PN116 - Nomination of Rohit Chopra for Bureau of Consumer Financial Protection, 117th Congress (2021-2022), PN116, 117th Cong. (2021), https://www.congress.gov/nomination/117th-congress/116.

26 Made in USA Labeling Rule, 16 C.F.R. § 323.1.

 

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