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FTC's Proposed Made in USA Rule Would Allow Civil Penalties

Jun.24.2020

On June 22, 2020, the Federal Trade Commission (FTC or “Commission”) issued its staff report on the Made in USA workshop, held in 2019, and its long-awaited proposed Made in USA (MUSA) rule (“Rule”). Under the Rule, advertisers would be prohibited from making unqualified Made in USA claims unless:

  • Final assembly or processing of the product occurs in the United States;
  • All significant processing that goes into the product occurs in the United States; and
  • All or virtually all ingredients or components of the product are made and sourced in the United States.

The proposed Rule would grant significant enforcement latitude to the Commission. The FTC takes the position that the proposed MUSA Rule, adopted under 15 U.S.C. §45a, will not impose any new substantive requirements on advertisers and states in the Notice of Proposed Rulemaking (NPRM) that the Rule would make it easier for businesses to comply with the law “by codifying the existing standards applicable to MUSA claims.” The Rule defines “Made in the United States” to broadly encompass any term that the FTC determines represents United States-origin. Specifically, the Rule defines “Made in the United States” to mean “any unqualified representation, express or implied, that a product or service, or a specified component thereof, is of U.S. origin, including, but not limited to, a representation that such product or service is ‘made,’ ‘manufactured,’ ‘built,’ ‘produced,’ ‘created,’ or ‘crafted’ in the United States or in America, or any other unqualified U.S.-origin claim.” (emphasis added.)

The FTC’s enforcement of the Made in USA advertising standards, thus far embodied in a Guide, has been consistently aggressive during this and previous administrations. The FTC routinely receives trade complaints submitted by activists and competitors regarding allegedly unsupported MUSA claims. Many such complaints are resolved informally with closing letters. However, when and if the current rule goes into effect, the stakes for violating the rule will go up dramatically. The Rule will authorize the Commission to seek civil penalties of $43,280 per violation. With this change, the Commission will be able to more quickly and easily obtain financial penalties without the litigation risks of Section 13(b) of the FTC Act. Until now, the FTC has struggled to obtain financial penalties even from the advertisers that knowingly falsely labeled imported products as “Made in the USA” and has been criticized for its weak enforcement. But, if the MUSA Rule is adopted, we can expect to see more and steeper penalties for unsubstantiated, unqualified Made in USA advertising claims.

We also expect some controversy regarding the scope of the Rule. The proposed Rule defines “labels” to include making unqualified MUSA claims appearing in mail order catalogs or mail order advertising, which it defines to include online advertising. However, the Commissioners disagree on this scope, foreshadowing likely challenges that defendants may raise if the Rule is finalized and the FTC initiates enforcement activity. Commissioners Noah Phillips issued a dissenting statement and Commissioner Christine Wilson issued a statement dissenting in part, arguing that the proposed Rule exceeds the scope of the FTC’s authority because the “plain language” of Section 45a references only “labels on products”—verbiage that does not include online advertising.

Given the significant potential impact of the proposed MUSA Rule, advertisers currently making Made in USA claims that have concerns about the proposal’s wording or scope should consider filing a public comment. Comments on the proposed Rule can be submitted through https://www.regulations.gov for sixty days after the publication of the NPRM and all comments must include “MUSA Rulemaking, Matter No. P074204.” In addition, the FTC’s rulemaking procedures are designed to be more rigorous and complex than standard APA notice and comment rulemaking, and require the appointment of a Presiding Officer and a live “informal hearing.” If requested by commenters, this may even include live testimony and cross examination. One can expect the applicability of this proposed rule to online advertising to be a subject of comment and debate in the ongoing proceedings.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

Christopher A. Cole
Partner – Washington, D.C.
Phone: +1 202.624.2701
Email: ccole@crowell.com
Lauren Aronson
Counsel – Washington, D.C.
Phone: +1 202.624.2541
Email: laronson@crowell.com