Newspaper headlines report a new economic trend—manufacturing is returning to the United States. The country’s industrial production grew by 0.7 percent in July, its biggest jump since November 2014. This number represents everything made by factories, mines, and utilities. Before companies start slapping “Made in the USA” labels on their wares, they need to make sure they are familiar with the legal requirements to do so.
The Federal Trade Commission (the FTC) monitors the marketplace and aims to keep businesses from misleading consumers. Within the FTC’s jurisdiction is regulating “Made in the USA” claims.
If a product is labeled as “Made in the USA,” without any qualification, it must be “all or virtually all” made in the United States. “[A]ll 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.” The FTC contemplates the site of final assembly or processing, the proportion of manufacturing costs paid to the U.S., and how detached the foreign material is from the finished product. For many businesses, this standard can be hard, if not impossible, to meet.
Since January 2015, the FTC has issued 46 letters to companies asserting misleading U.S. origin claims on a wide range of products, such as cookware, snow blowers, auto parts and pet products.
For example, the FTC recently determined that Shinola—a Detroit-based manufacturer of high-end watches, bicycles, and leather goods—did not meet it. Shinola advertises its products with the slogans “Built in the USA” and “Built in Detroit.” But in June of this year, the FTC called this labeling misleading because “100 percent of the cost of materials used to make certain watches . . . [and] more than 70 percent of the cost of the materials used to make certain belts” goes to imported materials. For example, Shinola’s watches incorporate Swiss-made timekeeping components.
Shinola’s founder had a good reason for why his company incorporated foreign parts: many of the components are unavailable in the U.S. The components are imported to Detroit where Shinola’s 400 employees assemble watches in the company’s factory. The FTC, however, applied its “net impression” analysis and determined that Shinola’s slogans contradict reality. Shinola’s advertisements will now read “Built in Detroit using Swiss and Imported Parts.”
In light of the FTC’s stance on U.S. origin claims, companies should follow FTC decisions and exercise caution when saying “Made in the USA.” There is no bright line rule for whether a product is “all or virtually all” made in the USA. Companies should consider how their products fit within the FTC’s framework and only then decide whether their merchandise has, according to the FTC, been “Made in the USA.”
© 2016 Schiff Hardin LLP