On February 1, 2016, the Federal Trade Commission (FTC) filed an action against Chemence, Inc., an Ohio-based manufacturer, advertiser, and distributor of cyanoacrylate glues (often referred to as “superglues”). In its complaint, filed in the United States District Court for the Northern District of Ohio, the FTC alleges that Chemence is deceiving consumers by claiming that all, or virtually all, of its glue products are American-made. Chemence’s glue products, which include Kwik Frame, Kwik Fix, and Krylex, purport to be “Made in the USA” or “proudly made in the USA.” According to the FTC, these claims are unqualified, and thus deceptive, since a “significant proportion”—approximately 55%—of the chemical components in Chemence’s glues are attributable to imported chemicals essential to the way the glues function.
The FTC also claims that Chemence provided the “means and instrumentalities” for others to deceive consumers through its unqualified Made in USA claims by providing deceptive promotional materials to retailers for use in marketing the glues. The complaint asks the court to issue an order permanently prohibiting Chemence from making deceptive Made in USA claims and seeks other relief, including monetary relief and rescission or reformation of contracts.
We have blogged previously about unqualified Made in USA claims. However, the Chemence action will be the first opportunity to test in court the FTC’s position on how consumers interpret the phrase “Made in USA.” As we have written previously, there is perhaps a not frivolous argument that consumers interpret “Made in USA” to mean that the factory is located in the United States rather than the FTC’s position that it means all or virtually all of its costs are domestic.
The FTC enforces against deceptive Made in USA claims in which all or virtually all of the products components are made, manufactured, or produced outside of the United States. In its Enforcement Policy Statement on U.S. Origin Claims, the FTC describes its “all or virtually all” standard, stating that a product can be labeled as “Made in USA” if it contains “only a de minimis, or negligible amount of foreign content.” The FTC’s business guide lists factors it considers when determining whether all or virtually all of a product is, in fact, made in the USA: the amount of the total manufacturing costs that may be assigned to domestic parts and processing, and how removed foreign content is from the final product. Of course, the FTC’s approach in applying this standard is very fact-specific, and no “bright line” rule exists; however, it is clear from the Chemence action that importing approximately half of a product’s components is over the FTC’s de minimis threshold.
The Chemence suit marks the first action by the FTC regarding deceptive Made in USA claims that did not result in a settlement prior to the filing. To date, the FTC has sent sixty-five closing letters to companies allegedly making deceptive Made in USA claims; these includes letters sent to glue manufacturers. The FTC also filed in federal court, not administratively, and is seeking monetary relief. Prior FTC Made in USA cases did not involve equitable monetary relief.
The FTC’s suit also comes on the heels of California’s new approach to Made in USA product labels. Senate Bill 633 took effect on January 1, 2016, and it allows a manufacturer to include a Made in USA label if foreign parts constitute no more than 5% of the product (or, if the foreign parts cannot be manufactured in the United States, that they constitute no more than 10%). Previously, California took a very strict approach, prohibiting Made in USA claims if any part of the product was not made, manufactured, or produced in the United States. California’s new standard more closely aligns with those used by the rest of the states as well as the FTC. For instance, California’s no-more-than-5% standard is similar to the FTC’s de minimis or negligible standard described above when it comes to foreign components in Made in USA products. However, if Congress passes the “Reinforcing American-Made Products Act of 2015,” introduced in the Senate in June 2015, federal law will apply the FTC’s standard and supersede all state laws.
The Chemence action illustrates that Made in USA claims remain an important priority for the FTC and will provide an opportunity for a court to consider the correctness of the FTC’s “all or virtually all” standard. For now, manufacturers and advertisers should carefully consider the makeup of their products before placing that Made in USA label on, or they could get stuck in a legal mess.