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Supply Chain News: Controversy over Made in America Label Continues, as Pressure Grows on FTC to Get More Aggressive

 

FTC Can Do Little to Punish First Time Offenders for Mislabeling

Nov. 28, 2018
SCDigest Editorial Staff

"Made in America" continues to be a popular promotional phrase, but just who is allowed to use that label remains controversial, with it appears increased number of companies falsely claiming that moniker.

As SCDigest reported a couple of years ago, there is no clear definition of what products qualify as Made in the USA, with different rules at the state level. (See In Era of Reshoring, Just What Qualifies to be Labeled "Made in America?"

Supply Chain Digest Says...

Manufacturing groups now see a chance to leverage President Trump's focus on returning manufacturing to the US from China to get more favorable FTC rulings.


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The US Federal Trade Commission rules say that a "Made in USA" label can go on any goods that are "all or virtually all" made domestically. But the FTC doesn't define what "virtually" means.

A number of companies have made their own interpretations, often using a rule of thumb that if 70% or more of the value of a product is made domestically, it can be dubbed as made in America.

But the state of California sees things differently. Every part of a product must be made in American to qualify for that status, according to the rules there. To state a product is made in the US is considered false advertising even if 99% of the components are US made.

In California especially, the costs of falsely labeling a product as made domestically can be severe. For example, sports equipment maker Lifetime Products produced basketball hoops that were made of parts that were almost entirely cut, shaped, painted and assembled at its sprawling factory in Utah. But those parts don't include some bolts and the net, which come from China. In fact, at the time the only basketball nets available were all made in China

And that fact had led to Lifetime being embroiled in two consumer lawsuits claiming that customers were duped by buying a product that claimed "Made in USA" status that it didn't deserve.

The two actions against Lifetime were ultimately certified as a single class action and were settled in California state court.

The court awarded plaintiff's attorneys $485,000, and Lifetime agreed to donate an additional $325,000 to charity and to offer discounts to consumers who had bought basketball equipment in the past. But the lawyers got almost all the money - one of the two plaintiffs was awarded $4,500, the other just $3,500. Lifetime says it also spent some $535,000 on its own legal fees.

In fact, the opportunities in California based on its tough laws and enforcement have created a small cottage industry of law firms searching for such lawsuit opportunities.

Several years later, the controversy continues on. The Wall Street Journal recently reported that in three major cases in September, the FTC ruled that three companies – a manufacturers of backpacks, a hockey puck maker, and an on-line mattress retailer – had falsely represented products as made in America.


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The result - all three companies were ordered to stop marketing these products as made in the US, but none was fined or forced to admit fault.

And that has been long standing FTC practice – few if any companies are fined or face other more serious sanctions for a first offense.

The agency has issued 135 warning letters and brought 10 lawsuits against companies for fraudulent Made in the USA labeling since 2010. However, only Stanley Black & Decker has ever been fined for a second violation, and that was all the way back in 2006.

In theory, the FTC can pursue refunds for customers for first-time offenses, but it is prevented by law from seeking outright fines for a first violation.

But the FTC's James Kohm told the Journal that the agency usually avoids the refund process because it can require intense effort for relatively small payments, saying "It's extremely difficult, and it would take a lot of resources."

Of course, many of the inaccurately labeled products are come China in whole or part. Manufacturing groups now see a chance to leverage President Trump's focus on returning manufacturing to the US from China to get more favorable rulings.

"You have the president talking about Made in America and manufacturing on a regular basis," says Alliance for American Manufacturing president Scott Paul said. "It seemed like the right time to encourage the FTC to be more earnest about its enforcement."

However, while FTC commissioners are appointed by the president, the agency operates independently, and does not take policy orders from the president.

The leniency given to first time offenders is one source of concern to some manufacturing groups.

"You have some people who very clearly know what they're doing and don't feel like they're going to get whacked if they get caught the first time," lawyer Michael Taylor, who represents US manufacturers in a range of trade-related issues, told the Journal.

The issue is also getting attention from some lawmakers. Last month, senators Sherrod Brown of Ohio, Tammy Baldwin of Wisconsin, and Christopher Murphy of Connecticut, all Democrats, sent a letter to the FTC chairman calling for an end to "no-fault, no-money" settlements.

And at least one FTC commissioner agrees. Rohit Chopra wrote in a dissent to the September rulings that "Every firm needs to understand that products labeled ‘Made in USA' should be made in the USA, and that fake branding will come with real consequences."

Just how much a Made in America label really influences purchase decisions remains largely unknown.

While a 2015 survey by Consumer Reports found that 80% of Americans say they would rather buy American-made products, and more than 60% say they would be willing to pay 10% more for U.S.-made items, that hasn't really been supported by retail sales data.

Do you think Made in America labelingneeds to be more strictly enforced? Let us your thoughts at the Feedback section below or the link above to send an email.

 

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