FTC files first enforcement action under new ‘Made in USA’ rule, winning civil penalties from battery maker
In the Federal Trade Commission’s first action under its new “Made in USA labeling rule,” the FTC accused Lithionics Battery and its owner of falsely claiming that its lithium-ion cells were made in the United States. . Lithionics designs and sells batteries for recreational vehicles, amusement park rides, marine applications and low-speed electric vehicles
In a settlement announced yesterday, the defendants agreed to stop making false “made in the USA” claims and pay a civil penalty of $105,319.56 – which the FTC says is three times the profits the company made using inappropriate “made in USA” claims. .
Made in USA Labeling Rule
The FTC’s Made in USA labeling rule prohibits marketers from labeling any product as being made in the United States unless final assembly or processing of the product takes place in the United States, whether all significant processing that goes into the product takes place in the United States, and all or substantially all of the ingredients or components are manufactured or sourced in the United States.
The new rule applies not only to product labeling, but to any “mail order catalog” or “mail order promotional material” that includes a seal, mark, label or stamp indicating that a product was manufactured in the United States. The FTC defines mail order catalogs and promotional materials as “any material, used in the direct sale or offer for sale of any product or service, that is disseminated in print or by electronic means, and who solicits the purchase of such product or service by mail, telephone, e-mail or any other method without examining the product actually purchased.”
The rule codifies the FTC’s longstanding enforcement policy statement on US origin claims and gives the FTC the power to seek civil penalties when merchants violate the rule.
In its enforcement action, the FTC accused Lithionics and its owner of labeling the products with the following image, which consists of the words “Made in USA” surrounding an American flag:
The FTC also alleged that the company also used the “Proudly Designed and Built in USA” statement. The FTC said these claims — and other US-made claims made by Lithionics on its website and social media — were false and misleading because its batteries incorporate significant imported components.
Announcing the action, Sam Levine, director of the FTC’s Consumer Protection Bureau, said, “As our country works toward the onshore production of lithium-ion batteries, it’s critical that honest companies have a chance to compete and that consumers can buy American.Falsely labeling batteries as made in the USA is against the law, and the FTC is using its new Made in USA rule to make sure this misconduct has a price.
What does this mean for marketers?
Here are some important takeaways from this enforcement action.
First, there is no doubt that “Made in USA” claims continue to be a top priority when it comes to enforcement at the FTC. If you make claims of US origin, you’d better make sure they comply with the FTC’s new labeling rule, as well as its enforcement policy statement. Marketers should expect more enforcement action to come.
Second, this week’s enforcement actions signal a new era of “Made in the USA” enforcement, with the FTC seeking civil penalties following a company making false claims of American origin. But, more importantly, the FTC didn’t just seek civil penalties; he sought civil penalties which were thrice the profits that the company has derived from these claims. That’s a pretty clear indication of the kinds of settlements the FTC might seek in the future.
Third, it should be noted that while this case is largely about claims of US origin, it is also part of a larger agenda for dealing with problematic environmental marketing claims. As the country attempts to reduce its dependence on fossil fuels and transition to more electrical and other equipment, this case also indicates that the FTC will be scrutinizing merchants who sell environmentally friendly products to ensure that all of their claims – not just their green claims – are truthful and not misleading.
Fourth, don’t let the name “Made in USA labeling rule” fool you. The rule covers much more than just traditional labeling, such as websites and (at least some) other online media. While the full scope of the rule may be a little uncertain, don’t assume you’re out of scope if you simply avoid making claims on the packaging itself. And remember that claims originating in the United States that are not covered by the rule are still governed by FTC law and must still comply with the FTC’s Enforcement Policy Statement.
“The FTC is using its new Made in USA rule to ensure that this misconduct has a price” — Sam Levine, Director, FTC Bureau of Consumer Protection