FTC Cracks Down Against False Made in USA Advertisements

As discussed in our Pyrex-brand glass measuring cups alert, the FTC seems more committed than ever to bring enforcement actions for false or deceptive US-origin marketing claims. The Director of the Bureau of Consumer Protection has said that the FTC “will not hesitate to seek strong penalties against ‘Made in USA’ fraud,” which they continue to do in a demonstration of the seriousness with which the FTC approaches deception related to false or misleading statements of US origin.

Mattresses NOT Made in USA

The FTC prepared a Complaint against Resident Home LLC – the parent company of Nectar Sleep – and its owner, Ran Reske, in October 2021 for allegedly misleading customers regarding the origin of their DreamCloud mattresses that they claimed were made in the United States exclusively from US-made materials. In reality, the mattresses were made and/or finished overseas, sometimes out of wholly imported materials.

These misleading advertisements by Resident Home LLC have cost the company more than $800,000 with at least $45,000 in payouts to harmed customers. Indeed, the FTC has begun sending those payments to DreamCloud mattress customers and will contact an additional 12,300 consumers over the next few months.

Interestingly, this recent debacle is not the first run-in that Resident Home LLC has had with the FTC resulting from misleading advertisements. Recognized by the FTC as repeat offenders, Reske and Resident Home LLC entered into an FTC Consent Agreement in 2018 meant to resolve allegations that it falsely advertised imported mattresses as “Assembled in USA.” This administrative order was expanded in 2021 to apply to all entities under Reske’s control, and required a payment of $753,000. The 2021 FTC order expressly prohibited Reske and Resident Home from making claims that deceive customers and harm law-abiding businesses whose sales are hindered by false “Made in USA” claims.

Qualified v. Unqualified US-Origin Claims

More specifically, the FTC’s order bans “unqualified US-origin claims,” i.e., blanket claims that a product was “Made in USA” unless the company can demonstrate that:

1. significant processing for the product took place in the United States;
2. that all or virtually all ingredients or components of the product were made and sourced in the United States;
3. that the product’s final processing took place in the United States; and
4. that the product’s final assembly took place in the United States.

This comprehensive order also addressed “qualified US-origin claims.” Clear disclosure about the extent to which a product contains foreign parts, ingredients, components, or processing is required when making qualified claims, and, to make a claim that a product is assembled in the United States, companies must verify that the product is last substantially transformed in the United States, that its principal assembly took place therein, and that the United States assembly operations were “substantial.”

Takeaway

To avoid landing on the wrong side of an FTC enforcement action, it is critical that companies pay close attention to the Made in USA Labeling Rule. When in doubt, err on the side of not advertising your products as “Made in USA,” or at a minimum give consideration to making a qualified as opposed to an unqualified US-origin claim. Advertising counsel’s review is a useful tool in assuring compliance with FTC advertising guidelines.

Our team will be monitoring current and future FTC enforcement actions as they arise. Please feel free to contact your ArentFox Schiff LLP attorney or an author with any questions or concerns.