It has become more fashionable, and importantly more profitable, for a company to promote “Made in America.” After all, consumers perceptions of the Made in America mark (or similar marks) drive product preference and afford a price premium as “American Made” is perceived to offer higher quality. Research from Consumer Reports and Standard Textile indicates:
- 80 percent of consumers prefer products that are Made in America;
- 75 percent of consumers believe that Made in America products are higher quality and better regulated;
- 60 percent of consumers would be willing to pay 10 percent more for a Made in America product.
The Made in America designation is similar to other intangible assets in that it can provide a competitive advantage. For example, the promotion of a product as Made in America or Made in the USA can be a real marketing advantage. However, a company must be able to support its claim of Made in America in order to use this designation.
The Federal Trade Commission (“FTC”) has authority over claims of U.S. origin. A company can claim Made in America if the product is “all or virtually all” made in the United States. In determining whether “all or virtually all” threshold has been met the FTC considers several factors:
1) whether final assembly or processing occurs in the United States;
2) how much of the total product’s manufacturing cost can be attributed to U.S. parts and processing; and
3) how far removed any foreign content is from the finished product.
There is no fixed amount or percentage of U.S. content required to support a Made in America claim. Rather, a manufacturer should have “a reasonable basis” to support its claim. This may involve examining the manufacturing process to determine how close to the finished product any foreign-made material is introduced, analyzing bills of materials to understand U.S. versus foreign content (by weight, count, and value), reviewing any transfer pricing or similar documents to determine previous content value attribution by step positions taken, and researching component content and origin in the event of “round trip” shipments or other issues.
Failure to comply with FTC requirements can result in enforcement actions such as civil penalties and/or injunctions and expose the manufacturer to other potential legal actions. Just recently Williams-Sonoma, Inc. was fined $1 million as part of a settlement with the FTC relating to misleading Made in USA claims.
This FTC view of what constitutes Made in America has parallels to the International Trade Commission (ITC) and its review of the economic prong of the domestic industry requirement. The ITC is an independent, quasi-judicial federal agency that fulfills a range of trade-related mandates. Once a complainant has proven that a domestic industry exits (or is in the process of being established) in the United States, the complainant can be entitled to an exclusion order (for imports into the United States) as well as a cease and desist order (for existing inventory already in the United States). Similar to the FTC for Made in America, the ITC has no bright line test to prove:
1) Significant investment in plant and equipment;
2) Significant investment in labor and capital;
3) Substantial investment in exploitation, including engineering, research and development, or licensing.
At the ITC it is up to the complainant to prove (and the respondent to rebut) that the domestic investment is significant and substantial, both quantitatively and qualitatively. There are significant discussions within ITC rulings related to the domestic industry prong, and these may be useful guideposts for Made in America issues at the FTC.
In conclusion, manufacturers who are considering Made in America claims should be mindful of the FTC requirements for such claims. While this is an emerging area of analysis, looking to similar ITC actions can provide clues as to how to proceed. Regardless, proactive data gathering and supportable analyses may be key to supporting a both FTC and ITC claims.