Second big fine puts firms on notice to get serious about support for Made in USA claims

11-Oct-2021 - Last updated on 11-Oct-2021 at 16:03 GMT

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The Federal Trade Commission has handed down the another substantial penalty this year for a misleading Made in USA claim, underlining the risk such claims can pose to manufacturers if not properly constituted

The settlement was announced in a case FTC brought against a mattress manufacturer and its owner. The company, called Resident Home LLC, had been making claims its DreamCloud mattresses were made from 100% USA-made materials when in fact the mattresses were imported.

Fine levied after firm ignored previous settlement

The company and its owner, Dan Reske, were subject to a prior administrative order issued in 2018 concerning claims made on mattresses, in that case under the Nectar Brand subsidiary. The proposed order that was entered on Friday incorporates the terms of the 2018 order, orders the payment of $753,000, and expands the application of the 2018 order to all the entities under the control of Reske.

“Baseless claims that products are made in the USA hurt not only consumers but also honest businesses that build their products here,” said Samuel Levine, Director of the Bureau of Consumer Protection. “Unfortunately, we see too many repeat offenders like Resident Home, but thanks to the FTC’s recently finalized Made in USA Labeling Rule, companies that abuse these labels will face civil penalties in addition to other relief. We will not hesitate to seek strong penalties against Made in USA fraud.”

The penalty is the second substantial fine FTC has levied this year over allegedly false made in USA claims. In a judgment issue in February of this year a manufacturer of white label superglues was ordered to pay $1.2 million.

The heightened enforcement atmosphere signaled by the settlements is of relevance to the supplement industry because of the many such claims made on supplements. An unqualified Made in USA claims opens up a brand to FTC enforcement and perhaps to a class action lawsuit which may be even more of a threat.

Current examples of potentially violative products

A cursory search on Amazon found a supplement using a fruit native to China as ingredient making an unqualified Made in USA claim, as did a Vitamin D3 supplement. Almost all of the Vitamin D3 in the market is produced in one of several chemical plants in China. Another supplement making the claim included ‘Vitamin C (as ascorbic acid),’ which, when called out in that way, is another ingredient almost certainly sourced in China. That product also contained turmeric powder, which at the price point of that SKU almost certainly was sourced from one of the lower cost Indian suppliers. There are hundreds of other examples.

An unqualified claim implies that the product is made domestically, as are all of constituents. ‘Assembled in USA’ is one of the ways in which this claim could be modified, but even in that case the product needs to have been ‘substantially transformed’ in this country to qualify. It’s doubtful that merely bottling pre-filled capsules purchased in bulk from an overseas supplier would meet that standard.

Heightened enforcement is here to stay

Earlier this year attorney Ivan Wasserman, a partner in the firm Amin Talati Wasserman, said the ramped up enforcement picture is likely to continue under during the Biden Administration. And that approach now has the financial teeth that earlier enforcement of these claims lacked.

“In the last several years we saw a dramatic increase in the number of FTC actions against companies for making unqualified ‘Made in the USA’ claims that did not comply with their standards. Most of them had been in the form of FTC public Closing Letters, without any injunctive or monetary relief. Through public statements and executive orders, the Biden Administration has been vocal about the importance it is putting on “Buy American,” and as a direct corollary to that the FTC will increase its enforcement against companies it believes are deceptively capitalizing on consumers’ desire to purchase American-made goods,” Wasserman told NutraIngredients-USA.

“Dietary supplement companies must understand that ‘Made In USA’ claims are voluntary marketing claims and will be treated by the FTC, the NAD, and Class Action attorneys as such. If all or virtually all of the ingredients in the product are not sourced from the USA, appropriate qualifiers must be used to ensure that consumers understand the actual American-ness of the product,” he added.