Last year, the Federal Trade Commission (FTC) finalized a new rule (Rule) that would allow the agency to seek civil penalties in matters where a company made a false and unqualified Made in the USA (MUSA) claim on product labels. In the rulemaking process, however, the FTC developed a very broad definition of “labels,” which led at least one commissioner to dissent because that definition “exceeds our statutory grant of rulemaking authority.” (The definition is broad and states that labeling includes “any materials . . . that are disseminated in print or by electronic means, and that solicit the purchase of such product or service by mail, telephone, electronic mail, or some other method.”)
The time has come for the agency to bring its first case using the Rule, and the first case belongs to Lithionics Battery, a company that designs and sells battery management system products. The complaint also names the company’s founder and general manager individually in the lawsuit. The complaint alleges that defendants marketed their products with a Made in the USA label and also featured images of their products with the label on the company’s website and on social media. Through these labels, the FTC states that the company had represented that the products were “all or virtually all made in the United States.” They allegedly missed the mark there, however, and had to pay a $100,000 civil penalty as a result. The complaint states that in fact, the battery module products “incorporate imported lithium ion cells” and other imported components and therefore violate both the Rule and the FTC Act.
So let’s get to our three takeaways. First, the agency is very focused on money, individuals and notice to consumers. As we noted, the agency also named the company’s general manager as a defendant because the agency alleges that he controlled the company’s marketing and labeling and had knowledge that the products “incorporated significant imported components.” On the money side, the FTC press release notes that the $100,000 civil penalty represents three times the profits that the company made in connection with the violative activity, consistent with the stated goal of some commissioners to make sure rule violations are not a cost of doing business. (As a side note, neither the complaint nor the order mentions the profits associated with the products at issue, and it is highly unusual to see a fact in the press release that does not appear in the actual filings.) And on the notice front, we are again seeing the agency require defendants to notify customers of the FTC allegations. This is becoming far more common in recent FTC settlements.
Second, this case is a clear demonstration that when the FTC promulgates a rule, they are absolutely planning on using the rule for enforcement and to get penalties (or redress). Keep that in mind, as the agency has recently kicked off two new rulemakings and will likely initiate some sort of privacy rulemaking in 2022. (Although these rules will take a long time to reach their eventual conclusion.)
And finally, MUSA is an important program at the FTC; almost every year we should expect to see a few MUSA cases. The standards are pretty exacting, and my colleagues have written a lot about the new rule and questions raised. Although we have also written a lot about the challenges the FTC faces getting money after the AMG decision, MUSA is one of the areas where that has actually gotten easier, given the new rule. So before you make any sort of MUSA claim – whether qualified or unqualified – make sure you are well-apprised on the latest developments. And that goes double if the product you are marketing incorporates any component parts that are not MUSA.