The Federal Trade Commission (FTC) is intensifying its scrutiny of "Made in USA" (MUSA) claims, but the level of risk is not uniform across all claims and product categories. A series of warning letters issued in July by the agency may signal a strategic triage system for determining which companies receive a warning and which face potential penalties. This insight comes from Reed Smith attorneys John Feldman and Julia Solomon Ensor, the latter having previously led the FTC’s Made in USA program.
For any company that advertises products with "Made in USA" or similar domestic-origin claims on labels, websites, social media, or any other marketing platform, the risk profile has been steadily escalating. This heightened enforcement stems from a White House executive order in March directing the FTC to crack down on misleading origin claims. Since then, enforcement actions have accelerated. The FTC’s recent issuance of seven warning letters in July provides a potential glimpse into the agency’s prioritization framework for MUSA claims, offering crucial guidance for compliance practitioners.
This is not merely a fleeting enforcement sweep; it represents a sustained campaign, escalating in intensity, directly in response to the White House’s directives. Understanding this emerging framework and proactively building internal compliance programs around it could be the critical differentiator between receiving a warning letter, facing a law enforcement action, or never hearing from the agency at all.
Understanding FTC Priorities Through Warning Letters
The immediate reaction to the FTC’s heightened activity might be to view all MUSA claims as excessively risky. The FTC’s Made in USA labeling rule grants the agency the authority to seek civil penalties of up to $53,000 per violation, per day, from companies making unsubstantiated MUSA claims on labels for products that are not "all or virtually all" domestically produced. The "all or virtually all" standard is a demanding, if not practically impossible, benchmark to meet in today’s interconnected global economy. However, for companies that genuinely perform significant manufacturing functions in the U.S., completely abandoning all US-origin claims deprives consumers of valuable information and forfeits a significant marketing advantage. A more nuanced approach is therefore necessary, one that carefully considers the insights revealed by the FTC’s July warning letters regarding risk and priorities.
The seven companies that received warning letters in July represented a diverse range of industries, including those manufacturing e-cigarettes, coordinate measuring machines, industrial laser machinery, and musical instruments. The challenged claims were equally varied, encompassing explicit "Made in USA" and "Built in the USA" statements, as well as more specific claims like "handmade in Austin, Texas," and even social media hashtags such as "#madeinUSA" and "#madeincali."
Despite this diversity, the common thread among these companies was that they received warning letters, not immediate enforcement actions. This distinction offers a crucial insight into how the FTC prioritizes its enforcement targets and, consequently, how companies should assess and manage their own MUSA-related risks.
Bucket 1: Navigating Jurisdictional Complexities
A significant portion of the FTC’s July warning letters, specifically three out of the seven, were directed at companies involved in the vaping and e-cigarette industry. This targeting highlights a key factor in the FTC’s enforcement triage: jurisdictional complexities. The Food and Drug Administration (FDA), through its Center for Tobacco Products, holds federal jurisdiction over the labeling of electronic nicotine delivery systems, regulating their manufacture, packaging, and labeling. While the FTC retains authority over the advertising and marketing of these products, product labeling generally falls under the FDA’s purview. Crucially, the FTC’s MUSA labeling rule explicitly excludes products where another federal agency has primary authority over labeling.
The Federal Register notice announcing the final MUSA labeling rule specifically acknowledged that "USDA and FDA have primary jurisdiction over labeling issues for the food products within their purview." Attempting to enforce the MUSA labeling rule against an FDA-regulated product’s labeling would likely invite a jurisdictional defense, making a warning letter a more pragmatic approach for the FTC than pursuing a potentially protracted penalty case.
Therefore, if a company’s product labeling is regulated by an agency other than the FTC—such as the FDA, the U.S. Department of Agriculture (USDA), or the Alcohol and Tobacco Tax and Trade Bureau (TTB)—the risk of enforcement action specifically under the MUSA labeling rule is demonstrably lower. This does not imply that the FTC cannot challenge misleading origin claims in advertising under its general authority pursuant to Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices. However, operating within a jurisdictional gray zone is not a sustainable compliance strategy. The key takeaway here is that the risk of civil penalties or financial redress is reduced when another agency holds primary labeling authority.
Bucket 2: Claims Beyond the Label’s Reach
The remaining four companies that received warning letters had their challenged claims appearing on platforms other than product labels, including websites, social media, brochures, and trade show materials. This distinction is paramount. The FTC’s MUSA labeling rule derives its authority from legislation specifically addressing product labels. The commission’s authority to apply this rule to non-label claims is, at best, tenuous.
However, it is crucial to understand that non-label claims are not risk-free. The FTC is empowered and indeed inclined to challenge deceptive origin claims in advertising under its broad authority to pursue unfair or deceptive acts and practices under Section 5 of the FTC Act. Nevertheless, similar to claims subject to the jurisdiction of other regulatory bodies, the financial exposure associated with non-label claims differs materially. A violation of the MUSA labeling rule on a product label can result in substantial six-figure civil penalties. In contrast, an enforcement action under Section 5 for advertising claims is more likely to culminate in an injunction and a requirement for corrective action, without the same significant monetary penalties.
Bucket 3: The Role of Qualified Claims
Notably absent from both the FTC’s warning letters and recent enforcement actions are allegations against companies that have made "qualified" MUSA claims. Examples of such claims include "Made in USA of Imported Components" or "Assembled in USA." This absence is significant and relates directly to the categories discussed above. Much like claims subject to other regulatory regimes or non-label statements, qualified MUSA claims fall outside the direct purview of the MUSA labeling rule. Consequently, the substantiation standard that marketers must meet to support these claims is materially lower, provided they do not explicitly reference U.S.-origin parts without qualification.
Marketers that can demonstrate substantial transformation of their products within the U.S., without subsequent overseas processing, can generally make qualified claims with a significantly reduced risk of FTC action. If a company is confident that its manufacturing process constitutes a substantial transformation in the U.S. under the laws enforced by U.S. Customs and Border Protection, but remains uncertain about whether the non-U.S. content in the product is truly de minimis, a qualified claim presents a lower-risk alternative. Companies should carefully weigh whether the marketing benefit derived from an unqualified claim truly outweighs the associated risks.
Building a Robust Compliance Program
Understanding the FTC’s enforcement logic is only valuable if it translates into actionable internal processes. A defensible MUSA compliance program should encompass several key components:
A Comprehensive Claim Inventory
The first critical step is to meticulously identify every US-origin claim a company makes, across all communication channels. This inventory should not be limited to the explicit phrase "Made in USA." The FTC’s July warning letters demonstrated the agency’s intent to scrutinize a wide array of claims, including phrases like "Precision Built in the USA," "created by American workers, engineers, and innovators," specific geographic claims such as "handmade in Austin, Texas," and "Made in [state]" declarations. The FTC has made it clear that these will be evaluated under the same "all or virtually all" standard applied to traditional "Made in USA" claims.
Building and Maintaining Substantiation Files
For every identified origin claim, a robust substantiation file is essential. This documentation should include:
- Detailed Bill of Materials: A comprehensive list of all components and their country of origin.
- Manufacturing Process Documentation: Clear records outlining all manufacturing steps performed within the United States.
- Supplier Certifications: Documentation from suppliers confirming the origin of materials and components.
- Cost Analysis: Data demonstrating the proportion of U.S.-based costs (labor, materials, overhead) relative to the total product cost.
- Substantial Transformation Analysis: Legal opinions or internal assessments confirming that the product has undergone substantial transformation in the U.S.
This substantiation process is not a one-time event. Supply chains are dynamic and subject to change. Substantiation must be current. If a company’s substantiation file is older than 12 months, or if there have been any changes in suppliers or manufacturing processes, it is imperative to re-substantiate the claim or, if necessary, remove it.
Mapping the Regulatory Landscape
Companies must proactively determine which federal agencies have jurisdiction over their product labeling. This involves understanding the specific regulations each agency enforces concerning origin claims and identifying any areas of overlapping jurisdiction that might create either additional exposure or potential defenses. For instance, understanding the nuances of FDA labeling requirements for food products is as critical as understanding FTC advertising rules.
Differentiating Risk by Claim Placement
Based on the FTC’s revealed enforcement priorities, companies should assess their risk profile by claim placement. A tiered approach can help allocate compliance resources effectively:
| Claim Placement | Primary Authority | Penalty Exposure | Priority Level |
|---|---|---|---|
| Unqualified claims on product labels (FTC-jurisdictional products) | MUSA labeling rule | Civil penalties (~$53K/violation) | Highest |
| Unqualified claims on product labels (other-agency products) | Varies; jurisdictional | Depends on agency; overall likely lower than FTC | Moderate |
| Unqualified claims on website, social media, advertising | Section 5 | Injunction; limited monetary | Moderate |
| Qualified claims | Section 5 | Injunction; limited monetary | Lower |
This table does not suggest that non-label claims can be ignored. The FTC’s warning letters clearly indicate that the agency monitors all channels. However, this prioritization provides critical insights into where compliance resources should be allocated first to mitigate the most significant risks.
Establishing a Review Cadence
MUSA compliance is an ongoing effort, not a singular event. Establishing recurring processes is essential:
- Annual Review: Conduct a comprehensive review of all MUSA claims and their substantiation files at least annually.
- Triggered Reviews: Implement processes for immediate review whenever there are significant changes in the supply chain, manufacturing processes, or product components.
- Post-Marketing Monitoring: Continuously monitor advertising and marketing materials to ensure claims remain accurate and substantiated.
Looking Ahead: A Sustained Campaign
"Made in USA" claims remain firmly in the FTC’s crosshairs as the agency executes a key component of the current administration’s domestic manufacturing agenda. Continued enforcement actions are anticipated.
For compliance practitioners, the task, while straightforward in principle, requires diligent execution. This involves a clear understanding of which regulatory bodies have jurisdiction, a thorough inventory of all origin claims being made, rigorous confirmation that these claims are truthful and adequately substantiated, and the establishment of robust internal processes to maintain compliance over time. Companies that proactively invest in these efforts now are best positioned to avoid receiving warning letters—or worse—in the future.
