All Hat and No Cattle: FTC Cites Hat Company for Overstating Made in USA Claims; Major Industry Group Asks FTC to Revise Made in USA Standards
The Federal Trade Commission recently announced a proposed settlement of another significant "Made in USA" enforcement action, and in response, a major industry trade association has requested that FTC revise its "Made in USA" enforcement policy.
The announced settlement on January 29th involves the Bollman Hat Company (Bollman) and SaveAnAmericanJob, LLC, jointly doing business as “American Made Matters” (AMM). Bollman is a major manufacturer and importer of hats and headwear, and while it does have production facilities in the US, a large portion of its merchandise is imported in finished form and many of its styles produced in the US contain significant imported content. FTC is citing Bollman for making unqualified "Made in USA" claims for these products by using Bollman’s proprietary self-certification seal that states “American Made Matters – Choose American,” and for making claims that its hats were “Made in USA since 1868” or “Made in the USA for 100 Years or More.” (Note: Although not a part of this FTC action, we note that products entered in finished, or nearly finished form, likely would fall under the marking requirements of the Tariff Act of 1930, as amended, and should have conspicuously been marked to indicate a foreign country of origin. Failure to mark goods in compliance with this requirement can result in penalties, increased duties, and even the seizure of such goods by US Customs and Border Protection).
Bollman also marketed its “American Made Matters” self-certification seal to other US manufacturers, and FTC cited the company for making false or unsubstantiated claims on its website and in social media insofar as representing that the “American Made Matters” seal means that products bearing that seal are “all or virtually all made in the United States.” FTC’s complaint alleges that Bollman charged a licensing fee of $99/year to use the seal, as long as the manufacturer self-certified that at least 50% of the cost of a product was incurred in the US and that final assembly or transformation occurred in the US. FTC alleged that by using this self-certification seal, the company attempted to convey to consumers that an independent organization had reviewed and endorsed Bollman’s own products as US-made, and that other companies that were authorized to use the "American Made Matters" designation had also been independently and objectively evaluated for compliance with the membership standard – but those companies were never independently evaluated, as it was entirely a self-certification process.
FTC has proposed a settlement and consent order that will prohibit Bollman from making any unqualified "Made in USA" claims unless it can show that (i) the product’s final assembly or processing takes place in the US; (ii) all significant processing occurs in the US; and (iii) all or virtually all components of the product are made and sourced in the US. However, FTC has not imposed any penalties in this matter. FTC is also requiring Bollman to make clear and conspicuous disclosures relating to any qualified "Made in USA" claims revealing the extent to which the product contains foreign parts, ingredients, and/or processing. The consent order also addresses FTC’s substantiation requirements in the context of any country of origin claims (presumably whether US origin or foreign origin), such that Bollman must have a reasonable basis for its origin claims and the claims must be true and not misleading. In addition to the above requirements, Bollman will also be required to file periodic detailed compliance reports with FTC that describe whether and how the company is in compliance with each provision of the consent order, including details on any changes the company may have made to comply with the order. As with most FTC consent orders, the company has agreed that for a period of 20 years, it will comply with the terms of the order, which means that it will be subject to significant penalties in the event that it violates any provisions of the order. The consent order will likely be approved and finalized by the Commission in April.
As to the “American Made Matters” seal, FTC is allowing Bollman to continue using and marketing this seal, but with several conditions imposed. First, if Bollman uses the "American Made Matters" seal on its own products, Bollman will have to clearly disclose any connection it has to the seal, i.e., that it is affiliated with the entity that issues the seal. Second, if Bollman endorses another company’s products as being US-made, it will likewise be required to disclose any connection it has to that company. Third, FTC will require the implementation of protections that will ensure that the "American Made Matters" designation is based on independent and objective evaluation by a third-party entity with no material connection to Bollman; however, FTC will permit Bollman to grant the seal based on self-certification, as long as this is clearly disclosed on the seal itself and in related marketing materials.
Bollman’s "American Made Matters" website appears to have been updated to incorporate these new requirements. The website makes it clear that FTC standards and AMM standards differ, and that “the standard of AMM is that at least 50% of the cost (labor, material, overhead) of the product is incurred in the United States and the final assembly or transformation takes place in the United States.”
In a significant move by a major industry trade association, the American Apparel and Footwear Association (AAFA) filed a response to FTC’s proposed settlement agreement on the very last day of the comment period provided by law. While comments are typically filed to address the terms of a proposed settlement, AAFA explicitly states in its filing that it was "not to question the merits of the complaint nor the determinations in the resulting consent order," but rather to point out how the Bollman case "highlights the underlying ambiguity in the Federal Trade Commission’s 'all or virtually all' 'Made in USA' standard." AAFA made a bold proposal that FTC re-evaluate the current Made in USA standard and adopt the following standards that AAFA believes would be “transparent, clear, measurable, and enforceable:”
- For unqualified "Made in USA" claims, AAFA proposes a requirement of "substantial transformation," plus "51% value-added" in the US. This would be consistent with many other existing country of origin standards used globally and by our own Department of Commerce and Customs and Border Protection.
- For qualified "Made in USA" claims, such as “Made in USA of Imported Materials,” AAFA proposes that FTC provide a definition of "materials" (perhaps so that inconsequential components, for example, may be excluded from the analysis), and provide specific value-added percentages that would assist companies in determining the percentage of materials that must be made in the USA to be eligible for a "qualified" "Made in USA" label.
We think that this move by AAFA may signal that the time may be ripe for further action by other industry associations and/or individual companies to pursue clarification of the "Made in USA" standards, and even outright revision of the standards.
Arent Fox's "Made in USA" team advises companies seeking to make product labeling, packaging, and advertising claims referencing US-origin. We will continue to follow and report on these developments. If you have any questions, please contact Georgia Ravitz, Scott Cohn, Teresa Polino, David Salkeld, or the Arent Fox professional who usually handles your matters.