The Federal Trade Commission announced that it entered into a
settlement with clothing company Lions Not Sheep Products and its
owner, resolving claims that the company falsely promoted its
products as being American-made. As part of the settlement,
the company agreed to pay $211,335 to the FTC and to notify their
customers that the products they bought were not, in fact, made
here.
Lions Not Sheep sells a variety of clothing and other products,
including t-shirts, sweatshirts, jackets, sweaters, and hats.
The company sells them on its website as well as through
various third party platforms. In both its advertising and
its product labeling, the company made claims such as, “Made
in the USA,” “Made in America,” “100% American
Made,” and “Best Damn American Made Gear on the
Planet.”
The FTC alleged that, notwithstanding the company’s
U.S.-origin claims, the company’s products are “wholly
imported or contain significant imported content.” The
FTC even pointed to a video that the owner of the company posted
online where he explained that, “So our shirts are made in
America . . . But those shirts are made in China, just like damn
near every single made in America shirt you’re wearing
is. This is how it works.” And then he explains
that he conceals the fact that his products are made in China by
removing the original clothing tags and replacing them with tags
that say they are made in the United States.
In addition to requiring a $211,335 payment, the settlement
agreement prohibits the company from making false or misleading
“made in USA” claims in the future and requires the
company to comply with federal textile labeling rules. The
agreement also requires the company, when making qualified
U.S.-origin claims, to include a clear and conspicuous disclosure
that “appears immediately adjacent to the representation that
accurately conveys the extent to which the product contains foreign
parts, ingredients or components, and/or
processing.”
In announcing the settlement, Sam Levine, the Director of the
FTC’s Bureau of Consumer Protection, said, “Companies that
slap phony Made in USA labels on imported goods are cheating their
customers and undercutting honest businesses, and we will hold
those companies and their executives accountable for their
misconduct. American consumers have the right to know the
truth about where their clothes and accessories are
made.”
What are some important takeaways from this action?
First, FTC standards about “made in USA” claims are
well-established. If you’re going to make an unqualified
claim that a product is made here, you must substantiate that
“all or virtually all” of the product was made here.
According to the FTC’s Enforcement Policy Statement on U.S. Origin
Claims, this means that all significant parts and processing
that go into the product should be of U.S. origin and that the
product should contain only a negligible amount of foreign content.
And, at a minimum, in order for a product to be considered to
have been made in the United States, the final assembly or
processing of the product must take place here. The FTC will
also consider other factors, such as the total manufacturing costs
that are attributable to U.S. parts and processing and how far
removed from the finished product any foreign content is.
This policy was also recently codified in a Made in USA Labeling Rule, which covers
product labeling and mail order promotional material (including
websites).
Second, while the FTC still does close many “Made in
USA” cases without taking formal action (see examples here, here, here, and here), the FTC is also clearly stepping up its
enforcement efforts as well. Just recently, the FTC brought
its first enforcement action under the Made
in USA Labeling Rule, obtaining a $105K settlement from a battery
manufacturer. The FTC also recently brought enforcement
actions against a promotional products company ($146,000
settlement), a mattress company ($753,000 settlement),
and a glue manufacturer ($1.2M
settlement).
Third, it’s significant that the settlement says that
it’s not enough for a disclosure to be clear and conspicuous.
It also has to appear “immediately adjacent” to the
claim. While the FTC may be holding the company to a very
high disclosure standard here because of the allegations involved,
it’s certainly some indication about what the FTC’s current
view is on what makes a disclosure effective. Advertisers
that are relying on disclosures that are not “immediately
adjacent” to the claim being modified may want to rethink how
important those disclosures are and whether they are prominent
enough.
Fourth, the FTC’s case against Lions Not Sheep doesn’t
just rely on advertising claims appearing in traditional
advertising materials. In the complaint, the FTC pointed to
claims made in online product listings, product labeling, a
Pinterest post, an answer to an FAQs on the company’s website,
an Instagram video, and company replies to social media posts.
It’s an important reminder that you’ve got to make
sure your advertising claims are truthful, no matter where you make
them.
And, finally, the FTC took the unusual action here of requiring
the company to e-mail all of its customers to let them know that
the company was sued by the FTC for making false U.S.-origin
claims. In the notice, the company is required to say,
“To settle the FTC’s lawsuit, we’re contacting you to
tell you that the product you bought was not all or virtually all
‘Made in USA.’ In fact, although we screen or
embroider products in the USA, many of the products we sell are
imported.” If the threat of FTC action and civil
penalties is not enough, how many companies are going to want to
e-mail all of their customers to tell them that they have been lied
to?
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