June 23rd, 2015

When are Manufacturers Liable for Claims Made by Their Retailers?

The Federal Trade Commission ("FTC") recently closed an investigation into whether Quickie Manufacturing Corporation ("Quickie"), a maker of cleaning products, engaged in unfair or deceptive acts or practices when third-party retailers marketing Quickie products made unqualified and unsupported "Made in USA" claims. Quickie took steps to address the issue as soon as it learned of it, and the company's efforts helped avoid regulatory sanctions. Here's what happened.

Background

The FTC has long had the authority to regulate advertising claims about a product's USA origin. To that end, the FTC has issued guidance on when and how claims asserting that products are "Made in USA" may be used in advertising. A product advertised as Made in USA, without qualification, must be "all or virtually all" made in the USA to comply with the FTC's guidance. In other words, all significant parts and processing that go into the product must be of US origin. If the product doesn't meet this standard, a qualified Made in USA claim may be appropriate, indicating the product is not entirely made in the USA and providing information about the product's domestic content or processing (e.g., "Made in USA of US and imported parts").

The FTC's investigation of Quickie is just the latest in a string of recent investigations into USA origin claims. What makes this matter unique, though, is that the FTC pursued Quickie - the manufacturer - for claims made by third-party retailers without Quickie's knowledge.

The Problem

Third-party websites that sold Quickie products made unqualified "Made in USA" claims for certain products which were not all or virtually all made in the USA. Quickie had properly labeled the products in question, and was initially unaware of the deceptive claims made by the retailers.

The Resolution

The FTC closed its investigation into Quickie without penalty. In doing so, the agency's "closing letter" noted that 1) the inaccurate claims made by third-party retailers were made without Quickie's knowledge; 2) Quickie properly labeled the products in question, either with their correct country of origin or qualified "Made in USA" claims; and 3) Quickie implemented a remedial action plan after discovering the issue to ensure proper marketing of its products. The plan includes confirming its product labels display accurate country-of-origin claims; hiring a temporary employee to ensure the accuracy of these claims on Quickie products sold by third-party retailers; and taking steps to correct inaccurate claims on third-party websites, including by sending cease and desist letters.

The Take-Away

In addition to confirming the FTC's continued interest in Made in USA claims, this investigation also reflects FTC's broad view of potential liability for false advertising. Under the law, false advertising liability can extend to all parties who disseminate false or misleading statements in advertising, and/or place the advertised goods in commerce. Good faith or ignorance of the misleading claims may be no defense. 

The FTC's investigation of Quickie could be an indication of how the FTC is now thinking about manufacturer liability in the event that inaccurate or deceptive claims are made by third-party retailers, even if those claims are made without the manufacturer's prior approval or knowledge. Further actions by the FTC should help to clarify its position.  In the meantime, manufacturers may want to keep an eye on claims made by third-party retailers (or anyone else in the supply chain) marketing or selling their products, and if they become aware of problematic claims, take appropriate steps.

For more information on "Made in USA" claims, manufacturer and retailer liability issues, or other advertising compliance questions, please contact Terri Seligman at (212) 826-5580 or tseligman@fkks.com, Jeffrey A. Greenbaum at (212) 826-5525 or jgreenbaum@fkks.com, Rayna S. Lopyan at (212) 705-4842 or rlopyan@fkks.com, or any other member of the Frankfurt Kurnit Advertising Group.