The Trump administration, through the Federal Trade Commission (FTC), has made it clear that it will prioritize enforcement against false or misleading “Made in USA” claims. In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a look at the FTC’s Made in USA enforcement position, and considers the potential D&O insurance implications. I would like to thank Sarah for allowing me to publish her article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to the site’s readers. Please contact me directly if you would like to submit a guest post. Here is Sarah’s article.
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Shortly after the 4th of July, the Federal Trade Commission (FTC) Division of Enforcement sent warning letters to online marketplaces and retailers regarding the sale of “Made in USA” products. The FTC has indicated that, during the month of July, it will be highlighting its “Made in USA” labeling requirements to “ensure that Americans can trust that products advertised as ‘Made in USA” are actually American-made.” In its recent warnings, the FTC cited to Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices in or affecting commerce, and further indicated it would initiate actions against noncompliant companies. As readers of the D&O Diary know, FTC enforcement actions can be expensive and sometimes result in shareholder derivative and securities claims.
The following discusses what the FTC is, as well as the agency’s current patriotic focus coinciding with Tariff uncertainty, prior notable FTC cases and settlements, and the potential impact of FTC actions on D&O underwriters.
First, what is the Federal Trade Commission (FTC)? It is an independent agency of the United States government tasked with promoting consumer protection and maintaining fair competition in the marketplace. The President of the United States appoints the five FTC Commissioners and designates one of the Commissioners as the Chair of the FTC to serve at their pleasure. FTC Commissioner appointments are subject to Senate confirmation and, by law, no more than three Commissioners can be from the same political party. Commissioners serve staggered seven-year terms, although they often remain until a successor is confirmed.
Most FTC staff, including attorneys, economists, and administrative personnel, are career civil servants hired through standard federal hiring processes managed by the FTC’s Office of Human Resources Management, pursuant to Office of Personnel Management (OPM) rules. Established in 1914 by the Federal Trade Commission Act, the FTC investigates and enforces laws against deceptive advertising, unfair business practices, anticompetitive mergers, privacy violations, and fraud. It has both enforcement and rulemaking authority, and operates through civil litigation, administrative proceedings, and public outreach, such as the publication of targeted warning letters.
The July “Made in USA” (MUSA) warning letters explain that the FTC Act and the “Made in USA” Labeling Rule require that products advertised as “Made in the USA” must be “all or virtually all” made in the United States. This means that “all significant parts and processing that go into the product” originate in the US and that the product should contain, at most, only negligible foreign content. Companies that violate the FTC Act and the MUSA Labeling Rule may be subject to legal action, including the issuance of an administrative subpoena, the filing of a federal lawsuit, injunctive relief, and civil penalties or other monetary relief.
For example, one of the warning letters sent to Oak Street Manufacturing Company, LLC (Oak Street), stated that Oak Street promotes footwear products, such as hand-sewn moccasins and Storm-line boots, as being made in the United States. However, information and complaints reviewed by FTC staff suggested Oak Street footwear may be wholly imported or may contain significant imported content. Nearly identical warning letters were sent to Americana Liberty (Americana), a flagpole and flag manufacturer, Pro Sports Group LLC (Pro Sports), a football apparel company, and USA Big Mountain Paper Inc. (Big Mountain Paper), which sells personal care products.
The MUSA warning letters further note that violations of the FTC Act and the MUSA Labeling Rule could result in the FTC taking legal action, including the issuance of civil investigative demands (administrative subpoenas), the filing of federal litigation, permanent injunctions, the imposition of civil penalties of up to $53,088 per violation of the MUSA Labeling Rule, and other available monetary relief under Section 19(b) of the FTC Act, 15 U.S.C. § 57b(b). The FTC Commission further requested that each warned company contact Division representatives to discuss compliance.
Timing of the FTC focus on MUSA compliance may be a challenge for company leadership. In particular, a decision may need to be made as to whether it is more expensive to modify production to comply with the warning or potential legal recourse taken by the FTC. D&O underwriters may want to take note of the warned companies’ and FTC’s next steps. Notably, tariff disputes may already be impacting warned company production. Key inputs that are relied upon by Oak Street, Americana, Pro Sports, and Big Mountain Paper, such as cotton, synthetic fabrics, dyes, and fasteners, as well as paper and lumber, have been impacted by tariff-caused price fluctuation. In addition, if manufacturing or assembling the product is done outside the United States, like much of textile development and dying is, shifting to comply with the MUSA “all or virtually all” assembly requirement may be prohibitively expensive.
Even if the costs to comply are significant, with the MUSA warning shot fired, companies and D&O underwriters can recall the financial impact of prior FTC deceptive advertising and consumer fraud cases. One such example involved Care.com. In June the FTC issued a press release stating that its case against Care.com had settled. Care.com agreed to refund $8.1 million to 200,000 consumers allegedly misled by the availability of jobs on its platform and exaggerated claims about potential earnings for job seekers.
In its initial complaint in August 2024, the FTC indicated that Care.com did not comply with its October 26, 2021, press release which had put “more than 1,100 businesses that pitch money-making ventures on notice” about deceiving consumers about potential earnings. According to the FTC, Care.com as a marketer of “gig” work and “touted hourly as well as weekly earnings totals that are designed to entice consumers into paying for subscriptions despite having little to no data to back up such earnings claims, according to the complaint.”
Familiar to D&O underwriters is the potential for a securities case stemming from the FTC press releases, investigation, and enforcement. There may be allegations of deceptive advertising that resulted in the FTC complaint, investigation, and settlement. All of which can mirror previously issued FTC warnings. In addition, allegations that leadership knew about noncompliance with FTC directives and omitted or misrepresented attempts to comply may lead to allegations of Securities Exchange Act of 1934, typically §10(b) and Rule 10b-5 violations.
As D&O Diary readers are aware, this type of case was brought in the wake of the Meta Platforms (f/k/a Facebook) – Cambridge Analytica scandal. Facebook settled with investors after allegedly failing to disclose the risks outlined in the FTC complaint made against it. Shareholders alleged that Facebook knew that its statements about how it used consumers’ information were false; an assertion previously made by the FTC. In the above cases involving MUSA warnings, the companies on notice are aware of how their products are made and represented to consumers.
Thus, given the public and current MUSA focus by the FTC, companies that label themselves “Made in USA” and D&O underwriters that insure such risks may want to take a closer look at whether “all or virtually all” of the products being sold are compliant. If not, but say they are MUSA, difficult and potentially expensive decisions may lie ahead.
The views expressed in this article are exclusively those of the author, and all of the content in this article has been created solely in the author’s individual capacity. This article is not affiliated with her company, colleagues, or clients. The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter.