The Federal Trade Commission (FTC) has announced that it has obtained a $2 million civil penalty from tractor maker Kubota North America for falsely labeling thousands of its replacement parts as being “Made in USA.” Under a stipulated court order filed by the Department of Justice on the FTC’s behalf and agreed to by Kubota, the company will be prohibited from making deceptive Made in USA claims and will be required to pay the civil penalty.
“Today’s settlement includes the largest civil penalty assessed for violating the Made in USA Labeling Rule,” said Samuel Levine, Director of the Bureau of Consumer Protection. “The FTC will continue cracking down on deceptive Made in USA claims that cheat consumers and honest businesses.”
The Complaint
The complaint, filed in federal court, alleges that since at least 2021, Kubota has labeled thousands of replacement parts for its trailers and other agricultural products as “Made in USA,” even though they were made entirely overseas. In addition, after the company moved manufacturing for some parts from the United States to other countries, it failed to update the products’ labeling to reflect the change, leaving them labeled as “Made in USA.”
The complaint contains the following example of a label for a part with the claim “Made in USA,” even though the part was made overseas.
The complaint alleges that Kubota has sold millions of wholly imparted parts with false “Made in USA” labels. Kubota was previously sued by the FTC in 1999 for falsely claiming that a line of lawn tractors was “Made in USA,” and was subject to an FTC order in that case that expired in 2019. As a result, the complaint charges that Kubota “has engaged in its unlawful acts repeatedly over a period of a least three years, despite being sued by the FTC previously for the same violations.”
The complaint asserts that Kubota “has earned significant revenues from participating in these unlawful acts and practices, and Defendant only ceased its unlawful activities after learning of the FTC’s investigation into its unlawful conduct.”
The complaint also charges that Kubota’s false Made in USA claims constitute deceptive acts or practices in violation of Section 5 of the FTC Act. The complaint alleges that Kubota’s false claims violate the Made in USA Labeling Rule (MUSA Rule), 16 C.F.R. Part 323, which became effective August 13, 2021, and prohibits marketers from labeling products as “Made in USA” unless: (1) “the final assembly or processing of the product occurs in the United States”; (2) “all significant processing that goes into the product occurs in the United States”; and (3) “all or virtually all ingredients or components of the product are made and sourced in the United States.” Section 5(m)(1)(A) of the FTC Act authorizes a court to award civil penalties for each violation of the MUSA Rule.
The Stipulated Order
The stipulated order, which Kubota agreed to, includes the following requirements:
- Kubota is prohibited from making unqualified Made in USA claims for any product unless the final assembly or processing occurs in the United States, all significant processing that goes into the product occurs in the United States and all or virtually all ingredients or components of the product are made and sourced in the United States.
- Kubota is required to include in any qualified Made in USA claims a clear and conspicuous disclosure about the extent to which the product contains foreign parts, ingredients, components or processing.
- For a claim that a product is assembled in the United States, Kubota must ensure that it is last substantially transformed in the United States, the product’s principal assembly takes place in the United States and the United States assembly operations are substantial.
- The order includes a civil penalty of $2 million, which must be paid to the United States Treasury within seven days of entry of the order.
Why It Matters
The FTC has designated false Made in USA claims as an enforcement priority. FTC Chair Lina Khan provided written testimony to the House Judiciary Committee on July 13, 2023, discussing the FTC’s enforcement of its MUSA Rule and other Made in USA enforcement actions. She stated: “The FTC continues to carefully monitor the market for false ‘Made in America’ claims and will use all available tools to ensure scammers who cheat consumers, honest businesses, and American workers face heavy consequences for their lawbreaking.”
The civil penalties for violations of the MUSA Rule have continued to increase.
- In the FTC’s first action under the MUSA Rule, the FTC issued a complaint in April 2022 alleging that Lithionics Battery and its owner had misrepresented that their lithium batteries were made in the United States when they were actually made in China. The settlement included a civil penalty of $105,319. The civil penalty was equal to three times Lithionics’ profits attributable to the illegal activity.
- The FTC finalized an order in June 2022 against Resident Home LLC and its owner for allegedly making false and misleading claims in violation of the MUSA Rule that their imported DreamCloud mattresses were made from 100% USA-made materials. According to the complaint, the mattresses were finished overseas and, in some cases, were wholly imported or used significant imported materials. Resident Home and its owner were required to pay $753,000.
- The FTC finalized an order in June 2023 against motocross and all-terrain vehicle manufacturer Cycra and its owner for falsely claiming that the company’s products were manufactured in the United States. According to the FTC’s complaint, Cycra regularly imported parts from Asia and Europe for its products. The order required Cycra and its owner to pay a monetary judgment of $872, 577.
- The FTC finalized an order in August 2023 against a group of clothing accessories companies – Chaucer Accessories, Bates Accessories, and Bates Retail Group – and their owner for falsely claiming that company products were manufactured in the United States. According to the complaint, the products were wholly imported or incorporated significant imported components. The order includes a monetary penalty of $191,481.
It has become increasingly expensive for marketers to make false Made in USA claims. It is prudent for marketers to ensure that their Made in USA claims are truthful and substantiated, and to comply with all FTC requirements.