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September/October 2024: Food|Drugs

New USDA Rules for FSIS-Regulated Products Aimed at Safeguarding Consumers

Emily B. Lewis, Ashley Tomillo, Shoshana R Golden, and Pamela M Deese

Summary

  • Shocken Foods, a London plant-based gourmet catering company, relied on trademarks, trade secrets, nondisclosure agreements, and commercial agreements to bring its products to market.
  • Sophie’s Bionutrients, a company that develops plant-based and sustainable alternative proteins, recognizes the challenges of developing an IP strategy in the era of emerging technologies.
  • Food companies must tailor their IP strategies based on business model, growth stage, investor support, and regulatory requirements to scale globally and align with their goals and resources.
New USDA Rules for FSIS-Regulated Products Aimed at Safeguarding Consumers
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Are you sure that “Made in the USA” food product you just bought is truly American-made? This question is becoming increasingly pertinent in today’s global marketplace. Now, the United States Department of Agriculture (USDA) is tightening up existing rules regarding “Made in the USA” claims, leaving companies producing or selling Food Safety and Inspection Service (FSIS)–regulated products more vulnerable to enforcement actions if they make such claims in advertising or labeling without substantial evidence to back them up.

Both the Federal Trade Commission (FTC) and the USDA endeavor to protect consumers and uphold the integrity of American manufacturing. As such, they have stringent rules that will further penalize companies for making misleading “Made in the USA” claims. This initiative aims not only at ensuring truth in advertising but also at protecting the reputation of American manufacturing and the trust that consumers place in products that claim to be American-made.

New USDA regulations potentially clarify that certain thresholds must be satisfied and disclosures must be made in order to make “Made in the USA” advertising claims on certain regulated food products without consequences. Similarly, the FTC has revised its “Made in the USA” regulations in the past year, which together with the USDA sends strong messages that they are committed to enforcing these rules and holding companies accountable for their claims.

Intersection of FTC and USDA Jurisdiction

The FSIS is an agency within the USDA that primarily ensures the safety and labeling of meat, poultry, egg, and catfish. As a general matter, the USDA, in part through the FSIS, collaborates with the United States Food and Drug Administration (FDA) to regulate matters that substantially affect public health or have an impact on the trade and economic well-being of the American public. The FTC, through the FTC Act, enforces consumer protection, including “Made in the USA” claims and false advertising, and antitrust laws addressing anticompetitive practices. Section 5 of the FTC Act generally prohibits “unfair or deceptive acts or practices,” including advertising or labeling that is false or misleading. Food product advertisements are reviewed and investigated by the FTC, but product labeling subject to FDA regulations is not.

Though each agency has primary jurisdiction over designated areas or regulations, the USDA and the FTC do overlap, in part, when it comes to food products labeled or advertised as “Made in the USA.” Together with the FDA, the FTC and the USDA share jurisdiction over claims made by manufacturers of food products under the FTC Act involving false advertisements related to food products as well as nutrient content claims and health claims. More specifically, the FTC has primary responsibility for regulating food advertising, while the FDA is responsible for regulating food labeling.

That multiple agencies have enforcement powers against entities that improperly advertise or label a product as being “Made in the USA”—whether they do so through a label, a commercial, or otherwise—emphasizes the fact that companies should be mindful of how they are advertising and labeling their food products, especially when making decisions on whether to tout a food product as being “Made in the USA.”

The USDA Voluntary Labeling of FSIS-Regulated Products with U.S.-Origin Claims Rule

This year, the USDA took steps to tighten regulatory control over voluntary “Made in the USA” claims in an effort to ensure that labels bearing such claims are neither false nor misleading. In doing so, the USDA has sought to align its regulations and the meaning of U.S.-origin claims with consumers’ understanding of the information conveyed by such statements.

On March 13, 2023, the FSIS published a proposed rule regarding voluntary labeling of FSIS-regulated products with U.S.-origin claims, and on March 18, 2024, the FSIS published the corresponding final rule. The final rule amends USDA regulations to specifically define the conditions under which the labeling of FSIS-regulated products under mandatory and voluntary inspection may bear label claims indicating that the product is of U.S. origin.

Under the FSIS final rule, “Product of USA” and “Made in the USA” claims are generically approved for use on single-ingredient FSIS-regulated products derived from animals born, raised, slaughtered, and processed in the United States. These claims are also generically approved for use on multi-ingredient FSIS-regulated products so long as the following conditions are met: (1) all FSIS-regulated products in the multi-ingredient product are derived from animals born, raised, slaughtered, and processed in the United States; (2) all other ingredients, other than spices and flavorings, are of domestic origin; and (3) the preparation and processing steps for the multi-ingredient products have occurred in the United States. Claims other than “Product of USA” and “Made in the USA” that indicate a preparation or processing step of an FSIS-regulated product is of U.S. origin will also be generically approved for use, provided that such claims include the preparation and processing steps (including slaughter) that occurred in the United States.

The FSIS final rule further clarifies that claims may be used under generic approval to designate a U.S. state, territory, or locality origin so long as the claims meet the requirements for use of corresponding U.S.-origin claims. For example, a “Product of Washington” claim is generically approved for meat derived from an animal born, raised, slaughtered, and processed in Washington. Label claims other than “Product of . . . ” or “Made in . . . ” that refer to the U.S. state, territory, or locality origin component of a product’s preparation and processing are also permissible so long as such claims include the preparation and processing steps (including slaughter) that occurred in the United States and which are the basis for the claim. For example, a meat product derived from an animal born, raised, and slaughtered in a foreign country, then sliced and packaged in Illinois, could be labeled with the claim “Sliced and Packaged in Illinois.”

Per the FSIS, label displays of the U.S. flag, a U.S. state flag, or a U.S. territory flag are considered origin claims of the United States or respective state or territory and must meet the same standards as “Product of . . . ” and “Made in . . . ” claims.

As described in the FSIS final rule, entities that make U.S.-origin claims on FSIS-regulated products must maintain—and provide the FSIS access to—documentation sufficient to demonstrate that the product meets the same criteria for use of the claim as the regulations require for use of all generically approved claims. The FSIS final rule provides examples of acceptable documentation, such as a written description of the controls used in the birthing, raising, slaughter, and processing of the source animals and eggs.

Entities using a claim subject to the final rule must comply with the new regulatory requirements by January 1, 2026. Per the FSIS, the agency will consider as compliant only labels bearing the voluntary claims “Product of USA,” “Made in the USA,” and other U.S.-origin claims for FSIS-regulated products that comply with the requirements for the use of such claims as laid out in the final rule and amended regulations.

The FTC Made in USA Labeling Rule

In 2021, the FTC took a significant step to bolster consumer protection by publishing the Made in USA Labeling Rule, which in some contexts can be enforced by the USDA, the FDA, and other government agencies. The rule concerns unqualified “Made in the USA” claims displayed on product labels and in product advertising, including on various social media platforms. These claims have long been the subject of scrutiny, and the introduction of this rule stemmed from the FTC’s long-standing goal of curbing deceptive “Made in the USA” claims.

The rule establishes the FTC’s authority under Section 5a of the FTC Act, which grants the agency the power to create rules and enforce penalties that govern the use of “Made in the USA” or “Made in America” labels. Historically, the FTC’s view was that while these violations should be enforced, they should not be penalized. In 1997, the agency released the Enforcement Policy Statement on U.S. Origin Claims, which created the “all or virtually all” standard, as described further below. While this standard provided clarity regarding whether a product is considered to be made in the United States, it did not codify a rule or establish additional enforcement rights for the FTC.

The FTC labeling rule codified its enforcement policy, allowing the agency to increase deterrence and seek restitution for violations of the policy. The rule expanded the range of remedies available to the FTC for violations, including the right to seek redress, damages, penalties, and other relief from those who violate the rule. This represented a significant expansion of the FTC’s authority, enabling it to take more robust action against companies that mislead consumers with false “Made in the USA” claims.

The rule stipulates that for a product to bear an unqualified “Made in the USA” claim, and almost identical to the FSIS final rule, the following standards must be met: (1) the final assembly or processing of the product must occur in the United States; (2) all significant processing for the product must occur in the United States; and (3) all or virtually all of the product’s ingredients or components must be made and sourced in the United States.

The FTC does not provide a clear, bright-line rule for what qualifies as “all or virtually all.” Rather, determinations are made on a case-by-case basis by the agency. In doing so, the FTC may consider a number of factors, such as the percentage of total manufacturing costs attributable to U.S.-related costs, the remoteness of foreign content, or the importance of the foreign content to the final product. If these qualifications are not met but a company nonetheless represents that its product was made in the United States, the FTC may initiate an enforcement action. This could result in penalties for the company, including fines and orders to correct the misleading labels or advertising.

While the FTC rule imposes a minimum threshold, states are free to impose stricter standards. As such, business owners must also consult local and state laws regarding “Made in the USA” claims to ensure they are complying with all necessary thresholds.

While qualified “Made in the USA” claims—those labels that describe the extent, amount, or type of a product’s domestic content or processing—are not regulated under the labeling rule, the FTC still has enforcement authority under Section 5a in the event the claim is deceptive.

The FTC rule is intended to protect consumers from misleading claims about the origin of products and to safeguard the integrity of “Made in the USA” advertisements that comply with the regulations. Even the most conscientious of companies may unintentionally run afoul of these “Made in the USA” regulations if appropriate diligence is not exercised. To that end, businesses would be well served to exercise ample caution when determining whether to make such claims, weighing possible enforcement action consequences against the benefits to be reaped from “Made in the USA” advertisements.

Enforcement of USDA and FTC Rules

Because the USDA final rule does not require compliance until January 1, 2026, the agency has not yet levied any enforcement actions under the new regulatory requirements. However, the publication of the proposed and final rules, as well as the USDA’s response to comments, sends a clear signal that the agency intends to exercise its regulatory authority over such claims and bring enforcement actions against companies that violate the rules. Companies operating in this space should be aware that the USDA has numerous civil and criminal enforcement tools that it could bring for a violation.

As the January 1, 2026, deadline for compliance approaches, companies should take care to ensure that their U.S.-origin claims on all FSIS-regulated products comply with the new regulations, as set forth in the final rule.

Unlike the USDA, whose final rule has not yet gone into effect, the FTC has been notably aggressive about bringing enforcement actions for false or deceptive U.S.-origin marketing claims. The FTC has not shied away from imposing significant fines on companies that falsely represent that a product was made in the United States, demonstrating its commitment to upholding the integrity of the “Made in the USA” label.

One of the most notable enforcement actions under the FTC rule involved Kubota North America Corporation, a tractor manufacturer. The company was hit with the largest civil penalty to date—a $2 million fine—for falsely labeling replacement tractor parts with “Made in USA.” This was not Kubota’s first encounter with the FTC over labeling compliance violations, as the company had previously been sued by the FTC for false “Made in USA” claims in 1999. In addition to the fine, the FTC required the company to institute compliance monitoring and reporting and to stop making unqualified and deceptive “Made in USA” claims.

Another noteworthy action involved Resident Home LLC, the parent company of Nectar Sleep. The company and its owner were fined over $750,000 for misleading customers about the origin of their DreamCloud mattresses. The FTC alleged that many of these products were actually manufactured in China between March 2021 and May 2022, despite advertising claims that they were made from “100% USA-made” materials.

The FTC also imposed a fine of over $100,000, nearly three times the profit made on the product at issue, on Lithionics Battery LLC and the company’s owner individually. The company was penalized for promotional materials, including social media posts, which claimed that its batteries were “Made in America” despite containing several imported components.

In 2023, the FTC took action against Instant Brands, the manufacturer of Pyrex-brand kitchen and home products, for making false “Made in USA” claims. As a result of supply chain issues due to the COVID-19 pandemic, Instant Brands temporarily shifted its manufacturing outside of the United States while still advertising that its products were made in America. As a result, and in addition to several requirements regarding future “Made in USA” claims, the brand was fined $129,416.

These enforcement actions demonstrate the FTC’s prioritizing enforcement of the Made in USA Labeling Rule and penalizing companies that violate it. Coupled with the FTC’s own statements, these actions suggest that the agency will continue to aggressively enforce the rule and may impose increasing penalties to deter future violations. As the FTC continues to enforce this rule, companies must remain vigilant in ensuring that their marketing and labeling practices comply with the rule’s requirements.

Accountability and Transparency

These regulatory developments signal a new era of increased accountability and transparency in the marketplace, reinforcing the value and trustworthiness of the “Made in the USA” label. The FTC’s Made in USA Labeling Rule and the USDA’s new regulations for FSIS-regulated products making voluntary “Made in the USA” claims are aimed at protecting both consumers and competitive U.S. businesses.

 

©2024. Published in Landslide, Vol. 17, No. 1, September/October 2024, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

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