In a complaint dated April 12, 2022, the Federal Trade Commission (FTC) brought its first action under the new Made in USA Labeling Rule (the Rule) against Lithionics Battery LLC (Lithionics) and its owner, Steven Tartaglia, for falsely advertising Lithionics’ lithium-ion batteries as USA-made.
According to the FTC’s complaint, from at least 2018 until at least August 30, 2021, Lithionics advertised its lithium-ion batteries as American-made by labeling its products “Proudly Designed and Built in USA” alongside an image of the American flag. The company repeated similar claims on its social media pages and on its website, where the “Made in USA” link stated that the company’s “battery systems are engineered and manufactured in Clearwater, FL USA …” In addition, the company’s marketing materials included a *chart that emphasized the “‘advantage[s]’ of Lithionics’ battery systems over imported competing products,” when in fact, all Lithionics batteries included foreign sourced lithium-ion cells and “significant other imported components.”
The Rule, which took effect on August 13, 2021, codifies the FTC’s long-established enforcement policy statement on U.S. origin claims. It prohibits companies from labeling products as “Made in USA” (MUSA) 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.” While the Rule does not impose new responsibilities on businesses, it authorizes the FTC to issue rules relating to MUSA labeling and to seek civil penalties for violations of the Rule’s provisions. It also adds a new partial or full exemption for businesses who can demonstrate that “application of the rule’s requirements to a particular product or class of product is not necessary to prevent the acts or practices to which the rule relates.”
Under the proposed stipulated order, Lithionics and its owner would have to pay a civil penalty of $105,319.56, which an FTC press release explains is equivalent to three times Lithionics’ profits from its illegal activities. The company is required to notify affected consumers that the batteries they purchased were not in fact USA-made and is barred from claiming, expressly or impliedly, that its products are MUSA unless it can prove that those products meet the Rule’s three requirements for such assertions. In the case of partial MUSA claims, the company must ensure that a clear and conspicuous qualification “appears immediately adjacent to the representation that accurately conveys the extent to which the product contains foreign parts, ingredients or components, and/or processing.” For “Assembled in USA” type claims, the company would need proof that “the product is last substantially transformed in the United States, the product’s principal assembly takes place in the United States, and United States assembly operations are substantial.”
Although the case against Lithionics and its owner is the first since the FTC finalized the Rule, the prohibitions under the proposed stipulated order are similar to those imposed under orders the Commission previously issued to other companies for false MUSA claims (see, for example, the FTC’s Decision and Order In the Matter of Sandpiper of California, Inc. and Pipergear USA, Inc.). Where this stipulated order differs is the civil penalty. Over the past six months, the Commission has revived and expanded its Penalty Offense Authority under Section 5(m)(1)(B) of the FTC Act to support settlement amounts. Under the Penalty Offense Authority, companies could face civil penalties of up to $46,517 per violation. While the proposed penalty in this case is much lower than the millions that have been assessed against other companies for false or misleading marketing claims, this enforcement action demonstrates the FTC’s ongoing commitment to cracking down on false MUSA claims. Companies should consider themselves on notice that the FTC can and will enforce against false MUSA claims, and the penalties can be significant.
All case documents are available here (*Exhibit D with chart referred to above was omitted).