The FTC recently filed charges under the Made in USA rules against two small businesses. First the FTC created a new rule, effective August 13, 2021 to enable enforcement penalties, but not substantially change existing rules. Subsequently, two small businesses were targeted referencing the new rule. Indeed, in all the online FTC case records with “Made in USA” filter, there are only four cases for all time that were enforced, two of them with fines under the new program and one went to criminal prosecution. What was the motivation to go after a small decorative t-shirt maker and a battery business?
Lina Khan, a Democrat and arguably progressive, was confirmed to the Federal Trade Commission (FTC) June 15, 2021 and hours later Biden made her the chair. The media narrative is that the public could expect increased attention to technology anti-trust matters. Ms Khan received her law school JD in 2017, and since gained notoriety with her calls for a new approach to antitrust and her vocal criticism of Big Tech.
Here’s the excerpt from new FTC rule regarding Made in USA (MUSA): “Effective August 13, 2021, the MUSA Labeling Rule, 16 C.F.R. Part 323, 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.” 16 C.F.R. § 323.2.”
The first case brought under the new rule was April 12, 2022, when the FTC filed a complaint against Florida-based battery retailer, Lithionics Battery LLC, founded in 2009, and its owner, Steven Tartaglia, in the Middle District of Florida. “Between August 13, 2021, and August 30, 2021 (the “Violation Period”), Defendants placed “Made in U.S.A.” labels on products containing significant imported components.” The case document further states that other violations occurred over the last 3 years. Tartaglia agreed to pay $105,319.56 in civil penalties.
Blogger Notes: The violation period begins the date of the new rule. Clearly no business would have time to comply without notice. However, the products appear to have substantial imported components and the public was probably deceived into believing mostly made in USA that might not meet older rules on the books. Lithionics Battery has a 30,000 sq ft facility in Florida. Their safety technology has been validated by third party accredited facilities such as Underwriter Laboratory for UL listing and MGA Research Corporation for UN DOT compliance. How did this company get on the radar of the FTC? A competitor? Because Tartaglia is registered Republican? There must be a bigger reason for going after this small business.
The second small business, Lions Not Sheep, makes custom imprinted t-shirts. The May 11, 2022 complaint alleges that owner Whalen and Lions Not Sheep violated the FTC Act by falsely advertising products as Made in USA. In addition, the complaint charges them with violating mandatory country-of-origin labeling rules that apply to products covered by the Textile Act. (The company cut out the original label on the imported shirts and replaced with their own.) The proposed settlement includes a $211,335 financial remedy and prohibits any misleading or unsubstantiated claim for any product or service.
Blogger Notes: A man has an idea, trademarks a slogan relevant to public sentiment at the time, puts the slogan on various products, mostly t-shirts, and makes a nice chunk of money. The reference to lions and sheep started under Trump but took off during Covid when a lot of people revolted against the many related mandates and started saying stop acting like sheep, following without questions. This made the political left mad because surely, anyone who asks questions must be a horrible Republican. As a small business owner with experience in this type of business, and knowledge of other similar companies experiences, my opinion is that this company violated long-standing rules meant to protect the public. The owners video after the FTC slap reflects his heartfelt opinions, but anyone in the apparel business should know you cannot remove apparel labels after import. Bottom line, FTC was correct regarding the violations, but how did this small business get on their radar? I can think of no other reason than politics. The owner is an outspoken Republican and Trump supporter. The FTC put out both a press release and a blog article blasting the company, an unprecedented move.
Other cases with closed letter date, that FTC is not pursuing are listed below.
KLOS Guitars, December 15, 2021
Origin USA, Inc, December 15, 2021
AF Lorts, March 22, 2022, Michelle Lorts
Euromarket Designs, Inc., d/b/a Crate and Barrel, February 15, 2022
Neaties Home LLC, December 15, 2021; implemented a remedial action plan
Attic Breeze, November 18, 2021
Designing Fire of South Dakota, Inc., d/b/a
Designing Fire, Inc., November 18, 2021; removed unqualified U.S.-origin claims from all marketing materials
Vinotemp, November 18, 2021, removed unqualified U.S.-origin claims from all marketing materials
Electric Mirror, November 18, 2021, Jim Mischel
Netbrands LLC d/b/a Netbrands Media Corporation, 24 hourswristbands.com, and Imprint.com, November 18, 2021; Netbrands implemented a remedial action plan. Interestingly, this company, which makes t-shirts among other promotional product items was cited for same issues- textile and Made in USA.
In conclusion, roughly 10 other companies were given a letter ending the “made in USA” investigation during the same period. Companies were given the opportunity to remedy or prove why the FTC was wrong. Only two of these case types have been taken to the enforcement and fine stage in all the FTC history researched. Both companies were led by Republicans, and one with clear messaging that annoys Democrats. During the same period since Ms Khan took office,no new Antitrust cases have been published.
The final company was a criminal case that also violated the FTC made in USA claim, though there is no order regarding financial penalties. Texas Man Pleads Guilty to Selling Chinese-Made Military Helmets and Body Armor to Federal Agencies, November 16, 2021 https://www.justice.gov/usao-edva/pr/texas-man-pleads-guilty-selling-chinese-made-military-helmets-and-body-armor-federal
Jackson was the lowest bidder on contracts to supply the Department of State with helmets and body armor, including to personnel guarding the United States Embassy in Baghdad, Iraq, and to foreign law enforcement partners in Latin America. The equipment was removed from service after concerns about its quality came to light. The products were to be made in America but actually were made in China. As part of the scheme, Jackson altered or falsified ballistics laboratory test reports that he provided to the government. Court records also show that Jackson applied for a Paycheck Protection Program loan based on false documents and obtained HubZone status by falsely listing his business location. Tanner Jackson, was sentenced to 33 months in prison.
Biden appointments to FTC:
– Lina Khan, Chair, June 15, 2021.
– Alvaro Bedoya, Commissioner May 16, 2022, Georgetown Law professor and founding director of Georgetown’s Center on Privacy and Technology
notable: Biden moved Rohit Chopra, Democrat commissioner nominated by Trump, to Director of the Consumer Financial Protection Bureau (CFPB).
RESOURCES
Complying with the Made in USA Standard https://www.ftc.gov/business-guidance/resources/complying-made-usa-standard
https://www.ftc.gov/news-events/news/press-releases/2021/07/ftc-issues-rule-deter-rampant-made-usa-fraud
https://www.ftc.gov/legal-library/browse/cases-proceedings/public-statements/statement-commissioner-rohit-chopra-joined-chair-lina-m-khan-commissioner-rebecca-kelly-slaughter
https://www.ftc.gov/legal-library/browse/cases-proceedings?sort_by=field_date&items_per_page=20&search=&field_competition_topics=All&field_consumer_protection_topics=1410&field_federal_court=All&field_industry=All&field_case_status=All&field_enforcement_type=All&search_matter_number=&search_civil_action_number=&start_date=&end_date=
https://www.law.columbia.edu/news/archive/antitrust-scholar-lina-khan-joins-faculty
https://www.justice.gov/opa/pr/battery-manufacturer-ordered-pay-civil-penalties-alleged-violations-made-usa-labeling-rule
https://www.ftc.gov/business-guidance/blog/2022/05/lions-not-sheep-lambasted-deceptive-made-usa-claims
https://www.ftc.gov/news-events/news/press-releases/2022/05/ftc-takes-action-against-lions-not-sheep-owner-slapping-bogus-made-usa-labels-clothing-imported
https://www.prnewswire.com/news-releases/lions-not-sheep-new-documentary-shares-sean-whalens-humble-beginnings-301407163.html
https://www.breitbart.com/politics/2016/02/28/trump-defends-post-quoting-fascist-dictator-mussolini-what-difference-does-it-make/
https://www.oversight.gov/investigative-press-releases/Texas-Man-Sentenced-Selling-Chinese-Made-Military-Helmets-and-Body
DISCLAIMER: This post does not claim to determine whether the businesses would have been compliant under any regulations before Ms Khan took office. This is not a legal opinion. Readers are welcome to pursue any or all of their own fact checking.