Made in USA Labeling Rule

Labeling

 

Made in USA Labeling Rule

 

U.S. Origin Claims

 

Section 5 of the FTC Act

 

Consumer Law

 

Import

 

 

 

FTC Enforces New Made in USA Rule against Lithionics and Owner Steven Tartaglia for Falsely Labeling Foreign-Made Batteries as American

 

April 13, 2022

Republication

 

 

Order Requires Lithionics Battery LLC And Tartaglia To Pay Civil Penalty, Notify Consumers, and Stop Making Bogus Made in USA Claims.

The Federal Trade Commission (FTC) (…) used its authority under the Made in USA Labeling Rule, which took effect on Aug. 13, 2021, to bring a complaint against Lithionics Battery LLC and its owner, Steven Tartaglia for illegally misrepresenting that its lithium ion cells are made in the United States. The FTC’s complaint alleges that, since at least 2018, Lithionics has falsely labeled its battery products with an American flag image surrounded by the words “Made in U.S.A.,” often accompanied by the statement “Proudly Designed and Built in USA,” when these products are primarily made overseas. The Commission is asking the court to order Lithionics and Tartaglia to stop making deceptive Made in USA claims and pay a penalty for Lithionics’ past claims.

"As our country works to onshore production of lithium ion batteries, it’s critical that honest businesses have a chance to compete, and that consumers can buy American,” said Sam Levine, Director of the FTC’s Bureau of Consumer Protection. “Falsely labeling batteries as made in the United States is against the law, and the FTC is using its new Made in USA rule to make sure this misconduct comes with a price."

Florida-based Lithionics designs and sells battery products for recreational vehicles, amusement park rides, marine applications, and low-speed electric vehicles. Although the defendants have repeatedly represented that their battery, battery module, and battery management system products are all or virtually all made in the United States, in fact all Lithionics battery and battery module products incorporate imported lithium ion cells, and all Lithionics battery management systems incorporate significant imported components.

Photographs of products bearing this label and other Made in USA claims appeared on the company website, on its social media accounts, and in mail order catalogs, according to the complaint. YouTube videos featured Tartaglia and other employees printing Made in USA labels and putting them on Lithionics products. Lithionics published a chart in its marketing materials juxtaposing its own products with “imports,” and highlighting “advantages of Lithionics battery systems” over imported competing products. Lithionics also misrepresented in mail order catalogues that its products were made in the United States.

Under the Made in USA Labeling Rule, marketers are prohibited from labeling products as “Made in USA” unless the final assembly or processing, and all significant processing that goes into the products occur in the United States; and unless all or virtually all ingredients or components of the products are made and sourced in the United States. The rule also requires all “Made in USA” labels appearing in mail order catalogues to be truthful and non misleading.

The complaint also alleges that Tartaglia and Lithionics also violated Section 5 of the FTC Act since 2018 by misrepresenting that their goods are all or virtually all made in the United States.

Enforcement Action

The proposed order settling the FTC’s complaints against Lithionics and Tartaglia prohibit the conduct alleged in the complaint. Lithionics and Tartaglia must:

• Shut down bogus Made in USA claims.  Stop claiming that products are made in the United States unless they can show that the product’s final assembly or processing—and all significant processing—takes place in the United States, and that all or virtually all ingredients or components of the product are made and sourced in the United States.
• Pay civil penalties: Tartaglia and Lithionics must pay civil penalties of over $100,000, equal to three times Lithionics’ profits attributable to the illegal activity.

The FTC’s Enforcement Policy Statement on U.S. Origin Claims provides further guidance on making non-deceptive “Made in USA” claims. 

The Commission vote to authorize the staff to refer the complaint to the DOJ and to approve the proposed consent decree was 4-0. The DOJ filed the complaint and proposed consent decree on behalf of the Commission in U.S. District Court for the Middle District of Florida.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the named defendants are violating or are about to violate the law and it appears to the Commission that a proceeding is in the public interest. Consent decrees have the force of law when approved and signed by the District Court judge.

 

Related Cases

Lithionics Battery, LLC, In the Matter of

 

 

 

 

 

Merger - Market Shares and Concentration

Competition

Merger

Market Shares and Concentration

Herfindahl-Hirschmann Index (HHI)

Coordinated Effects and/or Unilateral Effects

Tacit Collusion = Oligopolistic Price Coordination = Conscious Parallelism

Commodity Product

Barriers to Entry

After determining the relevant product and geographic market, the next step is to “consider the likely effects of the proposed acquisition on competition within that market.” Swedish Match, 131 F. Supp. 2d at 166. The government can establish a presumption that the transaction will substantially lessen competition by showing that the acquisition would produce “‘a firm controlling an undue percentage share of the relevant market, and would result in a significant increase in the concentration of firms in that market.’” Heinz, 246 F.3d at 715 (quoting Philadelphia Nat’l Bank, 374 U.S. at 363); see also Baker Hughes, 908 F.2d at 982. “Market concentration . . . is often measured using the Herfindahl-Hirschmann Index (‘HHI’).” Heinz, 246 F.3d at 716; Swedish Match, 131 F. Supp. 2d at 166 n.11.

(…) Sufficiently high HHI figures establish a prima facie case of anticompetitiveness. H&R Block, 833 F. Supp. 2d at 71 (citing Heinz, 246 F.3d at 715 n.9).

The Merger Guidelines consider markets with an HHI above 2500 to be “highly concentrated,” and state that “mergers resulting in highly concentrated markets that involve an increase in the HHI of more than 200 points will be presumed to be likely to enhance market power.” Merger Guidelines § 5.3; Heinz, 246 F.3d at 715 (citing Baker Hughes, 908 F.2d at 982) (noting that significant increase in market concentration “establishes a ‘presumption’ that the merger will substantially lessen competition.”).

The North American chloride TiO2 market is dominated by five major producers. Tronox, Cristal, Chemours, Kronos, and Venator account for over 99% of chloride TiO2 sales in North America. Based on producer invoice and other pricing data analyzed by Dr. Hill, the market participants and their market shares in 2016 were as follows: Tronox , Cristal , Chemours , Kronos , and Venator . Post-Acquisition, the combined firm would have a market share of nearly 40% of North American sales of chloride TiO2.

Dr. Hill also calculated HHIs, based on the market share data. Dr. Hill’s calculations show that the Acquisition would increase the HHI by over 700 points, to a level of over 3000, which, under the Merger Guidelines, would render the post- Acquisition North American chloride TiO2 market a “highly concentrated” market. See Merger Guidelines § 5.3. These market share statistics demonstrate that the proposed Acquisition is presumptively anticompetitive. See FTC v. Staples, Inc., 190 F. Supp. 3d 100, 128 (D.D.C. 2016); Sysco, 113 F. Supp. 3d at 52-53.

Accordingly, based on the foregoing, Complaint Counsel has established a presumption that the effect of the Acquisition may be to substantially lessen competition. Under applicable authorities recited in section II.B.2., this presumption is sufficient to establish a prima facie case under Section 7 and shift the burden of rebuttal to Respondents. Moreover, in the instant case, the presumption is strengthened by additional evidence demonstrating a reasonable probability of anticompetitive effects, as discussed below.

Reasonable probability of anticompetitive effects

As the court explained in ProMedica Health Systems v. FTC, anticompetitive effects of a merger can include coordinated effects and/or unilateral effects.

The idea behind coordinated effects is that, “where rivals are few, firms will be able to coordinate their behavior, either by overt collusion or implicit understanding in order to restrict output and achieve profits above competitive levels.” H&R Block, 833 F. Supp. 2d at 77. . . . Unilateral-effects theory, on the other hand, holds that “the elimination of competition between two firms that results from their merger may alone constitute a substantial lessening of competition.” Merger Guidelines § 6 at 20.

Likelihood of coordinated effects: “Tacit collusion, sometimes called oligopolistic price coordination or conscious parallelism, describes the process, not in itself unlawful, by which firms in a concentrated market might in effect share monopoly power, setting their prices at a profit-maximizing, supracompetitive level by recognizing their shared economic interests and their interdependence with respect to price and output decisions.” Brooke Group v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993). See also Merger Guidelines § 7 (Coordinated interaction includes an implied understanding or parallel accommodating conduct not pursuant to a prior understanding.).

(…) Chloride TiO2 is a commodity product. Markets for homogenous products are more susceptible to coordination (…) Each firm’s product is largely interchangeable with its rivals’ products (…) In this case, given the small number of market participants in the relevant market, and the commodity nature of chloride TiO2, the market is fairly characterized as an oligopoly (…) (“The titanium dioxide market has been described as an ‘oligopoly,’ as TiO2 is a ‘commodity-like product with no substitutes, the market is dominated by a handful of firms, and there are substantial barriers to entry’”).

(…) “Regular monitoring by suppliers of one another’s prices or customers can indicate that the terms offered to customers are relatively transparent.” Merger Guidelines § 7.2. See also Oracle, 331 F. Supp. 2d at 1166 (“Without homogeneity or transparency, the market conditions are not conducive to coordinated effects, either tacit or express”). The evidence in this case shows that TiO2 suppliers monitor, and are able to observe, significant moves by their competitors, including as to price and output, from public statements by competitors and information obtained from customers (…) Tronox and Cristal monitor and analyze public statements by competitors such as quarterly earnings updates, presentations at industry conferences, and ratings agency meetings (…) The information provided in public earnings calls and similar public presentations can be specific. Tronox discusses in its quarterly results earnings calls such matters as changes in sales volume, changes in the selling prices by region, margin information, and operation related information such as relative plant utilization rate and inventory levels. (…) The Acquisition will increase the competitive information available to market participants through earnings calls and similar public presentations. Tronox, Chemours, Kronos, and Venator are publically traded companies, and therefore required to report earnings and similar business information to investors and others in the ordinary course of business. Presently, Cristal is a privately held company. With the merger, all participants will be reporting as public companies.

Complaint Counsel’s additional theory of likely anticompetitive effects, that the Acquisition will enable the combined entity to engage in strategic output withholding (unilateral effects), has been fully considered, together with the relevant evidence in the record. However, findings or conclusions as to the likelihood of anticompetitive unilateral effects are unnecessary because the presumption of anticompetitive effects, based on market concentration evidence, combined with the evidence of likely coordinated effects, is already sufficient to make a strong prima facie case of likely anticompetitive effects. Further determining the likelihood of unilateral effects would not affect this result.

Rebuttal

As noted in section II.B.2. above, a defendant may rebut a prima facie showing of likely anticompetitive effects with evidence that anticompetitive effects are not likely to result from the merger, or that procompetitive benefits, such as efficiencies, outweigh any likely anticompetitive effects. See, e.g., Baker Hughes, 908 F.2d at 985; Polypore, 2010 WL 9549988, at *9.

(Entry; Efficiencies; Output increasing synergies (vertical integration); Cost savings).

Respondents have failed to rebut the prima facie proof that the Acquisition is reasonably likely to have anticompetitive effects in the relevant market for the sale of chloride TiO2 in North America. Accordingly, the evidence proves that the planned Acquisition may substantially lessen competition in violation of Section 7 of the Clayton Act and Section 5 of the FTC Act.

(FTC, Office of Administrative Law Judges, In the Matter of Tronox/Cristal USA, Dec. 7, 2018, Docket No. 9377)

https://www.ftc.gov/enforcement/cases-proceedings/171-0085/tronoxcristal-usa

Antitrust: Price fixing: Wages

FTC Act §5: Unfair competition: Antitrust: Price fixing (wages or fees paid to workers): Labor law (wages): Human resource:

Illegal for competitors to agree to fix wages or fees paid to workers in order to drive wages down.

FTC

Bureau of Competition

July 31, 2018

Republication

https://www.ftc.gov/news-events/press-releases/2018/07/therapist-staffing-company-two-owners-settle-charges-they?utm_source=govdelivery

FTC File No. 171-0134

“Just as it is illegal for competitors to agree to fix prices on the products they sell in order to drive prices up, it is illegal for competitors to agree to fix wages or fees paid to workers in order to drive wages down,” said Bruce Hoffman, Director of the Bureau of Competition. “All workers are entitled to competitive wages and the FTC will enforce the antitrust laws against any companies that agree not to compete for workers, or to attempt to drive down workers’ wages. Fortunately, in cooperation with the Texas Attorney General’s office, we were successful in stopping this conduct quite quickly. We will aggressively investigate any other instances in which companies engage in this type of behavior, and we will seek relief commensurate with the conduct, the harm to workers, and—where appropriate—any ill-gotten benefits received by the firms engaged in the illegal activities.”

According to the complaint, the two owners agreed to lower their therapist pay rates to the same level and also invited several of their competitors to lower their rates in an attempt to keep therapists from switching to staffing companies that paid more. The complaint alleges that they entered into the agreement after learning that a home health agency planned to pay significantly lower rates to the therapist staffing companies for therapist services.

The complaint charges Your Therapy Source and the two owners with violating Section 5 of the Federal Trade Commission Act by unreasonably restraining competition to offer competitive pay rates to therapists; fixing or decreasing pay rates for therapists; and depriving therapists of the benefits of competition among therapist staffing companies.

In October 2016, the FTC and the Department of Justice issued Guidance for Human Resource Professionals for tips on how to avoid antitrust risks associated with agreements among competing employers to fix wages. That guidance, which is available on the FTC website, outlines steps businesses can take to comply with the antitrust laws in recruiting and retaining employees.

The FTC will publish the consent agreement package in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through Aug. 30, 2018, after which the Commission will decide whether to make the proposed consent order final. Comments can be filed electronically or in paper form by following the instructions in the “Supplementary Information” section of the Federal Register notice.

ANALYSIS OF AGREEMENT CONTAINING

CONSENT ORDER TO AID PUBLIC COMMENT

In the Matter of Your Therapy Source, LLC; Neeraj Jindal; and Sheri Yarbray

FTC File No. 171-0134

https://www.ftc.gov/system/files/documents/cases/1710134_your_therapy_source_analysis_7-31-18.pdf

FTC and DOJ Release Guidance for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation:

https://www.ftc.gov/news-events/press-releases/2016/10/ftc-doj-release-guidance-human-resource-professionals-how

FTC staff sends warranty warnings

Warranty: Competition: Unfair competition: Deceptive competition: Consumer protection: Advertising: FTC: FTC Act §5:

FTC staff sends warranty warnings

By: Lesley Fair | Apr 10, 2018

FTC Blog

Republication

https://www.ftc.gov/news-events/blogs/business-blog/2018/04/ftc-staff-sends-warranty-warnings

(…) When consumers buy a product with a warranty, it’s with the expectation that businesses will stand by what they sell. But standing by your warranty won’t do customers much good if you disregard the Magnuson-Moss Warranty Act. The FTC staff just sent warning letters to six companies, raising questions about statements the companies are making that appear to tie warranty coverage to consumers’ use of authorized parts or service, a practice that may violate both the Warranty Act and the FTC Act.

According to the Mag-Moss Warranty Act:

No warrantor of a consumer product may condition his written or implied warranty of such product on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name.

In other words, companies can’t void a consumer’s warranty or deny warranty coverage solely because the consumer uses a part made by someone else or gets someone not authorized by the company to perform service on the product.

There are only two exceptions: 1) if the company provides the article or service to consumers for free; or 2) if the company gets a waiver from the FTC. Under 15 U.S.C. § 2302(c), the FTC may grant a waiver only if the company proves that “the warranted product will function properly only if the article or service so identified is used in connection with the warranted product, and the waiver is in the public interest.” Companies may, however, disclaim warranty coverage for defects or damage caused by the use of unauthorized parts or service.

FTC staff recently took a closer look at companies’ warranties and promotional materials and saw language that raised concerns that some businesses were telling consumers that their warranty would be void if they used unauthorized parts or service. The companies used different language, but here are examples of questionable provisions.

·       The use of [the company’s parts] is required to keep your . . . manufacturer’s warranties and any extended warranties intact.

·       This warranty shall not apply if this product . . . is used with products not sold or licensed by [company name].

·       This warranty does not apply if this product . . . had had the warranty seal on the [product] altered, defaced, or removed.

FTC staff suggested that the companies review the Mag-Moss Warranty Act and, if necessary, revise their practices accordingly. The letters also put the companies on notice that we’ll be taking another look at their written warranties and promotional materials after 30 days.

What can other business glean from the warning letters?

Untie the NOT. Take a fresh look at your own warranties. Unless you meet one of Mag-Moss’ narrow exceptions, do not condition warranty coverage on consumers’ use of parts or service from you or someone you authorize.

Read your warranty through consumers’ eyes. Consider the literal wording of your warranties, of course. But like any other advertising representation, companies can communicate claims to consumers expressly and by implication. Subject to those two Mag-Moss exceptions, if the language you choose conveys to reasonable consumers that their warranty coverage requires them to use an article or service identified by brand, trade, or corporate name, revise your practices to avoid a warranty whoops.

Section 5’s prohibition on deception applies to misleading warranty claims. A violation of the Magnuson-Moss Warranty Act is a violation of Section 5 of the FTC Act. But separate and apart from Mag-Moss, a claim that creates a false impression that a warranty would be void due to the use of unauthorized parts or service may be a stand-alone deceptive practice under the FTC Act. When evaluating what they say and do with regard to warranties, savvy companies approach the task by posing the same questions they ask themselves when looking at their ad claims: 1) What will consumers understand us to mean? and 2) Are we telling the truth?

The law’s reach can be global. If you represent foreign companies, counsel them about compliance with the Mag-Moss Warranty Act and the FTC Act. Those laws apply when business practices of non-U.S. companies constitute unfair or deceptive acts or practices that either involve material conduct in the United States or are likely to cause reasonably foreseeable injury within the U.S.