Sandpiper of California and PiperGear USA; Analysis To Aid Public Comment, 47154-47159 [2018-20271]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 83, Number 181 (Tuesday, September 18, 2018)]
[Notices]
[Pages 47154-47159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-20271]


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FEDERAL TRADE COMMISSION

[File No. 182 3095]


Sandpiper of California and PiperGear USA; Analysis To Aid Public 
Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices. The attached Analysis to Aid Public Comment describes both 
the allegations in the complaint and the terms of the consent order--
embodied in the consent agreement--that would settle these allegations.

DATES: Comments must be received on or before October 12, 2018.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write: ``Sandpiper of 
California

[[Page 47155]]

and PiperGear USA'' on your comment, and file your comment online at 
https://ftcpublic.commentworks.com/ftcsandpiperconsent by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, write ``Sandpiper of California and PiperGear USA; File No. 
1823095'' on your comment and on the envelope, and mail your comment to 
the following address: Federal Trade Commission, Office of the 
Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex D), 
Washington, DC 20580; or deliver your comment to: Federal Trade 
Commission, Office of the Secretary, Constitution Center, 400 7th 
Street SW, 5th Floor, Suite 5610 (Annex D), Washington, DC 20024.

FOR FURTHER INFORMATION CONTACT: Julia Solomon Ensor (202-326-2377) or 
Crystal Ostrum (202-326-3405), Bureau of Consumer Protection, 600 
Pennsylvania Avenue NW, Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing a consent order to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for September 12, 2018), on the World Wide Web, 
at https://www.ftc.gov/news-events/commission-actions.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before October 12, 
2018. Write ``Sandpiper of California and PiperGear USA; File No. 
1823095'' on your comment. Your comment--including your name and your 
state--will be placed on the public record of this proceeding, 
including, to the extent practicable, on the public Commission website, 
at https://www.ftc.gov/policy/public-comments.
    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftcsandpiperconsent by following the instructions on the web-based 
form. If this Notice appears at https://www.regulations.gov/#!home, you 
also may file a comment through that website.
    If you prefer to file your comment on paper, write ``Sandpiper of 
California and PiperGear USA; File No. 1823095'' on your comment and on 
the envelope, and mail your comment to the following address: Federal 
Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, 
Suite CC-5610 (Annex D), Washington, DC 20580; or deliver your comment 
to the following address: Federal Trade Commission, Office of the 
Secretary, Constitution Center, 400 7th Street SW, 5th Floor, Suite 
5610 (Annex D), Washington, DC 20024. If possible, submit your paper 
comment to the Commission by courier or overnight service.
    Because your comment will be placed on the publicly accessible FTC 
website at https://www.ftc.gov, you are solely responsible for making 
sure that your comment does not include any sensitive or confidential 
information. In particular, your comment should not include any 
sensitive personal information, such as your or anyone else's Social 
Security number; date of birth; driver's license number or other state 
identification number, or foreign country equivalent; passport number; 
financial account number; or credit or debit card number. You are also 
solely responsible for making sure that your comment does not include 
any sensitive health information, such as medical records or other 
individually identifiable health information. In addition, your comment 
should not include any ``trade secret or any commercial or financial 
information which . . . is privileged or confidential''--as provided by 
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 
16 CFR 4.10(a)(2)--including in particular competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular, 
the written request for confidential treatment that accompanies the 
comment must include the factual and legal basis for the request, and 
must identify the specific portions of the comment to be withheld from 
the public record. See FTC Rule 4.9(c). Your comment will be kept 
confidential only if the General Counsel grants your request in 
accordance with the law and the public interest. Once your comment has 
been posted on the public FTC website--as legally required by FTC Rule 
4.9(b)--we cannot redact or remove your comment from the FTC website, 
unless you submit a confidentiality request that meets the requirements 
for such treatment under FTC Rule 4.9(c), and the General Counsel 
grants that request.
    Visit the FTC website at https://www.ftc.gov to read this Notice and 
the news release describing it. The FTC Act and other laws that the 
Commission administers permit the collection of public comments to 
consider and use in this proceeding, as appropriate. The Commission 
will consider all timely and responsive public comments that it 
receives on or before October 12, 2018. For information on the 
Commission's privacy policy, including routine uses permitted by the 
Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission (``FTC'' or ``Commission'') has 
accepted, subject to final approval, an agreement containing a consent 
order from Sandpiper of California, Inc. and PiperGear USA, Inc. 
(``Respondents'').
    The proposed consent order has been placed on the public record for 
thirty (30) days for receipt of comments by interested persons. 
Comments received during this period will become part of the public 
record. After thirty (30) days, the Commission will again review the 
agreement and the comments received, and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    This matter involves Respondents' marketing, sale, and distribution 
of bags and wallets with claims that the products are made in the 
United States.
    According to the FTC's complaint, Respondents represented that all 
of their products are all or virtually all made in the United States. 
In fact, more than 95% of Respondent Sandpiper's products are imported 
as finished goods, and approximately 80% of Respondent PiperGear's 
products are either imported as finished goods or contain significant 
imported components. Based on the foregoing, the complaint alleges that 
Respondents engaged in deceptive acts or practices in violation of 
Section 5(a) of the FTC Act.
    The proposed consent order contains provisions designed to prevent 
Respondents from engaging in similar acts and practices in the future. 
Consistent with the FTC's Enforcement

[[Page 47156]]

Policy Statement on U.S. Origin Claims, Part I prohibits Respondents 
from making U.S.-origin claims for their products unless either: (1) 
The final assembly or processing of the product 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; (2) 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; 
or (3) for a claim that a product is assembled in the United States, 
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.
    Part II prohibits Respondents from making any country-of-origin 
claim about a product or service unless the claim is true, not 
misleading, and Respondents have a reasonable basis substantiating the 
representation.
    Parts III through VI are reporting and compliance provisions. Part 
III requires Respondents to acknowledge receipt of the order, to 
provide a copy of the order to certain current and future principals, 
officers, directors, and employees, and to obtain an acknowledgement 
from each such person that they have received a copy of the order. Part 
IV requires each Respondent to file a compliance report within one year 
after the order becomes final and to notify the Commission within 14 
days of certain changes that would affect compliance with the order. 
Part V requires Respondents to maintain certain records, including 
records necessary to demonstrate compliance with the order. Part VI 
requires Respondents to submit additional compliance reports when 
requested by the Commission and to permit the Commission or its 
representatives to interview respondent's personnel.
    Finally, Part VII is a ``sunset'' provision, terminating the order 
after twenty (20) years, with certain exceptions.
    The purpose of this analysis is to aid public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the proposed order or to modify its terms in any way.

    By direction of the Commission, Commissioner Chopra dissenting.
Donald S. Clark,
Secretary.

Concurring Statement of Commissioner Rebecca Kelly Slaughter, in Which 
Chairman Joe Simons Joins

    When companies falsely claim that their products are made in the 
U.S.A., they take advantage of consumers who choose to spend their 
dollars supporting domestic products and the companies who expend 
resources in order to make the claim proudly and truthfully. Today, the 
Commission is announcing three enforcement actions \1\ targeting 
companies and an individual who we allege falsely claimed their 
products were made in the U.S.A. in violation of Section 5 of the FTC 
Act. In Patriot Puck, respondent George Statler III and his companies 
marketed hockey pucks imported from China as ``Made in America'' and 
``The only American Made Hockey Puck!'' The Nectar Sleep respondents 
included the statement ``Designed and Assembled in the USA'' in product 
descriptions for mattresses wholly imported from China. And in 
Sandpiper/PiperGear, respondents marketed imported backpacks and 
wallets on websites claiming ``Featuring American Made Products'' and 
shipped imported wallets with cards labeled ``American Made.'' The 
Commission's complaints allege that these claims were plainly false and 
the respondents have all agreed to strong administrative consent 
orders.
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    \1\ To date, the Commission has initiated 25 enforcement actions 
arising from misleading U.S.-origin claims, targeting entities that 
engage in intentional deception or refuse to come into prompt 
compliance. FTC staff also works extensively with companies to 
achieve compliance in this area, issuing more than 130 closing 
letters addressing potential U.S.-origin claims. These letters 
highlight that where companies make errors or potentially deceptive 
claims to consumers, Commission staff works with them to quickly 
come into compliance. In addition to enforcement actions and 
compliance counseling, the Commission's program to protect consumers 
from deceptive U.S.-origin claims involves significant business 
education efforts. In 1997, the Commission issued an Enforcement 
Policy Statement on U.S. Origin Claims that explains the types of 
U.S.-origin claims that can be made and the substantiation needed to 
support them. Commission staff has also issued comprehensive 
guidance, press releases and blogs in this area to promote 
compliance.
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    Each of the administrative consent orders prohibits the respondents 
from making these types of claims in the future \2\ and requires the 
respondents to engage in recordkeeping and reporting that will assist 
the FTC in monitoring compliance.\3\ Any violation of these orders can 
result in a civil penalty of over $40,000 per violation.\4\ There is 
evidence that these potential penalties have served as powerful 
deterrents: To date the FTC has only had cause to initiate one contempt 
proceeding \5\ against the more than twenty prior respondents in cases 
involving U.S.-origin claims.
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    \2\ Specifically, the orders prohibit respondents from making 
deceptive unqualified U.S.-origin claims about their products and 
lay out the type of substantiation required to make truthful claims. 
The orders also govern the manner and type of qualification needed 
to make a lawful qualified claim regarding U.S.-origin. The orders 
further prohibit respondents from making any country-of-origin claim 
about a product or service unless the claim is true, not misleading, 
and respondents have a reasonable basis substantiating the 
representation.
    \3\ Each of the orders requires the respondents to file a 
compliance report within one year after the order becomes final and 
to notify the Commission within 14 days of certain changes that 
would affect compliance with the order. Respondents are also 
required to maintain certain records, including records necessary to 
demonstrate compliance with the order. The orders also require 
respondents to submit additional compliance reports when requested 
by the Commission and to permit the Commission or its 
representatives to interview respondents' personnel. The orders 
remain in effect for 20 years.
    \4\ Outside of specific rules, the FTC does not have authority 
to seek civil penalties for violations of Section 5 of the FTC Act. 
The FTC does have authority to seek civil penalties for any 
violations of its administrative orders. See 15 U.S.C. 45(l) and 16 
CFR 1.98(d) (2018).
    \5\ See https://www.ftc.gov/news-events/press-releases/2006/06/ftc-alleges-stanley-made-false-made-usa-claims-about-its-tools 
(announcing settlement with Stanley Works that imposed a $205,000 
civil penalty for violating prior order regarding U.S.-origin 
claims).
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    In this area, administrative consent orders securing permanent 
injunctive relief buttressed by the threat of significant civil 
penalties have been largely successful in keeping former violators on 
the straight and narrow and have no doubt served as a warning to others 
that false claims will be identified and pursued. Therefore, we are 
voting in support of the relief set forth in the final and proposed 
administrative orders announced today.
    We write separately to highlight the possibility that the FTC can 
further maximize its enforcement reach, in all areas, through strategic 
use of additional remedies. For example, in the U.S.-origin claim 
context, there may be cases in which consumers paid a clear premium for 
a product marketed as ``Made in the U.S.A.'' or made their purchasing 
decision in part based on perceived quality, safety, health or 
environmental benefits tied to a U.S.-origin claim.\6\ In such 
instances,

[[Page 47157]]

additional remedies such as monetary relief or notice to consumers may 
be warranted. Requiring law violators to provide notice to consumers 
identifying the deceptive claim can help mitigate individual consumer 
injury--an informed consumer would have the option to seek a refund, 
or, at the very least, stop using the product.
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    \6\ Of the three cases the FTC is announcing today, we note that 
consideration of additional remedies such as notice could have been 
of particular value in the Nectar Sleep matter, which involved U.S.-
origin claims about mattresses. The fact that purchasers of Nectar 
Sleep mattresses can seek a refund for any reason for 365 days after 
their original purchase, https://www.nectarsleep.com/p/returns/, and 
that purchasers received mattresses with accurate country-of-origin 
labels, contributed to our decision to vote in favor of the final 
Nectar Sleep order.
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    The Commission has already begun a broad review of whether we are 
using every available remedy as effectively as possible to fairly and 
efficiently pursue vigorous enforcement of our consumer protection and 
competition laws. If we find that there are new or infrequently applied 
remedies that we should be seeking more often, the Commission will act 
accordingly--and, where appropriate, signal to the public how we intend 
to approach enforcement. In our view, a thoughtful review and forward-
looking plan is a more effective and efficient use of Commission 
resources than re-opening and re-litigating the cases before us 
today.\7\
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    \7\ It is worth noting that all of the cases announced today 
began well before the current complement of Commissioners were 
instated, and therefore before staff could reasonably have been 
expected to anticipate our particular priorities and views on 
enforcement. To renegotiate these settlements at this point, after 
litigation strategy was developed and executed, would require 
substantial investment of staff time and effort and diversion of 
resources from other important cases. A forward-looking set of 
remedy priorities will help staff develop litigation strategy in an 
efficient way.
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Statement of Commissioner Rohit Chopra

Question Presented

    Are no-money, no-fault settlements adequate to remedy serious 
violations of the FTC's ``Made in USA'' standard?

Summary

     Sellers gain a competitive advantage when they falsely 
market a product as Made in USA, especially when this claim is closely 
tied to the development of the product's brand.
     Third-party analysis suggests that Americans are often 
willing to pay significantly more for American-made goods compared to 
those made in China. Several of the matters under consideration by the 
Commission involve Made-in-USA fraud relating to products made in 
China.
     The Commission should modify its approach to resolving 
serious Made-in-USA fraud by seeking more tailored remedies that could 
include restitution, disgorgement, notice, and admissions of 
wrongdoing, based on the facts and circumstances of each matter.

Analysis and Discussion

The Power of Branding and Made in USA

    While brand identity has historically been a major focus in markets 
for luxury goods, today it plays a key role in all segments of our 
economy. As advanced manufacturing and global supply chains challenge 
firms to find new ways to lower operating costs, consumer goods 
industries (including everything from apparel to packaged goods) have 
focused intensely on building and cultivating their brands as a way to 
drive up margins through price and volume enhancements.
    Branding is distinct from marketing and advertising. A successful 
brand is one that creates a clear identity that goes beyond specific 
product attributes. A brand identity connects with a consumer's values, 
aspirations, and sense of self.
    A Made-in-USA claim can serve as a key element of a product's brand 
that communicates quality, durability, authenticity, and safety, among 
other attributes. Not only can it be a signal about specific product 
attributes but it can also contribute to the development of a brand 
identity that connotes a set of values, such as fair labor practices, 
to consumers.
    Made-in-USA branding can also be used to fraudulently conceal 
countries of origin that may cause concerns for consumers. For example, 
in recent years, regulators have investigated serious health and safety 
problems with pet food \1\ and drywall \2\ imported from China, and the 
OECD estimates that China is the source of the vast majority of 
counterfeit goods imported to the U.S.\3\ Against this backdrop, 
slapping a ``Made-in-USA'' label on a good made abroad can be its own 
form of counterfeiting, replacing an unpopular attribute with one 
connoting quality, safety, and authenticity.
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    \1\ Food & Drug Admin., Melanine Pet Food Recall of 2007 (May 
2007), https://www.fda.gov/animalveterinary/safetyhealth/recallswithdrawals/ucm129575.htm.
    \2\ Fed. Trade Comm'n, Tests for Defective Drywall (Dec. 2009), 
https://www.consumer.ftc.gov/articles/0124-tests-defective-drywall.
    \3\ Global trade in fake goods worth nearly half a trillion 
dollars a year, Org. for Econ. Co-Operation and Dev. (Apr. 18, 
2016), https://www.oecd.org/industry/global-trade-in-fake-goods-worth-nearly-half-a-trillion-dollars-a-year.htm.
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    In many cases, Americans are actually willing to pay a premium for 
goods that are made in our country, especially compared to those made 
in China. A 2012 survey by the Boston Consulting Group shows that more 
than 80% of Americans express a willingness to pay more for made-in-USA 
products,\4\ which is consistent with other surveys.\5\
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    \4\ Made in America, Again: Understanding the value of `Made in 
the USA', The Boston Consulting Group (Nov. 2012) [Hereinafter Made 
in America, Again].
    \5\ See, e.g. Made in America: Most Americans love the idea of 
buying a U.S.-made product instead of an import. But sometimes it's 
hard to tell what's real and what's not, Consumer Reports (May 21, 
2015), https://www.consumerreports.org/cro/magazine/2015/05/made-in-america/index.htm [hereinafter Made in America] (reporting on a 
national survey finding that 60%+ of Americans would pay a 10% 
premium for Made-in-USA goods); Price of patriotism: How much extra 
are you willing to pay for a product that's made in America?, 
Reuters (July 18, 2017), https://fingfx.thomsonreuters.com/gfx/rngs/USA-BUYAMERICAN-POLL/01005017035/ (reporting on a national 
survey finding that 60%+ of Americans would pay a premium of 5% or 
more). Of course, surveys reveal only Americans' stated willingness 
to pay a premium, not their actual buying behavior. But assuming 
Americans will pay no premium runs contrary to the available 
evidence, and firms' aggressive Made-in-USA branding shows they 
clearly see it as advantageous.
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    Importantly, however, price premium does not always accurately 
capture the harm caused by Made-in-USA fraud. Especially in markets for 
commodity goods where consumers may be particularly price-sensitive, 
firms may make false claims to distinguish their brand or conceal 
unpopular countries of origin.
    Whatever its purpose, cheating distorts markets in fundamental 
ways. It rips off Americans who prefer buying domestic goods. It also 
punishes firms that may bear higher costs to produce goods here, yet 
must compete on price or branding with firms that cheat. Finally, 
widespread deception sows doubt \6\ about the veracity of Made-in-USA 
claims, which may reduce the claim's value and discourage domestic 
manufacturing.
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    \6\ See Made in America, supra note 5 (reporting on a national 
survey finding that 23% of Americans lack trust in ``Made in 
America'' labels).
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Backpacks, Hockey Pucks, and Mattresses
    Today, the Commission is voting on three cases involving Made-in-
USA fraud.\7\ The conduct of each of these companies was brazen and 
deceitful. In my view, each respondent firm harmed both consumers and 
honest competitors.
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    \7\ Claiming falsely that a product is Made in USA violates 
Section 5 of the FTC Act. Although the FTC brought a Made-in-USA 
case as early as 1940, Congress amended the FTC Act in 1994 to state 
explicitly that Made-in-USA labeling must be consistent with FTC 
decisions and orders. See 15 U.S.C. 45a.
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    In the Sandpiper and Patriot Puck matters, the evidence suggests 
that the Made-in-USA claim was a critical component of the companies' 
brand identities. In the Nectar Sleep matter, the false Made-in-USA 
claim may have

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been asserted to convey health or safety benefits.
    Sandpiper/PiperGear USA: Sandpiper/PiperGear USA (``Sandpiper'') 
built its brand of military-themed backpacks and gear on patriotism. As 
detailed in the FTC's complaint, the company boasted in its promotional 
materials about its ``US manufacturing,'' inserted ``American Made'' 
labels into products, and included the hashtag ``#madeinusa'' alongside 
social media posts.\8\ The company sold thousands of backpacks on 
American military bases overseas.
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    \8\ Compl. at ]] 6-7.
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    In reality, Sandpiper imported the vast majority \9\ of its 
products from China or Mexico, a fact the firm actively sought to hide 
through its aggressive Made-in-USA branding.
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    \9\ According to the Complaint, more than 95% of Sandpiper's 
products are imported as finished goods, while approximately 80% of 
PiperGear's products are either imported as finished goods or 
contain significant imported components. Id. at ] 7.
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    Patriot Puck: Hockey pucks typically are manufactured to meet 
certain weight, thickness, and diameter specifications. These are 
commodity goods. Purchasers largely see competing pucks that boast 
similar specifications, so brand positioning can be especially salient.
    Patriot Puck positioned its brand as the all-American alternative 
to imported pucks. The company literally wrapped its pucks in the flag, 
embossing each one with an image of an American flag. To drive home the 
point, the firm claimed its pucks were ``Proudly Made in the USA,'' 
``MADE IN AMERICA,'' ``100% Made in the USA!,'' and ``100% American 
Made!'' The firm even claimed it made ``The Only American Made Hockey 
Puck!'' \10\
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    \10\ Compl. at ] 9.
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    In reality, Patriot Puck imported all of its pucks from China.\11\
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    \11\ The Commission has wisely named George Statler III, who 
operated the company, in its Complaint.
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    That Patriot Puck priced its pucks similarly to other firms 
illustrates why sticker price premium alone is a poor proxy for the 
harm caused by Made-in-USA fraud, especially in markets for commodity 
goods. Hockey is closely associated with international competition, and 
Patriot Puck's claim to offer the ``only'' puck made in America was a 
clear effort to create a brand identity that would distinguish its 
pucks from the competition. Moreover, by pricing its pucks similarly to 
its competitors, Patriot Puck led consumers to believe they were 
getting a great deal on American-made hockey pucks, when in fact they 
were overpaying for pucks made in China.\12\
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    \12\ Surveys show that Americans will pay a premium for U.S.-
made sporting goods relative to those made in China, meaning they 
effectively discount goods made in China. Made in America, Again at 
1. And Americans may be particularly averse to buying patriotic-
themed goods made in China. See, e.g., Matt Brooks, US Olympic 
uniforms spark fury in Congress, Wash. Post (July 13, 2012), https://www.washingtonpost.com/blogs/2012-heavy-medal-london/post/us-olympic-uniforms-spark-fury-in-congress/2012/07/13/gJQABvJmhW_blog.html?utm_term=.3d96e391f1dd.
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    Nectar Sleep: Nectar Sleep is a direct-to-consumer online mattress 
firm founded by Silicon Valley entrepreneurs. According to a CNBC 
profile of the company, Nectar competes with more than 200 firms to 
capture a slice of the $15 billion mattress market.
    Nectar mattresses are made in China, which may be a negative 
attribute for consumers who have health or safety concerns about 
Chinese-made mattresses.\13\ Perhaps for this reason, the company 
falsely represented to consumers that its mattresses were assembled in 
the U.S.
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    \13\ Such concerns may be tied to recent recalls of Chinese-made 
mattresses and bedding, and may be partially reflected in the 
premium Americans are willing to pay for U.S.-made furniture over 
furniture made in China. See Made in America, Again at 6. In fact, 
numerous consumer reviews specifically focus on comparing U.S.-made 
mattresses.
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    Nectar's conduct had clear consequences. Competitors who actually 
made mattresses domestically were undercut, and consumers looking for 
U.S.-made mattresses--possibly for health or safety reasons--got ripped 
off. Further, Nectar may continue to profit from the lingering 
misperception that its mattresses are made in the U.S.
Addressing Made-in-USA Fraud Going Forward
    Most FTC resolutions of Made-in-USA violations have resulted in 
voluntary compliance measures \14\ or cease-and-desist orders. Indeed, 
none of the three settlements approved today includes monetary relief, 
notice to consumers, or any admission of wrongdoing.
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    \14\ Of course, when the violation is unintentional or technical 
in nature, less formal actions can be helpful, especially if the 
misstatement is quickly corrected. My comments are limited to 
matters where the violation was egregious.
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    Going forward, in cases involving egregious and undisputed Made-in-
USA fraud, I believe there should be a strong presumption against 
simple cease-and-desist orders. Instead, the Commission should consider 
remedies tailored to the individual circumstances of the fraud, 
including redress and notice for consumers, disgorgement of ill-gotten 
gains, opt-in return programs, or admissions of wrongdoing.
    Some general principles can inform our approach to tailoring 
remedies. For firms that built their core brand identity on a lie, full 
redress or the opportunity for opt-in refunds may be appropriate, given 
the centrality of the false claim and its widespread dissemination.\15\ 
When refunds are difficult to administer or the firm lacks ability to 
pay, the Commission should at least seek notification to consumers or 
corrective advertising \16\--especially in markets where country of 
origin bears on health or safety. Finally, if firms' misrepresentations 
are undisputed and clear, the Commission should strongly consider 
seeking admissions--a form of accountability that is explicitly 
contemplated by our rules of practice.\17\
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    \15\ Particularly for misbranded products, the FTC could likely 
show that a firm's Made-in-USA misrepresentations were widely 
disseminated, that they were of the kind usually relied on by 
reasonable persons, and that consumers purchased the product, thus 
making gross sales an appropriate starting point for calculating 
restitution. See FTC v. Kuykendall, 371 F.3d 745, 764 (10th Cir. 
2004) (holding, in a contempt action, that after the Commission 
establishes a presumption of reliance, ``the district court may use 
the Defendants' gross receipts as a starting point''). Importantly, 
if there was deception in the sale, defendants generally do not 
receive credit for the value of the product sold. See FTC v. Figgie 
Int'l, Inc., 994 F.2d 595, 606-07 (9th Cir. 1993) (``The fraud in 
the selling, not the value of the thing sold, is what entitles 
consumers'' to full redress.).
    \16\ Corrective advertising can be important to preventing firms 
from continuing to profit from deception. As explained by then-
Chairman Pitofsky after a corrective advertising order was upheld by 
the D.C. Circuit, ``It is important for advertisers to know that it 
is not enough just to discontinue a deceptive ad, and that they can 
be held responsible for the lingering misimpressions created by 
deceptive advertising.'' See Press Release, Fed. Trade Comm'n, 
Appeals Court Upholds FTC Ruling; Doan's Must Include Corrective 
Message in Future Advertising and Labeling (Aug. 21, 2000), https://www.ftc.gov/news-events/press-releases/2000/08/appeals-court-upholds-ftc-ruling-doans-must-include-corrective.
    \17\ See 16 CFR 2.32.
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    Admissions may have particular value in cases involving Made-in-USA 
fraud. In these cases, clear and undisputed facts may give the agency a 
strong basis to demand an admission from a firm. And if that firm lacks 
funds or records for consumer redress or disgorgement, admissions can 
be a powerful tool to give consumers, competitors, and counterparties 
tools to remedy harm, even when we cannot.\18\ Moreover, because the 
Commission is generally limited to seeking equitable rather than 
punitive remedies for first-time offenses, seeking admissions is among 
the most effective ways we can deter lawbreaking and change the cost-
benefit calculus of deception.
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    \18\ For example, a factual admission may have a preclusive 
effect in a Lanham Act claim by a competitor.

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[[Page 47159]]

    I hope that the Commission will reexamine its approach to tackling 
Made-in-USA fraud. I believe we should seek more tailored remedies that 
vindicate the important goals of the program and send the message that 
Made-in-USA fraud will not be tolerated.

Conclusion

    Nectar Sleep, Sandpiper, and Patriot Puck clearly violated the law, 
allowing them to enrich themselves and harm their customers and 
competitors. Especially given widespread interest in buying American 
products, we should do more to protect the authenticity of Made-in-USA 
claims. I am concerned that no-money, no-fault settlements send an 
ambiguous message about our commitment to protecting consumers and 
domestic manufacturers from Made-in-USA fraud.
    Going forward, I hope the Commission can better protect against 
harms to competition and consumers by seeking monetary relief, notice, 
admissions, and other tailored remedies. Every firm needs to understand 
that products labeled ``Made in USA'' should be made in the USA, and 
that fake branding will come with real consequences.

[FR Doc. 2018-20271 Filed 9-17-18; 8:45 am]
BILLING CODE 6750-01-P