The Federal Trade Commission (FTC) continues to aggressively enforce its Made in USA Labeling Rule and Section 5 of the FTC Act and seek significant monetary penalties, this time in the market for motocross and all-terrain vehicle (ATV) parts.
On April 18, 2023, the FTC announced an Agreement Containing Consent Order (Proposed Order) against Cycra Inc. and its officer, Chad James. The Proposed Order and associated complaint allege that Cycra and James falsely claimed that Cycra’s products were manufactured in the United States when the company had imported parts and accessories from Asia and Europe in violation of the labeling rule and Section 5 of the FTC Act.
Cycra sells and distributes motocross, motorcycle, and ATV parts. The Proposed Order would prohibit Cycra and James from making deceptive claims about its products being Made in USA and impose a monetary judgment of $872,577. The judgment would be partially suspended based on an inability to pay, with Cycra and James required to pay $221,385.66.
The Proposed Order also would require Cycra and James to notify all consumers who purchased any Cycra product imported from Taiwan and labeled as “Made in USA” or “USA” on or after March 1, 2019, that the FTC is suing Cycra and James for making false claims and that the product the consumer purchased was imported from Taiwan.
The FTC’s complaint alleges that, from 2019 until at least May 2022, Cycra made claims on its product packaging, social media, and website that its products were made in the USA. According to the complaint, Cycra labeled more than 150 products with “Made in the USA,” some with accompanying images of the American flag. Cycra claimed on social media that its products were “Proudly made in the USA” or “Made in the USA.” And its website featured a web banner across its product pages with the claim, “Proudly designed, developed and manufactured in Lexington, North Carolina.”
The FTC appears to have learned of Cycra’s actions through U.S. Customs and Border Protection (CBP). CBP can obtain certain non-monetary remedies and it often shares information with other agencies like the FTC that may be able to pursue monetary remedies. The FTC’s press release states that CBP officers discovered shipments of Cycra products being imported from Taiwan that were ready to be labeled or already labeled as “Made in the USA.” The press release declares that the FTC will continue to work with CBP and across the federal government “to hold bad actors accountable.”
Takeaways
- The FTC continues to obtain six-figure monetary judgments for violations of its Made in USA labeling rule. This judgment, in fact, is the largest that it has obtained under the rule, just shy of $1 million.
- The FTC is working together with CBP (and potentially other agencies) to identify and bring enforcement actions against companies that import finished products and improperly label them as Made in USA.
- The Proposed Order’s requirement that Cycra notify its past customers imposes a significant burden on the company and may increase the risk of civil follow-on actions by customers. It remains to be seen whether the FTC requires similar action in matters moving forward.
- FTC enforcement actions alleging improper marketing or labeling of products as Made in USA are becoming increasingly prevalent. This is the seventh such enforcement action in the last 20 months and the third in the last six months. The FTC has designated this area as an enforcement priority, and we expect the FTC to continue conducting investigations and filing cases at a fast clip.