New FTC Regulations and Policies for 2021
The FTC has Adopted Several Notable Regulations and Policies in 2021. Here is an Introduction to What Company Founders, Executives, and In-House Lawyers Need to Know.
The Federal Trade Commission (FTC) is responsible for protecting America’s consumers. As such, it enforces a broad range of federal statutes, and it relies on its rulemaking authority to adopt regulations designed to facilitate both compliance and enforcement.
The FTC adopted several notable regulations in 2020 and 2021. These regulations address issues ranging from “Made in USA” claims and non-competition clauses to the FTC’s rulemaking authority itself. Here are some of the highlights:
1. “Made in USA” Claims
The FTC published its final rule for “Made in USA” claims and other claims of “unqualified U.S.-origin” for product labels on July 14, 2021. The rule took effect on August 14, 2021. While the FTC has adhered to a longstanding policy on such claims, it has not taken formal regulatory action with regard to such claims until now.
The new regulations (codified at 86 C.F.R. 37022-35) are intended to clarify the FTC’s policy and provide additional formal guidance in accordance with 15 U.S.C. Section 45a. This law provides:
“To the extent any person introduces, delivers for introduction, sells, advertises, or offers for sale in commerce a product with a ‘Made in the U.S.A.’ or ‘Made in America’ label, or the equivalent thereof, in order to represent that such product was in whole or substantial part of domestic origin, such label shall be consistent with decisions and orders of the Federal Trade Commission.”
As explained in the Background section of the new regulation, the regulation focuses on three specific issues. While providing clarity on these issues, it “impose[s] no new obligations on market participants.” Thus, in its final form, the FTC’s new “Made in USA” regulation prohibits “unqualified U.S.-origin” claims on labels unless:
- Final assembly or processing of the labeled product occurs in the U.S.;
- All “significant processing” for the labeled product occurs in the U.S.; and,
- “All or virtually all” of the product’s ingredients or components are made and sourced in the U.S.
If a product does not meet all three of these requirements, then it does not qualify as “Made in USA” for purposes of federal compliance. Notably, while the FTC received comments suggesting that the “all or virtually all” requirement was not necessary to protect consumers (who would understand that some U.S.-made products may include foreign ingredients or components), the FTC rejected this approach. It also declined to adopt a specific definition for “all or virtually all,” as “[t]he Commission has issued extensive guidance to help marketers understand the ‘all or virtually all’ standard.”
The FTC also declined to provide a comprehensive list of claims of “unqualified U.S.-origin,” noting that the new regulation’s definition section provides a suitable list of examples (i.e. that a product is “manufactured,” “built,” “produced,” “created,” or “crafted” in the United States).
2. Repair Restrictions
In July 2021, the FTC adopted a policy statement, “aimed at manufacturers’ practices that make it extremely difficult for purchasers to repair their products or shop around for other service providers to do it for them.” While not strictly a new regulation, the policy statement is nonetheless extremely important for product manufacturers, as it signifies the FTC’s intent to enhance its efforts to target companies that make it difficult or impossible for consumers to make their own repairs.
According to a press release discussing the policy statement, the FTC intends to, “target repair restrictions that violate antitrust laws enforced by the FTC or the FTC Act’s prohibitions on unfair or deceptive acts or practices.” In the press release, the FTC gives the following examples of practices that could potentially subject manufacturers to enforcement action under the Commission’s new policy:
- Using adhesives that make parts difficult to replace
- Limiting the availability of parts and tools
- Making diagnostic software unavailable
The policy statement also notes that repair restrictions may violate the Sherman Act if they involve refusals to deal, exclusive dealing, or exclusionary design. Notably, in addition to examining manufacturers’ repair restrictions themselves, the policy statement indicates that the FTC will also be scrutinizing, “material claims made to purchasers and users,” in order to determine whether these claims or manufacturers’ underlying practices violate federal law.
3. Non-Compete Clauses
In his July 9, 2021 Executive Order on Promoting Competition in the American Economy, President Biden “encouraged” the FTC to “exercise [its] statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” The FTC had begun undertaking efforts to examine non-compete clauses in the employment context already; and, in light of the July 9 Executive Order, it appears likely that the FTC will address non-competes through its rulemaking authority in 2021.
To what extent the FTC will decide to regulate non-compete clauses in the employment context remains to be seen. Open questions also remain with regard to whether (and to what extent) the FTC will defer to state law, and under what circumstances the FTC may deem non-competes to constitute unfair methods of competition or unfair and deceptive trade practices. With that said, any regulations adopted are likely to have wide-ranging effects, and companies will need to carefully consider how they respond.
4. FTC Rulemaking Procedures
Perhaps the most-significant development with regard to FTC rulemaking in 2021 was the FTC’s approval of changes to its rulemaking practices themselves. As the Commission explains, the changes are designed to facilitate more efficient rulemaking—which likely means that we will see even more significant rulemaking efforts in the future:
“These changes show the FTC is turning the page on decades of self-imposed red-tape and returning to the participatory and dynamic process for issuing [regulations]. Clear rules help honest businesses comply with the law and better protect consumers and workers against bad actors. They will also lead to substantial market-wide deterrence due to significant civil penalties for rulebreakers. . . . Streamlined procedures for . . . rulemaking mean that the Commission will have the ability to issue timely rules on issues ranging from data abuses to dark patterns to other unfair and deceptive practices widespread in our economy.
The changes are specific to the FTC’s issuance of Trade Regulation Rules under Section 18 the Federal Trade Commission Act (the “FTC Act”). However, as the issuance of Trade Regulation Rules (also known as Magnuson-Moss Rules) is one of the FTC’s primary means for carrying out its statutory enforcement duties under the FTC Act, the change in procedures has the potential for wide-ranging consequences. As noted in the block quote above, it appears that one of the first issues to be addressed under the FTC’s new rulemaking procedures could be the issue of so-called “dark patterns” in e-commerce. This has been a recent area of focus for the FTC, and it appears to be an area that is ripe for the exercise of the FTC’s rulemaking authority.
FAQs: FTC Regulatory Compliance in 2021 and Beyond
Where Can Companies Find Information about New FTC Regulations?
It can be difficult to find information about new FTC regulations. While the FTC issues press releases in some cases, companies will need to rely on their FTC compliance counsel to help them understand when newly-adopted regulations have the potential to impact their business operations.
How Long Do Companies Have to Comply with New FTC Regulations?
The amount of time companies have to comply with new FTC regulations depends on the regulations themselves. In some cases, new regulations will take effect immediately or shortly after their enactment (as in the case of the new “Made in USA” regulations, which merely clarified the FTC’s existing policies). In other cases, the FTC will give companies significantly more time, particularly when compliance will require substantial changes to companies’ existing policies and procedures.
How Can Companies Get Help with FTC Regulatory Compliance?
Companies that are subject to newly-adopted FTC regulations should work with FTC compliance counsel to implement appropriate policies and procedures. When the FTC adopts new regulations, aggressive enforcement typically follows. As a result, company leaders and in-house counsel must take adequate steps to ensure that their companies will not be at risk in the event of an FTC investigation.
What Other New FTC Regulations are On the Horizon?
It is difficult to say exactly what areas the FTC will target in the future. The Commission has several enforcement priorities, and it attacks different priorities in different ways. With that said, some areas in which the FTC has placed particular emphasis in recent years, and which may be ripe for new regulatory action as a result, include sponsored content, dark patterns, health care marketing, consumer data privacy, and cryptocurrencies—among many others.
Contact the FTC Compliance and Defense Lawyers at Oberheiden P.C.
The FTC compliance and defense lawyers at Oberheiden P.C. bring centuries of combined experience to representing companies in regulatory matters. If you have questions or concerns and would like to speak with a lawyer in confidence, you can call 888-680-1745 or contact us online for a complimentary consultation.