Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Ohio: Glue maker not entitled to competitors’ documents held by FTC, (Jul 21, 2016)

By Greg Hammond, J.D.

In an FTC action against a glue maker for falsely representing in ads and on packaging that its products were "Made in the USA," the FTC was not required to produce confidential documents that the glue maker’s competitors provided during merger investigations. The federal district court in Cleveland granted the competitors’ motions for a protective order, finding that the documents were irrelevant to the glue maker’s defenses (FTC v. Chemence, Inc., July 19, 2016, Gaughan, P.).

Chemence, Inc. allegedly advertised its strong, fast-acting glues as "Proudly Made in the USA" and "Made in the USA," according to the FTC’s complaint. However, The FTC claimed that a significant proportion—approximately 55 percent—of the cost of the chemical inputs of Chemence’s glues was attributable to imported chemicals. The FTC consequently alleged that Chemence’s "Made in the USA" representations constituted deceptive acts or practices, in violation of the FTC Act.

Chemence asked the FTC to produce documents that Chemence’s competitors submitted to the FTC during an FTC investigation in 2014. In particular, Chemence claimed that the confidential, trade secret information was relevant to the FTC’s lawsuit because it would demonstrate that the FTC applied inconsistent standards in pursuing "Made in the USA" claims against different companies. In addition, Chemence argued that the information is relevant and necessary because the FTC has never promulgated rules or issued clear standards about the use of "Made in the USA" claims on products and that, in the absence of clear legal standards and proof that Chemence violated a rule made by the FTC, the FTC cannot prevail.

The court rejected both of these arguments, finding first that the FTC’s lawsuit concerns Chemence’s actions, not its competitor’s actions. Every element in an FTC Act, Section 5 claim relates to the conduct of the defendant in the lawsuit, not the conduct of other industry participants, according to the court. The documents that the competitors provided consequently had no bearing on the FTC’s claim.

The argument that the information was relevant and necessary because the FTC never made rules about the use of "Made in USA" claims on products and offers only limited guidance about "Made in USA" claims was also unavailing. Chemence provided no authority for the proposition that confidential business records of other industry participants should or may be used to construe the meaning of an agency rule. In addition, claims that the FTC provided insufficient guidance on its "Made in the USA" standards were not supported by the record.

The case is No. 16 CV 228.

Attorneys: Julia S. Ensor for the FTC. Erika N. Frank (MacMurray, Petersen & Shuster) for Chemence, Inc.

Companies: Chemence, Inc.

Cases: Advertising ConsumerProtection OhioNews