Are Courts Loosening the Reins on “Made in USA” Labeling Rules?

Distributors and retailers of American-made goods got some good news recently when federal courts unexpectedly threw out several cases against items accused of violating the strict labeling standard maintained by California before Jan. 1, 2016.

However, companies still need to keep a close eye on their sourcing to make sure they comply with the existing standards.

Under standards enforced by the Federal Trade Commission throughout the U.S., all or virtually all of a product’s parts must be made, and final assembly must occur in the U.S. for that product to be eligible to bear a “made in USA” label without any additional qualifying claims. A separate federal standard for wool and textile products, like apparel, generally requires these goods to be made in the U.S., and most materials one step removed from the finished good must also be made in the U.S. to carry an unqualified “made in USA” label.

The state of California, however, had since 1961 imposed its own additional, stricter standard specifying that an item could not carry such a label if that item or any article, unit, or part thereof had been entirely or substantially made, manufactured, or produced outside the U.S.

The rise of e-commerce likely increased the impact of this standard on companies that were located outside California and may not have been aware of the standard. Similar to what has taken place with the state’s Proposition 65, which requires the disclosure of potentially toxic chemicals used to make a product, class-action lawsuits were filed seeking to enforce the nearly impossible “made in USA” labeling standard. In both cases defendants often found it less costly to settle than to litigate.

California revised its labeling law again as of Jan. 1, 2016, to permit goods with 5 percent to 10 percent non-U.S. content to be labeled “made in USA.” This change did not explicitly state that it would apply retroactively, making uncertain its impact on court cases that were pending or involving goods bought before the change.

Despite that, federal courts have cited the new labeling standard in dismissing several of these cases.

One decision in a case involving Citizens of Humanity was to dismiss the case on the basis that the change in the law eliminated the plaintiff’s remedy for an alleged violation of the former 100 percent USA standard, and that the plaintiff had not alleged a violation of the revised 90 percent to 95 percent USA standard. Essentially, the court held that the USA-content standard that should apply to the case was the one in effect at the time the court made its ruling rather than the one in effect at the time the plaintiff purchased the product of filed the case.

Two other cases, involving food products and cosmetics, were thrown out after the courts determined that the defendants’ liability for “Made in USA” marking was narrowed by the change in the law from the former strict standard to the revised, more lenient standard, even though that change happened after the plaintiff bought the goods marked “Made in USA.”

While chances are slimmer, the threat of litigation remains. Newer lawsuits alleging violations of the revised labeling standard may still proceed and, in fact, a case was filed in December asserting that New Balance shoes bear an unqualified “made in USA” label despite containing up to 30 percent foreign content. In addition, cases alleging violation of the federal standard may still be brought in any state, typically under false advertising laws.

Brands and retailers should therefore take care to ensure that any products sold in California, whether in brick and mortar stores or through e-commerce, comply with both federal and state standards if marked with an unqualified “made in USA” label. Potential liability can also be reduced by making a qualified claim (like “made in USA of U.S. and imported materials”), which would be a prudent move if goods have more than the California allowance for 5 percent to 10 percent of foreign materials or processing.

While “made in USA” advertising (like store signage or website copy not physically attached to goods) is not governed by California law, businesses should also make sure any such claims are consistent with the applicable Federal Trade Commission rules and regulations. The FTC “made in USA” standards also apply to implied “made in USA” claims, like an image of an American flag on product packaging. A U.S. flag or similar image is essentially considered to be the same thing as making an explicit “made in USA” statement and subject to the same standards.

It’s worth noting the recent introduction in the U.S. Senate of legislation (S. 118) that would give the federal government the sole authority to regulate “made in USA” labeling for goods distributed and sold anywhere in the U.S., thus preempting related laws enacted by California or any other state.

Changes under Trump

Under the Trump administration there is a renewed interest in making goods in the U.S., and consumers have a heightened awareness of buying domestically-made goods. U.S. manufacturers should stay up to date on the rules and regulations that govern “made in USA” marking and advertising to avoid enforcement actions that may be costly to not only their bottom line but also their public image.

 

About the authors

Nicole Bivens Collinson is a well-known international trade authority in Washington, D.C. and has over 25 years of experience in government, public affairs and lobbying. She leads Sandler, Travis & Rosenberg’s international trade and government relations practice. You can reach Nicole at nbc@strtrade.com.

Elise Shibles is a member of Sandler, Travis & Rosenberg’s San Francisco office with extensive expertise in all aspects of textile and apparel trade and policy, including classification, origin, marking, drafting and reviewing proposed legislation, and strategy for trade negotiations. You can reach Elise at eshibles@strtrade.com.


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