"Made in USA" Claims: A Trap for the Unwary

International Alert
10.31.14

A recent pre-certification class action suit brought against Nordstrom and apparel company AG Adriano Goldschmeid. Inc. (AGAG) for labeling jeans that allegedly contain foreign-made materials as being "Made in USA," in violation of California law, serves as a warning to retailers and underscores the importance of exercising caution when making U.S.-origin claims. This is the latest of a growing list of law suits over "Made in USA" labels in California district courts, brought against clothing retailers, including Macy's, Citizens of Humanity, and Lands' End.

Background on "Made in USA" Labeling Standards

The use of U.S.-origin claims in product labeling and advertising is governed at the federal level by rules promulgated by the Federal Trade Commission (FTC) pursuant to the FTC Act (FTCA). See 15 U.S.C. §45a. In short, the FTC requires a product to be "all or virtually all" made in the United States to be labeled "Made in USA," and "all or virtually all" means that all significant parts and processing that go into the product must be of U.S.-origin (i.e., the product may only contain a negligible amount of foreign content).

Most states defer to the FTC's "all or virtually all" standard when determining whether a U.S-origin claim is appropriate. California does not, however. The California Business and Professions Code prohibits the use of an unqualified U.S-origin claim on a label -- such as "Made in USA"-- unless "the product and all articles, units and parts thereof has been entirely or substantially made, manufactured or produced in the United States." See Cal. Bus. & Prof. Code §17533.7. In other words, California's law is stricter than federal law in that it requires that 100% of the materials used to make the product be U.S.-made.

Overview of Paz v. AG Adriano Goldschmeid, Inc. et al

Earlier this week, a California federal judge denied a motion to dismiss a complaint brought against Nordstrom and AGAG for selling jeans labeled "Made in USA" in California that allegedly contain foreign-origin materials, including the fabric, thread, buttons, parts of the zipper assembly, and rivets. The plaintiff in this case is an individual who purchased AGAG jeans at a Nordstrom store in California. Waiting in the wings are others who bought the same model of AGAG jeans in California.

Nordstrom and AGAG filed a motion to dismiss the complaint on the grounds that the claims are preempted by federal laws because they are based on conflicting state law. Specifically, Nordstrom and AGAG argued that California's labeling laws were inconsistent with the FTCA and the Textile Products Identification Act (TFPIA) which requires that textile fiber products processed or manufactured in the United States be so identified. See 15 U.S.C. §70. In that regard, Nordstrom and AGAG argued that it was impossible for them to comply with both federal and state laws concerning U.S-origin claims.

The U.S. District Court for the Southern District of California concluded the claims were not preempted by either the FTCA or the TFPIA. In its Order denying the motion to dismiss the complaint, the court stated that complying with the FTCA and California's "Made in USA" labeling standards would be burdensome, but not impossible, for the defendants to do. "Outside California, Defendants could use the 'Made in the U.S.A' labels, but inside California, they could not," the judge said.

The court went on to say that the claims were not preempted by the TFPIA because, while the TFPIA requires that textile fiber products processed or manufactured in the United States be so identified, it does not require an unqualified "Made in USA" claim if the product is made, either in whole or in part, of imported materials. Rather, as the court noted, the TFPIA requires that the label disclose those facts, i.e., that it state "Made in USA of imported fabric." As a result, the case will go on.

Take-Aways

There are three "take-aways" from this ongoing case.

  1. Companies need to exercise caution when making U.S.-origin claims. This includes ensuring that products are labeled and marketed in compliance with the "Made in USA" laws that apply in the states where the merchandise will be marketed and sold. A product sold in California may require a different label than the one used in the rest of the country. Otherwise, companies may find themselves in the uncomfortable position of having to litigate unfair competition claims and potentially pay damages.
     
  2. Given the very high standard applicable to unqualified U.S.-origin claims, the use of qualified U.S.-origin claims (e.g., "Made in USA of U.S. and imported parts") is sometimes more appropriate and is worth considering.
     
  3. While not at issue here, the rise of private-party actions brought under the False Claims Act (FCA) for trade-related violations -- including origin claims-- is another reason for companies to tread carefully.

If you have any questions about this case, or about making U.S.-origin claims more generally, please contact:

Richard Mojica, rmojica@milchev.com, 202-626-1571

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