Adapted from Rob Sterne’s FOCUS2018 #7 Newsletter

As most manufacturers are aware, the Federal Trade Commission sets the rules for the Made in the USA designator. The current FTC standard requires that “all or virtually all” of all significant parts and processing that go into products designed as “Made in the USA” are of U.S. origin. A full description of the rules is found on the FTC website and should be consulted carefully before using the mark to avoid FTC liability.

However, California, which has a reputation for enacting laws that differ from those in the other 49 states, has its own rule for using the Made in the USA designator. In the early 1960s, California passed a law making it illegal to mark a product “Made in the USA” unless every single part of the product had been made in the U.S. This law could be enforced by plaintiff attorneys in state class actions against companies that did not meet the absolute California standard even though domestic content of the product met the FTC standard in the other 49 states.

An example of such a state class action suit brought under the 1960’s statute is Colgan v. Leatherman Tool Group, Inc., where a trial court ordered Leatherman to pay $13 million in restitution; a higher court later reversed the restitution award and instead fined the company $1,000 – the penalty amount under the Consumer Legal Remedies Act.

In response to widespread pressure caused by this and other decisions, California relaxed its 100% domestic content requirement to 95% in 2016. However, the California requirements still impose significant burdens that differ substantially from those of the FTC standard. Specific differences in the California standard include a focus on cost (percentage of cost being US made), the maintenance of evidence, and the “availability of the foreign component” (which does not take into account quality of the component).

The U.S. Congress is currently considering legislation that would preempt the separate California standard and make use of the Made in the USA designation exclusively a federal issue. The Reinforcing American-Made Products Act of 2017 is based on the premise that the California standard violates the interstate commerce clause of the U.S. Constitution by imposing a patchwork quilt of requirements that depend upon which state a product is sold.

Until a federal statute is enacted, manufacturers should take care that any products marked with the Made in the USA designation meet both federal and California statutes.

This article appeared in the February 2018 issue of MarkIt to Market. To view our past issues, as well as other firm newsletters, please click here.