California Federal Judge Rejects Apparel Company's Motion to Dismiss "Made in America" Suit Under California Law

A California federal court this month ruled against defendants’ attempt to rely on a federal law requiring U.S.-origin claims on textile fabric products to displace a state statute with more stringent requirements.  The ruling allows a class action suit to proceed, lowering the hopes of retailers and manufacturers that have found compliance with the California law burdensome and unduly complicated.

“Made in the USA” claims are popular with consumers, so they’re popular with marketers (we’ve written about them before, including here). The Federal Trade Commission (FTC) has told businesses that consumers understand the “Made in USA” claim to mean that “all or virtually all” of a product’s sourcing is American.  Importantly, in general, companies don’t have to make any country-of-origin sourcing claim for American-made products. So, in most regions and for most products, the FTC’s guidance is authoritative.  When it comes to textile products, however, the federal Textile Fabric Products Identification Act (TFPIA) goes further, mandating country-of-origin information, including for American-made products.  Any U.S.-origin textile product that doesn’t have a U.S.-origin label is “misbranded” under the TFPIA.

California complicates this with its own statutory requirement, prohibiting unqualified “Made in USA” claims if “any article, unit, or part” comes “entirely or substantially” from outside the U.S.  Specifically, it states:

It is unlawful for any person, firm, corporation or association to sell or offer for sale in this State any merchandise on which merchandise or on its container there appears the words “Made in U.S.A.[,]” “Made in America,” “U.S.A.,” or similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.

Cal. Bus. & Profs. Code § 17533.7.  This means that where the FTC staff has said it was acceptable for a “Made in USA” claim on a propane barbecue grill whose components are entirely U.S.-sourced except for imported knobs and tubing, California law would call such a “Made in USA” claim deceptive.  Similarly, the FTC would likely not only accept an unqualified “Made in USA” claim for a pair of jeans made entirely of U.S.-origin materials except for some foreign-origin thread used in stitching, but say that some U.S.-origin labeling is required under the TFPIA; yet California’s standard would point in another direction.

In Clark v. Citizens of Humanity, Case No. 14–cv–1404 JLS (WVG) (S.D. Cal., filed June 9, 2014), a plaintiff class is suing jeans brand Citizens of Humanity and Amazon’s BOP, LLC, among others, alleging that the jeans they sell bear “Made in the U.S.A.” labels (or “Made in USA of Imported Fabric” labels, on some products) in violation of § 17533.7.  In this case, like another in a nearly identical suit (see our discussion here), the defendants have argued that the California law was preempted by federal law, but the judge has disagreed.

The crux of the judge’s ruling (dated April 8, 2015) is that it is not impossible to comply both with the TFPIA and California’s labeling law, and the unfortunate lesson that manufacturers and retailers must take home is that they must comply with both laws.  As the judge explained, she found that the California law:

… allows for the use of qualified “Made in the U.S.A.” labels … such that compliance with both California and federal law is possible with the same labels…. Thus, TFPIA does not preempt § 17533.7.  Further, § 17533.7 is part of California’s False Advertising Law (“FAL”) and accurate, non-misleading labels, such as qualified “Made in the U.S.A.,” surely promote the objectives of FAL.

Despite the defendants’ arguments to the contrary, the judge found that California’s requirements do not constitute an undue burden on business, given that qualified labels are acceptable.  Given that holding, the court rejected the argument that § 17533.7 violated the “dormant commerce clause,” which courts use to invalidate state laws that have no public benefit and burden interstate commerce.

What’s a manufacturer or retailer to do?  For most, leaving the California market simply is not an option.  And although it’s possible that California’s law will be changed (one bill introduced this year, A.B. 312, would revise § 17533.7 to track the FTC’s guidance), such changes have been proposed and failed before.  For the time being, our advice to clients has been to:

• • Modify (so that the claim addresses foreign-sourced elements, such as “Made in USA of U.S. and Imported Materials”);
  • Quantify (say how much of what comes from the U.S. and how much comes from elsewhere, as in “Made in USA of 90% domestic and 10% Imported Materials by Weight"); or
  • Clarify (specify which parts of the item come from where, as in “Doll Body Made in USA, Embroidery from China Applied in U.S.”).

As long as consumers look for a “Made in USA” label, marketers will find benefit in making a “Made in USA” claim.  California’s current law complicates that, even when federal law requires it, but for now many companies will find it worthwhile to cross their is and dot their ts to make sure that they meet the more stringent Golden State requirements.