California’s Strict “Made in USA” Law Amended

Earlier this month, California governor Jerry Brown signed into law amendments to California’s “Made in USA” labeling standard. California’s law had been among the strictest in the nation, prohibiting products sold in California from being labeled as U.S.-made if any components or materials originated outside of the United States. The California standard was much more restrictive than the federal standard enforced by the U.S. Federal Trade Commission (FTC), which permits negligible foreign content in products labeled as “Made in USA.”

The new California law continues to prohibit labeling goods as “Made in USA” to the extent that the product “or any article, unit or part thereof” has been made outside of the United States. However, it now enumerates the following exceptions:

·         The law does not apply where the foreign content of a manufactured product accounts for five percent or less of the final wholesale value of the good.

·         The law does not apply to goods foreign value where the foreign content of a manufactured product accounts for ten percent or less of the final wholesale value of the good, so long as the manufacturer can show that it cannot obtain the foreign parts, articles, etc. from within the United States.

·         The law does not apply to goods offered for resale outside of California; further, goods offered for sale outside of California will not be deemed mislabeled so long as they comply with the laws of the states or country where they are offered for sale.

California’s amendments will come as welcome news to manufacturers that have struggled to reconcile California’s strict standard with the looser federal one. However, the California standard remains somewhat different from the FTC standard. The FTC requires that “all or virtually” all of a product claimed as having U.S. origin be made in the United States, but which does not incorporate strict value-based requirements for determining when products qualify for USA-made claims. Rather, in considering whether products meet the “all or virtually all” standard, the FTC looks holistically at the relative importance of the foreign components or materials to the final product, the relative value of U.S.-based materials and manufacturing, whether final processing or assembly takes place in the United States, and whether, overall, the claim is likely to be deceptive to consumers.

The update to California’s law may also put a damper on class-action lawsuits challenging violations of the California standard. Such litigation has exploded since 2011, when the California Supreme Court found that private consumers had standing to bring enforcement suits.  Manufacturers of items as diverse as basketball hoops and neckties have found themselves targeted by such lawsuits, some of which have resulted in significant settlements. While the threat of class-action litigation will not entirely disappear under the new version of the California law, the amendments bring the California standard more into line with federal standards, and the realities of a global supply chain.

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