New Legal Scrutiny for “Made In The USA” and Other Advertising Claims

The Federal Trade Commission (FTC) has long required that any explicit or implicit advertising claim that a product is “Made in the USA” be truthful and substantiated.[1] And this requirement is rigorously applied. Specifically, under the FTC’s view of the consumer protection laws, such a product must have been assembled in the United States, and all or virtually all of its components must be of U.S. origin. If one or more of those elements is not met—for example, if the FTC believes that an excessive amount of the production costs could be allocated to actions in another country—then the FTC considers the advertisement deceptive and illegal unless it is otherwise qualified (i.e., “Assembled in the USA” or “Assembled in the USA with foreign parts”).

Now the stakes for making “Made in the USA” claims have been raised. A new opinion from the California Supreme Court increases the possibility that a “Made in the USA” claim will be scrutinized not only by the FTC, but by the plaintiff’s bar as well.

In Kwikset Corp. v. Superior Court,[2] the California Supreme Court held that a plaintiff has standing to sue under California’s Unfair Competition Law (UCL) and false advertising laws solely based on the allegation that the plaintiff bought a product purportedly “Made in the USA” when that product “in fact contained foreign-made parts or involved foreign manufacture.”[3] Rejecting the argument that there needed to be some allegation of real economic injury, the court held that the plaintiff need not show that the product’s value was actually inflated by the false claim or it was somehow otherwise sold for more than its true value to the detriment of a consumer. The court, in effect, holds that an intrinsic, subjective value is enough to meet a harm threshold for standing.

This new ruling may have broad implications. The logic in Kwikset is not confined to “Made in the USA” claims. It could be applied to advertising about any subjectively valued quality—for example, purported environmental benefits or other socially desirable considerations. This ruling likely means that advertisers should brace for a potentially more challenging litigation climate in California.

The Kwikset Opinion

The plaintiffs in Kwikset alleged that the company deceptively sold locksets labeled as “Made in U.S.A.,” even though the products “in fact contained foreign-made parts or involved foreign manufacture.”[4] During the pendency of the litigation, the California electorate enacted Proposition 64, which requires that a plaintiff suing under the UCL and/or false advertising laws must show that he or she “lost money or property” as a result of the alleged statutory violation in order to have standing to sue. In an effort to comply with that standing requirement, the Kwikset plaintiffs alleged that they would not have bought locksets from Kwikset but for the misrepresentation as to their American origins. The trial court found these standing allegations satisfactory, but the California Court of Appeal disagreed because, even though the plaintiffs had spent money on locks, they “received locksets in return, locksets they did not allege were overpriced or defective” and, therefore, did not lose money or property in the transaction.[5]

The California Supreme Court reversed, concluding that the plaintiffs adequately pled that they had suffered economic injury as a result of the alleged misrepresentations, because they had pled that: “(1) Kwikset labeled certain locksets with ‘Made in the U.S.A.’ or a similar designation, (2) these representations were false, (3) plaintiffs saw and relied on the labels for their truth in purchasing Kwikset’s locksets, and (4) plaintiffs would not have bought the locksets otherwise.”[6] Thus, the Kwikset court found economic injury in the plaintiffs’ subjective disappointment that certain representations about the locksets were not true, rather than requiring the plaintiffs to plead that the locksets were somehow objectively less valuable than the price that the plaintiffs paid for them (i.e., based on an open market valuation).

Notably, the Kwikset court used broad language and logic in reaching its conclusions, making clear that its ruling applies to all labeling and advertising. For instance, in articulating the legal standards concerning economic injury and standing, the California Supreme Court spoke in general terms, not once referring to the facts of the case before it.[7] The court’s conclusion that “labels matter” was similarly broadly stated and rooted in observations about the marketing industry as a whole.[8] Additionally, the Kwikset court justified its conclusion by analogizing to other hypothetical instances of false labeling—such as for kosher or halal food, conflict-free diamonds, union-produced products, locales for wine and brand naming for watches—illustrating the court’s intent to apply its ruling to all manner of product labels.[9]

Implications

In light of the Kwikset opinion, any company with product labeling responsibilities must be aware that inaccurate, exaggerated or hyperbolic advertising or labeling leaves the company susceptible to a UCL or false advertising lawsuit in California, regardless of how objectively trivial the company deems the inaccuracy, exaggeration or hyperbole. The company will not be able to argue that a plaintiff has no standing on the ground that the product sold to the plaintiff is objectively worth what the plaintiff paid for it—all that matters is that the plaintiff was subjectively disappointed by the revelation of the inaccuracy, exaggeration or hyperbole. Importantly, a UCL or false advertising suit presents real exposure to companies even if a plaintiff cannot obtain monetary restitution, because such a suit still threatens injunctive relief and, at the end of the day, an award of attorneys’ fees to a successful plaintiff.

[1] See Fed. Trade Comm’n, Enforcement Policy Statement on U.S. Origin Claims (Dec. 1997), available at http://www.ftc.gov/os/1997/12/epsmadeusa.htm. See also 15 USC sec. 45(a). Indeed, past regulatory attempts to soften the requirements for a “Made in the USA” claim have met with fierce political opposition by U.S.-based manufacturing and labor interests.

[2] No. S171845 (Cal. Jan. 27, 2011).

[3] Slip op. at 2.

[4] Id.

[5] Id. at 6.

[6] Id. at 17-18.

[7] Id. at 9-17.

[8] Id. at 18.

[9] Id. at 18-21, 24-25

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