“Made in the USA” does not necessarily mean the same thing outside of California.  In a recent decision, Paz v. AG Adriano Goldschmied Inc., a federal judge refused to dismiss a class action “Made in the USA” lawsuit, based on California’s strict regulation about the use of “Made in the USA” labels, suggesting that retailers may need to use different labels on the same goods depending on whether they are being sold inside or outside of California.

The issue stems from the fact that California is the only state in the union with its own statute governing the use of “Made in the USA” labels on consumer products.  Most states use the Federal Trade Commission’s (FTC) regulation, which requires “all or virtually all” of the product be made in the United States to qualify for a “Made in the USA” label.  The FTC regulation allows small amounts of foreign parts to be included as long as the product’s final assembly or processing happens in the U.S.  In contrast, California’s stricter regulation prohibits use of the label if the merchandise “or any article, unit, or part thereof, has been entirely or substantially made, manufactured or produced outside the United States.”

Since the California Supreme Court’s January 2011 decision in Kwikset Corp. v. Superior Court, there has been an uptick in the number of lawsuits, and specifically class actions, filed over the stringent “Made in the USA” labeling law.  The Kwikset decision broadened the situations under which a plaintiff can pursue claims under California’s Unfair Business Practices Act.

It has long been argued that California’s 54-year old stricter labeling policy punishes businesses in the marketplace because no other state requires such strict standards.  Moreover, businesses argue that in today’s global market it is virtually impossible to make a product with absolutely no foreign-made components because some parts simply cannot be found in the United States.  Some argue California’s approach is outdated and fails to reflect the reality of manufacturing.

Use of the “Made in the USA” label is a valuable marketing strategy that retailers do not want to give up on but, as more retailers face suit, they may need to adjust their labeling strategy to be more precise. For example, the Paz Court suggested that outside California a retailer can use “Made in the USA” on a product, but within California the product might need to be labeled “Made in the USA of foreign and domestic parts.” 

Although no court has officially sanctioned Paz’s suggested labeling language, it’s clear that if California’s regulation remains unchanged, retailers and manufacturers are vulnerable to class action lawsuits over precise labeling.

See Paz v. AG Adriano Goldschmied, Inc. et al, Case No. 3:14-cv-01372, in the U.S. District Court for the Southern District of California.