BILL ANALYSIS Ó
AB 890
Page 1
Date of Hearing: May 7, 2013
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Richard S. Gordon, Chair
AB 890 (Jones) - As Introduced: February 22, 2013
SUBJECT : False advertising.
SUMMARY : Aligns California with the Federal standard regarding
the use of the terms "Made in U.S.A.", "Made in America",
"U.S.A." or similar words when a product or any portion of the
product was not substantially produced in the United States.
Specifically, this bill :
1)Clarifies that a product meeting a specified Federal
definition for domestic production shall not violate
California's prohibition on the use of the words "Made in
U.S.A.", "Made in America", "U.S.A." or similar words on a
product or any part thereof.
2)States that it is the intent of the Legislature to clarify
existing state law with respect to federal law in order to
improve this state's ability to successfully compete with
other states and nations for jobs, investments, and
manufacturing.
EXISTING STATE LAW :
1)Generally protects consumers from unlawful, unfair and
fraudulent business practices. (Business and Professions Code
(BPC) Section 17200, et seq.)
2)Generally protects consumers and competitors against false or
misleading advertising. (BPC 17500, et seq.)
3)Makes it unlawful for any person, firm, corporation, or
association to sell, or offer for sale, merchandise that
advertises itself as being made or manufactured in the United
States (US) when any article, unit, or part of the merchandise
has been entirely or substantially made, manufactured, or
produced outside of the United States. (BPC 17533.7)
4)Provides that the following are unfair methods of competition
and unfair or deceptive acts or practices:
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a) Using deceptive representations or designations of
geographic origin in connection with goods or services;
and,
b) Misrepresenting the source of goods or services. (Civil
Code Section 1770.)
EXISTING FEDERAL LAW:
1)Authorizes the Federal Trade Commission (FTC) to regulate
claims of US origin pursuant to authority granted to it under
the FTC Act, which prohibits "unfair or deceptive acts or
practices." (15 United States Code (USC) Section 45)
2)Requires that a "Made in U.S.A." label be consistent with
orders and decisions of the FTC. (15 U.S.C. 45 (a))
3)Provides, in the form of a policy statement, that a product
may be labeled as "Made in U.S.A." if the product is all or
virtually all made in the US; however, a product using such a
label may contain-in a negligible amount-components made
outside of the US. ("Enforcement Policy Statement on U.S.
Origin Claims," FTC, 62 Federal Regulations Section 63756
(Dec. 2, 1997))
FISCAL EFFECT : None. This bill is keyed non-fiscal by the
Legislative Counsel.
COMMENTS :
1)Purpose of this bill . This bill would apply a somewhat looser
Federal standard for use of the "Made in USA" label to the
exclusion of California's stricter domestic sourcing law.
Proponents argue that such a change would encourage
manufacturers to make best efforts at domestic sourcing their
products, while opponents contend that this move would mislead
consumers and reduce incentives to manufacturer domestically.
This bill is author sponsored.
2)Author's statement . According to the author's office,
"Currently, there is an inconsistency between Federal labeling
laws and California laws for "Made in America" products. This
inconsistency has resulted in difficulties for manufacturers
because products legally labeled for sale in the other 49
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states that find their way into the California marketplace may
not legally be sold in the state. This places the retailer
and manufacturer at risk, increases costs to the manufacturer
to separately label products for sale in California, and
deprives California consumers of the right to know which
products they are considering for purchase were "Made in
America."
3)Federal vs. state standards for "Made in the USA" labels .
California is unique within the US for having its own
statutory standard for use of the term "Made in the U.S.A."
California's law is different from - and some would argue
tougher than - the Federal standard created by the FTC's
December 1997 Enforcement Policy Statement on US Origin Claims
(the "FTC Standard").
4)The FTC's "all or virtually all" Standard . The FTC is charged
with preventing deception and unfairness in the marketplace.
The FTC Act gives the FTC the power to bring law enforcement
actions against false or misleading claims that a product is
of US origin. The FTC's standard requires that for any
unqualified "Made in U.S.A." claim, the product must be "all
or virtually all" made in the US. According to the FTC, "all
or virtually all" means that "all significant parts and
processing that go into the product must be of US origin.
That is, the product should contain no - or negligible -
foreign content." The precise meaning of "negligible" is not
provided, meaning that it will be understood and applied on a
case by case basis. Any unqualified claim must have a
reasonable basis in fact.
The "all or virtually all" standard requires that the product's
final assembly or processing must take place in the US. The
FTC considers other factors as well, including how much of the
product's total manufacturing costs can be assigned to US
parts and processing, and how far removed any foreign content
is from the finished product. Costs should be calculated
based on the cost of goods sold or the inventory costs of the
finished goods. Costs generally are limited to the total cost
of all manufacturing materials, direct manufacturing labor,
and manufacturing overhead.
FTC offers two illustrative examples of its standard: First, a
propane barbeque grill's major components are made in the US,
but the knobs and tubing are made in Mexico. According to the
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FTC, a "Made in U.S.A." claim "is not likely to be deceptive
because the knobs and tubing make up a negligible portion of
the product's total manufacturing costs and are insignificant
parts of the final product."
Second, a table lamp may be assembled in the US from
American-made brass, with an American-made lampshade but an
imported base. The base accounts for a small percent of the
total cost of making the lamp. Nevertheless, the FTC writes
that "[a]n unqualified 'Made in U.S.A.' claim is deceptive for
two reasons: The base is not far enough removed in the
manufacturing process from the finished product to be of
little consequence and it is a significant part of the final
product."
5)California's "entirely or substantially" standard .
Conversely, BPC 17533.7 states that it is unlawful to sell or
offer merchandise in California with the words "Made in
U.S.A." or similar wording when the merchandise or any part
thereof "has been entirely or substantially made,
manufactured, or produced outside of the United States." This
provision was added to the BPC in 1961. Courts have
interpreted this requirement strictly, meaning that any
merchandise containing even one part that is foreign made or
assembled may not be marketed as "Made in U.S.A." (Colgan v.
Leatherman Tool Group, Inc. (2006) 135 Cal.App.4th 663). As
such, California's domestic production standard is effectively
100%.
6)The Kwikset Decision . In January 2011, the California Supreme
Court issued its decision in Kwikset v. Benson (51 Cal.4th
310), in which the court held that four California consumers
had standing to bring an action against Kwikset for falsely
labeling its locks as "Made in U.S.A." in California. While
the decision largely addressed a separate legal question, the
Court also discussed the importance of truthful claims of
origin, stating:
"In particular, to some consumers, the 'Made in U.S.A.'
label matters. A range of motivations may fuel this
preference, from the desire to support domestic jobs, to
beliefs about quality, to concerns about overseas
environmental or labor conditions, to simple patriotism.
The Legislature has recognized the materiality of this
representation by specifically outlawing deceptive and
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fraudulent 'Made in America' representations? The object of
section 17533.7 'is to protect consumers from being misled
when they purchase products in the belief that they are
advancing the interests of the United States and its
industries and workers? The Legislature evidently
recognized some companies were using or might be tempted to
use inaccurate 'Made in America' labeling, that some
consumers might be deceived by and rely on it, and that
consumers and competitors who honestly made their wares in
the United States and marketed them as such were being or
would be harmed." (citations omitted) (Kwikset Corp. v.
Benson (Jan. 27, 2011) 51 Cal.4th 310, 329.)
The practical outcome of the Kwikset case is that it made
clear that consumers "who can truthfully allege they were
deceived by a product's ['Made in the U.S.A.'] label into
spending money to purchase the product, and would not have
purchased it otherwise" have a right to bring suit under the
Unfair Competition Law for violations of BPC 17533.7.
7)Questions for the Committee . As noted above, this bill
inserts the FTC's "virtually all" domestic production standard
into the definition of California's "substantially made"
standard, effectively substituting the more lenient Federal
approach for California's stricter standard. The key question
is whether or not this lower standard, on the whole, would
encourage more companies to domestically source their
products, or if the change would simply degrade the existing
incentive to achieve 100% compliance and mislead consumers as
well.
Proponents of this bill contend that California's standard, as
interpreted by the courts, is simply too strict; so
"unrealistically rigid [and] anachronistic", in fact, that it
discourages some manufacturers from making best efforts at
domestically sourcing their products to earn the "Made in
U.S.A." label because California's standard is prohibitively
difficult to meet.
Conversely, opponents argue that this bill would dilute
California's tougher standard with an "inconsistent",
"inferior" and "vague standard that invites mislabeling".
Opponents also fear that the Federal standard could lead to
situations where manufacturers enter into settlements with the
FTC that would permit companies to use the "Made in U.S.A."
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label when a substantial minority of the product is foreign
sourced, with the end result being increased outsourcing of
product parts and the resulting loss of American manufacturing
jobs.
Assuming that California does indeed have the toughest
domestic sourcing standard in the country, and has had such a
standard for many years, the Committee may wish to inquire of
the author as to the level of "Made in U.S.A." labeled
manufacturing occurring over time in California and the rest
of the country. The Committee may also wish to inquire of the
author as to whether or not there are any econometric studies
or data showing a relationship between a tougher standard and
a decline in domestic sourcing or a disproportionate loss of
manufacturing vis-à-vis other states.
8)Arguments in support . According to the California
Manufacturers & Technology Association, "Consumers are
well-served when they can identify companies who have gone the
extra mile to source within the U.S. Without this ability to
label, consumers faced with many choices may default to
cheaper and possibly inferior products make wholly outside of
the U.S. California component manufacturers benefit from this
bill because it adds a reason for the ultimate product
manufacturer to stick with U.S.-made parts."
9)Arguments in opposition . According to the Consumer Federation
of California, "AB 890 would allow products to be offered for
sale bearing a 'Made in U.S.A.' label or similar claim if the
product complied with an inferior Federal Trade Commission
standard, and further provides that such a product containing
foreign content shall be deemed to be 'entirely or
substantially made, manufactured, or produced within the
United States.' This turns existing California law on its
head, establishing a standard that is inclusive of foreign
content as 'Made in U.S.A.' to replace existing California law
which prohibits the 'Made in the U.S.A.' label if the
'merchandise or any article, unit, or part thereof, has been
entirely or substantially made, manufactured, or produced
outside the United States.'"
10)Related legislation . SB 661 (Hill) would set the domestic
production standard for use of the "Made in U.S.A." label in
California at 90% of total manufacturing cost with no more
than 10% sourced from outside the US because of problems with
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availability, and with the last substantial transformation
occurring in the US. Third party certification of compliance
would create a rebuttable presumption of accuracy affecting
any burden to produce evidence. SB 661 is currently pending
in the Senate Judiciary Committee.
11)Previous legislation . AB 858 (Jones) of 2012 was virtually
identical to this bill. AB 858 was held in the Senate
Judiciary Committee.
SB 823 (Corbett) of 2012 would have created the Made in
California Program within the Governor's Office of Economic
Development and would have made it an unfair method of
competition or an unfair or deceptive business practice to use
a designated Made in California label without participating in
the Made in California Program. SB 823 was held in the
Assembly Appropriations Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Manufacturers & Technology Association
Made in the USA Foundation
Manufacturing in the Golden State Task Force
Opposition
Consumer Attorneys of California
Consumer Federation of California
Analysis Prepared by : Hank Dempsey / B.,P. & C.P. / (916)
319-3301