BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
SB 661 (Hill)
As Amended April 29, 2013
Hearing Date: May 7, 2013
Fiscal: No
Urgency: No
TW
SUBJECT
False Advertising: Made in the U.S.A.
DESCRIPTION
Under existing California law, a product may not be sold in
California as "Made in U.S.A." or "Made in America" when the
product, or any article, unit, or part of the product, has been
entirely or substantially made outside of the United States.
This bill would provide that, for purposes of the California law
described above, any merchandise has been substantially made,
manufactured, or produced within the United States if it meets
all of the following requirements:
United States manufacturing costs constitute 90 percent of the
total manufacturing costs for the merchandise;
no more than 10 percent of the total manufacturing costs for
the merchandise were either incurred outside of the United
States as a result of the unavailability of raw materials in
the United States, or incurred as the costs of a component,
part, article, or unit of the merchandise imported into the
United States as a result of the unavailability of the same
component, part, article, or unit of the merchandise from a
domestic manufacturer; and
the merchandise was last substantially transformed in the
United States.
This bill would also provide a rebuttable presumption in favor
of the defendant if a third party verification organization
certifies the product as meeting all of these requirements.
BACKGROUND
(more)
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California law has long protected consumers against unfair and
deceptive business practices, including false or misleading
advertising. At the same time that the statutes protect
consumers, they also protect businesses and ensure that a
company that engages in false or misleading advertising does not
gain a competitive advantage by doing so.
Those same statutes have expressly required that businesses meet
certain standards in order to be able to claim that their
products are "Made in U.S.A." Specifically, California law
prohibits a product from being labeled and sold in California as
"Made in U.S.A." or "Made in America" when the product, or any
article, unit, or part of the product, has been entirely or
substantially made outside of the United States. California
courts have considered challenges to the statute and held that
it requires that component parts be entirely or substantially
made in the United States in order for a "Made in U.S.A." claim
to be permissible. (See, e.g., Colgan v. Leatherman Tool Group,
Inc. (2006) 135 Cal.App.4th 663.)
This bill would provide that, for purposes of California law, a
product sold in California could carry the label "Made in
U.S.A." if it was substantially made, manufactured, or produced
in the United States, as specified, and a defendant, whose
product label was challenged on the basis of this new "Made in
U.S.A." standard, would have the benefit of a rebuttable
presumption if a third party verification organization certifies
the product as meeting all of the specified requirements.
This bill is similar to AB 890 (Jones, 2013), which is currently
in the Assembly Committee on Business, Professions and Consumer
Protections. This bill is also similar to AB 858 (Jones, 2012),
which failed passage in this Committee on a vote of 2-3.
CHANGES TO EXISTING LAW
Existing law protects consumers and competitors against false or
misleading advertising. (Bus. & Prof. Code Sec. 17500 et seq.)
Existing law provides that the following are unfair methods of
competition and unfair or deceptive acts or practices: (1)
using deceptive representations or designations of geographic
origin in connection with goods or services; and (2)
misrepresenting the source of goods or services. (Civ. Code
Sec. 1770.)
Existing law makes it unlawful to sell any merchandise that is
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labeled as "Made in U.S.A." or "Made in America" when the
product, or any article, unit, or part of the product, has been
entirely or substantially made, manufactured, or produced
outside of the United States. (Bus. & Prof. Code Sec. 17533.7.)
Existing federal law authorizes the Federal Trade Commission to
regulate claims of U.S. origin pursuant to authority granted to
it under the Federal Trade Commission Act, which prohibits
"unfair or deceptive acts or practices." (15 U.S.C. 45.)
Existing federal law requires that a "Made in U.S.A." label be
consistent with orders and decisions of the Federal Trade
Commission. (15 U.S.C. 45a.)
Existing federal policy statement provides that a product may be
labeled as "Made in U.S.A." if the product is all or virtually
all made in the United States, however a product using such a
label may contain-in a negligible amount-components made outside
of the United States. ("Enforcement Policy Statement on U.S.
Origin Claims," Federal Trade Commission, 62 Fed. Reg. 63756
(Dec. 2, 1997.))
This bill would provide that, for purposes of California's "Made
in U.S.A." law, any merchandise has been substantially made,
manufactured, or produced within the United States if it meets
all of the following requirements:
United States manufacturing costs constitute 90 percent of the
total manufacturing costs for the merchandise;
no more than 10 percent of the total manufacturing costs for
the merchandise were either incurred outside of the United
States as a result of the unavailability of raw materials in
the United States, or incurred as the costs of a component,
part, article, or unit of the merchandise imported into the
United States as a result of the unavailability of the same
component, part, article, or unit of the merchandise from a
domestic manufacturer; and
the merchandise was last substantially transformed in the
United States.
This bill would also provide a rebuttable presumption in favor
of the defendant if a third party verification organization
certifies the product as meeting all of these requirements.
COMMENT
1. Stated need for the bill
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The author writes:
SB 661 updates California's "Made in USA" labeling standard to
reflect the real-world market in which companies make products
using components from around the globe. California's "Made in
USA" labeling standard was created in 1961 by Senator John
Holmdahl's SB 1004 to "prevent foreign firms from taking
advantage of 'buy American' promotions." The language in SB
1004 created a 100 [percent] domestic requirement which is
unrealistic for most modern companies that make products with
many components, some of which are not available in the U.S.
The federal government and the rest of the states use a more
flexible "all or nearly all" standard that the Federal Trade
Commission [(FTC)] determines on a case by case basis. As an
example, New Balance sneakers are roughly 70 [percent] from US
sources and the FTC allows them to utilize the "Made in USA"
label.
SB 661 updates California's 50-year-old "Made in USA" labeling
standard by clarifying that if the product consists of nearly
all US components (90 [percent]) and the company can prove
that the remaining 10 [percent] were not available in the US,
and the product was last substantially transformed in the US,
then they can utilize a "Made in USA" label. SB 661 honors
the intent of Senator Holmdahl's original legislation which
was to prevent foreign companies from utilizing "Made in USA"
labels while providing California companies with the
flexibility they deserve to market their products as "Made in
USA."
2. Ensuring consumers get the benefit of their bargain and
assuring consumer confidence
California law prohibits products from being sold as "Made in
U.S.A." or "Made in America" when the product, or any article,
unit, or part of the product, has been entirely or substantially
made outside of the United States. This bill seeks to expand
the use of the "Made in U.S.A." label by specifically allowing
the label to be used when, in fact, only 90 percent of the
product is made in the U.S.A.
California's strong statutes on false advertising and
misrepresentation are intended to protect consumers and
competitors. The statutes promote fair competition and help to
ensure that consumers have the information that they need to
make informed purchasing decisions. Many consumers support
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American jobs and industry and are willing to pay more for a
product if they know that it is made in the United States.
The key then in ensuring that consumers get the benefit of their
bargain-i.e., they get what they pay for-is to make sure that a
label stating "Made in U.S.A." is accurate and truthful.
Consumers have indicated that this is important to them. For
example, in 1997, when the FTC considered revising its "Proposed
Guides for the Use of U.S. Origin Claims" in a way that would
have weakened the standard, numerous commenters indicated that
labels matter. One commenter noted:
If a product is only partially made in our Country, I want to
know. I do not wish to purchase items made in other countries
and falsely labeled "Made in America." I want the entire
truth on the label. I don't want to be tricked into buying an
item I think is made here when in fact it is not.
Another commenter wrote, "The concept of 'Made in the U.S.A.'
has been specific and definite for the last 50 years. Please
leave it as it is. If manufacturers want to say an item is
'Made in the U.S.A.' then make sure it is exactly that. 'Made
in the U.S.A.' should mean that an item is 100 [percent]
manufactured in the United States of America and not in another
country."
In January 2011, the California Supreme Court further described
the importance of truthful and accurate 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 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.
(Sen. Holmdahl, sponsor ? letter to Governor Brown, May 23,
1961) . . . "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
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who honestly made their wares in the United States and
marketed them as such were being or would be harmed. (Kwikset
Corp. v. Benson (2011) 51 Cal.4th 310, 329; citations
omitted.)
The policy question, thus, raised by this bill is whether, by
adopting a weaker standard that could result in less truthful
and less accurate "Made in U.S.A." labels, the bill would impair
a consumer's ability to rely on labels and to make fully
informed decisions. In opposition, the Consumer Federation of
California (CFC) writes:
SB 661 would allow a product to be offered for sale in our
state bearing a "Made in USA" or "Made in America" label if 90
[percent] of the cost of the product's content is domestic and
if the final transformation of the product occurred in the
USA. This would represent a substantial weakening of
California's "Made in the USA" law, which requires products
offered for sale in our state as "Made in America" or "Made in
the USA" to meet stringent domestic content requirements.
California's law has protected consumers from bogus claims
that products are made in the USA when, in fact they are
partially made in the USA and include non-domestic content.
. . .
It would be false advertising to offer a product for sale with
a "kosher" label if 10 [percent] of the product is pork, or as
"vegan" if 10 [percent] of the product is meat or cheese, or
as a particular year and vintage of wine if 10 [percent] of
the content were grapes of another year and another region.
We believe that it is equally false advertising to label a
product as "Made in the USA" if 10 [percent] of the product's
content or value is not American. The Kwikset Court pointed
out that an economic loss to a consumer occurs if the consumer
relied on the truthfulness of the label in deciding to
purchase a product that he or she would not have purchased it
had borne an accurate content label.
Accordingly, the practical effect of this bill is to allow a
company to claim that a product is "Made in the U.S.A." when
that statement is not entirely true.
3. Bill would adopt weaker standard for "Made in U.S.A." claims
Existing federal law requires that a "Made in U.S.A." label be
consistent with orders and decisions of the Federal Trade
Commission (FTC), which provides that a product may be labeled
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as "Made in U.S.A." if the product is all or virtually all made
in the United States.
This bill would provide that, for purposes of California law, a
product sold in California could carry the label "Made in
U.S.A." if it was substantially made, manufactured, or produced
in the United States, and meets the following requirements:
United States manufacturing costs constitute 90 percent of the
total manufacturing costs for the merchandise;
no more than 10 percent of the total manufacturing costs for
the merchandise were either incurred outside of the United
States as a result of the unavailability of raw materials in
the United States, or incurred as the costs of a component of
the merchandise imported into the United States as a result of
the unavailability from a domestic manufacturer; and
the merchandise was last substantially transformed in the
United States.
The Made in the USA Foundation, in support, writes:
California's present Made in USA law . . . doesn't make sense
in today's "global" economy. Not only does it require
California manufacturers to comply, it also requires
out-of-state manufacturers who sell a product in California
to comply. Thus, the California Made In U.S.A. statute's
rigid 100 [percent] domestic content requirement means that
even if a U.S. company's products comply with the FTC
Standard, that company must either forego the Made in America
and Made in USA labels on its packaging throughout the United
States or have separate packaging for California - resulting
no doubt in an added cost which ultimately the consumer will
have to at least partially bear. . . . SB 661, corrects this
problem and will help American manufacturers.
Staff notes that the practical effect of this bill is to permit
products sold in California to be labeled as "Made in the
U.S.A.," when, in fact, that statement is not 100 percent true.
It should be noted that the proposed standard may not even
satisfy the federal standard, which has not adopted a specific
percentage of U.S. and foreign-made parts used to construct the
product. In fact, the FTC reviewed the merits of providing a
domestic content safe harbor proposal in 1997 and decided at
that time to retain the "all or virtually all" standard. (U.S.
Federal Trade Commission, Complying with the Made in USA
Standard (Dec. 1998) <
http://www.business.ftc.gov/documents/bus03-complying-made-usa-st
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andard> [as of Apr. 28, 2013].)
The policy question, thus, raised by this bill is whether it is
appropriate to provide a lesser standard under California law
for products labeled "Made in U.S.A." than that used in federal
law. In general, the legislative preference has been to ensure
that California laws are strong and sufficiently protect
consumers, in this case, against unfair and deceptive business
practices, including false or misleading advertising. The
effect of the new standard created by this bill would be to
essentially define California law in a way that is less
protective of consumers than federal law.
4. Bill could have the effect of increasing the percentage of
foreign labor or foreign materials in goods and products that
have the "Made in U.S.A." label
In support of this bill, the author asserts that existing law
disincentivizes companies from making their products in the
United States, and California in particular, because the
standard is so strict. Further, the author writes:
Senator Hill's office conducted background research with
California State Archives and the California Research Bureau
regarding the original legislation which created California's
"Made in USA" labeling standard. Senator John Holmdahl
authored SB 1004 in 1961 to "prevent foreign firms from taking
advantage of 'buy American' promotions." The bill was
designed to prevent companies in other countries from using
the "Made in USA" label, not to prevent US companies who are
utilizing almost all US components for their products. Over
50 years later the statute Senator Holmdahl created is having
the reverse impact of what was intended: it's penalizing
California companies who are making products consisting of
nearly all US components. Today's global economy is different
than the economy in 1961. Modern companies rely on components
from around the world. California companies shouldn't be
penalized if almost all of their products' components are from
US sources but a small percentage of the product is from
foreign sources due to lack of availability in the U.S. The
rest of the country utilizes a "Made in USA" labeling standard
that provides for this flexibility. The US Federal Trade
Commission utilizes an "all or nearly all" standard to allow
the type of flexibility called for in SB 661.
Because the "Made in U.S.A." label can have such marketing
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significance, however, existing law arguably incentivizes
companies to make their products here in the United States, thus
creating domestic jobs. On this point, the California Teamsters
Public Affairs Council argues that "[t]his bill would
substantially weaken this important standard. Consumers in our
state expect that when a product is sold here with a "Made in
America" or "Made in the USA" label, that it is actually made in
our country, not partially in our country. This allows
consumers to make a truly educated choice. Moreover, it
protects our domestic manufacturing jobs because we know
consumers would rather, when given the choice, buy a product
made in the United States."
As noted above, California law prohibits products from being
labeled as "Made in U.S.A." when the product or any article,
unit, or part has been made or substantially made, manufactured,
or produced outside of the United States. This bill would
permit such products to be labeled as "Made in U.S.A." (provided
that any foreign content is 10 percent or less of the
manufacturing costs). As a result, the bill could arguably have
the effect of incentivizing companies to use foreign-made
content in products, thus increasing the percentage of foreign
labor or foreign materials in these goods and products.
5. Existing unfair competition laws protect businesses as well
California's laws against false and deceptive advertising also
protect businesses by ensuring that unfair and deceptive
business practices do not take hold in the marketplace. As a
result, the laws incentivize businesses to engage in truthful
and accurate advertising. This is critical to ensure that
businesses play on a level playing field. This bill would
potentially upend that playing field so that a business that did
not engage in false or deceptive advertising could be at a
competitive disadvantage with a competitor who did.
Businesses that currently make all of their products in the
United States have a competitive advantage because they can use
the "Made in U.S.A." label under California law. Under this
bill, however, those companies would lose this advantage when
other companies that use more foreign-made components could
start using the "Made in U.S.A." label based on the weaker
federal standard.
Furthermore, this bill is potentially more confusing and
deceptive for businesses relying on the new California standard
because their products may be held in violation of the federal
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standard. Although the author argues that this bill is intended
to provide uniformity for companies selling products in all 50
states, this bill would create a standard different from that of
the FTC, on which other states may be relying. As such, a
California company selling products in another state may be
unable to utilize the "Made in U.S.A." label on its packaging
because, although the product may meet California's new lower
standard, the product does not meet the federal standard. As
argued by the Made in USA Foundation, this bill is aimed at
purportedly decreasing the costs, currently borne by consumers,
of packing that must be altered when products are sold in
California. Yet, this bill may not in fact correct the problem
of added packaging costs that consumers are bearing because this
bill potentially creates a lesser standard in California, and
packaging sold in other states may have to be changed to conform
to the higher federal standard.
6. Existing law already permits businesses to label their
products with a qualified claim
The author asserts that the need for this bill arises because a
business may manufacture nearly all of its product in the United
States but if one component of that product is made outside of
the United States, California law would prohibit the "Made in
U.S.A." label. The author writes:
California companies that are working hard to meet
California's 100 [percent] labeling standard for a "Made in
USA" label are at a disadvantage compared to companies in
every other state that have a more realistic "all or nearly
all" labeling standard for a "Made in USA" label.
The following example comes from a company in Senator Hill's
district. It shows that even if a company goes out of their
way to meet California's 100 [percent] "Made in USA" labeling
threshold, it is not always possible since certain components
of their product are not available in the US. This creates a
dynamic where a California company has an incentive to
relocate to another state to obtain the "Made in USA" label
since the federal government and all other states utilize an
"all or nearly all" labeling standard.
Excerpt from correspondence received by Senator Hill from
Bulldog-Lighting(c) in his district:
Please review the attached and get back to me with any
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information you have that will help us stay in the state of
California for business. We are a relatively new company.
Our distributor and manufacturing is done by SLSDS, Inc. in
San Carlos, CA.
Our aluminum comes from Texas, we have silicone o'rings
from Hayward, reflectors from Benicia, our polycarbonate
lenses come from Fremont, our screws are made in Hayward,
our MCPCB's are made in Burlingame and final assembly is at
the same location. We are going thru hell and high water
to bring production back to the USA and we are not feeling
the love from California in doing so. Over and over again
we hear how happy our manufacturers are for us to bring
them business and not have our products made in China.
We simply want to stay in California and are told that we
cannot be certified here, as well as MANY other LED light
companies. LED's and some of the components for a printed
circuit board are not made in the USA. I have tried to
find them, they don't exist.
I would appreciate any help in keeping our business here in
California. We are prepared to go to Texas, and they are
welcoming with open arms. It should not have to be this
difficult.
Another example is Star Milling, a family owned livestock and
pet feed company in Perris, California. About 99 [percent] of
their feed products are made in the US from domestic sources
except for certain vitamins that aren't available in the U.S.
By creating a realistic level of flexibility to California's
"Made in USA" labeling standard, companies like Star Milling
would be able to utilize the "Made in USA" label.
Although the author's examples are compelling, it is important
to note that there is nothing in the statute which would
preclude these businesses from employing a truthful qualified
claim for its products which contain some foreign parts. For
example, the label could say "Made in U.S.A. of imported parts."
This accurately informs the consumer that, although the product
was made in the United States, parts of the product were made
outside the country. Claims that truthfully say "90 percent
Made in the U.S.A.," "Assembled in the U.S.A.," "Assembled by
California workers" would all meet California's existing
standard for "Made in U.S.A." labeling. Existing California law
only prevents the dilution of the pure "Made in U.S.A." brand.
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Thus, the argument that a business could not employ a qualified
claim if a product contained foreign parts is false.
7. Rebuttable presumption
This bill would provide that a defendant, whose product label
was challenged on the basis of this new "Made in U.S.A."
standard, would have the benefit of a rebuttable presumption
that the product was made in the U.S.A. if a third party
verification organization certifies the product as meeting all
of the specified requirements. This provision would place an
additional burden of proving that the use by a business of the
"Made in U.S.A." label is misleading, false, or deceptive and
require the consumer to investigate the practices of the third
party verification organization in its determination that the
product met the new standard provided in this bill.
CFC, in opposition, asserts that the recent inclusion of a
rebuttable presumption "makes the bill more harmful to
consumers. It erects a new barrier impeding access to justice
by victims of false advertising, by granting legal standing to
ill-defined and unregulated industry-funded and
industry-dominated certification entities. CFC has opposed
other efforts to recognize in California law so-called third
party certification organizations. . . . This amendment granting
standing to third party verifiers merely legitimizes the fox's
role as the guardian of the henhouse in false advertising
disputes."
Usually, the rebuttable presumption would fall on the party
against whom the false, misleading, or deceptive practice claim
was made. Yet, not only would this bill provide a lower
standard for businesses to use the "Made in U.S.A." label, but
this bill would also place the onus of proving the false,
misleading, or deceptive practice on the consumer. The Made in
the USA Foundation argues in support of this bill that "current
law opens the door for frivolous lawsuits against manufacturers
who are trying their best to make products in California and
other states." Arguably, this additional burden would not only
chill these purported frivolous lawsuits, but also chill valid
consumer protection efforts.
Support : 45 Industries, Inc.; California Manufacturers &
Technology Association; California Retailers Association;
California Small Business Association; Made in the USA
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Foundation; National Federation of Independent Business
Opposition : California Conference of Machinists; California
Teamsters Public Affairs Council; Consumer Federation of
California; United Food and Commercial Workers Union, Western
States Council
HISTORY
Source : Author
Related Pending Legislation : AB 890 (Jones) See Background.
Prior Legislation :
AB 858 (Jones, 2012) See Background.
ABX6 8 (Beall, 2010), which was identical to this measure, was
introduced in the Sixth Extraordinary Session but never referred
to committee.
SB 1004 (Holmdahl, Ch. 676, Stats. 1961) See Comments 1, 3, and
4.
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