BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 858 (Jones)
As Introduced
Hearing Date: July 3, 2012
Fiscal: No
Urgency: No
SK
SUBJECT
False Advertising: Made in 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. A
federal policy statement issued by the Federal Trade Commission,
on the other hand, provides that a product may use these labels
if the product is all or virtually all made in the United States
even if some parts of the product are made outside of the United
States, as long as those parts are a negligible amount.
This bill would provide that, for purposes of the California law
described above, a product that is made all or virtually all in
the United States within the meaning of the federal policy
statement shall be deemed to have been entirely or substantially
made in the United States.
BACKGROUND
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
(more)
AB 858 (Jones)
Page 2 of ?
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, sponsored by Vinturi, Inc., would provide that, for
purposes of California law, a product that is made all or
virtually all in the United States within the meaning of a
federal policy statement shall be deemed to have been entirely
or substantially made in the United States.
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
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. 17500 et
seq.)
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
AB 858 (Jones)
Page 3 of ?
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, a product may be labeled as "Made in the U.S.A."
if it meets the federal policy statement described above and is
made all or virtually all in the United States. In that case,
the product shall be deemed to have been entirely or
substantially made in the United States.
This bill would contain intent language providing that it is the
intent of the Legislature in enacting the bill to clarify
existing state law with respect to federal law in order to
improve California's ability to successfully compete with other
states and nations for jobs, investments, and manufacturing.
COMMENT
1. Stated need for the bill
The author writes:
Currently, there is an inconsistency between federal labeling
laws and California laws for "Made in America" products. This
inconsistency has resulted in a loss of California jobs.
California consumers, as well as consumers in the other 49
states, are deprived of the information that the products they
want to buy are "Made in America." Two, seemingly identical
products, one manufactured in California that meets the
"virtually all" federal standard and one predominantly
manufactured abroad, could be sold side by side and the
consumer would have no way of knowing which is "Made in
America." As a result, the various Buy American campaigns
which attempt to promote American jobs cannot be effective.
Manufacturers who could meet the federal standard but not the
California standard have little incentive to maintain the
domestic content of their goods. This impacts more than
California consumers. Manufacturers cannot simply label
products for sale in California differently than products
destined for sale in the other 49 states. Due to the
nationwide distribution system in place, it is difficult for a
domestic manufacturer to control product distribution once it
has left the factory. As a result, products that should be
labeled "Made in America" aren't and consumers are denied the
right to know across the country.
AB 858 (Jones)
Page 4 of ?
AB 858 addresses this problem by allowing products that meet
the federal definition to be labeled and sold in California as
"Made in America." But the bill retains the right of
California consumers to sue manufacturers who improperly label
their products under existing state laws if they do not meet
the federal definition. As stated below, the federal test of
whether a product can be labeled "Made in the U.S.A." is very
high. While recognizing the more global nature of the
economy, it strictly protects American jobs.
Sponsor Vinturi, Inc., maker of the Vinturi wine aerator,
indicates that this bill would allow the company to label its
aerator as "Made in U.S.A." where, under current law, it cannot.
The sponsor explains that its aerator is currently made in
Southern California and most of the product and its components
are made in the United States. However, one small part, a
decorative gasket, is foreign-made and cannot be obtained in the
United States.
Supporter MAG Instrument, Inc. writes that "�b]ecause there is
no labeling advantage to make almost 100% of a product in this
country, there is a disincentive for Mag Instrument to even try
to make as much of the product as possible in this county. . .
. the reality of the present California standard is that it
invites manufacturers to not even try to improve their domestic
content percentage, and instead invites them to 'outsource'
their manufacturing."
2. Bill would adopt weaker federal standard for "Made in U.S.A."
claims
As noted above, 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. The federal
policy statement, on the other hand, provides that even if some
parts of the product are made outside of the United States-as
long as those parts are a negligible amount-the product may be
considered to be "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 the California law
described above, a product that meets the federal policy
statement and is made all or virtually all in the United States
may be labeled as "Made in the U.S.A." and, as a result, would
be deemed to have been entirely or substantially made in the
AB 858 (Jones)
Page 5 of ?
United States under California law.
The practical effect of this bill then is to permit products
that would otherwise not meet California's standard for "Made in
U.S.A" to be permitted to be labeled as such when those products
had met the weaker federal standard which permits parts to be
made outside of the United States. The policy question thus
raised by this bill is whether it is appropriate to provide that
compliance with a weaker federal standard satisfies California
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. This bill
would reverse that preference by allowing compliance with a
weaker federal law to be deemed to be compliance with California
law. The effect of this reversal is to essentially define
California law in a way that is less protective of consumers and
potentially more confusing and deceptive.
For example, at least one company, shoemaker New Balance, uses
the "Made in U.S.A." label when a shoe's "domestic value" is at
least 70 percent (See the company's website at
http://www.newbalance.com/Domestic-Manufacturing/
about_domestic_ manufacturing,default,pg.html (visited June 28,
2012). Also, see "New Balance sidesteps FTC ad rules," April
16, 2010, http://www.msnbc.msn.com/id/36476797/
ns/business-us_business/t/new-balance-sidesteps-ftc-ad-rules/).
As a result, a shoe that contains 30 percent foreign material
could be labeled "Made in U.S.A." under this company's
interpretation of the FTC policy statement.
IS IT APPROPRIATE TO PROVIDE, AS THIS BILL DOES, THAT CALIFORNIA
LAW IS SATISFIED WHEN COMPLIANCE WITH A WEAK FEDERAL STANDARD IS
MET?
Opponent Consumer Attorneys of California also note that this
bill ties California law to a federal policy statement and
writes "AB 858 is unprecedented to our knowledge by statutorily
creating a state legal standard that refers to a federal policy
statement. We do not believe that a policy statement is the
same as a formal regulation that has gone through the regulatory
rule making process. . . . Federal law makes clear that the
states are free to fashion their own rules in this area that are
stricter and clearer than the federal standard. The federal law
is not meant to be preemptive. . . . the California law is
clear and easy to understand. While the federal law uses terms
AB 858 (Jones)
Page 6 of ?
such as "virtually all," the California law provides a bright
line test. Consumers know they have a label with a clear
meaning." The Service Employees International Union (SEIU) also
opposes this bill, raising similar concerns.
SHOULD THE LEGISLATURE STATUTORILY TIE STATE LAW THAT PROTECTS
BOTH CONSUMERS AND BUSINESSES TO A FEDERAL POLICY STATEMENT?
3. Ensuring consumers get the benefit of their bargain and
assuring consumer confidence
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
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 the 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% 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
AB 858 (Jones)
Page 7 of ?
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
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 policy question thus raised by this bill is whether, by
adopting a weaker standard concerning claims of origin that
would arguably 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 makes this
point when it writes that the bill would "replace a truth in
advertising law that protects consumers who care about the
origin of the products they buy with a vague standard that
invites mislabeling." This bill would arguably weaken a
standard that assures a consumer that something is made in the
United States when it is not.
BY ADOPTING A WEAKER STANDARD REGARDING CLAIMS OF ORIGIN, DOES
THIS BILL IMPAIR A CONSUMER'S ABILITY TO RELY ON LABELS?
WOULD THIS BILL POTENTIALLY MISLEAD CONSUMERS AS TO THE SOURCE
OF A PRODUCT, THUS PREVENTING THEM FROM GETTING THE BENEFIT OF
THEIR BARGAIN?
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 sponsor Vinturi, Inc. argues that
permitting companies to use the "Made in U.S.A." label even
AB 858 (Jones)
Page 8 of ?
though foreign-made parts are used in their products actually
incentivizes companies to make their products in the United
States and take advantage of the label as a selling tool. The
sponsor asserts that existing law disincentivizes companies from
making their products in the United States, and California in
particular, because the standard is so strict.
Because the "Made in U.S.A." label can have such marketing
significance, however, existing law arguably incentivizes
companies to make their products here in the United States, thus
creating domestic jobs. 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 of a negligible amount). As a result, the bill could
arguably have the effect of incentizing companies to use
foreign-made content in products, thus increasing the percentage
of foreign labor or foreign materials in these goods and
products.
WOULD THIS BILL HAVE THE EFFECT OF INCREASING THE PERCENTAGE OF
FOREIGN-MADE MATERIALS CONTAINED IN PRODUCTS LABELED "MADE IN
U.S.A."?
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.
AB 858 (Jones)
Page 9 of ?
UNDER THIS BILL, WOULD A BUSINESS THAT IS CURRENTLY ABLE TO USE
THE "MADE IN U.S.A" LABEL UNDER CALIFORNIA LAW-AND DERIVE A
COMPETITIVE ADVANTAGE BY DOING SO-LOSE THIS ADVANTAGE?
6. Existing law already permits businesses to label their
products with a qualified claim
The sponsor indicates 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. Despite that, it is important to note
that there is nothing in the statute which would preclude a
business 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 would
let the consumer know that, although the product was made in the
United States, parts of the product were made outside the
country. SEIU makes this point, writing that "�c]laims that
truthfully say '90 percent Made in the U.S.A.,' 'Assembled in
the U.S.A.,' 'Assembled by California workers' are all fine.
Existing California law only prevents the dilution of the pure
'Made in the U.S.A.' brand." Thus, it is simply not the case
that a business could not employ a qualified claim if a product
contained foreign parts.
7. Litigation in this area
In January 2011, the California Supreme Court issued its
decision in Kwikset v. Benson, supra., 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." Although this case is no longer pending,
there is apparently other litigation making its way through the
courts relating to existing law's protections against false and
deceptive advertising in this area. On this point, opponent
Consumer Attorneys of California (CAOC) writes, ". . . we
understand there is pending litigation in this area and it is
consistent public policy that the courts should decide pending
litigation."
For example, in Guillermo Garcia Santamarina v. Sears Roebuck
Co., No. BC 326946, currently pending in Los Angeles Superior
Court, the plaintiff has alleged that "Sears has sold hoes,
axes, mauls, sledge hammers, pitchforks, mattocks, rakes and
tree pruning blades prominently marked as 'Made in the U.S.A.,'
AB 858 (Jones)
Page 10 of ?
though the tools are from other countries." The complaint
alleges that Sears violated the statute proposed to be amended
by this bill by "misrepresenting the national origin of a number
of the parts of Craftsman tools and products and/or the place of
assembly or manufacturing of the tool itself." As the complaint
states, the statute in question "prohibits precisely the
fraudulent misrepresentations and conduct" alleged by the
plaintiff. If this bill were to be chaptered, the court would
likely read the change in the law to weaken California's strong
"Made in U.S.A." standard, thus impacting this pending case.
The next hearing in this case is currently scheduled for July
11, 2012.
In addition, this bill contains intent language providing that
it is the intent of the Legislature in enacting the bill to
clarify existing state law with respect to federal law in order
to improve California's ability to successfully compete with
other states and nations for jobs, investments, and
manufacturing. If enacted, that intent language could be used
to argue that existing law is simply being clarified in order to
be consistent with federal law. As a result, any pending
lawsuits could be subject to this "clarified" standard which is
much less protective than existing law.
Support : California Manufacturers and Technology Association;
California Retailers Association; CREE; Made in
U.S.A.Foundation; MAG Instrument, Inc.; Twentynine Palms Chamber
of Commerce
Opposition : Consumer Attorneys of California; Consumer
Federation of California; Service Employees International Union
(SEIU)
HISTORY
Source : Vinturi, Inc.
Related Pending Legislation : None Known
Prior Legislation : ABX6 8 (Beall, 2010), which was identical to
this measure, was introduced in the Sixth Extraordinary Session
but never referred to committee.
Prior Vote :
AB 858 (Jones)
Page 11 of ?
Assembly Floor (Ayes 68, Noes 0)
Assembly Committee on Business, Professions and Consumer
Protection (Ayes 9, Noes 0)
**************