On January 27, the California Supreme Court issued an opinion in
the case Kwikset v. Benson. The question answered by the
Court here was facially narrow: whether an individual possessed
standing to sue a company under a state unfair competition law.
However, the implications of this case may have a nationwide impact
on companies that use "Made in the USA" markings for
their goods.
As a brief background, Kwikset Corporation is a manufacturer of
locksets. It had marked these products as "Made in the
USA," even though some of its locksets contained screws or
pins made in Taiwan and some subassemblies were manufactured in
Mexico. James Benson, a California resident, purchased these
locksets with the misleading origin markings before learning of the
foreign parts and manufacturing.
Benson sued Kwikset under California's Unfair Competition Law
(UCL), specifically CA Bus. & Prof. Code § 17533.7, which
makes it unlawful to sell or offer for sale in California "any
merchandise on which . . . there appears the words 'Made in the
U.S.A.,' 'Made in America,' 'U.S.A.,' or
similar words when the merchandise or any article, unit, or part
thereof, has been entirely or substantially made, manufactured, or
produced outside of the United States."
While the case was pending, California passed Proposition 64, which
required that private plaintiffs in UCL and false advertising suits
must show "lost money or property" from the unfair
business practices in order to have standing to sue. Before, such
plaintiffs had standing simply by acting "for the interests of
itself, its members or the general public." The state appeals
court determined that, because Kwikset's locks worked properly,
Benson suffered no financial loss, and therefore could not sue
under the UCL. The Supreme Court reversed, determining that Benson
paid more for the locksets than he may have been willing to pay if
the locksets had been labeled accurately. To the Court, the
economic harm suffered—the "lost money or
property" required under Proposition 64—is the same
whether or not the products are "functionally
equivalent."
What is the significance of this case in the international trade context?
First, it is important to understand that "Made in the
USA" claims or markings are regulated by the federal
government. The Federal Trade Commission has developed an
enforcement policy describing when "Made in the USA"
markings are appropriate and when they are not. This policy
describes a standard known as the "all or virtually all"
standard, meaning that a "Made in the USA" claim for a
product (with no other qualifications) is appropriate only when
all or virtually all of the materials and
labor that went in to the manufacture of the product are of U.S.
origin.
Most states have their own unfair competition laws, and many states
include references to misleading U.S.-origin claims in those laws.
Except for California, these states generally defer to the
FTC's "all or virtually all" standard when
determining whether such a claim is appropriate. California,
however, has its own rule under Bus. & Prof. Code §
17533.7, and it does not necessarily align with the FTC's
"all or virtually all" standard. The key difference
between the two standards is that the FTC looks at the foreign
content of the product as a whole, while the California law applies
to articles, units, or parts thereof,
resulting in potentially stricter requirements. The details of
California's "Made in the USA" requirements are
discussed in both the lower court opinions in Kwikset and
another recent California case, Colgan v.
Leatherman.
The Kwikset decision has basically put the
"teeth" back in the California UCL by establishing that
private individuals can sue a company making U.S.-origin claims
that turn out to be false, even when the falsely advertised product
is not materially defective. Because California's standard of
determining the legitimacy of a "Made in the USA" claim
is different from the FTC's standard, manufacturers and
retailers of products that bear such marks and that are sold in
California should: (a) familiarize themselves with
both standards; and (b) hope that other
states do not follow in California's footsteps and enact their
own standards as well.
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