Labeling products as “Made in the USA” has seen increased popularity recently, as retailers and manufacturers attempt to capitalize on consumers’ desire to support domestic jobs and US-made goods. Despite the seeming cachet of these statements, they may open companies up to false and misleading advertising claims, particularly in plaintiff-happy California.

“Made in the USA” representations are regulated in both the federal and state-law spheres.

According to the Federal Trade Commission, for a product to be marketed as “Made in the USA,” “all or virtually all” of the product must be made in the U.S, meaning that all significant parts and processing that go into the product must be of US origin. As explained in the FTC Enforcement Policy, a product advertised as “Made in the USA” “should contain only a de minimis, or negligible amount of foreign content.” To qualify as “all or virtually all” made in the US, the product’s final assembly or processing must take place in the US. The FTC then considers several other factors, including the product’s total manufacturing costs that are attributable to US parts and processing, and how far removed from the finished product any foreign content is.

Increasing the hurdle to accurately claim “Made in the USA”, California has its own law for products sold within its borders. This law prohibits the sale or offer for sale of any merchandise that is labeled “Made in the USA” 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.” Despite the significant implications for manufacturers and retailers, as of yet, there is little California published opinion interpreting this provision (Colgan v. Leatherman Tool Group, Inc. and Benson v. Kwikset Corp.).

In analyzing whether a product or its component is “entirely or substantially made, manufactured or produced” outside the US, the Colgan court explained that if any one of these processes substantially takes place outside of the US, the use of a “Made in the USA” designation violates the law.

The court also noted that the California and federal law on the subject were not coextensive: “All or virtually all” made in the US, as used by the FTC, is different than the “entirely or substantially” made outside the US California requirement, even though the “policies underlying the federal and California laws are the same.”  Despite these clarifications, Colgan leaves open the question of whether California law prohibits claims that are lawful under federal law.

A second California Court of Appeal decision interpreting this provision led to a much more stringent outcome. Interpreting the California statute, the court in Kwikset gave the terms “article,” “unit,” and “part” their ordinary meanings, concluding that when a product consists of two or more physical elements or pieces, the California law “also applies to any distinct component of merchandise that is necessary for its proper use or operation.”  Taking the California statute very literally, the court held that even more minor parts (in this case, screws and pins) were distinct components of a lockset necessary to its proper use or operation and, therefore, must be US-made.

The California “Made in the USA” law may be tested in the courts again shortly as several retailers and denim manufacturers have been hit with or are threatened with class action lawsuits alleging the companies’ “Made in the USA” labels are inaccurate because their products contain parts, including thread, buttons, or rivets, that are made outside the US.

It is unclear whether the California law will require a different result than the FTC Enforcement Policy, particularly in cases which may be a close call. Therefore, manufacturers and retailers seeking to capitalize on the benefits of labeling products as “Made in the USA” should consider this potential disparity between federal and state law in deciding the propriety (and the risk) of making such claims.