As we reported in December 2014, a wave of class action lawsuits has been pounding some of the nation’s largest retailers thanks to an until-recently obscure California statute that declares it a deceptive practice for a product to be labeled “Made in USA” if even the smallest component of the product is manufactured abroad. One of the larger retailers to be caught in the surf was Nordstrom, who, together with high-end jeans designer Adriano Goldschmied, was hauled into California federal court in 2014 on allegations that it sold jeans labeled “Made in USA” despite the fact that the jeans’ “fabric, thread, buttons, rivets and certain subcomponents of the zipper assembly” were made in other countries. According to a court filing in the case on Nov. 30, 2015, Nordstrom and Goldschmied have agreed to settle the action by doling out a voucher for a free pair of jeans (which retail for around $200) to each class member—a settlement package valued at $4 million—plus up to $175,000 in attorneys’ fees and another $5,000 in an incentive award for the named plaintiff.

The Nordstrom settlement comes after the retailer and its co-defendant lost their bid to dismiss the case at the outset. The defendants had argued that California’s “Made in USA” statute is preempted by the Federal Trade Commission Act; the FTC employs a looser standard when it evaluates “Made in USA” claims for deception, allowing patriotic labeling so long as “all or virtually all” of a product is made domestically. The district court rejected that argument. Although acknowledging the disparity between the California and FTC standards, the court held that the two standards did not conflict and that Nordstrom could comply with both laws by using qualifying language on its “Made in USA” label for products sold in California. The defendants had attempted to certify that decision for interlocutory appeal, but the district court denied their motion to do so.

In a related development—but one that unfortunately comes too late for Nordstrom—set to go into effect on Jan. 1, 2016, is a significant amendment to California’s “Made in USA” labeling statute that is intended to ease the law’s requirements and to move closer toward the FTC’s “all or virtually all” standard. Signed into law in September by Gov. Jerry Brown, the new law allows companies to label their products “Made in USA” if either:

  1. all the foreign components of the product constitute no more than 5 percent of the final wholesale value of the manufactured product; or
  2. all the foreign components of the product constitute no more than 10 percent of the final wholesale value of the manufactured product, and the manufacturer of the product shows that it can neither produce the components in the United States, nor obtain the components from a domestic source.

Although the move away from strict liability will no doubt be a relief for manufacturers and retailers, the new law also injects further complexity into this area, raising questions such as how “final wholesale value” will be determined and what efforts are necessary to demonstrate the inability to manufacture or source a component part domestically.