Legislative efforts to bring common sense reform to some of California’s most culpable docket clogging statutes have hit a rough patch. Needed protections from shakedown lawsuits against small businesses under Proposition 65 (see our prior alert here) failed to pass the Assembly. Another bill, which would have clarified that a party cannot “intercept or receive” its own call for purposes of the California Invasion of Privacy Act (see our prior alert here), also failed to garner enough legislative support. However, litigation reform in California is still possible. Two bills aimed at conforming California’s “Made in America” labeling law with federal law, SB-633 and AB-312, appear to be sailing through the legislature.
“Made in America”
The past year has seen an explosion of litigation seeking to take advantage of the differences between California’s and the FTC’s Made in America labeling rules. Under the federal standard, a product can be labeled as “Made in the U.S.A.” or “Made in America” even if it includes some foreign sourced components so long as “all or virtually all” of the finished product is made in the United States. In contrast, California’s “Made in America” labeling law prohibits companies from advertising a product as “Made in the U.S.A.” or “Made in America” when “any article, unit, or part thereof has been entirely or substantially made, manufactured, or produced outside of the United States.” The California law has been interpreted by plaintiffs’ lawyers and some courts as requiring each and every part of a product to come from the United States in order to label a product “Made in America.”
In today’s increasingly global economy, California’s law imposes an unrealistic burden on companies, is based on outdated perceptions and creates inconsistencies between California and the rest of the United States causing consumer confusion regarding what “Made in America” means. A consumer who buys a product without a “Made in America” label in California may be able to buy an identical product in another state with such a label. SB-633 and AB-312 are intended to ease this burden and align the California standard with the federal standard.
If SB-633 passes, companies will be able to use a “Made in America” label when one of two criteria is met:
- All of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than five percent of the final wholesale value of the manufactured product; or
- All of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than 10 percent of the final wholesale value of the manufactured product and the manufacturer can prove that it can neither produce the article, unit, or part within the United States nor obtain the article, unit, or part of the merchandise from a domestic source.
In theory, SB-633 is intended to more closely align California’s Made in America law with the federal “all or virtually all” standard and correct the current inconsistencies between California and federal law. In practice, the quantification of five percent (or 10 percent) of the final wholesale value remains uncertain and it is unclear whether it matches the “all or virtually all” standard. However, if SB-633 passes, it will be a step in the right direction towards more closely aligning California law with federal law.
If AB-312 passes, it will amend California law to include the exact “all or virtually all” language from the federal standard, explicitly specifying that “all or virtually all” under California law has the same meaning as under the federal standard. AB-312 thus directly conforms California law to federal law.
Legislative reform of some type to align California’s Made in America labeling law with federal law will likely occur this year, and would take effect on January 1, 2016. Given lead times required for manufacturing, labeling, and advertising changes, now is a prudent time to review inventory and identify products that could potentially be affected by the passage of AB-312 or SB-633.