GUEST ARTICLE: Made in America… A guide to avoiding legal hot water with origin claims
The President’s Executive Order directs the federal government to “maximize the use of goods, products, and materials produced in, and services offered in, the United States,” and directs the United States to, “whenever possible, procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.”
This order, along with the growing sentiment among American consumers in favor of American made product, will likely encourage food and beverage companies to highlight on packaging when their products are ‘Made in America.’ However, such claims should be carefully assessed to ensure they are factually accurate to help protect against litigation risk.
Could a claim make you a target for an FTC enforcement action, or a defendant in class action litigation?
Putative class actions against food and beverage companies arising out of the labeled origin of the products have been on the rise over the past decade. These suits generally arise from a label representation or inference that the product is made in a particular place when, in actuality, it is largely sourced elsewhere.
These lawsuits have not only targeted products purporting to be ‘Made in the USA,’ but also Hawaiian Host macadamia nuts manufactured in California, ‘Jamaican Style Lager’ brewed in Pennsylvania, and ‘Helados Mexico’ brand paletas made in California.
So before including a ‘Made in America’ sticker on a product, a food and beverage company might consider whether that claim will make it a target for an FTC enforcement action, or a defendant in class action litigation.
FTC standard for ‘Made in the USA' claims
Manufacturers and retailers who wish to affix ‘Made in USA’ on any products advertised or sold in the United States must comply with the FTC’s Enforcement Policy Statement on U.S. origin claims.
In order to make an unqualified claim of U.S. origin—i.e., to state ‘Made in USA’ outright on a label—a manufacturer must have a reasonable basis in evidence to support an assertion that the product is “all or virtually all” made in the country.
This means the product’s significant parts and processing should be of U.S. origin. In other words, the product “should contain no—or negligible—foreign content.” Crucially, the final assembly or processing of the product must take place in the U.S. to be considered “all or virtually all” made in the USA.
A new FTC final rule codifying the “all of virtually all” standard will take effect on August 13, 2021. The Commission was clear that this new rule “affirms longstanding guidance and legal precedent with respect to Made in USA labels—thereby imposing no new obligations on manufacturers and sellers.”
However, food and beverage retailers making unqualified U.S. origin claims should be more vigilant than ever. By formally codifying this rule, the Commission “has activated a broader range of remedies, including the ability to seek redress, damages, penalties, and other relief.”
Qualified U.S. origin claims
When a product is not “all or virtually all” made in the USA, manufacturers may still be able to make qualified U.S. origin claims.
A retailer may make any qualified claim about U.S. content that is truthful and substantiated. Qualifications or disclosures about foreign content must be “sufficiently clear, prominent, and understandable to prevent deception.” Examples of qualified U.S. origin claims include, “Made in USA from imported parts,” or “60% U.S. content.”
Importantly, the FTC’s regulations apply to both express origin claims and implied origin claims. An implied origin claim can arise from the product’s packaging as a whole, including consideration of phrases and images, as well as the overall context of the transaction.
The FTC has asserted that “[d]epending on the context, U.S. symbols or geographic references, such as U.S. flags . . . by themselves or in conjunction with other phrases or images, convey a claim of U.S. origin.” However, listing a company’s U.S. address on the packaging, without more, is not likely to lead to an enforcement action from the FTC for making a misleading origin claim.
State law considerations in California
In addition to the FTC standards, manufacturers and retailers should be aware of potential state laws regulating origin claims. Most notably, California’s state law concerning ‘Made in the USA’ claims is stricter than FTC requirements.
California Business and Professions Code Section 17533.7 provides that a ‘Made in the USA’ claim may only be affixed to products where the foreign content is 5% or less of the products’ wholesale value, or up to 10% if the manufacturer can prove the foreign content is not available in the United States.
As a result of this disparity, retailers selling products nationwide often must conform to the strict California standard in order to carry any ‘Made in America’ label, as opposed to merely meeting FTC requirements. Or, they must create separate packaging for products sold in California.
Industry-specific legislation
Manufacturers should also be on the lookout for new legislation regulating origin claims in certain industries to ensure compliance in labeling. One example of this kind of legislation is a bill recently passed in the California State Assembly—AB 535—that prohibits “any reference to California” on olive oil containers unless 100% of the olives used were grown in the state.
The bill could have significant impacts on olive oil producers who utilize some, but not 100%, California olives, or olive oil brands with the word ‘California’ in the brand name.
The bill was amended in the State Senate to no longer prohibit mention of ‘California’ on the label, however it still requires disclosure of “the minimum percentage of olive oil in the container derived from olives grown in California” to appear on the label in the same font, size, and color as the word “California.”
As origin legislation continues to be debated and enacted, food and beverage manufacturers and retailers should be mindful of additional requirements imposed to ensure compliance with regulations.
Putative class actions for misleading US origin claims
Even if companies believe they have met the FTC, state, and industry standards, affixing a ‘Made in USA’ or other country of origin claim on a food or beverage label can still have consequences for retailers and manufacturers whose product labels are challenged as ‘misleading’
Indeed, multiple putative class actions have been brought making these claims and, as with any false labeling class actions, the defense and/or settlement of those claims can be costly.
Bigelow: America’s Classic?
In one recently filed case, plaintiffs averred that Bigelow Tea’s packaging deceptively made implied claims of U.S. origin despite 90% of the tea being grown and processed in Sri Lanka and India.
Specifically, the plaintiffs challenged statements on the boxes asserting ‘Manufactured in the USA 100% American Family Owned’ and ‘America’s Classic.’
The complaint survived a motion to dismiss, with the court recognizing it was plausible that the packaging could convey to the reasonable consumer that 100% of the product was made in the USA.
The court further noted that the phrase “America’s Classic” could contribute to the deceptiveness of the packaging as a whole. Despite the Bigelow Tea boxes containing a small disclaimer on the side stating the tea was only “Blended and Packaged in the U.S.A.,” the court concluded the disclaimer could not dispel the overall impression.
Rockstar: Made in the USA?
In another case challenging Rockstar Beverage Corporation’s claims that their energy drinks were ‘Made in the USA,’ the defendant fared better.
Both the ‘Made in USA’ phrase and an image of the United States were displayed on the can, but the plaintiffs alleged that the beverage actually contained taurine, guarana seed extract, and milk thistle extract made outside the U.S.
In granting the defendant’s motion to dismiss, the court noted that plaintiffs did not assert what percentage of the beverage was made of foreign content. And, plaintiffs failed to specify where outside the U.S. the allegedly foreign sourced ingredients were made. Thus, it appears that generalized claims that some portion of a product was made somewhere outside of the United States are not likely sufficient for a complaint to survive a motion to dismiss.
In sum, manufacturers and retailers should ensure their labels taken as a whole—including images and symbols—do not give the impression that the product was made in the USA if that is not the case. And, any disclaimers elsewhere on the package should be prominent, conspicuous, and clear enough to dispel any impression that the product is actually American-made.
Lessons from other county of origin claims cases
Retailers who wish to make ‘Made in America’ claims can also gain insight from decisions in putative class actions arising from other kinds of country of origin claims.
Beck’s Beer: ‘Originated in Germany’?
Beer manufacturers in particular have been targeted for their labeling practices. For instance, in 2013, consumers alleged that Anheuser-Busch misled consumers into believing that Beck’s beer was imported from Germany when it was actually brewed in St. Louis.
The label included the statements, ‘Originated in Germany,’ ‘German Quality,’ and ‘Brewed Under the German Purity Law of 1516.’ Despite the label also disclosing that the beer was a ‘Product of USA, Brauerei Beck & Co., St. Louis, M,’ the court denied Anheuser-Busch’s motion to dismiss and the case later settled for over $20m.
MillerCoors: ‘Born in the Rockies’?
Another case out of Florida challenged the MillerCoors slogan ‘Born in the Rockies’ as misleading, alleging it led consumers to believe that the beer was brewed in the Rocky Mountains.
The court granted MillerCoors’ motion to dismiss, concluding a reasonable consumer would understand that the statement alluded to the brand’s history, and not believe it to be a representation about the origin of the current product.
Kona Beer: ‘Liquid Aloha’?
A third case alleged that beer labels including pictures of surfboards, the phrase ‘Liquid Aloha,’ and other Hawaiian imagery misled consumers into believing Kona Beer was brewed in Hawaii. The court denied defendant’s motion to dismiss.
It found that the Hawaiian imagery, along with a map on the label identifying Kona’s brewery on Hawaii’s Big Island and stating “visit our brewery and pubs whenever you are in Hawaii,” were “specific representations of fact that could deceive a reasonable consumer” into believing the beer was brewed in Hawaii.
The fact that the label included a statement of all the various locations where the beer was brewed was not enough to dispel the impression of the packaging as a whole.
Key takeaways
Important lessons can be gleaned from these cases for food and beverage companies wanting to make ‘Made in the USA’ or other country of origin claims.
First, courts have been more willing to dismiss cases at the pleadings stage when it is clear no reasonable consumer would be deceived. Simply including imagery from, or evoking the essence of, a particular place is likely not enough to convince a court that consumers are being misled, especially when the label includes a disclaimer about origin.
Companies should bear in mind that labels are reviewed for the impression they give as a whole. Thus some cases have survived motions to dismiss and ended in significant settlements ranging in the millions of dollars. These cases tend to involve instances where the label contains no disclosure of origin at all, but alludes to a particular location, or when the disclaimers on the label disclosing origin were not conspicuous enough, illegible, or unclear.
Implied origin claims
These outcomes seem to track with the FTC standards and case law addressing ‘Made in the USA’ claims. Additionally, these cases shed some light on when imagery and phrases on a label might cross over into an implied origin claims.
Simply including references to the USA or American imagery may not rise to the level of a U.S. origin claim, but those same images coupled with express language or other factors on the label may be perceived as deceptive to the reasonable consumer.
Conclusion
Overall, both the FTC and class action plaintiffs have demonstrated a willingness to pursue ‘Made in America’ claims. As a result, food and beverage companies should avoid making any unqualified U.S. origin claims that are not truthful or substantiated.
If challenged, retailers should be able to provide evidence that their product’s components are “all or virtually all” made in the USA.
If only part of a product is manufactured in the USA, a company could contemplate a clear and conspicuous qualified origin claim—like “Assembled in the USA from imported parts.” Further, if a product’s label arguably includes an implied ‘Made in USA’ claim through evocative text or images on the packaging, manufacturers should consider a clear and conspicuous origin disclaimer.
Rob Guite is a partner in Sheppard Mullin’s business Trial Practice Group and Managing Partner of the firm’s San Francisco office; Abby Meyer is the lead Associate for Sheppard Mullin’s Food & Beverage team; and Abby Miles was recently a Summer Associate at Sheppard Mullin.
*References available upon request
