Most of our posts regarding “Made in USA” claims relate to FTC investigations and enforcement actions. Private plaintiffs, however, also closely watch those claims. For example, in 2018 plaintiffs filed a class action lawsuit against New Balance Athletics Inc. challenging qualified “Made in USA” claims. Although the plaintiffs acknowledged that New Balance qualified the claim in some places to indicate that the domestic value is at least 70%, they alleged that the general impression is that the products are American made. To resolve that litigation, a California federal judge recently granted preliminary approval to a proposed $750,000 settlement.
In Dashnaw v. New Balance Athletics, Inc., consumers alleged that New Balance mischaracterized its line of “Made in USA” sneakers because as little as 70% of the product was made with domestic components or labor. The claim appeared in advertising, on the shoes, and on the shoe boxes. The complaint acknowledged that New Balance disclosed in some places that its “Made in USA” sneakers contain a domestic value of 70% or greater, but alleged that an “Made in USA” claim appeared in places like the shoe and the shoe box. Because 30% of the value of those shoes could be attributed to a foreign country, plaintiffs alleged that the claims violated both California law, requiring that foreign materials must not exceed 5% of the final wholesale value, and FTC guidelines, stating that a product must be “all or virtually all” made in the United States.
The case was transferred from state court to the U.S. District Court for the Southern District of California, where the parties initiated settlement discussions. In April, the parties proposed a settlement of $750,000, with $215,000 going to settlement administration costs and compensation and $535,000 to consumers, with each consumer receiving up to $10. Judge Lorenz denied the settlement stating that the proposed amount was not enough for the estimated 1 million class action members. In response, the parties explained that a 5% participation rate among class members would result in full compensation and even with a 10-15% participation rate, each class member would receive 35-50% of the maximum damages the class could receive at trial, which they called a “reasonable settlement amount.” Judge Lorenz granted preliminary approval to the proposed settlement of $750,000 on January 25, 2019.
This case reminds advertisers that when using a disclosure to qualify a Made in USA claim or any other claim, the disclosure must appear consistently to maximize effectiveness. The FTC has also cautioned that even qualified claims may imply more domestic content than exists, so advertisers should avoid qualified claims unless the product has a significant amount of U.S. content or U.S. processing.