Wednesday, December 28, 2022

New Balance "Made in the USA" claims may overstate US content

Cristostomo v. New Balance Athletics, Inc., No. 1:21-cv-12095-AK, 2022 WL 17904394 (D. Mass. Dec. 23, 2022)

It’s not just the FTC interested in “Made in the USA” claims—here a court sustains a consumer protection complaint. “The plaintiffs purchased shoes from a premium New Balance 'Made in the USA' collection. New Balance admits the shoes in this collection are made of up to 30% foreign content but claims they adequately disclose this detail to consumers.”

Plaintiffs alleged that the line of shoes prominently feature “Made in the USA” claims despite the fact that the shoes’ foreign composition mean they do not meet the “all or virtually all” standard used by the FTC. Several of these shoes feature American flags, the unqualified phrase “Made in the USA” on the outside tongue of the shoes, and/or the word “USA”. Others were part of the “Footwear Made in the USA” collection on the New Balance website. The shoes in the collection also feature the prefix “Made in USA” before their respective names when they appear on the New Balance website. The inside label on the tongues of each shoe bear “Made in USA.” The top of the box features a silhouette of a USA flag with the word “made” written on top of it, and “made in the U.S. for over 75 years” is written on the side. The underside of the box features another small “made” logo next to a flag with a caption that places the “made” collection in the context of “over 75 years of authentic American craftsmanship.”

However, imported parts and foreign labor make up at least 30% of each shoe. New Balance admits that it imports the soles, which are key to the shoes’ functioning, especially for athletic shoes, and is a part of the shoe where the durability and quality matter a great deal.

While the front of the hangtags on its shoes features the “MADE.” logo with the US flag, the rear side of the hangtags says, “New Balance ‘made’ is a premium collection that contains a domestic value of 70% or greater.” Below another larger “made” logo, the same phrase appears on the side of each shoebox. A similar disclaimer about a domestic value of 70% or more appears below the link to the collection on the website, and the disclaimer reappears in some other places on the site. “Domestic value” has no legal definition.

Plaintiffs also alleged materiality/a price premium: “Products described as made in the USA imply to consumers a higher quality product, evoke a sense of patriotism, and provide support for domestic manufacturing jobs.” They alleged that the “made” collection was more expensive than similar shoes sold by New Balance that didn’t make the same claims.

New Balance argued that its qualifications were sufficiently clear and prominent. Plaintiffs disagreed and argued that New Balance regularly makes prominent and unqualified “Made in USA” claims and that several of the plaintiffs purchased the shoes on websites that did not feature the disclaimers.

Under the FTC’s guidelines, for a product to be considered “Made in USA,” it must be “all or virtually all” made in the USA: “all significant parts and processing that go into the product must be of U.S. origin” and the “product should contain no—or negligible—foreign content.” New Balance did not contest that its products didn’t meet that standard; instead, it argued that it was making a “Qualified U.S. Origin Claim” under FTC standards; the FTC does not consider these deceptive if the foreign composition is adequately disclosed. The FTC allows producers to specify the domestic amount, such as saying a product is made of “60% U.S. content,” or indicate generally the existence of foreign content (e.g., “Made in USA of U.S. and imported parts”). However, “because even qualified claims may imply more domestic content than exists, manufacturers or marketers must exercise care when making these claims.” Plaintiffs sufficiently alleged that New Balance inadequately disclosed the foreign content. Plaintiffs identified several examples in the complaint where a consumer would see the shoes presented as being “Made in the USA” without any qualification—including on the shoes themselves—with any disclaimer featured less prominently elsewhere. Plaintiffs plausibly pled that consumers purchasing these shoes online, whether on New Balance’s “Footwear Made in the USA” collection page or on the websites of third parties like Amazon, “would do so either while missing or while not understanding New Balance’s 70% qualifications stated elsewhere on the website or in the products descriptions.”

Side note: The court rejected New Balance’s argument that the complaint failed to adequately plead the content of the third party websites because it didn’t show screenshots of those sites. The court didn’t require that, because the allegations were that the plaintiffs saw the same claims as were in the “made” collection shoes’ names, on images of shoes themselves, and in the shoes’ descriptions that purchasers on or in brick-and-mortar stores would have seen.

New Balance’s reliance on the disclaimer was insufficient at this stage.  

First, plaintiffs plausibly allege that the disclaimer is too inconspicuous for the qualification to be brought to the consumers attention. Because of the prominent unqualified assertions of “Made in the USA” on the physical shoes and on the website, a reasonable consumer could see the “Made in the USA” statement and not understand it to be qualified by a disclaimer elsewhere on the product. The prominent featuring of unqualified statements creates an expectation that can make consumers less likely to process or understand less prominent qualifiers included elsewhere.

Second, plaintiffs plausibly alleged that “domestic value of 70% or greater” was inherently ambiguous and therefore unsuccessful in avoiding deception.

For shoes purchased in person at brick-and-mortar stores, likewise, the disclaimer was plausibly too ambiguous to be understood or not sufficiently prominent to be seen.

The court rejected New Balance’s reliance on a prior settlement in Dashnaw v. New Balance Athletics, Inc., 2019 WL 3413444 (S.D. Cal. 2019), involving more unqualified “Made in USA” statements in stores and on New Balance’s website. New Balance agreed that it would less prominently advertise “Made in USA” claims regarding its shoes with less than 95% domestic content and that such claims instead be accompanied with the disclosure that the “Made in USA” collection “contains a domestic value of 70% or greater.” The injunction specified that the phrase “Made in the USA” would be removed from the front of the hangtags on the shoes, the hangtag would include the sentence, “New Balance ‘made’ is a premium collection that contains domestic value of 70% or greater”, the phrase “Made in the USA” would be removed from the top of shoe boxes, any representations on the side of shoe boxes would include the 70% domestic value disclaimer, and any claims on New Balance’s website would include the same qualification. Dashnaw didn’t have preclusive effect on the plaintiffs here, who were consumers either outside of California or who purchased the shoes in California after the class period in Dashnaw.

Plaintiffs plausibly pled that New Balance was not in full compliance, including unqualified “Made in USA” claims still in use including on the tongues of shoes, in their inside label, and on the New Balance website. The top of the shoeboxes and front of hangtags no longer bear “Made in the USA” but instead feature the phrase “made” imposed on or positioned by a United States flag on shoeboxes, tags, and online. That may still deceptively imply that the shoes are “Made in the USA.”


Unknown said...

The problem with all of this discussion is that since the supply chain for footwear especially athletic shoes has gone off shore and that most athletic shoes have literally anywhere from 50 to 100+ parts in making the product it is essentially impossible to meet the FTC standard in this product category. Do we punish the one of 2 companies trying to keep the industry here in the USA and maybe build the supply chain back over time, or do we reward the companies that are exclusively off shore by taking away a competitor trying to make the product in the USA? Instead of a stick, why don't we as a country use the carrot approach when encouraging reshoring? In this case maybe offer a tax credit for some company to open a volume EVA factory in the USA as that is the on crucial part of an athletic shoe that is currently not made in USA in any scale. A company that wants to Make something on a small scale can usually get close to "Substantially All," but like the watch industry our requirements for being able the make a USA Made claim is essentially impossible! Why do we punish our companies with a mainly times unattainable standard for a "Made in USA claim?? It makes no sense! We import Swiss Made watches that wouldn't qualify as USA Made, but they are congratulated instead of criticized! Footwear is the same, as we paise the Europeans (Italy, Spain etc.) for the great products that are made there, but again would not meet our ridiculous FTC standard!!!

Unknown said...

In addition to my comments about how frivolous this lawsuit is I forgot to mention that the Plaintiff said he would not have bought the New Balance if he new they had imported parts. My main question to him would be do you wear shoes, and if so where are they made? If he wears shoes other than molded sandals that are like Okabashi then they are either imported or have some imported parts outside of some very limited "Berry Compliant" boots made for the military. There still exist a supply chain for that product because of the Berry Amendment, but that is limited to very specific and type of footwear. New Balance actually Made the model 950v2 for the military and had their own EVA machine in Boston, but that can't be scaled and so these shoes were not available to the public. --
SAS has a product that they also make for the military call the Pursuit (Men's) & Tempo (Women's) that uses a PU midsole instead of EVA, but even that shoe when sold to the public has imported parts in it. Thanks for your coverage of this confusing and frivolous lawsuit.