“Made in the U.S.A.,” or Not?

A California appellate court is grappling with the question of when products can be promoted as “Made in the U.S.A.” In Benson v. Kwikset Corporation, a judge in Orange County found that locksets made by Kwikset, despite “Made in the U.S.A.” labeling, contained either a screw or a pin made in Taiwan, or had a latch sub-assembled in Mexico. Hence, the judge determined that the labeling violated California law, issued an injunction against Kwikset, and awarded plaintiffs $3 million in attorneys’ fees.

At the end of June, the Court of Appeal agreed with the trial court that a product cannot be advertised as American made if any distinct component, even a single screw, is entirely or substantially produced outside of the United States. In the age of globalization, this reading of California law would allow very few consumer products to be pitched as “Made in the U.S.A.” Yet the Court of Appeal took the uncommon step of withdrawing its initial opinion, and U.S. manufacturers are waiting and watching to see how the court will resolve this dispute.

“Napa” Wine from the Central Valley?
In 2000, the California legislature enacted Business & Professions Code section 25241, which restricts the “Napa” appellation to wine made from grapes primarily grown in the Napa Valley. A bottler that used Central Valley grapes to produce wines under the “Napa Ridge,” “Napa Creek Winery” and “Rutherford Vintners” labels argued that federal law preempted the California statute. In early August, the California Supreme Court rejected the preemption argument, reversing a decision of the Court of Appeal. The Supreme Court observed in Bronco Wine Co. v. Jolly that the geographic source of California wines “forms a very significant basis upon which consumers worldwide evaluate expected quality when making a purchase.”

Ralphs Faulted for “Great Escape” Promotion
In July, the California Attorney General announced a settlement with Ralphs Grocery Company. According to the AG, Ralphs advertised a promotion whereby customers would receive a certificate good for a free two-night hotel stay for each $400 in qualifying purchases made at the stores over a six week period. Yet, the AG concluded, Ralphs did not disclose significant restrictions that applied to the awards and did not provide certificates to a majority of the customers who qualified. Under the settlement, Ralphs must offer hotel stays to qualifying customers, avoid deceptive promotions in the future, and pay $225,000 in civil penalties and costs. The AG’s press release stated that Ralphs had sued the Torrance-based marketing firm that administered the promotion.

eBay Saved by Its Release
Releases really can come in handy -- just ask eBay. A seller of several items on eBay allegedly posted negative comments about the purchaser’s honesty. The purchaser notified eBay that the comments were defamatory, but eBay declined to remove them, so the purchaser sued eBay for libel. In Grace v. eBay, the California Court of Appeal ruled that the federal Communications Decency Act of 1996 did not immunize eBay from liability for distributing information that it knew or should have known was defamatory. However, since eBay’s user agreement contained a broad release of claims, the court held that the purchaser could not proceed with his suit. Website operators like eBay, which allow users to post potentially defamatory comments, should ensure that their user agreements have similar releases.

Arnold Can’t Muscle Dealer Into Local Court
An Ohio car dealer ran newspaper ads with a photograph of Arnold Schwarzenegger as the “Terminator,” without his permission. Arnold filed suit against the dealer and its ad agency in federal court in California, claiming that the ads diminished his “hard earned reputation as a major motion picture star.” The U.S. Court of Appeals, in Schwarzenegger v. Fred Martin Motor Co., ruled that the dealer could not be sued in California because the ads ran locally in Ohio and thus were not aimed at California consumers. Arnold can pursue his claim in Ohio courts, but they may be less favorable for him.

Circuit City Defuses False Advertising Suit
Circuit City offered “merchandise cards,” redeemable at its stores, to customers who made certain qualifying purchases. For example, a purchaser of a wireless phone might qualify for a $50 merchandise card. The plaintiff in Waul v. Circuit City Stores, Inc. complained that the company touted the promotion on the front cover of its newspaper circulars, but failed to adequately disclose the expiration date and other restrictions that applied to the cards. A judge in San Francisco ruled in favor of Circuit City, focusing on the fact that over 90 percent of the recipients had successfully used the cards. The Court of Appeal upheld the decision, confirming that advertisements must be viewed as a whole when evaluating whether they are misleading.

Local Dealer Sued for “Dan the Repo Man” Promotion
In July, Action Integrated Marketing (“AIM”), a Georgia corporation, sued Curt Hughes Manteca Dodge in federal court in Sacramento. AIM develops campaigns for car dealers, including a “Repo Joe” event that promotes the sale of repossessed cars. AIM alleges that a Curt Hughes promotion featuring “Dan the Repo Man” was an improper copy of “Repo Joe.” Both promotions, AIM contends, feature a smiling mechanic character wearing overalls and a red cap. AIM also claims great similarity between the text on its website and that on the Curt Hughes website. Although AIM has yet to prove any wrongdoing, this suit illustrates the potential pitfalls associated with imitating another’s marketing program.