seller’s private definition of “Made in USA” fails; disgorgement appropriate

Newborn Bros. Co. v. Albion Engineering Co., 2020 WL 5015571,
No. 12-2999 (NLH/KMW)

After a bench trial, the court found Albion liable for
falsely advertising its caulk dispensing guns as “Made in the USA” (a bit
ironic given the name, no?).

There are different kinds of dispensing guns. Manual guns have two key components: a material containment unit (“MCU”) and a handle
assembly. Some tasks require additional parts, including caulking knives or
spatulas.

Newborn imports dispensing guns, parts, and accessories from
China and Taiwan in finished condition. Its current president, Lee, testified
that the industrial/professional market tends to purchase more “heavy duty
caulking guns,” including bulk and sausage guns, while the paint and hardware
market tends to focus on less durable products like “inexpensive cartridge
guns.” Newborn introduced two new manual bulk dispensing guns, designed to
compete with Albion’s bulk guns. Newborn was trying to create “something as
similar to the Albion gun as possible,” but priced at $32, $6 less than
Albion’s models. Despite this lower price, Newborn had limited success. Lee
investigated the reasons, and “a salesperson told him that while the salesman
believed Newborn created a superior and less expensive product, Newborn had
trouble competing in the industrial/professional market because Albion,
Newborn’s competitor, manufactured its products in America.” Lee testified that
one of Newborn’s independent sales representatives “confirmed that many
customers had inquired whether Newborn products were made in America like
Albion products.” Upon investigation, Lee determined that at least some of
Albion’s products were in fact made overseas. He visited distributors in a
number of states; some Albion displays stated that the products were made in
America.

A 2010 internet post says the author bought a $30 Albion
caulking gun and found a hang tag that says, “Made in Taiwan.” The post says
that, when the author called, Albion stated that “the page on their website is
incorrect. They import most of their guns from Taiwan.” The post encouraged
others to “be wary of anyone claiming to make products in the U.S.” and said “Albion
refused to update their website and they are still actively deceiving customers
into buying foreign made products with a Made in U.S.A. label.”

By the end of 2011, Lee sought help from Customs; a customs
agent recommended a private lawsuit. In 2012, he used a SurveyMonkey survey
that posed both multiple choice and open-ended questions to distributors about
what Newborn products they buy; their reasons for not purchasing from Newborn;
their thoughts about the quality of Newborn’s products; and their preferences
on discounts. He received fifteen responses showing a variety of factors. “Seven
out of fifteen respondents answered that the reason they do not buy all or more
from Newborn is that Newborn’s products are not made in the USA.”

Another witness testified about attempts to sell to a
specific purchaser, where there was “a kind of firewall” and that he “couldn’t
get past the fact that we were not made in the U.S.A.” [More testimony of this
type omitted.] A West Coast distributor similarly transitioned away from
Newborn to Albion in 2010 because “Mark Schneider [of Albion] is always talking
about how his products are made in the U.S.A. at the SEAL meeting, in his
presentations, and in sales calls and I have to support that.”

Newborn sued in 2012 (yikes) and issued a press release,
after which Albion made some changes.

Evidence of materiality/harm. Among other things,
Newborn’s sales to Canada increased because Albion was no longer issuing NAFTA
certificates that entitled customers to a 6.5% tariff savings for products made
in America. Sales to one company increased from $6,600 in 2011 to $44,000 in
2015. An independent sales representative testified that following this suit,
he was able to sell to distributors that had previously been exclusive to
Albion, doubling his commissions between 2012 and 2017, despite only small
adjustments to Newborn’s prices and sales force. He testified that the highest
increase in sales was in accessories, but he also saw an uptick in sausage and
cartridge guns. When he informed another company that Albion’s spatulas were
not in fact made in America, it confirmed that fact and then began ordering
spatulas from Newborn. Etc.

The actual country of origin situation. Albion is a
New Jersey corporation established in 1929. In recognition of the founding Schneider
family’s continued control over Albion, Albion described itself as a
“third-generation American manufacturer.”  Until 2000, Albion manufactured all its guns
and accessories in its Philadelphia plant. Its original guns were stamped with
the phrase “ALBION ENG. CO. PHILA. PA U.S.A.” starting in the 1930s “and
continued to be labeled this way into the twenty-first century.” But in the new
millennium, the board pushed for low-cost overseas manufacturing alternatives,
and in 2001, Albion begain using a Taiwanese company to make four models. Later,
it began sending handle components made in Philadelphia for partial assembly in
Taiwan, then final assembly back in Philadelphia, and it also began
“supplementing” its barrels with barrels made in Taiwan. It expanded the handle
export/re-import practice and began importing caulking knives from Taiwan. Then
it began importing spatulas. By 2008, it was importing more “loosely assembled
guns” that were complete other than adjustment and lubrication when imported.
Some Albion guns still included handle assemblies that were made only in
Albion’s U.S. plant without any imported components.

Labeling and marketing. “Schneider testified that it
was his belief that it was appropriate to identify products as being ‘Made in
America’ if over fifty percent of the cost of the tool were incurred within the
United States.”  He didn’t explain where
this formula came from or why it was justified. He used a formula (calculations
not disclosed at trial) for calculating production costs including labor,
overhead at the manufacturing plant, items made in the United States, and
post-production packaging. Using this formula, Albion decided to stop applying the
“Made in the U.S.A.” label to its guns with imported subassemblies in 2008.
Given the absence of hard evidence of how the formula was applied to particular
products or lines, the court characterized it as “either an ad hoc, or worse
post-hoc, attempt to create the illusion that Albion’s imprecise and at times
indiscriminate use of ‘Made in America’ was a good faith mistake.”

Ultimately, at least until the case was filed, and, for
export certificates, up through trial, “Albion lacked any systematic or
disciplined program designed to insure that its products met Department of
Homeland Security marking requirements, that its export certificates were
truthful, or that its website and product literature regarding foreign-made
products sold domestically adequately and accurately revealed the country of
origin.” Albion “deliberately kept its head in the sand content to free-ride
on, and at times promote, the false illusion that it was a purely ‘Made in the
USA’ company.” Concerns expressed within the company supported this conclusion.

Among other details, Albion produced a line (B-line) that
was initially marked with a gold and black sticker reading “Made in Taiwan” on
the recoil plate. Schneider testified that a distributor told him that the gold
sticker was “loud” and Albion switched to using a no-contrast stamp which
Schneider described as “out of the way, difficult to see” and speculated that
he thought the distributor “would be pleased.”

In 2004, Albion instructed its Taiwanese manufacturer to
print “75 Year History – USA Manufacturer and Designer” on one line of guns.
This statement was updated in 2011 to read “80 Year History – USA Manufacturer
and Designer.” It was removed in 2012.

Albion also switched for some guns to a hang tag with a
Taiwan mark and asked its Taiwanese manufacturer to remove its information from
the products. The hang tag would likely be removed before use; nothing left on
the gun identified it as originating overseas. “Anyone examining the tool in
such a condition post-sale and examining the banner sticker … would easily be
misled into believing the product was domestically produced.” Now, Albion uses
a metal stamp on the recoil plate of these tools to indicate Taiwanese origin.

In 2004, Albion’s website contained a page entitled “The
Albion Difference,” which included the claim: “All our dispensing products and
accessories are designed and manufactured in the USA, from our location in
Philadelphia, Pennsylvania.” In 2007, it was updated to read: “all of our
dispensing gun products and accessories are designed and manufactured in the
USA, from our location in Philadelphia, Pennsylvania.” (US manufacturing was
actually in New Jersey by then.) In 2010: “All of our dispensing gun products
and accessories are designed in the USA, from our location near Philadelphia,
Pennsylvania.” There were other publications, such as a catalog stating “All
Albion Products are Made in America” in the bottom right-hand corner of its
cover. A later catalog omitted that statement and said that the B-line was “USA
engineered with the savings of an import” and that “Albion is a third
generation American manufacturer.” Old catalogs continued to circulate widely.

The Albion’s Owner’s Guide includes the statement “All
Albion products are made in America.” This guide provides instructions for
users on how to use Albion’s cartridge and bulk guns. But because these
instructions do not apply to B-line users, the Owner’s Guide was generally not
distributed with B-line guns.

Interactions with customers. Albion’s customers
requested a NAFTA certificate of origin from Albion between fifteen and twenty times
per year. These certificates read “Meets FTC all or virtually all made in
U.S.A. eligibility requirements.” The responsible employee testified that she
did not know what the FTC is or what it requires in terms of product labeling. A
certificate of origin introduced into evidence indicated that she had (falsely)
certified to 3M that Albion’s product met the FTC’s “all or virtually all” made
in U.S.A. standard.

Among the specific events: In 2004, an adhesives retailer in
the roofing industry asked to return guns stamped with “Taiwan” on the body
because they “need[ed] applicators that we can sell as being made in the
U.S.A.” Albion replied that it would “replace quote, made in Taiwan recoil
plates with a no-labeled recoil plate.” Albion did so, using unstamped recoil
plates that were made in Taiwan. Albion did not seek legal counsel before it
did this. For another adhesive manufacturer, Albion customized guns and acceded
to its request that the “Made in Taiwan” mark be “move[d] to an obscure segment
of the box.”

In 2009, Albion told ABC Supply, a distributor with around
900 retail locations, that it could place “Made in USA” labels on all Albion’s
tools. Schneider told ABC that one model was the only tool with significant
overseas costs, and that he would want an additional $3.96 if ABC elected to
put “Made in USA” on it.

Post-suit actions. Albion contended that it stopped
most if not all of this once Newborn sued, and that it prioritized asking
distributors to take products labeled “Made in U.S.A.” down. Its witness
testified that “some [distributors] comply, others do not.” In June 2012, the
U.S. Customs and Border Protection Agency issued a “Notice to Mark” that the
hang tag on the B-line was “not in close proximity to line stating USA
Manufacturer and Designer.” Albion began putting a white with black lettering
“Made in Taiwan” sticker on the handle of its B-line product.

Still, in September 2015, Albion’s Amazon listings for its
imported accessories included the claim “Made in U.S.A.” There was testimony
that a seller doesn’t always control what Amazon’s listing says.

Non-parties. Various non-party testimony came in
about the structure of the market and why Albion and Newborn were more direct
competitors than other market participants. Testimony also covered demand for
American-made products: although durability and price are important to many,
USA orgin is also often preferred, though there was also some testimony that
origin wasn’t the overriding consumer concern. Other parties testified that
they believed the products were made in the USA.

Experts. Newborn’s marketing expert, Wallace, prepared
an expert report on the impact of the “Made in America” claim based on a number
of third party surveys in which a significant number of respondents identified
“Made in USA” as a factor in their purchasing decisions, if not one of the most
important factors. Albion’s expert, Nowlis, rebutted this report but also
didn’t conduct a survey. He criticized existing surveys’ aided questions, lack
of control group and peer review, and reliance on a market different from the
one at issue here. “Nowlis expressed skepticism about the FTC’s statements that
consumers take into consider whether a product was ‘made in America,’ noting
that ‘[t]he FTC does surveys sometimes and sometimes it doesn’t, so I don’t
know where they’re getting this recommendation from.’” He further stated: “we
could all agree that sometime ‘Made in the USA’ is material to some people, but
sometimes it isn’t.” People say they care, but it isn’t clear that they follow
through on this purported commitment.   

Albion commissioned a marketing consultant to help Albion
decide whether to begin producing and selling an imported line of tools between
1989 and 1991. The relevant witness testified that he recalled that the expert
reported that “all other things being equal, that at the point of purchase, if
a buyer was comparing a USA versus a foreign product, that somewhere around ten
or eleven percent premium price was about as much as the average end user of a
caulking gun would pay.”

Housekeeping elements for liability: “actionable statements
must be made by the defendant,” but a defendant can be liable for statements by
third parties, for example, when the speech was “created, sponsored, and
presented by the defendant” or when there is contributory false advertising. Also,
some courts have held that “statements made inside the product’s packaging,
available only to consumers after the purchase has been made, do not affect the
choice to purchase” and therefore are not actionable under the Lanham Act.

Albion made several false statements, even though it didn’t
have a duty to disclose country of origin under the Lanham Act. [Given the
legal requirement to label foreign origin, this might be a case where
nondisclosure necessarily implies US origin as well, but that’s not super
important here.] Statements such as “All Albion products are Made In America,”
and “All our dispensing products and accessories are designed and manufactured
in the USA, from our location in Philadelphia, Pennsylvania” were false.
Statements made (or disseminated, really) by the distributors were attributable
to Albion, which “created, sponsored, and presented this information.”

These statements were factual and deceptive; third parties’
reliance on them to sell Albion’s products to end consumers were “evidence that
the third parties themselves were deceived by Albion’s false origin claims and
evidence that Albion has never corrected the false perception it created about
the origin of its products.”

Even the statements available after purchase were
actionable. Although statements in instruction manuals might not be made to
influence consumers in product choice, the statement “All Albion Products are
Made in America” “brands Albion falsely as a manufacturer of products made
entirely in the United States” and Albion specifically lists other Albion
products available for purchase in the catalog it includes in product boxes, “supporting
a finding that these materials were meant to influence future purchasing
decisions.” Also, these materials were available on Albion’s website before
purchase.

In its introductory discussion, the court concluded that “Made
in America” also wasn’t puffery. America is a specific location, and “Made in
America” is “a specific standard defined by Government agencies.” [Notably, it
doesn’t matter whether consumers know the details of the definition; they rely
on there being such a definition. You can see the tension between cases like
this one and the cases rejecting, say, the US government’s definition of
“butter.”] Newborn’s own research confirmed that the claim was measurable and
falsifiable: comparative research could establish its empirical truth or
falsity.  The evidence also showed
materiality.

Then, in its later discussion, the court noted that another
decision found that a “Made in USA” claim was ambiguous, Honeywell Intern. Inc.
v. ICM Controls Corp., 45 F. Supp.3d 969 (D. Minn. 2014), because of different
definitions of “made” in FTC guidelines and policies, other federal regulations
and dictionary definitions. The mere fact a statement does not conform with a
federal agency’s guidelines is usually “insufficient evidence that a claim is
literally false or misleading.” Yet “customs and FTC standards remain relevant
for the Court to consider in its decision-making process, especially when the
agency has developed an expertise in the area.”

Here, Albion made both literally false and ambiguous,
misleading statements. Literally false: certificates of origin falsely stating
that Albion’s products met the FTC’s standard. Albion argued that these weren’t
“advertising or promotion,” but that argument failed. The court is somewhat
confusing in its discussion here: the claim to meet the FTC’s standard could
readily be treated as a separate claim from “made in the USA,” just as “X is
clinically proven” is a separate “tests prove” claim from “X is true.” This
would be particularly appropriate given customers’ apparent demand for the
certificates of origin referencing the FTC standard over and above their demand
for simple “made in the USA” labeling. But it’s not clear that’s how the court
reasoned.

Some of the labeling was also literally false, when Albion
allowed special orders to bear labels that claimed Albion products were made in
the United States. However, “Albion’s practice of replacing recoil plates and
relocating country of origin claims is not literally false because these
messages are ambiguous and rely on the viewer to integrate information to
interpret this message.”

Also literally false: Website claims that “All our
dispensing products and accessories are designed and manufactured in the USA,
from our location in Philadelphia, Pennsylvania” and catalog statements that “All
Albion products are made in America.”

Misleadingness: Stamping products that were made at least
partially abroad with “ALBION ENG. CO. PHILA. PA. U.S.A.” was not just merely
an address or a “piece of legacy information.” Also misleading: Printing “75
[later 80] Year History – USA Manufacturer and Designer” on B-line guns; “third
generation American manufacturer”; a new product announcement for the B-line identifying
Albion’s products lines as “U.S. manufactured professional tools as well as
commodity guns”; comparison of the B-line to Asian and European imports without
acknowledging that the B-line is also imported; and advertising models as “Made
in the USA” when significant portions of these guns were manufactured in
Taiwan.

Some of the statements were even false by necessary
implication. In context, statements such as “third generation American
manufacturer” and “USA manufacturer” claims, “when considered in the context of
Albion’s blanket statement, its other marketing, and its employees’ emphasis on
country of origins, convey by necessary implication that Albion products are
made in America. These statements do not rely on consumers to integrate
separate components and draw a conclusion.”

However, the comparison to other imports did require
inference, as did Albion’s statement that it manufactures “professional tools
as well as commodity guns.” These ambiguous statements were shown to be likely
to deceive.

Were the catalogs merely outdated? No. [It’s not clear this
matters; most cases to reach the issue hold that falsity is falsity, even if
the falsity is created by subsequent developments.] Albion began producing its
B-line in Taiwan in 2001 but engaged in “continual distribution of outdated
literature containing statements that had not been true for years as part of a
pattern of deception in the marketplace.” Albion also said its “general
statements” in small font were corrected by specific literature that
acknowledges that the B-line was built overseas. But “these occasional acts of
candor” were insufficient.

Albion argued that no reasonable consumer could be misled by
these claims because Albion used a factually accurate, unambiguous statement of
the geographic origin of the B-line guns, as in the Pernod Ricard case.
But in that case, both the name “Havana Club” and “Made in Puerto Rico” appear
on the same label, so consumers could see the true geographic origin when they
saw the name. Here, “there is no guarantee that a customer reading a catalog or
a section of Albion’s website would also encounter Albion’s blog post, press
release, or a B-line gun itself.” In the “entire context,” the statements were
literally false or misleading. The court pointed out that the statement “All
Albion Products are Made in America” was not often coupled with the caveat that
Albion’s B-line guns were manufactured in Taiwan, and Albion apparently never
disclosed its self-administered lesser standard for Made in America.

Nor did the Honeywell case mean that “Made in
America” could never be literally false:

Honeywell did not involve
products made entirely abroad, nor did it involve end products that were
required by law to be marked legibly, permanently, and conspicuously with their
foreign country of origin pursuant to specific decisions thereon by U.S.
Customs and Border protection. Honeywell also did not present a blanket
statement regarding a country of origin. Under any of the thresholds discussed
in Honeywell, Albion’s B-line guns do not meet the standard for being
“Made in America” as they are wholly manufactured in Taiwan.

The customs rulings were relevant to falsity even if not
binding: Customs held that certain Albion guns should not be labeled “Made in
America.” Likewise, by Albion’s own admission, Albion’s products didn’t meet
the FTC standard. Its claims were literally false.

As for proof of deception/harm to the plaintiff, “there is
no quantitative measure of the degree to which an advertisement must mislead or
deceive consumers to prevail.” A qualitative approach suffices.

However, since Newborn sought monetary damages and relied in
part on misleading, not just literally false, statements, it had to show actual
deception. It did so. Newborn didn’t need a survey given the evidence it did
have, and the court refused to draw an adverse inference based on Newborn’s
decision not to introduce a survey. The existing surveys about “Made in the
USA” and related expert testimony were admissible, helpful, and at least
“suggestive” of consumer deception. And even without the expert, Newborn showed
several instances of actual consumer deception, including “a number of
conversations with Albion customers.” One, for example, testified that he
believed Albion products were made in America because it was “printed right on
the side of the box.”

Because Newborn sought monetary damages, the court refused
to presume materiality even from literal falsity, but again there was both
direct and circumstantial evidence of materiality, along with evidence that
Albion and Newborn products were “reasonable substitutes” for one another. “Newborn
was not required to demonstrate that customers were purchasing Albion products
only because they were made in America.” It sufficed that “many customers
consider it a relevant factor.”

Injunctive relief: Newborn showed irreparable injury by
showing that, “[d]espite Newborn’s best efforts to emphasize its added features
and lower prices, Newborn has struggled to compete with Albion in the
professional/industrial market. Newborn’s evidence demonstrates that its
competitive advantages were undercut by Albion’s claims that its products were
made in America.”

Monetary relief: Newborn showed that it was entitled to
disgorgement. It showed prior diverted sales by showing that, once the truth
about Albion began to penetrate the market, its own sales increased. Newborn
saw the greatest growth in products that compete directly with Albion products,
without any changes in pricing or sales force at Newborn. Albion argued that
Newborn’s growth was attributable to Newborn’s innovations and the rebounding
of the market following the global recession in 2008 and 2009 and that it also
experienced growth in all business segments during this time period, but
Newborn argued that it hadn’t suffered greatly in the downturn. This chronology
alone might not have been enough, but Newborn also provided evidence of sales
it never made because they were diverted to Albion based on false beliefs about
Albion’s lack of foreign content.

Equity weighed in favor of disgorgement, since “Albion
intended to distinguish itself from Newborn by stating that all of its products
were made in the United States to the detriment of its customers understanding
of where Albion products were made,” and made the statements for years. Albion argued
that Newborn’s delay in filing suit weighed against disgorgement, but the court
wouldn’t “penalize Lee and Newborn for conducting an investigation into the
origin of Albion products, assessing its own market position, and consulting
with the U.S. Customs and Border Patrol Agency before filing this suit.”

After considering Albion’s affirmative defenses not resolved
here, the court would consider the amount of disgorgement if necessary.

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