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Officials at Portland-based pocket tool maker Leatherman Tool Group are celebrating after an appeal court reversed part of an $18 million verdict against the company. The plaintiffs alleged that Leatherman engaged in deceptive advertising by stamping "Made in U.S.A." on its popular multitools, even though they included pieces from non-U.S. manufacturers.
Legal wrangling, however, may not be over.
Still to be decided is how much of $6 million in attorney fees Leatherman will pay. The appeal court also upheld a ruling that the company must advertise it violated California laws.
Meantime, Leatherman's attorney is upbeat, in large part because the ruling means Leatherman won't have to pay $13 million in restitution to California consumers who bought tools during the class-action period.
"We are very gratified by this decision �� it remedies a great injustice: The multimillion award was quite literally, unsupported by any evidence," said Jerry Falk, an attorney with California-based Howard Rice Nemerovski Canady Falk & Rabkin.
"We are not happy the court took away the restitution and are seriously considering an appeal," said Howard Rossbacher, an attorney with Los Angeles-based The Rossbacher Firm, which in 2003 filed the class action complaint against Leatherman. "But both sides have things they won and lost."
At the crux of the original complaint was deception in advertising.
The lawsuit, filed in Los Angeles Superior Court, alleged Leatherman violated California laws by labeling its tools with "Made in U.S.A."
The complaint asserted that because Leatherman tools include pieces from non-U.S. manufacturers, the company couldn't claim legally its products are "Made in U.S.A." Specifically, Leatherman imports five parts out of the average of 30 parts composing each of the tools in question.
"Made in U.S.A.," court filings allege, implies Leatherman products are higher-quality and worth their relative high prices compared with those charged for "Made in China" knockoffs made by competitors.
With a portion of parts coming from vendors outside the country, court filings allege, Leatherman tools are cheapened and consumers weren't getting their money's worth.
The company did not dispute that some parts incorporated into its products are made outside the United States.
For instance, Leatherman buys European-made files, corkscrews and other components.
The jaws for its pliers come from a U.S. company that moved manufacturing to Mexico.
The plier jaws, and some other imported products, arrive at Leatherman's 120,000-square-foot manufacturing facility to be finished �� ground, hardened and polished �� by its manufacturing work force of more than 300.
"Anybody who came into our factory and saw all the parts and work that goes into the tools would conclude that we actually do produce it here," said Roger Bjorklund, Leatherman vice president of marketing.
Other portions of the tools are fabricated on-site before all the pieces are fashioned into finished devices.
Federal courts have determined that the tools qualify as "Made in U.S.A.," Bjorklund said.
To appease critics, though, the company stopped imprinting its tools with "Made in U.S.A." about the time of the filing of the class action suit.
An absence of evidence led the appeal court to strike down the monetary award.
The $13 million awarded as restitution might have overestimated anything due to consumers.
That amount represented 25 percent of the company's gross revenue in California throughout five years and is equivalent to more than all of Leatherman's profits on its California sales.
The two California laws in question date to 1961. They aim to prevent companies from unrightfully profiting off products manufactured off-shore but sold as domestically made.
In the years since the California Legislature enacted them, Leatherman's is only the second case to receive a court verdict. A complaint against Kwikset is pending in the California Supreme Court and others are working their way through the courts.
