Monday, July 27, 2015

Nominative Trademark Fair Use

Customs seized some televisions at the Port of Miami. The reason was an apparent counterfeiting of the trademarks HDMI and MHL, both of which are interface connections. You have probably seen HDMI cables and connectors. They look like big USB connectors and are present on may modern televisions, computers, and game consoles. MHL is the standard for Mobile High-Definition Link, which is a new standard designed to connect small devices such as smart phones to larger HD monitors. With an MHL connection, you can use your smartphone to stream content to your TV, which is a cool thing that can now be done via Chromecast or Miracast.

I don't usually write about simple seizures, but this one and similar seizures bug me.

Customs and Border Protection is in the habit of seizing electronics that identify electronic ports by type. For example, where a tablet has a USB port and labels it as such, CBP requires that the producer have a license to use the USB label, which is a registered trademark of the folks at the USB Implementers Forum, Inc. If the unit or the packaging has any of the familiar USB logos on it, CBP is entirely in the right to do so. Same goes for HDMI, MHL, DVD, and other standards that are associated with registered trademarks.

But, what if the unit or the box simply uses the letters HDMI to identify the port into which a compatible HDMI cable is to be inserted? What if the box says "4 HDMI ports" without ever using a trademarked logo associated with HDMI?

One might argue that because HDMI, USB, and similar designations are "word marks," any unauthorized use of the word is trademark infringement. That, however, would be wrong.

The point of a trademark is to ensure that the consumer knows the source of the product. If you buy shoes bearing a Nike swoosh, those shoes should come from Nike. Same goes for a Xerox machine, Hershey bar, Dell computer, and any other trademark. But sometimes, the use of the trademark is not to identify source and no consumer would be confused by its use. A computer service business would not be infringing if it stated that it is able to repair Dell computers. That is a description of a service, not an indication that Dell is the source of the service. Of course, that business could go too far and make a confusing claim indicating an actual affiliation with Dell.

In trademark law, there is a concept known as "nominative fair use." Nominative fair use is a limited exception to the exclusive rights of the trademark owner. It allows third parties to use the trademark in to describes the product or service without indicating that the user is the origin of the product or service. This is both fair and necessary. It is fair because it does not interfere with the trademark owner's exclusive use of the mark as a designation of origin. It is also fair because it prevents the trademark owner from monopolizing a product category by making it impossible for anyone else to describe a similar or compatible product.

In some cases, it is necessary to allow a third party to describe something using a trademarked word or phrase. The alternatives would be too unwieldy. Assume, for example, that the standard sizing for batteries were subject to trademark (for all I know, it might be). If you make a flashlight that requires two AA batteries, how would you convey that to purchasers without using the AA designation? You could say: "This flashlight requires two 1.5v alkaline batteries that are 1 3/4 inches in length, and 1/2-inch diameter cylinders, with positive and negative poles at each end." That won't work and that is why we have nominative trademark fair us.

The courts have recognized this exception for some time. Customs and Border Protection has also recognized it. See HQ 472929 (Sep. 28, 2002). The concept does not seem to have trickled down to the ports.

Just to be clear, this particular seized merchandise may have been improperly festooned with HDMI logos and MHL logos without authorization from the trademark holders. In that case, CBP did its job properly. If, on the other hand, the use is consistent with nominative fair use, CBP should release the merchandise and increase the training for its personnel on this topic.

Also, I don't want anyone to think I am advocating that it import products containing HDMI, USB, MHL or similar connectivity without the manufacturer having a license to that technology. Doing so is very likely patent infringement and that raises different and very expensive problems. But, CBP does not enforce patents at the border without an exclusion order from the International Trade Commission or a federal court. Hardware and software should be properly licensed.

The only issue here is the use of descriptive labels in a nominative sense. That is a narrow exception to trademark law that needs to be better understood.

Thursday, July 23, 2015

Ruling of the Week 2015.21: Coconut Wraps

Is there still a trend surrounding eating raw to allegedly preserve nutrients and avoid bad karma? I never understood it, nor do I believe there is any science behind it. I remember seeing a woman on a news show talking about how the enzymes in fruit dissolve unhealthy body fat, but she could not identify the enzymes or explain the mechanism. If you tell me you are on a juice cleanse, I will do my best not to scoff.

If, however, you are looking for a raw alternative to an otherwise delicious tortilla, you might try a "Pure Wrap," which is composed mainly of coconut meat that has been pulverized into a slurry and dehydrated into flat wraps. According to the folks at the company:

Pure Wraps believes that food is medicine and illness begins with nutritional deficiencies. In order to support wellness and fight disease we need clean food from a clean environment. Therefore, we are committed to unlocking the value of food by combining the ancient wisdom about nourishment with nutrient-rich ingredients and safe preparation techniques.

So much for the germ theory. Ancient wisdom also said that we get sick when our vital humors are out of whack. I'm not interesting in getting my bile and phlegm adjusted next time I get the flu.

But, what I am interested in the tariff classification of these sheets of coconut. There are two flavors at issue: plain and curry.

The first issue is whether the additional of salt at about 33 mg per gram of product is sufficient to kick it out of HTSUS Heading 0801, which is the eo nomine heading for coconuts. Note 3 to Chapter 8 permits the additional of materials for preservation or stabilization, provided the product retains its character as dried coconut. 

According to Customs' laboratory, the amount of salt added to the coconut was above the amount necessary for preservation and stabilization. Consequently, it is a flavoring. That is sufficient to push the product into Heading 2008 ("fruits, nuts, and other edible parts of plants, otherwise prepared or preserved . . . .).

The plain wraps are classifiable in 2008.19.15 as coconuts not elsewhere specified or included.

That leaves the curry wraps. The added spices include products of seeds or nuts. If they matter, then the product can't be coconuts. It would be "Other, including mixtures" in HTSUS item 2008.19.85. This is the interesting part.

It occasionally happens that a product is mixed or adulterated with other material in a way that might change its tariff classification. The question is whether there is some lower limit at which the additional material does not impact classification. Yes, there is. It is the de minimis level. 

Here, Customs found that the curry spices were merely incidental or immaterial to the overall product. While they do impart flavor, the nature and use of the product remains the same. Also, the value is not changed. As such, Customs treated the additional materials as de minimis and applied the same classification.

GSP Renewal Update

This may be my shortest post ever. Want your GSP refunds? The information you seek is here and here.

Friday, July 17, 2015

Tyco Re-Ignited

After having failed to convince the Court of International Trade that it had all the facts necessary to classify liquid-filled glass bulbs, Tyco is back. This time, the Court found that it had all the information needed to resolve the case. Unfortunately, Tyco did not get the result it wanted.

This case involves the liquid-filled glass bulbs you often see in fire sprinkler systems. In the event of a fire, the liquid gets hot. As it heats up, it expands. If it gets hot enough, it shatters the glass. This is useful, because the glass was holding closed a valve. Once the glass is gone and the valve opens, water sprays on the fire. A similar arrangement is used as a safety device in water heaters.

The legal question here is whether these bulbs are parts of sprinklers and water heaters in Chapter 84 or as articles of glass in Chapter 70. Tyco is arguing for Chapter 84. The problem for Tyco is that Chapter 84 includes Note 1(c), which excludes parts made of glass. To get around this limitation, Tyco argued that although the bulbs are partially of glass, they are not articles of glass because the glass is a "static" element and the liquid component is the "dynamic" element in this mechanical arrangement.

The Court of International Trade disagreed. Looking to the Explanatory Notes to Chapter 84, the Court found that the bulbs would not be "of glass" if the glass were combined with a "high proportion" of other materials or with "mechanical components" of other materials, such as a motor or pump. It turns out that the fluid in these bulbs in about 16% to 31% by weight of the total. The history of the "high proportion" language is that it relates to a similar note in Chapter 90, which was interpreted to mean that the item is "mainly" of other materials. Because the bulbs are mainly glass, the are excluded from Chapter 84.

The Court also held that the liquid is not "mechanical" within the meaning of the Note. This is a tougher call (if you ask me, which you did not). The expansion of the liquid creates physical, mechanical pressure on the glass. It is the dynamic element. The glass stands there static until it breaks. The Court did not find that similar to a motor or pump, but acknowledged that those are just examples of what might be considered mechanical. What if these devices were slightly less elegant and slightly more Rube Goldberg? If the fluid were replaced with a metal bar or spring, would the result change? It would certainly be more "mechanical," but also probably more expensive and no more effective.

Having excluded the bulbs from Chapter 84, the Court moved on to confirm the correct classification. Based on the relative values and weights, the Court found that the essential character of the bulbs is imparted by the glass. Both the glass and the liquid play a similar role in function, so that was a wash. That leaves the correct classification as 7020.00.60, which is a win for the United States.

Thursday, July 16, 2015

Ruling of The Week 2015.20: Malt Beverages

This one is for Lando Calrissian and his doppelganger Billy Dee Williams. It has to do with the tariff treatment of malt beverages and whether they are, in fact, beer.The ruling is H243087 (Jan. 13, 2015).

The beverages at issue are "Green Apple Sparkletini Italian Spumante" and similar products in raspberry and peach varieties. There is also a "Verdi Spumante." The obvious question is, "In what analysis is spumante beer?"

Maybe in this case. The beverages are made from a mash of malted barley and non-malted cereals plus hops. That mixture is "wort," which is then mixed with brewer's yeast and allowed to ferment. So far, that sounds like beer to me.

Hat tip to my local favorite

But, the base is then filtered to remove color and aroma (two of the best parts of beer). This produces a clear base to which natural flavors in the form of "wine base" and sugar are added. We now have something that sounds a lot more like the Bartles & Jaymes of my youth and not the craft beer of my middle age.

The classification dispute here is between Heading 2203, "Beer made from malt," and Heading 2206, "Other fermented beverages and mixtures of fermented beverages and non-alcoholic beverages, not elsewhere specified or included." The importer claimed that the merchandise should be classified as beer based, in part, on the regulations of the Alcohol and Tobacco Tax and Trade Bureau. The TTB allows for beer to be flavored provided the flavoring does not exceed 49% of the alcohol content of the finished product. For labeling purposes, the TTB classified these products as flavored malt beverages, which might make Billy Dee Williams happy.

In its analysis, Customs and Border Protection starts from the correct premise that it and the TTB are doing different things. The collection of federal excise taxes on alcohol is not guidance for tariff classification under the HTSUS.

"Beer made from malt" is an eo nomine classification that includes all forms of the product (unless there is indication of a contrary intent). Looking at the Explanatory Notes, Customs found that beer is obtained from fermenting wort prepared from malted barley or wheat, water, and (usually) hops. Flavoring may be added during fermentation and other substances (e.g., color and sugar) can also be added.

Here, the flavoring is added after fermentation and after the beer base has been filtered. But, because other substances can be added after fermentation without precluding classification as beer, Customs says the issue is not yet resolved.

What does resolve the issue is the fact that this is allegedly spumante (i.e., Italian sparkling wine). It is packaged in large bottles with corks and colorful labels. According to Customs and Border Protection:

The instant spumante beverages are distinct from beer because they do not have the taste, aroma, character or appearance of beer.  The beverage base is filtered after fermentation to remove the color and aroma—and consequently, any trace of “beer” characteristics or flavor—from the final product.  Furthermore, approximately 40% of the total alcohol content of the finished product is derived from the wine base.  The instant products are altered during the manufacturing process via filtering and the addition of wine base so as to fundamentally change their character; the finished products are no longer “beer”, or even flavored beer, within the scope of heading 2203, HTSUS. 

In addition to the physical nature of the product, Customs noted that the product is not marketed as wine and that some retailers stock it alongside wine. For this, CBP made the interesting decision to rely on website information to reflect real world marketing. At some point, that will be an issue.

Malt beverage-based spumante is, perhaps not surprisingly, not beer for tariff purposes. At least not for tariff classification purposes.

Saturday, July 04, 2015

Attorney's Fees for White Sauce Importer

Is this the final conclusion of the International Custom Products case? Plaintiff has asked for, and the Court of International Trade has partially ordered, an award of attorney's fees under the Equal Access to Justice Act (EAJA).

This case has a long and difficult history in the Court of International Trade and Court of Appeals for the Federal Circuit. I'm not going to do justice to the facts. Just understand that the company imported "white sauce," for which is obtained a tariff classification ruling from Customs and Border Protection in 1999. In 2009, via a "Notice of Action" (CF-29), Customs tried to change the classification in a way that resulted in a rate of duty increase of 2400%.

The request for fees relates to one of several ICP cases. This one involved 11 entries after the CF29 that CBP liquidated at the higher rate of duty. The CIT and later the Federal Circuit ruled for ICP, holding that CBP had not properly revoked or modified the prior ruling and that ICP had not materially misrepresented the nature of the merchandise.

Attorney's fees are available under the EAJA where a party prevails in a civil action against the United States for judicial review of an agency action to recoup fees and expenses. The exception is that is the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.

The U.S. position must have been justified both at the agency level and in litigation. Furthermore, the U.S. bears the burden of proving that its position was "clearly reasonable." That means it must have had a reasonable basis in both law and fact. This does not mean that the U.S. was unjustified when it is merely incorrect. Rather, the question is whether a reasonable person could think it correct.

Here, the Court found that ICP is entitled to EAJA fees. The Notice of Action was issued in contravention of a binding ruling and CBP was fully aware of this conflict. Evidence showed that CBP officials argued that the ruling must be revoked before the classification changed. Someone else at CBP opined, for whatever reason, that there was no time to go through the revocation process and that the rate advance was the best approach. The rush appears to have been due to pending criminal and civil penalty investigations related to this merchandise.

Customs and the Department of Justice also argued that the rate advance was justified because the facts on which the ruling was issued were fraudulently reported. According to Customs, and testimony in the trial from a knowledgeable party, the "white sauce" base was really a means of importing butter while avoiding dairy quotas. But, according to the Court, Customs made no clear determination of the principal use of the product and did not articulate a means of making that determination. As a result, it appears to me, the Court was unable to find the fraudulent misrepresentation.

Next, the government argued that the imported white sauce did not match the description provided in the ruling request. But, three CBP lab analyses found the merchandise to be consistent with the description provided in the ruling request. On appeal, Customs gave up on this line of argument.

Based on those facts, the Court of International Trade found that the government's position was not substantially justified. As a result, ICP is entitled to attorney's fees under EAJA. Statutorily, attorney's fees under EAJA are limted to $125 per hour unless the Court finds that it should be increased to reflect the cost of living or the limited availability of qualified counsel. Here, the Court agreed to a cost of living adjustment.

Regarding the availability of counsel, the Court approved an adjustment for time expended by specialized customs counsel. The theory is that the case required counsel with specialized knowledge of customs law and practice and that such lawyers are in short supply. The Court agreed that there is a relatively small cadre of customs attorneys. And, this case was particularly complex, vexing even CBP officials.

Thus, fees were assessed at a rate higher than the statutory $125 per hour. But, the government objected to some of the billing on the grounds that it "blocked" together multiple activities in one time entry. The government also objected to billing in quarter hour increments. Both of these requests were denied and fees assessed accordingly.

The government did succeed in its objection to fees for motions seeking injuntions and restraining orders over which the Court lacked jurisdiction.  Other items that were vague, possibly not related to the litigation, and duplicative were subject to a blanket 33% or 66% reduction.

Overall, this case has likely been a nightmare for ICP. It has also likely costs an enormous amount in legal fees to defend. I'm not sticking up for the plaintiff, which has at least been linked to what might be described as very aggressive tariff engineering. On the other hand, this all could have been avoided had CBP taken the appropriate steps to revoke the ruling. It is hard to see how that would have undercut the fraud case CBP was apparently trying to make. Customs encourages importers to get rulings and holds importers to the results. That is a two-way street. So, in these circumstances, I applaud ICP's counsel for this part of the case.

Monday, June 29, 2015

91 Cups and Mugs, 2 Experts

One of the problems of trying to chronicle all modern American jurisprudence on customs law is that I need to read it all. Sometimes that hurts more than other times. In this case, G.G. Marck & Associates, Inc. v. United States, the blame for my current headache does not lie in the drafting. It may be that I spent the afternoon in tasting rooms at breweries. Or, it may be the substance of the case.

I rarely call out individual judges. In this case, I want to be clear that Judge Richard Eaton wrote a cogent opinion. The problem here is that there are 91 cups and mugs involved and two complicated issues. This decision is a yeoman's task of wading through facts and applying the law.

The imported merchandise is 91 styles of cups and mugs. At liquidation, Customs classified the merchandise either as "mugs" in 6912.00.44 (10%) or as "other" in 6912.00.48 (9.8%). The difference is that "cups," as opposed to "mugs," fall in the "other" category.

The importer protested and claimed that the correct classification for all of the merchandise is in 6912.00.39, which covers ceramic tableware, available in specified sets, in any pattern for which the aggregate value of the articles listed in additional U.S. note 6(b) of this chapter is over $38. The parties did not dispute that the goods are classifiable in Heading 6912, which covers ceramic tableware that is neither porcelain nor china.

The impact of Note 6 is to define the phrase "available in specified sets" as requiring that specific articles of particular sizes be sold or offered for sale in the same pattern. That is the meaningful legal principle to be explored in this case. Also of interest is the discussion of the role of experts in classification cases.

The Court of International Trade decided to follow the guidance from a Court of Customs and Patent Appeals decision to define "mug" and "cup." According to that case, which was decided under the TSUS, a mug is a relatively cylindrical drinking vessel that is not traditionally used with a saucer. A cup, on the other hand, is a bowl shaped drinking vessel usually used with a saucer. From there, it should not be terribly difficult to go through the 91 items and classify them.

But, there is a third option. The importer argued that because the items are offered for sale and sold with other ceramic items in the same pattern, they are sets classifiable in 6912.00.39. For this, you need the full text of the U.S. Note 6(b) to Chapter 69:

If each of the following articles is sold or offered for sale in the same pattern, the classification hereunder in subheadings 6911.10.35, 6911.10.37, 6911.10.38, 6912.00.35 or 6912.00.39, of all articles of such pattern shall be governed by the aggregate value of the following articles in the quantities indicated, as determined by the appropriate customs officer under section 402 of the Tariff Act of 1930, as amended, whether or not such articles are imported in the same shipment:
12 plates of the size nearest to 26.7 cm in maximum dimension, sold or offered for sale,
12 plates of the size nearest to 15.3 cm in maximum dimension, sold or offered for sale,
12 tea cups and their saucers, sold or offered for sale,
12 soups of the size nearest to 17.8 cm in maximum dimension, sold or offered for sale,
12 fruits of the size nearest to 12.7 cm in maximum dimension, sold or offered for sale,
1 platter or chop dish of the size nearest to 38.1 cm in maximum dimension, sold or offered for sale,
1 open vegetable dish or bowl of the size nearest to 25.4 cm in maximum dimension, sold or offered for sale,
1 sugar of largest capacity, sold or offered for sale,
1 creamer of largest capacity, sold or offered for sale.
If either soups or fruits are not sold or offered for sale, 12 cereals of the size nearest to 15.3 cm in maximum dimension, sold or offered for sale, shall be substituted therefor.
This means that for the mugs and cups to be classified as parts of a set under 6912.00.39, they must be of a single patterns and must be sold or offered for sale in that pattern. The government conceded that two collections sold under the "Cancun" trademark in cobalt blue and light blue meet this definition.

The problem is that there are other colors available but the creamer and sugar are only available in the two shades of blue. The sugar and creamer are necessary parts of the set and must be offered in the same pattern. So, this boils down to the question of whether tableware of differing colors but similar surface design are of the same pattern?

Good question. It turns out that the answer cannot be found in the HTSUS, the Explanatory Notes, or any prior court decisions. It is, however, discussed in a Tariff Classification Study from 1963. In that publication, the same pattern is said to mean "articles in coordinated shapes, colors, or decorations, including plain white articles, designed to be used together as sets."

The government's main contention on this point is that 77 of the items are not in the Cancun blue colors and, therefore, are not part of the same sets. The plaintiff's position is that a collection of separate vibrant colors, two-toned patterns, and special finishes make up an eclectic but coordinated set. Personally, I can buy this. At home, we have casual dinnerware that is in three or four coordinated colors with the same surface pattern. As it happens, the sugar and creamer are in a separate color not used on the plates. But sugar and creamer are clearly part of the set.

Plaintiff offered expert testimony to show that all of the imported item coordinate into sets. The role of experts in any court case is to help the jury or judge understand evidence through expert opinion based on sufficient facts and data and on reliable principles and methods. In other words, the expert is there to explain to lay jurors or a judge what they might not otherwise know or understand. This breaks down when the only issue before the Court is one that a reasonably insightful person might understand on his or her own. Such is the case here.

According to Judge Eaton, "a person of usual discernment does not need the assistance of an expert to make a decision of whether dinnerware items are in the same pattern. Were this not the case, an expert would be needed to accompany each shopper that enters a housewares store." That's not "jiggery-pokery," but it is a nice turn of phrase. Plus, the judge did not believe the testimony.

That left the Court to consider physical samples and catalogs. Doing so, the Court found that color is not the only important factor but is "largely determinative" of whether two items coordinate. Here, the Court found that the colors were so vibrant and varied that the items not in Cancun cobalt blue or light blue cannot be part of the same coordinated set.

With this framework, the Court was able to address the individual items. Looking at the sales literature for the merchandise, the Court found that only 16 of the 91 items were of the same pattern. Of those 16 items, five are available is sets and classifiable in 6921.00.39. Of the remaining mugs and cups, 58 are classifiable in 6912.00.44 as mugs and 28 in 6912.00.48 as cups in the "other" tariff item.

Sunday, June 28, 2015

Scope, Protests, and De Novo Review

The scope of antidumping and countervailing duty orders is one of those issues that sits right at the intersection of trade law and customs law. The Department of Commerce determines the scope of an order and can issue rulings clarifying whether particular products are within the scope of the order. Customs and Border Protection makes the day-to-day decisions whether to apply an order to imports as they arrive and the entries are liquidated. Traditionally, Customs' role in this process has been described as "ministerial," meaning it simply does what Commerce says to do. On the other hand, Commerce has not envisioned every possible product and product description. What Customs does is, in reality, more than ministerial. It requires the analysis of the scope of the order and the nature of the merchandise. Customs applies facts to law--that is not really ministerial.

That is what LDA Incorporado v. United States is about. LDA imports rigid electrical conduit from China. After it arrived, LDA became embroiled in a dispute with Customs about whether the merchandise was finished electrical conduit. If it is finished, the merchandise is outside the scope of the order covering "circular welded carbon quality steel pipe" from China. It is unfinished, it is included in the scope of the order. The dispute centered on whether the conduit was internally coated with a non-conductive liner, a requirement apparently not in the order.

As entries liquidated, Customs demanded the deposit of antidumping duties. The importer protested. Parallel to the protests, the importer also sought a ruling from Commerce clarifying whether the conduit was within the scope of the order. Commerce returned a decision saying the merchandise was excluded from the scope of the order. That should be a win for LDA, but CBP diod not see it that way.

The Court previously considered whether Customs and Border Protection's decision that merchandise is within the scope of the order is protestable. Here, the Court of International Trade first reiterates that "CBP made a protestable decision as to the application of the Orders to Plaintiff's entry."

This raises a new and interesting question: What is the Court reviewing in this case? The plaintiff is challenging the denied protest, not the scope of the order. It is certainly not challenging the Commerce Department ruling issued in its favor. The sole question is whether Customs properly applied the scope of the order. That is protestable because it relates to factual errors and other inadvertence by Customs that is adverse to the importer. Importantly, this is not a review of the scope of the order itself; just Customs' application of it to specific imported merchandise.

Thus, on the review of this protest (and similar future protests), the Court's role is to review de novo Customs' factual analysis of the merchandise and its decision to apply the orders to the merchandise.

On the facts presented, the Court found it undisputed that the merchandise is finished rigid electrical conduit. That means that Customs improperly applied the orders to this merchandise. This also means that importers are not required to go to Commerce for a ruling when they do not dispute the clear meaning of the order.

A Little Catching Up to Do

I've been busy. That's a good thing. The U.S. Court of International Trade has been busy as well. That is also a good thing. I am taking this week off. That is a good thing. The Venn diagram of this situation looks like this: