Tuesday, November 23, 2010

Speaking Of . . . .

Not a half hour after posting about the tiger trade, I saw this press release concerning illegal trafficking in sperm whale teeth and narwhal tusks. The conviction includes a count for violating the Lacey Act.That is up to 20 years in prison and $250,000 in fines. Somehow, I doubt peddling scrimshaw to tourists in Nantucket was worth it.

For what it is worth, in my head, the defendant looks like the sea captain from The Simpsons.  Yar!

WCO Announces Tiger Trade Cooperation

Long-time readers of this blog know I am interested in the illegal trade in animals. Usually, that manifests itself in posting articles about some guy arrested with 20 turtles in his pants or some similar oddity. Despite the News of the Weird aspects of it, the illegal trade in animals is an important issue. The people behind this are depleting the natural diversity of wild animals and threatening the wild population. The buyers of these animals are often simply idiots with little impulse control. Where I might want to splurge on some shiny electronic device, these folks want to own an exotic animal, usually illegally.

Today, it was reported that five international enforcement agencies including the World Customs Organization and CITES have formed a consortium to fight the trade in tigers. Here is the press release: WCO - Press.

Best of luck.

Saturday, November 20, 2010

Judicial Conference in a Nutshell

I always enjoy the Court of International Trade Judicial Conference, and the most recent edition was no exception. Granted, a lot of the personal enjoyment comes from having the opportunity to see friends and colleagues. But, there is plenty of substance to be absorbed as well.

For whatever reason, the conference skewed somewhat to trade-related discussions over customs this time around. From a customs lawyer's perspective, it would appear that the single most vexing issue facing the trade bar is the issue of Commerce's policy of publishing liquidation instructions within 15 days of a final agency determination. This causes problems because the parties have 30 days in which to challenge the determination by filing a summons. In the ordinary case, the plaintiff gets to Court and asks for an injunction against liquidation to prevent that from happening.  Sometimes, Customs and Border Protection liquidates entries prior to the filing of a summons and request for an injunction. Once the entries liquidate, the case is moot and the potential plaintiff has lost the opportunity to seek judicial review. Everyone seems to agree that the best solution is some kind of automatic stay or injunction against liquidation for the 30 days.

In the midst of this discussion, the question was raised about the role of importers in trade cases. The question, which I asked, had to do with the situation in which the importer wants the entries liquidated at the prevailing rate (whether that is the deposit rate or the assessment rate) without waiting for the respondent and petition to fight it out in court. If you think about, this is the one area of trade law where the importer is at the mercy of the exporter. Yet it is the importer who pays the duties. Importers often complain when they receive a liquidation notice five or more years after the date of entry because the liquidation was suspended pending litigation in which the importer was not even involved. Someone else in the audience suggested that this question raises fifth amendment taking issues. That is a topic that might be worth a law review article.

On the customs front, there was some interesting discussion about the standard for pleading facts in a complaint. The Supreme Court has recently required that the facts plead lead to a "plausible" conclusion that the plaintiff is entitled to relief. According to the panel where this was discussed, this should not be difficult to accomplish, but plaintiffs need to be aware. Otherwise, they might be looking down the barrel of a Rule 12 motion to dismiss.

All in all, it was a good conference. The location at the Trump in Soho was very nice too. Congratulations to everyone on the planning committee.

If you are interested, the papers from the conference are posted here.

Wednesday, November 10, 2010

The Primrose Path to Default

Pleading continues to be an issue in Court of International Trade litigation. In any other Court, that would not merit a comment. However, in the last two years or so, the CIT has issued several decisions focused on pleading, and that is a change from prior years.

In United States v. Callanish, Ltd., the United States alleged that the importer entered evening primrose oil without the required FDA approval. Because of this, Customs and Border Protection claimed the entries contained false or misleading statements or omissions, in violation of the penalty statute (19 USC 1592). Callanish, in particular, was the the manufacture of the product in Scotland and shipped the goods to the U.S. Apparently, the claim against Callanish is for aiding and abetting the allegedly fraudulent scheme.

After being served with an amended complaint, Callanish failed to defend itself. As a result, the United States moved for a default judgment to the tune of $17 million, the domestic value of the merchandise. The Court granted the default, but balked at entering judgment (which is technically two different things).

The issue for the Court was whether the government has pled facts sufficient to establish liability. It turns out that  the pleadings did not establish, to the Court's satisfaction, the domestic value of the merchandise. Rather, the complaint simply asserts that to be the value. Hence, the Court denied the motion for a default judgment but gave the U.S. 60 days in which to amend its complaint.

OK, so that is all technical and legal. An interesting aspect of the case for importers and compliance people is that CBP pursued this matter under 1592 as a penalty case. Typically, importers expect problems with FDA or other government agencies will be resolved via a Notice to Redeliver and then a liquidated damages case when the goods are not returned to Customs. The problem for Customs under those circumstances is the limited window in which it case demand redelivery. By proceeding under 1592, Customs can go back five years and, in the case of fraud, possibly collect the full value of the goods.

The lesson to be learned from that is that FDA imports (and goods regulated by other agencies) are not free and clear after the conditional release period ends. Like all imports, 1592 remains a viable enforcement tool.

Friday, November 05, 2010

When is Painting Repair?

Those of you who know me , also know that I spent (and unfortunately continue to spend) a lot of time of a single issue involving the tariff treatment is painting as an operation incidental to assembly under HTSUS item 9802.00.80. So, paint-related issues always catch my eye.

Horizon Lines, LLC v. United States is a paint case of a different color. The issue here has to do with whether painting a U.S.-flag ship in a foreign port constitutes repair for purposes of assessing the 50%  duties applicable to repairs. While in China, the Horizon Lines Crusader was painted above and below the water line. Below the water line, the painting was done in conformity with an international convention relating to the removal or sealing of environmentally destructive antifouling agents. Having had the occasion to apply copper-based antifouling paint to a a relatively tiny hull, I can tell you this is somewhat nasty stuff. Customs and Border Protection applied duty to all of this activity on the grounds that it constituted repair.

For an operation performed on a ship to be considered a dutiable repair, it has to involve (1) the purchase of equipment or parts, (2) the acquisition of repair parts or materials, or (3) "expenses of repair." "Repair" is understood in this context to mean the restoration of the ship to good condition after decay or other injury.

According to the Court of International Trade, paint applied to a ship's hull is not equipment. But, painting to restore the vessel to good condition may be a repair and, therefore, dutiable. However, there was much disagreement as to whether the application of antifouling paint was a non-repair modification or the repair of a decayed antifoulding system. As a result, the Court found that there were material issues of fact in dispute. That means that the anticlimactic ending to this post is that the defendant's motion for summary judgment as to work performed below the waterline was denied. For work above the waterline, the defendant's motion for summary judgment was granted (which means the U.S. won).

Thursday, November 04, 2010

Pop Quiz: Counterfeit?

Customs plays an important role in preventing the importation of merchandise that infringes U.S.-held intellectual property rights. That is an important job for the economy as well as for the health and safety of the public. You can usually be pretty certain that a company that is willing to rip off a brand name trademark is not too scrupulous about health and safety requirements. There are lots of dangerous counterfeit products out there, and we should all thank CBP for helping keep them out of the marketplace.

But there are also non-counterfeit products that nevertheless infringe someone's trademark, trade dress, or other intellectual property right. Those products may or may not present health and safety concerns as well. But, they are legally different.

Specifically, a "counterfeit" product is one bearing a mark that is "identical to or substantially indistinguishable from a registered trademark." 19 CFR sec. 133.21(a). These are the fake Coach and Prada bags, HP ink cartridges, and Nike shoes for example.

Recently, CBP used this picture as an example of counterfeit batteries:


I totally understand that these batteries are ripping off Duracell and that CBP should seize them as being infringing. But, is this a counterfeit products issue? "Young Emperor" is not identical or indistinguishable from "Duracell." So what is going on here?

Actually, CBP is on the right track about this and the folks at Duracell have been on the ball too. You need to understand that the label design can also be a trademarked device. In this case, beyond the Duracell name, the company all holds a trademark on the copper and black packaging as well. If you want to check, it is registration number 1039589. While the brand name  has not been copied, the packaging has.

We could quibble about whether the Duracell registration requires both the color scheme and the brand name, but the illustrative point is clear. Infringer who think they will avoid legal problems with minor changes to spelling or by avoiding the use of the brand name are often wrong.

Advice for the U.S.-based rights holder is to record your trademarks, copyrights, and other intellectual property with Customs and Border Protection. Then work with CBP to let the agency know what aspects of your product or packaging are protected. CBP will then be in a position to help protect your rights. And, they are all the more happy to do so if you can point to a health or safety issue related to the infringing goods.