Friday, December 30, 2011

This is Encouraging

One of the issues I have long had with Customs' enforcement activities is what I perceive to be a lack of effort to differentiate between counterfeit goods, which should be seized, and unauthorized parallel imports, which are usually (but not always) perfectly admissible. Parallel imports, also known as gray market goods, are legitimate goods that are purchased abroad and imported without the authorization of the U.S. trademark or copyright holder. Image finding a case of expensive brandy at a fire-sale price in Iceland. If you think you can make a buck reselling the goods in the U.S., buy the goods, and import them, you are a parallel importer (and there is nothing wrong with that). Unless, as is often the case, the goods really are counterfeit and you are being duped, but that is not what we are talking about here.

The problem is that when your brandy arrives at the port, Customs and Border Protection has to decide whether you are entitled to import the goods. As a general matter, goods bearing American trademarks cannot be imported without the authorization of the trademark holder. So, CBP has the right (and duty) to ask whether you have proof of authorization to import (with an exception discussed below). When the importer can't show authorization from the trademark holder, Customs is, in my experience, apt to declare the merchandise to be counterfeit and force the importer to prove that it is not. That can be very hard to do. You are faced with trying to prove that a case a brandy, handbag, watch, or other product is genuine. Think about that. Better yet, go to your kitchen cabinet and pull out any box or can. Now, ask yourself what it would take to prove that the product in your hand is not a very good counterfeit. The fact that you bought it at the grocery store does not prove that the grocery store was not selling counterfeits (it happens). If you know what you are doing, you know to look for good printing, good grammar, consistent ingredients, and other factors that indicate that the merchandise is legitimate. But, it is hard. I suspect it is not uncommon for parallel importers to lose merchandise to seizures because they cannot provide evidence that the product is not counterfeit.

Also, even if the goods are legitimate parallel imports, they can still be excluded from the commerce of the United States if they are materially different than the same goods sold in the U.S. The threshold for "material" is not very high, so even legitimate goods can sometimes be lost on those grounds.

You may be asking what about this is encouraging about this.

Over the last couple years, I have been at several public fora at which CPB representatives talked about the priority efforts they take to enforce intellectual property rights. At several of those events, I have asked whether Customs trains port personnel to release legitimate parallel goods and what steps Customs and Border Protection takes to facilitate legitimate parallel trade. In the past, the response was dismissive. More recently, Customs has recognized the rights of parallel importers and has stated that enforcement efforts must be sensitive their needs.

That is consistent with this document, which is recommendations from COAC concerning intellectual property enforcement. The recommendations include extending C-TPAT to cover intellectual property compliance. This seems to be a reaction to the lack of enthusiasm for the Importer Self Assessment program. Another thought is to use an ISF-style pre-arrival filing to identify legitimate goods. All of this depends on some presently non-existent robust database to identify legitimate goods. To me, the interesting thing is that the document makes several references to the rights of parallel importers. That seems to mean that Customs and Border Protection will continue its valuable efforts at intellectual property enforcement and will, I hope, do that while bearing in mind the rights of parallel importers.

We will have to watch how that develops.

Welcome to 2012

President Obama has signed the Presidential Proclamation authorizing the implementation of the World Customs Organization's 2012 update to the Harmonized Tariff Schedule. Here is a link to the source document. There are changes throughout the tariff schedule. However, they seem to cluster around food and agricultural products and products with an environmental impact (good or bad).

On that note, I wish you all a very happy, healthy, and successful 2012.

Thursday, December 22, 2011

Saturday, December 17, 2011

Bioreactor: Hair Band or Lab Equipment?

"Bioreactor" sounds like a good name for a heavy-metal band, or possibly for a post-apocalyptic video game. But, in reality, it is a machine in which living organisms, typically bacteria, perform some useful chemical function. For example, you might want to feed complex carbohydrates like barley to yeast and end up with beer. For industrial purposes, you might be feeding bacteria something and ending up with an antibiotic. Applikon Biotechnology, Inc. v. United States is a Court of International Trade case about the tariff classification of bioreactors. For reference, here is a page full of the plaintiff's products, all of which look like props from a sci-fi movie except for the green one, which looks like it comes from Kang and Kodos of the Simpsons.



The question here was whether Customs and Border Protection properly classified the bioreactors in 8419 as machinery, plant or laboratory equipment for the treatment of materials by a process involving a change of temperature. The plaintiff wanted the goods classified in 8479, which is the basket heading for machines and mechanical appliances having individual functions not specified or included elsewhere in Chapter 84. Customs' position was supported by the fact that the merchandise includes a temperature control mechanism and requires a heating blanket, which is not imported with the merchandise.

The decisive finding by the Court of International Trade was that the temperature control function is subsidiary to the overall operation of the bioreactors. Apparently, the temperature control feature is not always used and the bioreactor can function without the heating blanket. More to the point (at least in my mind), the heating function is not intended to change the temperature of the culture. Rather, it is intended to maintain the temperature. These are not ovens, they are incubators. Based on that, the Court found that 8419 is inapplicable.

This conclusion was consistent with HTSUS Chapter 84, Note 2(e) which excludes from Heading 8419 machinery in which the change of temperature is subsidiary. And that was about it.

Saturday, December 10, 2011

Show Me the Evidence!

Tariff classification disputes are rarely very sexy. On the other hand, that is not always the case. A recent pair of decisions from the Court of International Trade are good examples of the latter. Both involve the tariff classification of an upper garment for women described as a top with "shelf bra" or as a "bra top." You can probably see where this is going and, if you are offended by the sort of humor that comes from 12-year-old boys, you might want to avoid this post. The two cases are Lerner New York, Inc. v. United States and Victoria's Secret Direct LLC v. United States. Both of the decisions are preliminary determinations having to do with an important evidence question.


What it comes down to is whether a woman, whose professional work is in part to serve as a fit model, may testify as to the functioning of the imported merchandise in providing support for her bosom. Solely for purposes of providing context to my readers to ensure an adequate understanding of what is at issue here, I provide the picture below of the model in question as Blogger's Exhibit 1 for identification:




[The image is copyrighted by MSA Models and used here for education and commentary, which is a fair use.]


The government moved to preclude testimony by this witness on the grounds that her testimony would be based on her professional experience making her an expert witness. As an expert, the plaintiff would be required to provide a written report of her expected testimony. Because that was not done, the government wants her precluded her from testifying. In response, the plaintiff says that her testimony will not be as an expert but as a fact witness concerning the fit and function of the apparel. According to the plaintiff, the witness will not be providing opinions and, therefore, is not required to provide an expert report.


All of this relates to Federal Rules of Evidence 701 and 702, which deal with opinion testimony. Rule 701 permits a lay person to give an opinion in court where it is rationally based on the witness’s perception; helpful to clearly understanding the witness’s testimony or to determining a fact in issue; and not based on scientific, technical, or other specialized knowledge. In this case, the support provided by the garment is clearly within the witness' perception. She is, after all, the one in need of support and has worn the garment. Assuming the question of support remains in dispute (note that there seems to be some question on that point), her testimony on this point seems as if it will be helpful (if not just interesting). Finally, this is not a scientific question. All in all, this sounds very much like a Rule 701 lay witness. 


Rule 702, on the other hand, permits experts to give opinions in truly technical or scientific questions. This rule reads:
A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:
(a) the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.
Based on the authority of Rule 701, the Court of International Trade denied the defendant's motion to exclude this testimony. The most immediate result of that decision may be that these cases will break all Court of International Trade records for public attendance at the trial of a classification case.


The thing I find interesting about this, other than the obvious, is that this appears to me to be symptomatic of an increasing focus on evidence questions in Court of International Trade litigation. It strikes me that most of these questions are a distraction from getting to a result on the merits. Now, I am not accusing anyone of improper conduct. There are rules of evidence and they are there to ensure a fair resolution of the case. Either party may properly object to the attempted use of improper evidence. But, I also think that many of the technical details involving the admissibility and consideration of evidence are of greater importance in jury trials than in the summary judgment or bench trial process we have at the CIT. Moreover, I think it is important to remember that Federal Rule of Evidence 102 requires that the rules be interpreted "so as to administer every proceeding fairly, eliminate unjustifiable expense and delay, and promote the development of evidence law, to the end of ascertaining the truth and securing a just determination." To my way of thinking, if the judges of the Court of International Trade are experts in tariff classification and are charged with reaching the correct result, they should be trusted to assess the credibility of witnesses and sort out what is reliable or unreliable evidence. Trusting them to do so might help speed up litigation at the Court. Nevertheless, it is important that all of us who represent parties before the court stay abreast of the rules of evidence . . . so to speak.

Monday, November 28, 2011

Ford, Horizon & Cisco (Pun-based Title TBA)

The last month has been extremely busy and December does not look to be any less so. Consequently, you are about to get the shortest court decision summaries possible. Catch me in January, when it looks like I will have more breathing room, and I will do better.

Ford Motor Company v. United States

Ford, which is rapidly becoming the go-to litigant for interesting issues, challenged Customs' denial of a post-entry NAFTA claim in which it had failed to provide NAFTA certificates. The Court of International Trade dismissed Ford's challenge on the grounds that it failed to properly make the claim and, therefore, the Court lacked jurisdiction. The Federal Circuit reversed (see this prior post) holding that the lack of a NAFTA certificate was not jurisdictional. Rather, the Court had jurisdiction and the question to be decided was whether the claim was properly made.

On remand, the CIT had to decide whether Customs and Border Protection properly denied the post-entry claim. According to the Court, it did. The basis for this is that the NAFTA Agreement and the implementing regulations are very specific about the need to provide the NAFTA CO at the time of the claim. In this case, "the claim" is made when the importer asserts the right to duty-free entry, not at some subsequent point in time when the importer produces the document. Thus, the statute and NAFTA-specific regulations, in the context of a post-entry claim, require that the importer produce the Certificate of Origin. According to the Court, that trumps a general regulation permitting importers to produce documents supporting duty-free claims at a later time. Frankly, I am not sure that is correct but I am just giving you what the court said.

Horizon Lines LLC v. United States

This is another case involving the 50% duty on repairs to U.S.-flag vessels conducted outside the United States. See 19 USC 1466 for the details. In this case, the vessel was the Horizon Crusader, which had its bottom recoated with tin-free anti-fouling paint as an upgrade to comply with an international convention requiring the use of tin-free anti-fouling systems. Apparently, tin is not good for the ocean environment. [That makes me wonder just how awful the copper-based bottom paint I used to spray on my boat was for Lake Michigan.] The ship was, according to the Court, in good working order and any repairs done to the hull were incidental to the recoating operation. Consequently, this bottom painting operation was not a dutiable repair.

Judge Wallach, soon to be of the Court of Appeals for the Federal Circuit, gets extra points for distinguishing between classes of expert witnesses as percipient and non-percipient. Your run of the mill expert retained for his or her academic or professional expertise is a non-percipient expert. Experts who know a lot about a specific topic because they were actually involved in the facts that gave rise to the case are percipient experts. In Customs litigation, we traditionally use a lot of engineers, chemists, marketing people, and other personnel from the importer who know a lot about the products involved. They are percipient experts. In most courts, percipient and retained experts are treated slightly differently. In the CIT, they are treated basically the same.

Cisco Systems, Inc. v. United States

This is one of those cases that makes me wonder whether the Court of International still has a culture of cooperation and accommodation that moves cases toward decision on the merits. But that discussion is for another day. This case involves the classification of networking equipment. As a preliminary matter, the government moved to dismiss the case on the grounds that the protests filed with Customs and Border Protection were not sufficiently detailed to qualify as valid. This is the same issue we discussed in reference to Estee Lauder here. Based on that case, Customs and Border Protection should have seen how this would turn out. The Court of International Trade cited a line of cases stretching back to 1877 stating that technical precision is not required in a protest so long as it is sufficiently clear to permit Customs to understand what is in the mind of the protestant. Further, more recent cases have indicated that Customs has some level of duty to inquire when the protest is not sufficiently clear. Finally, protests are construed liberally in favor of finding them valid.

The gist of the claim is that Cisco described the merchandise as "networking equipment." The United States claims that this phrase is overly broad and does not specify the type of merchandise at issue. The Court noted that Customs has used the same phrase in its own publications to describe Cisco's products. Further, in relation to the entries at issue the description is sufficiently clear. And, because the protests were valid, the subsequent timely amendments were also valid. Thus, the motion to dismiss was denied.

The Court also denied the plaintiff's technical argument that the motion was procedurally defective and should have been treated as a motion for summary judgment. If you are interested in that level of detail, you are probably a party to the case. If you are not a party to the case and want to know more, read the decision.

Saturday, November 05, 2011

Hitachi: Shall = Should

Sometimes, people complain that lawyers can't speak or write in simple English. Usually, I am sympathetic to this complaint. But, there are time when lawyer language has to be complicated to anticipate and avoid later arguments about what some text means. If your argument in a contract dispute is "We all know I was not supposed to paint the house in the rain," but you can't point to that in the contract, you are in a weak (but not untenable) position. If you have a contract that covers when, how, and in what conditions you are supposed to paint, it will be easier to resolve the dispute. So, up to a point, legalese has a place. Hitachi Home Products is all about how courts grapple with bad drafting and important points left out of laws.

Here is the regulation relating to how Customs and Border Protection is supposed to decide protests (19 CFR 174.21):
Except [for protests relating to exclusions], the port director shall review and act on a protest filed in accordance with section 514, Tariff Act of 1930, as amended (19 U.S.C. 1514 ), within 2 years from the date the protest was filed.
There is a similar use of "shall" in the statute, which also says that Customs "shall allow or deny such protest . . . ."

The issue in Hitachi Home Products was what happens when the two-year period runs out. The Court of International Trade previously held that nothing happens. There were two main reasons for this decision. First, neither the statute nor the regulation say what happens when the two years expires. As a general principal, the Courts will not step in and create a consequence when neither Congress nor the relevant agency have bothered to do so. Second, the protestant can force Customs to act by requesting accelerated disposition under 19 USC 1515(b). This will usually result in a denied protest, which can be reviewed by the Court in the ordinary course.

The Federal Circuit has now affirmed Hitachi and, for all intents and purposes, the decision is in line with the CIT decision. The Court of Appeals held that there is no rule in the law that makes a protest older than two years automatically approved. According to the Court, that is in part evident from the opportunity to request accelerated disposition.

The more interesting part to read is the dissent by relatively new Federal Circuit Judge Reyna, who comes to the Federal Circuit with a background in trade law. According to Judge Reyna, protests not decided within the two year period are deemed approved. The dissenting opinion is based largely on the fact that the statute and the regulation both impose a two year period in which Customs is to act and that the majority opinion effectively turns that limitation into a meaningless nullity. The dissent was also impressed by the fact that that the cases on which the majority relied all involved much shorter periods in which the agency was to act. The longer period given to Customs and Border Protection, according to the dissent, was intended to ensure that Customs acted on the protest. Also, when the protest law was amended in 1970, Congress changed the operative word from "may" to "shall." This indicates a Congressional intention that "shall" means "must."

But, that still leaves the pesky question of what happens when Customs and Border Protection fails to meet the requirement. According to the dissent, the answer is there in the statute. After two years, Customs must allow or deny the protest. A denial, the dissent notes, requires a written notice be sent to the protestant. An allowance, on the other hand, need not be the subject of a notice. Thus, the default result, which happens without action by CBP, is the allowance of the protest. The ability of the protestant to effectively force a denial through accelerated disposition should not, according to Judge Reyna, be used as the "escape valve" because it can result in cases being sent to the CIT without adequate review by Customs in a manner similar to the pre-1970 automatic referral process.

Overall, I think the dissent is interesting in that it pulls together a number of meaningful threads from the text, the legislative history, policy, and the history of customs litigation. On the other hand, as a general matter, I hate to do that when the answer might be right in the statute. In this case, the majority found the Congress provided no consequence. That usually means that "shall" really means "should." That is also a reasonable result.

Of course, the best result would be for Congress to take note and fix this. Protests should be decided within two years or be deemed approved. What, I wonder, should happen when a ruling request is more than two years old?

Friday, November 04, 2011

Airflow Remand: Worth Reading

Airflow Technologies is one of my favorite cases of the past few years. In it, the Federal Circuit reversed the Court of International Trade and held that the tariff description "straining cloth" in HTSUS heading 5911 only applies to cloth used for straining solid particles from liquids. Whatever clearing the air or other gases of particulates may be called, it is not straining. The Federal Circuit remanded to the Court of International Trade for additional consideration. The CIT has now issued its remand decision, and it is interesting.

Filter media is complicated to classify for two reasons. First, the media itself can be made of various materials from paper to fiber glass to textiles. Second, the imported product is often not just the media but the media housed or supported in some way. Think about a basic furnace filter as an example. Although everyone calls those things "furnace filters," Customs and Border Protection tends to think of them as the just the media. To CBP, a "filter" is advanced beyond simply mounted media. You tell me whether that seems consistent with the common and commercial meaning the next time you buy a furnace filter or replacement filter for a humidifier.

This case deals with just the media, imported in bulk rolls. Customs and Border Protection has lots of rulings putting various textile filter media in Heading 5911 on the theory that it is a textile product for technical uses. Importers have suggested 5603, other nonwoven products. Of course, 5603 is duty free. Over time, there seems to have been a drift toward a conclusion that filter media of textiles belong in 5911, which is dutiable. In some ways, I like that. I like a simple rule that importers can implement. But, this is more complicated than that. Heading 5911 only covers textile products and articles for technical uses if they are "specified in Note 7" to Chapter 59. That adds a limitation that importers, Customs, and the Courts cannot ignore.

Because 5603 excludes products of 5911, the Court first looked at whether the filter media was classifiable in 5911. This resulted in a detailed analysis that gave meaning to all the relevant limitations in Note 7.

The note is broken down into two sections, the first part, 7(a), states that 5911 includes:
Textile products in the piece, cut to length or simply cut to rectangular (including square) shape (other than those having the character of the products of headings 5908 to 5910), the following only:
(i) Textile fabrics, felt and felt-lined woven fabrics, coated, covered or laminated with rubber, leather or other material, of a kind used for card clothing, and similar fabrics of a kind used for other technical purposes, including narrow fabrics made of velvet impregnated with rubber, for covering weaving spindles (weaving beams);
(ii) Bolting cloth;
(iii) Straining cloth of a kind used in oil presses or the like, of textile material or of human hair;
(iv) Flat woven textile fabrics with multiple warp or weft, whether or not felted, impregnated or coated, of a kind used in machinery or for other technical purposes;
(v) Textile fabric reinforced with metal, of a kind used for technical purposes;
(vi) Cords, braids and the like, whether or not coated, impregnated or reinforced with metal, of a kind used in industry as packing or lubricating materials;

The Government contended that the filter media fell within Note 7(a)(i) as being similar to felt, which is also a non-woven product.The Court, however, found that ts is not sufficient to be similar to felt. Rather, the note requires that the media be similar to felt that is coated, covered or laminated with rubber and of a kind used for card clothing or a similar fabric of a kind used for technical purposes. Although the media is covered with a tackifying adhesive and polyester backing, it is not coated, covered, or laminated with rubber, leather, or another material, is not used for card clothing, and according to the Court, is not similar to coated fabrics used for other technical purposes. [Note: read the opinion if you want to know what the heck card clothing is. The answer is interesting.] There were no significant arguments that the media fell within any other provision of Note 7(a).

Note 7(b) covers:
Textile articles (other than those of headings 5908 to 5910) of a kind used for technical purposes (for example, textile fabrics and felts, endless or fitted with linking devices, of a kind used in papermaking or similar machines (for example, for pulp or asbestos-cement), gaskets, washers, polishing discs and other machinery parts).

This part of the opinion is another very interesting careful parsing of the tariff language. Many people read these texts and assume that "goods," "products," and "materials," are all just equivalent ways of saying "stuff." That is not the case. Rather, the law assumes that when different words are used in the same statute, there is a reason for it. In this case, the question was whether the filter media qualifies as an "article" for purposes of 7(b).

Note that 7(a) covers "products" and 7(b) covers "articles." Consequently, the CIT found they have different meanings. According to the Court's analysis, a textile product is a material (e.g., fabric). A textile article is an object with a fixed identity and dimension (e.g., textile gaskets). This is consistent with the examples in each rule. 7(a) focuses on fabrics and materials. 7(b) mentioned gaskets, washers, and polishing disks. Also, the Explanatory Notes refer to textile articles being produced from textile products. This product is bulk rolls of textile filter media, thus, according to the Court, it is not an article for purpose of 7(b).

Consequently, the goods are not classifiable in 5911. That leaves 5603. Even though 5603 excludes goods of 5911, because the filter media is not 5911, it stays in 5603.

Now, if only someone would address the issue of the furnace filter. That would make me a happier man.

Up Next: Hitachi! I shall do it soon. But I need not. Read it and you will understand.

Saturday, October 29, 2011

Container Store

On Thursday, I did a very dangerous thing. I talked about trade law in a room of about 100 trade lawyers and judges from both the Court of International Trade and the Court of Appeals for the Federal Circuit. This was at a CIT and Customs and International Trade Bar Associations sponsored event in DC, which was a great success.

The topic was the identification of situations in which judicial review raised more questions for the relevant agencies and parties than it resolved. As it turns out, that phenomenon is more easily found in antidumping and countervailing duty law than in customs law. We discussed issues like zeroing, the ITC's causation analysis where non-subject imports are in the market, and the application of adverse facts available. In all cases, the trade lawyers on the panel expressed concern about the courts swinging from one position to another or injecting new elements into what might have been a settled analysis. My role was to moderate, so I had little to add. But, it was an interesting conversation for me.

Plus, I had the surprisingly awesome experience of sitting in the big judicial chair in the Federal Circuit's very impressive court room. I had never seen that courtroom from that side of the bench.

On the topic of ambiguity in customs law, it was easier to find situations in which judicial review cleared up some question. Such is the case with this decision involving imports by the Container Store. The issue is very similar to the question presented in storeWALL, which we previously discussed. The issue in Container Store had to do with the classification of components of elfa brand shelving systems. Customs and Border Protection wanted the "top racks" and the corresponding vertical standards classified as base metal mountings and fittings in Heading 8302. The plaintiff, on the other hand, wanted the merchandise classified as parts of furniture in 9403.

Here is a picture of what I think was at issue (with the exception of the horizontal shelf bracket).


Initially, it is pretty easy to see what Customs is thinking. The products appear to have more in common with mounting hardware than with furniture. In terms of how CBP officials at ports handle merchandise, looking into a box of these things would not bring chairs, beds, cupboards, or any other furniture to mind.

On the other hand, the Federal Circuit essentially resolved this dispute in storeWall where it found similar complete systems to be "unit furniture." The argument turns on the fact that these systems are flexible and modular. When fully assembled, the user might build a system with drawers and shelves, which would qualify as furniture. On the other hand, the user might only install pegs and hooks, which would not qualify as furniture. In storeWALL, the CIT upheld Customs' argument that the goods could not be classified as furniture unless, at the time of entry, the configuration was certain to qualify as furniture.

The Federal Circuit reversed that decision on the grounds that "unit furniture" implies flexible storage systems that can be configured as desired by the user. The CIT, helpfully followed that guidance and reached a consistent conclusion with respect to the Container Store merchandise. Thus, the CIT has done its part to avoid creating any ambiguity with respect to this kind of stuff. We can only hope that the Federal Circuit, if asked, will follow suit.

Congratulations Frances on your win.

Wednesday, October 26, 2011

The Byrd Amendment Still in Court?

Despite having been repealed in 2005, the Continuing Dumping and Subsidy Offset Act (known as the Byrd Amendment) is still in Court, although maybe not anymore. In Furniture Brands Int'l v. United States, a three-judge panel of the Court of International Trade was asked to decide a number of motions most of which were directed at dismissing the case for failing to state a claim on which relief can be granted.

The point of the CDSOA is to allow members of the domestic industry to receive an allocation of funds collected from importers. These funds were intended to offset the expense of pursuing the case incurred by the petitioners and domestic interested parties who supported the petition. Thus means that domestic interests who opposed the petition are not entitled to CDSOA funds. The Court of International Trade had held in previous cases that this petition support requirement violated both the first amendment guaranty of free speech and the fifth amendment guaranty of equal protection. Unfortunately, for the plaintiff, the Court of Appeals for the Federal Circuit reversed both of those earlier decision.

After finding, consistent with prior CDSOA cases, that the Court of International Trade had subject matter jurisdiction, the CIT addressed whether there was any way for the plaintiff to successfully maintain the cause of action. The Court found that plaintiff's claims were precluded by the Federal Circuit's decisions that the CDSOA violates neither the first nor the fifth amendments. Plaintiff made an effort to distinguish its case on several grounds. First, it argued that the plaintiff's opposition to the petition was not commercial speech, which is subject to a lower level of constitutional review, but was actually more highly protected speech on a matter of public concern. Second, the plaintiff argued that one of the earlier decisions was based in part on the fact that the "domestic" party was owned by a foreign company. Neither of these arguments was sufficiently compelling for the CIT to draw a distinction to the prior CAFC decisions.

The plaintiff's last argument has to do with a decision the Supreme Court issued after the plaintiff filed this case. That case, Sorrell v. IMS Health, involved a Vermont statute that authorized civil remedies for the prohibited use of prescription information. That statute was content-based and also discriminated against speakers based on view point. In contrast, according to the CIT, the CDSOA does not intentionally suppress expression. Consequently, the CIT held that the Federal Circuit decisions control and need not be given a narrow reading, as proposed by the plaintiff.

Given that legal conclusion, the CIT also denied the plaintiff's motion to amend its complaint on the grounds that the amendment would be futile.

And, that is all the constitutional law you will get from me tonight.


Monday, October 24, 2011

The Mess that is MPF

To cut to the case, the President signed the Korea-FTA legislation last. As a result, the MPF changes in that bill will control. That means that Merchandise Processing Fee will increase to .3464% retroactively to October 1, so expect a bill from Customs and Border Protection. For now, the system will not accept payments at the higher rate. Customs is expected to provide about a week's notice before the program is done to implement the increase.

Note that the change in rate does not affect the $25 minimum or the $485 maximum. Thus, large commercial shippers, who are likely to have the cap apply to most shipments, will see no real change in their total landed cost. On the other hand, small shippers will likely absorb the increase in MPF collected. That seems like something else to anger the Occupy Wall Street crowd.

It's a Win

Sometimes the most important case in the world is your own. In that context, I give you Firstrax v. United States. The issue in this case was the tariff classification of collapsible pet crates used to provide a portable home for dogs and an aesthetic alternative to wire crates. Some of the smaller crates involved included a handle on the top. This created a superficial similarity in appearance to pet carriers, which these products are not. The primary distinction between the two is that pet carriers tend to have a rigid bottom for the comfort of the animal and these crates rely on the floor or ground to provide a rigid surface.

Customs and Border Protection wanted to classify these products in HTSUS Heading 4202 on the theory that they are similar to travel bags used to transport, store, protect, and organize personal affects. The Court of International Trade disagreed with this on almost every front. According to the court, a living, breathing pet cannot be "stored" an a manner similar to socks in a suitcase and a single pet (without accessories or other items) cannot be said to be "organized" like toiletries in a travel bag. Also, the evidence indicated that the crates are not meaningfully protective and are not designed for transport. Thus, the crates are unlike the exemplars in 4202. Rather, the crates are classifiable as other made up articles of textile.

Of course, I think this is a good decision. I think it may be applicable to other circumstances in which a textile or plastic container holds a single item, but that depends on the facts. The other open question is whether the U.S. will appeal. That remains to be seen.

Thursday, October 20, 2011

Interesting 337 Case

I have a couple interesting cases to cover. The first is Tianrui Group v. International Trade Commission, which is a Section 337 exclusion case. We don't usually cover 337 cases here, so some background is appropriate.

The law permits a U.S. holder of intellectual property rights to bring an action in the International Trade Commission seeking to exclude from the United States imported products that infringe the intellectual property. Usually, but not always, the IP rights involved are from patents, but 337 applies to copyrights, trademarks, and other rights. To be technically correct, 337 also applies to other methods of unfair competition including some antitrust violations. If the ITC finds a violation, it can issue an exclusion order, which tells Customs and Border Protection of prohibit the entry of infringing merchandise. Appeals from the ITC are heard by the Court of Appeals for the Federal Circuit, bypassing district court review

There is a lot in this case. If you are interested in it, read the whole opinion. This summary will only hit the highlights and will miss the detail.

The underlying issue in this case is interesting for two reasons. First, it relates to trade secrets. Second, it relates to activity occurring entirely in China. The facts are that Amsted, a U.S. manufacturer of cast steel railway wheels licensed a secret process to foundries in China. When TianRui tried to license the process, it was unable to strike a deal with Amsted. Instead, it hired nine employees from a licensed Chinese producer, some of whom knew the secret process. TianRui then began producing wheels using the process and exporting them to the United States. Amsted sought to exclude that merchandise via a 337 action.

In the ITC, TianRui raised the argument that because the alleged violation occurred entirely in China, there was no basis on which to bring a 337 case in the U.S. Rather, according to TianRui, the Chinese courts provide a more appropriate forum.

Trade secret misappropriation law is an entirely different animal than patent, copyright, and trademark law, all of which are implemented in federal statutes. Trade secrets, on the other hand, are based on state laws. The administrative law judge at the ITC applied trade secret law as found in Illinois, where Amsted and other parties have offices. As an issue of state trade secrets law, this raises the question of whether behavior that takes place entirely in China is subject to state trade secret law.

As an initial point, the Federal Circuit held that state trade secret law does not control the issue. Rather, the Court held that a single federal standard should determine what constitutes misappropriation of a trade secret in the context of Section 337. The reason for this is that Section 337 embodies Congressional policy to protect American intellectual property rights. That is not an issue of state law.

On the main point, TianRui argued that Section 337 does not make trade secret law have extraterritorial reach to cover activities that took place entirely in China. As a general principal, American law does not have extraterritorial application unless Congress specifically states that it does. The Court found that the presumption against extraterritorial application does not apply here for three reasons. First, the law explicitly addresses imports to the U.S., which inherently regulates products produced through foreign activity. Second, the law addresses unfair competition in the U.S. that results from the importation of the merchandise. Finally, the legislative history indicates Congressional intent to regulate foreign behavior. Thus, the Federal Circuit held that 337 has extraterritorial reach.

The case has a strong dissenting opinion arguing that Section 337 cannot regulate activity occurring entirely outside the United States. According to that opinion (by Circuit Judge Moore), the United States has "no right to police Chinese business practices." The dissent goes on to say that there are all manner of potentially unfair business practices occurring outside the United States including suppressed wages and forced labor. The dissent calls the breadth of the majority opinion "staggering."

The dissent notes that is is sympathetic to Amsted and that TianRui appears to be a bad actor. Nevertheless, the judge finds nothing in the statute or the legislative history to show a congressional intent to apply trade secret law extraterritoriality. That is distinct from patent law, which is specifically included in the statute. Lastly, the judge noted that Amsted had an opportunity to bring this conduct within the extraterritorial scope of 337 by getting a process patent to cover the trade secret. Of course, my IP lawyer friends will point out, that limits the lifetime of protection. If the folks at Coke had to do that to preserve their secret formula, it would only be a secret for 20 years.

Thursday, October 13, 2011

Korea: Yes, I know

Panama and Colombia, too.

Here is an article from the Atlantic about the deals, focusing on Korea.

I feel as if I should have something insightful to say and that I should take a position on the economic impact these deals will have on the U.S. as a whole, on jobs in particular, and possibly on compliance professionals. The truth is, I am somewhat numb to trade deals.

Far and away, the trade agreement that gets the most commercial traction is the NAFTA. We are 17 years into NAFTA and every day (really, every day) I answer questions about how to do the documentation. That is because the rules are very complex. I am happy for the opportunity to help and I truly understand the complexities of the data gathering necessary for compliance. But I also know that adding additional trade deals adds exponentially to the compliance difficulties. For this, I blame the WTO's inability to get a comprehensive trade deal done during the Uruguay Round. As it is, the NAFTA was used as a model for that agreement and for the TRIPS agreement that followed. But, without comprehensive (meaning global) trade liberalization, the U.S. and other countries have fallen into the somewhat random chaos of bilateral and multilateral regional deals and topic-specific agreements (e.g., the new anti-counterfeiting agreement).

The problem with the trade deals is that each one of them is intended to promote trade within their region. That means that the NAFTA is intended to encourage trade between the North American neighbors. As a result, NAFTA goods may not qualify for duty-free export to Australia because of excessive Canadian or Mexican content. Goods I can certify under the U.S.-Chile FTA may not qualify under the agreements with Singapore, Bahrain, or Morocco. And, the paper work and records for each are similar but distinct. If a company tries to qualify goods under both the U.S.-Central America-Dominican Republic Agreement and the NAFTA, it will likely need to gather two sets of origin certifications from suppliers because the rules of origin for the materials used to make the finished goods differ.

With all due respect, I suspect the agreements with Colombia and Panama will add little to the burden on most compliance professionals. Certain industries and certain companies will feel a big impact, but overall the impact will be small. That is not necessarily the case with Korea, which is a major economy with a lot of trade. According to USTR figures, the Korea agreement will open up Korea to $10 billion in exports and all greater American access to Korea's $560 billion services industries. That is significant.

I remain fairly convinced that these deals are a net positive for the economy while recognizing that individual companies and workers may be hurt. That is troubling and, unfortunately, makes for the most obvious kind of media coverage and the most compelling stories. In the long term, the best approach is to scrap these deals in favor of a global approach to trade that lets countries benefit from their comparative advantages while preventing the so-called race to the bottom. Of course, that is much easier said than done, which is exactly why we are now getting three new trade deals.

So, to my compliance professional colleagues out there, here is your interim Korea toolbox:

Final text
Rules of origin (in which you will see tariff shifts and RVC calculations based on the build-up and build-down methodologies)
Tariff elimination schedule (See Schedule 2-B at the end)

There will be no specific Certificate or Origin for Korea, but here are the required data elements:
(a) the name of the certifying person, including as necessary contact or other identifying information;
(b) the importer of the good (if known);
(c) the exporter of the good (if different from the producer);
(d) the producer of the good (if known);
(e) tariff classification under the Harmonized System and a description of the good;
(f) information demonstrating that the good is originating;
(g) date of the certification; and
(h) in the case of a blanket certification issued as set out in paragraph 4(b), the period that the certification covers. 
Importers will be able to self-certify or to rely on a written or electronic certification from the exporter or producer. Exporters may rely on the producer's reasonable written or electronic certification or on the exporter's knowledge that the goods are originating.Verification may be focused on the importer, exporter, or producer and there are special rules of verification relating to textiles and apparel.

Feel free to ask specific questions, which I may answer. I will follow up with more interesting details about the KORUS agreement as they arise.

Monday, October 03, 2011

IP Theft in the News

Here is a news item stating that Immigration and Customs Enforcement's Homeland Security Investigations special agents raided a number of Florida sites to execute search warrants relating to possible counterfeit goods. In the end, they collected 50,000 counterfeit items with a total retail value of $28 million. That's not surprising. If the government created a flee market and push cart squad, it could find counterfeits with little effort. As a general principal, that is a good thing. Counterfeiting is theft and vendors of counterfeit goods free ride on the value of brands to which they have no claim.

However, every time I hear about about one of these events, I wonder whether any of the goods were actually genuine but gray market products. As a general rule, gray market goods that are not materially different from the authorized products sold in the U.S. are entitled to entry. This is a rule that recognizes that the vendor has been fully compensated in the first, legitimate sale and has no right to prevent subsequent resales as long as consumers are getting what they think they are purchasing. The problem is that gray market goods are often accused of being counterfeit. That puts the importer in the difficult position of having to prove the negative proposition that the goods are not counterfeit. In that circumstance, a small importer will often walk away from the goods. Which can be a big loss for a small entrepreneur.

Which reminds me, On October 1, the U.S., six other countries and the EU signed the Anti-Counterfeiting Trade Agreement to help fight this kind of thing. As it is late, I will give a hat tip and link to Patent Baristas for more info. The USTR Fact Sheet on the ACTA is here.

Lastly, when did ICE agents start working for HSI? Just asking. I think I missed that.

There Goes My Pet Theory

The Federal Circuit has affirmed the Court of International Trade's decision in LeMans v. United States and has broken my heart in the process.

LeMans involves the tariff classification of apparel designed for motocross participants, which Customs and Border Protection classified in HTSUS Chapters 61 and 62. LeMans protested and challenged the classification in the Court of International Trade, which upheld Customs. LeMans' argument was that the merchandise should be classifiable as sports equipment in Chapter 95. I posted about the lower court decision here and even opined in the comments that I expected a reversal. I was wrong, and it has me annoyed.

In a case called Bauer-Nike, the Federal Circuit previously held that hockey pants, which include pads, are necessary, useful, and appropriate to the sport of playing hockey. As a result, consistent with the Explanatory Notes, hockey pants are sports equipment, not apparel. This was primarily by comparison to "pads" and "guards," which are listed in the Explanatory Notes to Chapter 95. Based on that, I have adopted the position that clothing adapted to a specific sport to the extent that it can be deemed appropriate, necessary, or useful to the sport would be sports equipment if not provided for more specifically elsewhere.

Instead, the Federal Circuit backed away from the Bauer-Nike. The Court held that the prior case is distinguishable because the hockey pants contain pads or guards and are, therefore, comparable to the sports equipment listed in the Explanatory Notes.

Just to be clear, I have no objection to the merchandise being prima facie classifiable as apparel in Chapters 61 and 62. My only issue is whether it is also prima facie classifiable as sports equipment. LeMans, on the other hand, did argue that the merchandise is so specialized that it cannot permissibly be classified as apparel. The Court noted the lack of protective or specialized features in the clothing and that some sports-specific apparel is specifically listed in Chapter 61 and 62 including swimwear and ski-suits. Thus, the Court found it to be classifiable with apparel.

The real trick was dealing with Bauer-Nike without disrupting the "necessary, useful, or appropriate" definition of sports equipment. To do that, the Court focused on the exemplars in the Explanatory Notes (including the aforementioned pads and guards). But, LeMans argued, there is no reason to get to the Explanatory Notes when the Federal Circuit has already defined the term, making the statute clear. To me, this is a persuasive argument that carried the day in the festive articles cases and elsewhere. Looking to the Explanatory Notes for the scope of a term the Court has already defined and for which there is no longer any ambiguity, strikes me as giving the EN's too much weight.

I still think there is life for Bauer-Nike outside of hockey. In particular, sports clothing that is protective in nature and can reasonably be considered to include pads or guards should fall within the scope of that decision. Despite that, this decision makes those arguments harder, and gives a boost to those darned Explanatory Notes.

Wednesday, September 28, 2011

Talk About Dutch Courage

This is old news I inexplicably missed. Thanks to Rafael for the tip. The story is that in 2010, the Customs authorities in French Guiana stopped a Dutch traveler with a suspicious pair of pants. They found a pouch full of humming birds. From the pictures, I would assume the beaks were not at all comfortable. Follow the link to see the truly strange pictures.



Saturday, September 24, 2011

Value Change Up for Comment

Customs is floating an idea to reinterpret the value law with respect to transfer pricing to give related party importers more flexibility with respect to post entry adjustments. Here is the notice asking for comments.

This is a long-awaited notice, but it is just a request for comments rather than an actual proposal.

The issue this notice seeks to address has to do with the application of transaction value in cases where the related parties have a transfer pricing policy that requires periodic adjustments to the sales price of the goods. Usually, this is done to ensure that the selling entity earns the appropriate amount of profit over the fiscal year or other period. Hitting that target is often an important consideration for tax planning. Consequently, companies spend a lot of time and effort working with accounting firms to establish an acceptable transfer pricing policy that meets their tax needs. In some case, these policies can be validated by one or both of the governments involved in what is called an Advanced Pricing Agreement.

The problem from a Customs standpoint is that post-entry adjustments to sales prices may impact on the correct entered value of the merchandise. There are a number of legal consequences to these adjustments. For example, if the amount of the adjustment is fixed or can be calculated based on a set formula at the time of entry, then the adjustments can be taken into consideration as part of a transaction value. In other words, if there is an acceptable formula, transaction value applies and the value can be updated--typically via reconciliation. Also, while the law requires that increases in price be taken into consideration, decreases and rebates are ignored. [No one ever said the law is fair.] Thus, post-entry price adjustments may not be evenly applied.

The biggest question has been whether a transfer price policy that relies on post-entry price adjustments is compatible with transaction value as the basis for appraisal. In some rulings, Customs and Border Protection has held that the transfer price policy did not create an acceptably fixed formula for appraisal. As a result, Customs has ruled that transaction value was not applicable and relied on the so-called "fall back" method of appraisal. In those cases, the adjustments were applied and the valuation ended up at essentially the same place.

Which brings me to the question of whether this is really important? Is this really just substituting one label for another? If the "transaction value" and the "fallback method" get to the same amount by taking into consideration the adjustments, does it really matter. You either have Customs accepting your policy as a formula for transaction value or rejecting transaction value and calling the same analysis a fall back.

One critical point is that if this proposal gets adopted, Customs will take price reductions into consideration because the reductions will not be discounts or rebates. Rather, they will be treated as applications of the policy and, therefore, the agreed price for the goods. That might produce some duty savings for importers who engage in downward price adjustments.

Another point is that the factors listed in the notice to support the finding that a transfer price can be considered a formula should inform the drafting of transfer price policies going forward if the proposal is ever adopted.

None of that strikes me as earth shaking, but I seem to be in the minority on that front. At least one lawyer I know and respect, my soon to be published co-author, has already labeled this the most important development in value law since the adoption of the current WTO code in 1979. Personally, I would give that title to the Federal Circuit decision in Nissho Iwai, which started the modern practice of using first sale valuation. I also know that the ABA Section on International Law, Customs Law Committee is interested in this.

So, you customs compliance and tax people out there, tell me whether this proposed change would significantly impact your business one way or the other. Comments are open.

New FAIR Enforcement Act

Here is something else I missed while I was away. Maybe you missed it too.

Senator Claire McCaskill has introduced legislation directed at creating policies to make it harder for companies to evade the payment of customs duties. In essence, this seems similar in goal to the ENFORCE Act, which my partner David Forgue covered in this interesting white paper. The new proposal focuses in part on the relationship between brokers and importers by imposing a "know your customer" requirement on brokers. In addition, the bill would eliminate bonding for new shippers in antidumping casing and require cash deposits like other importers. Apparently, this is intended to prevent new shippers from making a lot of entries and then defaulting when it comes time to assess the dumping duties.

Here is a press release from Senator McCaskill.

Waiting for GSP

There are things that happen in Washington that are a complete mystery to me. One such mystery is this kabuki dance that happens periodically when the Generalized System of Preferences expires. Everyone is pretty confident that it will eventually be renewed. But, despite that knowledge, Congress spends time futzing around with it (and similar programs like AGOA). It gets attached to other things that some legislator wants and used as leverage in negotiations.

Here's a crazy idea: Someone should introduce a bill just making it permanent unless and until repealed. Presumably, this could be coupled with a new set of rules defining beneficial developing country, if that is part of the political problem. If that were to happen, traders would know what to expect and there would be none of this administrative hassle of retroactive application.

Until something that reasonable happens, we have to put up with the sausage factory that is Congress.

So, with the preamble, I am letting you know that the Senate has passed an amended House GSP bill that also includes MPF adjustments and an extension of Trade Adjustment Assistance. Because there were amendments, this has to go back to the House for reconciliation before it can go to the President. According to press reports, the House hopes that the bill can be considered along with the pending trade agreements with Colombia, Panama, and South Korea.

Here is a USTR press release on the developments.

Wednesday, September 21, 2011

Frogs

I am just back from Paris. Despite being a middle aged, well educated, reasonably well traveled person, I had never been to Paris (or anywhere in France) before this trip. I had an excellent time meeting with lawyers from throughout Europe and the North America to discuss our various practice areas. As is usually the case with these things, we had interesting discussions coupled with some exceptionally good meals and a bit of seeing the sites.

I narrowly escaped an airport fiasco on the way back when I realized that I had failed to pack a bottle of wine in my checked bag. For a moment, I considered being the person in the airport you marvel at when he or she sits down to eat their smuggled sausage or when they abandon a gallon of conditioner at the security line. I blame my lack of foresight on too little sleep. A quick reshuffle of dirty clothes from the big bag to the carry on created room for the wine without undue delay to others checking in.

The locals were nothing but nice and helpful. Hence, if you think the title of this post is an anti-French slur, you are wrong. In reality, it is a reference to this article, which tells of Customs and Border Protection in Houston discovering a rare amphibian in a cargo container.

How dare you think otherwise?

Saturday, September 10, 2011

News to Use

The MPF and GSP renewals have made it through the House and will now go to the Senate. The MPF will, assuming the bill passes, increase for formal entries to %0.3464. However, all indications are that the $485 cap will remain the same. That means that importers of small value merchandise are likely to feel the brunt of this increase more than importers of high-value imports. If this blog contained political commentary, which it doesn't, one might wonder about the politics of that decision.

The House bill also retroactively renews GSP. It appears that if entries were flagged using the A SPI while GSP had lapsed, the entries will be liquidated with GSP benefits. Of course, that remains to be seen, so don't rely on that for your internal procedures.

In his jobs speech, the President encouraged Congress to act to implement the already-negotiated trade agreements with South Korea, Colombia, and Panama. Reliable sources in Washington say that those agreements need to be submitted to Congress soon if they stand a chance of getting done before we are fully mired in the election process. Personally, I already feel mired.

If you use the port of Whitetail, MT, you need to look for another port. Customs is proposing to permanently close the port.

Thursday, September 01, 2011

Uniform Marking Officially Dead

But, like a brain eater from Zombieland or the upcoming World War Z, it may be back. Remember, always double tap.

Tomorrow, Customs will publish a Federal Register Notice making technical corrections to the Part 102 rules of origin and officially withdrawing the proposal that the U.S. implement tariff shift rules of origin for all commodities. The specific changes relate to pipe fittings and flanges, greeting cards, glass optical fiber, rice preparations, and certain textiles and apparel. If you import those goods, please check the FR Notice when it comes out. I am not giving a link because the link will to tomorrow's Federal Register will be dead tomorrow after the official version is published.

Regarding the proposal to adopt uniform rules of origin primarily based on a tariff shift methodology, Customs reports that it received a total of 70 public comments, 42 of which expressed opposition to the July 25, 2008 proposal. As a result of these comments, Customs and Border Protection states that is has "determined not to proceed with its proposal." For many people, this is a good outcome.

The problem most importers expressed (at least to me) about the proposed rules was not that it was difficult for producers to apply. Generally, it can be assumed that a producer knows the materials used in the production of its products and the materials' country of origin. That would be enough information for them to classify the goods, apply the tariff shift (or descriptive shift) rule to materials to do not originate in the country of production, and determine origin. This gets muddy in situations where raw materials or other commodities are traded many times or commingled, but those are the exceptions.

The problem is that under the proposal, it would be enormously difficult for importers to know any of this information. Importers, who have to act with reasonable care, would have difficulty determining whether they can rely on the representations of producers or exporters. Without a NAFTA-like verification process that put the burden on the producer or exporter, this proposal created a big liability risk for importers.

I know that some people will argue that the current rules do the same thing. There is some truth to that. Ultimately, the importer is currently responsible for the correct country of origin declaration and marking. But, it strikes me that an importer today has a better chance of explaining the traditional substantial transformation test to a supplier and getting reasonably reliable information to support the origin determination.



It will be interesting to see whether this has a zombie-like afterlife. Rumor has it that the U.S. was hoping to push these rules out here and then internationally as a means of creating a global standard. There is a lot to be said for a global standard. But, I think Customs and Border Protection is missing the target. It would be much more valuable to U.S. exporters to have a single, uniform rule on country of origin labeling so that exporters would not need to design origin labels to meet local requirements. Personally, I think a universal label showing an icon for manufacturing (maybe a gear or factory) along with the ISO code and flag for the country of origin might do the trick.

Tuesday, August 30, 2011

Snakes Not on a Plane

As you know, I am a sucker for a story about people with reptiles in their clothing. Here is the latest.

TSA in Miami stops man for a pants-load of snakes and tortoises - South Florida Sun-Sentinel.com

Update: here is a story about smuggled jaguar pelts.

http://www.sun-sentinel.com/news/local/breakingnews/fl-jaguar-skins-arrest-20110830,0,685309.story

Keep up the good work South Florida Sun-Sentinel.

Friday, August 26, 2011

Gibson Guitars Raided Under Lacey Act (Again)

Someone at Fish & Wildlife must hate rock 'n' roll. Gibson Guitars was raided again this week for alleged violations of the Lacey Act. This time, the violation appears to relate to the interpretation of Indian law relating to whether the wood was harvested correctly.

My prior post on Gibson is here.

Thursday, August 25, 2011

Importer Identity Theft


The Court of International Trade decision in Kairali Decan, Inc. v. United States has been kicking around for a couple weeks and I have struggled with whether comment on it. I have recently decided that purely procedural decisions are of interest to only a small segment of readers of this blog. Also, procedural cases generally do not turn on broadly applicable principles of law (which make for good posts).

But, this case has an interesting fact pattern and I have seen it covered elsewhere (I’m looking at you Adonica Wada). Also, someone recently thanked me for reading these cases so he doesn’t have to. So here are my two cents.

The underlying facts are that someone imported food from Sri Lanka. I say “someone,” because it seems pretty well established that the importer was not the plaintiff in this case. Rather, someone who is regularly in the business of importing food from Sri Lanka stole the identity of the plaintiff and made entry using its information. As a result, when the FDA decided that it wanted the merchandise redelivered to Customs and Border Protection, CBP inquired with the plaintiff and eventually sent the Notice to Redelivery to Kairali, who promptly said “It’s not our stuff.” When Customs did not receive the merchandise, it eventually made a claim for liquidated damages from Kairali, the importer shown on the entry papers.

At some point, the plaintiff paid the liquidated damages to avoid administrative sanctions and filed a suit in the Court of Federal Claims to secure a refund. What the plaintiff did not do was file a protest with Customs and Border Protection challenging the redelivery notice (or the liquidated damages for that matter).

The Court of Federal Claims looked at the case and said, “This seems to be a case for the Court of International Trade” and promptly sent the case to New York. Upon arrival at the CIT, the plaintiff claimed that the Court had so-called residual jurisdiction to review the matter (see 28 U.S.C. § 1581(i)) because it relates to the administration of the customs laws. As is typical in most customs cases invoking (i) jurisdiction, the Department of Justice argued that plaintiff should have filed a protest, which would either have resulted in a favorable decision by the agency or would have given the CIT a denied protest to review to review under 28 U.S.C. § 1581(a). According to this argument, if a plaintiff could have protested and a protest would not have been manifestly inadequate as a means of getting the desired relied, a protest is a prerequisite to getting into the CIT. This, by the way, is a well-established rule of law that is not really subject to much debate anymore (unless you are the Supreme Court and Harbor Maintenance Tax is involved).

This left Kairali with having to argue that it could not file a protest and that a protest would have been manifestly inadequate. On the first point, Kairali argued that it could not file a protest because it was not the importer. Rather, it was the victim of identity theft and should not be required to act like the importer to challenge the redelivery demand. Unfortunately, the law involved says that a protest may be filed by the importer “shown on the entry papers.” Kairali was the importer shown on the entry papers. The Court also found that Kairali had notice of the demand within the 180 day period to file a protest. Thus, the CIT found it could have filed a protest.

Which leads to the question of whether a protest would have been manifestly inadequate. This is usually the case where the outcome of the protest is a foregone conclusion and a mere formality. That was not the case here. According to the Court, the plaintiff could have used the protest mechanism to inform Customs and Border Protection that it was not the legitimate importer and did not have possession of the goods. Given that information, CBP may have granted the protest, meaning the process was not a mere formality.
The CIT, therefore, held that because the plaintiff could have filed a protest, it could not seek judicial review on the basis of the Court’s (i) jurisdiction. Consequently, the CIT does not have jurisdiction. Since the Court of Federal Claims has already held that it lacks jurisdiction, the CIT gave the parties some time to report whether the case should be transferred to any other forum.

All of this raises two questions for me and neither of these are advice to Kairali, just thoughts put down on virtual paper while flying from DC to Chicago and being forced to go via St. Louis due to weather. First, since the CIT has now determined that it actually lacks jurisdiction, is there a legitimate argument that it should go back to the Court of Federal Claims? That court only transferred the case based on its understanding that the CIT had jurisdiction. I think this is a reasonable question.

Second, I wonder about the proper construction of the protest statute. The full language is that a protest may be filed by “the importers or consignees shown on the entry papers.” Would someone familiar with English grammar and the next antecedent rule please tell me how we are supposed to know whether the phrase “shown on the entry papers” modifies both “importers” and “consignees” or just “consignees.” Seems like something worth considering. Where are you Grammar Girl, when I need you?

Last thing: Kudos to Judge Carman for breaking out the Robert Frost and proving a citation thereto.

Friday, August 19, 2011

Border Searches and Comic Books

Here is an interesting piece on border searches from the Comic Book Legal Defense Fund. The Fund is focused on border searches of electronic and traditional media where any of various forms of comics, graphic novels, and related literature are involved. That would include anime,  manga, yuri and other genre that might cross the creepy line for some readers. On the other hand, the creepy line is what makes first amendment law important and interesting. Creepy can be a long way from obscene. Plus, many of the arguments raised in this context relate to the protection of children from harm and exploitation, neither of which happens when no live models.

Thursday, August 18, 2011

Surety Not Too Late

The Federal Circuit has reversed a decision of the Court of International Trade involving whether the surety on a customs bond should have filed a protest to challenge Customs' collection efforts. Hartford Fire Insurance Co. v. United States is interesting for a couple reasons. First, the courts don't see a lot of suretyship cases. Second, this one was handled successfully by my partner Rick Van Arnam; so I say it is interesting.

This is one of those cases that is all about whether the Court of International Trade has jurisdiction to review a decision. The underlying issue is whether the surety is liable for the importer's default. Hartford, the surety, filed a suit in the CIT seeking to prove that it was not liable for the debt due to what might have been criminal acts by some employees of the importer. Customs defended that claim by arguing that Hartford should have raised the issue in an administrative protest at Customs rather than in Court. For administrative law students, that is an exhaustion argument. For Customs lawyers, that is the argument that you can't get into the CIT based on its broad grant of residual jurisdiction when you could have gotten into court on the basis of a denied protest.

Hartford, however, argued that it did not know that it might have a defense to the claim until after the  protest period expired. Consequently, no protest was possible and there was no need to exhaust the administrative remedies.

A majority of the Federal Circuit reviewed the facts and agreed with Hartford. The key facts are that during the protest period Hartford had knowledge that there was a criminal indictment relating to the importation of this merchandise. The indictment, however, was of a named individual and the related documents did not implicate the importer or the shipments secured by Hartford. Thus, the question comes down to whether that information was sufficient notice of a claim to require the filing of a protest. Two out of three Federal Circuit judges said it was not. The dissenting judge believes that the information available to Hartford during the protest period was sufficient to find that Hartford should have known of its possible claim.

Obviously, this is a very fact-specific case and the outcome was a close call. All of which means, Rick did a good job. Congratulations.

Goodbye Courtesy Notice

So, I've been busy. It happens.

One of the many things I need to post is that Customs and Border Protection has finalized a rule to eliminate the mailed paper copy of the courtesy notice of liquidation for entries that were filed electronically via the Automated Broker Interface. As it stands, CBP provides an electronic notice of liquidation to the broker via ABI and mails the paper courtesy notice to the importer. Going forward, importers who want to monitor liquidations will have to do so via the Automated Commercial Environment Portal. If you are one of the small percentage of people who file paper entries, you will still get paper courtesy copies.

As a practical matter, this may not make much difference. The official legal notice (which almost no one ever sees) is the posting at the customhouse. Many importers simply assume liquidation happens 314 days after entry. Others get reports from their broker. This state of affairs, together with the estimated $3 million in annual savings, is probably what prompted Customs and Border Protection to reconsider the notice process.

Look for your last paper notice September 30, 2011.


Saturday, August 13, 2011

Here's the Thing

Isaac Industries is an odd little Court of International Trade case that does not really present a discussion of law that is likely to apply generally. It relates to whether a protest was timely filed to challenge Customs and Border Protection's denial of a drawback claim. The issue arose because Customs closed the Miami drawback center and consolidated that operation in Los Angeles. The claim was filed in Miami and denied in Los Angeles but the liquidation notice was posted in Miami where the protest was filed. The question is when responsibility for the claim was transferred from Miami to LA and where the protest should properly have been filed. The Court basically found that the relevant Federal Register notices were clear and that the protest was filed in the wrong port, making it untimely.

What I think is interesting about this case is that it really turns, for all intents and purposes, on the Federal Register Notice. The Court treats the Notice as if it has the full force and effect of law. If the notice was an amendment to a regulation (rather than an informational notice) it might, I honestly don't know off the top of my head. On the other hand, it seems that the protest got to Customs (in the larger sense) in a timely manner. While the importers (and everyone else) are presumed to know the contents of the Federal Register, can "Customs" be presumed know to that it received a protest at another port? If Customs sent a letter to the main corporate address of a large company, would the Court find that the company's counsel or compliance manager should have known about the letter?

Regardless of the law (which is a funny thing for a lawyer to say), this looks to me to be one of those maddening situations in which someone at Customs might have asked why the agency was litigating this issue. If the drawback claim was valid but for the irregularities of the filing and there was some justifiable confusion surrounding the change in responsible offices, couldn't anyone simply say, "Grant the claim. The company should be able to get the drawback to which it is entitled?" I get that equity basically does not compel the U.S. government to do anything. I am not talking about equity (or law), I am talking about trade facilitation, management, and goodwill.

Just a thought.

On the equity front, in United States v. Canex Int'l, the Court of International Trade did use equity to find that the United States is entitled to prejudgment interest in a penalty case. According to the Court, "It would be inequitable and unfair for the government to make an interest-free loan of this sum" from the date of a demand for liquidated damages. In this case, the Court said that "[E]quity compels the court to grant prejudgment interest."

The Return of Mellorine

The Federal Circuit has affirmed the Court of International Trade decision in Arko Foods Int'l regarding the proper tariff classification of mellorine. As you may recall from this post, mellorine is a dessert product similar to ice cream but made with animal or vegetable fat rather than all or some of the butterfat. Customs and Border Protection classified the mellorine in HTSUS item 2105.00.40 as a dairy product. The importer, seeking to avoid the application of import quotas, argued initially for classification as fruits and nuts (0811) or other edible preparations (2106). The CIT rejected those arguments and addressed where in Heading 2105 the product falls. Eventually, the CIT agreed with the importer that because milk is not the chief or essential ingredient, it does not the preponderant ingredient. That made the mellorine classifiable as 2105.00.50. The United States appealed.

The Federal Circuit decision affirmed the CIT. The government's main argument appears to have been that mellorine is a milk product for purposes of Additional Note 1 to Chapter 4 because the industry treats it as such. Following its down comforter jurisprudence from a called Pillowtex, the Federal Circuit held that the question before it was whether the mellorine has the essential character of milk. As a result, the Court recognized the need for a factual analysis based on "the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods." Based on the CIT's analysis, the Federal Circuit held that milk does not provide the essential character to mellorine. Thus, the correct classification is 2105.00.50, I guess. I say I guess because the Court's decision says 9404.90.90, which is the provision for the comforters from Pillowtex. As Homer would say, D'Oh!



Speaking of mellorine, I am now the owner of an ice cream machine and have been working may way through lots of test runs. So far, my favorites have been rum raisin, white chocolate, and roasted banana. All of which come from The Perfect Scoop by David Lebovitz. My advice to would be Ben's and Gerry's: more fat is better than less fat and egg yolks are awesome. This weekend, I plan to try a batch of green tea. This is a dangerous selection because I am the only person in my house who likes green tea ice cream. Branching out from Lebovitz's book, I have found a recipe for margarita sorbet. Sadly lacking from Lebovitz book is a recipe for mellorine. So, if anyone has a recipe they like, feel free to send it on. I will make a batch in the name of legal research.

Friday, August 12, 2011

The Don't Show Me State

Giving away trinkets with a pro-U.S. business message can be hard. We have already discussed whether pens the U.S. Customs and Border Protection gave out at some event were properly marked. Now, with a hat tip to Wayla-guy comes word that the state of Missouri has run into issues with trinkets promoting jobs in Missouri. Based on this article, it seems the state ordered a bunch of novelty carabiners from a Missouri based business. The carabiners were emblazoned with a logo and web address for a state jobs service. Unfortunately, when the carabiners arrived, someone noticed that they were labeled as having been made in China. [Insert annoying sing-song "Awkward" here.]

Being plucky Midwesterners, the state officials in charge asked for volunteers to help remove the labels. Also consistent with the Midwestern setting, volunteers were enticed to give their time with the promise of doughnuts. Eventually, the labels were removed.

Readers of this blog are likely to know where I am headed. That is 19 U.S.C. § 1304(l), which reads:

(l) Penalties Any person who, with intent to conceal the information given thereby or contained therein, defaces, destroys, removes, alters, covers, obscures, or obliterates any mark required under the provisions of this chapter shall—
(1) upon conviction for the first violation of this subsection, be fined not more than $100,000, or imprisoned for not more than 1 year, or both; and  
(2) upon conviction for the second or any subsequent violation of this subsection, be fined not more than $250,000, or imprisoned for not more than 1 year, or both.
Normally, I would not point this out. It is not my intent to get anyone into trouble. On the other hand, the story is already in the local paper. Also, I think this shows some of the craziness that surrounds the marking laws. On the one hand, the recipient of this item is not purchaser and likely does not care in the least where it comes from. If the recipient does care, he or she would not have been able to influence the purchase decision, so the marking is irrelevant. But, it is clearly not irrelevant, because the Missouri officials were so worried about being embarrassed that they removed the marking.

In the real world, where people vote with their wallets and make personal purchasing decisions, cost weighs far more on the decision than does origin. And, very few reasonable Americans would expect an inexpensive, low-tech trinket to be made in America. So, even absent the marking penalty noted above, it seems like the folks in Missouri over reacted to the "political optics" of the situation without thinking about the real world. All of which makes me wonder whether Missouri isn't much closer to Washington, D.C. than I had thought.

Thursday, August 11, 2011

Show Some Love

I know you are all holding your breath waiting for my review of the Federal Circuit's decision in Ark Foods. I promise to get to it soon. In the meantime, if I may make a shameless plug for myself, please support my blog in the ABA's quest for the Blawg 100. Here are the details:


Dear Blawgger:
We're working on our list of the 100 best legal blogs, and we'd like your advice on which blawgs you think we should include and/or what practice areas you'd like to see represented in the Blawg 100.
Use the Blawg 100 Amici form to tell us about a blawg——not your own——that you read regularly that you think other lawyers should know about. If there is more than one blawg you want to support, please send us additional amici through the form. We may include some of the best comments in our Blawg 100 coverage. But keep your remarks pithy——you have a 500-character limit.
Editors make the final decisions about what's included in the Blawg 100; this isn't a scenario in which the blawgs that receive the most amici are the ones that make the list. A blawg with no amici support at all can still make our list. See the amici form page for additional information about amici and Blawg 100 criteria. 
Friend-of-the-blawg briefs are due no later than Friday, Sept. 9.
Thanks