Thursday, June 30, 2011

Exclusions Seized are not Excluded from Court

I rarely mention specific judges of the Court of International Trade. I generally never want my blog posts to be personal and I certainly do not want to risk having a judge think I am taking pot shots. But, I presently feel compelled to call out Judge Timothy Stanceu. Happily, it is because he is my hero of the moment due to his decision in CBB Group, Inc. v. United States. Anyone interested in how Customs and Border Protection treats merchandise detained, excluded, and ultimately seized for alleged intellectual property violations should read this case.

The important point of background is that Customs can’t hang on to imported merchandise indefinitely without going through several procedural steps. When merchandise first arrives, Customs has five days in which to release it. After that, it is considered to be “detained.” Detention is sort of importer limbo. But, after 30 days of detention, the goods are considered to have been “excluded.” Keep in mind that “exclusion” is not a seizure. All it means is that Customs has found the merchandise to be inadmissible or has failed to admit it within 30 days. At the point of exclusion, an importer has the right to file a protest challenging the exclusion. Customs can grant or deny the protest. But, if it fails to act within 30 days (for a total of 60 days), the protest is legally considered to be denied. This is the important point: a denied protest can be challenged by filing a lawsuit in the Court of International Trade.

But, there is another possible step. Customs can seize the merchandise. When that happens, a party seeking the release of the merchandise can either go through an administrative process with Customs and Border Protection, or it can file a case in a federal district court. The CIT has no role to play in a seizure case.

In CBB Group, the importer filed a protest challenging the exclusion. On the day after the 30-day protest period elapsed, the importer filed a summons in the Court of International Trade. About 20 days later, Customs issued a notice of seizure claiming that the seizure had been effectuated on the date of the summons. On the basis of the seizure, Customs moved to dismiss the case claiming the CIT lacked jurisdiction, was not able to grant relief, and should not decide questions of copyright law. Judge Stanceu quickly dismissed each argument.

The basic point is that Congress gave importers the right to protest exclusions and the CIT the power to review denied protests. Nothing in the law limits the nature of the exclusion that can come before the CIT provided the decision on admissibility is up to Customs. While the Court does not have jurisdiction over seizures, its jurisdiction attached in this case when the importer filed a timely summons prior to the seizure. While there may be a question as to the date of the actual seizure, the Court relied on the Notice date.

The government’s argument boils down to the notion that after a court case is commenced, it can wrest an exclusion case away from the Court of International Trade by seizing the goods. The Court found nothing in the law or legislative history to support that notion. In fact, the Court found legislative history stating that Customs’ eventual decision on admissibility after judicial review has begun does not relieve the Court of its duty to grant relied. The House Report does say that Customs must notify the Court if it makes a decision on admissibility or seizes the merchandise. But, the report does not state that Customs can put that decision into effect without the Court’s permission.

All of which leads Judge Stanceu to find that the post hoc seizure did not divest the Court of jurisdiction. While he was at it, he pointed out that judges of the CIT are perfectly capable of making intellectual property rulings and have done so in prior cases. Now, it looks like he might get his chance to make such a ruling.

Wednesday, June 29, 2011

Who Left USTR In Charge?

Usually, when a federal agency takes some action, it provides a statement of legal authority. While this may look like boilerplate, it can be important. For example, the statute providing legal authority might include procedural steps that must be followed before the action can be taken. Or, the legal authority might dictate whether a court has jurisdiction to review the action. Almond Bros. Lumber v. United States, is an example of the latter.

This case from the Court of Appeals for the Federal Circuit involves the long-running dispute between the United States and Canada over softwood lumber imports to the U.S. Softwood lumber is possibly the Jarndyce v. Jarndyce of the trade world. [Note: I never actually read Bleak House, I just like the metaphor.] All you need to understand this case is the gist, and that is all I will give you.

Canada sells lots of softwood lumber to the U.S. Back in 1986, a coalition of U.S. lumber producers filed a petition seeking the imposition of countervailing duties on the imports. Before the countervailing duty investigation was complete, the U.S. and Canada entered into a Memorandum of Understanding to manage the softwood lumber trade. Eventually, Canada terminated that agreement, which prompted the Commerce department to self-initate a new investigation. Following a CVD order, the U.S. engaged in marathon litigation in U.S. courts, the U.S.-Canada Binational Panel, an Extraordinary Challenge Committee (“ECC”), and possibly the Galactic Senate on Coruscant. As all that played out, but before an order was finalized, the U.S. and Canada entered into another Softwood Lumber Agreement (“SLA”) in 1996.

That SLA expired in 2001, which prompted the U.S. industry to file a new petition; this time, seeking countervailing and antidumping duties. For the first time, these petitions actually resulted in orders. As you can guess, that spawned more litigation including a Binational Panel, ECC, WTO panel, and a hearing before the Guardians of the Universe on Oa (in 3D!). All of which was superseded by a 2006 SLA. That agreement required Canada to distribute $500 million to members of the U.S. industry represented by the Coalition.

[Side note: To keep DC Comics from getting mad at me for using their image, I note first that I spend too much money on their products. Second, I paid to see the movie. Third, readers to my blog are encouraged to buy these Guardians of the Universe action figures from DC Direct.]

As you might guess, the plaintiffs in this case are not members of the Coalition. They went to the Court of International Trade arguing that they are entitled to a portion of the funds from Canada because the purpose of the SLA was to protect the U.S. industry, not just the Coalition members, affected by Canada’s wrongdoing.

That’s a reasonable enough argument. The question is whether the CIT has the subject matter jurisdiction to decide the case. The answer to that turns on exactly what law authorized the USTR to enter into all these agreements. Keep in mind that the USTR acts on behalf of the President in trade negotiations. If the USTR was acting under some non-specific or constitutional authority, the CIT might not be the place to bring the case (and there may be no court with jurisdiction). If, on the other hand, the USTR was acting pursuant to U.S. law relating “tariffs, duties, fees, or other taxes on the importation of merchandise for reasons other than the raising of revenue,” then the Court of International Trade is the right place pursuant to 28 U.S.C. 1581(i).

So, what exactly was the USTR doing? According to the Federal Circuit, the USTR was making agreements pursuant to Section 301 of the Trade Act of 1974, which is 19 U.S.C. 2411. This is a provision that allows the President to take action when a foreign country imposes an unreasonable or discriminatory policy that burdens or restricts U.S. commerce. One action permitted under Section 301 is the collection of duties, which would not be for the raising of revenue.

The government essentially argued that the USTR never said it was acting under sec. 2411.  Rather, it stated in a press release that it was acting under its general authority to negotiate, including under the Trade Act of 1974. Further, the government argued that had the USTR been acting pursuant to sec. 2411, it would have followed the required procedure. Since it did not, it must have been acting under other authority.

The Federal Circuit did not buy this argument. Rather, it looked back to the beginning of the dispute. The Court noted that the 1996 SLA was made pursuant to sec. 2411 and that USTR followed all the procedural requirement of that statute. Nothing in the record indicated that the 2006 agreement, which was intended to address the same issues, was based on any different legal authority. Furthermore, all of the parties to the dispute had plenty of notice from 1986 onward that the USTR might enter into agreements of this nature. Further, the USTR release invoked the Trade Act of 1974 as a basis for its action. The Federal Circuit took this as an indication that sec. 2411 was the relevant authority. Lastly, President Reagan referenced Section 301 of the Trade Act of 1974 in a letter published in the Federal Register relating to the 1986 agreement. All together, the Federal Circuit found this a sufficient basis to conclude that SLA is a tariff measure not related to the raising of revenue and, therefore, the Court of International Trade should have taken jurisdiction.

Tuesday, June 28, 2011

Things that are on my Mind

Did you know that Customs had previously ruled that imported business cards required country of origin marking on every card, not just the box? If not, scroll down to page 16 in this Bulletin. Happily, the notice is a revocation of the rulings. In the revocation, Customs agrees that marking on the box in which the cards reach the purchaser is enough.

Customs has reminded (?) the trade that if you are making a post-entry NAFTA claim that includes a change in tariff classification, the HTSUS change needs to be handled via either a protest or a PEA. The NAFTA change is to be handled via a 520(d) claim. So says CBP here.

I have three decisions on my desk to review and possibly blog. At least two are interesting to me. One involves a jurisdictional dispute over an intellectual property seizure. Another involved a denied drawback claim. The third is a penalty case. You tell me which you want first.

Lastly, and very important, is a note that the Border Patrol (a unit of Customs and Border Protection) has tracked, located, and photographed a bigfoot. I know this because I read Cryptomundo. Apparently, Border Patrol officers doing helicopter patrols spotted tracks, which were subsequently followed to a cave in which a bigfoot was found and photographed. There are a bunch of things wrong with this story (beyond the obvious one). The one about which I am curious is that if the Border Patrol took the pictures, how come they are in the hands of Native American tribal authorities who refuse to part with them? Relevant to this blog, I want to know whether the Border Patrol has jurisdiction inside a reservation. Does anyone know? If the reservation includes the U.S.-Canada border, one would think the Border Patrol and Customs and Border Protection would have some authority. On the other hand, reservations are, as I understand it, sovereign and at least marginally autonomous. I once saw a movie that implied that the Border Patrol had to stay outside the reservation and work with tribal police inside. Seeing that movie is as close as I plan on getting to doing actual legal research on this topic. So, if anyone knows the status of CBP and BP officers in Native American reservations, please drop a comment.

Thursday, June 16, 2011

Revenge of the TSUS: "More Than" Rides Again

The Court of Appeals for the Federal Circuit has decided the appeal in Camelbak Products LLC v. United States. And, in this case, the Camelbak is the winner. You may recall we discussed this case earlier here. In that post, my main gripe was that the Court of International Trade did not perform much of an analysis of whether the combined backpack/hydration system was a composite good for tariff purposes. It turns out that I was basically right, though the Court of Appeals went further than I thought it might.

This is a very interesting opinion. The Federal Circuit first had to deal with the question of whether the Court of International Trade was correct that the backpack/hydration system falls within the scope of the eo nomine provisions for travel, sports, and similar bags in HTSUS heading 4202. If it does, then the goods are classifiable there pursuant to GRI 1. On the other hand, there is also an eo nomine provision for beverage bags.

In deciding whether Customs and Border Protection had properly classified the Camelbak products, the Court noted that an eo nomine provision does not include products that is more limited or more diverse in function provided that difference is significant. In that case, the identity of the article has changed. This comes from a 1996 case involving Casio and is slightly at odds with the maxim that an eo nomine provision covers all forms of the article. But, if you think about it, all it does is recognize that if you add enough features to a backpack, it might eventually become something else, which seems reasonable.

In making the determination of whether something falls within an eo nomine provision, the CAFC found several factors relevant. These factors include:

  1. The design of the subject article
  2. The use or function of the article
  3. How the subject articles are regarded in commerce
  4. Whether the additional component is a substantial part of the whole
Applying these factors, the Court found that the Camelbak products possess features that are substantially in excess of backpacks. Further, the hydration components are of different design from the backpack and provide a different function.On this point, the Court was influenced by testimony from a Camelbak employee that hydration is their primary focus as a business.

Based on this analysis, the Court found that the imported merchandise was not simply backpacks with the added feature of beverage storage. Rather, it is composite goods requiring an analysis under GRI 3(b) to determine whether the essential character is imparted by the backpack or the beverage bag. Because there is a dispute as to whether the bags are insulated (which is an element of the beverage bag classification), the CAFC sent the case back tot he CIT for further action.

There is a strong dissent in this case, which is always interesting. The dissent is not convinced by the marketing literature or by the differential in price from traditional backpacks. The dissent also uses the nice analogy of the hypothetical night safety backpack that incorporates a flashlight. Importantly, the dissent seems to concede that at some point adding features to an eo nomine article will remove it from that description, but the dissenting judge (Bryson) does  not think that line has been crossed here.

Personally, I think this is a good decision. I think it allows people to articulate what we often feel when looking at advanced versions of products. At some point, the advanced product is really something else. In the old days, we said it was legally "more than" the eo nomine description. In the era of the HTSUS, Customs and Border Protection tells us that is not a proper analysis. But, take an MP3 player as an example. They used to be single purpose devices with no external display. Over time, they added a simple LCD character display, often with a clock. Then, the display became color and was big enough to play display album art. At that point, the device was still primarily an MP3 player for listening to music. But, it was also a clock and probably could display photos. Next, the units were able to play video. OK, is it still primarily a machine for reproducing music or has the video superceded the music? Did video kill the MP3 player? There are rulings on this for iPods and Customs and Border Protection says, Yes. Adding video changed the classification. OK, that is an iPod (or Zune). What about when the Zune (or iPod) started being able to run applications? Is it still a video player or is it more than a video player? I think that depends on the answer to a lot of questions. But, for our purposes, the analysis is the point, not the answer. And, the Court's analysis in Camelbak, I think, might make the "more than" analysis more useful going forward.

And, yes I give equal time to the Zune because I have one and think it is a great device and better client software. Yes, I am aware of all the buzz about killing the brand in favor of some XBox-centric ecosystem. That doesn't make it a bad device. In fact, if you look at the UI on Windows Phone 7 and the hints of what is coming in Windows 8, it sure looks like Zune is taking over Microsoft rather than going away.

Friday, June 03, 2011

Things I Should Have Said

I have a bad habit of assuming that people who visit this site are completely up to date on what is going on administratively. So, I failed to let people know about something fairly important: Customs issued new guidance to the ports on the proper use of the CF 28 (Request for Information) and CF 29 (Notice of Action) and how those documents relate to the commencement of an investigation. I posted about the issue here.

Due to my confirmed belief that there is no copyright in works created by the federal government, I am posting the notice in its entirety. Note, I have no idea why there are numbers throughout.

PASS TO:        Please pass this information to port directors, assistant port directors, import specialists, entry specialists, brokers, and importers.5
CONTACT:     For questions regarding this memorandum, please contact Ms. Laurie Dempsey,   Chief, Entry, Summary, and Drawback at (202) 863-6509,                                                                    
ENT11 OT:TPP:TFA:ESD MB May 24, 2011
MEMORANDUM FOR:   Directors, Field Operations
FROM: Executive Director, Trade Policy and Programs Office of International Trade 
SUBJECT:   CBP Forms 28 and 29 Language 
The purpose of this memorandum is to remind ports of U.S. Customs and Border Protection’s (CBP) policy concerning the appropriate issuance of CBP Form 28, Request for Information and CBP Form 29, Notice of Action.5 5 
The CBP Form 28 is used by CBP when there is insufficient information in the entry summary package to determine admissibility, appraised value, or classification of imported merchandise.5 Brochures, descriptive literature, blueprints, samples, proof of payment, affidavits, etc. may be requested.5
CBP has advised the field to limit the use of the CBP Form 28 for the purposes stated above and not extend its use as notification that a formal investigation has commenced as a matter of enforcement policy, not a matter of law. The preferred mechanism to inform the importer of the commencement of an investigation is by correspondence on CBP letterhead or the CBP Form 29.
CBP has also advised the field that the CBP Form 28 shall not be used to request proof of a properly executed valid power of attorney.5 CBP shall request proof of a properly executed valid power of attorney during a broker compliance visit or via an individually drafted letter. 
CBP has also advised the field concerning the use of the CBP Form 29.5 Generally, as stated in 19 CFR 152.2, an entry which is entered at a rate or value of merchandise which is too low, or the import quantity exceeds that of the entered quantity, and the estimated aggregate increase in duties exceeds $15, CBP will notify the importer of the specific nature of the difference.5 If the rate advance is a proposed action, the importer is afforded 20 days, from the date of CBP mailing the CBP Form 29, to furnish CBP with specific reasons why the rate advance should not be issued. 
It is CBP’s goal to act uniformly in providing legal notification to the appropriate party when proposing or taking certain actions.5 CBP should avoid using language on these forms such as “failure to provide information could lead to penalties under 19 USC 1592…” or “this office is investigating the classification of…” if in fact an investigation is not already in process.5 Such language defeats the goal of informed compliance and may dissuade importers from filing valid prior disclosures. 
For questions regarding this memorandum, please contact Ms. Laurie Dempsey, Chief, Entry, Summary, and Drawback at (202) 863-6509,
Please pass this information to port directors, assistant port directors, import specialists, entry specialists, brokers, and importers.5
Signed by Therese Randazzo for:Brenda B. Smith cc:5 Director, Trade Operations Division, Office of Field Operations

This is pretty important in that is should help the trade avoid fights over whether a prior disclosure is still appropriate. Apparently, Customs is planning to engage the trade and the ports in some training related to the issue. If that happens, I'll try to remember to pass it on.