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.