Thursday, May 26, 2016

My Point Exactly

For the past couple years, I have been on the record at numerous events and in numerous publications with various ideas for how to make tariff classification litigation more efficient and, therefore, more useful for importers. There are several good ideas floating around about this. Not the least of which is the Court of International Trade's recently announced pilot program for a "small claims" process. Others have done the lion's share of the work on that.

My big idea has been to promote early efforts to resolve the legal questions about how to interpret the Harmonized Tariff Schedule. My thought is that if everyone is reading the tariff the same way, the parties will know what facts matter and whether there is a real dispute. With the fact disputes eliminated or narrowed down, discovery can be focused and the parties can get to the controlling issues quickly. It's even possible that, once the parties know the meaning of the tariff terms, cases will be stipulated or settled.

I got here by analogizing tariff classification disputes to patent infringement cases. In a patent case, the judge interprets the patent claims following what's known as a Markman hearing. You can read all about that here, in the Brooklyn Journal of International Law.

Along comes Chemtall, Inc. v. United States, from the Court of International Trade to help me make my case. Chemtall is a complicated case involving more chemistry than I have seen since high school. The opinion is full of helpful diagrams of chemical structures. The product at issue is acrylamide tertiary butyl sulfonic acid or ATBS, for short. The classification question is whether that product is an amide. Since the structure of the produce is well understood, the only question is the definition of an amide.

According to the Explanatory Notes, an "amide" is a compound with an amide functional group and either hydrogen, alkyl radicals, or aryl radicals.

Plaintiff's position in this case is that "many" sources do not explicitly limit the definition of "amide" to those compounds with these functional groups and, therefore, it is possible to substitute a different structure. But, the Explanatory Notes provide a specific definition, which is going to be pretty persuasive. Further, the only source of support for this theory was the plaintiff's expert. Note that the expert is an expert in chemistry, not in interpreting the law. That is what judges are for.

The Court did not agree to expand the definition and applied the Explanatory Notes. That resulted in a win for Customs and Border Protection.

If the parties knew that definition early in the case, would it have taken three years to resolve the matter? Possibly, I was not involved and do not know what disputes might have been raised and resolved along the way.

Plaintiff had some other arguments about whether the product was derivative and the meaning of the 10-digit statistical suffix. And, I certainly do not pretend to understand the chemistry. The great thing about being a lawyer is that I am confident I could understand it if and when it became necessary. That is not today.

What I find fascinating about this case is that THERE WERE NO FACTS IN DISPUTE. The only issue was how to read the tariff language. Much of the 13-page opinion was a careful explanation of the process of tariff classification, the standard of judicial review, and the nature of the product. The value of the expert testimony was a minimal consideration.

When there are no material facts in dispute, cases get decided on motions for summary judgment. That is how the majority of classification cases are resolved. If that is the case, doesn't it make sense to identify the question of law up front, resolve it, and then decide whether it makes sense to continue to pursue the case? If the case goes forward, the relevant facts should be fairly well known, making discovery more focused and the whole process more efficient.

Something like that is supposed to happen in patent cases through Markman hearings and it makes sense to me to try something like that in the Court of International Trade. People in the trade have started talking about applying Markman in tariff cases, which is a good thing. On the other hand, Markman was a patent case and has not direct relevance here. Consequently, I hereby declare that if and when this process takes hold in customs litigation, it be called a "Friedman hearing."

1 comment:

Anonymous said... looks like Canada is thinking along the same lines: