Trade Updates for Week of May 31, 2017

United States Court of International Trade

 

Decision Remanded in Part Back to Commerce

In Jinko Solar Co., Ltd. et al. v. United States, Slip Op. 17-62, Court No. 15-80 (public version published May 26, 2017), the court considered motions for judgment on the agency record arising from the final affirmative determination of the U.S. Department of Commerce (“Commerce”) in its antidumping investigation of certain solar panels from the People’s Republic of China (“PRC” or “China”). See Certain Crystalline Silicon Photovoltaic Products from the [PRC], 79 Fed. Reg. 76,970 (Dep’t Commerce Dec. 23, 2014) (final determination of sales at less than fair value) (“Final Results”). Plaintiffs Jinko Solar Co., Ltd., Jinko Solar Import and Export Co., Ltd., and JinkoSolar (U.S.) Inc. (collectively “Jinko Solar”), mandatory respondents in this investigation, challenge Commerce’s determination to treat Jinko Solar and certain additional companies as a single entity.  The court sustained all decisions except the following:  1) the decision to collapse the ReneSola entities with the Jinko entities and treat these companies as a single entity, and 2) the decision to value respondent Changzhou Trina Solar Energy Co., Ltd.’s solar modules by-products using South African import data within subheading 8548.10, HTS.  These items were remanded back to Commerce.

In regards to the decision to collapse the ReneSola and Jinko entities, there was no substantial evidence to support this decision where there is no overlap in ownership by any individual member or company, no overlap of individuals in management or corporate governance roles, and that the transactions between the companies are not significant enough to create a significant potential for manipulation.  Further, Commerce has not sufficiently explained how the raw material purchases, accounts receivable, and other transactions between the ReneSola entities and the Jinko entities support Commerce’s conclusion that the companies had intertwined operations during the period of investigation.

As for the decision to value Trina Solar Energy’s modules by-products using data in 8548, the court held that Commerce did not address SolarWorld’s arguments. SolarWorld argues that heading 8548, HTS, covering batteries that are produced using different raw materials and a different manufacturing process than solar cells, “has nothing at all to do with photovoltaic products, including scrap solar cells,” whereas subheading 2804.69, HTS, covers products that are specific to scrap solar cells, because it captures polysilicon of less than 99.99 percent purity, which “accounts for the ‘scrap’ nature of the scrap solar cells.” Slip Op. at pg. 31.   Because the value of scrapped solar cells, whose “predominant raw material” is polysilicon of greater than 99.99 percent purity, will differ from the value of scrapped lead-acid or nickel-cadmium batteries, SolarWorld argues that Commerce unreasonably valued scrap solar cells using data for spent batteries, rather than data for scrapped raw polysilicon.

For these reasons, Commerce’s determination was remanded in part.

 

Extended Liquidations were Held to Be Lawful

The issue in International Fidelity Insurance, Co. v. United States, Court No. 12-64, Slip Op. 17-64 (May 30, 2017) was whether Customs unlawfully extended liquidation of entries. Plaintiff served as the surety for the duties owed on entries made by U.S. importer Family Warehouse of poketin bleached woven fabric and poplin unbleached woven fabric. Between July 30, 2007, and January 7, 2008, Family Warehouse imported thirty-three entries of various fabrics through the Port of Laredo, Texas, claiming, on its entry summaries, that the goods qualified for duty-free treatment under NAFTA as “originating goods” from Mexico. Customs may extend the time in which it must liquidate for an additional one-year period if information is needed for the “proper appraisement or classification” of the merchandise. 19 U.S.C. § 1504(b)(1). For extensions to be lawful, Customs must give appropriate notice to both the importer of record and its surety, as well as articulate a statutory reason for the extension.

The court held that the government did not abuse its discretion and provided reasonable bases for the extensions of liquidation.  Namely the court found that Customs’ decision to extend the liquidation period was reasonable so that it could continue its investigation, verify the claims, initiate new verifications where necessary, and await information regarding the importer’s NAFTA claims was lawful. Moreover, the NAFTA regulations do not provide deadlines within which Customs is required to act during verifications.  During the period of the several extensions, Customs provided the requisite notices to the importer and suppliers of the need for more information and for the extensions of liquidation.

 

United States Court of Appeals for the Federal Circuit

 

CIT Decisions Upheld in Countervailing Duty Investigations of Oil Country Tubular Goods from Turkey

The Court of International Trade ruled correctly in applying “adverse facts available” (AFA) to a Turkish producer of oil country tubular goods in a countervailing duty review of Oil Country Tubular Goods from Turkey, and also properly set aside a Commerce Determination that the Turkish market for a given input material was distorted by government involvement, according to a recent determination of the United States Court of Appeals for the Federal Circuit.

In Maverick Tube Corporation v. United States, No 2016-1949 et al (May 30, 2017), the Commerce Department applied an AFA rate to a Turkish producer, Borusan, after that company failed to respond to Commerce’s request to supply purchase information for hot-rolled steel (HTS) used at the company’s facilities. Borusan provided data for only one of its three plants, arguing that this was the only plant which produced Oil Country Tubular Goods, that the task of providing data for this one plant was very difficult, and that Commerce should reconsider the scope of its information request. The CIT upheld the decision to apply an AFA rate to Borusan, and the CAFC affirmed, finding that determination to be supported by substantial evidence.

The CAFC also upheld the CIT’s decision to overturn a Commerce finding that the Turkish market for HRS was distorted, because a government-affiliated plant produced a “substantial” portion of HRS. The court concluded that there was no evidence which would support a finding that the government-affiliated plant produced a majority of Turkish HRS, and that Commerce’s decision not to apply an AFA rate to the Government of Turkey was supported by substantial evidence. It turned away the cross-appeal by domestic producer Maverick Tube Corporation, which argued that the Government of Turkey was being rewarded for having failed to provide Commerce with all information the agency requested.

 

Nails Producer Had Sufficient Notice of Antidumping Review by Virtue of Federal Register Publication

A producer of steel nails from China had adequate notice of a pending antidumping review by virtue of publication in the Federal Register of a Notice of Initiation of the review, even though counsel for the domestic petitioners failed to serve it with notice of its request for review, as required by regulations.

In Suntec Industries Co., Ltd. v. United States, No. 2016-2093, a domestic producer of nails, seeking a Commerce administrative review, failed to serve notice of the request on Suntec. Notice of initiation of the review was published in the Federal Register some weeks later. Suntec, because of an interruption in its relationship with counsel, did not timely appear as a party to the investigation. The company sued to set aside the antidumping determination as applied to it, arguing that there had been a lack of observance of procedures required by law, in violation of the Administrative Procedure Act.

The Federal Circuit first held that the Court of International Trade could hear Suntec’s case under its 28 USC Section 1581(i) “residual” jurisdiction, and that Suntec’s right to review was not limited to 28 USC Section 1581(c) review by participants in an antidumping review. For purposes of analyzing the government’s motion to dismiss, the Court held, it assumed well-pleaded allegations of the complaint to be true. These allegations asserted that Suntec could not have been a participant in the review.

But turning to the merits, the Court held that, while failure to serve notice of the request for review could have resulted in agency action without observance of procedure required by law, the publication in the Federal Register of the Notice of Initiation of Review constituted sufficient notice to Suntec of its opportunity to participate in the review. As a result, the domestic producer’s failure to make service was harmless error.  

 

United States Supreme Court

 

Foreign Sale Exhausts Patent Rights, as Does Domestic Sale

In a decision of major importance to the importing community, the United States Supreme Court has ruled, by a 7-1 margin, that the foreign sale of a patented article exhausts the patent owner’s rights in the article, meaning that the patent cannot be used to block importation of the goods. The Court also rule unanimously, that the sale of a good domestically exhausts patent rights, even if the patent owner tries to restrict the purchaser’s rights.

 In Impression Products Inc. v. Lexmark International Inc., No. 15-1189 (May 30, 2017), the Supreme Court ruled that any sale of a patented article, anywhere in the world, exhausts the patent owner’s rights in the article and precludes the patent owner from using the patent to further restrain trade in the goods sold.

The Supreme Court’s decision effectively overrules the controversial decision in Jazz Photo Corp. v. International Trade Commission, 264 F.3d 1094 (Fed. Cir. 2001), in which the Federal Circuit held that sale of a patented article exhausts the patentee’s rights only if the sale occurs in the United States.

In the Lexmark case, the patent owner sold printer cartridges in a “Return Program”. The purchaser paid a lower price for “Return Program” Cartridges, on the condition that the cartridges, once used, be returned to Lexmark (and not disposed of in a way such that a “refiller” could get ahold of it). When refillers started marketing cartridges recycled with “Return Program” cartridges sold in the United States and abroad, Lexmark sued the refillers for patent infringement. The Court of Appeals for the Federal Circuit upheld judgments in favor of Lexmark.

The Supreme Court reversed the Federal Circuit, both as to exhaustion regarding domestic and foreign-sold cartridges.

With respect to cartridges sold domestically, Lexmark had argued that it had implicitly reserved rights in the product, by requiring the purchasers to return the cartridges to Lexmark after use, rather than disposing of them otherwise.  The Supreme Court disagreed, holding that because Lexmark had sold the cartridges, rather than licensing rights to produce them, it had exhausted all possibilities for restricting their further sale or use. “The right to use, sell or import an item exists independently of the Patent Act. What a patent adds – and grants exclusively to the patentee – is a limited right to prevent others from engaging in those practices. Exhaustion extinguished that exclusionary power.”  The Court grounded its holding with respect to domestic sales on the old common law doctrine that restrictions on alienation are to be avoided – in other words, when you’ve sold a product, you’ve sold the entire bundle or rights associated with the product. You have nothing left.

With respect to goods sold abroad, the Court used the same rule against “restraints on alienation” to hold that the patentee’s sale of a patented article, anywhere in the world, exhausts its rights to control further sale, disposition or use of the good.  In this regard, the Court looked to its 2015 decision in Kirtsaeng v. John Wiley & Son, 568 U.S. 519, which held that copyright exhaustion was global, not territorial.  The court found that there should be no difference in the exhaustion rules for copyrights and patents.

The mere fact that patent protections only exist within the United States was not a limitation on the exhaustion doctrine, the Supreme Court held:

 The territorial limit on patent rights is, however, no basis for distinguishing copyright protections; those protections “do not have any extraterritorial operation” either. Nor does the territorial limit support the premise of Lexmark’s argument. Exhaustion is a separate limit on the patent grant, and does not depend on the patentee receiving some undefined premium for selling the right to access the American market. A purchaser buys an item, not patent rights. And exhaustion is triggered by the patentee’s decision to give that item up and receive whatever fee it decides is appropriate “for the article the invention which it embodies”. The patentee may not be able to command the same amount for its product abroad as it does in the United States. But the Patent Act does not guarantee a particular price, much less the price from selling to American consumers. Instead, the right to exclude [others from practicing a patent] just ensures that the patentee receives one reward – of whatever amount the patentee deems to be “satisfactory compensation” – for every item that passes outside the scope of the patent monopoly.

 

[Citations omitted].   In conclusion, the Supreme Court held that “[E]xhaustion occurs because, in a sale, the patentee elects to give up title to an item in exchange for payment. Allowing patent rights to stick remora-like to that item as it flows through the market would violate the principles against restraints on alienation”.