Trade Updates for Week of July 25, 2018

United States Court of International Trade

 

Cross Motions for Summary Judgment Granted and Denied in Part

In Swimways Corporation v. United States, Slip Op. 18-91, Court No. 13-216 (July 23, 2018), plaintiff Swimways Corporation (“Swimways”) commenced this action to contest the denial of its administrative protests by U.S. Customs and Border Protection (“Customs”). Swimways claims that Customs erred in its determination of the tariff classification of merchandise it imported consisting of various models of “Spring Floats” and “Baby Spring Floats” designed for the flotation of users (adults, children, and infants) in swimming pools, lakes, and similar bodies of water. There are nine Spring Float models for adults and children and three Baby Spring Float models.  Customs classified all of the floats at issue in subheading 6307.90.98 (“Other made up articles, including dress patterns: Other: Other”) of the Harmonized Tariff Schedule of the United States (“HTSUS”), subject to duty at 7% ad valorem, however, Swimaways claims that the nine Spring Floats are classified under 3926.90.75, HTSUS (“Other articles of plastics and articles of other materials of headings 3901 to 3914: Other: Pneumatic mattresses and other inflatable articles, not elsewhere specified or included”), subject to duty at 4.2% ad valorem, while the three Baby Spring Float modes are classified under HTS Subheading 9506.29.00, HTSUS (“Articles and equipment for general physical exercise, gymnastics, athletics, other sports (including table-tennis) or outdoor games, not specified or included elsewhere in this chapter . . . : Water skis, surf boards, sailboards and other water-sport equipment . . . : Other”), free of duty.  In the alternative, Swimways claims that the Baby Spring Floats should be classified in the same provision as the Spring Floats, subheading 3926.90.75, HTSUS.

Pursuant to GRI 3(b), the Court determined that the PVC bladder component of the Spring Float model imparts the essential character because it is a more complex component, and is essential to the functioning of the finished article. Moreover, it imparts a defining characteristic to the commercial identity of the product. Thus, the Spring Float model is classified under HTS Subheading 3926.90.75.

Likewise, pursuant to GRI 3(b), the Baby Spring Float is also classified under Heading 3926 because both the inner and outer PVC tube achieve the essential function of flotation and moreover, the outer tube enhances the security and stability of the float by not allowing the float to tumble over.  HTS Subheading 3926.90.75 applies pursuant to GRI 6 because no other subheading specifically describes the Baby Spring Float.

The related items which function as toys are classified under HTS Subheading 9503.00.00. 

 

United States District Court

Customs Broker, Forwarder Liable for Importing Counterfeit Goods

A customs broker and two non-vessel owning common carriers (NVOCCs)/ freight forwarders were recently found liable for Lanham Act damages based on their involvement in importing two shipments of counterfeit “Nike” brand shoes, in a ruling recently issued by the United States District Court for the District of New Jersey.

In Nike Inc. v. Eastern Ports Customs Brokers, Inc. No.  2:11-CV-4390 (D.N.J.), Nike sued two NVOCCs and a Customs broker, who had handled certain imports for a company which had provided a false Customs Power of Attorney from the French Company Saint-Gobain, which was supposedly importing “ceramic tile”. The first eight of ten shipments cleared Customs normally, but the ninth and tenth, which turned out to contain counterfeit Nike footwear, were seized by Customs. Nike sued the forwarders and the broker on various claims of counterfeiting and violating import laws.

On motions for summary judgment,  the Court found in favor of Nike and against two forwarders. The Court found that the forwarders had been engaged in transporting the counterfeit goods, and thus in the “use in commerce” of the goods. It held that the forwarders’ lack of knowledge that the goods they were transporting were counterfeit did not go to the question of liability but only to the question of damages. Rejecting claims that the forwarders had never physically possessed the merchandise, the Court ruled that “arranging for transport is enough” to attach liability.

The Customs broker, Eastern Ports Shipping, defaulted in the case, by discharging its counsel and not appointing a new one. Nonetheless, the Court granted a default judgment in favor of Nike and against the broker. Whether a Customs broker is involved in “transporting” merchandise is questionable, but the Court ruled that Eastern Ports, having defaulted, was deemed to have admitted the allegations against it. This was sufficient to impose liability.

With regard to the question of damages, Nike sought statutory damages of $2,000,000 for each of 8 trademarks alleged to have been counterfeited, for a total of $16,000,000. While the Court found liability, it declined to award the maximum statutory damages, instead penalizing Eastern Ports in the amount of $30,000 for each of the marks in question, or $240,000 in total.

The Court rejected Nike’s claims for any award in respect of the eight shipments which were released without incident, finding that Nike’s claims that the shipments had potentially contained counterfeit goods was speculative.

 

United States Court of Federal Claims

 

Government Procurement: Claims Court Hears Bid Case While Origin Case Pending in CIT

The Court of Federal Claims recently held that it could hear a bid protest case brought by a supplier of pharmaceuticals regarding whether certain drugs were eligible for Federal agency procurement under the Trade Agreements Act (TAA) – even while a similar challenge to a Customs origin determination moves forward in the US Court of International Trade.

In Acetris Health LLC v. United States, No. 18-433C (May 8th, 2018; released July 16th, 2018), the CFC held that it had jurisdiction to hear a government contractor’s appeal regarding a pre-award bid protest that turned on the question of whether articles provided to the government constituted a “US made end product” for purposes of the TAA, or a “domestic end product” for purposes of the Buy American Act.

Acetris Health is a New Jersey-based company engaged in the sale of pharmaceuticals to the Federal Government. The product in question was a hepatitis drug produced in New Jersey by a company called Aurolife, which combined the Indian-origin active pharmaceutical ingredient (API) with a number of other ingredients and tableted them into a patient-usable form. The Department of Veterans Affairs questioned whether the tablets were “U.S. made end products” for purposes of TAA procurement, and required Acetris to secure a TAA origin ruling from Customs. Acetris applied for such a ruling and Customs held that the operations performed in the United States did not “substantially transform” the non-TAA active pharmaceutical ingredient. Thus, it held, the product was not a “U.S. made end product” eligible for federal procurement under the TAA.

Acetris filed a suit in the Court of International Trade, currently pending, to challenge the Customs origin determination.

When the VA threatened to terminate Acetris’ contract and seek another source, the company filed suit in the CFC. The crux of its argument was that, under the contract in question, Acetris could have provided a “domestic end product” as that is known under the Buy American Act. Acetris sought to enjoin the termination of its contract, or the award of a new contract until this matter could be resolved. The government tried to have the case dismissed, arguing that it was duplicative of the lawsuit filed in the CIT.

The Claims Court declined to dismiss, holding that the bid protest litigation raised significant questions not before the CIT. The Court held that a purpose of the lawsuit was to do more than just revisit the Customs ruling, and that the acquiring agency, the VA, did have some power, independent from Customs’ rule to make a determination regarding whether goods were eligible for procurement under the contract.

This creates a somewhat interesting possibility that a federal contracting agency might be able to disregard or second guess a CBP ruling concerning whether products are eligible for procurement under a particular contract.