Tuesday, March 19, 2019

Air & Liquid Systems Corp. v. DeVries, Docket 17-1104

Tort Law
Maritime Tort Case
Maritime Law
Navy Veterans
Common-Law Court
Product Manufacturer
Duty to Warn
Liability for Harms Caused by Later-Added Third-Party Parts

Summary: In the maritime tort context, a product manufacturer has a duty to warn when its product requires incorporation of a part, the manu­facturer knows or has reason to know that the integrated product is likely to be dangerous for its intended uses, and the manufacturer has no reason to believe that the product’s users will realize that danger.

In maritime tort cases, we act as a common-law court, subject to any controlling statutes enacted by Congress. See Exxon Shipping Co. v. Baker, 554 U. S. 471, 507–508 (2008).

Three approaches have emerged on how to apply that “duty to warn” principle when a manufacturer’s product requires later incorporation of a dangerous part in order for the integrated product to function as intended. The first—the foreseeability rule—provides that a manu­facturer may be liable when it was foreseeable that its product would be used with another product or part, even if the manufacturer’s product did not require use or incorporation of that other product or part. The second—the bare-metal defense—provides that if a manu­facturer did not itself make, sell, or distribute the part or incorporate the part into the product, the manufacturer is not liable for harm caused by the integrated product—even if the product required incor­poration of the part and the manufacturer knew that the integrated product was likely to be dangerous for its intended uses. A third ap­proach, falling between those two, imposes on the manufacturer a duty to warn when its product requires incorporation of a part and the manufacturer knows or has reason to know that the integrated prod­uct is likely to be dangerous for its intended uses.

The third approach is most appropriate for this maritime context.

Requiring the product manufacturer to warn when its product requires incorpora­tion of a part that makes the integrated product dangerous for its in­tended uses is especially appropriate in the context of maritime law, which has always recognized a “special solicitude for the welfare” of sailors. American Export Lines, Inc. v. Alvez, 446 U. S. 274, 285.

The maritime tort rule adopted here encompasses all of the fol­lowing circumstances, so long as the manufacturer knows or has rea­son to know that the integrated product is likely to be dangerous for its intended uses, and the manufacturer has no reason to believe that the product’s users will realize that danger: (i) a manufacturer di­rects that the part be incorporated; (ii) a manufacturer itself makes the product with a part that the manufacturer knows will require re­placement with a similar part; or (iii) a product would be useless without the part.

(U.S. Supreme Court, March 19, 2019, Air & Liquid Systems Corp. v. DeVries, Docket 17-1104, J. Kavanaugh)

Wednesday, March 6, 2019

FTC, Subpoenas & Civil Investigative Demands

Civil Investigative Demands (CIDs)
Scope and Timeframe
Meet-and-Confer Session
FTC’s Rules of Practice
Petitions to Limit Subpoenas and CIDs
Petitions to Quash subpoenas and CIDs
By Burke Kappler, Attorney, FTC Office of General Counsel
March 6, 2019

The FTC’s ability to obtain information through subpoenas and civil investigative demands (CIDs) is critical to the task of investigating potential law violations.

These requests are legally enforceable demands, and recipients of subpoenas or CIDs need to take their obligation to comply seriously. We expect all companies and individuals who receive compulsory process to respond completely and in a timely manner, or to disclose quickly and candidly any obstacles to full compliance. We routinely work with recipients to narrow or defer requests, and generally, we have found that parties cooperate.

FTC staff are always willing to work with parties and their counsel to determine the scope of the agency’s subpoena or CID and a timeframe for compliance. In fact, the FTC’s Rules of Practice require parties to meet and confer with FTC staff to identify any issues, problems, or concerns that might affect a party’s ability to comply. As provided in the FTC’s Rules of Practice, based on what we learn from the meet-and-confer session, FTC staff may agree in writing to limit some of the requests or to extend the deadline for compliance. The Rules contemplate some flexibility for staff to modify certain obligations in the demand and the opportunity to meet and confer is an important part of the process. FTC staff expects all subpoena and CID recipients to use this process if they have concerns about their ability to comply in full and on time.

Not everyone wants to cooperate upon receiving a subpoena or CID. When that happens, the FTC’s Office of General Counsel may get involved in order to obtain judicial enforcement of the Commission’s process.

In just the last three years, the Commission has filed 12 federal court actions against process recipients that failed to comply fully with the agency’s subpoenas and CIDs. In the 11 actions that have been resolved to date (see list below), either the court enforced the subpoena or CID or we settled with the party after they complied with the requests.

In the same vein, the Commission expects recipients to comply with Commission orders adjudicating petitions to limit or quash subpoenas and CIDs. If a recipient fails to comply with such an order, the Commission will now direct the Office of General Counsel to commence enforcement proceedings within 30 days of the established deadline. Subpoena and CID recipients should thus comply promptly with such orders or risk an enforcement proceeding.

Monday, March 4, 2019

U.S. Supreme Court, Fourth Estate Pub. Benefit Corp. v. Wall-Street.com, Docket No. 17-571, J. Ginsburg, unanimous

Copyright Infringement
License Agreement
Application to Register
No Civil Action for Infringement of the Copyright shall be Instituted until . . . Registration of the Copyright Claim has been Made
Expedited Processing of a Claim for an Additional $800 Fee
Statute of Limitations
Foreign Works
Berne Convention for the Protec­tion of Literary and Artistic Works’ bar on Copyright For­malities for such Works

Title 17 U. S. C. §411(a) states that “no civil action for infringement of the copyright in any United States work shall be instituted until . . . registration of the copyright claim has been made in accordance with this title.”

(…) Section 411(a) provides, in principal part: “No civil action for in­fringement of the copyright in any United States work shall be insti­tuted until preregistration or registration of the copyright claim has been made in accordance with this title. In any case, however, where the deposit, application, and fee required for registration have been deliv­ered to the Copyright Office in proper form and registration has been refused, the applicant is entitled to institute a civil action for infringe­ment (…)”.

Registration occurs, and a copyright claimant may commence an infringement suit, when the Copyright Office registers a copyright. Upon registration of the copyright, however, a copyright owner can recover for infringement that occurred both before and after registra­tion.

Under the Copyright Act of 1976, as amended, a copyright au­thor gains “exclusive rights” in her work immediately upon the work’s creation. 17 U. S. C. §106. A copyright owner may institute a civil action for infringement of those exclusive rights, §501(b), but generally only after complying with §411(a)’s requirement that “reg­istration . . . has been made.” Registration is thus akin to an admin­istrative exhaustion requirement that the owner must satisfy before suing to enforce ownership rights.

True, registration processing times have in­creased from one to two weeks in 1956 to many months today. De­lays, in large part, are the result of Copyright Office staffing and budgetary shortages that Congress can alleviate, but courts cannot cure.

Unfortunate as the current administrative lag may be, that factor does not allow this Court to revise §411(a)’s congressionally composed text.

(The Register of Copyrights is the “director of the Copyright Office of the Library of Congress” and is appointed by the Librarian of Congress. 17 U. S. C. §701(a). The Copyright Act delegates to the Register “all administrative functions and duties under [Title 17].”)

In limited circumstances, copyright owners may file an infringement suit before undertaking registration. If a copyright owner is preparing to distribute a work of a type vulnerable to predistribution infringement—notably, a movie or musical composition—the owner may apply for preregistration. §408(f)(2); 37 CFR §202.16(b)(1) (2018). The Copyright Office will “conduct a limited review” of the application and notify the claimant “upon completion of the preregistration.” §202.16(c)(7), (c)(10). Once “prereg­istration . . . has been made,” the copyright claimant may institute a suit for infringement. 17 U. S. C. §411(a). Preregistration, however, serves only as “a preliminary step prior to a full registration.” Preregistration of Cer­tain Unpublished Copyright Claims, 70 Fed. Reg. 42286(2005). An infringement suit brought in reliance on pre­registration risks dismissal unless the copyright owner applies for registration promptly after the preregistered work’s publication or infringement. §408(f)(3)–(4). A copyright owner may also sue for infringement of a live broadcast before “registration . . . has been made,” but faces dismissal of her suit if she fails to “make registration for the work” within three months of its first transmission. §411(c). Even in these exceptional scenarios, then, the copyright owner must eventually pursue registration in order to maintain a suit for infringement.

(…) Noteworthy, too, in years following the 1976 revisions, Congress resisted efforts to eliminate §411(a) and the registration requirement embedded in it. In 1988, Con­gress removed foreign works from §411(a)’s dominion in order to comply with the Berne Convention for the Protec­tion of Literary and Artistic Works’ bar on copyright for­malities for such works. See §9(b)(1), 102 Stat. 2859. Despite proposals to repeal §411(a)’s registration require­ment entirely, however, see S. Rep. No. 100‒352, p. 36 (1988), Congress maintained the requirement for domestic works, see §411(a). Subsequently, in 1993, Congress considered, but declined to adopt, a proposal to allow suit immediately upon submission of a registration application. See H. R. Rep. No. 103–338, p. 4 (1993). And in 2005, Congress made a preregistration option available for works vulnerable to predistribution infringement. See Artists’ Rights and Theft Prevention Act of 2005, §104, 119 Stat. 221.

(…) Fourth Estate raises the specter that a copyright owner may lose the ability to enforce her rights if the Copyright Act’s three-year statute of limitations runs out before the Copyright Office acts on her application for registration (…). Fourth Estate’s fear is overstated, as the average processing time for registration applications is currently seven months, leaving ample time to sue after the Register’s decision, even for infringement that began before submission of an application. See U. S. Copyright Office, Registration Processing Times (Oct. 2, 2018) (Regis­tration Processing Times), https://www.copyright.gov/registration/docs/processing-times-faqs.pdf

Further, in addition to the Act’s provisions for preregistration suit, the Copyright Office allows copyright claimants to seek expedited processing of a claim for an additional $800 fee. See U. S. Copyright Office, Special Handling: Circular No. 10, pp. 1–2 (2017). The Copy­right Office grants requests for special handling in situations involving, inter alia, “pending or prospective litigation,” and “makes every attempt to examine the application . . . within five working days.” Compendium of U. S. Copyright Practices §623.2, 623.4 (3d ed. 2017).

(U.S. Supreme Court, March 4, 2019, Fourth Estate Pub. Benefit Corp. v. Wall-Street.com, Docket No. 17-571, J. Ginsburg, unanimous)

Friday, February 22, 2019

U.S. Court of Appeals for the Federal Circuit, Coda Development S.R.O., Coda innovations S.R.O., Frantisek Hrabal v. Goodyear Tire & Rubber Company, Robert Benedict, Robert Allen Losey, Docket No. 2018-1028)

Trade Secrets
Trade-Secret Misappropriation (under Ohio State Law)
Nondisclosure Agreement
Correction-of-Inventorship Claim
Leahy-Smith America Invents Act (“AIA”)
Motion to Amend a Judgment
Motion to Amend the Complaint
Motion to Dismiss
Motion for Summary Judgment

The complaint sought correction of inventorship in several Goodyear patents and alleged, among other things, that Goodyear misappropriated Coda’s trade secrets.

(…) We vacate the district court’s dismissal and remand for further proceedings consistent with this opinion.

(…) Before the meeting took place, the parties executed a nondisclosure agreement restricting use of disclosed information to cooperation between the parties regarding the development of SIT technology.

(…) At this meeting, and at Goodyear’s request, Coda shared novel, proprietary, and confidential information concerning its SIT technology, including the placement of the tire’s pump tube, the design of the pressure management system, the efficiency of the leakage compensation system, and the air passageway/interface between the exterior and interior of the tire.

(…) Also that month, and unbeknownst to Coda, Goodyear applied for a patent entitled “Self-Inflating Tire Assembly.” Goodyear’s application published on June 23, 2011, issued as U.S. Patent No. 8,042,586 (the “’586 patent”) on October 25, 2011, and named Messrs. Benedict and Losey as the inventors.

(…) According to the complaint, between 2012 and 2015, eleven other patents issued to Goodyear covering assemblies and methods for assembly of pumps and other devices used in self-inflating tires. The complaint alleges that these patents have claims with limitations covering the novel, proprietary, and confidential information Coda disclosed to Goodyear.

(…) Plaintiffs sued Defendants in the U.S. District Court for the Northern District of Ohio on August 9, 2015. The complaint included two correction-of-inventorship claims concerning the ’586 patent—one to add Mr. Hrabal as an inventor, the other to remove Messrs. Benedict and Losey as inventors. The complaint also included correction-of-inventorship claims to add Mr. Hrabal as an inventor on eleven other Goodyear patents (the “Alleged Jointly Invented Patents”) and a claim of trade-secret misappropriation under Ohio state law.

(…) We also review a district court’s denial of a Rule 59(e) motion to amend a judgment and a motion to amend the complaint under the regional circuit’s law. Alcon Research Ltd. v. Barr Labs., Inc., 745 F.3d 1180, 1192 (Fed. Cir. 2014) (Rule 59(e) motion to amend a judgment); Advanced Software Design Corp. v. Fiserv, Inc., 641 F.3d 1368, 1380 (Fed. Cir. 2011) (motion to amend the complaint). The Sixth Circuit reviews denial of such motions for abuse of discretion. Morse v. McWhorter, 290 F.3d 795, 799 (6th Cir. 2002).

(…) Plaintiffs’ complaint sets forth thirteen correction-of-inventorship claims under 35 U.S.C. § 256 (…) Section 256 addresses two types of inventorship errors—misjoinder and nonjoinder. Stark v. Advanced Magnetics, Inc., 119 F.3d 1551, 1553 (Fed. Cir. 1997). Misjoinder is the error of naming a person as an inventor who is not an inventor; nonjoinder is the error of omitting an inventor. See id. Through claims of misjoinder and nonjoinder together, § 256 “allows complete substitution of inventors.” Id. at 1556; see id. at 1553 (cf. Leahy-Smith America Invents Act (“AIA”), Pub. L. No. 112–29, 125 Stat. 284 (2011)).

(…) Assessment of the facial sufficiency of the complaint must ordinarily be undertaken without resort to matters outside the pleadings. If a court does consider material outside the pleadings, the motion to dismiss must be treated as a motion for summary judgment under Rule 56 and all parties must be given a reasonable opportunity to present all material pertinent to the motion.

(…) The district court also erred in dismissing Plaintiffs’ trade-secret-misappropriation claim as time-barred.

An Ohio trade-secret-misappropriation claim must be brought “within four years after the misappropriation is discovered or by the exercise of reasonable diligence should have been discovered.” Ohio Rev. Code § 1333.66; Adcor Indus., Inc. v. Bevcorp, LLC, 411 F. Supp. 2d 778, 784–85 (N.D. Ohio 2005) (observing that this provision incorporates the “discovery rule”). (…) These issues go more to the merits of De- fendants’ statute-of-limitations defense than the complaint’s sufficiency. Indeed, because “the statute of limitations is an affirmative defense, and a plaintiff generally need not plead the lack of affirmative defenses to state a valid claim,” a Rule 12(b)(6) motion, “which considers only the allegations in the complaint, is generally an inappropriate vehicle for dismissing a claim based upon the statute of limitations.” Cataldo v. U.S. Steel Corp., 676 F.3d 542, 547 (6th Cir. 2012); see Lutz v. Chesapeake Appalachia, L.L.C., 717 F.3d 459, 464 (6th Cir. 2013). Considering only the complaint, and drawing all reasonable inferences in Plaintiffs’ favor, we conclude that the district court erred in dismissing Plaintiffs’ trade-secret-misappropriation claim as time-barred.

For the foregoing reasons, we vacate the district court’s dismissal and remand for further proceedings consistent with this opinion.
Vacated and remanded.
Costs to Plaintiffs-appellants.

Secondary sources: Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1366 (3d ed. 2018).

(U.S. Court of Appeals for the Federal Circuit, February 22, 2019, Coda Development S.R.O., Coda innovations S.R.O., Frantisek Hrabal v. Goodyear Tire & Rubber Company, Robert Benedict, Robert Allen Losey, Docket No. 2018-1028)

Tuesday, February 19, 2019

U.S. Court of Appeals for the Fifth Circuit, Express Oil Change, L.L.C.; TE, L.L.C., doing business as Tire Engineers v. Mississippi Board of Licensure for Professional Engineers & Surveyors, Docket No. 18-60144, Circuit Judge Jerry E. Smith

Use of the Term/Mark “Engineer”
State Regulation of the Term
First Amendment’s Commercial Speech

Appeal from the United States District Court for the Southern District of Mississippi.
E. raises only its constitutional claim on appeal.

Mississippi regulates the practice of engineering and restricts the use of the term “engineer.” Express Oil Change (“Express”) operates several automotive service centers in Mississippi under the name “Tire Engineers.” In 2015, the Mississippi Board of Licensure for Professional Engineers & Surveyors (“the Board”) determined that the name “Tire Engineers” violated the pertinent statutes and requested that Express cease using it. Following protracted correspondence, the parties could not reach a compromise, and Express sued for a declaratory judgment and related relief. The company contended, inter alia, that the relevant statutory provisions violate the First Amendment as incorporated through the Due Process Clause of the Fourteenth Amendment. After discovery, the district court granted the Board’s motion for summary judgment and dismissed. Because the Board’s decision violates the First Amendment’s commercial speech protections, we reverse and render judgment for Express.

Express operates a number of automotive service centers in Mississippi under the Tire Engineers mark. According to Express, Tire Engineers provides “oil changes, car repairs, and tire services—repair, maintenance, and replacement—to customers in fifteen states, including Mississippi.”

(…) After the parties were unable to agree, Express sued, seeking a declaratory judgment and related relief on three theories: first, that the Board’s decision concerning the use of the term engineer violated Mississippi law; second, that it violated Express’s “rights of commercial free speech guaranteed by the First Amendment”; and third, that the decision violated Express’s “rights under preemptive federal trademark law pursuant to the Lanham Trademark Act of 1946, 15 U.S.C. §§ 1051–1127.”

(…) Commercial speech is “expression related solely to the economic interests of the speaker and its audience.” Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557, 561 (1980).

(…) At the outset, a court must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, a court asks whether the asserted governmental interest is substantial. If both inquiries yield positive answers, a court must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest. Cent. Hudson, 447 U.S. at 566. “The party seeking to uphold a restriction on commercial speech carries the burden of justifying it.” Bolger v. Youngs Drug Prods. Corp., 463 U.S. 60, 71 n.20 (1983). This “burden is a ‘heavy’ one,” Pub. Citizen, Inc. v. La. Att’y Disciplinary Bd., 632 F.3d 212, 218 (5th Cir. 2011) (quoting 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 516 (1996)), and may not be “satisfied ‘by mere speculation or conjecture,’” id. (quoting Edenfield v. Fane, 507 U.S. 761, 770 (1993)).

(…) Statements that are only potentially misleading, however, are safeguarded by the First Amendment. In such a case, a state actor must “‘show that the restriction directly and materially advances a substantial state interest in a manner no more extensive than necessary to serve that interest.’” Am. Acad., 860 F.3d at 308–09 (alteration in original) (quoting Ibanez v. Fla. Dep’t of Bus. & Prof’l Reg., Bd. of Accountancy, 512 U.S. 136, 142 (1994)).

(…) The better view is that the district court erred in concluding that Express’s use of Tire Engineers is inherently misleading.

Because its essential character is not deceptive, Tire Engineers is not inherently misleading. The name, first trademarked in 1948, apparently refers to the work of mechanics using their skills “not usually considered to fall within the scope of engineering” to solve “technical problems” related to selecting, rotating, balancing, and aligning tires. That this definition of “engineer” does not meet the Board’s preferred definition does not make its use inherently misleading. The term “engineer” can mean many things in different contexts, and it is certainly not limited to those professionals licensed by Mississippi to practice engineering. It is not, therefore, “devoid of intrinsic meaning.” Joe Conte Toyota, 24 F.3d at 756 (quoting Peel, 496 U.S. at 112 (Marshall, J., concurring)). Additionally, as Express explains, “the district court’s analysis failed to account for the manner in which the Tire Engineers mark is transmitted—on the company’s website, which describes its automotive services (not any professional engineering services), and at its retail stores, which appear like any other store that performs automotive services . . . .” Consequently, viewing the evidence in a light most favorable to the non-moving party—here, Express—the use of Tire Engineers is not inherently misleading under our precedent.

(…) Actually misleading: evidence of deception is necessary to sustain a finding that commercial speech is actually misleading (…) The Board was required to present evidence of deception. Because it did not, the district court erred in concluding that the Tire Engineers mark was actually misleading. Given that the name is neither actually nor inherently misleading, it enjoys limited First Amendment protections, as discussed in Central Hudson.

(…) “Under Central Hudson, a restriction on commercial speech survives First Amendment scrutiny if: (1) ‘the asserted governmental interest is substantial,’ (2) the regulation ‘directly advances’ that interest, and (3) the regulation ‘is not more extensive than is necessary to serve that interest.’” Pub. Citizen, 632 F.3d at 219 (quoting Thompson v. W. States Med. Ctr., 535 U.S. 357, 367 (2002)). “Each of these latter three inquiries must be answered in the affirmative for the regulation to be found constitutional.” Thompson, 535 U.S. at 367.
(…) ad 1) the evidence in the record establishes that the asserted interests of the Board are substantial.
(…) ad 2) the evidence supports a holding that the ban directly advances the Board’s asserted interest.
(…) ad 3) the final inquiry is whether the regulation is “‘more extensive than is necessary to serve’” the identified interest. Pub. Citizen, 632 F.3d at 219 (quoting Thompson, 535 U.S. at 367). “‘The free flow of commercial information is valuable enough to justify imposing on would-be regulators the costs of distinguishing . . . the harmless from the harmful . . . .’” Bd. of Trs. of State Univ. of N.Y. v. Fox, 492 U.S. 469, 480 (1989) (quoting Shapero v. Ky. Bar Ass’n, 486 U.S. 466, 478 (1988)). The means employed by the government actor need not be the “least restrictive means,” but it must be narrowly tailored to achieve (…)

(…) In Byrum, 566 F.3d at 449, concerning the terms “interior design” and “interior designer,” we held that “the State could have eliminated any constitutional challenge here by not limiting use of the terms ‘interior design’ and ‘interior designer’ but by allowing only designers who satisfy its licensing qualifications to represent themselves as ‘licensed’ interior designers.” See also Am. Acad., 860 F.3d at 311–12. Further, this court and others have identified “sufficient disclaimers as a means to address consumer deception.” This remedy seemingly derives from Peel, Bates, and earlier Supreme Court cases that “described various regulatory safeguards which the state may impose in place of a total ban on commercial speech.” Abramson, 949 F.2d at 1577.

The record does not support the need for a total ban on the use of Tire Engineers. Evidence offered by both parties, particularly when viewed in the light most favorable to Express as the non-moving party, demonstrates that other states with similar statutes have not challenged the use of the trademark. Thus, despite claims to the contrary, the Board is an outlier in this respect, and it fails to address why alternative, less-restrictive means, such as a disclaimer, would not accomplish its stated goal of protecting the public. The Board thereby fails to satisfy the required burden of demonstrating a reasonable fit between its regulation and the constitutionally-protected speech.

Summary judgment is REVERSED, and judgment is RENDERED for Express.

(U.S. Court of Appeals for the Fifth Circuit, February 19, 2019, EXPRESS OIL CHANGE, L.L.C.; TE, L.L.C., doing business as Tire Engineers v.  MISSISSIPPI BOARD OF LICENSURE FOR PROFESSIONAL ENGINEERS & SURVEYORS, Docket No. 18-60144, Circuit Judge Jerry E. Smith)

U. S. Court of Appeals for the Federal Circuit, ADC TELECOMMUNICATIONS, INC. v. United States, Docket No. 2018-1316, Circuit Judge Wallach

Tariff Classification
GRI 6 Analysis
Eo Nomine Classification v. Use Provision

Appellant ADC Telecommunications, Inc. (“ADC”) sued Appellee United States (“the Government”) in the U.S. Court of International Trade (“CIT”), challenging U.S. Cus- toms and Border Protection’s (“Customs”) classification of imported Value Added Modules (“VAM”) consisting of fiber optic telecommunications network equipment under Harmonized Tariff Schedule of the United States (“HTSUS”) Subheading 9013.80.90, which bears a duty rate of 4.5% ad valorem. ADC and the Government filed cross-motions for summary judgment, with ADC arguing that the subject merchandise should be classified under HTSUS Subheading 8517.62.00, which bears a duty-free rate. The CIT denied ADC’s Cross-Motion, and granted the Government’s Cross-Motion, holding that Customs properly classified the subject merchandise under HTSUS Subheading 9013.80.90.

ADC appeals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5) (2012). We affirm.

(…) All citations to the HTSUS refer to the 2012 version, as determined by the date of importation of the merchandise.

(…) The CIT determined that HTSUS Heading 9013, which covers “other optical appliances and instruments, not specified or included elsewhere in this chapter,” is “an apt description of ADC’s VAMs . . . because such appliances and instruments, used in conjunction with the ‘optical fibers’ of HTSUS Heading 9001 . . . are plainly covered by Chapter 90.” The CIT explained that HTSUS Heading 8517, which covers “other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network),” “would appear apt insofar as it describes the sole purpose of the VAMs.” However, the CIT concluded that the subject merchandise “are prima facie classifiable” in HTSUS Heading 9013, and because they are included in Chapter 90, they are “therefore excluded from Chapter 85 pursuant to Section XVI Note 1(m).”

(…) The classification of merchandise involves a two-step inquiry. See LeMans, 660 F.3d at 1315. First, we ascertain the meaning of the terms within the relevant tariff provision, which is a question of law, and, second, we determine whether the subject merchandise fits within those terms, which is a question of fact. See Sigma-Tau HealthSci., Inc. v. United States, 838 F.3d 1272, 1276 (Fed. Cir. 2016). Where, as here, no genuine dispute exists as to the nature of the subject merchandise, the two-step inquiry “collapses into a question of law we review de novo.” LeMans, 660 F.3d at 1315.

(…) The HTSUS governs the classification of merchandise imported into the United States. See Wilton Indus., Inc. v. United States, 741 F.3d 1263, 1266 (Fed. Cir. 2013). The HTSUS “shall be considered . . . statutory provisions of law for all purposes.” 19 U.S.C. §3004(c)(1) (2012); see Chemtall, Inc. v. United States, 878 F.3d 1012, 1026 (Fed. Cir. 2017) (explaining that “the tenth-digit statistical suffixes . . . are not statutory,” as those suffixes are not incorporated in the HTSUS’s legal text).

“The HTSUS scheme is organized by headings, each of which has one or more subheadings; the headings set forth general categories of merchandise, and the subheadings provide a more particularized segregation of the goods within each category.” Wilton Indus., 741 F.3d at 1266. “The first four digits of an HTSUS provision constitute the heading, whereas the remaining digits reflect subheadings.” Schlumberger, 845 F.3d at 1163 n.4. “The headings and subheadings . . . are enumerated in chapters 1 through 99 of the HTSUS (each of which has its own sec- tion and chapter notes) . . . .” R.T. Foods, Inc. v. United States, 757 F.3d 1349, 1353 (Fed. Cir. 2014). The HTSUS “also contains the ‘General Notes,’ the ‘General Rules of Interpretation’ (‘GRI’), the ‘Additional [U.S.] Rules of Interpretation’ (‘ARI’), and various appendices for particular categories of goods.” Id.

The GRI and the ARI govern the classification of goods within the HTSUS. See Otter Prods., 834 F.3d at 1375. “The GRI apply in numerical order, meaning that subse- quent rules are inapplicable if a preceding rule provides proper classification.” Schlumberger, 845 F.3d at 1163. GRI 1 provides, in relevant part, that “classification shall be determined according to the terms of the headings and any relative section or chapter notes.” GRI 1. “Under GRI 1, we first construe the language of the heading, and any section or chapter notes in question, to determine whether the product at issue is classifiable under the heading.” Schlumberger, 845 F.3d at 1163.

The ARI contain, inter alia, specific rules for interpreting use and textile provisions in the HTSUS. See ARI 1(a)–(d). “Because this appeal involves eo nomine provi- sions,” as discussed below, “we find the ARI inapplicable.” Schlumberger, 845 F.3d at 1163 n.5; see infra Section II.B. “An eo nomine classification provision is one which describes a commodity by a specific name,” rather than by use, Clarendon Mktg., Inc. v. United States, 144 F.3d 1464, 1467 (Fed. Cir. 1998), and, “absent limitation or contrary legislative intent, an eo nomine provision includes all forms of the named article, even improved forms,” CamelBak Prods., LLC v. United States, 649 F.3d 1361, 1364–65 (Fed. Cir. 2011).

(…) “We first must assess whether the subject heading constitutes an eo nomine or use provision because different rules and analysis will apply depending upon the heading type.” Schlumberger, 845 F.3d at 1164 (first citing Kahrs, 713 F.3d at 645–46 (defining eo nomine provision); then citing Aromont USA, Inc. v. United States, 671 F.3d 1310, 1312–16 (Fed. Cir. 2012) (defining principal use provision)).

(…) It “is unquestionably eo nomine because it describes the articles it covers by name,” and, therefore, “our analysis starts with its terms.” Schlumberger, 845 F.3d at 1164.

(…) Having determined that the subject merchandise is properly classified under HTSUS Heading 9013, we apply GRI 6, which is employed in a classification analysis to determine the appropriate subheading. See GRI 6 (applying to “the classification of goods in the subheadings” and explaining that “only subheadings at the same level are comparable”); see also Orlando Food, 140 F.3d at 1442 (conducting a GRI 6 analysis to determine the appropriate subheading). At the six-digit subheading level, the subject merchandise does not fall within the terms of HTSUS Subheading 9013.10.

Secondary sources: McGraw-Hill Dictionary of Scientific and Technical Terms (4th ed. 1989); The Oxford English Dictionary (2d ed. 1989); Webster’s Third New International Dictionary (1986).

(U. S. Court of Appeals for the Federal Circuit, February 19, 2019, ADC TELECOMMUNICATIONS, INC. v. United States, Docket No. 2018-1316, Circuit Judge Wallach)

Friday, February 15, 2019

U.S. Court of Appeals for the Federal Circuit, Home Depot U.S.A., Inc., v. United States, Docket 2018-1206

Tariff Classification
Articles that are classifiable under two or more headings.
Composite goods within the meaning of HTSUS General Rule of Interpretation (“GRI”) 3(b).
GRI 3 provides that when goods are prima facie classifiable under two or more headings, classification shall be effected according to the three subsections of GRI 3: GRI 3(a), 3(b), and 3(c).

Appeal from the United States Court of International Trade in No. 1:14-cv-00061-RWG.

This tariff classification case comes to us from the Court of International Trade (“the Trade Court”). The case involves the proper classification under the Harmonized Tariff Schedule of the United States (“HTSUS”) of certain products imported by appellant Home Depot U.S.A., Inc. (“Home Depot”).

The products are doorknobs with integral locks, such as those used on the outer entry doors of homes. U.S. Customs and Border Protection (“Customs”) classified the products as locks under HTSUS heading 8301, and the Trade Court affirmed. Home Depot argues that the products should have been classified under HTSUS heading 8302 as metal fittings for doors, including metal doorknobs.

We vacate the decision of the Trade Court and hold that the products are properly classified as composite goods within the meaning of HTSUS General Rule of Interpretation (“GRI”) 3(b). We remand to the Trade Court to make a finding as to the “essential nature” of the composite goods, as directed by GRI 3(b), in order to determine under which of the two competing headings the goods should be classified.

(…) Knobs in the third class, known as entry knobs, are the type of knobs at issue in this case. The subject entry knobs all have a keyed cylinder lock mechanism by which the door can be locked and unlocked by a key from the outside, and they all have a thumbturn by which the door can be locked and unlocked from the inside.

The subject imported articles are four types of Defiant-brand entry knobsets. The knobsets are primarily made of steel, and each consists of an interior knob assembly, an exterior knob assembly, a key cylinder, a latch mechanism assembly, a flanged strike plate, and mounting hardware.

Customs liquidated the articles under HTSUS subheading 8301.40.6030, which covers “locks (key, combination or electrically operated), of base metal,” and in particular “door locks, locksets and other locks suitable for use with interior or exterior doors (except garage, overhead or sliding doors).” Home Depot protested Customs’ classification of the merchandise. Home Depot argued that the articles should have been liquidated under HTSUS subheading 8302.41.60, which covers “base metal . . . fittings and similar articles suitable for . . . interior and exterior doors.” Customs denied the protest, after which Home Depot filed this action in the Trade Court.

On cross-motions for summary judgment, the Trade Court held that Customs had appropriately classified the subject articles under HTSUS heading 8301. The court therefore denied Home Depot’s motion for summary judgment and granted the government’s cross-motion for summary judgment.

The Trade Court concluded that the subject articles are described in whole by heading 8301, in that (1) the articles are made of base metal, (2) each article is a “lock,” as it is a “device for securing a door consisting . . . of a bolt or system of bolts propelled and withdrawn by a mechanism by a key, dial, etc.,” and (3) each article is “key-operated,” because “a key produces an appropriate effect of locking or unlocking the device.” The court explained that “knobs can be, and are here, parts of a lock.” A lock, the court added, “is a multi-component device, of which one component is a lever. In some types of locks, the lever is a door knob.”

The court held that the subject articles are not described in whole by heading 8302. While acknowledging that the articles are clearly “knobs for doors,” as described in Explanatory Note (D)(7) to heading 8302, the court noted that the articles nonetheless constitute more than simply doorknobs. Each article, the court explained, “is a device for securing a door, consisting of many parts. Together, those parts constitute a lock. The interior and exterior knobs are just two of those many parts.” For that reason, the court concluded that although “the subject articles in-clude ‘knobs for doors, including those for locks’ [as provided in Explanatory Note (D)(7) for heading 8302], the subject articles are not described in whole by heading [8302] or by the term ‘knobs for doors.’”

Home Depot appealed to this court. We review the Trade Court’s grant of summary judgment without deference. We also afford de novo review to questions of law, including the interpretation of the terms of the HTSUS.

We conclude that the products are prima facie classifiable under both headings and that the case must be resolved by resort to GRI 3, which deals with articles that are classifiable under two or more headings.

(…) The term “lock” is not defined in the HTSUS, and for terms not defined in the tariff schedule, we have held that the common and commercial meaning of the term governs. See LeMans Corp. v. United States, 660 F.3d 1311, 1316 (Fed. Cir. 2011); Rollerblade, Inc. v. United States, 282 F.3d 1349, 1352 (Fed. Cir. 2002); Brookside Veneers, Ltd. v. United States, 847 F.2d 786, 789 (Fed. Cir. 1988).

(…) We do not find the Explanatory Notes to be decisive in favor of either party.

(…) GRI 3 in turn provides that when goods are prima facie classifiable under two or more headings, classification shall be effected according to the three subsections of GRI 3: GRI 3(a), 3(b), and 3(c).
GRI 3(a) states that the heading “which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods . . . those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.”
GRI 3(b) provides, in pertinent part, that composite goods made up of different components that “cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.” See La Crosse Tech., Ltd. v. United States, 723 F.3d 1353, 1359–60 (Fed. Cir. 2013).
GRI 3(c) provides that “when goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.”
We conclude that GRI 3(b) governs the classification of the subject articles in this case. As to the specificity of the description of the articles in the competing headings, we conclude that GRI 3(a) does not apply, because the two headings “each refer to part only” of the materials in the composite goods, and thus, according to GRI 3(a), the competing headings must be regarded as equally specific. In particular, heading 8301 refers to the lock component of the subject articles, which functions to lock and unlock the door, while heading 8302 refers to the doorknob component, which functions to allow the door to be grasped, opened, closed, and latched.

(…) One example of an article that has been found to be a composite good under GRI 3 is the type of product that was at issue in CamelBak Prods., LLC v. United States, 649 F.3d 1361 (Fed. Cir. 2011). That case involved back-mounted packs that had one compartment for storing personal effects and a separate insulated compartment for storing liquid and delivering the liquid to the user in a “hands-free” fashion. The Trade Court ruled that the products were backpacks, but we disagreed. We held that the products were classifiable both under the subheading for “travel, sports, and similar bags” and under the separate subheading for “beverage bags.” We therefore held that the products at issue were composite goods whose classification was governed by GRI 3(b). CamelBak, 649 F.3d at 1367–69.
(…) In CamelBak, we remanded so that the Trade Court could make the factual determination as to the “essential character” of the subject articles and make the classification determination based on its conclusion. 649 F.3d at 1369. We follow the same course here and remand to the Trade Court for further proceedings consistent with this opinion.

(U.S. Court of Appeals for the Federal Circuit, February 15, 2019, Home Depot U.S.A., Inc., v. United States, Docket 2018-1206)