Court of International Trade

In a recent post, we discussed the lawsuit brought by battery behemoth Duracell against a company that it was importing “gray market” versions of its copper-topped products. In that action, Duracell has argued that the warranty that comes with its U.S. batteries is ten times longer than the warranty that comes with the batteries that Duracell sells to electronic manufacturers and which the defendant sought to import.  Accordingly, Duracell argued that this material difference in the warranty should permit it to block the importation of the unauthorized batteries under the Lever-rule which permits the restriction of gray market imports which are materially different from those generally offered to U.S. consumers.

Duracell’s battle to control gray market goods, however, is one fought on many fronts.

In the recently amended complaint in a separate action before the Court of International Trade, an Milecrest Corp., an importer and distributor of gray market Duracell batteries, challenged U.S. Customs and Boarder Protection’s grant of Lever-rule protection to Duracell.  Specifically, the Milecrest alleges that CBP failed to comply with the Administrative Procedure Act, 5 U.S.C. 551 et seq., when it granted Duracell Lever-rule protection in March 2017 based purported material differences in “label warnings, consumer assistance information, product guarantees, and warrant coverage.”  Milecrest alleges that CBP did not take required public comment before issuing the grant notice and, if it had done so, it would have been made aware that many of Duracell’s own products are not sold with label warnings, customer assistance information, guarantees, or warranty information on the batteries themselves, which would have undercut Duracell’s claim for Lever-rule protection.  In addition, Milecrest argues that the grant is arbitrary and capricious because CBP should have considered Duracell’s own non-conforming batteries and denied the request for protection.  Finally, Milecrest argues that the grant is vague because it fails to specifically identify the products to which it applies or what warnings, etc. will trigger Lever-rule protection and which products will be permitted to be imported.

An interesting aside, the Court recently rejected Milecrest’s efforts to proceed anonymously, holding that potential infringement lawsuits by Duracell were not a sufficient reason to warrant concealing the company’s identity in connection with this matter.

Duracell’s ongoing efforts to control gray market goods demonstrates how producers and importers must be constantly vigilant and take appropriate offensive as well as defensive positions regarding the same goods and the same core legal issues.  Proper counsel can help companies navigate when offensive legal action are advantageous and when defensive advocacy becomes required to protect ones’ business.

In a recent decision, the Court of International Trade shot down an importer’s argument that its Thanksgiving and Christmas-themed serve ware and dinnerware should be exempt from duties as instruments of “specific religious or cultural ritual celebrations.”

Copyright: alexraths / 123RF Stock Photo
Copyright: alexraths / 123RF Stock Photo

Subheading 9817.95.01 of the Harmonized Tariff Schedule of the United States (“HTSUS”) provides that no duty is to be assessed for: “[u]tilitarian articles of a kind used in the home in the performance of specific religious or cultural ritual celebrations for religious or cultural holidays, or religious festive occasions, such as Seder plates, blessing cups, menorahs or kinaras.”

The crux of importer, WWRD US LLC’s, argument was that the definition of “cultural ritual” was sufficiently broad so as to include the traditions of Thanksgiving and Christmas dinners.  The importer put forth a variety of definitions of the term “ritual”, including Merriam Websters’s definition of “a customarily repeated often formal act or series of acts.”

Judge Mark A. Barnett, however, derived the Court’s understanding of the scope of the subheading from the exemplars included therein.  While Judge Barnett did not question the cultural significance of the Thanksgiving and Christmas holidays, his opinion focused on the subheading’s requirement of “specific” rituals.  The exemplars, the Seder plate used during Passover, the menorah used during Hanukkah, and the kinara used during Kwanzaa, involved specific sequential rituals, not merely the observance of a recurring event such as Thanksgiving of Christmas dinner.

Ultimately, the ITC found that US Customs and Border Protection’s classifications and resulting duty rates, ranging between 3% and 6%, were proper.  While the importer’s creative classification argument was unsuccessful in this case, a zealous advocate can make a significant difference in the duties, and the bottom line, of any import transaction.