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Supreme Court Declines Comcast’s Challenge to the ITC’s Jurisdiction, Thus Confirming the Broad Reach of Section 337

comcast

Supreme Court Declines Comcast’s Challenge to the ITC’s Jurisdiction, Thus Confirming the Broad Reach of Section 337

Entering October Term 2019, the U.S. Supreme Court had never reviewed a Section 337 investigation. However, some court-watchers thought that Comcast Corporation v. International Trade Commission might have the right ingredients to break that 90-year streak: a former U.S. Solicitor General representing the petitioners; allegations that Chevron deference had led to regulatory overreach; and a handful of sophisticated amici curiae supporting cert. But the Court denied the petition without even a relist, leaving intact the U.S. International Trade Commission’s assertion of broad authority over patent infringement that occurs wholly within the United States after importation.

Comcast’s cert petition arose out of ITC Investigation No. 337-TA-1001. The complainant, Rovi, argued that certain set-top boxes (“STBs”) used in Comcast’s cable-television system infringed two patents involving “an interactive television program guide system for remote access to television programs.” The Commission found that when Comcast customers use the STBs in a particular way, in conjunction with Comcast’s system, those customers infringe the asserted patents. The Commission further found that Comcast induced that infringement by instructing customers how to use the system. Thus, the Commission found that the STBs constitute infringing articles under Section 337 and issued a limited exclusion order and cease and desist order.

Before the Federal Circuit and in its cert petition, Comcast argued that the Commission had overstepped its jurisdiction. Comcast explained that all of the infringing conduct—both the customers’ direct infringement using the STBs, and also Comcast’s inducement by providing instructions to its customers—occurred within the United States. In Comcast’s view, then, the STBs were not “articles that . . . infringe” a patent at the time of importation and thus fall outside the scope of Section 337.

Siding with the Commission, the unanimous Federal Circuit panel rejected this argument. The court noted that Section 337 expressly defines unfair trade practices to include “sale within the United States after importation” of infringing articles. The court concluded that so long as the articles are imported and they infringe a patent, they fall within the scope of Section 337, regardless of whether the articles were infringing at the time they entered the United States.

The denial of cert in Comcast solidifies the Commission’s broad assertion of authority over all infringement by imported products, regardless of the nature of that infringement and regardless of when it occurs. Even before this development, the Commission had become a preferred forum for many patent holders given its powerful remedies, fast pace, and patent-savvy personnel. This trend is likely to accelerate now that the courts have passed on the opportunity to curtail the Commission’s broad view of its jurisdiction.

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Beau Jackson is a Kansas City-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Section 337 practice.

Michael Martinich-Sauter is an attorney in Husch Blackwell LLP’s St. Louis office.

USITC

USITC Announces New Chairman and Vice Chairman

The U.S. International Trade Commission (USITC), a quasi-judicial federal agency that administers U.S. trade remedy laws, has announced new leadership. President Trump designated Jason E. Kearns as Chairman and Randolph J. Stayin as Vice Chairman of the ITC, each for two-year terms effective June 17, 2020. Both Chairman Kearns and Vice Chairman Stayin served as ITC commissioners before these designations.

Chairman Kearns (a Democrat) joined the Commission in March 2018, for a term expiring in December 2024. Before his appointment to the ITC, Chairman Kearns served as Chief International Trade Counsel for the Democratic staff of the U.S. House of Representatives Committee on Ways and Means. Prior to that, he was Assistant General Counsel at the Office of the U.S. Trade Representative.

Vice Chairman Stayin (a Republican) joined the ITC in August 2019, for a term expiring in June 2026. Before joining the ITC, Vice Chairman Stayin had a long career in private legal practice, focusing on trade remedies and trade policy.

Some may be surprised that President Trump designated a Democrat as ITC chairman, but this is controlled by statute. Under 19 U.S.C. § 1330, the President must designate as ITC chairman a commissioner who (1) belongs to a different political party than that of the outgoing chairman, and (2) has at least one year of continuous service as an ITC commissioner by the date of the designation. Moreover, the statute requires that the vice chairman’s political party differ from the chairman’s. Chairman Kearns replaces outgoing chairman David S. Johanson (a Republican), who served as chairman through June 16, 2020, and will remain as a commissioner.

In addition to administering antidumping and countervailing duty investigations and Section 337 actions, the ITC provides the President and Congress with independent analysis and support on matters relating to tariffs and international trade.

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Beau Jackson is a Kansas City-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Section 337 practice.

Argentina

ARGENTINA APPLIES OVER 500 EXPORT DUTIES – HOW’S THAT WORKING OUT?

Argentina is no stranger to economic crisis. Nearly 600 different export taxes aren’t helping.

Argentina is no stranger to economic crisis. Before the spread of the COVID-19 pandemic, Argentina was experiencing more than 50 percent annual inflation, among the highest in the world. The IMF recorded a 2.5 percent drop in Argentina’s GDP in 2018, which shrank another 2.2 percent in 2019, throwing some 40 percent of the population into poverty. With a debt-to-GDP ratio of almost 90 percent and facing economic contraction of as much as 5.7 percent this year, Argentina’s government stands at the brink of its ninth default on international loans.

How could it get worse?

Trade restrictions can reinforce poor economic outcomes. As reported to the OECD, Argentina introduced, increased or expanded 585 different export taxes between 2000 and 2012. Hitting its farmers hard, Argentina’s new government recently increased export taxes on agricultural commodities. Export taxes on soybeans, soy oil and soy meal increased from 25 to 33 percent, while the taxes on exporting corn and wheat were raised to 12 percent from around 7 percent.

Export taxes distort decisions about what and how much to produce, affecting the cost to produce and the price of the export. Whether the measure significantly affects the world supply and price of that commodity depends on the global market power of the exporting country. For example, Argentina is the world’s third largest supplier of corn and soybeans. To the extent that Argentina’s exports are deterred by the tax, supply in the domestic market could increase, driving prices for the commodity producer down but also creating an input subsidy for domestic producers that use that commodity. As a result of the distortive effect of export taxes on the price of traded goods, it is unsurprising that trade as a percentage of Argentina’s GDP is significantly lower than countries in its peer group of middle income countries.

Argentina 585 export taxes

So why have them?

It is more common for governments to restrict imports to try to protect domestic producers of goods that compete with imports. For example, restricting imports of bread might favor local bakers who could then sell their products at higher prices without fear of competition from foreign producers. Yet we know the cost of suppressing competition means consumers (companies and individuals) will pay higher prices.

In contrast, export duties are less common than import restrictions and have a different justification. Smaller, resource-limited countries sometimes apply export restrictions to a small number of products to ensure adequate domestic supplies or to lower domestic prices. As a major world exporter of agricultural products, Argentina’s export taxes are a way for the government to raise revenue and address its fiscal gap.

How’s it working?

Argentina requires export registrations and permits, while fully banning the export of certain commodities including scrap iron, steel, copper and aluminum. Export taxes vary but Decree 37/2019 issued in December 2019 sets a general rate at 12 percent, with exceptions. The incoming government has already adjusted the rates, increasing soybeans and soy products to 33 percent while reducing others such as rice from 12 to six percent, dry beans from nine to five percent. Others remained the same. Wheat, corn, sorghum, wine, fruits and vegetables are taxed at 12 percent, while beef and chicken at nine percent.

Heavy trade taxation has distorted and decreased the productivity of Argentina’s economy. Moreover, the duties create incentives for rent-seeking as businesses seek special exemptions or reductions in taxes. Special exemptions prop up businesses that may have otherwise failed, preventing workers and resources from moving to their highest-valued uses in the economy. Such outcomes follow the tenets of Adam Smith’s basic economic treatise, The Wealth of Nations: the result of price and trade intervention “can only be to force the trade of a country into a channel much less advantageous than that in which it would naturally run of its own accord.”

Argentina counter to WTO norms on export taxes

Argentina isn’t exempt from economic laws

Trade, Adam Smith went on to observe, is driven by “a propensity in human nature … to truck, barter, and exchange one thing for another.” Certainly, in Argentina this propensity is curtailed today by these restrictions that make it almost impossible for people to exchange goods and services abroad.

Economic laws are universal. Individuals in Argentina have the same creativity and entrepreneurial capacity as do people in other countries. An important way of helping to unleash that capacity would be for Argentina to remove all export and import duties without pitting sectors against one another.

In Argentina, policymakers believe that they can manage the economy better than the forces of market competition. But Argentina has spent more than a third of the last 70 years in recession. Global trade rules explicitly prohibit quantitative restrictions but permit export taxes under limited circumstances. Instead, Argentina uses them liberally and broadly. Eliminating them would enable free trade to spur economic growth.

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Agustin Forzani

Agustin Forzani is an MA student in the George Mason University economics department and MA fellow with GMU’s Mercatus Center. He received a BA in economics from the National University of Rosario in Argentina and a BA in Agribusiness from the National Technological University in Argentina.

This article originally appeared on TradeVistas.org. Republished with permission.

section 232

Commerce to Investigate Expansion of Section 232 Tariffs on Steel to Include Imports of Electrical Transformer Steel

On Monday May 4, 2020, the Department of Commerce issued a news release announcing the start of a Section 232 investigation on imports of “Laminations and Wound Cores for Incorporation Into Transformers, Electrical Transformers, and Transformer Regulators.” This investigation is effectively an examination of whether or not to expand the current Section 232 tariffs on steel to include these products.

The announcement indicates that imports of the steel incorporated into the specifically identified transformers “are being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.” According to Commerce, it had received “inquiries and requests from multiple members of Congress as well as industry stakeholders,” to start this investigation. Similar to other 232 investigations, the Bureau of Industry and Security will conduct the investigation and request comments in a Federal Register notice that will likely be published soon.

Quoting Commerce’s press release – “transformers are part of the U.S. energy infrastructure,” and “laminations and cores made of grain-oriented electrical steel are critical transformer components. Electrical steel is necessary for power distribution transformers for all types of energy—including solar, nuclear, wind, coal, and natural gas—across the country. An assured domestic supply of these products enables the United States to respond to large power disruptions affecting civilian populations, critical infrastructure, and U.S. defense industrial production capabilities.” It is also important to note that grain-oriented electrical steel (“GOES”) was subject to antidumping duties and countervailing duty orders for several years but there are no current antidumping and countervailing duty orders on GOES.

Based upon the proposed schedule, the secretary of Commerce will notify the secretary of Defense of the investigation, as required by statute. In addition, it stated that the “Department of Commerce will conduct a thorough, fair, and transparent review to determine the effects on the national security from imports of laminations for stacked cores for incorporation into transformers, stacked and wound cores for incorporation into transformers, electrical transformers, and transformer regulators.”

In January 2020, Commerce expanded the scope of the Section 232 tariffs on Steel and Aluminum to include certain other derivative products on products such as nails and thumbtacks without conducting an investigation such as the one now seemingly being proposed. The trade remedies team at Husch Blackwell LLP represents clients now challenging that expansion in the U.S. Court of International Trade. In initiating this new investigation, it appears that Commerce has recognized that it may be on shaky ground for its earlier expansion of section 232 tariffs on steel and aluminum and may be willing to provide a fuller procedure for comments and input from interested parties.

Regardless of the procedures, however, if affected U.S. companies cannot locate the steel they need domestically, and the tariffs make importation of steel to manufacture downstream products, then the only option is to source from other countries. Thus, we expect that numerous companies will file comments on this new round of expansion of national security tariffs.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Jeffrey Neeley is a Washington-based partner with the law firm Husch Blackwell LLP. He leads the firm’s International Trade Remedies team.

DOJ

DOJ Takes Unusual Step to Submit Comments in Antidumping and Countervailing Duty Investigation on Mattresses from Vietnam, Thailand, Turkey, Serbia, Malaysia, Indonesia, and Cambodia, and China

Update: On April 30, 2020, the Department of Justice (DOJ) withdrew its “statement of interest” in the ongoing antidumping and countervailing duty investigations on mattresses from various countries.  In their filing, the DOJ stated that it, “hereby withdraws that Statement of Interest as not yet ripe.” Currently, the U.S. International Trade Commission (“ITC”) is still set to make its preliminary injury determination on May 15, 2020.

The Department of Justice (“DOJ”) filed comments in the U.S. International Trade Commission’s (“ITC”) investigation on whether imports of mattresses from multiple countries are causing injury to the domestic mattress industry. The petition was filed on March 31, 2020, and the Commerce Department initiated the investigations on April 22, 2020. In an unusual step, the DOJ filed a letter with the ITC questioning the appropriateness of the filing and continuation of these cases, given the fact that the current COVID-19 crisis has significantly increased demands for mattresses for both hospitals and consumers. DOJ expressed concern that the existing U.S. domestic industry may not be able to supply the burgeoning demand at hospitals amid the COVID-19 pandemic.

The petitioners in this case, which include Brooklyn Bedding, Corsicana Mattress Company, Elite Comfort Solutions, FXI, Inc., Innocor, Inc., Kolkraft Enterprises; and Leggett & Platt Incorporated have alleged antidumping and countervailing duties up to 1000% on imports of mattresses from Cambodia, China, Indonesia, Malaysia, Serbia, Thailand, Turkey, and Vietnam. The DOJ is urging the ITC to consider “all relevant economic factors which have a bearing on the state of the [relevant] industry in the United States.” Further, the “Department urges the Commission to consider the consumer and healthcare demands caused by COVID-19 as a ‘relevant economic factor’ here because COVID-19 will likely have a significant impact on the domestic mattress industry along with many other industries.”

According to the DOJ, the COVID-19 pandemic will “likely” increase demand for mattresses as hospitals expand capacity at a pace with which the domestic industry will not be able to handle. “This demand may outpace domestic supply,” the filing said. “If demand outpaces supply, it is possible that American industry will be able to thrive, but additional supplies will be needed, at least in the short term, to fill the gap and immediate need until American manufacturers can ramp up production.”

The concern articulated by the DOJ was that the financial burdens associated with the risk of duties ranging from 48 to 1000 percent “could potentially affect the supply of mattresses needed in hospitals and other health care facilities.” While there is a chance that the “Commission’s investigation ultimately might find it appropriate to impose duties in this case, it should take the exigent circumstances of COVID-19 and its immediate aftermath into account in crafting a tailored remedy that balances current healthcare needs with the equally important need to protect American industry and workers from unfair imports.” More importantly, the DOJ urges the Commission to consider, for example, the specific and unique circumstances arising out of the pandemic because importers and other companies may, in fact, make “’ massive imports’” of mattresses not to circumvent the antidumping laws but to respond to COVID-19.”

In an even more unusual twist, the DOJ warned against a preliminary affirmative ITC finding because while in normal situations the institution of a case has a limited negative impact, in these unusual circumstances, any affirmative finding (even preliminary) could have an exacerbated effect on the market due to COVID-19.  Should the ITC make an affirmative preliminary finding, then the case would proceed on its normal course back to Commerce to make its finding on the margin of dumping and/or subsidization. Once the case continues after the ITC preliminary decision, there is no stopping until both agencies reach a final decision. The risk which was identified by DOJ is that if the ITC makes an affirmative finding, then the next step is Commerce’s preliminary determinations which would require importers to post a cash deposit on the imported goods, and while this would be ultimately refunded in the event the final determinations are negative, these are risks which would harm the U.S. economy.

During the pandemic, however, mattress exporters could simply opt to supply another market and hinder U.S. efforts to fight the coronavirus, the DOJ said. “Given the immediate and ongoing demands of COVID-19, this harm cannot as easily be undone as in other instances, by eventually, and later, refunding an aggrieved party.” “Thus, it is critical to evaluate the domestic injury here, if any, and the appropriate remedy in light of COVID-19.”

Husch Blackwell’s Trade Remedies practice is comprised of partners who have been working in this field for over 30 years, and this is the first time in our careers that we have seen the DOJ weigh in on a trade remedies investigation at its inception. Normally, the DOJ’s role is to litigate any appeals at the conclusion of the investigatory process on behalf of either the Department of Commerce or the International Trade Commission. The filing of such a letter on the record of a brand new investigation which is in its infancy is extremely unusual.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Cortney O’Toole Morgan is a Washington D.C.-based partner with the law firm Husch Blackwell LLP. She leads the firm’s International Trade & Supply Chain group.

steel

Commerce Finds Dumping and Countervailable Subsidization of Imports of Carbon and Alloy Steel Threaded Rod from China and India

On February 10, 2020, the Department of Commerce (“Commerce”) announced its affirmative final determinations in the AD and CVD investigations of imports of carbon and alloy steel threaded rod from China and India. See the fact sheet for a summary of the final cash deposit rates and margins.

In the China AD investigation, Commerce calculated cash deposit rates of 4.26% and 14.16% to the mandatory respondents Zhejiang Junyue Standard Part Co., Ltd. and Ningbo Zhongjiang High Strength Bolts Co., Ltd., respectively. Chinese companies that are eligible for a separate rate received a rate of 11.47%. The antidumping cash deposit rate for all other Chinese companies is 59.45%.

In the China CVD investigation, Commerce calculated and assigned subsidy rates of 66.81% and 31.02% to the mandatory respondents Zhejiang Junyue Standard Part Co., Ltd. and Ningbo Zhongjiang High Strength Bolts Co., Ltd., respectively. The subsidy rate for all other Chinese exporters is 41.17%.

In the India AD investigation, Commerce assigned a cash deposit rate of 28.34% to mandatory respondent Daksh Fasteners and 2.47% for mandatory respondent Mangal Steel Enterprises Limited. The cash deposit rate for all other Indian exporters is 2.47%.

In the India CVD investigation, Commerce assigned a cash deposit rate of 211.72% to mandatory respondent Daksh Fasteners and a rate of 6.07% to mandatory respondent Mangal Steel Enterprises Limited. The cash deposit rate for all other Indian exporters is 6.07%.

The ITC is currently scheduled to make its final determinations on or about March 23, 2020. If the ITC makes affirmative final determinations of material injury to domestic industry, then Commerce will issue AD and CVD orders instructing Customs and Border Protection (“CBP”) to collect deposits based on the applicable duty rate. If the ITC makes negative determinations of injury, then the investigations will be terminated.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. Shee practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Camron Greer is an assistant trade analyst in Husch Blackwell LLP’s Washington, D.C. office.