July, 2015

alt text here

When is a trademark a trademark?

Mark K. Neville, Jr.

Confronting uncertainties is an ever-present challenge for international traders. That is why such a premium is placed on predictability. A lack of certainty is almost as much of a problem as the burdensome impact of customs and trade regulations themselves. If the trader knows about a particular challenge, then suitable accommodations can be made and the venture progressed, even if at the cost of higher prices or more complications. But what of the case where it is a case of “it might be this or it might be that” rather than “it will be this”?

Consider the dilemma of the trader who is thinking about buying and importing a product but is unsure of the duty rate that will apply. Under one tariff provision within the Harmonized Tariff System, the duty rate could be 3% ad valorem, but under another the rate could be 9%. In many jurisdictions, one solution is to ask for a binding ruling from the customs authorities. In other jurisdictions, that option may not be available as a practical matter, and that fact will have a chilling effect on trade.

Make no mistake—traders would prefer paying duty at a 3% rate but they may be reluctant to put themselves in the position of paying at a 9% rate. The fact that they do not know what rate will apply—it could be 3% or 9% in our example-- will often dampen the trade. The trader may be simply unwilling to engage in this game of chance.

Binding Rulings

That inability to get a greater measure of certainty, and the resulting instability, are what impelled the World Trade Organization (WTO) to require an advance ruling regime for tariff classification as part of the package of improvements within the Trade Facilitation Agreement. Clearly it would have been preferable for the WTO to have included an advanced ruling regime for customs valuation issues, as well, but that was not the case. Customs valuation rulings are only “encouraged” but are not mandated, with the result that international traders will face more of the same uncertainty in this other, all-important area.

Trade Remedy Cases

Consider, also, the plight of the importer who does not know if the product he intends to import will be subject to a special trade remedy duty as a result of an Antidumping or Countervailing Duty Order issued by the Department of Commerce. In such a case, the antidumping or countervailing duty rate imposed might be as much as, say, 200%. So, the uncertainty factor is exponentially greater—the duty owed may be 3% or 9% or it may be 203% or 209%. The prudent importer will have to ascertain whether his product is within the scope of the Order before agreeing to buy the product. In the United States, where the scope of such Orders can be quite broad and not constrained by HTS numbers, that certainty can be accomplished by way of a “scope” ruling issued by the Commerce Department. It does not take much imagination to guess at the chilling effect on trade in those products that are “close to the line.”

Origin Issues

To this point we have touched on the considerable uncertainties swirling about tariff classification and customs valuation matters. We are left only to discuss origin, the third leg in the importer’s process in determining the applicable duty rate. But one of the vexing points about origin is that, unlike tariff classification and customs valuation, there is no single test for determining the origin of the imported product.

Depending on the context, whether it is a trade preference issue, or a trade remedy case, or the product is eligible for a government procurement preference or if the issue arises in the context of the labeling of the imported product, the origin rule may vary. Even within the context of free trade agreements, there is no uniform approach, but rather a distinctive, FTA-by-FTA eligibility test that will determine whether or not the applicable “substantial transformation” metrics that pertain to that tariff classification have been met. All of this means that certainty as to a product’s origin may need to be deferred until after the importer and his professional advisor do the required analysis.

Country of origin marking

The country of origin issue that has the most relevance for importers, of course, is that which requires proper marking on the imported product or its container. The United States, as well as most other countries, requires that the country of origin be clearly shown on all imported products, with some very few exceptions. The object is to allow the ultimate purchaser to make an informed buying decision.

The statutory obligation is that every article of foreign origin (or its container) that is imported into the United States must be marked with the English name of the country of origin in a conspicuous place as legibly, indelibly and permanently as the nature of the article or the container will allow.1

Special Marking Rules

Subsection 134.46 of the customs regulations is a special rule to deal with the method and location of marking where the imported article or its container bears the name of a US location or any foreign location other than its origin. In such a case, in order that the ultimate purchaser be not misled or deceived, the actual country of origin must be shown in a “Made in__” or “Product of__” or similar mode that is legible, permanent and in close proximity, and in at least a comparable size.

A companion subsection of the customs regulations, Section 134.47, makes allowance for those cases in which (i) the imported article may bear a trademark or a tradename or (ii) the article is a souvenir, in which a US location or the words “United States” or “America” may appear. In such cases, the actual country of origin must be legibly, conspicuously and permanently marked, and in close proximity or in some other conspicuous place. Note that the placement of the marking is more relaxed than is the case in subsection 134.46, where only “close proximity” is allowed.

Notice to mark and redeliver

The regulations (at subsection 134.51) reach beyond the point at which the goods have cleared customs. Even if the imported goods have been released by Customs and Border Protection (CBP), that subsection specifies that when an article or container has been found to be not legally marked, the importer is notified and given the choice of either properly marking the article or container or returning the article/container to CBP for marking, exportation or destruction. As a practical matter, if the goods have been released, it is often a practical impossibility to effect either a correction or a return to CBP custody. The usual result is that CBP will issue a claim for liquidated damages for a breach of the importer’s surety bond obligation to comply with the CBP order.

Open questions

As straightforward as this should be, you will probably have recognized that some of these terms introduce a measure of subjectivity. After all, how does one measure “conspicuous” or “close proximity,” for example? And with subjectivity comes its offspring, uncertainty.

Trademark Status as a Source of Uncertainty

A recent Court of International Trade decision, JBLU, Inc. v. United States, Slip Op. 15-8 (2015) has moved past those terms immediately recognizable as subjective, and has dealt with one of the terms in subsection 134.47 that subtly raised a level of uncertainty. As the title of this piece will have told you, I refer to trademarks.

In this case, the importer had been using “C’est Toi Jeans USA” and “CT Jeans USA” trademarks since 2005, but had not applied for registration at the US Patent and Trademark Office (USPTO) until October 8, 2010. The registrations were granted by the USPTO in 2011.

Between September 11 and October 20, 2010, the importer made 17 entries of jeans with marking on the waistband which mimicked the trademarks--“C’est Toi Jeans USA” and “CT Jeans USA”—as well as “C’est Toi Jeans Los Angeles.” CBP issued Notices of Mark or Redeliver, which the importer protested.

CBP took the view that the less stringent protocol of subsection 134.47 could not apply to any jeans that were entered before the trademark application was filed with the USPTO, on the grounds that use of a trademark in commerce could not qualify a mark. The importer challenged, with its position being that, as a matter of intellectual property law, use in commerce prior to a USPTO application should suffice for trademark status within the context of this customs regulation. In fact, the plaintiff importer argued that, in the silence of the customs statute or regulations, the definition of trademark must come from the Lanham Act, 15 USC § 1127.

The importer pointed out that the Lanham Act followed the common law and defined trademarks broadly, to include marks that were used, were intended to be used or that were pending registration at the USPTO. The court disagreed, noting that, in the face of the silence of the statute, deference must be paid to the more narrow interpretation of CBP, i.e., that trademark status for this subsection is dependent upon either registration by the USPTO or the pendency of an application at the USPTO. The court noted that the CBP interpretation is consistent with the purpose of the regulation—preventing confusion as to the country of origin—and that the purpose is different from that of the Lanham Act, which is intended to prevent confusion as to the producer of the merchandise. The court noted that CBP’s position on qualifying trademarks has been consistent in the rulings it has issued over the years on this point.

With the more relaxed “other conspicuous place” standard denied it, the importer was faced with an impossible task. Its trademark logos were placed in several locations on the jeans—on the backs, pocket linings, back waistbands, hang-tags. The “close proximity” standard would require that “Made in China” be placed in all of those places as well. The court also noted that the “Made in China” label that was present on the imported jeans was actually in smaller print than the trademarks. The court granted the government’s motion for summary judgment.

.......................................................................................................................................


1. 19 USC §1304, 19 CFR §§ 134.1 et seq.

alt text here