Duest

No, this article is not about where to find a cheap copy of the Explanatory Notes to the Harmonized System. Rather, it is about the Federal Circuit decision in Sigma-Tau Healthscience, Inc. v. United States, in which the Court of Appeals discounted the legal impact of a definition in the Explanatory Notes.

The case is about the classification of two stabilized forms of the chemical carnitine, which may or may not be a vitamin. Carnatine, which is also known as vitamin Bt, is not called out by name in the Tariff Schedule. Customs classified this merchandise as chemical products and preparations of the chemical or allied industries not elsewhere specified in Heading 3824. Sigma-Tau protested and asserted that the correct classification is as vitamins of 2936. Complicating matters, the Court of International Trade held that the merchandise is classifiable in Heading 2923 as "Quaternary ammonium salts and hydroxides; lecithins and other phosphoaminolipids, whether or not chemically defined: Other." Sigma-Tau appealed. On appeal, the U.S. sought classification in 2923 and Sigma-Tau argued for 2936, leaving 3824 out in the cold with no suitors.

This case is mainly complicated because it involves a fair amount of organic chemistry and a little medicine. The classification, on the other hand, gets resolved by applying General Rule of Interpretation 1, which is not how the Court of International Trade did it. That is an important point. The Federal Circuit took the CIT to task for moving beyond GRI 1 and applying the rule of relative specify under GRI 3. As we will see below, applying the legal text was sufficient to resolve the question.

The key here is Chapter 29, Note 3, which states that merchandise classifiable in two or more headings of Chapter 29 is to be classified in the heading that occurs last in numerical order. This Note has the force and effect of statute and must be followed. The only Chapter that is relevant on appeal is Chapter 29 and the last of the potential headings in numerical order is 2936, vitamins. Consequently, if this stuff is vitamins, then 2936 must be the correct Heading.

When a term is not defined in the tariff, the proper meaning is the common and commercial meaning. Where dictionaries and other sources of definitions differ, the court looks for the consensus understanding of the meaning, focusing on the commonality in the various definitions. A problem arose here because although the HTSUS allows for other vitamins and provitamins to be classified in Heading 2936, the Explanatory Notes provide less room to maneuver. The EN state that vitamins cannot be synthesized by the human body and, therefore, must be obtained from outside sources. Carnatine, it turns out, can be synthesized in the body, except for by newborns, who must consume it.

To me, this is the interesting point of the case. What should the Court do with the limitation in Explanatory Notes, which does not appear in the HTSUS? The Court noted that the Explanatory Notes are not binding on it. They are generally useful guides that are informative, but, according the to Court of Appeals, "we shall not employ their limiting characteristics, to the extent there are any, to narrow the language of the classification heading itself." This is consistent with a case called Archer Daniels Midland, which it is important to note, is an appeal I won on a similar point.

That created the question of whether this limitation is part of the common and commercial meaning. According to the Court, it is not. As a result, the fact that the human body can synthesize carnatine does not prevent it from being a vitamin. As evidence of that, the Court noted that vitamin D can be synthesized by the body and it is commonly understood to be a vitamin.

The Court arrived at a consensus definition of "vitamin" as compounds that are necessary for normal physiological function and that are not synthesized by the host in amounts adequate to maintain normal functioning.  It turns out that carnatine can be synthesized in adequate amounts by adults, but not by newborns. The government contended that the test should be limited to adults, but there was no such limitation in the common meaning of the term nor in any of the legal text. Consequently, the Federal Circuit found Carnatine to be a vitamin.

Having made that conclusion, it follows that the correct classification is in Heading 2936. Specifically, in the residual tariff item 2936.29.50. That means that the Court of International had to be reversed.

If you have been around here long enough, you know I am a skeptical guy. I believe the consensus of medical science is in a better position than the guy at the supplement store to give medical advice. I also believe that eating or drinking something with the intention of modifying the way your body works is a medical decision whether you are taking a prescription drug or a "natural" supplement. I suspect the prescription drug has a better chance of actually working as advertised than does the supplement, but both are drugs.

With that in mind, I read HQ H268556 (Dec. 15, 2015), which considers the tariff classification of Kimera Koffee. This particular product is about 95% coffee, but it has been "boosted" with taurine, alpha GPC 50%, L-theanine, and DMAE (Deanol). As  result, the coffee is advertised as enhancing cognitive performance, boosting energy levels, improving focus and concentration, and enhancing athletic performance.

The additives are a class of products known a nootropics, also called "smart drugs." Here is a good overview of the science of nootropics from Yale neurologist Dr. Steven Novella. The article does not address the specific additives in Kimera Koffee, but the conclusion is interesting. Stimulants provide a subjective experience of enhanced performance. That makes me think that the caffeine in the coffee might be the nootropic we all already know and love. Personally, I like my nootropic in the form of a cappuccino from Intelligentsia in Chicago.

I'm not saying that the additives in this product don't work. I don't know that, and I suspect they do provide an additional jolt. But, there are a couple legal issues raised.

First, what about the tariff classification? In the ruling, Customs had to decide whether this is coffee of HTSUS Heading 0901 or preparations of coffee in Heading 2101. According to prior rulings, a preparation of coffee includes coffee with sugar, milk, etc. regardless of changes in the finished products' physical characteristics. But, coffee mixed with natural or artificial flavors has been classified as coffee, rather than as a preparation.

Although the added supplements are not flavorings, Customs believes the analysis is similar. This did not get a lot of analysis, and I think it is legally dubious. But, there it is. Customs classified this product as coffee in subheading 0901.21. As a side note, coffee of 0901.21 is exempt from country of origin marking.

The second question I have is whether this should be regulated as a drug. Assuming it falls into the category of supplements rather than drugs, it should be labeled to say that the statements about performance enhancement have not been evaluated by the FDA and that this coffee is not intended to diagnose, treat, cure, or prevent disease. That is the magic get-out-of-FDA-jail-free card for supplement sellers. Section 201(g) of the Food, Drug & Cosmetics Act defines a drug as, in part, "articles (other than food) intended to affect the structure or any function of the body of man or other animals." By its own advertising, this coffee is designed to affect the function of the human brain. By my reading, that is a drug. Of course, I can also get a cup of coffee with my apple pie, making it food. That is enough to take it out of the scope of the Act. Is that the right analysis though? It seems that by adding those ingredients to coffee for the purpose of affecting brain function, the coffee is being used as a delivery system rather than food. If I put insulin in chocolate pudding, is it no longer regulated as a drug?

Lucky for me, this is the Customs Law Blog and I don't need to know the answer to these questions. If you, on the other hand, are a F&D lawyer, please let me know how this plays out for Kimera Koffee and similar "boosted" products.

For the past couple years, I have been on the record at numerous events and in numerous publications with various ideas for how to make tariff classification litigation more efficient and, therefore, more useful for importers. There are several good ideas floating around about this. Not the least of which is the Court of International Trade's recently announced pilot program for a "small claims" process. Others have done the lion's share of the work on that.

My big idea has been to promote early efforts to resolve the legal questions about how to interpret the Harmonized Tariff Schedule. My thought is that if everyone is reading the tariff the same way, the parties will know what facts matter and whether there is a real dispute. With the fact disputes eliminated or narrowed down, discovery can be focused and the parties can get to the controlling issues quickly. It's even possible that, once the parties know the meaning of the tariff terms, cases will be stipulated or settled.

I got here by analogizing tariff classification disputes to patent infringement cases. In a patent case, the judge interprets the patent claims following what's known as a Markman hearing. You can read all about that here, in the Brooklyn Journal of International Law.

Along comes Chemtall, Inc. v. United States, from the Court of International Trade to help me make my case. Chemtall is a complicated case involving more chemistry than I have seen since high school. The opinion is full of helpful diagrams of chemical structures. The product at issue is acrylamide tertiary butyl sulfonic acid or ATBS, for short. The classification question is whether that product is an amide. Since the structure of the produce is well understood, the only question is the definition of an amide.

According to the Explanatory Notes, an "amide" is a compound with an amide functional group and either hydrogen, alkyl radicals, or aryl radicals.

Plaintiff's position in this case is that "many" sources do not explicitly limit the definition of "amide" to those compounds with these functional groups and, therefore, it is possible to substitute a different structure. But, the Explanatory Notes provide a specific definition, which is going to be pretty persuasive. Further, the only source of support for this theory was the plaintiff's expert. Note that the expert is an expert in chemistry, not in interpreting the law. That is what judges are for.

The Court did not agree to expand the definition and applied the Explanatory Notes. That resulted in a win for Customs and Border Protection.

If the parties knew that definition early in the case, would it have taken three years to resolve the matter? Possibly, I was not involved and do not know what disputes might have been raised and resolved along the way.

Plaintiff had some other arguments about whether the product was derivative and the meaning of the 10-digit statistical suffix. And, I certainly do not pretend to understand the chemistry. The great thing about being a lawyer is that I am confident I could understand it if and when it became necessary. That is not today.

What I find fascinating about this case is that THERE WERE NO FACTS IN DISPUTE. The only issue was how to read the tariff language. Much of the 13-page opinion was a careful explanation of the process of tariff classification, the standard of judicial review, and the nature of the product. The value of the expert testimony was a minimal consideration.

When there are no material facts in dispute, cases get decided on motions for summary judgment. That is how the majority of classification cases are resolved. If that is the case, doesn't it make sense to identify the question of law up front, resolve it, and then decide whether it makes sense to continue to pursue the case? If the case goes forward, the relevant facts should be fairly well known, making discovery more focused and the whole process more efficient.

Something like that is supposed to happen in patent cases through Markman hearings and it makes sense to me to try something like that in the Court of International Trade. People in the trade have started talking about applying Markman in tariff cases, which is a good thing. On the other hand, Markman was a patent case and has not direct relevance here. Consequently, I hereby declare that if and when this process takes hold in customs litigation, it be called a "Friedman hearing."

By my calculation, this is week 10 of 2016 and this is ROTW 8, I am getting close.

Today's ruling might make the squeamish among you go "Eww," but it shouldn't. The product in question is a three-dimensional reconstructed human epidermis. When I read that, I pictured a fully human-shaped skin ready for taxidermy or some more nefarious use. The reality is far more mundane and much more scientifically cool.

The ruling is NY N270364 (February 19, 2016). The product turns out to be an "in vitro " epidermis grown from human skin and other cells cultured on a polycarbonate substrate. Here is the technical lowdown on it. The commercial purpose of this is not to build Buffalo Bill-style human skin suits or to give Mr. Data goosebumps. The idea is to have an in vitro model for testing drugs, cosmetics, etc.

Star Trek: First Contact

According to Customs, this item is classified as "Human blood . . . vaccines, toxins, cultures of micro-organisms (excluding yeasts) and similar products" in HTSUS item 3002.90.5150, which is duty free.

Customs and Border Protection noted that this product may be subject to regulations of the Centers for Disease Control and Prevention, which should make us all happy.