In ruling NY N317788 (March 23, 2021), Customs and Border Protection (CBP) discussed the classification of water bottles. The Kor Nava water bottles consist of a body, lid, straw, and carbon filter. The body, outer trim, caps, and straws are made of plastic materials. As mentioned in the ruling, the carbon filter is imported with each plastic water bottle inside the straw. The filter is designed to improve the taste of the water.

CBP found that the plastic water bottles provided the essential character within the meaning of GRI 3(b).  The water bottles perform the necessary role of holding the water, and the straw provides the ability to consume the water. The filter improves the taste of the water but is dependent upon the bottle to provide the water. CBP stated that the water bottles continuously store the water and provides a means, through the drinking spout in the lid, to consume the water, even if a depleted filter is not replaced.

CBP determined that the applicable subheading for the water bottles is 3924.10.4000, HTSUS, which provides for Tableware, kitchenware, other household articles and hygienic or toilet articles, of plastics:  Tableware and kitchenware:  Other.  The rate of duty is 3.4% ad valorem.

On March 29, 2021, U.S. Customs and Border Protection (CBP) is scheduled to publish a Notice of Finding that certain disposable gloves produced by Top Glove Corporation Bhd (Top Glove) in Malaysia are made with forced labor. Section 307 of the Tariff Act of 1930 prohibits the importation of goods “mined, produced, or manufactured wholly or in part…by convict labor or/and forced labor.”

On July 15, 2020, CBP issued a withhold release order (WRO) on disposable gloves manufactured by Top Glove based on evidence that reasonably indicated the company was using forced labor. A subsequent CBP investigation found sufficient evidence to support the claim.

The finding grants port officials the authority to seize gloves under Harmonized Tariff Schedule of the United States (HTSUS) subheadings 3926.20.1020, 4015.11.0150, 4015.19.0510, 4015.19.0550, 4015.19.1010, 4015.19.1050, and 4015.19.5000 made in whole or in part by Top Glove. CBP may initiate forfeiture proceedings for the covered merchandise, unless the importer can establish the gloves at issue were not produced with forced labor.

On March 9, 2021, the Financial Crimes Enforcement Network (FinCEN) published its first Notice related to one of the many changes made in the Anti-Money Laundering Act of 2020 (the AML Act), passed as part of the National Defense Authorization Act for Fiscal Year 2021, which we wrote about here. FinCEN’s guidance informs financial institutions about the AML Act’s provisions related to trade in antiquities and art, underscores that illicit activity related to antiquities and art may involve financial institutions and trigger reporting requirements, and provides specific instructions for filing Suspicious Activity Reports (SARs) related to suspicious activity involving antiquities and art.

The AML Act broadened the definition of “financial institutions” in the Bank Secrecy Act (BSA) to include persons “engaged in the trade of antiquities” and requires FinCEN to propose rules to implement this provision 360 days after the date of enactment of the law (January 1, 2021). While it remains for the Director of FinCEN, in coordination with the Federal Bureau of Investigation (FBI), the Attorney General, and the Department of Homeland Security’s (DHS) Homeland Security Investigations to clarify the scope of the rulemaking and determine whether any exemptions apply, those subject to the BSA’s reporting and recordkeeping requirements could extend to intermediaries in the sale or purchase of antiquities, such as consultants and advisors, in addition to dealers.

According to FinCEN’s Notice, illicit activity involving trade in antiquities and art might include looting, theft, illicit excavation of archaeological items, smuggling, the sale of stolen or counterfeit items, money laundering and sanctions violations. Those crimes may have links to transnational criminal networks, international terrorism, and persecution of individuals or groups on cultural grounds. Included in the Notice are specific instructions for filing SARs related to suspicious activity involving art and antiquities. FinCEN instructs financial institutions to reference “FIN-2021-NTC2” in SAR field 2 and provides a list of details to include in the narrative, if available. FinCEN also instructs financial institutions to select SAR field 36(z) (Money Laundering – other) as the suspicious activity type and to note whether the activity relates to antiquities, art, or both. Finally, with regard to stolen art or antiquities, FinCEN asks financial institutions to provide a detailed description of the item, indicate whether photographs are available, and provide information about the location where the reported individuals or entities are operating.

Though the definition of “financial institutions” does not yet extend to those engaged in the trade of art, the AML Act directs the Secretary of the Department of the Treasury, in coordination with the FBI Director, the Attorney General, and the Secretary of DHS, to perform a study of the facilitation of money laundering and the financing of terrorism through trade in works of art, which could be the harbinger of additional changes ahead.

The regulation of the art and antiquities markets in the United States is not without precedent. In 2018, the European Union’s Fifth Money Laundering Directive extended anti-money laundering laws to art businesses, and directed EU member states to implement it into their national laws by early 2020. Separately, sanctions evasion through the sale and purchase of high-value art was the subject of a bipartisan congressional report released by the Senate’s Permanent Subcommittee on Investigations last summer. Included in the report’s recommendations was the amendment of the BSA to add businesses handling transactions involving high-value art.

FinCEN’s guidance makes clear that the agency expects financial institutions to remain vigilant against illicit activity in the art and antiquities trade. Institutions should consider the sources of information addressing illicit activity in the art and antiquities trade identified by FinCEN, including an Interpol report, a U.S. State Department report, and a report by the UN Office on Drugs and Crime, in addition to their own experiences and other available information. This Notice also represents what is likely to be the first of several notices advising covered financial institutions of upcoming amendments to the BSA as a result of the AML Act. Financial institutions should continue to watch for additional guidance from FinCEN and other regulators.

In light of the AML Act’s new provisions, persons and businesses involved in the sale and purchase of art and antiquities should conduct a risk assessment to evaluate any money laundering-related vulnerabilities of their business, assess existing AML programs and policies for their sufficiency, and consider implementing policies and procedures if none exist.

In ruling NY N317565 (March 11, 2021), Customs and Border Protection (CBP) discussed the classification of the “In-Wash Scent Booster,” described as scented booster beads packaged for retail sale. As stated in the ruling, the beads are placed directly into a washing machine in order to provide a boost of long-lasting freshness and fragrance to clothing, towels, and linens. The product is a surface-active preparation, comprised of Poloxamer 188 (CAS # 9003-11-6), Ceteareth-25 (CAS # 68439-49-6), and other substances.

The applicable subheading for the “In-Wash Scent Booster” is 3402.20.5100, HTSUS, which provides for Organic surface-active agents (other than soap); surface-active preparations, washing preparations (including auxiliary washing preparations) and cleaning preparations, whether or not containing soap, other than those of heading 3401: Preparations put up for retail sale: Other. The general rate of duty is Free.

Even before the COVID-19 pandemic, knockoffs were a $500 billion global criminal enterprise, predicted to double by 2022 with the exponential rise in e-commerce. 2020’s pandemic accelerated both phenomena: Within three months of onset in the U.S., online shopping spiked 32%, throwing open the door to fake fashion, electronics, medicines and more.

Now more than ever, makers and sellers of authentic products need the most powerful tools at their disposal to combat knockoffs. The U.S. International Trade
Commission wields a veritable sledgehammer against knockoffs by enforcing Section 337 of the U.S. Tariff Act of 1930 and offering swiftly adjudicated exclusion orders against knockoff imports, enforced by U.S. Customs at sea and at airports. In just the past year, Jeep won an ITC exclusion order against trade dress infringing vehicles, Varidesk LLC scored exclusion of patent-infringing standing desks, BIC Corp. won exclusion of trade dress infringing lighters, and Bose Corp. benefited from exclusion of patent-infringing earbuds.

Yeti Holdings Inc.’s ITC action particularly illuminates its knockoff problem, solution and outcome over the course of 2015 to present. Here we examine this pressing problem and powerful solutions for brands, manufacturers, wholesalers and retailers in 2021.

Yeti is the story of a niche, luxury fishing cooler company that boomed to a $470 million cult brand by 2015. After its coolers hit the market — and American college campuses — in 2006, Yeti expanded its business to include an equally popular line of insulated drinkware. Yeti’s rise to iconic status, however, was almost put on ice in 2017, as its sales turned downward — from nearly $820 million in 2016 to less than $650 million by year end 2017. Finding mass counterfeiting of its drinkware products to be the source of substantial lost sales and reputational harm, Yeti turned to the ITC, filing a complaint against knockoffs in late 2017.

To learn more about how to combat the knockoff  problem, see full article here.

In ruling NY N317621 (March 4, 2021), Customs and Border Protection (CBP) discussed the classification of jewelry pieces. As described in the ruling, style number 60549843-276 is a pair of dangling silver and blue earrings.  The components include base metal lever backs, base metal drop-shaped castings, and drop-shaped reconstituted calcite stones. Style number 60549853-H46 is a silver, turquoise, teal, and blue bracelet.  The components include base metal castings, plastic stones, reconstituted turquoise stones, and a reconstituted calcite stone.

CBP determined that the applicable subheading for the earrings and bracelet is 7116.20.0500, HTSUS, which provides for “Articles of natural or cultured pearls, precious or semi-precious stones (natural, synthetic or reconstructed): Of precious or semiprecious stones (natural, synthetic or reconstructed): Articles of jewelry: Valued not over $40 per piece.”  The rate of duty is 3.3% ad valorem.

Firms Build Financial Services Powerhouse in New York, London and D.C.

New York – March 18, 2021: Crowell & Moring and Kibbe & Orbe have agreed to join forces to provide expanded service offerings to clients in the financial services industry. As part of the transaction, 24 lawyers from the storied financial law firm would become part of Crowell & Moring’s New York, London, and Washington, D.C. offices, including Jennifer Grady, managing partner and chair of the firm’s executive committee, three founding partners, Jonathan Kibbe, William Orbe, and Michael D. Mann, and the managing partner of the London office, Andrew M. Martin. The transaction is expected to close in April.

Kibbe & Orbe represents hedge funds and other private investment funds, investment banks, financial institutions, public and private enterprises, and corporate boards of directors on a broad range of transactions, structuring issues, and regulatory matters in the investment and business sectors. The firm is recognized for having pioneered the legal framework governing the practice of trading in distressed bank loans, creating a market that now transacts a trillion dollars annually, and for crafting novel client solutions, including high-value investments in complex illiquid assets. The firm is a leading voice in evolving markets, new asset classes, non-bank lending, and litigation finance. Kibbe & Orbe’s client roster includes six of the top 10 global investment banks, six of the 10 largest private equity funds, and 31 of the top 100 hedge funds, as ranked by assets under management.

“We have been focused on strategically expanding our financial services industry practice. Kibbe & Orbe is recognized for its excellence and innovation by sophisticated blue-chip clients in the global financial markets, so adding these superb lawyers to our team is an extraordinary opportunity,” said Philip T. Inglima, chair of Crowell & Moring. “They have established a sterling reputation over the past 30 years for their experience handling complex – and often novel – transactional, regulatory, compliance, and governance matters. They are viewed as a leader internationally for their work in the distressed debt industry and are sought out by corporate clients for their knowledge of increasingly sophisticated financial products and the rapidly changing global regulatory environment in which they are operating.”

The group includes 13 partners (10 based in New York, 2 in London, and 1 in D.C.); 1 of counsel and 2 counsel (New York); and 8 associates (4 New York, 4 London). Outside of Grady, Kibbe, and Orbe, the partners joining Crowell & Moring’s New York office include: Scott C. Budlong, Paul B. Haskel, Timothy Lin, Julia Lu, Richard Lee, Gregory Gennady Plotko, and Kevin Rubinstein. Also joining the New York office are of counsel Kenneth Werner and counsel James J. Ohlig and Robert Waldner; and associates John A. Clark, Frank Jaklitsch, Luke A. Smith, and Hanchang Sohn. In addition to Martin, joining the firm’s London office is partner Matthew Hughes, as well as four associates: Adam Colman, Emilie Condie, Adam English, and Miriam Karam. Mann will join Crowell & Moring’s Washington, D.C. office.

In tandem with its transactional practices, Kibbe & Orbe advises clients on a wide range of regulatory, compliance, and governance issues, including providing strategic advice to boards, board committees, individual directors, and their companies on a range of corporate governance issues; counseling buy-side clients about the requirements of the SEC and other regulators, with a focus on real-time trading advice to chief compliance officers, general counsel, and portfolio managers; and identifying and mitigating the risks faced by clients conducting global business and corporate transactions subject to both U.S. and foreign regulations. Kibbe & Orbe is a recognized authority on internal investigations, auditor independence, and international securities law compliance issues, as well as being fluent in a complex range of issues in the investment and business sectors.

“This is an exciting opportunity to join forces with a firm that is as committed to diversity, collegiality, and professional excellence as we are,” said Jennifer Grady, managing partner and chair of Kibbe & Orbe’s executive committee. “The legal needs of our clients are evolving, particularly as a result of the growing complexity of investment strategies and structures, and the rapid adoption of new technologies developed for the financial markets. We believe that Crowell & Moring offers the ideal platform with its broad spectrum of complementary practices, government-facing experience, and financial services industry knowledge. We’re certain our clients will find the firm’s recognized capabilities in areas like anti-corruption, AML/sanctions, financial litigation, fintech, cybersecurity/data privacy, securities enforcement, and white collar and investigations to be of tremendous value.”

“This cutting-edge group of financial services practitioners will significantly expand our presence on Wall Street and increase our ability to deliver the highest level of service to global investment banks, private equity funds, and hedge funds,” said Glen McGorty, managing partner of the firm’s New York office. “Kibbe & Orbe has a core team of distressed debt and claims trading lawyers that is one of the most experienced in the world. Their leadership in secondary debt and claims markets and experience as thought leaders in those global markets gives them the ability to look around the corner, anticipate issues, and capitalize on new developments for our clients.”

“We are delighted to welcome this team to our expanding London office. Their arrival will have a positive impact on our London clients, particularly those in the financial services sector. The Kibbe & Orbe team is recognized for having within its ranks the most qualified, distressed-debt-focused, legal practitioners in the world,” said Robert Weekes, managing partner of the firm’s London office. “Their sophisticated and innovative practice complements our existing specialties in London. Joining forces will result in more comprehensive service offerings for clients and will even further enhance our excellent collaboration with our colleagues in New York and D.C.”

About Crowell & Moring LLP

Crowell & Moring LLP is an international law firm with approximately 560 lawyers representing clients in litigation and arbitration, regulatory and policy, and transactional matters. The firm is internationally recognized for its representation of Fortune 500 companies in high-stakes litigation, as well as its ongoing commitment to pro bono service and diversity, equity, and inclusion.

Last year saw a marked uptick in unfair import investigations at the International Trade Commission (ITC), with an especially strong close to the year: eight new complaints in December alone brought the year’s total to 62 new complaints to the Commission, well above the ten-year average of 49. Complaints alleging trade secret misappropriation rose particularly, as the ITC becomes increasingly popular due to its speed, jurisdiction and unique remedies.  While just five investigations solely of trade secrets were instituted in the five years of 2011-2015, fifteen such investigations were instituted in the next five years of 2016-2020, including five in 2020 alone.[1]

There are several factors to consider when deciding if the ITC may be a better forum that a U.S. federal district court for enforcing trade secrets.

The ITC is considerably faster than pursuing trade secret litigation in most U.S. federal district courts.  Trade secret litigation in U.S. federal district court typically takes years to resolve.  In contrast, ITC trade secret investigations are usually resolved within 18 months, even during COVID.  If you are facing considerable financial or reputational damage as a result of a competitor’s sales of imported products resulting from trade secret misappropriation, a quick import injunction from the ITC may be your best option for preventing significant harm to your sales or your brand.

In contrast to federal district court, the ITC allows companies to seek exclusion orders based on extraterritorial trade secret misappropriation, without showing evidence of an act in the U.S. in furtherance of the misappropriation.  The Defend Trade Secrets Act (DTSA), enacted in 2016, creates a civil cause of action in U.S. federal district court for trade secret misappropriation, including misappropriation that occurred outside the U.S., and provides for remedies that include monetary damages and injunctive relief.  Unlike claims brought under the DTSA, however, which require acts in the U.S. in furtherance of the misappropriation, the ITC can issue an exclusion order where there is evidence that the importation of the offending products will harm a domestic industry.   If there is little to no evidence of acts performed in the U.S. in furtherance of misappropriation, the ITC may therefore be a better choice for preventing a competitor from profiting from their foreign misappropriation.

Additionally, the standard for injunctive relief at the ITC, causing domestic injury, is considered to be easier to meet than that of the traditional four-factor test used in federal district court.  Where the four-factor test may be difficult to meet, or time is simply of the essence, the ITC may be the preferred forum.

And in contrast to federal district court, the ITC is not required to have personal jurisdiction over the parties; instead it has in rem jurisdiction over the offending products themselves.  If there are questions about whether a foreign entity will be subject to personal jurisdiction in the U.S., the ITC may be the better forum.

When might the ITC not be the best forum?  The ITC may not be the best choice if a company or a licensee has significant foreign, but not domestic, operations because the ITC requires a showing that a U.S. domestic industry will be substantially injured by the misappropriating party’s acts.  Additionally, monetary damages are not available at the ITC (although a parallel district court action is commonly brought for that reason).  So where financial damages are the primary goal of a trade secret action, as opposed to quick injunctive relief, federal district court is often the better option.

The ITC’s recent opinion in the Matter of Botulinum Products (Inv. No. 337-TA-1145), aka the “Botox Brawl,” is the latest furthering trade secret enforcement at the ITC.  While it remains to be seen whether the opinion will be upheld on appeal, companies seeking to enforce their trade secrets would be wise to consider the ITC as an alternative to federal district court, especially in circumstances where a speedy injunction against a foreign entity is the goal.

American Conference Institute National Forum on Team Telecom

March 17, 2021 • Webinar

Starts: 8:45 AM (EDT)
Ends: 5:45 PM (EDT)

Crowell & Moring Partner Caroline Brown will be presenting at the American Conference Institute’s first-annual National Forum on Team Telecom on Wednesday, March 17, 2021.

Former President Trump issued an Executive Order on April 4, 2020, formalizing and revising the national security reviews conducted by the interagency group “Team Telecom” and expanding authority of the new Committee on the Assessment of Foreign Participation in the United States Telecommunications Services Sector. With this expanded authority, certain FCC license applications, including telecom, satellite, and subsea cable landing licenses, M&A activity, and other telecom-sector deals with foreign entities will face increased governmental scrutiny. This webinar will help participants better understand the implications of recent actions by the U.S. government and “Team Telecom” that are likely to significantly impact many telecom providers, equipment manufacturers and companies developing artificial intelligence and IoT projects.

Informed by her firsthand experience working on Team Telecom during her tenure at DOJ, Caroline’s presentation, “Team Telecom 2.0: Examining the New Team Telecom Environment in the Aftermath of Executive Order 13913 and A Deep Dive into the FCC’s Recent Implementation Guidelines,” will be held at 9:00 AM on March 17. Her panel will discuss the following:

  • Gaining an understanding of the new Team Telecom structure, timelines, scope of authority/jurisdiction, and review process
  • What foreign ownership and control thresholds must be met for a telecom license application to be subject to review by the new Team Telecom committee?
  • Addressing ambiguities in EO 13913 that leave room for further clarification
  • Analyzing Team Telecom’s:
    -Mitigation agreements designed to protect sensitive personal data related to licenses
    -Approach to submarine cables connecting US-China and/or involving Chinese ownership
    -Interplay with the Committee on Foreign Investment in the United States (CFIUS)
  • Examining the FCC’s implementation guidelines for how the new process will work

For more information, click here for the brochure. If you would like to receive a 10% discount off of the attendance fee, please email Nicole Benevento and she will send you a discount code.

Photograph of Caroline E. Brown

Caroline E. Brown
Partner – Washington, D.C.
Phone: +1 202.624.2509
Email: cbrown@crowell.com

During a recent panel at Georgetown Law’s annual International Trade Update, two Federal Circuit judges urged trade attorneys to consider their audience and simplify their briefs. Although the U.S. Court of International Trade is specialized, Federal Circuit Judge Todd M. Hughes emphasized how the conversation must change when a trade matter is appealed to the Federal Circuit Court. U.S. Circuit Judge Jimmie V. Reyna also explained that the Federal Circuit receives fewer trade cases compared to other matters and thus requires more context for the judges.

Both stressed the need for background information before presenting arguments. “Explain the terminology, explain the process and the procedures,” said Judge Reyna. As Judge Hughes noted, trade attorneys need to ensure his junior law clerks are able to follow the discussion of the issues. “They are critical to my decision-making process,” Judge Hughes said of his clerks. “So if you write a brief that they can’t understand, then you’re doing yourselves a huge disservice.”