January 2012 Newsletter
Section 337 Exclusion Orders - The Dodd-Frank Conflict Minerals Provision
Section 337 Exclusion Orders and the matter of Certain Semiconductor Chips Having Synchronous Dynamic Random Access Memory (DRAM) Controllers and Products Containing Same
Under Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337), unfair methods of competition and unfair practices in the importation or sale of goods which destroy, substantially injure, or prevent the establishment of an efficiently and economically operated U.S. industry; or restrain or monopolize trade and commerce in the United States, are unlawful. Additionally, Section 337 declares unlawful the importation into the United States of goods which infringe a U.S. patent, registered trademark, copyright, or mask work. Subsequent to an investigation of an alleged violation under Section 337, where the USITC determines that Section 337 has been violated, it may issue an order directing the Secretary of the Treasury, as delegated to the Secretary of Homeland Security, to exclude the subject goods from entry into the United States.
The USITC may also issue seize and forfeiture orders against specific importers where the importer attempts to enter the goods, after previously having been notified by CBP that future shipments would be subject to seizure and forfeiture. Unlike trademarks and copyrights, patents registered with the U.S. Patent and Trademark Office may not be recorded with CBP. Thus, CBP’s action with respect to patents is limited to the enforcement of USITC Exclusion Orders. Upon written request from an importer or interested party CBP will issue a ruling as to whether prospective importations fall within the scope of an Exclusion Order.
As a result of the shorter period of time involved in conducting the investigations and the powerful remedies provided, like exclusion orders, many companies are opting to use Section 337 investigations and exclusion orders over other avenues for relief.
A recent example of one such company is Los Altos, CA based Rambus, Inc., who filed a Section 337 complaint with the U.S. International Trade Commission (“The Commission”). The complaint named a variety of parties (respondents) and alleged violations of Section 337 concerning the following activities: a) Sale for importation into the U.S., b) Importation into the U.S., and c) Sale within the U.S after importation of certain semiconductor chips (DRAM) controllers and product containing the same by reason of infringement of certain patents. In response, the Commission instituted, in December, 2008, Investigation No. 337-TA-66. Upon the conclusion of the investigation, the Commission determined that a violation of Section 337 had occurred. To remedy this violation, the Commission determined in July, 2010, to issue a limited exclusion order and cease-and-desist orders against the following respondents: NVIDIA Corp.; Hewlett-Packard Co.; ASUS Computer International, Inc.; Palit Multimedia Inc.; Palit Microsystems Ltd.; MSI Computer Corp.; Micro-Star International; EVGA Corp.; Diablo Tek, Inc.; Biostar Microtech Corp.; and BFG Technologies, Inc.
As the use of Section 337 continues to grow, it is important to determine whether your company may be in a position either to take advantage of this tool or, conversely, whether your company may be affected by the outcome of a Section 337 investigation and determination. The Customs and International Trade lawyers at Middleton & Shrull are prepared to address these questions and welcome any inquiries relating to the Section 337 process.
The Dodd-Frank Conflict Minerals Provision
The U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2009. Contained in Section 1502 of this Act is the conflict minerals provision, which addresses the concern that proceeds from certain minerals mined from the Democratic Republic of Congo (DRC) and/or other neighboring Central African countries (South Sudan, Uganda, Rwanda, Burundi, Tanzania, Malawi, Zambia, Angola, Congo, and the Central African Republic) have been used to finance conflicts with extreme levels of violence. The explicit purpose of Section 1502 is to promote transparency and consumer awareness regarding the use of these minerals, which include gold, wolframite, casserite, coumbite-tantalite, and their derivative metals, including tin, tungsten, and tantalum; and ultimately to discourage their use. Section 1502 directs the SEC to issue rules requiring companies to disclose in 10-K, 20-F, 40-F filings, and even in some cases in audited “Conflict Minerals Report”, whether they manufacture products containing these conflict minerals.
Although the provision was set to go into effect on January 1, 2012, the SEC has yet to publish a final rule on how it is to be implemented. The SEC has, however, issued a proposed rule, which would require the companies to disclose, in their annual report: a) whether they manufacture, or b) contract with another company for the manufacture of a product for which conflict minerals that originated in a Democratic Republic of Congo (DRC) or neighboring Central African country are necessary to the functionality or production of that product. The SEC estimates that in excess of 6,000 companies might be covered by these new proposed rules.
If the company is covered by the proposed rule and unable to substantiate the source of its materials, the company would be required to furnish a separate report as an exhibit to its annual report that includes a description of the measures taken by the company to exercise due diligence on the source and chain of custody of its conflict minerals. In practice this means that companies will have to establish comprehensive compliance programs and screening tools, as well as engage in very rigorous supply-chain due diligence, in some cases conducted and certified by an independent private sector auditor, with the reports made available to the public.
Before you decide that your company has absolutely no connection to these minerals and dismiss the provision as inapplicable, bear in mind that the breadth of industries affected includes aerospace, automotive, electronics and communications, jewelry, healthcare machines, and manufacturing conglomerates. Moreover, the provision could potentially reign in companies from a wide swath of industries, in that it could affect products as seemingly mundane as packaging and promotions materials. We encourage you to speak with an attorney at Middleton & Shrull regarding whether or not your company may be affected by this provision and how you might best position your company to avoid triggering any eventual violations.
Lastly, and on a positive note, although this provision has and will continue to erect costly compliance hurdles for many U.S. companies, there are reports, by groups such as the UN Group of Experts on Congo, which have voiced their support for the Dodd-Frank Conflict Mineral Provision, and which argue that the provision has already begun working in the region, reducing the flow of conflict mineral revenues.
Roland Shrull is the managing partner of Middleton & Shrull and can be reached at roland@middleton-shrull.com. Roland has extensive experience in all areas of Customs and International Trade law, both within the government and in private practice. Matthew Bock, an associate with Middleton & Shrull, can be reached at matthew@middleton-shrull.com. Please do not hesitate to contact either of us should you have any questions or concerns regarding any of the issues covered by this newsletter.