Seizure of goods with counterfeit marks not an "embargo," so no CIT jurisdiction to challenge fine

February 21, 2008
Post by Blog Staff

In a decision this week, the Federal Circuit vacated the decision of the Court of International Trade (CIT) and remanded with instructions to dismiss the plaintiff's complaint for lack of subject matter jurisdiction.The case arose out of a civil fine levied against the plaintiff for importation of counterfeit goods. The plaintiff brought suit in the CIT to contest the fine. The CIT found that it had subject matter jurisdiction, but dismissed the case on the basis that there was no final agency action under the Administrative Procedure Act. The Federal Circuit held that the CIT did not have subject matter jurisdiction in the first instance, as the seizure of counterfeit goods does not constitute an "embargo" pursuant to the relevant statutes. As a result, the court vacated and remanded the CIT's decision with instructions to dismiss the case. More detail of Sakar Int'l, Inc. v. United States after the jump.The matter before the Federal Circuit involved the seizure of travel chargers (bearing the "UL" certification mark) and mini-keyboards (bearing the "Flying Window" trademark of Microsoft) for personal digital assistants (PDAs) imported by Sakar to the United States. Upon examination, Customs determined that the goods were counterfeit and subsequently seized and destroyed the goods pursuant to 19 U.S.C. § 1526(a), which makes it unlawful to import into the United States goods bearing a registered U.S. trademark without the trademark owner's written consent. Additionally, Customs exercised its discretion and imposed a civil fine upon Sakar of $381,500. After two petitions by Sakar, the fine was reduced to $67,775, and Customs stated that this constituted the "final administrative review" and that no further petitions would be accepted. Sakar filed suit in the Court of International Trade (CIT) challenging Customs' mitigated fine alleging, among other things, that Customs had acted contrary to law in calculating the manufacturer's suggested retail price ("MSRP") of the seized goods and in concluding that the goods were counterfeit. The CIT held that it had jurisdiction over Sakar's claim under 28 U.S.C. § 1581(i)(4) as it related to 28 U.S.C. § 1581(i)(3) because Customs' seizure of Sakar's goods amounted to an "embargo" within the meaning of § 1581(i)(3) and, thus, the fine assessed against Sakar by Customs related to the "administration and enforcement" of an embargo within the meaning of § 1581(i)(4). Turning to the merits, the CIT found the action taken by Customs was not "final agency action," and therefore held that Sakar had failed to plead a cause of action that could entitle it to relief. Sakar appealed.On appeal, Sakar argued the administrative fine imposed by Customs, and set forth in a letter from Customs, was sufficiently final for judicial review and further that Customs acted contrary to the law in calculating the MSRP of the seized goods. The government responded that the CIT erred in ruling that it had jurisdiction over Sakar's suit, as the seizure of Sakar's goods did not constitute an embargo. On the merits, the government argued the CIT did not err in dismissing Sakar's complaint under USCIT Rule 12(b)(5).The Federal Circuit first considered the issue of subject matter jurisdiction. 28 U.S.C. § 1581(i)(3) grants the CIT exclusive jurisdiction over cases against the United States that arise out of any law providing for "embargoes or other quantitative restrictions on the importation of merchandise . . . ." 28 U.S.C. § 1581(i)(4), in turn, grants the CIT jurisdiction over cases arising out of any law that provides for "administration and enforcement with respect to the matters referred to in" § 1581(i)(3). The Federal Circuit looked to K Mart Corp. v. Cartier, Inc. to interpret the meaning of "embargo." There, the Supreme Court concluded that the word "embargo" should be interpreted according to its ordinary meaning, which is "a governmentally imposed restriction – of zero – on the importation of merchandise." The Court further explained that:

An importation prohibition is not an embargo if rather than reflecting a governmental restriction on the quantity of a particular product that will enter, it merely provides a mechanism by which a private party might, at its own options, enlist the Government's aid in restricting the quantity of imports in order to enforce a private right.
The Supreme Court reasoned that the statute at issue in that case, 19 U.S.C. § 1526(a), was "very different from an embargo" because "[t]he trademark owner has the sole authority to decide that all products bearing its trademark will enter or that none will, and to decide what entity may import them under what conditions, and for what purposes." The critical question as it related to the facts in this matter, therefore, was whether 19 U.S.C. § 1526(e) established an "embargo." 19 U.S.C. § 1526(e) provides, in relevant part:
Any such merchandise bearing a counterfeit mark (within the meaning of § 1127 of Title 15) imported into the United States in violation of the provisions of § 1124 of Title 15, shall be seized and, in the absence of the written consent of the trademark owner, forfeited for violations of the customs laws.
By its terms, § 1526(e) incorporated provisions of the Lanham Act in order to identify which imported merchandise Customs shall seize. Specifically, under 15 U.S.C. § 1124, no imported merchandise found to "copy or simulate" a registered mark "shall be admitted to entry at any customhouse of the United States."In analyzing the pertinent statutes, the Federal Circuit reasoned that since it is the trademark owner exercising its private right, rather than the Government, in deciding as to whether the seized goods enter into U.S. commerce, the seizure of the goods does not impose an "embargo" within the meaning of that term in § 1581(i)(3). Thus, the seizure of goods by Customs under § 1526(e) is merely an intermediate step in the ultimate disposition of those goods and, therefore, t

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