Protest 2704-19-102107; U.S. International Trade Commission; General Exclusion Order; Investigation No. 337-TA-976, Certain Woven Textile Fabrics and Products Containing the Same

HQ H302369 February 6, 2019 OT:RR:BSTC:IPR H302369 JW CATEGORY: 19 U.S.C. § 1337; Unfair Competition VIA EMAIL: Eric.A.Batt@cbp.dhs.gov Mr. Eric Batt Director, Apparel, Footwear & Textiles Center U.S. Customs and Border Protection San Francisco, CA RE: Protest 2704-19-102107; U.S. International Trade Commission; General Exclusion Order; Investigation No. 337-TA-976, Certain Woven Textile Fabrics and Products Containing the Same Dear Mr. Batt: This letter is in response to protest number 2704-19-102107. Mytex, LLC (“Protestant” or “Mytex”) is the protesting party. Mytex is protesting the denial of entry of Entry No. 8E401035549, which included 4452 bedsheet sets (the “merchandise at issue”). See e.g., CBP Form 19; CBP’s Letter to Mytex Dated December 18, 2018. The protest filed with U.S. Customs and Border Protection (“CBP”) includes a CBP Form 19, a Continuation Sheet, and Exhibits 1 to 5 (collectively, “Mytex’s Protest”). This protest was received by CBP on January 7, 2019. See CBP Form 19. We find that the merchandise at issue is subject to the general exclusion order issued by the International Trade Commission (“Commission” or “ITC”) in Investigation No. 337-TA-976 pursuant to section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337. This protest challenging an exclusion from entry is DENIED. Mytex’s Protest does not designate any information as confidential. None of the information in this letter will be redacted. Sixty days from the date of the decision, Regulations and Rulings of the Office of Trade will make the decision available to CBP personnel, and to the public on the CBP website at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution. BACKGROUND Procedural History of ITC Investigation No. 337-TA-976 The Commission instituted Investigation No. 337-TA-976 (the “underlying investigation” or the “976 investigation”) on December 18, 2015 based on a supplemented and twice amended complaint filed by AAVN, Inc. of Richardson, Texas (“AAVN”). 80 Fed. Reg. 79094 (Dec. 18, 2015); Commission Opinion Dated March 20, 2017 (“Comm’n Op.”) at 1. The complaint alleged violations of section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1337, in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain woven textile fabrics and products containing the same, by reason of infringement of claims 1-7 of U.S. Patent No. 9,131,790 (“the ‘790 patent”) and/or by reason of false advertising. Id. The notice of investigation named fifteen respondents. Id. Fourteen of those respondents were terminated from the investigation based upon settlement agreement or consent order. Id. The last remaining respondent was Pradip Overseas Ltd. of Ahmedabad, India (“Pradip”). Id. AAVN accused Pradip of false advertising, specifically alleging that Pradip misrepresented the thread count of sheets manufactured in India, imported into the United States, and sold in United States department stores. Id. Pradip was not accused of infringing the ‘790 patent. Id. On September 2, 2016, AAVN moved for leave to file a motion for summary determination of violation out of time. Id. at 2. In the motion, AAVN noted that as a result of the settlements and consent orders, Pradip was the last remaining respondent. Id. The summary determination motion that was appended argued, inter alia, that Pradip had violated section 337 by falsely advertising the thread count of its imported sheets, and that the false advertising was deceptive, material, and injurious to AAVN. Id. AAVN requested that the administrative law judge (“ALJ”) recommend the issuance of a general exclusion order and also sought a 100 percent bond during the Presidential review period. Id. On September 15, 2016, the Commission investigative attorney (“IA”) responded in support of the motion for leave and the accompanying summary determination motion. Id. Pradip did not respond. Id. On November 10, 2016, the ALJ granted the motion for summary determination and issued the initial determination and recommended determination on remedy (“ID/RD”) (Order No. 21). Id. The ALJ found that AAVN had shown a violation of section 337 by reason of false advertising under section 43 of the Lanham Act, 15 U.S.C. § 1125(a)(1)(B). Id. (citing Order No. 21 at 7-9, 13-15). The ALJ found that Pradip’s packaging of its sheets with a falsely stated thread count was a false and misleading description of the sheets, that the misdescription was deceptive, that it is material to consumers in determining the sheets’ quality, that the advertised goods traveled in interstate commerce, and that there is a likelihood of injury to AAVN (i.e., injury under the Lanham Act). Id. at 2-3 (citations omitted). Further, the ALJ found substantial injury to AAVN under section 337(a)(1)(A) “as a result of the false claims of Pradip and its competitors regarding the actual thread count of its products and their ability to sell their products to retailers at lower prices.” Id. at 3 (citing Order No. 21 at 15) (internal quotations omitted). The ALJ also found that the importation requirement of section 337 had been satisfied, that Pradip had submitted to the Commission’s jurisdiction (i.e., in personam jurisdiction), and that the Commission had in rem jurisdiction over the imported articles. Id. (citations omitted). The ALJ recommended the issuance of a general exclusion order finding that “the evidence shows a widespread pattern of violation of Section 337,” and “the evidence shows that it is difficult to identify the source and manufacturers of the falsely advertised products.” Id. (citing Order No. 21 at 16-18) (internal quotations omitted). The ALJ also recommended the bond be set at 100 percent of the entered value of the falsely advertised products. Id. No petitions for review of the ID were filed, and on December 20, 2016, the Commission determined not to review the ID. Id. (citing 81 Fed. Reg. 95195 (Dec. 27, 2016)). The Commission requested written submissions on remedy, the public interest, and bonding. Id. (citations omitted). On January 6, 2017, AAVN and the IA filed submissions on these issues. Id. On January 13, 2017, the IA filed a reply to AAVN’s submission. Id. No other submissions were received. Id. The Commission found that the statutory requirements for relief under 19 U.S.C. § 1337(d)(2) were met and that the public interest factors enumerated in 19 U.S.C. § 1337(d)(1) did not preclude issuance of the statutory relief. Commission Notice of Issuance of General Exclusion Order Dated March 20, 2017. The Commission determined that the appropriate remedy in the investigation was a general exclusion order prohibiting the entry of certain woven textile fabrics and products containing same that are falsely advertised through a misrepresentation of thread count. Id.; see also General Exclusion Order Issued in ITC Inv. No. 337-TA-976 (March 20, 2017) (“976 GEO”). The Commission also determined that the bond during the period of Presidential review to be in the amount of 100 percent of the entered value of the imported articles that are subject to the general exclusion order. Id. False Advertising of Thread Count Overview Higher thread count sheets are generally perceived by consumers to be higher quality than lower thread count sheets. See Statement of Undisputed Facts in Support of AAVN’s Motion for Summary Determination (Inv. No. 337-TA-976) (“SUF”) at ¶ 7. To make high thread count products, manufacturers have to use smaller and finer yarns. Id. However, it is difficult to incorporate synthetic fibers – like polyester – into high thread count woven textile fabrics as they become increasingly brittle when made smaller and finer, and can break when fed into the loom apparatus used in making high thread count cotton-polyester blended fabric product. Id. To circumvent the problem of brittleness and breakage for synthetic yarns, some manufacturers twisted individual synthetic fibers together during manufacturing. Id. at ¶ 8; see also ALJ ID (Order No. 21 at 12, fn.4). This twisting increased tensile strength and helped stop synthetic fibers – like polyester – from breaking in looms, but it sacrificed comfort. Id. The twisted combination of fibers was then used as a plied yarn in the weaving process. Id. The products created using these plied yarns result in lower thread count products. Id. However, to appeal to consumers, some manufacturers falsely advertised their products with an inflated thread count achieved by counting the components of the plied yarns as multiple individual yarns instead of as one yarn. Id. at ¶¶ 13, 19. The Federal Trade Commission (“FTC”) concluded that the practice of counting individual plied components (or plies) within plied yarns to be a deceptive act or practice under Section 5 of the FTC Act, 15 U.S.C. § 45 and “would likely mislead consumers about the quality of the product being purchased.” Id. at ¶¶ 19, 20; see also ALJ ID (Order No. 21) at 12; see also FTC Letter to Mr. Wright Dated August 2, 2005. The ITC’s Finding of False Advertising in the 976 Investigation In the 976 investigation, the complainant AAVN’s false advertising claim was based on respondent Pradip’s false advertising of the thread counts of its woven textile fabric products in violation of the Lanham Act. ALJ ID (Order No. 21) at 12. To support its false advertising claim, AAVN cited the ASTM Standard 3775 (“Standard Test Method for Warp (End) and Filling (Pick) count of Woven Fabrics”) (“ASTM Standard 3775” or “ASTM D3775” or “ASTMD 3775”). Id. Pradip appeared to agree that the ASTM D3775 standard was the appropriate test procedure for measuring thread count of woven textile fabric products. Id. AAVN argued that Pradip’s accused products were advertised through a misleadingly inflated thread count as confirmed by independent testing (using ASTM Standard 3775) of Pradip’s Westwood 800 Thread Count Sheets and Astor Place 650 Thread Count Sheets. Id. In accordance with the testing results provided by AAVN, the ALJ found that the statements made by Pradip with respect to the thread counts of Pradip’s accused products were literally false. ALJ ID (Order No. 21 at 13). The ALJ stated that the independent testing under the ASTM Standard 3775 showed that the actual thread counts were 407 for the Astor Place 650 Thread Count Sheets (advertised as 650 thread count sheets) and 253 for the Westwood 800 Thread Count Sheets (advertised as 800 thread count sheets). Id. The ALJ further noted that Pradip failed to present any evidence that would contradict the veracity of the testing reports provided by AAVN. Id. Along the same lines, the ALJ also found that there was actual deception. Id. at 13-14. The ALJ noted that while Pradip claimed that its Westwood 800 Thread Count Sheets and its Astor Place 650 Thread Count Sheets were the advertised thread counts, the actual thread counts were 253 and 407, respectively. Id. Accordingly, finding that the other elements of a false advertising claim were met as well, the ALJ concluded that AAVN demonstrated that Pradip’s false advertising of its woven textile fabric products through the misrepresentation of thread counts was an act of unfair competition in violation of Section 337. Id. at 13-15. ASTM Standard 3775 “ASTM International is an international standards organization that develops and publishes voluntary consensus technical standards for a wide range of materials, products, systems, and services.” ALJ ID (Order No. 21) at 12, fn. 3 (citations omitted) (quotations omitted). ASTM’s definition of “thread count” is: in woven textiles as used in sheets and bedding, the sum of the number of warp yarns (ends) and filling yarns (picks) per unit distance as counted while the fabric is held under zero tension and is free of folds and wrinkles, individual warp and filling yarns are counted as single units regardless of whether comprised of single or plied components. See ASTM D7023 06 (Reapproved 2012) Standard Terminology Relating to Home Furnishings. ASTM Standard 3775 is titled “Standard Test Method for Warp (End) and Filling (Pick) Count of Woven Fabrics.” Id.; see also ASTM Designation: D3775-12. “Under the ASTM Standard 3775, in order to calculate thread count, one must count ‘plied components’ (such as twisted fibers) as ‘single units.’” ALJ ID (Order No. 21) at 12 (citation omitted); ASTM Designation: D3775-12 at ¶ 9.1.1. ASTM Standard 3775 further states that “[w]hen two yarns are laid-in together and parallel, count each yarn separately, as a single unit, regardless of whether it is comprised of single or plied components.” ASTM Designation: D3775-12 at ¶ 9.1.2. ASTM’s definition of “yarn” is: a generic term for a continuous strand of textile fibers, filaments, or material in a form suitable for knitting, weaving, or otherwise intertwining to form a textile fabric. ASTM Designation: D123-03 Standard Terminology Relating to Textiles. The Instant Protest (Protest No. 2704-19-102107) CBP received the instant protest, protest no. 2704-19-102107, on January 7, 2019. CBP Form 19. The protesting party is Mytex, LLC. Id. Mytex is protesting “Customs’ decision to exclude from entry the bedsheet sets imported by Mytex, LLC” specifically, entry no. 8E401035549. Id. Entry No. 8E401035549 Entry No. 8E401035549 consists of 4452 bedsheet sets of varying sizes. See Birla Century/Mytex Commercial Invoice. Mytex LLC was identified as the importer of record. See Exhibit 3 of Mytex’s Protest. The U.S. port of unlading was identified as port 2704 (Los Angeles/Long Beach Seaport). Id. The arrival date was identified as November 6, 2018. Id. The entry type was identified as 01 (consumption entry). Id.; see also https://www.cbp.gov/trade/automated/ace-transaction-details. In a letter dated December 18, 2018, CBP notified Mytex that the merchandise at issue was “excluded from entry for consumption into the United States . . . for violation of the general exclusion order issued by the U.S. International Trade Commission in Investigation No. 337-TA-976.” CBP Letter to Mytex Dated December 18, 2018. Mytex’s Protest Arguments In the protest, Mytex argues that “its imported bed sheets correctly state a 700 thread count and therefore are not subject to the ITC’s Exclusion Order.” Continuation Sheet of Mytex’s Protest at 1. Mytex states that “Mytex (through Marco Polo Sourcing) sent samples of the subject sheets to Intertek India Private Limited for testing to verify the thread count. . . .” Id. (citing Exh. 4 of Mytex’s Protest (Intertek Test Report)). Mytex notes that “[t]he samples provided to Intertek were the same color, size, and thread count sheets that are covered by this protest.” Id. at 2. Mytex points out that the report issued by Intertek, Report Number BOMT18053394, states that the Intertek lab applied ASTMD 3775 to determine the thread count of the sheets and confirmed that the thread count for these sheets is 700. Id. Accordingly, Mytex concludes that the “Intertek Test Report is conclusive evidence that Mytex accurately declared the correct thread count for its imported sheets” and “[t]here is no misrepresentation of thread count that might justify exclusion under the ITC’s General Exclusion Order.” Id. The Merchandise at Issue The merchandise at issue is 4452 bedsheet sets of varying sizes. See Birla Century/Mytex Commercial Invoice. The bedsheet sets are all specified as 60% Cotton and 40% Polyester. Id. CBP tested the merchandise at issue at its laboratories to determine thread count. See CBP Laboratory Report Nos. LA20181031 and LA20182141. Mytex also sent samples of sheets (that according to Mytex were of the same color, size and thread count as the sheets covered by this protest) to a laboratory in India, Intertek India Private Limited. Continuation Sheet of Mytex’s Protest at 1-2; see also Exh. 4 of Mytex’s Protest. The thread count results as found by CBP and Mytex are provided below. Thread Counts Obtained by CBP The CBP laboratory tested two sample sets of the merchandise at issue. The first sample was composed of five bed sheet sets: twin, full, queen, king, and cal. king. See CBP Lab Report No. LA20181031. With the exception of the twin set, each set had six pieces: one flat sheet, one fitted sheet, and four pillowcases. Id. The twin set had four pieces: one flat sheet, one fitted sheet, and two pillowcases. The sets were labeled as “Home Reflections Décor, 700 thread count, 60% Cotton 40% Polyester.” Id. The method used to obtain the thread counts of these sets was ASTM D3775. Id. CBP found that the thread counts of the sets were similar, and the results were combined for an average count of 247. Id. The table below shows the individual counts of the flat sheets in each of the five bed sheet sets: Flat Sheets Warp/inch Filling/inch  Cal King 182 67  King 182 65  Twin 180 67  Queen 180 67  Full 183 66  Total 907 332  Average 181 66   See Raw Data for Laboratory Report No. 2018-1031 (LA20181031) (Dated December 11, 2018). The table above shows that there are on average 181 warp yarns per inch, and on average 66 filling yarns per inch: 181 + 66 = 247. Id. Hence the average thread count of the bed sheet sets of this was first sample was reported as 247. Id. The second sample tested by CBP was composed of three bed sheet sets: twin, full, and cal. king. See CBP Lab Report No. LA20182141. With the exception of the twin set, each set had six pieces: one flat sheet, one fitted sheet, and four pillowcases. Id. The twin set had four pieces: one flat sheet, one fitted sheet, and two pillowcases. Id. The sets were labeled as “Home Reflections Décor, 700 thread count, 60% Cotton 40% Polyester.” Id. The method used to obtain the thread counts of these sets was ASTM D3775. Id. CBP found that the thread counts of the sets were similar, and the results were combined for an average count of 248. Id. The table below shows the individual counts of the sheets as indicated in each of the three bed sheet sets: Warp/inch Filling/inch  Cal King – Flat Sheet 184 65  Cal King – Fitted Sheet 183 65  Full – Flat Sheet 182 65  Twin – Flat Sheet 183 65  Twin – Fitted Sheet 184 65  Total 916 325  Average 183 65   See Raw Data for Laboratory Report No. 2018-2141 (LA20182141) (Dated December 12, 2018). The table above shows that there are on average 183 warp yarns per inch, and on average 65 filling yarns per inch: 183 + 65 = 248. Id. Hence the average thread count of the bed sheet sets of this was first sample was reported as 248. Id. Thread Counts Obtained by Mytex Mytex states that it (through Marco Polo Sourcing) sent samples of sheets of the same color, size, and thread count as those covered by this protest to Intertek India Private Limited (“Intertek”) for testing to verify thread count (among other properties). See Continuation Sheet of Mytex Protest at 1-2. The Intertek Test Report indicates that the method used to measure thread count was ASTMD 3775. See Exh. 4 of Mytex Protest (Intertek Test Report No. BOMT18053394) at 10. The thread count portion of the Intertek Test Report is provided below:
Id. Mytex states “Intertek confirmed that the thread count for these sheets is 700.” Continuation Sheet of Mytex Protest at 2. ISSUE Whether the 4452 bedsheet sets from Entry No. 8E401035549 are subject to exclusion for violating the 976 GEO for false advertising through the misrepresentation of thread counts. LEGAL STANDARDS Section 337 Exclusion Order Administration Section 337 of the Tariff Act of 1930 authorizes the Commission to exclude articles from entry into