Ruling Request; U.S. International Trade Commission; General Exclusion Order; Investigation No. 337-TA-976; Certain Woven Textile Fabrics and Products Containing Same.

HQ H315840 February 8, 2021 OT:RR:BSTC:EOE H315840 JW CATEGORY: 19 U.S.C. § 1337; Unfair Competition VIA EMAIL: ASmith@gibsondunn.com Mr. Adam M. Smith Gibson, Dunn & Crutcher LLP 1050 Connecticut Avenue, N.W. Washington, DC 20036-5306 RE: Ruling Request; U.S. International Trade Commission; General Exclusion Order; Investigation No. 337-TA-976; Certain Woven Textile Fabrics and Products Containing Same. Dear Mr. Smith: Pursuant to 19 C.F.R. Part 177, the Exclusion Order Enforcement Branch (“EOE Branch”), Regulations and Rulings, U.S. Customs and Border Protection (“CBP”) issues this ruling letter. This ruling letter is the result of a request for an administrative ruling from CBP, dated December 18, 2020, and submitted on behalf of Niche Sourcing, Inc. (“Niche”). CBP’s position is Niche has not met its burden to show that the “Chief Value Cotton (CVC) bed linens” that it purchases from [[ ]] and seeks to enter for consumption into the United States are not subject to the general exclusion order (“976 GEO”) issued by the U.S. International Trade Commission (“ITC” or “Commission”) in investigation no. 337-TA-976 (the “976 investigation”). We further found no determination by the Commission, as of the date of this ruling letter, either in the 976 investigation, or in any subsequent ancillary proceeding, that “Chief Value Cotton (CVC) bed linens” purchased from [[ ]] do not violate the 976 GEO. Accordingly, there is no present basis for CBP to use its discretion to permit certification by Niche as set forth in the standard certification provision provided in paragraph 3 of the 976 GEO. See e.g., Certain Composite Aerogel Insulation Materials & Methods for Manufacturing the Same, Inv. No. 337-TA-1003, Comm’n Op. at 62, (Feb. 22, 2018) (USITC Pub. 4932, August 2019) (“The standard certification provision does not allow an importer to simply certify that it is not violating the exclusion order. . . . As the Commission has previously stated, [CBP] only accepts a certification that the goods have been previously determined by [CBP] or the Commission not to violate the exclusion order.”). Niche was asked to clearly identify confidential information with [[red brackets]] in their submissions to the CBP. See, e.g., EOE Branch Email to Niche dated January 8, 2021. However, as of the date of this ruling letter, other than a general statement in Niche’s ruling request stating, “EXEMPT FROM DISCLOSURE UNDER 5 U.S.C. § 552(B)(4)”, along with a footnote stating “[t]his correspondence, including any attachments contains trade secrets and/or confidential commercial information exempt from disclosure under 5 U.S.C. § 552(b)(4)”; Niche has neither clearly identified the alleged “trade secrets and/or confidential commercial information,” nor attempted to overcome the presumption of disclosure with a request for confidential treatment that is narrowly tailored and supported by evidence establishing the aspects noted below, and in section III.B. infra. Thus, at present, nothing is bracketed in red [[ ]] in this ruling letter. If there is information in this ruling letter, or Niche’s letter to CBP dated December 18, 2020 requesting an administrative ruling pursuant to 19 C.F.R. Part 177, which included Exhibits 1 to 9, not currently bracketed in red [[ ]] that Niche believes constitutes confidential information, and should be redacted from the published ruling, then Niche is asked to contact CBP within ten (10) working days of the date of this ruling letter clearly identifying such confidential information with [[red brackets]]. See, e.g., 19 C.F.R. § 177.8(a)(3). Please note that disclosure of information related to administrative rulings under 19 C.F.R. Part 177 is governed by, for example, 6 C.F.R. Part 5, 31 C.F.R. Part 1, 19 C.F.R. Part 103, and 19 C.F.R. § 177.8(a)(3). See, e.g., 19 C.F.R. § 177.10(a). In addition, CBP is guided by the laws relating to confidentiality and disclosure, such as the Freedom of Information Act (“FOIA”), as amended (5 U.S.C. § 552), the Trade Secrets Act (“TSA”) (18 U.S.C. § 1905), and the Privacy Act of 1974, as amended (5 U.S.C. § 552a). A request for confidential treatment of information submitted in connection with a ruling requested under 19 C.F.R. Part 177 faces a strong presumption in favor of disclosure. See, e.g., 19 C.F.R. § 177.8(a)(3). The person seeking this treatment must overcome that presumption with a request that is narrowly tailored and supported by evidence establishing at least that: (1) it is information that is customarily kept private or closely; and (2) either (a) the government provided an express or implied assurance of confidentiality when the information was shared with the government; or (b) there were no express or implied indications at the time the information was submitted that the government would publicly disclose the information. See, e.g., OIP Guidance: Step-by-Step Guide for Determining if Commercial or Financial Information Obtained from a Person is Confidential Under Exemption 4 of the FOIA (posted 10/3/2019). BACKGROUND ITC Investigation No. 337-TA-976 Procedural History at the ITC 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); See Certain Woven Textile Fabrics and Products Containing Same, Investigation No. 337-TA-976, EDIS Doc. No. 605892, Commission Opinion (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 including [[ ]] 80 Fed. Reg. 79094 (Dec. 18, 2015); Comm’n Op. at 1. Fourteen of those respondents entered into a 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. Comm’n Op. 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. Comm’n Op. at 2. 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. Seizure and Forfeiture Order On [[ ]] pursuant to 19 U.S.C. § 1337(i), the Commission issued a seizure and forfeiture order against [[ ]] or any affiliated companies, parents, subsidiaries, or other related business entities, or any of their successors or assigns. See Seizure and Forfeiture Order for [[ ]]. This seizure and forfeiture order has been posted on the Commission’s Electronic Document Information System, and accessible to the general public, since [[ ]]. 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 Certain Woven Textile Fabrics and Products Containing Same, Investigation No. 337-TA-976, EDIS Doc. No. 568883, Attachment ID 1043770, Exhibit 6 of Second Amended Complaint (Nov. 12, 2015). The ITC’s Finding of False Advertising in the 976 Investigation In the 976 investigation, complainant AAVN based its false advertising claim on its assertion that respondent Pradip’s falsely advertised 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”). 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 AAVN provided, the ALJ found that the statements Pradip made 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 2018) Standard Terminology Relating to Home Furnishings. “ASTM Standard 3775” is titled “Standard Test Method for Warp (End) and Filling (Pick) Count of Woven Fabrics.” ALJ ID (Order No. 21) at 12; see also ASTM Designation: D3775-12; ASTM Designation: D3775-17 (“ASTM D3775-17 e1”). “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 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 D3775-17 e1 at ¶ 9.1.3. 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. 19 C.F.R. Part 177 Ruling Request On December 18, 2020, Niche submitted a letter to CBP requesting an administrative ruling pursuant to 19 C.F.R. Part 177, which included Exhibits 1 to 9 (collectively, “Ruling Request). The Ruling Request states Niche is “an importer of high quality Chief Value Cotton (CVC) bed linens” which are “purchase[d] . . . from [[ ]] . . .” (hereinafter, the “articles at issue”). Ruling Request at 1. The Ruling Request further states that Niche is “request[ing] a ruling from [CBP] regarding the sufficiency of the enclosed sample documentation to meet the importer’s burden with respect to paragraph 3 of the [976 GEO].” Id. No oral discussion pursuant to 19 C.F.R. § 177.4 was requested by Niche in the Ruling Request. Nevertheless, as a courtesy, the EOE Branch had a phone call with Niche on December 30, 2020 regarding the Ruling Request. In addition, in an email to Niche, the EOE Branch noted that “to the greatest extent possible, the EOE Branch conducts 19 C.F.R. Part 177 ruling requests related to exclusion orders issued by the Commission on an inter partes basis involving the parties with a direct and demonstrable interest in challenging the question presented in the Ruling Request.” See EOE Branch Email to Niche Dated January 8, 2021. In response, Niche asserted that AAVN did not have a demonstrable interest in the question presented by the ruling request and requested to go through this process, and work through the “technical issues and compliance questions” without the participation of AAVN. See Niche Email to EOE Branch dated January 11, 2021. ISSUE Whether the “sample documentation” provided in Niche’s Ruling Request is sufficient “to meet the importer’s burden with respect to paragraph 3 of the March 20, 2017 General Exclusion Order issued in the Matter of Certain Woven Textile Fabrics and Products Containing Same, Investigation No. 337-TA-976.” See Ruling Request at 1. LEGAL STANDARDS Section 337 Exclusio