Case Name: The UNITED STATES, Appellant, v. IMPERIAL PRODUCTS, INC., Appellee
Court: United States Court of Customs and Patent Appeals
Jurisdiction: United States
Decision Date: 1978-02-09
Citations: 570 F.2d 337
Docket Number: Appeal No. 77-9
Parties: The UNITED STATES, Appellant, v. IMPERIAL PRODUCTS, INC., Appellee.
Judges: 
Reporter: Federal Reporter 2d Series
Volume: 570
Pages: 337–344

Head Matter:
The UNITED STATES, Appellant, v. IMPERIAL PRODUCTS, INC., Appellee.
Appeal No. 77-9.
United States Court of Customs and Patent Appeals.
Feb. 9, 1978.
Rehearing Denied April 27, 1978.
Barbara Allen Babcock, Asst. Atty. Gen., David M. Cohen, Chief, Customs Section, Washington, D.C., William F. Atkin, New York, N.Y., for the United States.
Stein, Shostak, Shostak & O’Hara, Inc., Los Angeles, Cal., attorneys of record, for appellee; Marjorie M. Shostak, Los Ange-les, Cal., of counsel.
Before MARKEY, Chief Judge, and RICH, BALDWIN, LANE and MILLER, Judges.

Opinion:
RICH, Judge.
The United States appeals from the judgment of the Customs Court which granted appellee's motion for summary judgment, 77 Cust.Ct. 66, C.D. 4672, 425 F.Supp. 852 (1976). We affirm.
The imported merchandise consists of cloth brush heads which were manufactured in Japan by Nippon Seal Co., Ltd. (Nippon) and purchased by appellee for distribution in the United States. After importation, these brush heads were used by appellee for manufacturing two types of brushes: the Mini-Miracle Brush, which has a fixed, non-rotating handle, and the Miracle Brush, which has a rotating handle. The Miracle Brush is disclosed and claimed in U.S. Patent No. 3,421,171, owned by Nippon, and the claims therein are limited to the combination of cloth brush head and rotating handle, meaning that the handle, which carries the brush head, is rotatable with relation to the head.
The license and right to manufacture and sell the Miracle Brush on an exclusive basis in the United States were acquired by ap-pellee in a license agreement between Nippon and appellee. During the period of the importations at bar, the agreement provides that a royalty of 6 cents per unit is payable on approximately one-third of the imported brush heads, since approximately one-third of the heads are used in the patented brush. The agreement further provides, inter alia, that appellee guarantees to purchase from Nippon a large quantity of brush heads, viz., from two million two hundred thousand (2,200,000) to three million (3,000,000) units per year.
The parties agree that the correct basis of valuation is export value as defined in section 402(b) of the Tariff Act of 1930, as amended by the Customs Simplification Act of 1956, 19 U.S.C. § 1401a(b), which reads:
(b) Export value. — For the purposes of this section, the export value of imported merchandise shall be the price, at the time of exportation to the United States of the merchandise undergoing appraisement, at which such or similar merchandise is freely sold or, in the absence of sales, offered for sale in the principal markets of the country of exportation, in the usual wholesale quantities and in the ordinary course of trade, for exportation to the United States, plus, when not included in such price, the cost of all containers and coverings of whatever nature and all other expenses incidental to placing the merchandise in condition, packed ready for shipment to the United States. [Emphasis added.]
Section 402(f), 19 U.S.C. § 1401a(f), provides in pertinent part:
(f) Definitions. — For the purposes of this section—
(1) The term "freely sold or, in the absence of sales, offered for sale" means sold or, in the absence of sales, offered
(A) to all purchasers at wholesale, # * #
The cloth brush heads covered by this appeal were appraised on the basis of export value at the invoice value of 12 cents per unit, f. o. b. port, plus 6 cents per unit royalty, net packed. Appellee challenged the inclusion of the royalty in the appraisement and claimed 12 cents per unit, f. o. b. port, net packed, without the inclusion of the royalty.
The Customs Court
In granting appellee's motion for summary judgment, the Customs Court emphasized that the appraisement is separable, as agreed by both parties. The term "separable appraisement" and application of the so-called "separability rule" were both succinctly explained in United States v. Supreme Merchandise Co., 48 Cust.Ct. 714, 716-17, A.R.D. 145 (1962):
If ex-factory prices and other charges are separately stated on the invoices and the appraiser's finding of value is expressed in terms of the invoice unit prices plus the questioned charges, the appraisement is deemed to be separable. United States v. Dan Brechner et al., 38 Cust.Ct. 719, A.R.D. 71; United States v. Gitkin Co., supra; Valley Knitting Co. Inc., et al. v. United States, 44 Cust.Ct. 599, Reap.Dec. 9627. Under the rule expressed in United States v. Fritzsche Bros., Inc., 35 C.C. P.A. (Customs) 60, C.A.D. 371, a party to reappraisement proceeding may challenge one or more of the elements entering into an appraisement, while relying upon the presumption of correctness of the appraiser's return as to all other elements, whenever the challenged items do not disturb the effect of the remainder of the appraisement. Such is the case in the instance of an appraisement of ex-factory-plus-charges value, and the charges may be disputed without the necessity of proof that the ex-factory prices comply with the statutory definition of export value. United States v. Dan Brechner et al., supra.
Here, the Customs Court said that under the doctrine of separable appraisement ap-pellee may challenge one element entering into the appraisement (6 cents per unit royalty), while relying entirely upon the presumption of correctness of the appraiser's return with respect to the other element (12 cents per unit invoice value). The court permitted appellee to rest on a conclusive presumption that the appraiser's valuation of 12 cents per unit invoice value was correct.
The Customs Court went on to find that, under the circumstances of this case, the 6-cent royalty was not part of dutiable value. It held the royalty on the brush heads was a sum paid for a bona fide right obtained from Nippon in addition to and separate from the purchase price of the merchandise. This payment was for the exclusive right to manufacture and sell Miracle Brushes in the United States. It was a valuable right granted by Nippon to an unrelated purchaser for a fee paid in addition to the price of the brush heads. The importation did not consist of complete Miracle Brushes, but only cloth brush heads.
In sum, the Customs Court found that: (1) the royalty of 6 cents per unit was not part of dutiable value, and (2) appellee could rely on a conclusive presumption that the appraiser's valuation of 12 cents per unit invoice value was correct. Hence, the Customs Court concluded that the invoice value of 12 cents per unit, f. o. b. port, net packed, was the correct export value.
The Arguments
While appellant agrees that the appraisement is separable, it urges, nevertheless, that the Customs Court applied an incorrect burden of proof in this case. According to appellant, the doctrine of separability does not relieve appellee of the burden of establishing that the imported merchandise was freely sold or offered for sale to all purchasers at prices which did not include the disputed royalty fees. That is, as a condition precedent to applying the separability rule in export value appraisements, appellee must demonstrate that the merchandise was freely sold or offered for sale to all purchasers at prices which did not include the disputed charges. Appellant argues that the Customs Court erroneously rejected the application of this condition precedent. It contends that only when appellee has made this showing will the separability rule give rise to a presumption that the price which the appraiser found (12 cents per unit) is the price at which the merchandise is freely sold or offered to all. Hence, genuine issues of material fact exist which are subject to trial. As precedent for its position, appellant relies chiefly on United States v. Pan American Import Corp., 428 F.2d 848, 57 CCPA 134, C.A.D. 993 (1970), and cases cited therein.
Appellee argues that since the appraisement is separable, it is entitled to rely on the presumption of correctness of the ap-praisement at invoice unit values. According to appellee, it has established that the royalty which it paid was not part of the purchase price of the imported brush heads, thereby fully meeting its burden of proof. Appellee points to evidence attached to its motion for summary judgment which indicates that the purchase price and the royal-, ty were separate considerations. Appellee urges that a separate royalty was paid from appellee to Nippon for the exclusive right to manufacture and sell Miracle Brushes in the United States. Appellant failed to submit any supporting evidence to counter ap-pellee's motion for summary judgment, as by filing affidavits under Rule 8.2 of the Customs Court. Finally, appellee argues that the cases cited by appellant, to support its position that appellee carries an additional burden of proof, all involved inland freight and/or related charges as opposed to royalty fees. While appellant relies on Pan American, supra, appellee contends that that case applies only to packing and inland charges, and was so limited in United States v. H. M. Young Associates, 505 F.2d 721, 62 CCPA 20, C.A.D. 1138 (1974).
Issue
The broad question is what is the burden of proof in a case involving the doctrine of separable appraisement. More specifically, did the Customs Court, in granting summary judgment for appellee, err in concluding that the doctrine of separable appraisement relieved appellee from the burden of proving that the imported merchandise was freely sold or offered for sale to all purchasers at prices which did not include the disputed royalty?
OPINION
We do not agree with appellant's contention that appellee must demonstrate, as a condition precedent to applying the separability rule in export value appraisements, that the merchandise was freely sold or offered for sale to all purchasers at prices which did not include the disputed royalty. Such an argument assumes that the only way to show the royalty is not properly part of the price charged by the manufacturer is to prove that the manufacturer freely sold or offered the merchandise for sale to others without charging the royalty.
The assumption is misplaced. Another way to show the royalty is not part of the selling or offering price is the way that was followed here — to show by evidence what the royalty is for, namely, a manufacturing license under a patent to make the complete brush in the United States. Because the royalty was charged for the right to make and sell under the patent rather than for merchandise, it was not part of the selling price. The basing of the royalty on one-third of the heads purchased was simply a way of computing the royalty for the license.
Since appellee has shown that the royalty payment was for manufacturing rights and not for purchased heads, it has carried its burden. Nothing else need be proved. United States v. Bud Berman Sportswear, 55 CCPA 28, C.A.D. 929 (1967); United States v. Chadwick-Miller Importers, Inc., 54 CCPA 93, C.A.D. 914 (1967); United States v. Fritzsche Bros., Inc., 35 CCPA 60, C.A.D. 371 (1947).
Appellant relies upon this court's decision in the 1970 Pan American case, supra. That states that the importer must establish that such or similar merchandise was in fact offered to all purchasers on an ex-factory basis before the separability rule gives rise to the presumption that the ex-factory price determined by the appraiser was the price at which the merchandise was freely sold or offered to all. 428 F.2d at 852-53, 57 CCPA at 138-39.
Acceptance of the Government's position would make a mockery of its admission that the appraisement is separable. If the separability rule has any substance, the importer must be allowed to rely on the presumption that everything found under the statute was correct except the single item challenged, which here was the inclusion of the royalty. The importer has shown that it was not part of the price and why and what it was for.
Perhaps, as the Government argues, this case cannot be distinguished from Pan American. However, to apply that case here would be wholly inconsistent with the H. M. Young Associates case, supra, decided four years after Pan American, and with what we said there about the separability rule, its nature, purposes, and sound basis in public policy. Taken as a whole, Young left little, if any, of Pan American standing. In the light of the opinion in Young, we conclude that Pan American was wrongly decided, and now expressly overrule it. A viable Pan American would reduce the presumption of the appraiser's valuation to the correctness of the money figure itself and would require an importer to prove the elements of 19 U.S.C. § 1401a(b) though he challenges only a single added-on item.
The judgment of the Customs Court is affirmed.
. This evidence includes: (1) the affidavit of Marc J. Dahlquist with attachment, dated July 28, 1975; (2) the affidavit of Marjorie M. Shos-tak with attachments, dated July 30, 1975; (3) the license agreement of April 11, 1969, modified by memorandum dated April 13, 1970; (4) U.S. Patent No. 3,421,171, issued Jan. 14, 1969; (5) the October 10, 1972, statement of net royalties paid to Nippon Seal and withholding tax paid to IRS; and (6) the letter of July 19, 1974, with attachment, from Majorie M. Shostak to Irving W. Smith, Jr., of the United States Customs Service.
. Rule 8.2, dealing with summary judgment, reads in pertinent part:
(f) Form of Affidavits; Further Testimony: Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith, except that all papers and documents which are part of the official record of the action may be referred to in an affidavit without attaching copies, and shall be considered by the court without additional certification. The court may permit affidavits to be supplemented or opposed by depositions or by further affidavits. When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, will be entered against him.
(g) When Affidavits are Unavailable: Should it appear from the affidavit of a party opposing the motion that he cannot, for reasons stated, present by affidavit facts essential to justify his opposition, the court may deny the motion for summary judgment, or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had, or may make such other order as is just.