Advertising, Royalty Fees Paid to Apparel Brand Owner Not Part of Dutiable Value, CIT Says
Advertising and trademark royalty fees paid to a fashion brand owner are not included in the dutiable value of apparel imported from an affiliated contract manufacturer, the Court of International Trade said in a Dec. 17 decision. While the importer, Trimil, correctly added design fees paid to Armani to the transaction value of its entries, the advertising and royalty fees also paid to Armani were not directly related to the importation from the manufacturer and are not dutiable, CIT said.
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Trimil had imported the apparel at issue in the test case between 2008 and 2009. Though it bore Armani trademarks, the apparel was imported from two separate but related manufacturers, Matelica and Deanna, that produced it according to Trimil’s specifications. Those specifications had in turn been provided to Trimil by Armani, and Trimil paid Armani a design fee equal to a percentage of Trimil’s U.S. subidiary’s revenue. Trimil also paid Armani advertising fees on the same base to cover Armani’s U.S. advertising of the apparel, and a trademark royalty fee based on the value of Trimil’s U.S. sales. Upon importation, CBP had said, all three fees were dutiable.
Trimil correctly conceded that the design fees were properly included in transaction value, CIT said. The apparel designs (including models and fabric selections) had been provided to Matelica and Deanna at no cost, and the design work was performed in Italy by Armani, so they qualified as assists under 19 USC 1401a. The amount of the fee paid to Armani by Trimil should be added to the dutiable value of the merchandise imported from Matelica and Deanna, CIT said.
On the other hand, the advertising fees were not related to the importation of the merchandise, and are not part of dutiable value, CIT said. While the advertising fees were part of the deal between Trimil and Armani, and Matelica and Deanna would not have manufactured the apparel without that deal, the value of any benefit to the two manufacturers is hard to quantify. The advertising fees instead benefited Armani, which was able to control its marketing, and Trimil, which sold the apparel to the U.S. consumers at which the advertising was directed, CIT said. The advertising fees also don’t fall under any of the five categories of assists enumerated in 19 USC 1401a.
CIT ruled similarly on the trademark royalty fees. “Trimil’s right to affix Armani trademarks, and resell the clothing in the United States as Armani-trademarked products, provides no quantifiable benefit to the seller-manufacturers from the trademark royalty fees paid,” CIT said. CBP’s “claimed benefit -- placement of an order by Trimil with the seller-manufacturers -- is too far removed from the payment of the trademark royalty fees … to make them part of the price actually paid or payable to the seller-manufacturers,” the trade court said.
And while royalty fees are listed in 19 USC 1401a as a type of assist, the fees paid by Trimil to Armani were not “a condition of the sale for exportation,” as required under that statute. While the agreement between Trimil and Armani requires the payment of the fees, no part of that agreement indicates that the fee is a condition for Deanna or Matelica to export the goods to Trimil, CIT said. “That production would be halted were the trademark royalty fees not paid does not transform them into conditions of sale for exportation.”
(Trimil S.A. v. U.S., Slip Op. 19-161, CIT # 16-00025, dated 12/17/19, Judge Eaton)
(Attorneys: Robert Silverman of Grunfeld Desiderio for plaintiff Trimil S.A.; Jamie Shookman for defendant U.S. government.)