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Advertising and Royalty Fees Not Dutiable, Court Says

Tuesday, January 14, 2020
Sandler, Travis & Rosenberg Trade Report

The Court of International Trade ruled recently that advertising fees and trademark royalty fees paid to third parties by an importer of certain wearable apparel are not dutiable because they are neither part of the price actually paid or payable nor do they fit within a statutory addition to price paid as a condition of sale for exportation.

According to the CIT, under four agreements entered into prior to the manufacture of the clothing, the importer was a design, advertising, and trademark licensee of a foreign producer. The CIT stated that the importer properly conceded the dutiability of the design fees as an assist added to transaction value because the fees were paid for activities undertaken outside the U.S. that were then provided to the seller at no cost for use in manufacturing the clothing.

However, the CIT also found that the advertising fees are not part of the price actually paid or payable because they were not paid to or for the benefit of the sellers. The CIT stated that any benefit the sellers received from the payment of those fees (i.e., the importer’s ability to place its order with them) “is so tangential to the fees paid … for advertising as to be unquantifiable (if it exists at all).” Further, these fees do not fall within any of the five statutory additions to price defined in 19 USC 1401a(b)(1)(A)-(E) .

The CIT made a similar determination with respect to the trademark royalty fees, stating that “merely because the fees are paid as part of a series of agreements that touch on all parts of the larger transaction resulting in eventual sale of the clothing to the United States does not somehow make the seller-manufacturers beneficiaries of [the importer’s] payment” under the trademark agreement. In addition, the U.S. did not show from the text of that agreement that the fee payments were for the shipments at issue.

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