In Trimil SA vs United States, Slip Op 19-161, the U.S. Court of International Trade (CIT) ruled that payments made by the importer to parties related to the sellers of the imported merchandise for advertising fees and trademark royalties (collectively “fees”) were not part of dutiable value. The holding in this case is significant for a number of reasons including the fact that the advertising service provider and the trademark owner were related to the sellers of the imported merchandise. This is the first CIT decision to address the dutiability of royalties paid by an importer to a party that was also related to the seller of the goods.
In the transactions at issue, the importer, trademark owner, and seller, were all related. Duties were paid under the Transaction Value basis of appraisement based upon the prices paid by the importer to the seller of the goods plus certain design assists provided by another related company. The dutiable value of the goods purchased from the related sellers was increased to include royalty payments made by the importer for the use of the Armani trademark plus advertising fees paid to companies related to the sellers of the merchandise. No duties were paid on the fees when the goods were purchased from unrelated sellers. This distinction relating to the dutiability of the fees based upon whether the payments were made to related or unrelated sellers was based on a number of Customs rulings going back to 1985 which held that trademark royalties paid to parties related to the sellers of the goods would be dutiable, whereas the same fees paid to parties unrelated to the sellers would be non-dutiable.
The fees paid to the advertising service provider and the trademark owner were calculated as a percentage of the sales prices of the goods sold in the U.S. by Trimil. Although the agreements included language which permitted the licensor to approve the vendors selected by Trimil to produce the garments, the service agreements did not dictate where the goods had to be purchased or which companies had to produce the garments. The purchase orders issued by Trimil to the sellers of the merchandise did not reference the trademark royalties or advertising fee arrangements.
Importers who have been paying duty on royalty payments to parties that are related to the sellers of the merchandise should review those arrangements in light of the Trimil decision to determine whether there is an opportunity to treat those payments as non-dutiable and obtain duty refunds for payments made in connection with entries for which the liquidations have not become final.
Our office is available to answer questions regarding the dutiability of trademark royalties and similar payments.
