In the Matter of Certain Bearing and Packaging Thereof; Order

The Commission instituted this investigation on April 9, 2002, on the basis of a complaint filed by SKF USA, INC. (“SKF”). 67 FR 18632 (April 16, 2002). The complaint alleged that certain respondents had violated section 337 of the Tariff Act of 1930 by the unlawful importation into the United States, sale for importation, and/or sale within the United States after importation of certain bearings and packaging thereof by reason of: (1) Infringement of U.S. Trademark Registration Nos. 502,839, 502,840, 1,944,843, and 2,053,722; (2) infringement of common law trademarks; (3) dilution of registered and common law trademarks; (4) false representation of source; (5) false advertising; (6) passing off; and (7) unfair pecuniary benefits. The last claim alleges that respondents derive unfair pecuniary benefits by availing themselves of SKF's antidumping duty deposit rates and by failing to request antidumping duty administrative reviews to obtain their own rates. Complainant SKF describes the unfairness as being twofold. First, gray market importers of SKF bearings do not need to adjust their U.S. prices upwards to obtain a lower rate; they can keep their U.S. prices low and still get a low duty rate. Second, the gray market importers do not expend any resources to keep rates low; they merely “free ride” on SKF's rates. SKF analogizes this situation to the free riding problem recognized under the antitrust laws. On May 16, 2002, the Commission investigative attorney (“IA”) filed a motion for summary determination as to the “unfair pecuniary benefits” claim, arguing that the claim is not cognizable under section 337 because it does not allege an unfair method of competition or an unfair act. Certain respondents supported the IA's motion. SKF filed an opposition to the motion. On June 14, 2002, in Order No. 11, the presiding administrative law judge (“ALJ”) denied the IA's motion for summary determination. The ALJ explained that he was declining to decide whether the “unfair pecuniary benefits” claim alleges an “unfair act” cognizable under section 337 because the claim presents a novel issue not appropriate for summary determination. The ALJ found that the risk of prematurely dismissing the claim outweighed the potential burden of additional discovery. On June 21, 2002, the IA filed a motion with the ALJ for leave to seek interlocutory review of Order No. 11 by the Commission. Respondents Bearings Limited and McGuire Bearing Company filed similar motions. On July 10, 2002, in Order No. 16, the ALJ granted these motions for leave to seek interlocutory review. The ALJ found that the motions met the requirements of Commission rule 210.24(b)(1), which provides that an ALJ may grant leave to seek interlocutory review of an order by the Commission if the order “involves a controlling question of law or policy as to which there is substantial ground for difference of opinion” and “subsequent review [of the order] will be an inadequate remedy.” 19 CFR 210.24(b)(1). On July 18, 2002, the IA filed an application for interlocutory review, and on July 22, 2002, respondents Bearings Limited and McGuire Bearing Company did the same. The Commission has determined to grant the applications for interlocutory review of Order No. 16. Section 337(a)(1)(A) proscribes “unfair methods of competition and unfair acts” in the importation of articles, and/or sale thereof within the United States after importation. In order for the Commission to find that conduct involves an unfair method of competition or unfair act, it must be able to identify some sort of legally cognizable “unfairness” in that conduct. SKF's unfair pecuniary benefits claim does not allege the requisite legally cognizable unfairness. SKF alleges that respondents are engaging in an unfair method of competition by “availing themselves of SKF USA's antidumping duty rates.” SKF's Amended Complaint at ¶ 157. SKF also describes the unfairness in respondents' conduct as lying in “[r]espondents” affirmative choice not to participate in Commerce's antidumping duty review process, and their free riding off SKF's rates.” SKF USA's Opposition to the Commission Investigative Staff's Motion for Partial Summary Determination at 21. Respondents' practices with respect to antidumping duties apparently conform to the relevant Department of Commerce (“Commerce”) regulations and Commerce's instruction to the U.S. Customs Service. SKF does not dispute this. Respondents enter their bearings at the antidumping duty deposit rate specified by Commerce. When the bearings are liquidated, again the appropriate antidumping duty assessment rate is specified by Commerce. The Commission fails to see how following Commerce's specific directions with regard to antidumping duty deposit and assessment rates can constitute an unfair method of competition or unfair act. There is of course no per se prohibition on the importation of merchandise subject to an antidumping duty order by resellers (i.e., entities other than the foreign manufacturer of the merchandise). SKF argues that respondents should request antidumping administrative reviews in order to obtain their own deposit rates. There is, however, no requirement that importers request an administrative review of their entries; such reviews are conducted only if “a request for such a review has been received.” 19 U.S.C. 1675(a)(1). Having reviewed the arguments made by the IA, Bearings Limited, and McGuire Bearing Company on the one hand, and by SKF on the other, the Commission finds no basis to recognize SKF's unfair pecuniary benefits claim under section 337. SKF relies on antitrust cases addressing the “free rider” phenomenon. SKF's Amended Complaint at ¶ 169. However, those cases—to the extent that they discuss free riding at all—refer to it as a phenomenon that could excuse behavior that could otherwise violate the antitrust laws. The cases do not establish a cause of action based on free riding. Moreover, the courts have not extended the law of unfair competition to encompass free riding generally. SKF's attempt to liken respondents' conduct to misappropriation also is not persuasive. For there to be misappropriation, a property right or interest created by the skills, labor, and expenditure of another must be involved. SKF does not have such a right or interest in the antidumping duty rates that Commerce calculates for it. In essence, SKF's “unfair pecuniary benefits” claim has to do with the question of which antidumping duty deposit rates and assessment rates should be applied to resellers of merchandise subject to an antidumping duty order. This question is within Commerce's jurisdiction.

Having examined the relevant ALJ orders, the submissions of the parties, and the authorities cited therein, it is hereby ordered that:

1. Order No. 11 is reversed and the motion of the IA for summary determination as to the “unfair pecuniary benefits” claim is granted.

2. This investigation is terminated with respect to the “unfair pecuniary benefits” claim.

3. The Secretary shall serve copies of this Order on the parties of record and publish notice thereof in the Federal Register.