Use of the NRA exemption is currently limited to NVOCCs licensed by the FMC.  At the time the NRA exemption was adopted there was concern that foreign-based, unlicensed NVOCCs are not subject to sufficient FMC oversight to permit their use of the NRA tariff exemption.  For example, licensed NVOCCs are required to have qualifying individuals and both these individuals and the NVOCC  are subject to a detailed background check.  Accordingly, for the past two years the use of NRAs has largely been limited to licensed NVOCCs that are U.S.-based entities.

The FMC has now issued a proposed rulemaking which, if adopted, would allow foreign NVOCCs to also offer exempt NRA rates to their customers.   The Commission’s proposal, however, goes farther than just allowing non-U.S. NVOCCs to offer NRAs.  If adopted, the Commission’s proposal would require all foreign-based unlicensed NVOCCs to register with the FMC.  Such registrations would be effective for 3 years and would be subject to termination by the Commission if the foreign-based NVOCC did not comply with certain regulatory requirements, such as maintaining a proof of financial responsibility and agent for service of process in the United States.

Under current FMC regulations foreign-based unlicensed NVOCCs are required to publish a tariff, file proof of financial responsibility with the Commission, and maintain a registered U.S. agent.  The Commission’s proposal would expand these requirements to include registration with the FMC.   While the Commission’s proposal does not include a proposed registration form, the FMC indicates that in requiring registration it will seek such information as the NVOCC’s legal name; trade names; principal address; name of contact person; and name, address, and contact person for a designated legal agent for service of process in the U.S.

The Commission’s proposed rule would also clarify that foreign-based NVOCCs using NRAs are subject to the Commission’s inspection and reproduction requests and that they must produce requested NRAs promptly in response to a Commission’s request.   All such records would have to be produced in English or be accompanied by a certified English translation.

The FMC already asserts some regulatory jurisdiction over foreign NVOCCs by requiring them to publish a tariff; have a U.S. agent; and file proof of financial responsibility with the FMC.  Depending on the information requested and how it is implemented, the Commission’s proposed registration requirement for foreign NVOCCs has the potential of asserting greater Commission oversight over these entities.   The Commission’s proceeding is FMC Docket No. 11-22, Non-Vessel Operating Common Carrier Negotiated Rate Arrangements; Tariff Publication Exemption.  The Notice appears in the February 26, 2013 edition of the Federal Register at 78 Fed. Reg. 13011.  Interested parties can submit comments or suggestions until April 29, 2013.

This type of entry, known as a Transportation & Exportation Entry (T&E), imposes a custodial responsibility on the bonded carrier for any loss of Customs Duties or taxes that may be incurred due to shortages or loss of the transported goods.  A recent decision for the Court of International Trade (CIT) is a reminder to bonded carriers handling T&E entries that their obligation on such shipments is not only to show that the carrier delivered the goods at the U.S. export port, but that they also have records showing that the goods were actually exported.

In United States v. C.H. Robinson, apparel from China was handled by a bonded carrier for T&E transport from Lost Angeles to Laredo.  The bonded carrier provided proof to Customs that the carrier delivered the bonded cargo to a broker at the port of export.  However, a subsequent audit by Customs determined that the carrier could not provide evidence of exportation of the goods, or otherwise account for their whereabouts.  Although the bonded carrier asserted that its obligation under its bond ended when it demonstrated that it had notified Customs of delivery of the goods at the port of export, the CIT held that under a T&E bond the exporting carrier’s obligations extended to maintaining records showing that the goods had, in fact, been exported.  While the Court held that the U.S. Government has the initial burden of showing that the location of the goods are not accounted for, once it has done so there is a presumption that they have been lost or diverted into the commerce of the United States by the bonded carrier.  If the T&E bonded carrier cannot provide evidence regarding the location or exportation of the goods, or that it tendered them to a bonded warehouse or another exporting carrier, the bonded carrier will be liable for liquidated damages, duties, taxes, and other associated costs related to the goods.

The C.H. Robinson decision is an important reminder of the responsibilities, including record-keeping, imposed upon bonded carriers.  This responsibility will increase in the future.  A current Customs rulemaking would revise and tighten the regulations governing U.S. in-bond transportation of freight.  These proposed rules would address what a GAO Study found was an inefficient oversight of in-bond movements by Customs.  The proposed new rules would automate the opening and closing of carrier bonds and would tighten the time frames for their use.  However, as the C.H. Robinson decision illustrates, bonded carriers must also tighten their internal controls on how they account for bonded shipments, since the fact that the bonded carrier can prove proof of delivery of a bonded shipment may not – at least on T&E shipments – relieve if of liability for a subsequent diversion of the goods.

The Court’s decision, in Mayo Collaborative Services, DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories, Inc., has important ramifications for both medical professionals and pharmaceutical companies.  At issue in the case was the validity of patents that claimed a method of optimizing the efficiency of a drug in the treatment of a medical disorder.  The claimed patents recited how to administer the drug and then determine the level in the patient, as well as how to determine the dosage level.    The patent owner sold diagnostic tests based on the patents.  It brought suit when a former customer said it had developed and would market its own, slightly different diagnostic test.  The lower court found that the competing diagnostic test did infringe on the patents, but that the patents were invalid.   The Supreme Court agreed to review the case after an appellate court held that the patents were valid and, in reversing, agreed with the lower court that the patents were void because they merely recited the laws of nature.

The Prometheus decision is important because it reaffirmed that “to transform an unpatentable law of nature into a patent-eligible application of such a law, one must do more than simply state the law of nature while adding the words “apply it.”  The Court’s decision does not set forth clear standards as to what additional steps may be needed to transform a process of applying a law of nature into a valid patent.  However, it does advance the important policy goal of ensuring that the patent laws are not used for “tying up the use of the underlying natural laws,” thus ” inhibiting their use in the making of further discoveries.”  In this context, it promotes competition in the marketplace for new discoveries and, in the health care industry, states that health care providers should have the ability to explore treatment options based on generally known natural laws without concern that an entity has monopolized the field with a patent.
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In the lower court proceeding, on the same day that the SEC filed its complaint it filed with the Court a proposed final judgment against Citigroup and a proposed Consent of Citigroup.  The proposed Consent would have required Citigroup to pay a civil penalty and agree to certain other actions but would also have provided that Citigroup consent to the final judgment “without admitting or denying the allegations of the Complaint.”  In rejecting the proposed settlement and ordering that the case go to trial, the Judge stated that while some deference should be accorded to the SEC, it was difficult for the Court to determine whether the proposed settlement was in the public interest if there was no agreement as to the underlying facts that gave rise to the alleged violations of the law.

The lower court’s decision is the subject of an interlocutory appeal before the United State Court of Appeals for the Second Circuit.  In a procedural ruling, on March 15, 2012 the appellate court issued an order staying further procedures before the lower court pending a formal review and decision by a panel of the appellate court on the merits of the lower court’s ruling.  In issuing its decision, the Second Circuit held that the SEC and Citigroup had shown a strong likelihood of success in their appeal.  In doing so, and while clearly stating that its decision was not a final binding decision on the merits of the lower court’s action or the appeal, the Appellate Court panel hinted that it thought that the lower court’s decision was most likely incorrect and would ultimately be reversed.

It is a common practice in settling private lawsuits for the parties settling the case to “agree to disagree.”  That is, both parties may stipulate that they have a dispute but that in settling the dispute neither party admits or denies the truth of the allegations that led to the dispute in the first place or that one party’s rights were violated.  Even if a litigant agrees to stop a specific activity, or pay money to the other party, there is generally no admission of liability.  This approach to dispute resolution allows parties to practically resolve their legal disputes and move on with their businesses, without the expense and uncertainties of a trial.

Such settlements are often used in court cases brought by some federal agencies, such as the SEC.  Government agencies such as the SEC claim that they need to settle cases on such grounds in order to preserve limited enforcement resources.  Corporations frequently seek to settle government claims to avoid publicity and to maintain cooperative relationships with the government agencies that regulate them.  Such settlements can be especially important if private sector third parties decide to bring their own lawsuits against the corporation for the same activity.  When settling a government lawsuit without an admission or finding of liability a corporation can maintain to a court in subsequent private sector litigation that the facts regarding its conduct remain disputed and that the third parties bear the burden of proving those facts.

The lower court’s decision has raised questions about whether federal agencies and their corporate defendants should have less flexibility in structuring settlement agreements that will be “rubber stamped” by the federal court.  If upheld, corporate defendants will have to negotiate more creative civil action settlement agreements with their federal prosecutors if they continue to seek to inoculate themselves from the collateral estoppel effects of entering into such agreements.  The recent procedural ruling by the Second Circuit gives broad hints that the action of the lower court will most likely not withstand appellate scrutiny and that the government and private litigants will retain their ability to negotiate flexible settlement agreements.

To facilitate the use of indexed rates, this March the Federal Maritime Commission modified its service contracting regulations to allow more flexibility for carriers and shippers to reference outside terms in service contracts. Under prior FMC service contract regulations, service contracts could not include terms not explicitly contained in the contracts unless they were “contained in a publication widely available to the public and well known within the industry.” Under the FMC’s new regulations, service contract terms not explicitly contained in the contract are allowed “if the terms are readily available to the parties and the Commission.” Such terms are “deemed readily available to the Commission if the carrier party to the service contract provides the Commission with the associated records of the terms within thirty (30) days of the Commission’s written request.”

In adopting the rule change, the FMC stated that it is seeking to allow greater certainty and flexibility for shippers and carriers to enter into long term service contracts that adjust based upon an index reflecting changes in market rates. Although only a small percentage of the service contracts currently on file with the FMC reference such indexes, the Commission believes that the trend to use indexed rates will increase in the future. It stated that the rule modification was necessary because some freight rate indices are not available to the public or require expensive subscriptions fees that as a practical matter do not make them available to the public.

The new rule will also apply to NSAs, which are NVOCC versions of service contracts. While the Commission’s rule change is designed to facilitate a greater use of freight rate indices in service contracts, the Commission stated that “as long as the referenced terms comply with the revised regulations, the shippers and carriers are free to use not only any freight indices but also other indices such as the Bureau of Labor Statistic’s Consumer Price Index,” which it noted is currently being used in some service contracts.

Although the Commission’s focus was on the use of freight rate indices, its new regulation has a much broader scope. Most parties to a service contract will prefer to have all terms and conditions of the contract included within the “four corners” of the contract. However, the Commission’s new rule does allow incorporation by reference in service contracts of all types of external contract terms, not just rate terms, provided that the associated records of the terms can be made available to the Commission within thirty (30) days.

The Commission’s rule change was published in the March 7, 2012 edition of the Federal Register and is effective immediately.

For additional information, please contact either Ronald Cobert or Andrew Danas at Grove, Jaskiewicz and Cobert, LLP 1101 17th Street, N.W., Suite 609, Washington, D.C. 20036; tel. 202.296.2900; e-mail rcobert@gjcobert.com; adanas@gjcobert.com.

On November 8, 2011, Costco and other big retailers successfully convinced Washington State voters to approve Initiative 1183.  This will end the State’s long time monopoly on liquor sales.  The new law will privatize liquor sales and leave the State in an enforcement mode only.  Those who favored approval of the Initiative contend that moving liquor sales to the private sector will create competition and benefit consumers who will be able to have a greater selection at very competitive pricing.  The State is now required to sell off its central warehouse and inventory and auction off over 300 stores, about half of which are state-run.  Contractors who operate the other stores must buy back the inventory in order to continue their business.  Private sales of liquor are scheduled for June 1, 2012.  As a result of the Initiative approval, retailers in Washington State such as Costco will be able to seek volume discounts for wine and warehouse their products themselves.