US CHINA TRADE DEVELOPMENTS TRADE, CRIMINAL IP, ANTITRUST AND SECURITIES

Smithsonian Castle Statue  Night With Stars Washington DCDear Friends,

There have been some new developments in the trade, solar cells, 337/patents, antitrust and securities areas.

TRADE

SOLAR CELLS NEGOTIATIONS

Recently EC officials have returned to Brussels after about two weeks of negotiations in Beijing without an agreement that would resolve the Solar Cells fight with China.  Talks continue, less than a month before preliminary EC antidumping (AD) duties on Chinese solar imports are due to ratchet up to more than triple their current amount on Aug. 6.

On the Chinese side, the talks are being handled primarily by the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME).

The solar cell negotiations between China and EC continue, but the devil is in the details.  The hurdle is creating a deal that the EC can defend as eliminating the injury to the EC producers without demanding a floor price so high that the Chinese government abandons negotiations and walks away.

The talks include discussions on both a floor price for solar wafers, cells and modules — more commonly called panels — and voluntary quantitative restrictions, but there appears to be no breakthrough.

One contact stated that the EC offered up a floor price of 65 eurocents per watt, but indicated that would not be acceptable to the EC industry because it would barely over the cost of production.  For the Chinese industry, however, a price floor of 65 eurocents would be a huge concession that the Chinese companies could not accept.

The EC imposed AD duties of 11.8%, but these would go up to 47.6 percent or higher next month unless a deal is reached.

In the US, however, negotiations are still down the road.  There have been initial, informal discussions between the U.S. and China on a potential settlement of the trade cases with USTR added by the Commerce Department leading the initiative.

But so far there is no plan for the U.S. to be party to any eventual EU-China arrangement. The EC has not welcomed the idea because that it fears that US involvement could complicate already difficult negotiations.

If the EC and China are able to reach a deal, however, it will almost certainly influence any potential deal between the US and China.  One problem, however, is the third country loophole.  Unless the loophole is eliminated, the U.S. industry is unlikely to be interested in a deal, and Chinese companies have adjusted to the US order by obtaining the solar cells from third countries.  The third country loophole allows China to export solar cells produced in third countries, such as Taiwan, in panels and modules produced in China to the United States.

In the EC 18 out of 27 EC countries are opposed to the case so if there is no deal, the Chinese government may walk away and take a chance that the member states will overturn the case.

In the US on the technical side, one of the key issues is the legal basis under which the Obama administration can seek a settlement given that the AD and CVD orders are now in effect. The time for negotiating a suspension agreement in a case is legally set between a preliminary and a final determination, which has now passed.

In the preliminary explorations of a potential settlement, the U.S. has discussed the option of a changed circumstances review as a legal basis. Such a review would assess whether the existing U.S. trade remedy cases are still needed or could be replaced with a settlement. But that option would require the consent of the U.S. industry.

As indicated in past posts on this blog, on June 4th, the Solar Cell case really heated up as the EC issued a preliminary antidumping decision on Solar Cells from China with a preliminary antidumping rate of 11% that would escalate by August 5th to a rate as high as 67.9%.

In a March 2013 hearing of the Senate Finance Committee, Subcommittee on Trade, Senator Ron Wyden, the Chairman and the political supporter of Solar World, pressured Acting USTR Demetrios Marantis for a global agreement in the Solar Cells situation. The US Solar Cells Trade case has not worked and has not protected the US domestic industry. Prices for solar cells in the US have only gone up by $3. Also in response to the US case, the Chinese Government has brought an antidumping and countervailing duty cases against $2 billion of imports of US produced polysilicon, which goes into the Chinese solar cells.

A negotiated settlement would also result in the removal of Chinese antidumping and countervailing duties on US and EC produced polysilicon.

DIAMOND SAWBLADES– SECTION 751 CHANGED CIRCUMSTANCES ITC INVESTIGATION

On July 11, 2013, Husqvarna Construction Products North America, Inc. filed a request for a 751 changed circumstances investigation at the ITC on Diamond Sawblades and Parts from China.  In the attached petition, Req for Commission Review-7-11-13 Husqvarna argues that the Commission reached a 3-3, tie vote, in the Diamond Sawblades case only by cumulating, that is adding together the imports of Korea and China.

The Commerce Department, however, has now determined to revoke the antidumping order on diamond sawblades from Korea because there was no dumping during the period of investigation.   In addition, Huqvarna is the largest domestic producer and now opposes the order.  Finally, the other US producers in response to the order have expanded with low-cost foreign manufacturing affiliates, rather than expanding their US production.

 ALUMINUM EXTRUSIONS—NOW COMES EVASION

On June 21st, ICE, Immigration and Customs Enforcement arrested 5 individuals from Sultana Screens and Aluminum and PRP Trading for importing aluminum extrusions from China by passing false and fraudulent invoices and documents to CBP to defraud the US of approximately $26.7 million in antidumping and countervailing duties.  See the attached announcement. ICE ANNOUNCEMENT ALUMINUM

 ALUMINUM EXTRUSIONS — NEW REVIEW COVERS MANY MORE CHINESE COMPANIES

On June 28, Commerce initiated the Antidumping and Countervailing Duty Review Investigations on Aluminum Extrusions from China naming many Chinese companies based on a request by petitioners.  See the attached notice.  ALUMINUN EXTRUSIONS INITIATION NOTICE

Separate Rate applications are due August 27th at Commerce.

CAFC LAMINATED WOVEN SACKS

On June 24th, in AMS Associates, Inc. v. United States, the Court of Appeals for the Federal Circuit affirmed the Commerce Department’s determination in the Laminated Woven Sacks case that where the Chinese company withdrew the evidence on the record, the Commerce Department was correct in giving the Chinese company the country wide rate.  See the attached decision.  CAFC SACKS DECISION

 IMPORTERS’ LOBBYING COALITION AGAINST EXPANSION OF ANTIDUMPING AND COUNTERVAILING DUTY LAWS AGAINST CHINA

As mentioned in prior newsletters, we are working on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.  Our first organizational meeting will be July 24th in Washington DC.  If anyone is interested in the Coalition, please feel free to contact me.

The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US trade war, especially the impact of US antidumping and countervailing duty laws, on US importers and US downstream industries.

We will be targeting two major issues—Working for market economy treatment for China in 2016 and Working against retroactive liability for US importers. The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries.

16 US importers in a number of different industries have joined the Coalition, but we continue to search for additional members.

COMMERCE DEPARTMENT SEPARATE RATES REGULATIONS

On July 5th the Commerce Department issued a regulatory announcement in the Federal Register COMMERCE DE FACTO REGULATION stating that in determining whether Chinese or other companies in Nonmarket Economy Countries were entitled to a separate rate in antidumping cases, it would examine more closely whether the company meets certain de facto criteria for obtaining a seaprate rates.  See the attached Federal Register notice

Commerce specifically stated that it will examine on a case by case basis certain issues related to a respondent’s separate rate status in nonmarket economy dumping cases.  This action is part of its Trade Enforcement initiative.

In determining whether a Chinese or other nonmarket economy company is entitled to a separate rate, Commerce looks at the following criteria, whether the Chinese/NME company:

• has export prices set by or subject to approval of a governmental agency;

• has authority to negotiate and sign contracts and other agreements on the company’s behalf;

• has autonomy from the government in decision making on management;

• retains proceeds of its export sales and makes independent decisions regarding disposition of profits or financing of losses.

Since respondents generally possess information on their day-to-day operations, Commerce will consider, on a case-by-case basis, issuing supplemental questionnaires to identify and review additional documentation and information relating to de facto government control by any level of government in cases where the respondent’s initial questionnaire responses are insufficient to support its separate rate claim. Supplemental questions might address:

• selection and removal of directors and managers at the producing/exporting company;

• identification of parties with authority to approve contracts and bank transactions on behalf of the company;

• ownership, including individual and corporate;

• whether any corporate owners are state-owned, state-controlled, or otherwise affiliated with the state, at the national or sub-national levels; and,

• whether any managers hold government positions at the national or sub-national levels.

Consistent with comments urging Commerce to conduct more separate rate verifications, Commerce said it would continue to consider verification of separate rate information where warranted, on a case-by-case basis.

This new regulation may make it harder for Chinese companies to obtain separate rates in antidumping investigations at the Commerce Department.

 NEW EU CASE AGAINST STONE IMPORTS FROM CHINA

If the granite fabricators had a problem with the Steel Sinks case, they may have a larger problem down the road.  On Friday the European Union launched an Antidumping investigation against imports of stone from China used in countertops and tiles.  The specific product is agglomerated stone – a material consisting of rock pieces held together by resin that is often used for kitchen and bathroom tiles and counter tops.  The complaint was filed by ASIA Europe.

EU cases are often followed by similar cases in the United States and vice versa.

CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE–WINE FROM THE EC

On July 1, 2013, China said it will initiate an antidumping and countervailing duty case against Wine from the EC.  See the attached initiation notice and press release from the Chinese Ministry of Commerce or MOFCOM. MOFCOM ANNOUNCEMENT MOFCOM NOTICE

Notices of appearance are due by July 24th at MOFCOM.

PATENTS

 CRIMINAL IP CASE AGAINST CHINESE COMPANY

In a highly unusual case, the US Justice Department has brought a criminal case and indictment against a Chinese Wind Tower company, Sinovel Wind Group Co.  SINOVEL COMPLAINT SINOVEL INDICTMENT In the attached complaint and indictment in United States v. Sinovel Wind Group, the Justice Department charged the Chinese company with stealing trade secrets including proprietary source code from its former vendor American Superconductor Corp. and causing it losses of more than $800 million.

An indictment filed Thursday in Wisconsin federal court targeted Sinovel along with two of its employees and former American Superconductor employee Dejan Karabasevic, 40, who allegedly gave source code stolen from American Superconductor’s computer system to Sinovel employees.

The indictment also targets Sinovel’s deputy director of its research department, Su Liylng and its technology manager, Zhao Halchun, both of whom allegedly convinced Karabasevic to come work for Sinovel and bring the stolen code with him.

“Today, we announce charges against Sinovel and three individuals for stealing proprietary wind-turbine technology from [American Superconductor] in order to produce their own turbines powered by stolen intellectual property” Acting Assistant Attorney General, Mythili Raman, said in a statement.

“This charged intellectual property theft caused significant harm to a domestic company that develops cutting edge technology and employs Americans throughout the country,” she said. “Stamping out intellectual property theft is a top priority for this administration and we will continue to work with our intellectual property task force partners to ensure that American ingenuity is protected.”

The indictment followed an investigation by the Federal Bureau of Investigation into the code allegedly stolen from the Massachusetts-based firm, which it found were used in certain 1.5 megawatt Sinovel turbines, according to American Superconductor’s own statement Thursday on the charges.

American Superconductor has so far filed four suits against Sinovel in China over the alleged thefts, and has asked for more than $1 billion in damages, but Chinese courts have yet to address its claims.

“In the U.S., the Department of Justice has indicted Sinovel,” the U.S. firm’s CEO Daniel P. McGahn said in a statement Thursday. “In China, however, the legal system has yet to take substantive action. We believe this clearly demonstrates that the rights of foreign businesses are not being protected. The inability to rely on the rule of law is creating a risk for U.S. businesses operating in China.”

NEW 337 CASES

SILICON MICROPHONE PACKAGES

On June 21, 2013 Knowles Electronics, LLC filed a section 337 patent case against GoerTek, Inc., China; and GoerTek Electronics, Inc., Sunnyvale, California.

See ITC announcement below.

Docket No: 2962

Document Type: 337 Complaint

Filed By: Sturgis M Sobin

Firm/Org: Covington and Burling

Behalf Of: Knowles Electronics, LLC

Date Received: June 21, 2013

Commodity: Silicon Microphone Packages

Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Silicon Microphone Packages and Products Containing Same. The respondents are: GoerTek, Inc., China; and GoerTek Electronics, Inc., Sunnyvale, California.

If anyone wants short copies of the complaints, please feel free to contact me.

 PATENT CASES

 PATENT COMPLAINTS

Two patent complaints have been filed recently, June 17th complaint by Safe Storage v. Huawei and a June 25th complaint by Cellular Communications Equipment v. ZTE.  CELLULAR ZTE SAFE STORAGE HUAWEI

 ANTITRUST—PROPOSAL TO QUINTUPLE DAMAGE AWARDS IN CARTEL CASES

If Chinese respondents believe that triple damages are unfair, two antitrust professors are claiming that Congress should revise the law and provide 5x or quintuple damages for price fixing.  See the attached article, Cartels as Rational Business Strategy: Crime Pays by John M. Connor and Robert H. Lande.  QUINTUPLE ANTITRUST AWARDS

The two professors state at page 479 of their article:

“Perhaps the most straightforward policy conclusion that follows from our study would be to quintuple the overall current U.S. cartel sanction levels. A modest, ultra-conservative step in the right direction would be to double the average sanction level.”

SECURITIES

CHINESE GOVERNMENT AGREES TO RELEASE AUDIT DOCUMENTS TO SEC

On July 12th following the Strategic and Economic Dialogue talks led by U.S. Treasury Secretary Jack Lew, the Treasury Department announced that the Chinese government has agreed to turn over audit paperwork to the US Securities and Exchance Commission and the Public Company Accounting Oversight Board. China has also agreed to work with the United States to develop a cooperative process governing how the two nations oversee auditing foreign-listed companies.

The Chinese government has repeatedly resisted requests from the SEC and US regulators seeking the power to inspect Chinese auditing firms. The agreement between the two governments to protect investors and combat fraud comes following several high-profile accounting scandals, that have led to enforcement actions against fraud.

As Treasury Secretary Jack Lew stated on July 11th in the attached announcement:

“China’s securities regulator announced that it will begin providing certain requested audit work papers to our market regulators, an important step towards resolving a long-standing impasse on enforcement cooperation related to companies that are listed in the United States.”  TREASURY SECRETARY ANNOUNCEMENT PAPERWORK

CHINA MEDIA SEC COMPLAINT–SEC CROSS BORDER WORKING GROUP

Attached is a June 20th complaint filed by the U.S. Securities and Exchange Commission (SEC) against China Media Express Holdings Inc. in Washington DC federal court accusing the advertising company of fraud in grossly exaggerating its finances.  CHINA MEDIA COMPLAINT  The SEC complaint follows class action lawsuits against China Media Express.

The complaint alleges that China Media Express “massively overstated its cash balances” after it entered the public market in 2009, touting balances that overshot reality by 452 to over 40,000 percent.

This complaint is the latest product of the SEC’s Cross-Border Working Group, which cracks down on foreign-operating companies that are publicly traded in the United States.  Probes led by the Group have produced fraud cases against more than 65 foreign issuers or executives and forced more than 50 companies to de register securities.

If you have any questions about these cases or about the US trade, customs, patent, antitrust or securities law in general, please feel free to contact me.

Best regards,

Bill Perry

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