HQ 544950: Application for Further Review of Protest No. 3401-91- 100006; Dutiability of License Fee

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                          HQ 544950
                        May 28, 1992

VAL CO:R:C:V 544950 ILK

CATEGORY:  Valuation

District Director of Customs
Federal Building
P.O. Box 610
Pembina, ND  58271

RE:  Application for Further Review of Protest No. 3401-91-
     100006; Dutiability of License Fee

Dear Sir:

     This protest was filed against your decision in the
liquidation of an entry made by xxxx x xxxx xxxx, Inc. on behalf
of xxxxxxxxx xxxxxx xxxxxxxxxxxxxxxxxxxxxxx (hereinafter referred
to as "the importer").  The importer is disputing the inclusion
of a license fee payment in the transaction value of the imported
merchandise pursuant to section 402(b) of the Tariff Act of 1930,
as amended by the Trade Agreements Act of 1979 (TAA, 19 U.S.C.
1401a(b)).

FACTS:

     The importer has entered into a license agreement
(hereinafter referred to as the "agreement") with xxxxxx
xxxxxxxxxxxxx (hereinafter referred to as "the seller"), a
Canadian company, pursuant to which the importer is licensed to
manufacture and market the products of the seller.  The seller is
engaged in the design, promotion and use of plastic molds and
products relating to the construction of buildings, fences,
walks, streets and other projects and has the right to distribute
and sell those products and to provide technical assistance under
the trade name of Cretex Panels and Products.

     The agreement provides that for $20,000.00, the seller
grants to the importer "the right to continued use of the
[seller's] moulds, equipment and procedures for the purpose of
casting CRETEX PANELS and PRODUCTS" in certain territory within
South Dakota.  One-half of the $20,000.00 was to be paid at the
time the agreement was entered into, and the balance was to be
paid upon delivery to the importer of the machines and equipment
described in the agreement (compression machines, plastic molds,
support forms, corner molds, brick wafer molds and pattern spray
pistol).  Pursuant to the agreement, title to the machines and
equipment passes to the importer only upon the balance of the
license fee being paid to the seller.  The agreement describes
the equipment, molds and tools to be provided to the importer "as
part of the aforesaid License Fee."  

     The entry documents included an invoice and an export
declaration describing the imported merchandise as substantially
the same machines, equipment, molds and tools as described in the
agreement, with a total invoice price of $6,443.00 Canadian.  The
total shipment was appraised at $26,443.00 Canadian to include
the license fee paid.  The $20,000.00 license fee was not
apportioned among the various items imported, but was added to
the value of the compression machines.  The invoice value of the
compression machines was listed as $3,375.00 Canadian.  With the
inclusion of the royalty, the appraised value of the compression
machines became $23,375.00 Canadian.  The importer does not
dispute the appraisal of the remaining invoiced items at
$3,068.00 Canadian.  The importer claims that the compression
machines should be appraised at $3,375.00 Canadian, as opposed to
$23,375.00 Canadian.

ISSUE:

     Whether the license fee paid to the seller, for the right to
manufacture and market the product, and for the equipment, molds
and tools provided by the seller is to be included in the
transaction value of imported equipment, molds and tools.

LAW AND ANALYSIS:

     Transaction value is the preferred method of appraisement
and is defined in section 402(b) of the TAA as:

     ... the price actually paid or payable for the
     merchandise when sold for exportation to the United
     States, plus amounts equal to ... any royalty or
     license fee related to the imported merchandise that
     the buyer is required to pay, directly or indirectly,
     as a condition of the sale of the imported merchandise
     for exportation to the United States ....

      In prior rulings, in order to make the determination of
whether the license fee payment is "related to the imported
merchandise" and is paid "as a condition of the sale of the
imported merchandise," Customs has looked to whether the fees are
connected to the importation or ownership of the imported
merchandise.  See Headquarters Ruling Letter (HRL) 543773 dated
August 28, 1986.  In its protest, the importer cites U.S. v.
Rohner Gehrig & Co., Inc., 9 Cust. Ct. 591, R.D. 5724 (1942) for
the test set forth therein, that a fee is not dutiable when it
"is not inextricably intertwined with the production of the
imported merchandise or is optional or is paid for the exclusive
right to manufacture and sell in a designated area."  This case
law precedes the TAA and is not a separate basis for determining
dutiability under the TAA.

     In the instant case, the license fee relates to the
importation and ownership of the imported merchandise.  The
agreement specifically provides that the machines, equipment,
tools, and molds are provided as "part of the aforesaid License
Fee," and title to the merchandise does not pass to the importer
until the total license fee has been paid to the seller.  The
importer has not provided any evidence that the machines,
equipment, molds and tools could have been purchased without
payment of the license fee.  Thus, the license fee payment is
related to the imported merchandise and is an amount that the
importer is required to pay as a condition of sale of the
imported merchandise for exportation to the United States, and
should be included in the transaction value of the merchandise. 
       

HOLDING:

     The license fee payment is related to the imported
merchandise and is a condition of the sale of the imported
merchandise, therefore the payment must be included in the
appraised value of the merchandise.

     Consistent with the decision set forth above, you are hereby
directed to deny the subject protest.  A copy of this decision
should be attached to Customs Form 19 and mailed to the
protestant as part of the notice of action on the protest.


                              Sincerely,



                              John Durant, Director,
                              Commercial Rulings Division