Austin Chemical Co., Inc. v. U.S.

• Decision Date: 31 December 1987
• Docket Number: No. 87-1331,87-1331
• Parties: , 6 Fed. Cir. (T) 42 AUSTIN CHEMICAL COMPANY, INC., Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1423

835 F.2d 1423

9 ITRD 1929, 6 Fed. Cir. (T) 42

AUSTIN CHEMICAL COMPANY, INC., Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.

No. 87-1331.

United States Court of Appeals, Federal Circuit.

Dec. 31, 1987.

Paul F. Stack of Stack & Filpi, Chicago, Ill., argued for appellee. With him on brief was John J. Kakacek of Stack & Filpi, Chicago, Ill.

Kenneth N. Wolf of the Dept. of Justice, Commercial Litigation Branch, Washington, D.C., argued for appellant. With him on brief were Richard K. Willard, Asst. Atty. Gen., David M. Cohen, Director, and Joseph I. Liebman, Atty. in Charge, International Trade Field Office.

Before FRIEDMAN and DAVIS, Circuit Judges, and COWEN, Senior Circuit Judge.

FRIEDMAN, Circuit Judge.

The United States appeals, pursuant to 28 U.S.C. Sec. 1295(a)(5) (1982), from a judgment of the United States Court of International Trade that reversed a Customs Service classification of a drug, 659 F.Supp. 229 (Ct. Int'l Trade 1987). We affirm.

I

A. The issue in this case is the proper classification for Customs purposes of imported D(-) mandelic acid. Mandelic acid can exist in two three-dimensional forms or "isomers": D(-) and L(+). A one-to-one (or "racemic") mixture is called DL mandelic acid. When only one isomer is present the compound is said to be "optically pure."

Austin Chemical Company (Austin) imported D(-) mandelic acid from Korea and sold it to Eli Lilly & Company (Lilly). Lilly used it to manufacture Cefamandole Nafate, a cephalosporin or beta-lactam antibiotic. Synthesizing the antibiotic is a multi-step process during which the mandelic acid undergoes various chemical changes. When the synthesis is complete, the antibiotic has a mandelic acid "moiety" or major portion of the original mandelic acid molecule.

The antibiotic kills bacteria by inhibiting the growth of bacterial cell walls. Bacteria, however, are not defenseless. They produce enzymes (called beta-lactamases) which can render the antibiotic ineffective. The mandelic acid moiety protects the beta-lactam portion of the drug which kills bacteria from these destructive bacterial enzymes, thereby enhancing the drug's effectiveness.

The United States Customs Service classified the imported D(-) mandelic acid under item 404.46 of the Tariff Schedules of the United States (TSUS):

Cyclic organic chemical products in any physical form having a benzeneoid, quinoid, or modified benzeneoid structure, not provided for in subpart A or C of this part:

* * *

* * *

Other:

Austin protested the classification and sought reclassification under TSUS 411.91, under which the merchandise would enter duty free:

Products suitable for medicinal use and drugs:

Obtained, derived, or manufactured in whole or in part from any product provided for in subpart A or B of this part:

Drugs:

Other:

* * *

* * * Anti-infective agents, not specially provided for:

* * *

* * *

Mandelic acid.

After the District Director of Customs denied Austin's protest, Austin brought suit in the Court of International Trade seeking reclassification and a refund of the duties paid plus interest.

The issues at trial were whether the TSUS definition of "drugs" includes D(-) mandelic acid and whether D(-) mandelic acid is eo nomine "mandelic acid" under TSUS item 411.91.

B. TSUS Schedule 4, part 1, subpart C, headnote 9, defines "drugs" as:

those substances having therapeutic or medicinal properties and chiefly used as medicines or as ingredients in medicines.

Thus, in order to classify D(-) mandelic acid as a "drug" it must have therapeutic or medicinal properties and be chiefly used as an ingredient in medicine. The trial court found that both prongs of the test were met.

The court found that D(-) mandelic acid had therapeutic properties because the mandelic acid moiety enhances the antibiotic activity of the drug:

Concededly, this isomer of mandelic acid may not be used alone as a curative; however, it does impart properties to the other substances which are necessary to produce an effective antibiotic. The criterion for a drug is not that it be therapeutic but that it possess therapeutic properties. The ability of the mandelic acid to prevent the breakdown of the beta-lactams cannot be denied. When a substance which possesses such desirable properties, although incapable of use alone, is combined with other substances to produce the physiological action to correct the deficient condition, it may properly be classified as a drug. Synthetic Patents Co., Inc. v. United States, 12 Cust.Ct. 148, C.D. 845 (1944); Synthetic Patents Co., Inc. v. United States, 11 Cust.Ct. 147, C.D. 813 (1943). Therefore, it appears that this characteristic which relates to the treatment of disease by a remedial agent or method is thus, a "therapeutic property".

659 F.Supp. at 231-32 (footnote omitted).

The court reasoned that D(-) mandelic acid is used as an ingredient in medicine because compounds (i.e., the antibiotic which is a medicine) are composed of ingredients (i.e., mandelic acid). The court rejected the testimony of the government's witness, Dr. Georg, that "she would not refer to D(-) mandelic acid as an ingredient in medicine, since she limits that term to those ingredients listed on a label of medicine." 659 F.Supp. at 233.

The court held that D(-) mandelic acid should have been classified as a drug since it had therapeutic properties and was chiefly used as an ingredient in medicine.

C. The trial court further held that D(-) mandelic acid is eo nomine "mandelic acid" under TSUS item 411.91. The court reasoned that

there is no separate provision in the Tariff Schedules for the different isomers of mandelic acid. While the merchandise may have been identified for purchase as D(-) mandelic acid, rather than generically as mandelic acid, that does not form the basis to conclude that this isomer is something other than the mandelic acid described in item 411.91, TSUS.... Since the merchandise in issue satisfies the superior heading of drugs in that it has therapeutic properties and is an ingredient in medicine, which are the only qualifiers of this eo nomine provision, the D(-) mandelic acid is properly classifiable under item 411.91, TSUS.

659 F.Supp. at 234.

The court's judgment ordered the Customs Service to "reliquidate the [merchandise] under item 411.91, TSUS, together with duty at the rate prevailing at the time of entry, and [to] refund any excess duties paid together with interest, as provided by law." Id.

II

The government challenges the trial court's rulings that D(-) mandelic acid has therapeutic properties and is used chiefly The rule of construction of tariff statutes is that " 'in order to produce uniformity in the imposition of duties, the dutiable classification of articles imported must be ascertained by an examination of the imported article itself, in the condition in which it is imported.' " United States v. Citroen, 223 U.S. 407, 414-15, 32 S.Ct. 259, 260, 56 L.Ed. 486 (1912) (citations omitted); Carling Elec. Co. v. United States, 757 F.2d 1285, 1287 (Fed.Cir.1985). According to the government, this rule requires that for D(-) mandelic acid to be classified as a drug, the imported product itself must have therapeutic properties.

as an ingredient in medicine. Both arguments rest primarily on the fact that only...