The court’s decision
The three court instances concluded that there was no need
for royalties for know-how relating to the manufacture of the licensed Finished Product on a licensed Plant to be included in the customs value of the Equipment from which that Plant was assembled by reason of the following:
1. The royalties do not relate to the imported Equipment:
- The imported Equipment was not designed under the licences and is not mentioned in the licensing agreements.
- The Equipment is not specialised and designed exclusively for building a Plant and manufacturing Finished Products on it using the know-how.
- The Equipment and materials for the Plants were acquired from various suppliers, including domestic manufacturers.
2. The payment of royalties is not a condition of the sale of the Equipment by the foreign supplier:
- The licensing agreements do not state that sellers from the countries of consignment (Poland, Germany, France, et al.) are prohibited from selling (manufacturing) the goods at issue if royalties are not paid.
- The licensor has no legal leverage over sellers from the countries of consignment since the territorial extent of the licences does not include the countries of consignment of the goods at issue.
3. Adding royalties to the customs value of the Equipment is unreasonable since it is impossible to quantify precisely the ratio and (or) economic value of the know-how for this purpose:
- The Plants were built out of imported and Russian goods, besides which further expenses were incurred to engage independent contractors for the construction work itself.
- The ratio of the cost of the imported Equipment to the cost of Finished Products, sales of which form the basis for the royalty amount, is 35%, i.e., a small proportion.
We hope that the decision on this case will influence the course of future case law on disputes relating to customs value and over whether payments for the use of manufacturing know-how should be included in customs value.
In the case described, rulings made by the courts right up to the second round of adjudication of the case by the cassation court contained no references to or conclusions regarding circumstances that were directly relevant to the resolution of the dispute.
However, there is no reason to believe that those facts and circumstances were presented only in the second round of adjudication and only to the cassation court.
This highlights more clearly than ever the importance of the thorough and professional preparation of a legal position and the effective presentation of that position in court.