Former Employees of Computer Sciences Corp. v. United States Secretary of Labor

Slip Op. 06-17

UNITED STATES COURT OF INTERNATIONAL TRADE

BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS
________________________________________
:
FORMER EMPLOYEES OF COMPUTER :
SCIENCES CORPORATION, :
:
Plaintiffs, :
: Court No. 04-00149
v. :
:
UNITED STATES SECRETARY OF LABOR, :
:
Defendant. :
________________________________________:

[Held: Labor’s second remand determination is not supported by
substantial evidence and is not in accordance with law. Case
remanded for a third time.]

Dated: January 27, 2006

Sidley Austin Brown & Wood LLP, (Neil R. Ellis, Rajib Pal, and
Sharon H. Yuan) for Former Employees of Computer Sciences
Corporation, plaintiffs.

Stuart E. Schiffer, Deputy Assistant Attorney General, David
M. Cohen, Director, Patricia M. McCarthy, Assistant Director,
Commercial Litigation Branch, Civil Division, United States
Department of Justice (Delfa Castillo); of counsel: Peter Nessen,
Office of the Solicitor, United States Department of Labor, for
United States Department of Labor, defendant.

OPINION AND ORDER

TSOUCALAS, Senior Judge: In this matter, Former Employees of

Computer Sciences Corporation (“Plaintiffs”), challenge the second

remand determination of the Department of Labor (“Labor”) conducted

pursuant to the Court’s decision in Former Employees of Computer

Sciences Corp. v. Labor (“CSC I”), 29 CIT ___, 366 F. Supp. 2d 1365
Court No. 04-00149 Page 2

(2005), of which familiarity is presumed. Very briefly, Plaintiffs

are former employees of Computer Sciences Corporation (“CSC”) who

were separated from their employment as information technology

professionals. See CSC I, 29 CIT at ___, 366 F. Supp. 2d at 1366.

Labor initially denied Plaintiffs’ eligibility for certification of

Trade Adjustment Assistance (“TAA”) under Title II of the Trade Act

of 1974, as amended 19 U.S.C. § 2271 (West Supp. 2004) (the “Trade

Act”). See Negative Determination Regarding Eligibility To Apply

for Worker Adjustment Assistance (“Negative Determination”), TA-W-

53,209 (Dep’t Labor Oct. 24, 2003) Admin. R. 55-56; Notice of

Determinations Regarding Eligibility To Apply for Worker Adjustment

Assistance, 68 Fed. Reg. 66,877-78 (Dep’t Labor Nov. 28, 2003);

Notice of Negative Determination on Reconsideration for Computer

Sciences Corporation, Financial Services Group (“FSG”), East

Hartford, Connecticut (“Negative Reconsideration Determination”),

Admin. R. 78-80 (Dep’t Labor Feb. 3, 2004) published at 69 Fed.

Reg. 8,488 (Dep’t Labor Feb. 24, 2004); Notice of Negative

Determination on Reconsideration on Remand for Computer Sciences

Corporation, Financial Services Group, East Hartford, Connecticut

(“Remand Negative Determination”), Supplemental Admin. R. 13-17

(Dep’t Labor July 29, 2004) published at 69 Fed. Reg. 48,526 (Dep’t

Labor Aug. 10, 2004).1 In CSC I, the Court held that Labor’s

1
The “Admin. R.” refers to the administrative record from
Labor filed with the Court on May 18, 2004. The “Supplemental
Court No. 04-00149 Page 3

Negative Determination, Negative Reconsideration Determination and

Remand Negative Determination were not supported by substantial

evidence or in accordance with law. See CSC I, 29 CIT at ___, 366

F. Supp. 2d at 1373. Accordingly, the Court remanded this case

ordering Labor to “(1) explain why code, which is used to create

completed software, is not a software component; (2) examine

whether Plaintiffs were engaged in the production of code; (3)

investigate whether there was a shift in production of code to

India; (4) investigate whether code imported from India is like or

directly competitive with the completed software or any component

of software formerly produced by Plaintiffs; and (5) investigate

whether there has been or is likely to be an increase in imports of

like and directly competitive articles by entities in the United

States . . . .” Id., 366 F. Supp. 2d at 1373. On remand, Labor

again determined that Plaintiffs were not eligible for TAA

certification because Plaintiffs do not produce an article under

the Trade Act. See Notice of Negative Determination On Remand for

Computer Sciences Corporation, Financial Services Group, East

Hartford, Connecticut (“Second Remand Negative Determination”),

Admin. R.” refers to the administrative record filed with the Court
on August 2, 2004, in conjunction with remand results from Labor’s
voluntary remand. The “2Supp. Admin. R.” refers to the
administrative record filed with the Court on August 24, 2005,
pursuant to the Court ordered remand in CSC I. References to
“Confidential 2Supp. Admin. R.” refer to the confidential version
of the August 24, 2005, record.
Court No. 04-00149 Page 4

2Supp. Admin. R. 171, 175 (Dep’t Labor Aug. 24, 2005) published at

70 Fed. Reg. 52,129, 52,130 (Dep’t Labor Sept. 1, 2005).

JURISDICTION

The Court has jurisdiction over this matter pursuant to 19

U.S.C. § 2395(c) (2000) and 28 U.S.C. § 1581(d) (2000).

STANDARD OF REVIEW

In reviewing a challenge to Labor’s determination of

eligibility for trade adjustment assistance, the Court will uphold

Labor’s determination if it is supported by substantial evidence on

the record and is otherwise in accordance with law. See 19 U.S.C.

§ 2395(b); Woodrum v. Donovan, 5 CIT 191, 193, 564 F. Supp. 826,

828 (1983), aff’d, Woodrum v. United States, 737 F.2d 1575 (Fed.

Cir. 1984)). “Substantial evidence is something more than a ‘mere

scintilla,’ and must be enough reasonably to support a conclusion.”

Ceramica Regiomontana, S.A. v. United States, 10 CIT 399, 405, 636

F. Supp. 961, 966 (1986), aff’d, 810 F.2d 1137 (Fed. Cir. 1987);

see also Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938).

Additionally, when reviewing Labor’s conclusions of law, the Court

will consider whether they are “in accordance with the statute and

not be arbitrary and capricious, and for this purpose the law

requires a showing of reasoned analysis.” Former Employees of Rohm

& Haas Co. v. Chao, 27 CIT ___, ___, 246 F. Supp. 2d 1339, 1346
Court No. 04-00149 Page 5

(2003) (quoting Int'l Union v. Marshall, 584 F.2d 390, 396 n.26

(D.C. Cir. 1978)). Under this standard, the Court will “sustain

the agency’s interpretation of the statute where it has a rational

basis in law, even though the court might have reached a different

interpretation.” Abbott v. Donovan, 6 CIT 92, 100-01, 570 F. Supp.

41, 49 (1983). The Court, however, will “reject the agency’s

interpretation or application of a statute when it is inconsistent

with the legislative purpose of the statute or frustrates Congress’

intent.” Id. at 101, 570 F. Supp. at 49. “[I]t is for the courts,

to which the task of statutory construction is ultimately

entrusted, to determine whether or not administrative

interpretations are consistent with the intent of Congress and the

words of the Act.” Woodrum, 5 CIT at 194, 564 F. Supp. at 829.

Moreover, although “the nature and extent of the investigation

are matters resting properly within the sound discretion of

[Labor,]” Former Employees of Galey & Lord Indus. v. Chao, 26 CIT

___, ___, 219 F. Supp. 2d 1283, 1286 (2002) (quoting Former

Employees of CSX Oil & Gas Corp. v. United States, 13 CIT 645, 651,

720 F. Supp. 1002, 1008 (1989) (citation omitted)), good cause to

remand exists if Labor’s “chosen methodology is so marred that

[Labor’s] finding is arbitrary or of such a nature that it could

not be based on substantial evidence.” Id. The Court’s review of

Labor’s determination denying certification of eligibility for TAA
Court No. 04-00149 Page 6

benefits is confined to the administrative record before it. See

28 U.S.C. § 2640(c); see also Int'l Union v. Reich, 22 CIT 712,

716, 20 F. Supp. 2d 1288, 1292 (1998).

DISCUSSION

I. Contention of the Parties

A. Plaintiffs’ Contentions

Plaintiffs argue that Labor’s determination that they are

ineligible for TAA benefits is not based on substantial evidence in

the record, is arbitrary and capricious, and is not in accordance

with law. See Comments Pls.’ Former Employees Computer Sciences

Corp. Regarding Redetermination Results Filed Dep’t Labor Aug. 24,

2005 (“Pls.’ Comments”) at 4. Plaintiffs request that the Court

vacate Labor’s second remand determination and remand this case

with instructions to certify Plaintiffs because substantial

evidence on the record indicates that Plaintiffs have fulfilled the

eligibility requirements for TAA certification. See Pls.’ Comments

at 3-4. Specifically, Plaintiffs argue that Labor’s determination

that software code is not an article is arbitrary and capricious,

ignoring recent Customs rulings. See id. at 5. Rather, Plaintiffs

assert that producing software or software code, a component of

software, is an article within the meaning of the Trade Act. See

id. Plaintiffs cite HQ 114459, wherein Customs determined that

software modules, (source and/or binary code), are objects of trade
Court No. 04-00149 Page 7

and commerce in their ordinary use but exempt from duty under

General Note 3(e) of the Harmonized Tariff Schedule of the United

States (“HTSUS”). See Pls.’ Comments at 5-6. Since all goods are

subject to a duty unless exempted under a specific provision,

Plaintiffs argue that HQ 114459 indicates that software code is an

article under the HTSUS. See id. Plaintiffs contend that because

Labor is obligated to follow Customs’ interpretation of the HTSUS,

which governs the definition of articles, and software is an

article under the HTSUS, it is also an article under the Trade Act.

See id. at 6-7. Plaintiffs also contend that Labor errs in

requiring an article to be tangible under the Trade Act. See id.

at 8. Even if tangibility is a requirement, however, Plaintiffs

argue that software is tangible because it can be possessed or

realized, unlike a service. See id. Plaintiffs maintain that

software code is a component of completed software, although such

a conclusion is unnecessary here because software code is itself an

article under the Trade Act. See id. at 9-10.

Furthermore, Plaintiffs assert that substantial record

evidence shows there has been a shift of production of software

code to India. See id. at 11. On remand, Labor’s investigation

determined that the software code written in India is similar to

the software code formerly written by the Plaintiffs in the United

States. See id. at 12. Thus, Plaintiffs contend that the shift in
Court No. 04-00149 Page 8

production was of like or directly competitive articles as required

by the Trade Act. See Pls.’ Comments at 12. Plaintiffs finally

argue that there has been or is likely to be an increase in imports

of software code. See id. Plaintiffs maintain that regardless of

the mode of entry, i.e. whether on a physical medium or electronic

transmission, software code brought into the United States from

India constitutes an importation for purposes of TAA. See id. at

12-13. Plaintiffs emphasize that the mode of entry of an article,

especially software, into the United States is not an issue with

Customs, as expressed in HQ 114459, or with the United States

International Trade Commission. See id. at 13-14. Labor concluded

in its second remand determination that CSC has increased its

delivery of software code into the United States and the code

imported is similar to code formally written by Plaintiffs. See

id. at 17. Thus, Plaintiffs argue this increase in the electronic

delivery of software code from abroad constitutes an increase in

imports of like or directly competitive articles as required by 19

U.S.C. § 2272(a). See id. at 18. Accordingly, Plaintiffs argue

that substantial evidence on the record support their eligibility

requirements for TAA certification. See id. at 3-4.

B. Labor’s Contentions

Labor responds that the Court should affirm its second remand

results because they are supported by substantial evidence and are
Court No. 04-00149 Page 9

otherwise in accordance with law. See Def.’s Resp. Pls.’ Comments

Dep’t Labor’s Remand Results (“Labor’s Resp.”) at 6. Labor again

determined in its second remand determination that Plaintiffs did

not produce an article under the Trade Act. See Labor’s Resp. at

8. Since certification for TAA benefits pursuant to either 19

U.S.C. § 2272(a)(2)(A) or (B) depends on whether software code is

considered an article, Labor argues that Plaintiffs’ challenge

fails. See id. at 13. In its second remand determination, Labor

distinguished code from completed computer software on a physical

medium maintaining that because software code is not embodied on a

physical medium, it is not an article under the Trade Act. See id.

at 10. Thus, although Labor acknowledged that CSC increased the

importation of software code into the United States from India,

Labor determined that CSC did not shift production of an article

for TAA purposes. See id. Moreover, Labor asserts that it is

impossible to determine whether the software code written in India

is like or directly competitive with the software code formally

produced by Plaintiffs because such a comparison assumes the

existence of articles to compare. See id.

Labor argues that because Plaintiffs have alleged a shift in

production, they must satisfy the threshold requirement showing an

actual shift in production to a foreign country of articles they

formerly produced. See id. at 13. Since the software code
Court No. 04-00149 Page 10

Plaintiffs wrote is intangible until it is incorporated onto a

physical medium at the Hartford facility, the code is not an

article for purposes of TAA certification. See Labor’s Resp. at

15-16. Labor, indeed, likens code to an idea. See id. at 16.

Labor states that this court in Former Employees of Murray Eng’g v.

Chao (“Murray Eng’g”), 28 CIT ___, 358 F. Supp. 2d 1269 (2004),

recognized that the form in which electronic information is

embodied may be a factor in determining whether it is considered an

article under the Trade Act. See Labor’s Resp. at 16.

Furthermore, Murray Eng’g also recognized that the Trade Act

indicates that the HTSUS governs the definition of articles, which

are items subject to a duty. See id. Labor argues that software

code is not dutiable under the HTSUS, and thus is not an article.

See id. Labor further argues that Plaintiffs’ interpretation of HQ

114459 is misplaced. See id. at 17-18. In HQ 114459, Customs

found software code to be “goods or merchandise,” which Labor

argues are not TAA statutory terms and therefore not relevant to

the Court’s analysis. See id.

Labor also contends that whether coding is a component of an

article is not relevant or dispositive in whether there has been a

shift in production. See id. at 22. Labor states that the Trade

Act refers to “articles,” and thus whether software code is an

article is dispositive for TAA eligibility. See id. at 23.
Court No. 04-00149 Page 11

Furthermore, Labor reasons that “until it is contained in computer

software, code is not a component of computer software.” Labor’s

Resp. at 23. Rather, software code is like an idea that will

eventually lead to the existence of an article. See id. Labor

asserts that in order for code to be a component of an article, the

code would have to be an article itself, possessing tangibility and

be embodied on a physical medium. See id. at 24.

Finally, Labor argues that there has not been nor is there

likely to be an increase in imports of articles like or directly

competitive with the articles CSC produced. See id. Labor

surveyed seven of CSC’s major competitors and concluded that none

of them increased imports of software code during the review period

and were not likely to import software code in the future. See id.

at 25. Consequently, Labor asserts that Plaintiffs’ contention

that electronic transmissions of software code into the United

States will increase is not supported by record evidence. See id.

at 25-26. Labor concludes that Plaintiffs fail to satisfy 19

U.S.C. § 2272(a)(2) because software code formerly written by

Plaintiffs, which was not embodied on a physical medium, is not an

article under the Trade Act. See id. at 26.
Court No. 04-00149 Page 12

II. Analysis

The Trade Act provides TAA benefits to workers who have been

separated as a result of increased imports into or shifts of

production out of the United States. See 19 U.S.C. § 2272. Such

benefits include training, re-employment services and various

allowances including income support, and job search and relocation

allowances. See 19 U.S.C. §§ 2295-98. Labor is required to

certify a group of workers as eligible to apply for TAA benefits if

“a significant number or proportion of the workers in such workers’

firm, or appropriate subdivision of the firm, have become totally

or partially separated [from employment],” and if one of two

further sets of conditions are satisfied. 19 U.S.C. § 2272(a).

First, such workers may qualify if:

(i) the sales or production, or both, of such firm or
subdivision have decreased absolutely; (ii) imports of
articles like or directly competitive with articles
produced by such firm or subdivision have increased; and
(iii) the increase in imports . . . contributed
importantly to such workers’ separation or threat of
separation and to the decline in the sales or production
of such firm or subdivision.

19 U.S.C. § 2272(a)(2)(A). Second, the workers may also qualify if

there has been a shift in production to a foreign country by the

workers’ firm or subdivision of articles like or directly

competitive with articles produced by the firm or subdivision, and

if any of the following conditions are satisfied: (1) the shift in

production was to a country which is a party to a free trade
Court No. 04-00149 Page 13

agreement with the United States; (2) the shift in production was

to a country that is a beneficiary under one of three listed trade

preference programs; or (3) there has been or is likely to be an

increase in imports of articles like or directly competitive with

articles produced by the subject firm or subdivision. See 19

U.S.C. § 2272(a)(2)(B). It follows then, that for TAA eligibility,

Plaintiffs had to produce an article within the meaning of the

Trade Act. See 19 U.S.C. § 2272(a), see also Former Employees of

Marathon Ashland Pipeline, LLC v. Chao, 26 CIT 739, 743-44, 215 F.

Supp. 2d 1345, 1351 (2002) rev’d other grounds 370 F.3d 1375 (Fed.

Cir. 2004) (referring to an earlier version of the Trade Act).

A. Labor’s Determination that Software Code Must be on a
Physical Medium to be an Article Is Not in Accordance
With Law

1. The Trade Act, Implementing TAA Regulations and the
HTSUS Do Not Require Tangibility as a Requirement
for an Item to be an Article

In its second remand results, Labor determined that “[c]ode,

not embodied on a physical medium, is not considered an article for

TAA purposes. It is not found on the Harmonized Tariff Schedule.”

See Second Remand Negative Determination, 70 Fed. Reg. at 52,130.

Under this “HTSUS test,” Labor interpreted General Note 3(I)2 to

2
Since there is no “General Note 3(I)” in the 2004 HTSUS,
as cited by Labor in its Second Remand Negative Determination, 70
Fed. Reg. at 52,130, and General Note 3(i) deals with authority for
the Department of the Treasury to issue rules and regulations, the
Court No. 04-00149 Page 14

exempt software code not on a physical medium from the HTSUS. See

id. Labor, therefore, determined that software code is not an

article. See id. Labor, however, does not cite to any statute,

regulation, persuasive interpretation or its own previous practice

to support its conclusion that an article must be tangible under

the Trade Act. See id. at 52,130-31. The Court holds that Labor’s

determination requiring articles to be tangible is a cursory

explanation and not a reasoned interpretation of the Trade Act and

the HTSUS.

The Trade Act does not define the term “articles” within the

statutory language, and specifically absent is a tangibility

requirement. See 19 U.S.C. §§ 2101-2495 (2000). Likewise, the

implementing regulations also do not define the term “articles.”

See 19 C.F.R. § 0.1 et seq. (2004). The language of the Trade Act,

however, does clearly indicate that the HTSUS governs the

definition of articles because it consistently refers to an

“article” as items subject to a duty. See Murray Eng’g, 28 CIT at

___, n.7, 358 F. Supp. 2d at 1272, n.7 (citing 19 U.S.C. §§ 2119 &

2252(d)); see also SKF USA Inc. v. United States, 263 F.3d 1369,

1382-83 (Fed. Cir. 2001) (holding that where Congress has used a

term repeatedly, it is considered to have the same meaning in each

Court understands Labor to mean General Note 3(e), which exempts
telecommunications transmissions.
Court No. 04-00149 Page 15

reference). Congress has determined that the HTSUS is “considered

to be statutory provisions of law.” 19 U.S.C. § 3004. Labor’s

regulations indicate that it chose to reference the HTSUS in

determining what constitutes an article, as a matter of law. See

29 C.F.R. § 90.11(c) (2004); Former Employees of Electronic Data

Systems Corp. v. Labor (“EDS I”), 28 CIT ___, ___, 350 F. Supp. 2d

1282, 1288 (2004). Customs, not Labor, is explicitly delegated by

Congress to apply and interpret the HTSUS. See 19 U.S.C. § 1500.

As such, Labor’s interpretation of the HTSUS may be afforded

respect according to Skidmore v. Swift & Co., 323 U.S. 134 (1944),

meaning “proportional to its ‘power to persuade.’” EDS I, 28 CIT

at ___, 350 F. Supp. 2d at 1286-87 (citing United States v. Mead

Corp., 533 U.S. 218, 221 (2001); Skidmore, 323 U.S. at 140).

All “goods provided for in [the HTSUS] and imported into the

customs territory of the United States . . . are subject to duty or

exempt therefrom as prescribed in general notes 3 through 18,

inclusive.” General Note 1, HTSUS (2004).3 “Exempt” is defined as

“free or released from a duty or liability to which others are

held.” Black’s Law Dictionary 612 (8th ed. 2004). General Note

3(e) is titled “exemptions” and states that “telecommunications

transmissions” are “not goods subject to the provisions of the

3
The General Notes are included as part of the legal text
of the HTSUS. See The Preface to the 16th Edition of the HTSUS, 1.
Court No. 04-00149 Page 16

tariff schedule.” General Note 3(e), HTSUS. Here, Labor

implicitly concedes that the software code imported from India is

a telecommunications transmission. See Second Remand Negative

Determination, 70 Fed. Reg. at 52,130. General Note 3(e) supports

the conclusion that telecommunications transmissions, which would

include transmissions of software code via the Internet, are exempt

from duty while acknowledging that they are goods entering into the

customs boundaries of the United States. See General Note 3(e),

HTSUS. The mode of importation, via tangible compact discs versus

the Internet, is not the material analysis. See Cunard S.S. Co. v.

Mellon, 262 U.S. 100, 122 (1923) (stating “[i]mportation . . .

consists in bringing an article into a country from the outside.

If there be an actual bringing in it is importation regardless of

the mode in which it is effected.”). The HTSUS, on its face, does

not indicate that exemption from paying duties is synonymous with

exclusion, i.e. not included, as Labor would like the Court to

believe. See Second Remand Negative Determination, 70 Fed. Reg. at

52,130. Hence, software code transmitted electronically is

exempted, which evidences that it has to be covered by the HTSUS.

Therefore, Labor’s interpretation of General Note 3(e) is not in

accordance with the plain meaning of the word “exempt” in the

HTSUS. The Court finds that Labor’s Second Remand Negative

Determination failed to reasonably explain how telecommunications

transmissions, which is considered an importation of goods under
Court No. 04-00149 Page 17

the HTSUS, are somehow not articles under the Trade Act for TAA

purposes.

2. Other Agencies’ Interpretations of Customs Law Do
Not Require Software Code to be Tangible

Labor’s legal conclusion, that software code must be on a

physical medium to be an article, is also incongruous with

interpretations from both the United States Bureau of Customs and

Border Protection (“Customs”) and the United States International

Trade Commission (“ITC”). The Court is persuaded by these

interpretations because of the agencies’ extensive experience in

customs law.

Congress has explicitly delegated Customs the authority to

apply and interpret the HTSUS. See 19 U.S.C. § 1500. Labor’s

tangibility requirement and interpretation of General Note 3(e) of

the HTSUS is discordant with Customs Ruling Letter 114459 (“HQ

114459”) 1998 U.S. CUSTOM HQ LEXIS 640 (Sept. 17, 1998). In HQ

114459, Customs addressed specifically whether “software modules

and products (source code and/or binary code)” imported into the

United States via the Internet was subject to a duty. HQ 114459,

1998 U.S. CUSTOM HQ LEXIS 640 at *1-2. Customs concluded that

software modules and products brought into the Unites States via

the Internet is an “importation of merchandise.” Id. at *3.

Notably, Customs applied the Supreme Court’s holding in Cunard
Court No. 04-00149 Page 18

S.S., to this modern situation stating “[t]he fact that the

importation of the merchandise via the Internet is not effected by

a more ‘traditional vehicle’ (e.g., transported on a vessel) does

not influence our determination.” Id. Cognizant that Customs is

the delegated authority in determining what items are included in

the HTSUS, see 19 U.S.C. § 1500, Labor fails to explain why its

interpretation of the HTSUS leads to a different conclusion. Labor

argues that the terms “goods” and “merchandise” are not TAA

statutory terms and therefore not relevant to the Court’s analysis.

See Labor’s Resp. at 18. The Court, however, disagrees. Labor has

stated that it interprets the term “articles” to be consistent with

the HTSUS, which is the foundation of HQ 114459. See 29 C.F.R. §

90.11(c); see also EDS I, 28 CIT at ___, 350 F. Supp. 2d at 1288.

Therefore, Labor’s interpretation should not be contrary to

Customs’ without a reasoned analysis that has the “power to

persuade.” Skidmore, 323 U.S. at 140.

While Customs interprets the HTSUS, the ITC is responsible for

continually reviewing and recommending modifications to the HTSUS

as it considers them necessary or appropriate. See 19 U.S.C. §§

1332 & 3005. Congress has delegated broad authority to the ITC to

determine what constitutes and “article” for purposes of Title 19

of the United States Code. See id.; Former Employees of Electronic

Data Systems, Corp. v. United States (“EDS II”), 29 CIT ___, ___,
Court No. 04-00149 Page 19

Slip Op. 05-148 at 13 (2005) (“Congress mandated that the ITC

develop HTSUS to resolve all questions relative to the

classification of articles in the several sections of the Customs

law.” (citations omitted)). Labor has acknowledged that the ITC

has such broad powers. See id. In interpreting another statute,

the Supreme Court stated that it begins with “the premise that when

Congress uses the same language in two statutes having similar

purposes . . . it is appropriate to presume that Congress intended

the text to have the same meaning in both statutes.” Smith v. City

of Jackson, 544 U.S. 228, ___, Slip Op. 04-35 at 4 (Mar. 30, 2005).

The ITC in interpreting section 337 of the Tariff Act of 1930,

19 U.S.C. § 1337, has treated software as an article of importation

regardless of its mode of importation. See Commission Opinion on

Remedy, the Public Interest, and Bonding at 28-29 in In the Matter

of Certain Hardware Logic Emulation Systems and Components Thereof,

Inv. No. 337-TA-383, Publication No. 3089 (ITC, Mar. 30, 1998);4

see also EDS II, 29 CIT at ___, Slip Op. 05-148 at 12-14. In its

Second Remand Negative Determination, Labor did not address how its

limiting definition under the Trade Act can be reconciled with the

ITC’s interpretation of an article under 19 U.S.C. § 1337. While

not addressing the ITC’s interpretation of an article here, Labor

4
Publication No. 3089 can be found on the ITC’s website at
http://edisweb.usitc.gov/edismirror/337-383/Violation/46666/46666
/44a/C23E.pdf.
Court No. 04-00149 Page 20

does acknowledge that its determinations of what is an article

should concur with the HTSUS. See 29 C.F.R. § 90.11(c); EDS I, 28

CIT at ___, 350 F. Supp. 2d at 1288. Given the ITC’s role in

updating the HTSUS, its interpretation of software code is highly

probative to the Court. The Court remands this issue to Labor to

consider the ITC’s interpretation and explain its departure

therefrom.

In conclusion, Labor fails to recognize or adapt its position

to recent technology. Given that “remedial statutes [such as 19

USCS § 2272] are to be liberally construed,” Int'l Union, UAW v.

Marshall, 584 F.2d 390, 396 (D.C. Cir. 1978) (interpreting an

earlier version of the Trade Act), Labor is stubbornly arguing its

position that software code must be embodied on a physical medium,

which is supported by a shaky foundation. The plain language of

the Trade Act does not require that an article must be tangible.

Labor’s regulations read together with the HTSUS support the

conclusion that software code, regardless of the mode of

importation, is an article under the Trade Act. Moreover, Customs

and the ITC do not differentiate between physical or electronic

importation of software and software code. Accordingly, the Court

holds that Labor’s determination that software code must be

tangible to be an article under the Trade Act is not in accordance

with law as currently articulated by Labor.
Court No. 04-00149 Page 21

B. Labor’s Determination That Plaintiffs Are Not Eligible
for TAA Certification is Not Supported by Substantial
Evidence on the Record

Labor agrees that a significant number of CSC’s former code

writers were separated from their employment, thus Plaintiffs

satisfy the first requirement of 19 U.S.C. § 2272(a). See CSC I,

29 CIT at ___, 366 F. Supp. 2d at 1371. It is the remaining

requirements under 19 U.S.C. § 2272(a)(2)(B) that Labor determined

Plaintiffs did not satisfy. See generally Second Remand Negative

Determination, 70 Fed. Reg. at 52,129-31. In CSC I, the Court held

that Labor had “failed to satisfy its obligation to compare the

domestic product with the foreign made product” and thus failed to

“meet the threshold requirement of reasonable inquiry.” CSC I, 29

CIT at ___, 366 F. Supp. 2d at 1372. Thus, the Court remanded this

case ordering Labor to “(1) explain why code, which is used to

create completed software, is not a software component; (2) examine

whether Plaintiffs were engaged in the production of code; (3)

investigate whether there was a shift in production of code to

India; (4) investigate whether code imported from India is like or

directly competitive with the completed software or any component

of software formerly produced by Plaintiffs; and (5) investigate

whether there has been or is likely to be an increase in imports of

like or directly competitive articles by entities in the United

States.” Id., 366 F. Supp. 2d at 1373. Labor attempts to avoid

the Court’s remand instructions with its simple assertion that
Court No. 04-00149 Page 22

because software code is not an article under the Trade Act,

Plaintiffs fail to satisfy 19 U.S.C. § 2272(a)(2). See Second

Remand Negative Determination, 70 Fed. Reg. at 52,130. The Court,

however, finds that Labor’s legal conclusions are not in accordance

with law. Mindful of that finding, the Court will examine if

Labor’s factual determinations are supported by substantial

evidence on the record. Thus, the Court will address each of its

remand instructions in turn.

First, the Court ordered Labor to explain why it considered

software code to not be a component of software. See CSC I, 29 CIT

at ___, 366 F. Supp. 2d at 1373. On remand, Labor determined that

it does not “consider software code, not embodied on any physical

medium, to be a component of completed software.” Second Remand

Negative Determination, 70 Fed. Reg. at 52,130. Labor further

stated that

To be a component [Labor] requires that the item
in question also be an article in and of itself.
It is not enough that the item be indispensable
to the function of the completed article. The
code is like an idea that will eventually lead to
the existence of an “article” - it is, in fact,
necessary - but it is not something that can be
measured or “imported.” Therefore, software
code, like an idea, is not a component of an
“article.”

Id. Labor’s determination here relies solely on whether the

software code is on a physical medium to be a component of an

article. Labor fails to cite to any statute, regulation, or even
Court No. 04-00149 Page 23

past practice to support its determination. See id. The Court

finds that Labor’s determination again fails a reasoned analysis.

See 19 U.S.C. § 2395(b). The Court noted in CSC I, that “if code

is a process in the development of completed software, then code

must also be considered a component of such software.” CSC I, 29

CIT at ___, 366 F. Supp. 2d at 1372. Whether software code is

tangible is not the crux of this analysis. Simply, “software

[code] does not exist without a carrier medium. While it can be

transmitted electronically, it must be ultimately stored on some

carrier medium, such as a CD-Rom, floppy disk, hard drive, or the

machine on which it is installed.” EDS II, 29 CIT at ___, Slip Op.

at 15 (emphasis retained). Under the HTSUS, a component is

something that gives the item in question its essential character.

See General Rules of Interpretation 3(b), HTSUS. Software code

creates the essential character of software. As such, software

code must be a component of software and thus an aspect in the

production of software.

The second and third elements of the Court’s remand

instructions ordered Labor to examine whether Plaintiffs were

engaged in the production of code and whether there was a shift in

the production of code to India. See CSC I, 29 CIT at ___, 366 F.

Supp. 2d at 1373. In its Second Remand Negative Determination,

Labor “concluded that the plaintiffs did write software code, and
Court No. 04-00149 Page 24

that the code writing function was transferred to India.” Second

Remand Negative Determination, 70 Fed. Reg. at 52,130. The Court

holds that Labor complied with the Court’s remand instructions

regarding these two elements.

The Court also ordered Labor to investigate whether the

imported code from India is like or directly competitive with the

software code formerly produced by Plaintiffs. See CSC I, 29 CIT

at ___, 366 F. Supp. 2d at 1373. Labor determined that it was

“impossible to answer whether” software code formerly written by

Plaintiffs is like or directly competitive with the imported code

from India because “that assumes the existence of articles to

compare.” Second Remand Negative Determination, 70 Fed. Reg. at

52,130. Labor stopped its analysis because it determined that

intangible software code is not an article and “clearly not ‘like

or directly competitive’ with an actual article such as completed

software on a physical medium.” Id. The Court finds that Labor

again has failed to conduct a reasoned analysis. Simply because

Labor continues to repeat its tangibility requirement does not make

the requirement come true. The Court clearly stated in CSC I,

“[w]hile Labor may be correct that the code from India is not like

or directly competitive with the completed software on physical

media produced in the United States, it does not follow that the

code from India is not like or directly competitive with a function
Court No. 04-00149 Page 25

used in producing the completed software in the United States.”

CSC I, 29 CIT at ___, 366 F. Supp. 2d at 1372. The Court inquired

as to whether the code writing function that was shifted to India

is like or directly competitive with the code formally written by

Plaintiffs; not whether software code was comparable to completed

software as Labor determined in its remand results. See Second

Remand Negative Determination, 70 Fed. Reg. at 52,130. Labor

acknowledges that the “software code written in India is similar to

the software code plaintiffs wrote in the United States.” Id.

Since Labor has determined that the two are “similar,” the Court

finds that the code writing function that was shifted to India is

“like” the code formally written by Plaintiffs satisfying the “like

or directly competitive” requirement of 19 U.S.C. § 2272 (a)(2).

Finally, the Court ordered Labor to determine whether there

has been or is likely to be an increase of imports of like or

directly competitive articles by entities in the United States.

See CSC I, 29 CIT at ___, 366 F. Supp. 2d at 1373. On remand,

Labor surveyed “seven companies who produce software which might be

considered like or directly competitive” with software produced by

CSC. See Second Remand Negative Determination, 70 Fed. Reg. at

52,131.5 Based on the survey responses, Labor determined that

5
Of the seven companies surveyed, the record indicates
that Labor received answers of varying substance from six of the
companies. See Confidential 2Supp. Admin. R. at 105-170. Of the
Court No. 04-00149 Page 26

“none had imported software in a physical medium, and while some

stated that new business opportunities were always possible, none

had expressed that they were likely to import any software.” Id.

Labor also stated that while CSC has obviously “increased its

‘delivery’ of software code to the United States, but because

software code” is not an article, “such an increase did not

qualify” Plaintiffs for TAA certification. Id. The Court finds

that the record does not support Labor’s determination. Two of the

companies surveyed clearly answered that they wrote software code

overseas, which was then imported into the United States via the

Internet. See Confidential 2Supp. Admin. R. at 145-52 & 169-70.6

Furthermore, one of the two companies unambiguously stated that it

considered its software competitive with software formally produced

by Plaintiffs. See id. at 169-70. Labor does not acknowledge

these two companies’ imports in its Second Remand Negative

Determination because arguably the software was not imported on a

physical medium. The Court, however, finds the fact that other

companies are importing software code over the Internet highly

relevant. Since Plaintiffs formerly produced software code that is

six, three responded unambiguously as to whether they produced
software similar to CSC, of which two answered affirmatively. See
id.
6
For business proprietary reasons, the identities of the
two companies and the countries exported from are unnecessary
details here.
Court No. 04-00149 Page 27

presently imported over the Internet and other companies are doing

so of like and directly competitive software code, the Court finds

that Plaintiffs have satisfied 19 U.S.C. § 2272(a)(2)(B)(ii)(III).

CONCLUSION AND ORDER

The Court finds that Labor’s determination denying Plaintiffs’

eligibility for certification to receive TAA benefits on the basis

that Plaintiffs did not produce an article under the Trade Act is

not supported by substantial record evidence and is not in

accordance with law. Labor’s interpretation of the law, that

software code must be embodied on a physical medium to be an

article under the Trade Act, is arbitrary and capricious.

Accordingly, the Court again remands this matter to Labor with

instructions to adequately explain its legal conclusion as to why

software code is not an article under the Trade Act. Labor should

specifically address how it can reasonably interpret the Trade Act,

the HTSUS, and Customs’ and the ITC’s determinations to require

that an article must be on a physical medium. If Labor cannot

justify its tangibility requirement, then Labor should conclude

that software code, regardless of its mode of entry, is an article

under the Trade Act. Furthermore, the Court holds that substantial

evidence on the record supports a determination that Plaintiffs

have satisfied the requirements in 19 U.S.C. § 2272(a)(2)(B) for

eligibility of TAA certification because there has been a shift in
Court No. 04-00149 Page 28

production to India by CSC of software code like or directly

competitive with software code formerly written by Plaintiffs. The

record also supports that there has been or is likely to be an

increase in imports of software code.

Upon consideration of Labor’s Second Remand Negative

Determination, Plaintiffs’ Comments, Labor’s Response and the

administrative record, it is hereby

ORDERED that Labor’s Second Remand Negative Determination is

not supported by substantial evidence or in accordance with law;

and it is further

ORDERED that this matter is remanded to Labor with

instructions to:

(1) explain more fully how its interpretation of the term
“article” requiring software code to be embodied on a physical
medium under the Trade Act is in accordance with the HTSUS and
Customs’ and the ITC’s interpretations thereof;
(2) if Labor cannot do so, then Labor should conclude with a
reasoned explanation that software code, regardless of its
mode of entry, is an article under the Trade Act;
(3) re-evaluate and explain, regardless of whether embodied on
a physical medium, if code is a component of software;
(4) re-examine the record to determine whether there has been
or is likely to be an increase of imports of like or directly
competitive software code by entities in the United States;
and it is further

ORDERED that if Labor concludes that software code is an

article and that Plaintiffs satisfy 19 U.S.C. § 2272(a) to certify

Plaintiffs for TAA eligibility; and it is further
Court No. 04-00149 Page 29

ORDERED that Labor shall have until March 24, 2006, to file

the remand results; and it is further

ORDERED that Plaintiffs shall have until April 14, 2006, to

submit comments on the remand results; and it is further

ORDERED that rebuttal comments shall be submitted on or before

April 28, 2006.

/s/ Nicholas Tsoucalas
NICHOLAS TSOUCALAS
SENIOR JUDGE

Dated: January 27, 2006
New York, New York