US Says Glock Sought Admission of 'Legal Conclusions,' Not Facts, in Royalty Case

Glock filed a motion June 25 to have the Court of International Trade rule that Glock’s requests for admission were unopposed and compel the government to respond to its other discovery requests (see 2406240062).

It criticized the government for allegedly “stonewalling” discovery “in part with its pre-litigation practices.” The U.S. responses, Glock said in its brief, “are littered with boilerplate, baseless and improper objections, replete with evasive commentary, fail to provide substantive information, and [are] devoid of any document production whatsoever.”

In its Aug. 6 response, government opposed all but one of Glock’s 11 requests for admission, saying they consisted of “improper abstract statements of law.”

The importer’s requests for document production, meanwhile -- many of which the government opposed and refused to oblige in its initial discovery response -- sought irrelevant and disproportionate information, it said. It said those requests “lack temporal limitations, and their scope encompasses every type of imported good and extends to every branch, unit, and component of U.S. Customs and Border Protection.”

First, Glock claimed that the U.S. had pushed back against its admission requests by saying they didn’t “involve the application of the law to fact or facts.” Glock said it also took the “novel” position that the requests were improper because they didn’t “specifically reference information contained in a document or deposition that took place in discovery.” But admissions requests may be legally made for “facts, the application of the law to the facts, or opinions about either,” the pistol maker said.

But an admission request can’t “require a party to admit to a legal conclusion,” the U.S. responded.

“In its motion, Glock argues that [its] requests for admissions are proper because they ask ‘Defendant to admit matters concerning the application of law and Defendant’s opinions related thereto,’” the government said. “Glock is incorrect.”

For example, Glock’s first three admissions requests, it said, seek to have the government “admit to the substance of 19 C.F.R. § 152.102(c)(1)” by agreeing that CBP defines the phrase “generally accepted accounting principles” in accordance with it. They also seek to have it “admit that the accounting rules, standards, and procedures” issued by the Financial Accounting Standards Board and the Governmental Accounting Standards Board are “generally accepted accounting principles” as defined by that statute.

It said that these require acceptance of a “pure legal conclusion.” It also objected “to the terms ‘accounting rules, standards, and procedures’ on the ground that [they are] undefined, vague, and ambiguous,” it said.

Directly citing a 2020 Oklahoma district court case, the government argued that “requiring a party to admit to the content of a regulation or statute does not eliminate issues for trial, which is the purpose of Requests for Admission.”

Similarly, it opposed Glock’s admissions requests that the government “admit that 9 U.S.C. § 1401a(d)(3)(B)(i) obligates CBP to accept an importer’s determination of usual profit and general expenses under the provisions of deductive value” when that determination was carried out in accordance with the U.S. generally accepted accounting principles. It argued that the terms “obligates,” “usual profit and general expenses” and “generally accepted accounting principles in the United States” were all vague, ambiguous and undefined.

Other opposed requests sought to have the government admit that, under the U.S. generally accepted accounting principles: royalty payments based on a products’ net sales are selling expenses; selling expenses are period costs; and production costs don’t include period costs. Two others sought admission that royalties based on a product’s net sales aren’t paid until after a product is sold and that total royalty payment amounts based on a percentage of net sales can’t be known until after sales are made.

All of these terms, the U.S. said, are accounting terms of art, not terms that have “common, well-understood meanings.”

The government also defended its responses to Glock’s requests for production, calling the requests overly broad.

One request sought a CBP ruling regarding a pistol parts entry Glock made under a 2011 licensing agreement; that ruling was based on specific language in the 2011 agreement that isn’t present in the 2022 version the entry being litigated was imported under, the U.S. said. It agreed to put nonprivileged documents from that ruling on the record “as a show of good faith.”

Most requests, meanwhile, asked for all of CBP’s “documents, training materials, manuals, or instructions” related to things such as the ways the agency determines the dutiability of royalty payments for patents or trademarks, or whether such a payment is related to domestic manufacturing, assembly or sale.

None of these are relevant to Glock’s “valuation claim involving a single entry of pistol kits,” the U.S. said. It said it doesn’t have the burden to prove that the appraised value of the pistol kits was correct -- rather the importer must prove that value wrong. It also claimed the use of “broad terms” such as “all documents” made them disproportionate to the needs of the case.

Glock filed its 2023 case alleging CBP appraised its pistol parts entry higher than it should have, saying the agency should have deducted Glock’s royalty payments from the entry’s value. Royalty payments made for trademarks under a licensing agreement are general expenses, and thus not dutiable, it argued. The pistol maker filed its discovery motion in June 2024.

Later that month, the U.S. sought to have the case dismissed in Glock’s favor, saying it was willing to just pay the $50 Glock wanted refunded (see 2406280025). But Glock pushed back; the issue was likely to recur and its challenge was intended to set a broader precedent, it said (see 2407080044). It also alleged the government was just trying to “cover up its failure to participate in discovery.”