April 2019 — Question 77

An importer enters gas turbines manufactured in China through the Port of Boston. The importer indicates that the basis of appraisal is transaction value based upon a sale of merchandise to the importer from the unrelated manufacturer M. The importer pays a royalty to Company A for the right for manufacturer M to use patented technology in the production of the gas turbines in China. After importation, the imported gas turbines are used in the production of other goods in the United States using a patented technology for which the importer pays Company B for the right to use. The contract between the manufacturer and the importer makes no reference to either Company A’s or Company B’s patented technology, or the royalty payments to the companies. Which of the following describes the dutiable status of the royalty payments and the reason for that status is?

• AThe royalty payment to the Company A is dutiable; the royalty payment to Company B is not dutiable. Company A’s patented technology is necessary to produce the imported goods. Company B’s patented technology goes to the right to use technology in the United States and the imported gas turbines are not the subject of the royalty agreement.✓ CBP's answer
• BThe royalty payment to the Company A is dutiable; the royalty payment to Company B is dutiable. Both Company A’s and Company’s B patented technology relate to the imported goods.
• CThe royalty payment to Company A is not dutiable; the royalty payment to Company B is not dutiable. The contract between the manufacturer M and the importer does not mention the patented technology or royalty payments.
• DThe royalty payment to the Company A is not dutiable; the royalty payment to Company B is dutiable. The contract between the manufacturer M and the importer does not mention Company A’s patented technology. Company B’s patented technology is used in further production using the imported goods.
• ENone of the above.