[00:00:00] Speaker 04: 64 U.S. [00:00:01] Speaker 04: magnesium versus the United States. [00:00:04] Speaker 04: Mr. Taleb? [00:00:05] Speaker 04: Yes, Your Honor. [00:00:07] Speaker 04: Before we start the clock running, though, I guess we kind of had an inquiry for both sides with regard to the extensive confidentiality markings in the briefs in this case. [00:00:19] Speaker 04: And as some of you here may know, we've recently changed and dramatically decreased the [00:00:27] Speaker 04: a pathway towards confidentiality markings, but these briefs weren't subject to our new rules. [00:00:33] Speaker 04: And I guess I can turn to my colleagues if they have any comments, but we really thought it was not apparent to us that certain of the confidentiality markings, which seemed kind of central to the way things we would want to talk about in this case, were marked confidential. [00:00:51] Speaker 04: So I don't know if my colleagues have any comments. [00:00:53] Speaker 05: But one thing that immediately comes to mind and seemed to be of fairly significant importance to the case is the whole question of the life expectancy for the retorts. [00:01:09] Speaker 05: And that was marked confidential, which we found puzzling and also extremely inconvenient. [00:01:16] Speaker 05: It would be difficult, I think, to write an opinion that would make sense without talking about a factor such as that. [00:01:22] Speaker 05: I'd like to hear [00:01:23] Speaker 05: from Council on that point. [00:01:27] Speaker 05: As well as the broader point of whether, if you're prepared to waive confidentiality as to everything in the briefs, that would be splendid, but I don't expect that that's what we're going to hear. [00:01:39] Speaker 03: Your Honor, it's Dave Riggle on behalf of Tingen Magnesium International, defendant and intervener here. [00:01:47] Speaker 03: We have agreed with Council to waive confidentiality with regard to the cost of production subledger [00:01:53] Speaker 03: and the amount of time that these are usable, the usage time. [00:02:00] Speaker 05: And that waiver covers all parties here? [00:02:03] Speaker 03: Yes. [00:02:04] Speaker 03: OK. [00:02:04] Speaker 03: It can be discussed in open court. [00:02:06] Speaker 03: It was going to be inconvenient to try to do the argument without having that waiver today. [00:02:10] Speaker 03: So in agreement with the Department of Justice, we waived it. [00:02:14] Speaker 04: And the other side understands that? [00:02:18] Speaker 04: They have been informed. [00:02:20] Speaker 04: Do you have a comment? [00:02:22] Speaker 02: I do. [00:02:24] Speaker 02: Your honor, we were apprised of counsel's desire to waive a confidential treatment over these two documents, the COP subledger and the other document on Friday. [00:02:40] Speaker 02: We indicated our opposition. [00:02:42] Speaker 02: We did not know that counsel had contacted the court weren't aware that this conversation or communication has taken place between counsel for TMI and the court. [00:02:53] Speaker 02: And we indicated our opposition on Friday afternoon. [00:02:55] Speaker 02: It was one day before the argument. [00:02:56] Speaker 02: We prepared for an argument that was going to be preserved, the existing confidentiality designations that have been in the case since the administrative proceeding in the court of international trade. [00:03:06] Speaker 02: The communication with the court. [00:03:08] Speaker 02: What was the communication with the court? [00:03:10] Speaker 02: I understood your honor to indicate that there had been some, perhaps I'm wrong about that. [00:03:14] Speaker 02: I understood your honor to. [00:03:15] Speaker 05: This is the first communication this member of the court has had with the other side occurred 30 seconds ago. [00:03:22] Speaker 02: Understood, your honor. [00:03:23] Speaker 02: Then I misunderstood. [00:03:24] Speaker 05: I don't know if it may have been contact with the clerk's office or something like that, but this is all new to us. [00:03:32] Speaker 02: It was new to me as of Friday as well, your honor. [00:03:34] Speaker 04: Well, you had a lead on us. [00:03:37] Speaker 04: But this isn't your, is this your information? [00:03:40] Speaker 04: This isn't your confidential information? [00:03:42] Speaker 02: No, it is not. [00:03:43] Speaker 02: It is TMI's confidential information. [00:03:46] Speaker 02: So why do you have, you don't have a dog in that fight, do you? [00:03:49] Speaker 02: Well, we do, because the waiver is a selective waiver. [00:03:54] Speaker 02: The two documents that TMI and the government want to discuss are documents that are important to their case or important to ours as well. [00:04:02] Speaker 02: But it's not a complete waiver of confidential information. [00:04:05] Speaker 02: And if it had been, then there are all sorts of documents that we would like to discuss as well. [00:04:08] Speaker 02: But the offer to waive confidential information was applicable only with respect to two documents, not other documents found in the record. [00:04:18] Speaker 04: Well, just with respect to the extent to which you're willing to waive, I hope you would recognize that, I mean, better late than never as we say, but not much better. [00:04:28] Speaker 04: Only because for our own purposes, I hope you can appreciate that we prepare for these cases and we take seriously the confidential markings. [00:04:36] Speaker 04: And therefore, when we're thinking about what we can ask and we're thinking about what we can write, [00:04:41] Speaker 04: We've wasted a lot of time doing that by a release on the morning of argument. [00:04:49] Speaker 04: And notwithstanding the extent to which our court feels very strongly that the public has a right to know about everything in the record in the absence of there being a good reason not to. [00:05:00] Speaker 04: So even though you're willing to talk about this stuff in open court, the public still does not have access to that information in the briefs. [00:05:08] Speaker 03: I apologize, Your Honor, for the delay in this. [00:05:11] Speaker 03: This is really fairly recent for us. [00:05:15] Speaker 03: And I had to get authorization from my client to go ahead and waive this. [00:05:20] Speaker 03: And it was done for purposes of clarity. [00:05:25] Speaker 04: All right. [00:05:25] Speaker 04: Well, why don't we proceed? [00:05:36] Speaker 02: All right. [00:05:36] Speaker 02: Now we're ready for argument to begin. [00:05:38] Speaker 02: Thank you, Your Honor. [00:05:40] Speaker 02: Just for the rules of the road, are we operating under the constraints where BPI, business proprietary information, is preserved as confidential or not? [00:05:48] Speaker 02: I just need to know because I'd like to, if business proprietary information is allowed to be used in open court, then I would modify my comments. [00:05:56] Speaker 02: If not, then I will keep my comments as I've constructed them so far. [00:06:01] Speaker 04: Well, they've waived it with respect to those two matters. [00:06:06] Speaker 04: Do you understand that to be the extent of their waiver? [00:06:09] Speaker 04: That's fine. [00:06:13] Speaker 04: If you're asking, is everything else waived, I didn't hear that. [00:06:18] Speaker 04: So I think not. [00:06:20] Speaker 04: Very good. [00:06:20] Speaker 04: Thank you. [00:06:21] Speaker 05: Well, we have a further comment. [00:06:23] Speaker 03: Let me just clarify. [00:06:24] Speaker 03: The 60-day usage period is waived. [00:06:28] Speaker 03: The information in the cost of production subledger is waived. [00:06:31] Speaker 05: Everything else is not left. [00:06:33] Speaker 03: Everything else. [00:06:34] Speaker 03: Those are the only things that my client has specifically weight. [00:06:37] Speaker 03: That's all I'm instructed as of this morning. [00:06:40] Speaker 02: Good. [00:06:41] Speaker 02: Thank you. [00:06:41] Speaker 02: I do. [00:06:42] Speaker 02: Thank you, Your Honor. [00:06:46] Speaker 02: My name is Jeff Telek. [00:06:47] Speaker 02: I'm with the law firm of King & Spalding, here representing U.S. [00:06:50] Speaker 02: Magnesium, the appellant, in this proceeding. [00:06:53] Speaker 02: The issue in this case, Your Honor, is whether the Commerce Department's determination that retorts are an indirect material [00:07:01] Speaker 02: used in the production of magnesium using the pigeon process is based on substantial record evidence and is otherwise in accordance with law. [00:07:09] Speaker 02: It is not. [00:07:11] Speaker 02: Commerce's determination was a results-driven exercise. [00:07:14] Speaker 02: It was arbitrary. [00:07:16] Speaker 02: And shown by the volume of evidence, Commerce simply refused to consider, even though it detracted from the final determination, makes this a reversible decision. [00:07:26] Speaker 04: What do you mean? [00:07:27] Speaker 04: I'm sorry. [00:07:28] Speaker 04: Well, you say it refused to consider. [00:07:30] Speaker 04: Is that a little broad? [00:07:31] Speaker 04: I mean, they considered it. [00:07:32] Speaker 04: They just didn't give a lot of weight to it or as much weight as you'd like, right? [00:07:37] Speaker 04: They considered everything in the record. [00:07:39] Speaker 04: They didn't completely ignore everything. [00:07:40] Speaker 04: They just didn't give it the weight you thought it should be. [00:07:42] Speaker 02: They ignored very specific and concrete pieces of evidence, starting, Your Honor, with the HAC affidavit. [00:07:48] Speaker 02: U.S. [00:07:49] Speaker 02: Magnesium submitted the declaration of Mr. HAC. [00:07:52] Speaker 02: Mr. HAC was the managing member of MAGPRO LLC. [00:07:56] Speaker 02: He spent seven years improving the thermal process for the production of magnesium. [00:08:00] Speaker 02: And he testified, and I'll quote from the hack affidavit, that to accurately account for the costs of producing magnesium using the pigeon process, retorch should be treated as a direct material input because they are central to the production process, have a short, useful life, are consumed by the process, and have a very high unit cost. [00:08:20] Speaker 06: Was there any dispute? [00:08:23] Speaker 06: or disagreement with the substance of what he said, the cost, the relative cost, the lifespan, and so on? [00:08:32] Speaker 02: I think there was, Your Honor. [00:08:34] Speaker 02: There was no argument about consumption. [00:08:38] Speaker 02: However, whether it was central to the production process, the useful life, and the high unit cost were issues that were considered to some degree by the Commerce Department and held against US magnesium. [00:08:49] Speaker 02: This document was central to our case [00:08:52] Speaker 02: It was not considered by commerce. [00:08:54] Speaker 02: It was not considered by commerce in the final determination. [00:08:57] Speaker 02: It was not considered by commerce in the remand determination. [00:09:00] Speaker 02: It was not considered by the Court of International Trade. [00:09:03] Speaker 02: And it wasn't even acknowledged in the briefing before this court by counsel for the government and by counsel for TMI. [00:09:10] Speaker 02: This is a compelling piece of evidence in our view. [00:09:14] Speaker 02: It was a sworn testimony taken under oath. [00:09:16] Speaker 02: And it was just simply ignored. [00:09:18] Speaker 02: It was ignored. [00:09:18] Speaker 02: It wasn't disregarded. [00:09:19] Speaker 02: It wasn't considered. [00:09:20] Speaker 02: and disagreed with, it was simply ignored. [00:09:24] Speaker 05: You said in your opening that the decision was, I think you said result-driven or result-oriented. [00:09:31] Speaker 02: Yes. [00:09:32] Speaker 05: What do you mean by that? [00:09:33] Speaker 02: Well, for example, the relative cost of the input is a good, is an item that commerce oftentimes considers when it considers direct material inputs, whether a material input is a direct material or not. [00:09:47] Speaker 02: If you go to the final determination, what commerce said is, well, [00:09:51] Speaker 02: Relative cost is something that we normally consider. [00:09:55] Speaker 02: However, we normally consider it when we're talking about not factory equipment, but about other things, indirect materials, for example. [00:10:03] Speaker 02: In this case, this is factory equipment, so relative costs are not that important to our consideration. [00:10:09] Speaker 02: The costs are irrelevant here because we've already decided, in essence, it's a result-oriented decision, that retorts are direct materials, pardon me, are equipment. [00:10:20] Speaker 02: Now later on, commerce decided that reach words were not. [00:10:23] Speaker 05: I'm not sure. [00:10:24] Speaker 05: I follow you and why this is result driven or result oriented. [00:10:29] Speaker 05: What do you mean by that? [00:10:31] Speaker 05: Do you mean that you think that they attached too much weight to the evidence on that was on the other side or what do you mean? [00:10:40] Speaker 02: No, I think that the, I don't know exactly. [00:10:42] Speaker 05: You think they were just had decided before they even looked at the evidence, how they were coming out and then, and then summoned whatever they had. [00:10:50] Speaker 05: on the side that they wanted to reach? [00:10:53] Speaker 02: Yeah, I think that they, for reasons that I'm not privy to, had more or less concluded that retorts were going to be overhead, either equipment or indirect materials, not direct materials. [00:11:05] Speaker 02: And then they started going through the evidence. [00:11:07] Speaker 02: And then when the evidence was not consistent with their understanding, they disregarded the evidence. [00:11:13] Speaker 02: Another example, traceability. [00:11:14] Speaker 02: We had lots of evidence in the record on traceability. [00:11:17] Speaker 02: We put in record evidence about the consumption rate of magnesium using TMI's own processes. [00:11:24] Speaker 02: We put in information about CMC and CVC to other pigeon process manufacturers' consumption rates. [00:11:30] Speaker 02: We put in evidence showing that the material out specification sheet and the cost sheet, both of which were part of TMI's accounting records, showed that the exact amount of retort, the value of retorts coming out of warehouse in December 2009 was the amount of retorts being used in the production of magnesium during the same period. [00:11:47] Speaker 02: All of which goes to how one would trace costs through to the final magnesium product, one of the considerations that commerce has used. [00:11:55] Speaker 02: What did commerce say about it in the final determination? [00:11:57] Speaker 02: There is no record evidence of traceability. [00:11:59] Speaker 02: And that was repeated by the Court of International Trade. [00:12:02] Speaker 02: No record evidence of traceability. [00:12:03] Speaker 02: And it's right there in the record for all to see. [00:12:08] Speaker 06: So the evidence showed, for instance, how many times the retort was used before it was exhausted. [00:12:16] Speaker 06: all of the details that you just told us about? [00:12:20] Speaker 02: Yes, we calculated that we have evidence of consumption rates for retorts from three different sources. [00:12:27] Speaker 02: TMI, suppliers, own books and records, and we calculated a retort consumption rate, which is business proprietary information, but it's there in our briefs. [00:12:34] Speaker 02: We have evidence from CMC and we have evidence from CVC. [00:12:38] Speaker 02: CMC is Chinese Magnesium Corporation, a Chinese magnesium producer using the same pigeon process. [00:12:45] Speaker 02: CVM is a Malaysian manufacturer using the same pigeon process. [00:12:49] Speaker 02: Both of them have retort consumption rates that are consistent with TMIs, but this information was not considered by commerce. [00:12:57] Speaker 02: There is no record evidence of traceability. [00:12:59] Speaker 05: The Malaysian producer said this is a one-off, which we don't attach great significance to. [00:13:08] Speaker 02: Not on traceability. [00:13:09] Speaker 05: I mean, they did address the Malaysian [00:13:12] Speaker 02: numbers, did they not? [00:13:15] Speaker 02: That came up under the context of industry practice. [00:13:18] Speaker 02: So one of the criteria that commerce considers when it decides whether or not a material is a direct material or not is how the industry treats the input. [00:13:32] Speaker 02: We put in evidence of five manufacturers, CVM, the magnesium manufacturers, the one you just referred to. [00:13:39] Speaker 02: And in that way, Commerce conceded that CVM treats retorts as direct materials. [00:13:44] Speaker 02: That's what they said about CVM. [00:13:46] Speaker 02: Did they address traceability in the context of CVM's evidence? [00:13:49] Speaker 02: No, they didn't. [00:13:50] Speaker 02: But speaking about industry practice, we also submitted evidence from CMC. [00:13:54] Speaker 02: Again, not mentioned in the final determination. [00:13:58] Speaker 02: CMC was also not mentioned in the remand determination. [00:14:02] Speaker 02: They, like CVM, had calculated a per unit cost of magnesium together with a consumption rate showing that CMC kept or recorded its own retorts as direct materials in its books and records. [00:14:19] Speaker 02: Again, CMC not mentioned in the final, not mentioned in the remand determination. [00:14:23] Speaker 02: We submitted evidence from Southern Magnesium. [00:14:26] Speaker 02: They had several years of information. [00:14:28] Speaker 02: Three years, 93, 94, 94, 95, and 95, 96, all had information in the record showing that retorts were considered to be direct materials. [00:14:39] Speaker 02: Commerce focused on a later year, the year before southern magnesium ceased producing magnesium, to decide that there might be something in the record that indicates that retorts are not direct materials. [00:14:52] Speaker 02: But if you look at the record, what they said was that [00:14:59] Speaker 02: Southern Magnesium stopped recording retorts as direct materials because it collapsed two of its categories, accounting categories. [00:15:07] Speaker 02: All they had was raw materials and other direct materials. [00:15:10] Speaker 02: Well, ferro, silicon, and other direct materials. [00:15:14] Speaker 02: We took a look at that record and said, well, the numbers still add up. [00:15:17] Speaker 02: All the numbers that used to be in the column for retorts are still there in the column for other direct materials and concluded that [00:15:25] Speaker 02: retorts were still being classified by Southern Magnesium as a direct material. [00:15:29] Speaker 02: And we calculated ratios out into the out years showing exactly the same thing. [00:15:34] Speaker 02: Commerce got a hold of that information and said, well, the numbers vary over time. [00:15:38] Speaker 02: And if the numbers vary, that means retorts may or may not be in the category of direct materials anymore. [00:15:43] Speaker 02: That's not so. [00:15:44] Speaker 02: If you look at the financial statements, it's clear [00:15:46] Speaker 02: that the ratio of direct materials to total materials went up. [00:15:50] Speaker 02: And if the ratio of direct materials to total materials went up, that means that retorts are still in the category of other direct materials. [00:15:57] Speaker 02: It's arithmetic. [00:15:57] Speaker 02: It's not a question of interpretation. [00:15:59] Speaker 02: It's a question of math. [00:16:00] Speaker 02: And if that number went up, the ratio went up, that means that retorts are still part of direct materials. [00:16:07] Speaker 02: We submitted evidence about TMI's suppliers' own experience. [00:16:13] Speaker 02: bound to some degree here by the BPI designations. [00:16:16] Speaker 02: But it's evident, if you look at our briefs, that when you look at the cost sheet, the material out specification sheet, the COP subledger, and our reconciliation document, that you can trace indirect materials all the way through every single one of those statements. [00:16:31] Speaker 02: And retorts are not in that classification. [00:16:33] Speaker 02: TMI does not keep its retorts or record its retorts as indirect materials as claimed by the government. [00:16:40] Speaker 02: It's right there in the accounting documents. [00:16:42] Speaker 02: We've also submitted evidence again of Mr. Hack showing that retorts are kept pursuant to industry practice as a direct material and not as an indirect material, and certainly not as equipment and overhead. [00:17:06] Speaker 02: I also wanted to address two other issues. [00:17:10] Speaker 05: How would you? [00:17:13] Speaker 05: The number, correct me if I'm wrong, but my recollection is the number that you proposed that would be a reasonable number for the period of use of a piece of equipment before it needed to be replaced was about a year. [00:17:31] Speaker 05: Is that your break point for calling it indirect as opposed to direct? [00:17:38] Speaker 05: It gets consumed, but only after a year's use. [00:17:42] Speaker 02: I think it's important to get an understanding of why frequency of use is a relevant factor to consider. [00:17:50] Speaker 02: Basically, it's a question that comes up in the context of valuing equipment. [00:17:53] Speaker 02: In other words, is equipment replaced so frequently that we consider it to be a direct material or we consider it to be equipment? [00:17:59] Speaker 02: Sure. [00:18:00] Speaker 05: But I'm looking to you for what you think is the minimum period of [00:18:07] Speaker 05: lifetime, life expectancy for a piece of equipment before you characterize it as a piece of equipment as opposed to, in effect, raw material? [00:18:14] Speaker 02: Well, I can say what commerce has considered. [00:18:17] Speaker 02: Plainly, a year would characterize a piece of equipment as equipment rather than a direct material. [00:18:23] Speaker 02: And that largely has to do with amortization schedules and depreciation and all the rest. [00:18:27] Speaker 02: We cited three decisions in our brief, laminated woven sacks, diamond saw blades, and nails, certain nails, all of which talked about the production or the use of materials [00:18:37] Speaker 02: during the period of review or during the production run of the period of review. [00:18:41] Speaker 02: And in those cases, the period of review was either 6 or 12 months, depending on the determination. [00:18:46] Speaker 02: So when commerce in the past, pursuant to its precedent, has looked at what constitutes an appropriate period of review or length of time for frequency of replacement [00:18:55] Speaker 02: It's said that products become or inputs become overhead in the 6 to 12 month range. [00:19:00] Speaker 02: And that's consistent with accounting principles. [00:19:02] Speaker 02: It's consistent with the idea behind equipment being an appreciable asset. [00:19:06] Speaker 02: And it's consistent with basically what they've done again in the last three determinations. [00:19:11] Speaker 02: In our situation, the frequency of replacement is 60 days, which is considerably less than the 6 month period or the 12 month period that the Commerce Department has found in the past. [00:19:21] Speaker 02: And the final point I would make on that is simply that [00:19:25] Speaker 02: Commerce has not articulated any basis or any standard other than 60 days is too long. [00:19:32] Speaker 02: 60 days is too long. [00:19:33] Speaker 02: There's not an articulable standard. [00:19:35] Speaker 02: They've cited the diamond saw blades, but there's nothing in the diamond saw blade standard that says 60 days is enough, too much, too long, too short. [00:19:43] Speaker 02: Commerce has to have a reasoned basis for making its decision. [00:19:46] Speaker 02: It can't just willy-nilly pick and choose. [00:19:48] Speaker 02: The facts that it would like and say, well, that one's too short and that one's too long. [00:19:52] Speaker 02: It's got to have a reason basis for doing so, and it hasn't articulated one here. [00:19:55] Speaker 02: And to the extent we've been able to point to commerce precedent, the period of time is considerably longer than 60 days. [00:20:02] Speaker 02: You're into your rebuttal. [00:20:04] Speaker 02: Oh, thank you. [00:20:04] Speaker 02: Thank you, Your Honor. [00:20:16] Speaker 04: You're dividing argument, but you have the bulk of it, correct? [00:20:20] Speaker 04: Sorry, Your Honor? [00:20:20] Speaker 04: You're dividing up argument, but you have the bulk. [00:20:23] Speaker 01: Yes, I have 12 minutes, and TMI has three minutes. [00:20:32] Speaker 01: May it please the court, Eric Loftgerbien for the United States. [00:20:36] Speaker 01: This is a substantial evidence case. [00:20:38] Speaker 01: The bottom line is that US magnesium disagrees with a factual determination made by commerce that retorts should be treated as an indirect input when identifying the factors of production. [00:20:49] Speaker 06: Is it really just substantial evidence? [00:20:52] Speaker 06: We were talking about the possible fundamental error of law in terms of what commerce does or doesn't consider. [00:21:01] Speaker 06: You think that that's also substantial evidence? [00:21:04] Speaker 01: Well, what commerce considers in this type of case [00:21:08] Speaker 01: is it's a case-by-case inquiry. [00:21:11] Speaker 01: So what commerce can consider on a various review is broad. [00:21:15] Speaker 01: It can consider many factors. [00:21:17] Speaker 01: And it can identify the ones that it believes to be the most probative as to whether or not something's an indirect input or not an indirect input. [00:21:25] Speaker 01: And that's exactly what commerce did in this case. [00:21:27] Speaker 01: It provided an extensive explanation for its decision in the Issues and Decision Memorandum, which is contained in the Joint Dependents. [00:21:35] Speaker 01: And it explained all the factors that it considered [00:21:38] Speaker 01: the various arguments made by the parties, and then identified certain factors out of a larger package that it found to be particularly probative. [00:21:47] Speaker 01: In this case, Commerce looked at a number of things, but the two things they found to be most probative were the first, the lack of physical incorporation. [00:21:57] Speaker 01: No part of the steel retort is contained in the finished magnesium product. [00:22:02] Speaker 01: And the second one is the life of the retort. [00:22:05] Speaker 01: And then here it was 60 days. [00:22:08] Speaker 01: And the commerce looked at its past practice and saw things that, all right, in the Silico-Manganese case, it wasn't incorporated, but the electro-paste was used every time the product had to be manufactured. [00:22:23] Speaker 01: And then there are some other cases, of course, that were indirect inputs have a longer lifespan. [00:22:29] Speaker 01: So commerce had to consider, well, where does this fall in between? [00:22:31] Speaker 01: And it made a reasonable determination that it looked more like [00:22:37] Speaker 01: an indirect input than a raw material. [00:22:39] Speaker 05: Does commerce have any precedence in its own decisions with a replacement period as short as 60 days in which it's said that it's nonetheless indirect? [00:22:51] Speaker 01: Well, there's no real hard and fast line that commerce has drawn. [00:22:56] Speaker 05: I understand, but I'm asking, is there any that has a number that is in the 60-day region range? [00:23:03] Speaker 01: A lot of times we don't necessarily know because that information isn't necessarily public. [00:23:08] Speaker 01: Like in this case, it was just waived for the 60 day period. [00:23:10] Speaker 01: So in diamond saw blades. [00:23:12] Speaker 05: That's the graphite and steel. [00:23:13] Speaker 01: That's the graphite and steel. [00:23:15] Speaker 05: But we don't know how much time the graphite or the steel lasted, right? [00:23:19] Speaker 01: No. [00:23:20] Speaker 01: And it doesn't necessarily, it's not necessarily, there's no rule. [00:23:24] Speaker 01: There's no commerce regulation that wasn't followed in this case with respect to how long there must be for a useful life. [00:23:34] Speaker 01: And when we talk about consumption and traceability, again, there's no part of the retort that is in the final magnesium product. [00:23:44] Speaker 01: And that's a distinction with diamond solvents, where you had the graphite molds in which the portions of the graphite were ultimately contained in the final product versus the steel molds where no portion is steel. [00:23:58] Speaker 01: Now, Mr. Tell referenced the hack declaration. [00:24:01] Speaker 01: And also, in their administrative case brief, [00:24:04] Speaker 01: What they say is the retort was consumed by the process. [00:24:08] Speaker 01: The value of the retort was consumed by the process. [00:24:11] Speaker 01: That's very different than having the retort itself be consumed in the final product. [00:24:21] Speaker 01: And that's an important point in this case, the lack of physical incorporation. [00:24:27] Speaker 06: It's an important point, but it wasn't decided, was it? [00:24:31] Speaker 01: It was absolutely, it was one of the two factors that commerce found to be particularly probative. [00:24:35] Speaker 06: Or implicitly decided, you're saying? [00:24:39] Speaker 01: In the issues in the decision memorandum, there's no dispute among any of the parties that the retort itself is not incorporated into the final product. [00:24:47] Speaker 01: I mean, that's in U.S. [00:24:48] Speaker 01: magnesium's brief. [00:24:49] Speaker 01: All the parties agree the retort, the stainless, not the stainless steel, the steel to [00:24:55] Speaker 01: You know, it doesn't degrade and then end up in the final product. [00:24:59] Speaker 01: I mean, they're producing pure magnesium. [00:25:01] Speaker 06: But I gather that it was also not disputed that after two months of use, it was useless for that purpose, unless a certain amount of refurbishment or whatever else that isn't in the record took place. [00:25:17] Speaker 01: Is that correct? [00:25:18] Speaker 01: That's the information that TMI supplied for the record. [00:25:23] Speaker 01: It's the producers, the manufacturer, I guess calculates a useful life of about 60 days. [00:25:30] Speaker 05: How many cycles does that represent of the magnesium production? [00:25:38] Speaker 05: How many cycles per day would there be in which the retorts were used in the process? [00:25:44] Speaker 05: Or per week? [00:25:45] Speaker 01: I would have to ask my colleague if she can identify them. [00:25:48] Speaker 05: Well, maybe when she gets up she can tell us. [00:25:51] Speaker 01: Or no, my colleague from college. [00:25:52] Speaker 05: Oh, I'm sorry. [00:25:53] Speaker 05: I guess it's, that's right, Mr. Riggle is going to argue for that. [00:25:57] Speaker 05: Yes, your honor. [00:25:58] Speaker 05: Well, maybe Mr. Riggle can tell us. [00:26:02] Speaker 01: And also, we need to look at what the trial court determined in this case. [00:26:05] Speaker 01: And the trial court made an observation that the steps that commerce took, the evidence it considered, and its past practice all lead the trial court to have concluded that the commerce's decision was based on substantial evidence and in accordance with the law. [00:26:22] Speaker 01: And again, one other point I'd like to highlight is US Magnesium did a really nice job of describing the development of the record in this case. [00:26:33] Speaker 01: Now there was a very extensive factual record that was developed by the parties that Commerce relied on. [00:26:39] Speaker 01: There were multiple questionnaires that were provided to TMI seeking information. [00:26:44] Speaker 01: And so based on this very extensive record, Commerce [00:26:50] Speaker 01: has to be, is presumed to have considered all the information that's presented, and its own issues and decision memorandum contained in the joint appendix really does reflect how seriously commerce took this issue. [00:27:02] Speaker 01: Now, U.S. [00:27:02] Speaker 01: magnesium may not agree with the weight assigned to the various evidence that was placed on the record, but again, that's a factual determination. [00:27:10] Speaker 01: This is a substantial evidence case. [00:27:12] Speaker 01: Commerce provided a rational explanation for the choice that it made and for the evidence that it found to be the most probative, and that [00:27:19] Speaker 01: And that's what led the trial court to sustain the remand results. [00:27:24] Speaker 05: If you take away the physical incorporation factor and you discount the 60 days, let's assume that we should conclude that the 60 days isn't really long enough to turn it into, in effect, a furnace or some other piece of permanent equipment for purposes of distinguishing between direct and indirect. [00:27:45] Speaker 05: What are the remaining facts? [00:27:48] Speaker 05: that favor the result that commerce reached? [00:27:54] Speaker 01: The financial statements that were placed on the record weren't necessarily conclusive one way or the other. [00:28:03] Speaker 01: The evidence that's on the record that supports that, the determination that they're an indirect input, other than the [00:28:18] Speaker 01: lack of physical incorporation other than the days of the useful life. [00:28:24] Speaker 01: You have to look at the actual nature of the item itself. [00:28:29] Speaker 01: What is it used for? [00:28:31] Speaker 01: In this case, if you look at the actual process, what it's used is essentially a container where a chemical reaction takes place. [00:28:41] Speaker 01: It's not a raw material that's constantly being [00:28:45] Speaker 01: being input into the product in order to make pure magnesium. [00:28:50] Speaker 01: It's a vessel in which a chemical reaction can occur. [00:28:55] Speaker 05: Is there any documentary evidence that favors, actually, affirmatively favors the outcome that commerce reached, as opposed to simply being, as you expressed it a moment ago, unclear? [00:29:08] Speaker 01: Well, I think the description of the process itself, the pigeon process, which is contained in the record, [00:29:15] Speaker 01: does support a conclusion that retorch should be treated as an indirect material? [00:29:25] Speaker 05: Is there any documentary evidence from other manufacturers that would support commerce's outcome? [00:29:32] Speaker 01: From other manufacturers? [00:29:34] Speaker 01: Well, a lot of the other manufacturers. [00:29:35] Speaker 05: Mr. Tillip has got a list of documents that he thinks are supportive of the position that US Magnesium takes. [00:29:44] Speaker 05: with respect to other manufacturers. [00:29:45] Speaker 05: I'm just looking to you to see if there's anything on the other side of that ledger. [00:29:50] Speaker 01: Well, in some of the other manufacturers, with respect to Southern Magnesium, that's a company that's been out of business for several years. [00:29:58] Speaker 01: But initially, until about 1996, I'm not positive the exact year, there was some evidence that one particular manufacturer did treat retorts as a direct material. [00:30:13] Speaker 01: Following that, the later financial statements don't show that retorts were treated as a direct material. [00:30:19] Speaker 05: What do you say to Mr. Tullip's argument on that point that they're still folded into the, even though not specifically identified, they're still folded into the cost sheet in a way that indicates they're still being treated as direct materials? [00:30:40] Speaker 01: Well, that's an inference that US Magnesium seeks to draw in its favor. [00:30:43] Speaker 05: Right. [00:30:44] Speaker 05: And what do you say that makes that inference unreasonable, if anything? [00:30:49] Speaker 01: It's not necessarily an unreasonable inference, but it's not necessarily one that commerce relied on when it made its determination. [00:30:55] Speaker 01: Commerce looked at that exact same financial statement and said it was inconclusive. [00:31:00] Speaker 05: Given the argument that he made this morning, what do you think is the flaw in his argument? [00:31:05] Speaker 05: You heard the argument he made in the brief. [00:31:09] Speaker 05: What's the aspect of his argument [00:31:11] Speaker 05: that you think would be a justification for commerce saying, well, that doesn't tell us much? [00:31:19] Speaker 01: Well, there's really not one consistent practice. [00:31:23] Speaker 01: I mean, you look at a host of financial statements. [00:31:27] Speaker 01: Some of them treat retorts one way. [00:31:30] Speaker 01: Some of them retreat retorts. [00:31:31] Speaker 01: They don't necessarily identify them as a direct material. [00:31:35] Speaker 01: You can have also the same company that treated them as a direct material, identified them as a direct material for a certain period of years, and then stopped identifying, or at least specifically identifying them as a direct material. [00:31:47] Speaker 01: So when you look at the facts that are actually known, the documentary evidence that's actually known with respect to the replacement period and the lack of physical incorporation, given the inconclusive nature of some of the other material, [00:32:03] Speaker 01: I mean, it was reasonable for commerce to say, all right, these two ones tip the scales in the direction of identifying them as an indirect input. [00:32:14] Speaker 01: Again, reasonable binds can differ. [00:32:16] Speaker 01: You can look at two pieces of evidence in the same way and come out with different conclusions. [00:32:20] Speaker 01: But the conclusion that commerce drew in this case was not an unreasonable one. [00:32:30] Speaker 01: Again, the parties developed a very extensive record in this case. [00:32:40] Speaker 01: Commerce, as the agency charged by Commerce as the master of the empty dumping laws, looked at the record evidence and made a factual determination that retorts should be treated as an indirect input in the factors of production. [00:32:52] Speaker 01: And having evaluated the steps taken by Commerce, its past practice, and the evidence that considered [00:32:59] Speaker 01: The trial court sustained Commerce's determination, and respectfully, the court should affirm the judgment below. [00:33:05] Speaker 01: Thank you. [00:33:15] Speaker 03: You heard Judge Bryson's question earlier. [00:33:17] Speaker 03: Perhaps you have an answer to that. [00:33:19] Speaker 03: It bleeds the court. [00:33:20] Speaker 03: I'll try to do that. [00:33:23] Speaker 03: The Commerce Department in the Issues and Decisions Memorandum relied on two factors, which was the usage and the other, but it also considered several other. [00:33:34] Speaker 03: There are at least seven other factors that were considered if you look at the Issues and Decisions Memorandum. [00:33:41] Speaker 03: One that was important that was argued by TMI was that these retorts were rented, and rental costs under GAAP in China [00:33:51] Speaker 03: are an indirect cost, not a direct cost. [00:33:54] Speaker 03: The Commerce Department considered that, but it did not feel it important enough to use as one of its rationales. [00:34:01] Speaker 03: They also considered the fact that in 1998, in this case, the Commerce Department found that retorts were overhead. [00:34:09] Speaker 03: So there was a historical look at that. [00:34:13] Speaker 03: They also looked at the treatment in the company's books and records and found that in the company's books and records, [00:34:19] Speaker 03: in what were called costs, this is the cost subledger, the fact that they listed the retorts in there was not conclusive because it also included various other things, including labor as a cost. [00:34:36] Speaker 03: That is not a direct material cost for certain, so it was not conclusive for that. [00:34:42] Speaker 03: They also considered that it was similar to vessels. [00:34:47] Speaker 03: in aluminum and steelmaking industries. [00:34:55] Speaker 03: Furthermore, they looked at it as manufacturing equipment. [00:34:58] Speaker 03: TMI had argued that this was like manufacturing equipment. [00:35:03] Speaker 03: Finally, with regard to the cost of the retorts, they considered this but did not consider it to be an important factor. [00:35:13] Speaker 03: So they did consider these things. [00:35:17] Speaker 03: This court has to presume that there is administrative regularity by the administering authority here. [00:35:25] Speaker 03: And that they considered these, but that they did not find them to be key doesn't mean that it was an unreasonable decision. [00:35:32] Speaker 03: It was a reasonable decision. [00:35:33] Speaker 03: Could someone else have found another way? [00:35:36] Speaker 03: Yes, of course. [00:35:38] Speaker 03: But that's not the question. [00:35:40] Speaker 03: The question is whether they made a reasonable decision based on the record before them. [00:35:44] Speaker 03: And we argue that they did. [00:35:48] Speaker 03: So the decision is reasonable, and the court should allow the department to exercise its discretion in this case. [00:36:00] Speaker 03: And I think my three minutes may be up. [00:36:01] Speaker 05: I actually do still have a question that I promised I would reserve for you, which is how many cycles are there [00:36:11] Speaker 05: within the 60-day period? [00:36:13] Speaker 03: Yes, you asked that. [00:36:14] Speaker 03: That is not part of the record. [00:36:16] Speaker 03: We don't know that from the record. [00:36:19] Speaker 03: What we know is that they were rented. [00:36:21] Speaker 03: And so we can get the number of days because they paid for the rental on that. [00:36:26] Speaker 03: And so the average number of days was about 60. [00:36:29] Speaker 03: But we don't know how many cycles that meant. [00:36:31] Speaker 03: I mean, I can speculate, but it's not part of the record. [00:36:33] Speaker 06: That's not in the e-commerce investigation and the information, which when you say it's not part of the record, [00:36:40] Speaker 06: are saying that it was not something that was investigated or that it just is not before us on this appeal? [00:36:47] Speaker 03: I think it was not questioned in that way. [00:36:52] Speaker 03: It has been five or six years, Your Honor, so I don't remember the facts exactly. [00:36:59] Speaker 03: But the question did not ask that. [00:37:02] Speaker 03: They asked what the usage period was. [00:37:04] Speaker 03: And because they rented them, that could be calculated. [00:37:08] Speaker 03: but how many cycles that meant. [00:37:10] Speaker 03: We can't glean that from the record, and I don't know it. [00:37:12] Speaker 05: And there's nothing in the record that discloses, with respect to just the general pigeon process, roughly how long it takes for one cycle. [00:37:24] Speaker 05: I mean, there's obviously some discussion of the pigeon process in the abstract as opposed to in this particular case. [00:37:30] Speaker 05: The reason I'm asking, obviously, is if one cycle takes 60 days, then [00:37:35] Speaker 05: That makes the retorts look more like they are part of the raw material. [00:37:43] Speaker 03: I can say with certainty that one cycle is not 60 days. [00:37:49] Speaker 03: One cycle is more like one day. [00:37:51] Speaker 03: But you don't really have anything on the record to point to. [00:37:55] Speaker 03: No, there is nothing on the record. [00:37:58] Speaker 03: The department took the record that it had and made the best decision. [00:38:04] Speaker 03: Thank you. [00:38:08] Speaker 04: We went over a little on the other side to restore four minutes. [00:38:14] Speaker 02: To answer your question, Judge Bryson, the record contains evidence of the consumption rate of retorts in the production of magnesium. [00:38:23] Speaker 02: CVM's offering memorandum refers to one retort per six megatons of production of magnesium. [00:38:31] Speaker 02: CMC identifies one retort per five metric tons of magnesium production. [00:38:37] Speaker 02: So retorts consumed with every one in five runs. [00:38:43] Speaker 02: TMI has similar. [00:38:46] Speaker 05: That's the amount of magnesium that is produced before you've essentially exhausted the retorts capacity until it's refurbished, right? [00:38:55] Speaker 05: But that doesn't tell us how many runs there are in that six megatons of [00:39:04] Speaker 05: of magnesium, right? [00:39:06] Speaker 05: I mean, I'm wondering how many times do they empty the tube, put it back, run the process, empty the tube, put it back, run the process, and so forth, until they get to the point that they need to replace the tube? [00:39:18] Speaker 02: Well, in the case of CMC, where you have one retort consumed every five megatons, and you're looking at 20%, you would run five production runs, and you'd consume one retort. [00:39:30] Speaker 05: Are you saying that each production run is one megaton? [00:39:34] Speaker 02: No, fair point. [00:39:35] Speaker 02: I understand your question. [00:39:36] Speaker 05: Yeah, I'm confused by your answer. [00:39:38] Speaker 02: Yeah, I don't know that every metric, one metric ton, I doubt one metric ton. [00:39:42] Speaker 02: I wouldn't think so, looking at the pictures. [00:39:43] Speaker 02: I think it's more of a continuous process. [00:39:50] Speaker 02: Case by case analysis. [00:39:51] Speaker 02: There's been a lot in the government's brief and much discussion today about whether or not these decisions can be made on a case by case analysis. [00:39:58] Speaker 02: I understand that there's some latitude and administrative adjudication for the need for case-by-case determinations, but it's not unfettered discretion. [00:40:05] Speaker 02: You can't refer to case-by-case determinations in order to do away with the standard of review. [00:40:11] Speaker 02: And the standard of review here is whether there's substantial record evidence and whether there's evidence on the record that detracts from the finding. [00:40:17] Speaker 02: You can't get around that by saying simply this is a case that has to be decided on a case-by-case basis. [00:40:22] Speaker 05: But whether there's evidence that detracts from the finding? [00:40:24] Speaker 02: Absolutely. [00:40:25] Speaker 05: There almost always is. [00:40:27] Speaker 05: That doesn't defeat a finding of substantial evidence, right? [00:40:31] Speaker 02: No, the evidence has to be considered if it detracts from the final. [00:40:35] Speaker 02: Right. [00:40:35] Speaker 02: Here, evidence was not considered. [00:40:37] Speaker 02: The hack affidavit was not considered. [00:40:39] Speaker 02: Relative cost information not considered. [00:40:41] Speaker 02: Traceability... You think it wasn't considered because it wasn't discussed? [00:40:46] Speaker 02: With respect to traceability, both the Commerce Department and the Court of International Trade said there is no record evidence regarding traceability. [00:40:53] Speaker 02: No record evidence is what they said. [00:40:55] Speaker 02: Not, we looked at the evidence, some is in favor, some detracts. [00:40:58] Speaker 02: It said no record evidence. [00:41:00] Speaker 02: CMC, not discussed in the final or the remand determination. [00:41:03] Speaker 02: That's an important prospectus that talks quite a bit about the manufacturing process for magnesium using the pigeon process. [00:41:10] Speaker 02: The material out specification sheet, not in the final determination, not in the remand determination. [00:41:15] Speaker 02: It's a critical accounting document, not there. [00:41:18] Speaker 02: That evidence detracts from the final determination. [00:41:20] Speaker 02: It detracts from the decision, and it wasn't considered. [00:41:23] Speaker 02: In our view, Your Honor, respectfully, that's reversible error. [00:41:26] Speaker 02: You have to consider that evidence. [00:41:29] Speaker 02: You asked counsel for the government what else is on the record that supports the determination other than physical incorporation and the 60-day period or average useful life of a retort. [00:41:45] Speaker 02: There isn't any other evidence. [00:41:46] Speaker 02: He struggled to answer that question because he [00:41:48] Speaker 02: The other evidence doesn't support the decision and it is part of the problem that we have this case which is that the Commerce Department picked of all those different factors and all the different tests, the test for indirect materials, the test for direct materials, the test for equipment, the test for process materials, they picked two things to focus on and those are the two things where they found evidence that they believe supported their final determination. [00:42:12] Speaker 02: You can't go pick [00:42:13] Speaker 02: the criteria that you want, just because those are the ones for which evidence, you can find evidence in the record that is supporting and then say, we don't need to look at all these other factors. [00:42:22] Speaker 02: You know, there's no evidence about traceability. [00:42:24] Speaker 02: There's no evidence about this. [00:42:25] Speaker 02: We're going to disregard that. [00:42:26] Speaker 02: We're not going to look at the hack affidavit. [00:42:27] Speaker 05: But it is the case, is it not, that physical incorporation has always been regarded as a very important factor? [00:42:33] Speaker 02: Agreed. [00:42:33] Speaker 05: It's not the most important factor. [00:42:37] Speaker 02: I would disagree with most. [00:42:38] Speaker 02: Until 2000, it was dispositive. [00:42:41] Speaker 02: Then Commerce decided in the Silico-Manganese decision that physical incorporation was no longer dispositive. [00:42:46] Speaker 02: It was still considered physical. [00:42:48] Speaker 02: Dispositive, but an important thumb on the scale. [00:42:51] Speaker 02: Correct. [00:42:51] Speaker 02: I agree with that. [00:42:52] Speaker 02: However, out of the Silico-Manganese decision in 2000, there became a whole long line of cases called process materials cases. [00:43:01] Speaker 02: We cited a lot of this jurisprudence in our brief. [00:43:03] Speaker 02: We could have cited more. [00:43:04] Speaker 02: And in these cases, Commerce basically said, even if the input is not physically incorporated into the final product, [00:43:11] Speaker 02: Still, it can be considered a direct material. [00:43:15] Speaker 02: You only have to look at silicon metal from Russia as a perfect example. [00:43:19] Speaker 02: In that case, electrodes were used in the production process. [00:43:23] Speaker 02: Little tips of the electrodes would wear off through continuous use. [00:43:29] Speaker 02: The respondent in that case kept records of its use and commerce considered to be a direct material. [00:43:34] Speaker 02: What was the period of life of the electrodes tips? [00:43:37] Speaker 02: And I don't know that there was a period of life, I think it was just a continuous sort of use of the electrode. [00:43:45] Speaker 02: And one other thing I would like to point out, Bronner, and this is from the government's brief when we're talking about process materials, you know, commerce describes certain inputs as process materials and treated them as independent factors of production, that is, direct materials. [00:44:00] Speaker 02: This is at page 20 of their brief. [00:44:02] Speaker 02: When, among other things, substantial quality quantities are consumed in the production process, [00:44:07] Speaker 02: And the cost of such materials constitute a significant portion of the cost of the final product. [00:44:12] Speaker 02: That's what the government said in this brief to this court about what is a process material. [00:44:16] Speaker 02: That's our case. [00:44:17] Speaker 02: Substantial quantities were used, consumed in the production process, and retorts comprised a significant portion of the cost of the final magnesium product. [00:44:29] Speaker 02: That's our case. [00:44:29] Speaker 02: It's a process material. [00:44:31] Speaker 02: And it should be considered that way by the court. [00:44:36] Speaker 02: Time's up. [00:44:37] Speaker 02: Time's up. [00:44:38] Speaker 02: Thank you very much your honor. [00:44:39] Speaker 02: We appreciate your attention to this case. [00:44:51] Speaker 00: May it please the court. [00:44:52] Speaker 00: This is an appeal from a decision of the Patent Trial and Appeal Board rejecting as obvious all pending claims of the applicant's patent application directed to the treatment or prevention of the flu in humans [00:45:05] Speaker 00: by administering a particular compound known as Zanamavir by oral inhalation alone. [00:45:11] Speaker 04: So that's the inventive concept is strictly the administration of this drug orally. [00:45:17] Speaker 00: By oral inhalation alone. [00:45:18] Speaker 00: Yes, Your Honor. [00:45:21] Speaker 00: This court should reverse the board's decision because there were two primary errors that were committed. [00:45:27] Speaker 00: The first is that the board failed to present a prima facie case of obviousness because it based its obviousness determination [00:45:35] Speaker 00: on three factual findings that are not supported by substantial evidence. [00:45:41] Speaker 00: And second, even if the board had presented a prima facie case of obviousness, the applicant submitted evidence of unexpected results that were sufficient to rebut the prima facie showing. [00:45:53] Speaker 00: More specifically on that point, the board erred as a matter of law in requiring direct comparative evidence of unexpected results. [00:46:01] Speaker 00: and in failing to give the evidence of secondary considerations due weight. [00:46:06] Speaker 00: So turning to the first error of failing to present a prime aficion case supported by substantial evidence, there are three, the three factual findings that are unsupported by substantial evidence are first, that Von Neustein II features or suggests administering compounds for treating or preventing the flu by oral inhalation alone. [00:46:31] Speaker 00: The second factual finding at error is that the compounds disclosed in Von Itztin II were enabling for teaching oral inhalation of Xanamavir. [00:46:42] Speaker 04: Well, firstly, Von Itztin II does refer to well-known delivery methods, and it includes oral, right? [00:46:55] Speaker 00: Your Honor, Von Itztin II [00:46:58] Speaker 00: The first specifically excludes Zanimavir from its compounds, and we respectfully submit that it does not teach or reasonably suggest oral inhalation. [00:47:08] Speaker 00: On three pages of on its team two, at pages A287 through A290 of the appendix, there is a first general introductory paragraph that describes what the modes of administration of the compounds disclosed in that reference are. [00:47:24] Speaker 00: And that general paragraph lists a variety of modes of administration, and among them is suitable oral administration modes. [00:47:34] Speaker 00: There are then corresponding paragraphs that follow that initial paragraph that specifically describe what each of those modes, how they can be administered. [00:47:44] Speaker 00: And for oral administration, it specifically does not say inhalation. [00:47:49] Speaker 00: The word inhalation is never used in the paragraph that describes the appropriate [00:47:54] Speaker 00: modes of oral inhalation. [00:47:56] Speaker 00: Instead what it says is that oral administration can be capsules, cachets, tablets, or oral liquid preparations that include dry products that are mixed with a liquid. [00:48:07] Speaker 00: Dry powders are also listed in the