La Molisana S.P.A. v. United States

138 F.4th 1353

• Court: Court of Appeals for the Federal Circuit
• Decided: June 5, 2025
• Docket: 23-2060
• Status: Published

Opinion

Case: 23-2060 Document: 51 Page: 1 Filed: 06/05/2025

United States Court of Appeals for the Federal Circuit ______________________

LA MOLISANA S.P.A., VALDIGRANO DI FLAVIO PAGANI S.R.L., Plaintiffs-Appellants

v.

UNITED STATES, Defendant-Appellee ______________________

2023-2060 ______________________

Appeal from the United States Court of International Trade in Nos. 1:21-cv-00291-RKE, 1:21-cv-00292-RKE, Senior Judge Richard K. Eaton. ______________________

Decided: June 5, 2025 ______________________

DAVID J. CRAVEN, Craven Trade Law LLC, Chicago, IL, argued for plaintiffs-appellants. Also represented by DAVID L. SIMON, Law Offices of David L. Simon, Washing- ton, DC.

SOSUN BAE, Commercial Litigation Branch, Civil Divi- sion, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by REGINALD THOMAS BLADES, JR., BRIAN M. BOYNTON, PATRICIA M. MCCARTHY; CHRISTOPHER KIMURA, Office of Case: 23-2060 Document: 51 Page: 2 Filed: 06/05/2025

the Chief Counsel for Trade Enforcement & Compliance, United States Department of Commerce, Washington, DC. ______________________

Before LOURIE, SCHALL, and STOLL, Circuit Judges. STOLL, Circuit Judge. La Molisana S.p.A. and Valdigrano Di Flavio Pagani S.r.L. (collectively, “La Molisana”) challenge the final re- sults of the United States Department of Commerce’s (“Commerce”) twenty-third administrative review of the antidumping order on certain pasta from Italy. Certain Pasta From Italy: Final Results of Antidumping Duty Ad- ministrative Review and Final Determination of No Ship- ments; 2018–2019, 86 Fed. Reg. 28,336, 28,336–38 (May 26, 2021). The Court of International Trade (“Trade Court”) sustained the final results, concluding that La Mo- lisana had not demonstrated that the alleged flaws in Com- merce’s model-match methodology were commercially significant. For the following reasons we vacate-in-part, affirm-in-part, and remand for further proceedings. BACKGROUND I The Tariff Act of 1930, as amended, establishes a re- medial regime to combat unfair trade practices. If Com- merce “determines that a class or kind of foreign merchandise is being, or is likely to be, sold in the United States at less than its fair value,” it will “impose[] upon such merchandise an antidumping duty . . . in an amount equal to the amount by which the normal value exceeds the export price.” 19 U.S.C. § 1673. When establishing a dumping margin, Commerce must first identify the “foreign like product” that will form the basis for a comparison to the subject merchandise exported to the United States. Pesquera Mares Australes Ltda. v. United States, 266 F.3d 1372, 1375 (Fed. Cir. 2001). Case: 23-2060 Document: 51 Page: 3 Filed: 06/05/2025

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“Foreign like product” means merchandise that is “identi- cal in physical characteristics with” the subject merchan- dise. 19 U.S.C. § 1677(16)(A). Commerce uses a model- match methodology that considers the physical character- istics of the relevant products to create control numbers (“CONNUMs”), which it assigns to the products to catego- rize them for comparison. See Goodluck India Ltd. v. United States, 11 F.4th 1335, 1338 n.1 (Fed. Cir. 2021). In other words, Commerce compares products sold in the United States (the subject merchandise) and foreign prod- ucts with the same CONNUMs to determine the dumping margin. II Commerce published the antidumping order governing the import of certain Italian pasta in this case in 1996. No- tice of Antidumping Duty Order and Amended Final Deter- mination of Sales at Less Than Fair Value: Certain Pasta From Italy, 61 Fed. Reg. 38,547 (July 24, 1996). Relevant here, the disputed physical characteristic used to distin- guish and assign CONNUMs to pasta is protein content. Commerce assigns pasta with a protein content of 12.5 per- cent or more as “1” (premium quality) for its CONNUM code and pasta with less than 12.5 percent as “2” (standard quality). Commerce began using protein content as a distin- guishing physical characteristic of pasta during the twelfth administrative review, covering July 1, 2007, to June 30, 2008. Commerce explained “it is generally accepted that pasta cooking quality can be explained by the differences in gluten and protein composition of the semolina input.” J.A. 2615. Commerce relied specifically on protein content because “protein content can be determined on both the semolina input and the finished product,” but “gluten test- ing cannot be performed on the finished product.” Id. Com- merce determined that “the industry standard for superior Case: 23-2060 Document: 51 Page: 4 Filed: 06/05/2025

semolina is that its protein content must exceed 12.5 per- cent.” J.A. 2614–15. In other words, Commerce determined that the protein content of the finished pasta was a proxy for the semolina quality, which is indicative of the quality of the pasta. III This appeal concerns the twenty-third administrative review (“AR23”) covering the period from July 1, 2018, to June 30, 2019. A In AR23, Commerce determined the protein content of pasta by asking respondents to identify the protein “as stated on the label of the respective product.” J.A. 1258. La Molisana challenged Commerce’s methodology for determining protein content of pasta, arguing that it causes dissimilar goods sold in the United States and Italy to be treated as identical and identical goods sold in the United States and Italy to be treated as dissimilar. Specif- ically, La Molisana faulted Commerce’s methodology for failing to account for: (1) the impact of U.S. Food and Drug Administration (“FDA”) mandated rounding rules on the protein content listed on the label of the U.S. product; (2) the different nitrogen-to-protein conversion factors used in calculating protein content in the United States versus Italy; and (3) evidence that “the 12.5% breakpoint between standard and premium pasta does not reflect cur- rent market reality.” J.A. 5–6. Commerce rejected all three arguments during AR23. First, Commerce rejected La Molisana’s assertion that the FDA’s requirement to report grams of protein per pasta serving rounded to the nearest gram leads to inaccurate comparisons between subject merchandise and foreign like products because pasta with less than 12.5 percent protein content will sometimes be reported on the label as having Case: 23-2060 Document: 51 Page: 5 Filed: 06/05/2025

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a protein content that equates to greater than 12.5 percent due to the required rounding up. “Commerce explained that it did not consider the differences caused by the differ- ent rounding standards to be commercially significant such that they would be a basis to alter the coding for the protein content physical characteristic.” J.A. 8247. Commerce then turned to La Molisana’s second argument: that Com- merce should adjust its model-match methodology to ac- count for the different nitrogen conversion factors used by the United States and Italy in calculating the number of grams of protein. Commerce again rejected La Molisana’s argument, explaining it had “considered and rejected the claims regarding rounding and nitrogen conversion factors in prior reviews and in doing so has repeatedly emphasized the importance of transparency and consistency.” J.A. 8248. Commerce concluded: Given that we have found “there is not a clearly de- fined method of identifying premium pasta other than the protein content marked on the packages,” we do not see a basis to find the discrepancy in pro- tein measurement standards between the U.S. and Italian markets as commercially significant when the market perception of premium pasta or non- premium pasta relies on information readily avail- able to consumers, namely the packaging label as- sociated with the pasta in the marketplace. J.A. 8249. Commerce next considered La Molisana’s third argu- ment, that the “12.5 percent breakpoint between standard and premium pasta is not reflective of either the U.S. or Italian pasta market.” Id. In support of this argument, La Molisana relied on a report prepared by counsel for another mandatory respondent that presented price and protein content information for a sample of pasta products sold in one food retail chain in Italy and four food retailers in a suburb of Washington, D.C. (“Market Report”). The Case: 23-2060 Document: 51 Page: 6 Filed: 06/05/2025

Market Report concluded that the “true breakpoint be- tween standard and premium pasta is 13.5 percent protein content,” J.A. 8249, citing: (1) the Bologna Grain Ex- change’s decision to redefine superior semolina as having 13.5 percent or greater protein content, and (2) the survey data purportedly showing pasta with a protein content of 12.5 percent is standard pasta with the minimum accepted protein among supermarket sellers. See J.A. 8249–50. Commerce rejected the conclusions drawn in the Market Report because it surveyed only “four supermarkets in a small geographic region of the United States,” and La Mo- lisana made no attempt “to address the potential for ma- nipulation in choice of purchases or to support a claim that these purchases are reflective of the entire U.S. market for pasta products.” Id. Commerce also rejected the Bologna Grain Exchange’s selection of a new 13.5 percent protein breakpoint because “Commerce relied on the breakpoints of three separate Italian commodity exchanges” when it adopted the 12.5 percent protein breakpoint. J.A. 8250. Commerce explained “a single exchange’s breakpoint is not sufficient evidence of an industry-wide change in stand- ards from semolina and thus that it is not a compelling rea- son to change the instructions for reporting protein content.” Id. Commerce thus concluded that La Molisana had not presented compelling reasons for it to change its model- match methodology for reporting protein content and de- clined to do so. B La Molisana appealed to the Trade Court, asking that court to “remand th[e] matter to Commerce with instruc- tions to adjust its model-match method for coding protein content and revise La Molisana’s and Valdigrano’s rates accordingly.” La Molisana S.p.A. v. United States, 633 F. Supp. 3d 1266, 1270 (Ct. Int’l Trade 2023). The Trade Court sustained Commerce’s final results, Case: 23-2060 Document: 51 Page: 7 Filed: 06/05/2025

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concluding that substantial evidence supported Com- merce’s determinations. First, the Trade Court found no error in Commerce’s conclusion that “differences in Italian and U.S. protein measurement standards and rounding rules were not com- mercially significant.” Id. at 1275. In so holding, the court explained “[i]t is unrebutted that consumers rely on pack- aging information when making pasta purchasing deci- sions, and that coding for protein content based on the nutrition label fosters transparency and consistency in CONNUM-building.” Id. At the same time, the court acknowledged “that Commerce’s reliance on the finding that customers make purchasing decisions based on infor- mation found on a pasta product’s packaging departs from the relevant inquiry, which focuses on the physical charac- teristics of the product, not its packaging.” Id. at 1275 n.8. Nevertheless, the Trade Court concluded La Molisana “failed to demonstrate that Commerce’s conclusion—that values other than those readily available to consumers on the packaging label were not commercially significant— was unreasonable.” Id. at 1275. As for the breakpoint between standard and premium pasta, the Trade Court concluded it “cannot fault Com- merce for finding that the Market Report was insufficient to support Plaintiffs’ claim that the 12.5% breakpoint is out of step with current industry-wide standards because no serious argument can be made that the report is repre- sentative of the entire industry either in the United States or in Italy.” Id. at 1274. The court explained that when “Commerce has reconsidered its model-match criteria in the past, it has stated that for data to be ‘industry-wide’ it must be public, published information” and, “[i]n contrast, the report here was prepared for presentation to Com- merce, and bears no indicia of having been publicized or published to or by the industry at large.” Id. Addressing the Bologna Grain Exchange’s new definition, the court agreed there is “nothing in the report that indicates that Case: 23-2060 Document: 51 Page: 8 Filed: 06/05/2025

this single Bologna exchange represents the entire market or even a large portion of it.” Id. The court further noted that this grain exchange “was one of three Italian ex- changes considered by Commerce [in adopting the 12.5% breakpoint] . . . [and] no evidence from the other two ex- changes is included.” Id. The Trade Court thus concluded, “Commerce reasonably found the Market Report insuffi- cient to support a change in the standard-to-premium breakpoint from 12.5% to 13.5%.” Id. La Molisana appeals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5). DISCUSSION I We review decisions of the Trade Court de novo, apply- ing anew the same standard it used. Sunpreme Inc. v. United States, 946 F.3d 1300, 1308 (Fed. Cir. 2020) (en banc). Under that standard, we must uphold the agency’s determinations unless they are “unsupported by substantial evidence on the record, or otherwise not in ac- cordance with law.” 19 U.S.C. § 1516a(b)(1)(B)(i); see also Sunpreme, 946 F.3d at 1308. Under the Tariff Act, Commerce must compare mer- chandise that is identical in physical characteristics: (16) Foreign like product The term “foreign like product” means merchan- dise in the first of the following categories in re- spect of which a determination for the purposes of part II of this subtitle can be satisfactorily made: (A) The subject merchandise and other merchan- dise which is identical in physical characteristics with, and was produced in the same country by the same person as, that merchandise. Case: 23-2060 Document: 51 Page: 9 Filed: 06/05/2025

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19 U.S.C. § 1677(16)(A) (emphasis added). We have previ- ously held that products may be “considered to be identical despite the existence of minor differences in physical char- acteristics, if those minor differences are not commercially significant.” Pesquera Mares, 266 F.3d at 1384. Commerce will not modify its model-match methodol- ogy unless “compelling reasons” exist to do so. See SKF USA, Inc. v. United States, 537 F.3d 1373, 1377–80 (Fed. Cir. 2008). In reviewing Commerce’s determination on whether compelling reasons exist to modify its method- ology, we apply the substantial evidence standard, asking whether the model-match methodology is consistent with 19 U.S.C. § 1677(16)(A). It follows that compelling reasons to modify the existing model-match methodology would ex- ist when that methodology results in comparison of subject merchandise and foreign like products that have commer- cially significant physical differences. This is consistent with the Trade Court’s approach below, where it stated that compelling reasons are present when “‘the existing model-match criteria are not reflective of the merchandise in question, that there have been changes in the relevant industry, or that there is some other compelling reason’ re- quiring the change.” La Molisana, 633 F. Supp. 3d at 1272 (quoting Manchester Tank & Equip. Co. v. United States, 483 F. Supp. 3d 1309, 1315 (Ct. Int’l Trade 2020)). With this legal framework in mind, we turn to the is- sues raised on appeal. II We address La Molisana’s first two arguments to- gether: (1) FDA-mandated rounding rules result in differ- ent protein levels displayed on U.S. product labels compared to identical products in Italy; and (2) comparison of products without adjusting for the different nitrogen-to- protein conversion factors used in calculating protein con- tent in the United States versus Italy results in “identical product[s] [being] treated differently purely because of Case: 23-2060 Document: 51 Page: 10 Filed: 06/05/2025

scalar differences.” Appellants’ Br. 22. We find both argu- ments persuasive for the same reason: the alleged sources of error result in inaccuracies in the comparison of identical products. The statute requires the foreign like product be “identical in physical characteristics” to the subject mer- chandise in the United States, and here Commerce’s model-match methodology does not satisfy this require- ment. 19 U.S.C. § 1677(16)(A) (emphasis added). The FDA requires that labels for food sold in the United States shall include “[a] statement of the number of grams of protein in a serving, expressed to the nearest gram, ex- cept that if a serving contains less than 1 gram.” 21 C.F.R. § 101.9(c)(7). The impact of the FDA’s protein per serving rounding requirement can be seen in the illustrative table from La Molisana’s brief:

Appellants’ Br. 17. Notably, the Government does not con- test the accuracy of this chart. See generally Appellee’s Br. 20–24. As shown, pasta with an actual protein content of 6.51 grams and an actual protein percentage of 11.63 percent would list a protein content of 7 grams on the label, resulting in a protein percentage of 12.50 percent, which is coded as premium pasta, causing the pasta to be compared against foreign like (Italian) premium pasta. Based on its actual protein content, this pasta is standard pasta that should be compared against foreign like (Italian) standard pasta. By relying on the listed protein content, which is rounded up under FDA rounding requirements, Commerce fails to compare products “identical in physical characteristics” in violation of the requirements of 19 U.S.C. § 1677(16)(A). Case: 23-2060 Document: 51 Page: 11 Filed: 06/05/2025

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Commerce reasoned “that it did not consider the differ- ences caused by the different rounding standards to be commercially significant” because it had previously deter- mined that “slight differences [between actual protein con- tent and the label content] are not readily apparent to customers of the finished product and, therefore, are not commercially significant.” J.A. 8247. The Trade Court agreed, noting that “there was no evidentiary basis to con- clude that differences in . . . rounding rules, which is not information readily available to consumers, mattered in the marketplace.” La Molisana, 633 F. Supp. 3d at 1273. But, as the Trade Court correctly acknowledged, Com- merce’s approach “departs from the relevant inquiry, which focuses on the physical characteristics of the product, not its packaging.” Id. at 1275 n.8 (emphasis added). Moreover, Commerce’s conclusion that the allegedly “slight” differences in protein content caused by rounding are not commercially significant is belied by its own prior statements. Commerce explicitly determined that the amount of protein in pasta is commercially significant when it chose to designate the amount of protein in pasta as a proxy for pasta quality. Commerce “verified that phys- ical differences exist” between various pastas based on the different wheat (i.e., semolina) qualities used. J.A. 2610. Commerce determined that (1) “the cost of the highest grade of semolina is materially more than that of the low- est grade”; (2) the quality differences in semolina were re- flected in pasta prices; and (3) that quality differences in semolina are “commercially significant and an appropriate criterion for product matching.” Id. Commerce then looked to published industry standards for determining quality differences in semolina and examined definitions for supe- rior semolina. It noted that, at that time, the Milan Grain Exchange, Bologna Grain Exchange, and Milan Commodi- ties Exchange all defined superior semolina as having a minimum protein content of 12.5 percent. Commerce con- cluded that, accordingly, “the industry standard for Case: 23-2060 Document: 51 Page: 12 Filed: 06/05/2025

superior semolina is that its protein content must exceed 12.5 percent.” J.A. 2614–15. Commerce also recognized that “protein content can be determined on both the semo- lina input and the finished product.” J.A. 2615. Commerce thus recognized that differences in pasta protein content indicate differences in semolina quality and are thus com- mercially significant and an appropriate criterion for prod- uct matching. Accordingly, given Commerce’s own critical distinction between pasta with 12.5 percent or more pro- tein versus pasta with under 12.5 percent protein, Com- merce cannot now assert that the differences in protein content caused by rounding in the United States as identi- fied by La Molisana are not commercially significant. In other words, because Commerce itself designated protein content as commercially significant and a proxy for pasta quality, it cannot reasonably rely on protein calculation methods that undisputedly inject inaccuracies and charac- terize those inaccuracies as commercially insignificant. Commerce’s and the Trade Court’s reliance on the goals of transparency and consistency fares no better. Commerce attempts to justify its “reliance on the packag- ing label [by explaining it] is an objective method to achieve a product comparison on a ‘consistent and transparent’ ba- sis because all of the physical characteristics are listed on the product label.” J.A. 8248; La Molisana, 633 F. Supp. 3d at 1275 (emphasizing that “coding for pro- tein content based on the nutrition label fosters transpar- ency and consistency in CONNUM-building”). While we agree that transparency and consistency are reasonable goals, the statute requires accuracy in comparison of the subject merchandise to like products “identical in physical characteristics.” 19 U.S.C. § 1677(16)(A). Commerce’s goals of transparency and consistency cannot override the statutory requirement of identicality in physical character- istics. As we have recognized, “[a]n overriding purpose of Commerce’s administration of antidumping laws is to cal- culate dumping margins as accurately as possible.” Case: 23-2060 Document: 51 Page: 13 Filed: 06/05/2025

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Yangzhou Bestpak Gifts & Crafts Co. v. United States, 716 F.3d 1370, 1379 (Fed. Cir. 2013) (citing Rhone Poulenc, Inc. v. United States, 899 F.2d 1185, 1191 (Fed. Cir. 1990)); see also Borlem S.A.-Empreedimentos Industriais v. United States, 913 F.2d 933, 937 (Fed. Cir. 1990) (“The law does not require, nor would it make sense to require, reliance on data which might lead to an erroneous result.”). In other words, accuracy is a key consideration. We turn now to the nitrogen conversion factors. We agree with La Molisana that failing to account for the dif- ferent nitrogen conversion factors in the United States ver- sus Italy creates inaccuracies in the comparison of identical products. The grams of protein in a product are calculated by multiplying the determined nitrogen content (nitrogen units) by a nitrogen-to-protein conversion factor. In the United States, the nitrogen conversion factor, as set by FDA rules, is 6.2510, while the Italian conversion factor is 5.7110, as set by European Union standards. J.A. 8245. The following example demonstrates the impact of the dif- ferent conversion factors on the resulting protein percent- age:

In this example, physically identical products would be classified differently in the United States versus Italy based on the protein displayed on the packaging. As shown above, Commerce fails to account for these scalar differ- ences, which results in its failure to compare like products based on “physical characteristics.” Accordingly, Com- merce has violated § 1677(16)(A). As with the FDA-mandated rounding rules, Com- merce’s only justification for declining to adjust its model- match methodology to account for the different nitrogen conversion factors is “the importance of transparency and Case: 23-2060 Document: 51 Page: 14 Filed: 06/05/2025

consistency.” J.A. 8248. Commerce explained it did not “see a basis to find the discrepancy in protein measurement standards between the U.S. and Italian markets as com- mercially significant when the market perception of pre- mium pasta or non-premium pasta relies on information readily available to consumers, namely the packaging label associated with the pasta in the marketplace.” J.A. 8249. This reasoning misses the mark because (1) it elevates the goals of transparency and consistency over the “identical in physical characteristics” requirement set forth in § 1677(16)(A), and (2) these goals are not lost if Commerce performs a mathematical conversion such that the subject merchandise can be compared with like foreign products. We hold that a compelling reason to modify the model- match methodology exists because Commerce’s current methodology fails to adhere to the statutory requirement to compare goods on the basis of identical physical charac- teristics. For the reasons stated above, we conclude that Commerce’s determinations regarding rounding and nitro- gen conversion factors are not supported by substantial ev- idence. Therefore, we vacate the Trade Court’s judgment in these respects and remand for further proceedings con- sistent with this opinion. III Turning now to the final issue, La Molisana argues that Commerce erred in determining that the Market Re- port and Bologna Grain Exchange definition of “superior” semolina does not constitute a compelling reason to modify the percentage breakpoint for distinguishing between standard and premium pasta from 12.5 percent to 13.5 per- cent. We are not persuaded by La Molisana’s argument. Based on the record evidence, a reasonable fact finder could accept that La Molisana failed to present compelling evi- dence that the current 12.5 percent breakpoint is incon- sistent with industry standards. Case: 23-2060 Document: 51 Page: 15 Filed: 06/05/2025

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First, Commerce reasonably explained that the Market Report relied on pasta purchased from only “four super- markets in a small geographic region of the United States,” and La Molisana made no attempt “to address the potential for manipulation in choice of purchases or to support a claim that these purchases are reflective of the entire U.S. market for pasta products.” J.A. 8249–50. We cannot say that Commerce erred in finding that this survey data did not constitute a compelling reason to change its approach. The survey was limited to four stores in an affluent Wash- ington, D.C. metro area, and a reasonable mind could ac- cept that such limited survey data is not reflective of the entire U.S. pasta market. Nor can we say that Commerce erred by not adopting a 13.5 percent breakpoint based on La Molisana’s citation to a single commodity exchange’s adoption of that breakpoint. La Molisana’s Market Report included a screenshot of the Bologna Grain Exchange’s website, which now defines “‘su- perior’ semolina as having 13.5 percent or greater protein content.” J.A. 8250. La Molisana only provided evidence from one of the commodity exchanges that Commerce con- sidered in adopting the 12.5 percent protein breakpoint. Commerce explained “[t]he plain meaning of ‘industry- wide’ connotes an entire industry or, at the very least, pre- dominance or prevalence within an industry . . . . [and] a single exchange’s breakpoint is not sufficient evidence of an industry-wide change in [semolina] standards.” Id. Because a reasonable mind could conclude that La Mo- lisana failed to present compelling evidence of a change in the protein breakpoint, we affirm the judgment of the Trade Court on this issue. CONCLUSION We have considered La Molisana’s remaining argu- ments and do not find them persuasive. For the foregoing reasons, we vacate-in-part, affirm-in-part, and remand for further proceedings consistent with this decision. Case: 23-2060 Document: 51 Page: 16 Filed: 06/05/2025

VACATED-IN-PART, AFFIRMED-IN-PART, AND REMANDED COSTS No costs.