United States v. Eurodif S.A. - Oral Argument

ORAL ARGUMENT OF MALCOLM L. STEWART ON BEHALF OF THE PETITIONER

Chief Justice Roberts: We will hear argument next in Case 07-1059, United States v. Eurodif and 07-1058, USEC v. Eurodif.

Mr. Stewart.

Mr. Stewart: Mr. Chief Justice and may it please the Court:

The question presented in this case is whether the provision of enriched uranium under separative work unit or SWU contracts is covered by the Federal antidumping duty law. The resolution of that question turns on whether the performance of SWU contracts results in merchandise being sold in the United States. The Department of Commerce, which is the Federal agency entrusted by Congress with the administration of the antidumping duty law, concluded after an extensive investigation that SWU contracts do result in sales of enriched uranium. That determination was reasonable and should be sustained by this Court.

Now, the fundamental bargain in a SWU contract is that the customer, the utility, provides a combination of feedstock or feed uranium plus cash, and receives in return a specified quantity and assay of enriched uranium, and by "assay" I mean the percentage of weight of U-235 within the final product. Now, the customer has discretion to choose among varying combinations of feedstock and cash in order to complete the transaction for a particular quantity and assay of enriched uranium; but the enricher has its own discretion. That is, having received the consideration paid by the utility, the enricher is free to make its own determination based on economic considerations as to the relative proportions of feedstocks and SWUs that should be used to make a given quantity of enriched uranium.

So the overall -- the character of the overall transaction is comfortably characterized as a sale, because it involves the acquisition by the utility of a product, merchandise, that it didn't own at the outset of the transaction in exchange for consideration.

Justice Breyer: I can imagine you could have a grain mill and they have lots and lots of grain absolute identical one to the other. And the farmer takes his grain up and they operate on it, and then he drives away with the grain, milled. Now, it may make no difference to anybody whether the identical molecules are the same; and I think in such a case you'd say they are processing it; they are not buying and selling it.

Mr. Stewart: Well, indeed, as we've explained in our opening brief, at common law the distinction between a bailment and a sale in that type of circumstance depended upon whether the miller or the equivalent processor was under an obligation to return the very same thing in processed form. And if that was --

Justice Breyer: You are saying if we have that, in fact, if the -- if the exact situation, if some farmers up in North Dakota send their grain just to be milled -- it's their grain -- up in Canada, and they come back, and it -- you know, it may not be the identical molecule, but it's identically the same; they have done this for 100 years -- now suddenly this -- the Commerce Department is going to say, that's a sale, and the antidumping statutes apply?

Mr. Stewart: We are saying that Commerce could treat it as a sale. And --

Justice Breyer: Well, would it or not?

Mr. Stewart: I think Commerce in that hypothetical -- again, if we were talking about grain being provided by the customer to a miller overseas -- overseas, and then the finished product being brought back into this country, I think the logic of the Commerce determination here would suggest that it would be a sale.

Justice Breyer: I agree with you, and I just wonder, what I would like to know, is if any businessman involved in any of these or related things before this decision of the Commerce Department would have thought that that is how the Commerce Department would have treated such a transaction?

Mr. Stewart: Well, I don't think that Commerce had before this incident dealt with exactly this type of situation.

Justice Scalia: Well, but common law would have treated it that way, you say?

Mr. Stewart: Common law would have treated it --

Justice Scalia: That's pretty good authority.

Mr. Stewart: It certainly suggests that Commerce could permissibly treat it as a sale.

Justice Breyer: I don't know. I'm asking -- the question is the same as the last case, to me: Not whether they could have done it; sure they could have done it. My question is based on my question of whether they had a rule that any reasonable person would have thought that is how they treated it --

Mr. Stewart: I --

Justice Breyer: Because after all, you have three precedents in related areas, not the direct area but in related areas, that suggest that they wouldn't have treated the millers that way.

Mr. Stewart: I'm not sure exactly which precedents you mean. If -- the one that is -- the administrative determination that is cited most frequently is SRAMS from Taiwan, in which the design house provided, I believe it was a design mask to the foundry, and the foundry manufactured the finished equipment and in concluding that it was the design house rather than the foundry that was properly treated as the producer of the goods, the Commerce Department relied in part on the fact that the design house had intellectual property rights in the design mask.

Justice Breyer: You know what, I'm thinking of those things, they're something called "tollers." I don't know exactly what tollers are. They seem to be like people who give haircuts. They're sort of servicers of some kind. They're talking about tollers and -- and subcontractors. And that is a related area.

Mr. Stewart: That's correct. And the SRAMs cases is one of the toller or subcontractor cases. And the Department of Commerce relied in part on the fact that the design house had intellectual property rights in the design mask. So it was not fungible property, it was not an input that the foundry could have gotten from another source.

The other thing we would say about the grain hypothetical is that when you hear about the farmer providing grain to the miller or the utilities providing feedstock to the enrichers, it may conjure up images of a tangible good that is in the physical possession of the farmer or the utility that is then physically transferred to the enricher. In the case of the miller that is correct.

But the way that a utility provides feedstock to an enricher is not by taking physical possession of the feedstock and then by transporting it.

Rather, the utility simply makes financial arrangements with the supplier of feedstock, basically cuts a check or transfers funds --

Justice Stevens: Mr. Stewart, can I ask a question about the scope of discretion involved here? Assume the facts were not exactly as they are here, it is not a fungible product, but that each shipment was separately identified and each shipment was processed as a different batch in France and then sent back. That I assume would not normally be treated as a sale of goods?

Mr. Stewart: Well, I think that Commerce's determination suggests, without squarely holding, that it would treat that as a sale of goods because it would involve substantial transformation of the original item.

Justice Stevens: That's really what I wanted to ask you. Even if the facts were more extreme, just as in the example I gave, do you think the Commerce Department would have discretion to treat that as a sale of goods?

Mr. Stewart: We do. And I think it's important, to carry on with the thought I was sketching out previously about the way in which the raw materials are provided to the enricher.

If you imagine my buying a suit from a tailor, and the tailor says: The price is $600; $300 of that accounts for the cost of the cloth; $300 is the labor that's involved in sewing it into a suit.

Clearly, that's a sale of merchandise, even though the price has been broken up --

Justice Stevens: But then supposing they send the suit back to a different person for alterations, and they say, well, this is part of the sale, so we want to treat it as a sale of goods?

Mr. Stewart: Well, the alterations would just be a finishing process and that wouldn't involve substantial --

Justice Stevens: What is the difference between that and what we've got here?

Mr. Stewart: But the point I was going to make about the suit, and it applies equally to the uranium enrichment process, is if I say to my tailor, rather than I pay you $600 and you pay your cloth supplier $300, how about I just give you $300 and I will give $300 to your cloth supplier, and it will amount to the same thing in the end, because you won't have to pay for the cloth? If the tailor accepts that arrangement, the economic substance is exactly the same. And it would seem strange to say that it's a sale if I just pay $600 to the tailor, but it's not a sale if I break down the cost in the way that I've described.

Chief Justice Roberts: Could you articulate precisely what your test is, because you have been going back and forth between whether the raw materials are fungible and whether there is a fundamental transformation in the product? So, how would you merge those two in an articulable test so that business people can know when they are going to be subject to this regime and when they were not?

Mr. Stewart: I think that the Commerce determination -- that Commerce did not purport to either promulgate a regulation or announce a test that precisely defined the term "sale". I think the thrust of the Commerce Department's determination was that substantial transformation was enough, but that the case was much easier by virtue of the fact that the producer -- the enricher dealt with fungible goods and also had substantial discretion to decide how much of the feedstock would be used vis-a-vis --

Chief Justice Roberts: You would say your ultimate touchstone is whether there is substantial transformation, and whether it's a raw material or discretion, those go into that determination?

Mr. Stewart: That's correct, although it would certainly be appropriate for this Court if it didn't want to address the situation in which only substantial transformation was present, to say that at least when both circumstances were present there was a sale.

And again, to distinguish this somewhat from the miller hypothetical, the miller in making grain into flour may have discretion as to which individual grains to use for a particular batch of flour, but it won't typically have discretion as to what weight of grain will be used to make what weight of flour. And the enricher has that discretion as well; that is, to produce a particular quantity and assay of enriched uranium, the enricher can either use more feedstock and fewer SWU's --

Justice Scalia: What's a SWU? You lost me on the SWU. What's a SWU?

Mr. Stewart: A SWU is a unit of work and it's work in the sense of output; that is, it is the work necessary to separate out a particular quantity of enriched uranium --

Justice Scalia: If you put in more time with the uranium, with the same amount of 235, if you put in more time you can get out more?

Mr. Stewart: That's right. The amount of -- the separation process or the enrichment process involves a separation of the original feedstock into the enriched uranium and what is referred to as the tails, which is the residue or the depleted uranium.

Chief Justice Roberts: I'm sure you're prepared for a wide variety of hypotheticals. What about a diamond? You have a chunk of rock that contains a diamond. You send it to Antwerp and they carve it away into something that, I guess you could say it's been substantially transformed. It's not just a rock.

It's now a glittering diamond. Is that covered by --

Mr. Stewart: I'm not sure whether Commerce would treat that as substantial transformation.

Chief Justice Roberts: Neither am I, and it's kind of -- it's sort of a bit of a concern. It's a fluctuating test that is hard to determine how it's going to be applied in a wide variety of cases.

Mr. Stewart: Now, in this case -- in this particular case, Commerce noted that there was no dispute among the parties that the enrichment process did result in substantial transformation. So that -- that uncertainly is not present here.

But I agree that there is a gray area with respect to substantial transformation that isn't present when you are trying to answer the question: Is the customer getting back the same thing in modified form or is he getting back a different thing? That is, although the contracts between the utility and the enricher deem the enriched uranium to have been produced with the customer's own feedstock, everybody acknowledges that that is not the fact in the real world.

And so, what the customer receives back is not like your diamond hypothetical, in which he receives an improved version of the original product. It is as though you had a diamond company that said, we need inventory all the time, and we're prepared to work out an arrangement where if you send us a raw diamond plus cash, we will send you back a different cut diamond.

That would be a sale, regardless of whether there was substantial transformation, because you would have payment of consideration for a product that you indisputably didn't own at the outset.

Justice Ginsburg: Mr. Stewart, we're reviewing a decision of the Federal Circuit. And the Federal Circuit relied dominantly on the Florida Power case in which the same issue was presented, albeit under a different statute.

But I -- reading that Florida Power, where the Federal Circuit adopted the Government's position, the Government's position then was that this very same transaction involved the rendition of services and not a sale of goods.

Does the Government have a distinction between those two cases, or are you now saying in hindsight you realized that the position that you took before the Federal Circuit in the early case was wrong?

Mr. Stewart: I don't think we have disavowed the position we took in the Florida Power & Light case. Now, in all candor, I would have to say the question of the Contract Disputes -- Disputes Act's applicability to SWU contracts is of a lot less interest to the Federal Government now than it was then, because the reason that arose in a case involving the Federal Government was that at that time USEC was a Government instrumentality and we were representing USEC in its governmental incarnation.

Now that USEC has been privatized, the Federal Circuit is unlikely to confront the question whether the Contract Disputes Act applies to this sort of, because these are not -- this is not a Federal entity, in any event.

The reason that we think the two cases are reconcilable is that the Contract Disputes Act, as its name implies, is a statute that governs the resolution of disputes between contracting parties. And in that situation, it's much more appropriate to look to the form of the parties' arrangement. And the court -- the Federal Circuit in Florida Power and Light placed a lot of emphasis on the fact that the contract was styled as one for enrichment services. And that is an appropriate consideration to take into account when you are resolving disputes between the contracting parties, but when the whole purpose of the antidumping statute is to prevent contracting parties from entering into arrangements that are mutually beneficial to themselves, but that would and unfairly disadvantage domestic competitors, it was appropriate for Commerce to look behind the form of the contract and to look at physical and economic reality.

Justice Stevens: But isn't it correct that the universe of transactions that is the subject of this Act is sales? Is that not right? Rather than service contracts.

Mr. Stewart: Well, it is true that the antidumping statute requires that merchandise be sold in the United States, and we don't contend that the statute applies to price discrimination in services like insurance or banking.

Justice Stevens: But do you -- do you contend the word "sold" is an ambiguous term, requires construction by a particular agency?

Mr. Stewart: It is ambiguous at the margins; that is, the classic arrangement, the classic sale is an exchange of --

Justice Stevens: Do you think Congress intended the ambiguity to be resolved by an agency rather than judges applying the rules of common law and the rules of sales law generally?

Mr. Stewart: Yes, and I think this is a statute that has been around for, I believe, close to 90 years now; and in order for it to remain efficacious in this area, Commerce has to be able to adapt its principles to new forms of transactions. Again, that doesn't mean that Commerce's discretion is limitless, but it has some discretion at the margins.

If I may, I would like to reserve the balance of my time.

ORAL ARGUMENT OF H. BARTOW FARR ON BEHALF OF THE PETITIONERS

Chief Justice Roberts: Thank you, Mr.

Stewart.

Mr. Farr.

Mr. Farr: Mr. Chief Justice, and may it please the Court:

I would submit, as the questions this morning have indicated, one of the difficulties in this case, obviously, is this is the kind of transaction that can be thought about reasonably enough in different ways. It is possible to look at this very narrow set of circumstances where a customer is providing raw materials of the kind that the producer uses to make a good, and to say in that circumstance we could look at it as the customer providing two kinds of consideration for the good it's receiving; or we could look at it, as the Respondents do and as the Federal Circuit did, as saying, the other way to look at it is this is essentially the customer receiving a service on its own goods.

Now it seems to me to begin with, the question that is before the Court properly is whether Commerce, which is undoubtedly the agency charged with enforcing this statute, has adopted a reasonable view when it's taken one of those two positions.

Justice Breyer: What -- what do we do about the question that is bothering me? Maybe at some point -- maybe it's not a relevant question -- but I will assume for the sake of argument Commerce does have the power to classify it either way.

What is bothering me, and maybe that's not in this case, is that as the -- as your brother lawyer just said, this statute has been around for 90 years.

There has been trillions of dollars worth of foreign commerce during that time. Yet I don't find cited here any instance in which Commerce ever before said that when you have title to a good, and you send it abroad, for even a big change in it, and then it comes back, that that is a sale.

Now, I might -- I don't know all the Commerce cases; maybe they did. But what I found here is like a blank on that side, and on the other side the tolling cases, Florida Power & Light, the pizza case, to the point where I thought, if I was a lawyer advising a client, and that client said if I keep title to the good, am I home free, I would have to say, yes, you are.

Mr. Farr: Okay.

Justice Breyer: Now that's the -- the question I want responded to in the legal context of, has Commerce made a significant change in its policy?

Mr. Farr: Several things about that, Justice Breyer. First of all, as we have indicated in our brief, Commerce did have a policy prior to the tolling regulation, where it did treat these kinds of transactions as sales of goods.

Justice Breyer: And I read -- at what page do I find all these cases?

Mr. Farr: That is in our brief. I'm sorry, I don't have --

Justice Breyer: Well, roughly. I'll find it. I will find it.

Mr. Farr: But it's in --

Justice Breyer: But I will see a lot of cases where --

Mr. Farr: Where we discuss Commerce's tolling precedent. And then it went and it essentially decided that what it had done in that precedent, it wanted to reexamine that, because it thought in the end what was happening in all of those cases is there was a resale of the merchandise; and it thought it would be a better practice to focus on that sale of the merchandise for purposes of applying the statute.

When it did that, however, it found it had created a loophole in the case where there wasn't a further sale. So it has gone back to that. So at least in terms of the precedent, Commerce has been on different sides of that, but they have been wrestling with exactly the problem that I outlined at the beginning, which is dealing with a question that essentially has no ready answer to it and trying to pick among the plausible answers that were available to it.

Secondly, just about the specific situation here, I don't believe that there is any chance that the utilities and the enricher in this case could claim unfair surprise or unjust reliance; because they say in their own briefs, they did not set their transactions up in this way in order to try to comply with prior decisions of Commerce.

They say -- they make a point in their brief in saying we have perfectly innocent intentions here, that they set their transactions up purely for historical and commercial reasons.

So -- now, the other question that Justice Breyer raises is about the cases, and Justice Ginsburg I think mentioned earlier the Florida Power & Light decision. And again, Florida Power & Light is a case in which there is no agency that is before the Court.

So at that point there is no question of Chevron deference, no question of whether this is a reasonable position; all that the Court had to decide was, given the possible choices, which did it think was the better choice under those circumstances? And particularly I think it's important in that case, is the Federal Circuit said, this is a case that doesn't fall readily into either of the two categories. So it went ahead and had to decide it on its own.

But it seems to me that when you say in a case with an agency involved, and the agency has made one determination, that a case could fall within either of categories -- of categories --

Justice Stevens: Mr. Farr, are there earlier cases that applied Chevron deference to the Commerce's determination of what a sale is?

Mr. Farr: No, there are not, Your Honor, that I am aware of. But --

Justice Kennedy: You agree that the Chevron case is not a substantial evidence case?

Mr. Farr: I do think so, although I must say the line between the two is not enormously clear to me, to be honest. But -- but the fact is if I were trying to figure out where on the side of the line it goes, it seems to me that this is a case in which you are talking about the application of a legal standard to a particular set of circumstances. I mean, in Chevron, you have the situation, is a certain kind of facility a stationary source or whatever? I mean that -- you could say, well, that is a factual question in some way, but it seems to me ultimately the better way to think about it is Commerce's responsibility is to interpret the law in the light of cases that come up.

I mean, an agency does not -- is not expected by Congress just to sit back and imagine all the possible situations that could be a sale of merchandise. I think what the agency is supposed to do is, confronted with the circumstance in a particular transaction, to apply its judgment on the statutory language and say, yes, we do think this is a sale of merchandise or no, we don't.

Chief Justice Roberts: If we are to defer to the agency's interpretation, what -- how would you phrase its interpretation, apart from "this is a sale"?

Mr. Farr: Well, I think -- the narrowest interpretation, and it seems to me the one that is most readily dealt with is, to say, in a situation where a customer provides raw material that is the type of, but not the precise raw material, used by a manufacturer to make the good that it then delivers to the customer, in that situation, we are going to treat the manufacturer as having made a sale of that good for the consideration of the cash and the raw material.

Chief Justice Roberts: So it doesn't matter whether there is a substantial transformation or not?

Mr. Farr: I think it does, Mr. Chief Justice, in this sense, that we are talking about the sale of the merchandise and that is a new good. So the substantial transformation is essentially what moves the ball from -- from being the -- the raw material supplied by the customer to something different. And the question would be in this case, could Commerce reasonably think that the manufacturer had sufficient control over the new good to be deemed the owner of that? And I think it's important to look, if you look at the -- there are two different commodities that are being talked about in the case of this transaction:

One is the feedstock, the raw material; the other is the LEU. And the idea that the Respondents posit is, well, this is just a service performed on our material. All we are doing is getting our material back after a service has been performed on it.

But as everybody agrees, as a matter of fact, that is simply not so. They are not getting their material back with a service performed on it. They are getting a product that has been produced, manufactured, from raw material that is fungible and in the general inventory of the manufacturer. And in that case, it seems to me, Commerce can say, we are going to disregard the fiction of the parties' contracts that say this really is made from our material, and say we are going to look at the actual nature of the transaction. And in the actual nature of the transaction, as I said, it is not made from their material.

Chief Justice Roberts: So that -- so that is the critical factor, whether it's made from their material, regardless of whether there is a transformation? If the domestic entity provides wood, wooden two-by-fours, and the foreign entity coats it in a certain way, but they can use any two-by-fours, they are indistinguishable, you would say in that case there's still -- that's still subject to Commerce's position?

Mr. Farr: No, I don't think Commerce would say that. I am to some extent speaking for them here.

But I think what Commerce would say is, when you have a fungible raw material in substantial transformation without --

Chief Justice Roberts: So it's got to be both?

Mr. Farr: I think that Commerce would say, if you have both, that clearly can be regarded as a sale of merchandise, and we will regard it as a sale of merchandise. On the other hand, if you only have substantial transformation but not fungibility, then I believe Commerce would say, even in that situation, because it's ultimately the effect on the domestic competitor is exactly the same, we would retain the discretion to treat even that as a sale of merchandise.

Justice Stevens: Would you --

Mr. Farr: I would emphasize that's not the case.

Justice Stevens: Would you do that if you thought it was clear as a matter of common law or under the Uniform Sales Act, or something like that, that it was not a sale?

Mr. Farr: I think because of the different circumstances, under the common law, for example, I should make very clear -- but I should make first my answer to you, Justice Stevens. Under the common law, the particular transaction we were dealing with here, where it is not made from the identical material, is clearly a sale under the common law. But if you -- if Commerce were going to say, in a situation where it is made from the identical material, we want to depart from the common law, I think they would have to justify that.

Justice Stevens: Under common law, you don't need deference.

Mr. Farr: Pardon me?

Justice Stevens: I'm sorry. If it were clearly a sale under common law, you wouldn't need to rely on deference.

Mr. Farr: Well, in the end, I think, in the commercial setting, there is a reasonable chance, not necessarily certain because you do have the UCC and you have the possibility, in those situations, the courts might say, in a commercial setting, we are going to pay more attention to the parties' efforts to structure their contracts in a particular way, so that between them, we are going to treat the contract differently.

All our position is, is that Commerce, in applying the antidumping law to protect a third party doesn't have to observe the fictions in the parties' contract.

Chief Justice Roberts: Thank you, counsel.

Mr. Farr: Thank you.

ORAL ARGUMENT OF CAITLIN J. HALLIGAN ON BEHALF OF THE RESPONDENTS

Chief Justice Roberts: Ms. Halligan.

Ms. Halligan: Mr. Chief Justice, and may it please the Court:

I would like to start with Justice Breyer's question about the way in which the Department of Commerce has treated transactions for the processing of goods and the uncertainty that their position in this case will cause, not just in this industry but across industries.

As you suggested, Justice Breyer -- you referred to -- the Department of Commerce has treated processors who are called "tollers", in the language that Commerce uses, as performing a service. And the transaction for the sale of that service has not been treated as a cognizable sale under the antidumping law.

Justice Scalia: And those have been cases where the very same product is returned with value added, right?

Ms. Halligan: Not necessarily. Sometimes that is the case, Your Honor, but not always. For example, in the Taiwan Semiconductors case, which Mr.

Stewart referred to and which is cited in our brief, what the U.S. company provided was simply a design to for a chip. The Taiwanese company, which was the processor in the case according to the Department of Commerce, manufactured the chip, provided the silica, used the design of the U.S. company, but no raw materials at all. The Department of Commerce, in its explanation as to why it treated the sale for purposes of the antidumping law as the eventual sale by the U.S.

company and did not and could not treat the sale by the processor as a cognizable sale, explained that the statute itself requires Commerce to compare the U.S.

price, which is called the export price, the price at which a good is sold or imported into the United States, with the price at which the product is sold in the company's home market. And because a processor does not and cannot either provide all the essential components of the product, because it's only providing the processing service and not the raw materials, and because it does not and cannot set the price at which the product is sold in the United States, it is therefore not the appropriate sale to look at that in terms of the antidumping statute. That's --

Chief Justice Roberts: What do you do about the substance versus formality question? I mean, if you do have fungible raw materials, why should it make a difference whether the domestic company supplies those to the foreign company or simply says -- gives them money and says, buy them yourselves? And in the latter case, you would say that's a sale, and in the former case you would say it's not a sale?

Ms. Halligan: First of all, the Department of Commerce has not until this case suggested that fungibility of goods might make some sort of a difference. In fact, in one of the cases that we cite regarding flanges which were, according to the Department of Commerce, fungible, they concluded that the processing service there was not the cognizable sale, the downstream sale of that product was.

But more importantly it doesn't change the substance of the deal between the two parties. What the utilities come to the table with is cash, and they provide the feed. It is fungible as a matter of its physical properties. It is a gas. And when the feed is put into the gaseous diffusion chamber, which is the large installation that the enricher uses to concentrate the two different molecular isotopes, it takes a month for the gas to work its way through this plant. The enricher cannot feasibly segregate different lots of feed, just like you can't with a grain elevator.

The analogy would be, with respect to a grain elevator, you would have to run in one farmer's bag of feed, run it all the way through the elevator and through the mill, and wait until the product comes out at the end, and then run another farmer's bag of feed through. That's economically impractical and --

Justice Scalia: No, old mills used to do that. The farmer used to take his harvest to the mill, and it would be ground right there while he was waiting.

Ms. Halligan: But -- but there is nothing about the economic transaction that requires that it --

Justice Scalia: That's absolutely true.

Ms. Halligan: -- that happen, and more importantly, the enrichers don't end up at the end of the day with any feed. They are also --

Justice Scalia: Your brief constantly assumes that there has been no sale, that throughout the entire transaction, the utility owned what ultimately becomes the rods, as though it was indeed the same feedstock that produced the rod that was ultimately delivered. And that is simply not true. There is a change -- there is a change of ownership. The feedstock that somebody else put into the mix is now transferred to the -- to the electric utility.

Ms. Halligan: It may be the same molecules; it may not be. There is no way to know or to tell. And there is --

Justice Scalia: That's exactly right. You don't know. So, you had cannot say that there has been no transfer of ownership.

Ms. Halligan: Respectfully, Your Honor, I disagree. If you look at the contracts, and the substance squares with the contracts because, at the end of this transaction, what the enricher walks away with is cash and what the utilities walk away with are the same number of uranium molecules that they came to that plant with.

Justice Scalia: No, we've got the same molecules. I mean, when you are talking about whether there has been a transfer of ownership or a transfer of title, you are talking about molecules; you are not talking about whether you ended up the same in, you know, in monetary terms. You are talk about whether you have the same thing that you delivered to the person overseas. And you don't, or at least you can't say that you do.

Ms. Halligan: You can't say for sure because the gas molecules can't be segregated that way.

I think that you need to look at two things:

I think that you need to look at what each of the parties to the transaction come to the table with and what they walk away with. And with respect to the utilities, they come to the table with uranium. It's a very expensive commodity. The contracts are clear that they hold title to it through the process until such time as they take possession of the concentrated uranium. It is clear from the contracts that there is an intent to maintain a continuous stream of ownership.

Justice Scalia: That makes no sense, what you just said. That contract makes no sense. They hold title to it until they get the uranium rods, right?

Ms. Halligan: No, they hold title to it until -- just to provide a --

Justice Scalia: Most of it is back overseas.

235.

It's still mixed with the other fungible U

Ms. Halligan: Your Honor, the contracts provide several things. First of all, they provide that the utilities will deliver their feed within a certain number of days prior to the date on which they will have the concentrated uranium product provided to them. It's 60 to 90 days, depending on the contract.

So, pursuant to the contract, they deliver the uranium feed. The utilities run it through their system. And at the end of that diffusion process, they take the concentrated isotopes out and they provide that to the utility. The enrichers don't receive any amount of feed that they can then take on to the open market.

By distinction, if you look at a used car sale, for example, which is an analogy the government uses. If I want to trade my car in, I come to the dealer and I bring with me two pieces of consideration.

I bring the used car, which is payment in time and I bring cash. I walk away with my wallet a little bit lighter and a new car, and the used car dealer has cash, but also has an item that he can then go out onto the market and sell.

That does not occur here.

Justice Souter: That's only -- that's only true because apparently they use up all the feed that they get. If, in fact, they found a way to manufacture to enrich more efficiently so that some feed was left over, I presume you would not be here arguing that they could not sell that feed on the open market even after they had delivered the enriched uranium to the buyer?

Ms. Halligan: The price terms of the contract provide only for the utilities to pay for the amount of energy that is expended.

I would distinguish this from another kind of contract per uranium feed, which we don't contest is covered by the antidumping laws. There is a very small percentage of concentrated uranium, of low enriched uranium that is sold pursuant to what the parties call an enriched uranium product contract, an EDP contract.

That sort of a contract is one in which the enricher goes out into the market procures feed and performs a processing service. The utility comes to the enricher, pays them cash and walks away with the product.

By comparison, in these contracts, the utilities are providing something that is very valuable.

The feed company --

Justice Souter: Yeah, but why are they providing something that is very valuable that, in fact, could not be obtained by the enricher on the open market if those were the contract terms? The enricher buys it in the -- in the -- I forget the acronym in the case that you just described -- and we don't know -- we have no reason to believe the enricher couldn't go out on the market and buy it if, in fact, the utility didn't supply the feed.

Ms. Halligan: Those are very different kinds of contracts, though, Your Honor.

The contract in which the enricher simply provides some amount of enriched uranium for a price and procures the feed, which is a sliver of the total contracts -- it's 5 percent even for USEC -- is one in which the enricher is bearing the cost of the feed and the risk of those price fluctuations.

The reasons that the contracts are predominantly, almost exclusively structured as services contracts by distinction is that the utilities choose to manage the process of procuring fuel themselves.

Justice Souter: Sure. They would rather manage the risk of price fluctuation than, in effect, pay the premium that the processor would have to charge in order to hedge against price fluctuation --

Ms. Halligan: That's right.

Justice Souter: That's why they are doing that.

Ms. Halligan: And so, they go out into the market and procure the feed pursuant to whatever arrangements they have with their feed suppliers. By comparison, all they are coming to the enricher for is the service of concentrating that positional isotope into the assay --

Justice Souter: That is a way of looking at it. But another way of looking at it is because they choose to, in effect, take the risk of price fluctuation as preferable to paying a higher ultimate price, they are simply, for that reason, choosing to pay both in cash and in a -- a valuable commodity, i.e., unenriched uranium. You can look at it either way.

Ms. Halligan: They are. But they are choosing to pay two completely different entities in two unrelated and two unlinked transactions. So, it doesn't -- we are not disagreeing that there is a transaction for feed that the uranium -- that the utilities engage in to procure their feed. There has to be. But that is not part of the distinct services contracts for processing only, which is all that the Department of Commerce is looking to shoehorn into this statute here.

Justice Scalia: Ms. Halligan, try this hypothetical, and it really gives you the benefit of the doubt. Let's assume a department store buys raw wool from some sheep herder, sends it overseas. And it's worth $1,000, this raw wool. It is processed, spun and knitted into sweaters, and then shipped back to the department store. The sweaters, all made from the same wool, not even fungible, so that's why this is even better than your example -- the sweaters when they come back, are worth not $1,000, but $20,000.

Do you think it would be unreasonable for the Commerce Department to treat that as a sale of sweaters by the European knitting wool or -- or home knitters who did the sweaters?

Ms. Halligan: It would be perfectly appropriate for the Department of Commerce to do what it has done in the past, which is to treat the sale of the sweater by the U.S. companies for $20,000 as the cognizable sale.

The only thing that makes this case --

Justice Scalia: Say it again?

Ms. Halligan: In your hypothetical --

Justice Scalia: I'm talking about the -- I'm talking about the sale from the European mills to the American department store.

Ms. Halligan: That would be a processing transaction.

Justice Scalia: A processing transaction.

It has changed a value of $1,000 into a value of -- what did I say -- $20,000? And that's just processing?

Ms. Halligan: Let me give you an example of what the Department of Commerce has looked at. They -- they looked at the processing of pasta. And the -- there the manufacturer came to a company -- this is a place called Certain Pasta from Italy -- it's referenced in the brief -- the company came to the processor with wheat and presumably whatever other products went into the pasta, some milk or eggs. The pasta was processed and made into pasta from the wheat and given back to the U.S. company.

The Department of Commerce concluded that the appropriate sales target was not the making of the pasta, the processing of the pasta, but the downstream sale of the pasta in the United States.

And that is what the statute requires.

Justice Scalia: They said there was no sale.

Ms. Halligan: They said that --

Justice Scalia: When the pasta was imported, there was no sale into the United States.

Ms. Halligan: No, they said that --

Justice Scalia: But that's what we are talking about here.

Ms. Halligan: We don't disagree, Your Honor, that there is a product that comes into the United States, it's low enriched uranium. But the statute doesn't target the importation of products. And in that way it is distinct from the companion statute, the countervailing duty statute. What this statute, the antidumping statute, covers is the sale of merchandise into the United States.

That means that you have to have merchandise as distinct from services, but by comparison to countervailing duty statute covers both, which is part of how we know that Congress means that distinction tolls. And you have to --

Justice Scalia: Get back to your pasta case. Was the holding of that case that there was no sale into the United States?

Ms. Halligan: The question before Commerce was which transaction is the appropriate transaction for us to treat as -- as the one that establishes the price all over the United States.

Justice Scalia: That's a different issue.

We are not talking here about which transaction establishes the price. We are talking simply about whether there was a sale into the United States.

Ms. Halligan: It turns on the same issue, Your Honor, and here's why. In all of these processing cases that the Department of Commerce has looked at, they have explained that the reason why the cognizable sale is the sale of the finished product in the United States, the pasta, the sweater, or whatever it may be, is because the statute gets at price discrimination.

And it instructs the Department to look at the price at which the product is sold in the United States.

The price for the weaving of the sweaters, even if it does add the sort of value that you are talking about, is not the price at which the product is sold, nor does it reflect all of the components of the transaction, because there is some components that the wool request. So to determine whether there is price discrimination, you have to look apples to apples at which the product is sold in the United States.

Justice Scalia: Now, wait. Suppose these knitting mills in my example, in fact, are selling their sweaters for a much higher price in Europe. Instead of $20,000 for this batch of wool, in Europe they are selling it for $40,000. And they nonetheless sell the wool back into the United States for only $20,000.

You are telling me that that transaction doesn't -- doesn't count for purposes of our antidumping law?

Ms. Halligan: To the extent that it may --

Justice Scalia: That you have to look at the price at which the department store then sells to individuals?

Ms. Halligan: That's right. Because that's what the statute is intended to capture. The statute was enacted --

Justice Scalia: But the department store is not dumping. It's -- it's the knitting mills that are dumping.

Ms. Halligan: But the question, Your Honor, is -- is the price at which the product is sold in the United States. Section 1677(a) defines "export price" and "constructed export price" as the price at which the subject merchandise is first sold in the United States.

And that is what you have to look at.

It may certainly be true that you may be able to sell a product at less than its fair value to the extent that you are obtaining processing services at a price lower than what you could obtain them in a foreign country. But the -- the bottom line is you have to look at what the statute explicitly instructs, at the price at which the subject merchandise is sold in the United States.

Justice Scalia: Okay. And accepting that, you -- you have to begin the whole thing, however, with a sale, with a sale into the United States, right?

Ms. Halligan: A sale and I --

Justice Scalia: And I thought this is -- this is what you say fails in this case. That is the link of the chain that doesn't exist. You say there is no sale in the United States.

Ms. Halligan: There is an importation of LEU into the United States by the utilities. The utilities consume that fuel in their reactors. They do not sell it onward as the company would sell a sweater or would sell a pasta or would sell Rya rugs. That is something that makes this case somewhat different and --

Justice Breyer: That is pretty important.

Tell me -- this is a hard area, obviously. But the -- imagine -- think of all the toller cases that they've had.

Now -- now, is this right: That in every one of those cases there were two companies, A and B; and in every one of those cases A sells a finished product into the United States. And also A sends the product to B to have some major thing done on it. In every one of those cases the Commerce Department could say: We can take A as a Respondent; i.e. we think A might violate the law, because maybe it's an Italian company, or we think B might violate the law. Is that true of all those cases?

Ms. Halligan: It is true.

Justice Breyer: All right. Now, if it's true of all those cases, then I think what the opposite position is, what Mr. Farr said, I think -- I think, you know, I will -- he will say: Look at page 40 and 41 of their brief. When I look at those pages, I am going to see a lot of cases. And I bet, when I look them up, those Commerce cases are all going to use the word "substantial transformation." And he will say: You see, that's what they did here.

Then he's going to add -- I don't mean to put words in his mouth if the words are wrong, but -- but he's going to add: Look at those tolling cases.

Those are all cases where Commerce had a choice of which to consider the sale. It could have considered the sale from the processor A to -- to B to A, the sale if it wanted to; or it could have considered the sale into the United States if it had wanted to, to be the sale for purposes of calculating the price.

And so in choosing between those two, either of which it could have chosen, it chose the latter sale, the final sale, because that's how they could calculate the price.

But in your case there is no such person A, because the utilities are not people who could be respondents. I mean they are not in the same position.

There is no sale onwards that they could choose. So we will go to the other guy, the party -- the person who does the processing. Are you following what I am saying?

Ms. Halligan: Yes. And then it starts an invidious --

Justice Breyer: And what is the answer to that?

Ms. Halligan: And here is why that's not sufficient. It's the problem of the tail wagging the dog, right? What the United States is saying is that because in this single circumstance we do not have a downstream sale of pasta, or a sweater, or whatever the item might be, and we can't go after that transaction, that, therefore, we are asking this Court to sign off on essentially rewriting the statute.

The statute refers to a sale of merchandise.

Justice Breyer: Yes. But, remember, they are saying in the tolling cases, in my words: Hey, we could have gone after the processor if we wanted --

Ms. Halligan: But that's --

Justice Breyer: -- if there had been a substantial transformation, because the key to this concept of "sale" is the word "substantial" transformation.

Ms. Halligan: Two responses, Your Honor:

First of all, the statute doesn't allow that, and I would recommend to the court the remand response that Commerce provided in the Taiwan semiconductor case.

Justice Breyer: In which --

Ms. Halligan: The Taiwan semiconductor case which is cited in the brief. It explains why the definition of "export price" and "constructed export price" means you can't go after a processing transaction.

Secondly, in order to find for the government here and reverse the Federal circuit, you would effectively have to agree with the government's position that processing services where they are part of the manufacturing operation somehow are within the terms of the statute. And so that would mean that the government can say in this case that because there's no downstream sale that it can capture, it will choose to go after the processing transaction. But there is no way to gauge down the road whether it will make the same choice. And here --

Justice Scalia: What does -- what does the government do with respect to these other transactions where, indeed, the utility does not provide the feed uranium but just pays for, you know, getting -- getting the rods?

Ms. Halligan: In those cases --

Justice Scalia: There is no down -- you know, there is no domestic sale there, either. Is it conceivable that there, therefore, can be no dumping in such a case?

Ms. Halligan: No. Those cases -- we -- we do not disagree -- are a sale of merchandise because the utility is paying for the entire commodity.

What -- that is a substantial transformation point, Justice Breyer. I would like to -- to return to that.

There are many processing transactions which involve some kind of substantial transformation where you have a product like wheat and you turn it into something else like pasta, or wool and you turn it into

Justice Stevens: Isn't it true that in all of those cases there is no transfer of ownership of the basic product? And here -- and I am not sure you have really addressed it --it is a fungible product, and you are assuming you can't tell whether -- when it is in process or whether it is one party's or the other's.

But if you could tell and you had some way of identifying just which one here, but they wouldn't care because they are all equally valuable, and if it developed that it was actually a third party's product that was being processed, then there would be a transfer of ownership, and there clearly would be a sale. Isn't that true?

Ms. Halligan: I think not, Your Honor, certainly not for the same reasons that you would have that in -- in a grain elevator. If the enricher goes out and purchases the feed and holds title to that feed while it is enriching it, then, yes, there would be a transfer of ownership.

Justice Stevens: But you have the same contract you've got here, but you are able to identify that, in fact, there is a difference in the -- in the commodity that -- that -- at least not a different raw material that was sent to France and returned. It is just a substitute. It seems to me that -- in that context, within the meaning of your argument, that there would have been the transfer of title to that -- that commodity.

Ms. Halligan: First of all, you can't tell -- and I don't think there is any -- any dispute as to that fact. But, secondly, if you look at the common law of --

Justice Stevens: Well, isn't it true, if you can't tell, the odds are that there is some product the title to which has been transferred?

Ms. Halligan: No, I -- I think you certainly can't tell what molecules come out the other end. I think --

Justice Kennedy: Can't we assume -- let's assume that there is.

Ms. Halligan: Yes.

Justice Kennedy: Assume that there are -- are two sources for the uranium, A and B, and it goes to the enricher. A gives it; B gives it. A ends up with B's uranium. Justice Stevens is saying at some point there is a transfer of title.

Ms. Halligan: And that's -- that's the operative premise that I am disagreeing with, with all due respect.

Justice Kennedy: No. We are asking you to accept that hypothetical, so we can --

Ms. Halligan: I mean the legal -- the legal consequences is -- is what I am --

Justice Kennedy: Are you saying the utility doesn't have title to what was formerly B's uranium?

Ms. Halligan: The utility holds title to a discreet amount of feed uranium. It's in -- I --

Justice Kennedy: The enrichment is done.

It's back in the United States. The utility says: This is my uranium. I have title. Do you dispute that?

Ms. Halligan: No, not at all.

Justice Kennedy: How does he get the title from -- to the uranium that was formerly B's uranium?

Ms. Halligan: Because --

Justice Kennedy: At what point did that title transfer?

Ms. Halligan: It -- maybe the useful analogy is money -- is money in the bank, Your Honor.

If I take $100 and I bring it to the bank, ten 10's, and I take away five 20's, I may not have the same dollar bills that I brought to the bank, but I don't think anyone would argue that, somehow, the bank takes title to my money. I retain ownership of that, and there is nothing in the contract which suggests that there is any change of ownership that is --

Chief Justice Roberts: You don't -- you don't retain ownership of that. And if you go to the bank and say: Show me my money, they are not going to say: Well, here's your money. They -- they have title to it. They own it, and you have a claim against the bank to what you gave them.

Ms. Halligan: But the bank could not hold title to that as against me if I came and tried to take the money out of my safe deposit box, nor could the farmers at the -- at the grain elevator be told that they -- they don't have title to the grain.

Justice Breyer: Is there any point in time from the time that the -- the processors get ahold of the uranium until the time it leaves their control that if they went bankrupt, anyone other than the utility could get ahold of the product?

Ms. Halligan: No.

Justice Breyer: No. Okay.

Ms. Halligan: And let me clarify this because it's an important issue. These are very expensive, offshore transactions that the utilities engage in in order to purchase a feed. It is a very valuable commodity. So what is critical to the --

Chief Justice Roberts: Well, but if they go bankrupt because -- I mean let's say they don't have all the uranium. They have got five people who shipped them uranium, and they have only got enough for four. Each of the five can't say: I'm entitled to get mine back.

Ms. Halligan: But -- but the system doesn't operate that way, Your Honor. The contracts provide that the utilities have to deliver feed. And it's a very different sort of business that the utilities are engaged in, to go out into the market and make bets based on the price fluctuations for uranium and procure that uranium.

The enrichers are not in that business, and so there would be no economic reason or any reason provided for in the contracts for them to proceed that way.

I would like to touch briefly, if I can, on the purpose of the statute, because the government relies very strongly on this notion that somehow the processors' sales have to cognizable in order to further the antidumping statute.

This law is not a boundless license to protect domestic industry from any competition. There are other statutes that are are written much more broadly in the trade laws; for example, the countervailing duties law, the safeguards law which allows the Department of Commerce to impose quotas or tariffs on the import -- not the sale but the import of any goods, statutes regarding the protection of intellect0ual property rights, all of which are cited in the -- in the briefs.

So the notion that somehow to protect the integrity of the statute you need to rewrite it to allow them to address processing sales exclusively is really not -- not well-founded.

Finally, with respect to the loophole question that the government has relied on, I think it's important to focus on what is specifically at issue here. The government initially argued that it was critical to address this case and these particular transactions because of concerns about agreements with the Russians.

That has been addressed as to U.S. concedes in its -- legislation that has been implemented by Congress. The government has consistently in court and in its decisions -- not just in the Contract Disputes Act that you referenced Justice Ginsburg, but in other cases regarding the UCC which relates to the sale of goods, the government has said: These very kinds of contracts for the processing of uranium are contracts for services. They are not covered by statutes that reach the sale of goods or the disposal of property.

There is nothing that has changed with regard to the statute or with regard to these kinds of transactions; and, accordingly, we would ask you to affirm the Federal Circuit. If there are no other questions --

REBUTTAL ARGUMENT OF MALCOLM L. STEWART ON BEHALF OF THE PETITIONER

Chief Justice Roberts: Thank you, Ms.

Halligan. Mr. Stewart, you have three minutes remaining.

Mr. Stewart: Thank you.

One of the things Ms. Halligan said, and I think it's really a central theme of their brief, is that utilities come to the enricher for services and not for goods. And to understand what it is that utilities acquire, I think it may be helpful to ask: Under what circumstances would the utility have a valid breach-of- contract right? And it is very clear that the enricher's obligation under the contract is to deliver a specified quantity and assay of enriched uranium at a specified time and place. And if the enricher complies with that obligation, it doesn't matter that the enricher decided to -- what they call in the industry -- "overfeed"; that is, use more feed staff stock and fewer SWU's to produce the final product.

And the utility in that circumstance couldn't file a breach-of-contract claim by saying: I paid for more SWU's than I actually received. Because what the utility had contracted for was a given product.

The second thing -- and I think the corollary to that is -- it's potentially misleading to say that every contract is either one for merchandise or one for services, especially when you are contracting to acquire ownership of a commodity that doesn't exist at the time the contract is formed. The only way you are going to get to your ultimate objective is for somebody to create it. And that can generally be described as a service, but it still results in the sale of goods.

With respect to the used-car analogy, I understood Ms. Halligan to acknowledge that -- that that would be a sale even though the consideration paid by the customer is partly in cash and partly in kind. And if the customer and the car dealership characterize their contract as one for car-refurbishment services and said that the new car the customer receives shall be deemed to be the used car that it traded in in refurbished form, nobody would contend that that deeming quality should be controlling.

Now here the -- the falseness of the proposition that it's the same feedstock is less apparent, but it's equally the case that the utility doesn't receive back its original feedstock.

And finally the perspective of tolling regulation in cases, Commerce has essentially said three things:

First, we were dealing with a separate question; that is, who is the producer, which sale is relevant, and not whether the goods are covered at all.

Second, they said in those situations the tollee was exercising much more control over the ultimate process than is the case here where the utilities don't manufacture anything. They simply pay for one of the inputs.

And, finally, Commerce said that if at some level of abstraction there is a tension or contradiction between what we said previously and what we decide today, then what we decide today controls. And Commerce is entitled to make that determination.

Chief Justice Roberts: Thank you, Mr.

Stewart. The case is submitted.

(Whereupon, at 12:07 p.m. the case was submitted.)