[Federal Register Volume 70, Number 244 (Wednesday, December 21, 2005)]
[Notices]
[Pages 75837-75840]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-7600]


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DEPARTMENT OF LABOR

Employment and Training Administration

[TA-W-50,129 and TA-W-50,129A]


IBM Corporation, Global Services Division, Piscataway, NJ; IBM 
Corporation, Global Services Division, Middletown, NJ; Notice of 
Negative Determination on Remand

    The United States Court of International Trade (USCIT) remanded to 
the Department of Labor (Labor) for further investigation Former 
Employees of IBM Corporation, Global Services Division v. U.S. 
Secretary of Labor, Court No. 03-00656. The USCIT's Order was issued on 
August 1, 2005.
    A petition for Trade Adjustment Assistance (TAA), dated November 
13, 2002, was filed on behalf of workers at IBM Corporation, Global 
Services Division, Piscataway and Middletown, New Jersey (the subject 
firm). The petitioning workers had been employed by AT&T and had 
handled the same responsibilities for IBM, after being outsourced by 
AT&T to IBM in 2000.
    In the petition, the workers alleged that the subject firm was 
shifting computer software production to Canada and importing those 
products from Canada. Upon institution of the petition on November 19, 
2002, the Department conducted an investigation to determine whether 
the subject workers were eligible to apply for TAA. The relevant period 
for purposes of the investigation was determined to be November 2001 
through November 2002.
    For workers of the subject firm to be certified as eligible to 
apply for TAA, the following criteria must be met:

    (1) A significant number or proportion of the workers in such 
workers' firm, or an appropriate subdivision of the firm, have 
become totally or partially separated, or are threatened to become 
totally or partially separated; and
    (2) The sales or production, or both, of such firm or 
subdivision have decreased absolutely, imports of articles like or 
directly competitive with articles produced by such firm or 
subdivision have increased, and the increase in imports contributed 
importantly to such workers' separation or threat of separation and 
to the decline in the sales or production of such firm or 
subdivision; or
    (3) There has been a shift in production by such workers' firm 
or subdivision to a foreign country of articles like or directly 
competitive with articles which are produced by such firm or 
subdivision; and the country to which the workers' firm has shifted 
production of the articles is a party to a free trade agreement with 
the United States, is a beneficiary country under the Andean Trade 
Preference Act, African Growth and Opportunity Act, or the Caribbean 
Basin Economic Recovery Act or there has been or is likely to be an 
increase in imports of articles that are like or directly 
competitive with articles which are or were produced by such firm or 
subdivision.

29 U.S.C. Section 222

    The investigation revealed that the workers were engaged in the 
analysis and maintenance of computer software and information systems 
(identifying product requirements, developing network solutions, and 
writing software). The Department determined that the workers did not 
produce an article within the meaning of Section 222 of the Trade Act. 
The Department's determination was issued on March 26, 2003. The Notice 
of determination was published in the Federal Register on April 7, 2003 
(68 FR 16834).
    By application of April 29, 2003, a petitioner requested 
administrative reconsideration of the Department's negative 
determination regarding eligibility for workers and former workers of 
the subject firm to apply for TAA. In the request for reconsideration, 
the petitioner alleged that the workers did produce an article and 
argued that the denial was the result of an overly narrow and 
antiquated interpretation of production by the Department.
    The Department reviewed the petitioner's request for 
reconsideration and affirmed that the workers did not produce an 
article within the meaning of Section 222 of the Trade Act. Prior to 
making the determination, the Department reviewed the legislative 
intent of the TAA program as well as the language of the Trade Act. The 
Department also reviewed the Harmonized Tariff Schedule of the United 
States (HTSUS) and the North American Industry Classification System 
(NAICS), and sought guidance from the U.S. Customs Service (Customs). 
On June 26, 2003, the Department issued a Notice of Negative 
Determination Regarding Application

[[Page 75838]]

for Reconsideration. The Department's Notice of determination was 
published in the Federal Register on July 15, 2003 (68 FR 41845).
    By letter dated September 11, 2003, the Plaintiffs requested 
judicial review by the USCIT, asserting that the workers of the subject 
firm produced an article within the meaning of the Trade Act and 
characterizing the Department's basis for denying certification for the 
subject workers as irrational.
    The USCIT's August 1, 2005 Order directed the Department to (1) 
further investigate the nature of the software produced by the 
Plaintiffs, including whether the software was embodied in any kind of 
physical medium, (2) explain the differences between the activities 
performed by the Plaintiffs and those performed by other petitioners 
involved in developing software who had received TAA benefits in the 
past, and (3) explain and support the Department's position with 
respect to the characterization of the software at issue as an article 
or a service.

Remand Investigation Findings

    During the remand investigation, the Department obtained additional 
information and clarification, from two subject firm officials, SAR 1, 
2-6, 19-42, 48-50, 57-59, 62-67, 70-73, and Plaintiffs, SAR 1, 7-18, 
42-47, 51-56, 60-61, 68-69 and position descriptions of the petitioning 
workers. SAR 22-42. The Department also conducted a conference call 
with subject firm officials to clarify a technical matter regarding the 
software. SAR 1. Further, the Department took action to reconcile 
conflicting information. SAR 73.
    In order to determine whether the Plaintiffs engaged in activities 
which constitute production, the Department requested that the 
Plaintiffs and the subject firm provide the Department with information 
about the workers' functions, and copies of the workers position 
descriptions. SAR 4, 8. Information regarding the workers' functions 
was received from all three Plaintiffs. SAR 17, 43, 53.
    According to the Plaintiffs, the separated workers were Information 
Technology (IT) Specialists, SAR 17, 43, 53, who identified software 
program specifications, created source code, generated unit and string 
testing, and ensured that system input and processing were accurate. 
SAR 17, 18, 43, 52, 53. The software and source code were stored in 
disk drives (also known as a Direct Access Storage Device) at a 
mainframe data center located at the client's facility and were 
``viewable on remote terminals.'' Workers could access the software and 
code regardless of where they were stored. Corrections were made by 
``changing the source code and compiled software that reside on the 
Direct Access Storage Devices.'' SAR 54, 55. ``Back-ups of programs 
were also kept on tapes and CDs * * * Code was delivered on the shared 
directories of hard drives, where it could be accessed by those who 
needed to view or test. CDs were also used in some instances.'' SAR 66.
    Information provided by the subject firm, including the various 
position descriptions which account for a significant majority of the 
displaced workers, confirms that the workers were IT Specialists, with 
various levels of expertise, who provided services and assisted in the 
construction, implementation, and integration of software systems. More 
senior workers may also have identified new IT services opportunities 
and developed tools and methods for managing, analyzing, designing and 
implementing IT solutions. SAR 22-42.

Nature of the Software Produced by the Plaintiffs

    Software consists of source code (text written by software 
developers commanding the computer to do a certain task) and object 
code (text written in the language of the computer which enables the 
computer to execute the command, hence, also known as the execution 
file). The object code operates as a ciphering key because, without the 
proper object code, the source code cannot be executed. In some 
instances where computers cannot interface, an object code may be 
required to read or translate another object code before the source 
code can be executed.
    The software at issue is client (AT&T) legacy (old, pre-existing) 
mainframe software and midrange software for network applications and 
systems (software used to run and repair the client's older systems), 
SAR 1, 20, and was designed to operate on the client's mainframe 
computers. SAR 17, 52, 53, 55. The software could be accessed remotely 
by the workers. SAR 55, 66, 73. The source code at issue was not 
provided to the client on a physical medium.
    The information initially provided regarding whether the software 
was embodied on a physical medium appeared to be inconsistent. 
According to a Plaintiff, Mr. Plumeri, ``[t]he code was stored on 
either mainframe, Windows or Unix based servers. Backups of programs 
were also kept on tapes and CDs * * * Code was delivered on the shared 
directories of hard drives, where it could be accessed by those who 
needed to view or test. CDs were also used in some instances.'' SAR 66. 
The other two Plaintiffs, Mr. Fusco and Ms. Berger, stated that the 
``software, since it was designed to run on mainframe computers, was 
embodied on the disk drives'' in the client's off-site data center. SAR 
17, 52, 54. The subject firm, moreover, stated that the software was 
electronically stored and delivered to the client's internal servers 
and the software is not embodied or delivered to AT&T in any kind of 
physical medium. SAR 20, 71.
    In order to reconcile the apparent conflict, the Department 
contacted the subject firm for an explanation. SAR 1, 73. According to 
the subject firm, source code and documentation related to the 
development of the software at issue is stored in and shared through an 
internal server, and while back-up copies are saved on CD, the CDs are 
not shared with the client. SAR 73.
    The subject firm officials also explained that the CDs presented to 
the client contained only those documents, such as billing invoices and 
work schedules, generated for contract administration purposes, along 
with the object code the client needed to access the business 
documents. In that very narrow regard, there was software sent from the 
subject firm to the client through a physical medium. However, that 
software was not source code and was not related to the software that 
was produced by the former employees and transmitted electronically to 
the client. There was no software reduced to a physical medium for the 
purpose of serving the client. SAR 73.

Differences Between Activities Performed by the Plaintiffs and Those 
Performed by Software Development Petitioners Who Received TAA Benefits 
in the Past

    Information provided for the record by the Plaintiffs and the 
subject firm substantiated that the workers were IT Specialists 
performing software design and implementation activities (software 
architecture, systems engineering, design, development, coding, 
testing, installing and product support). SAR 17, 21, 43, 52, 53. The 
record evidence does not indicate that the workers were engaged in 
production or the support of production of an article at an affiliated 
facility.
    The Department's practice of certifying non-production workers who 
support an affiliated domestic production facility has been consistent. 
In past cases where petitioners involved in developing software were 
certified as eligible to apply for TAA, the workers supported an 
affiliated domestic

[[Page 75839]]

production facility. For example, recently, the Department certified 
software writers in Former Workers of Ericsson, Inc. v. Elaine Chao, 
United States Secretary of Labor (Court No. 02-00809). In Ericsson, the 
workers wrote software code which was embodied on a physical medium 
(CD-Rom). The CD-Rom was mass-produced at an affiliated, domestic 
facility and then distributed to customers. The workers of the subject 
firm were certified because they supported an affiliated domestic 
production facility whose workers independently qualified for TAA 
(mass-production of the CD-Rom shifted to a qualifying country).
    The record, as fully developed on remand, strongly supports the 
conclusion that the Plaintiffs did not meet the criteria satisfied in 
Ericsson and related software cases. Therefore, the Department properly 
determined that the plaintiffs were not eligible to apply for TAA 
benefits.

Department's Position With Respect to the Characterization of the 
Software at Issue as an Article or as a Service

    While the Trade Act does not include a definition of ``article'' 
among the definitions applicable to the TAA program, the term is 
integral to making TAA determinations and, as such, the Department has 
given the meaning of ``article'' considerable thought. The USCIT has 
recognized that, as used in the Trade Act, the term ``article'' 
embraces a tangible commodity. See Nagy v. Donovan, 571 F. Supp 1261, 
1263 (CIT 1983). This position was recently supported in Former 
Employees of Gale Group, Inc. v. U.S. Secretary of Labor, Court No. 04-
00374, 2005 WL 3088605 * 5 (November 18, 2005) and Former Employees of 
Merrill Corp. v. U.S. Department of Labor, 389 F. Supp.2d 1326, 1342-
1343 (CIT 2005).
    In Gale Group, the USCIT held that workers who ``performed 
electronic indexing services'' were not eligible for TAA benefits, 
because they did not produce an article for the purposes of 19 U.S.C. 
2272(a)(2)(B). Gale Group * 4. Further, the USCIT held that the denial 
of TAA benefits was a reasonable interpretation supported by 
substantial evidence and in accordance with law, notwithstanding 
plaintiffs' arguments that other sources of law (i.e., the American Job 
Creation Act of 2004; various state tax cases; and determinations by 
the International Trade Commission (ITC) under the ITC's Trade Act 
Sec.  337 authority to protect intellectual property) could support a 
ruling in their favor.
    Trade Act Sec.  337 was amended in 1988, for the express purpose 
making it ``broad enough to prevent every type and form of unfair 
practice.'' S. Rep. 595, 67th Congress, 2d Session, at 3. Therefore, it 
was foreseeable that the ITC, applying that expanded remedial 
authority, would find that it was not limited to acts that occur during 
the physical process of importation. For example, the ITC has held 
that, while the Commission ``accommodates, where possible, the policies 
and views of [the U.S.] Customs [Service] (which ``has determined not 
to regulate electronic transmissions''),'' there were circumstances 
where it was ``appropriate to reach such importations.'' In Re Certain 
Hardware Logic Emulation Systems and Components Thereof, USITC Inv. No. 
337-TA-383, 1998 WL 307240, page 11 (March 1998).
    Trade Act Sec.  222, which controls the present proceeding, has not 
undergone any such amendment. Indeed, there have been several recent 
legislative efforts (most recently in June 2005) to amend the Trade Act 
so that it does cover service workers as well as production workers. 
However, those efforts, to date, have been unsuccessful. Thus, the 
Department's disposition of the present case is properly controlled by 
existing Trade Act Sec.  222, under which the Department applies the 
HTSUS to require that an ``article'' be a tangible object, not by the 
ITC's application of its broad Trade Act Sec.  337 authority in 
intellectual property cases.
    Throughout the Trade Act, an ``article'' is referenced as something 
that can be subject to a duty. Telecommunications transmissions 
(including electronically transmitted software code) are specifically 
exempted from duty as they are not goods subject to the provisions of 
the HTSUS General Note 3(I). Because the software code at issue is 
electronically manipulated and delivered to the client only in an 
electronic form, the Plaintiffs do not produce an article. See, e.g., 
Former Employees of Dendrite International, 70 FR 21247-3 (April 25, 
2005).

Plaintiffs Argue That the Department's Interpretation of ``article'' is 
Overly Narrow

    The Department's interpretation of ``article'' to require a 
tangible state is consistent with Congressional intent and supported by 
legislative history of the Trade Act. The Trade Act was designed to 
counteract the effects of imports upon the manufacturing sector and 
other labor-intensive industries. See S. Rep. No. 1298, 93rd Cong. 
(1974), reprinted in 1974 U.S.C.A.N. 7186. Since Congress took explicit 
legislative action to set criteria for TAA eligibility, any expansion 
of Trade Act's scope should be the result of legislation. Further, the 
Department is obligated to be faithful to the legislative will and is 
bound to the language of the statute. See Machine Printers and 
Engravers Ass'n v. Marshall, 595 F.2d 860, (D.C. Cir. 1979). As already 
noted, while legislation has been proposed that would expand the scope 
of the Trade Act to include service workers such as the plaintiffs, to 
date, no such amendment has been adopted.
    The Department's reliance on the HTSUS to exclude the plaintiffs 
from eligibility is appropriate. See Former Employees of Murray 
Engineering v. Chao, 358 F. Supp.2d 1269, 1272 n.7 (CIT 2005) (``the 
language of the Act clearly indicates that the HTSUS governs the 
definition of articles, as it repeatedly refers to ``articles'' as 
``items subject to a duty''); HTS, General Note 3(I) (exempting 
``telecommunications transmissions'' from ``goods subject to the 
provisions of the [HTSUS]''). For the Department to abandon the use of 
the HTSUS and abrogate its current practice would be inappropriate 
unless the Department had an adequate substitute, such as one contained 
in the Code of Federal Regulations.
    The Department's treatment of service (including software) cases 
and its requirement that articles be tangible has been consistent. 
Service workers may be certified only if they directly support 
production of an article. Under the Department's methodology, non-
production workers may be eligible for TAA certification as ``support 
service workers'' if:

    (1) Their separation was caused importantly by a reduced demand 
for their services from a parent firm, a firm otherwise related to 
the subject firm by ownership, or a firm related by control;

    (2) The reduction in the demand for their services originated at 
a production facility whose workers independently met the statutory 
criteria for certification; and
    (3) The reduction directly related to the product impacted by 
imports.

    Former Employees of Henderson Sewing Mach. v. United States, 265 F. 
Supp. 2d 1346, 1359 (CIT 2003) (citing Former Employees of Chevron 
Prods. Co. v. United States Sec'y of Labor, 245 F. Supp. 2d 1312, 1328-
29 (CIT 2002) (citing Bennett v. U.S. Sec'y of Labor, 20 CIT 788, 792 
(1996); Abbott v. Donovan, 570 F. Supp. 41, 49 (1983))).
    The Court in Henderson Sewing sustained the Department's 
interpretation of the statute to preclude certification of petitioners 
as support service workers in the instance where no production employee 
independently

[[Page 75840]]

qualified for certification. Id. at n.16. (citing Abbott, 570 F. Supp. 
at 49 (citing Woodrum, 564 F. Supp. 826) (``the Court must accord 
substantial deference to the interpretation of the statute [19 U.S.C. 
2272(a)] by the agency [Labor] charged with its administration''); 
Bennett, 20 CIT at 792 (stating in pertinent part that ``plaintiff[s] 
are eligible for certification [as support service workers] when * * * 
their separation is caused by a reduced demand for their services from 
a production department whose workers independently meet the statutory 
criteria for certification'' and holding that ``Labor permissibly and 
reasonably interpreted [19 U.S.C. 2272(a)] in formulating the test for 
certifying support service workers'').
    The Department has consistently determined that workers engaged in 
the design and development of software may be certified if they support 
an affiliated, domestic firm at which workers are engaged in producing 
a trade-impacted ``article.'' See, e.g., Notice of Determinations 
Regarding Eligibility to Apply for Worker Adjustment Assistance and 
NAFTA Transitional Adjustment Assistance in: Ericsson, Inc., Messaging 
Group, Woodbury, N.Y., 68 FR 8619-8621 (TA-W-50,446) (Feb. 24, 2003); 
Computer Sciences Corporation at Dupont Corporation, 67 FR 10767 (TA-W-
39,535) (March 8, 2002); e-Gain Communications Corporation, Novato 
California, 68 FR 50195 (TA-W-51,001) (Aug. 20, 2003).
    Workers in these cases were certified based, in part, upon a 
finding that the subject facilities produced hardware or software 
embodied in some tangible format. Workers in the case at hand, however, 
do not directly support certifiable production workers eligible for TAA 
benefits, and this distinction explains the different results in cases 
involving workers engaged in similar activity. While the case results 
may differ, based on the particular facts of each case, the 
Department's application of the statute has been consistent.
    The Department has carefully investigated the matter on remand and 
has found no basis to support finding that workers of IBM Corporation, 
Global Services Division, Piscataway and Middletown, New Jersey are 
engaged in the production of an article or support for the production 
of an article. Consequently, they are not eligible for certification.

Conclusion

    In the case of IBM Corporation, Global Services Division, 
Piscataway and Middletown, New Jersey, it has been clearly established 
that the workers of the subject facility did not produce an article or 
support the production of an article within the meaning of the Trade 
Act and that they are not eligible for certification.
    As the result of the findings of the investigation on remand, I 
affirm the original notice of negative determination of eligibility to 
apply for adjustment assistance for workers and former workers of IBM 
Corporation, Global Services Division, Piscataway and Middletown, New 
Jersey.

    Signed at Washington, DC, this 9th day of December, 2005.
Elliott S. Kushner,
Certifying Officer, Division of Trade Adjustment Assistance.
 [FR Doc. E5-7600 Filed 12-20-05; 8:45 am]
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