Friday, July 24, 2009

What's an iPod?

With all due respect to Apple, I'm a Zune guy. I am perfectly happy with the hardware and have to say that I find the software far more friendly than iTunes, particularly when it comes to managing my long list of podcasts. It seems cnet agrees.

But, I digress.

Customs and Border Protection recently had to wrestle with the classification of an iPod. It summarized the issue as being "What is the principal function of the iPod media player under the HTSUS."

This was the question because the competing classifications all describe different aspects of the device. Is it a sound recording or reproducing apparatus of 8519? Or, is it a video recording or reproducing apparatus of 8521? The darkhorse candidate is classification as a monitor in 8528.

The important legal consideration here is Note 3 to Section XVI, which says that composite machines are to be classified as if they consist solely of the component that performs the principal function.

Apple believed the principal function to be sound reproduction. The Port believed it was principally for video reproduction. It seems no one seriously believed that an iPod is a monitor, and that went by the wayside early.

Apple made several arguments about the principal function of the iPod based on the so-called Carborundum factors: physical characteristics, expectations of the purchaser, channels of trade, unse in a manner consistent with the class or merchandise, economical practicality of using it in that manner, and recognition in the trade. Apple described the physical aspects of the iPod the relate to recording and playing music including the click wheel and headphone jack. Nevertheless, CBP found that none of these were dispositive against classification as a video player.

Apple also noted that the iTunes store is 5000 to 1 music vs. video. That means that the purchaser expects to use it more for music than video. CBP, however, seems to have been taken by the fact that there are iPods (e.g., the Shuffle) with no video capability. Consequently, consumers of video-enabled iPods must want that feature.

Regarding channels of trade, Apple argued that the vast majority of iPod accessories relate to audio rather than video features. Customs rejected this argument noting, in part, that the accessories are by their nature subsidiary to the iPod itself and, therefore, not determinative as to the classification. Customs also pointed out that the price difference between a Shuffle and a model with video capabilities was almost $200. Consumers, therefore, must purchase the more expensive units with the expectation that they will be watching video.

Thus, Customs held that the principal function of the iPod it issue was to play video. Consequently, it was classified in 8521.

Now, I was not involved in this case and there was clearly a lot of back and forth between Apple and Customs. But, I do have a question based upon my own use of an MP3 player. Does Apple have any reliable data on the amount of time a unit is used to display video (exclusive of album art) versus music or an audio podcast? It seems to me that is a relevant inquiry. I bought my big Zune to listen to audio when I am walking across the Loop or in the car. Most of the time, that is how it is used. When I am sitting on the train or a plane, I may watch an episode of BSG or Geek Brief, but that is a bonus feature. It is not the primary application. If I primarily want to watch video, I go to my TV or computer. Even a big iPod screen does not compare and who wants to watch a movie wearing headphones unless the situation demands it?

I think these principal function, principal use questions are interesting because they turn on what data can be presented and what data CBP or the Court find interesting. If the data showed that 90% of iPod time is spent in audio mode, would that change the outcome?

There may be only one way to tell: ask a judge of the Court of International Trade. Apple, if you call, I am willing to hide my Zune.


6 comments:

Trade-Compliance.org said...

I have to agree with you, I use my iPod for music. I got the more expensive one with a nicer screen display since it also has significantly greater storage. This is just one of many items classified somewhat strangely.

Anonymous said...

I agree with Trade Compliance and you. I use my Ipod primarily for music. There are any number of products that have a secondary feature that makes them more expensive than a bare bones model. A - granted over the top - example is my new microwave. It has other options including a clock and timer and cost more because it does. That doesn't make its primary function a clock.
Question: Why not two classifications one for the music only IPod and one for the video IPod?

Jim Dickeson said...

I have an MP3 player without a single MP3 on it. I use it to listen to NPR on the bus. So is it a radio?

But I suppose my digital camera remains a digital camera because that's what it's principally used for, even though I have used it in a pinch to transfer an Excel spreadsheet from one laptop to another.

Lowell DeFrance said...

That is interesting. I have previously been telling people to classify them as sound devices because there was a previous ruling indicating that was the way customs wanted to go with this issue. (NY N006305) That and the rulings under the pre 2007 changes had them under 8520, which was more closely aligned to 8519 than 8521.

But in this case they went as far as getting a HQ opinion. Or maybe it was an iPinion(TM).

I suppose in the future if it has a monitor, have clients classify them under 8521.

I would not hold your breath waiting for Apple to call because both classifications are duty free. Unless customs tries to fine them for their own change of mind.

I often thought this would be a great video lead in to a classification class on this topic.:
http://www.youtube.com/watch?v=N68_cp1vEFs

International Trade Student said...

I'm curious as to why Apple bothered to contest the classification at all if both classifications are duty free. Any thoughts?

Anonymous said...

I agree with Trade Compliance. I bought the Ipod classic for the additional storage capacity. I primarily use mine when working out. I will watch some videos while traveling, but by far the biggest use is for listening to music, podcasts and audiobooks (thank you Ricky Gervais).