Sunday, May 29, 2011

BenQ Remanded

The Court of Appeals for the Federal Circuit has vacated and remanded the decision of the Court of International Trade concerning the tariff classification of video monitors that are most likely used with computers but have standard connections for use with other video sources. My post on the original decision is available here.

This is one of those cases that makes tariff classification more than just checking a ruling or the index to the Harmonized Tariff Schedule. Classification is a lot like a Sudoku puzzled. In order to get to the right result, the classifier has to apply all the rules in the right order. Skip a step or misunderstand a rule, and you are likely to get the wrong result.

That is what that Federal Circuit says happened at the Court of International Trade. The CIT appears to have focused on Note 5(E) to Chapter 84 to the exclusion of Note 5(B). Note 5(E) provides that "Machines incorporating or working in conjunction with an automatic data processing machine and performing a specific function other than data processing are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings." According to the CIT decision, the monitors can perform a specific function other than operating in conjunction with a computer (e.g., displaying video from a DVD or other data source). Consequently, they are to be classified according to that function.

But, the Federal Circuit noted that 5(B) stated (at the time of these entries):

Automatic data processing machines may be in the form of systems consisting of a variable number of separate units. Subject to paragraph (E) below, a unit is to be regarded as being a part of a complete system if it meets all the following conditions:
     (a) It is of a kind solely or principally used in an automatic data processing system;
     (b) It is connectable to the central processing unit either directly or through one or more other units; and
     (c) It is able to accept or deliver data in a form (codes or signals) which can be used by the system.
That means that the monitors can only classified as automatic data processing machine units if they satisfy the three conditions set out in 5(B). There was no debate about (b) and (c), so the question was whether the monitors were of a kind solely or principally used in  automatic data processing machines.

The Court of International Trade, however, did not determine whether the monitors were solely or principally used with ADP systems. Further, the Court held that 5(E) does not trump 5(B). Rather a better reading is that a monitor that is solely or principally used in an ADP system will still be excluded from 8471 if it performs a specific function. Keep in mind that ADP machines are general purpose computers, not machines performing a specific function. So, a monitor that is used for an ATM machine, for example, would not be classifiable in 8471.

So, because the Court of International Trade did not conduct a principal use analysis, the Federal Circuit vacated the prior decision and remanded for further analysis.

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