Sunday, January 15, 2012

Blockbuster Decision for Estee Lauder

Estee Lauder is a Court of International Trade case involving the tariff classification of the plaintiff's "Blockbuster" cosmetics kit. This kit consists of an outer case, several cosmetics (e.g., lipsticks and eye shadows), a cosmetics case, cosmetics brushes, and a brush case. All of it was imported together in a gold carton. If the internet is working properly, this is a picture of what we are talking about:

There were no questions as to what the merchandise is, so the court decided this on a motion for summary judgment, which means this is entirely a legal question. The government proposed to classify these kits as separate items while Estee Lauder argued that the kits qualify as retail sets under the Harmonized Tariff Schedule. In the alternative, the Government argued that if the kit is a retail set, then the essential character is imparted by the case, which puts the entirety in the a tariff provision in Heading 4202 with a 20% rate of duty. Cosmetics, on the other hand, are duty free. You do the math.

The Government's first argument is interesting. Recall that the General Rules of Interpretation are to be applied in order to arrive at a classification for the imported good. Nothing in GRI 1, which requires classification according to the legal text of the HTSUS, addresses collections of goods. Consequently, the Government argued that GRI mandates that each item be classified separately. This is actually consistent with the text and something I have considered in the past.

The problem with this argument is that there would never be a way to classify kits as retail sets because there is always a way to classify the parts individually. That would effectively mean that nothing would ever be classified as a set. Rather, as the Court of International said in the decision, Customs and Border Protection must move beyond GRI 1 when the resulting classification does not take into consideration the whole of the product. Interestingly, the Court gives no citation for this proposition, but it makes complete sense and avoids the absurd result of never having retail sets.

The next interesting question was whether the components of the kit are "put up together to meet a particular need or carry out a specific activity." This is a tougher call. Customs and Border Protection says that parts of a kit must be so related to one another as to be clearly intended for use together. Thus, a sandwich, chips, and a drink are a used together or in conjunction to one another and would be a set. But, tins of shrimp, pate de foie, and cocktail sausages would not be a set because the individual items are not used together or in conjunction. At least that is what CBP says. In this case, it appears the Government pointed out that the cosmetics in the kit are not used closely together. This makes some sense as nail polish, lipstick, and eye shadow are not used on the same surfaces or mixed together.

On the other hand, Estee Lauder said that the contents of the kits were selected to allow the consumer to create "looks." Everything I know about makeup I learned from watching Face Off on Syfy. But, this makes sense to me. I suppose there is some level of color coordination between eyes, cheeks, lips, and nails. If that is what constitutes "a look," then I see the point. So did the Court, which held that the collection is a set.

That leaves the final question, which was which item in the kit imparts the essential character and, therefore, controls the classification. The CIT found it "obvious" that the essential character comes from the makeup, which is consistent with what the Court viewed as the particular need or purpose served by the kit.

The Government, however, disagreed and argued that the 4202 cases must be taken into consideration. First, the Government noted that the cases and cosmetics are not mutually complementary or adapted to one another. This analysis, however, is not relevant to the status of the collection as a retail set. Rather, according to the Court, this is the analysis for composite goods of two or more materials combined into a single unit (think teddy bear with a radio in its belly). Second, consistent with some prior Customs and Border Protection rulings, the Government argued that the case was not closely configured to contain the cosmetics and, therefore, should not be considered part of the set. The Court rejected this argument as being inconsistent with the language of the HTSUS and not based on a very consistent application by Customs.

Consequently, the Court held that the cosmetics impart the essential character to the set, which includes the cases. That is likely a big win for Estee Lauder. As far as the development of the law, it may be a useful decision (if it holds up). It is based squarely in the text and there are lots of situations where cases are part of a set. Thus, I suspect the Federal Circuit will get the last word on this.


David Trumbull, NTA said...

The government lawyer who argued for Chapter 42 must have been a man; no woman could, with a straight face, argue this is other than a cosmetics kit. I asked my wife (licensed cosmetologists) and she said, "Why, of course, it's a make-up kit! What, are they crazy?"

Anonymous said...

I'd like one of those bags to carry my electric drill around in...