Monday, May 20, 2013

A Laser-Like Focus on Questions of Law

The Court of International Trade's recent decision in EOS of North America v. United States has a few interesting bits of legal analysis in it.

The underlying facts of the case are simple enough. The EOS imported devices called "laser sintering machines." In more common terms, these are advanced 3D printers used to rapidly produce metal and plastic prototypes and other custom products from powdered raw material. A computer in the system interprets a three-dimensional mathematical model of the finished object and then directs a laser to melt the powder in a patter that corresponds to a thin layer of the finished object. When that layer is complete, the surface is recoated with powder and the laser melts the next layer of material. In this way, known as additive manufacturing, the system build up a possibly quite complex three-dimensional object.

If you want to know how this cool technology works, watch this video:

The dispute here is whether these machines are properly classified as laser welding machines of HTSUS Heading 8515, which is what the plaintiff wanted. Customs classified the machine designed to produce metal objects as a machine tool of Heading 8463 and the machine designed to produce plastic parts as machinery for manufacturing products from plastic of Heading 8477. In all cases, there was an alternative classification available in Heading 8479 as machines having individual functions not elsewhere specified in Chapter 84.

The first major issue for the Court of International Trade was to determine whether the machines perform welding as that term is used in Heading 8515. Other disputes included whether the machines "work" metal as that term is used in Heading 8463, which requires that the machine tools be for "working metal." In this context, the Court made an important statement:
The court’s analysis of whether, for tariff classification purposes, the M270 is a laser beam welding machine or machine tool and whether the P390 is a welding machine is not affected by the parties’ use of their respective, suggestive terms. Mere use of such terms does not, as a factual matter, impart the characteristics of a “welding” process or a machine tool that “works” metal. Thus, the use of those terms does not create a genuine dispute as to any fact material to the tariff classification of the subject merchandise.

What this means is that the parties' squabbles over who calls the machines what and what language individuals use to describe the product does not create a factual dispute as to the true nature of the product. In other words, the fact that the plaintiff may use the language of the favorable tariff heading to describe its product does not mean that the product has those characteristics. Similarly, the fact that Customs may chose to describe the product in ways that are more similar to its preferred heading does not actually say anything about the nature of the product. Rather, where there is objective evidence of the nature of the product, that will resolve the factual issues relating to what the merchandise actually is. Parties should remember this when pushing definitions on each other during depositions and other parts of discovery.

With respect to the definition of the word "welding," which is key to this dispute, the Court makes another important statement, this time in footnote 10:
Defendant also raises an objection to plaintiff’s proposed definition of the word “welding.” . . .  However, the scope and meaning of this term as used in the article description of heading 8515 is a question of law and therefore does not give rise to a genuine issue of material fact.

This is a signal that the parties need to recognize that the meaning of tariff terms will be sorted out by the Court based on prior court decisions, dictionaries, technical publications, and other reliable lexicographical sources as a matter of law. Again, this is a reminder to the litigants that not all disagreements raise questions of fact that merit any attention in discovery or would preclude a decision by the Court on the merits of the case. The Court makes similarly short work of disputes over the meaning of "sintering" and descriptive terms used by plaintiff including "state of the art" and "cutting edge." None of these disputes present meaningful questions because the terms are not used in the tariff headings under consideration or will be determined by the Court as a matter of law. Thus, the Court found no material issues of fact in dispute.

Turning to the legal questions, the Court first found that the M270, which is the machine designed to make parts from metal powders, is not a machine tool of Heading 8463. According to the Court, "machine tools" are machines that use tooling to shape solid work by removing material or deforming material. Based on various definitions, the Court found that machine tools perform work on solid objects rather than powders.

Defendant argued that the M270 is an advanced form of a machine tool, similar in nature to other computer driven machine tools that do not employ traditional tools. Example of this type of machine tool include electron-beam machining and laser machining. The Court, however, rejected that argument as overly broadening the meaning of "machine tool." Consequently, the Court held the M270 is not a machine tool.

The Court then turned to whether the device is a laser welding machine. On this issue, the Court looked at a number of dictionary definitions, the Explanatory Notes, and other sources to find that welding is the joining of solid surfaces through the application of heat. In the case of the EOS M270, the solid material is the individual powder particles. When heated, these particles completely melt. As a result, the Court could not find solid surfaces being joined. Consequently, the Court rejected 8515 as an applicable heading.

Having excluded the M270 from classification as welding machines and machine tools, the Court found it to be classified in heading 8479 as an other machine not described elsewhere in the Chapter. The Court provides readers with an excellent example of detailed classification work when it applies General Rule of Interpretation 6 to arrive at the appropriate tariff item for the machine.

Turning to the P390, which is the machine used to produce plastic parts, the Court finds it is squarely within the terms of 8477, which covers machines for the manufacture of products from plastics. Having found that the process employed by EOS machines is not "welding," the Court excluded 8515 from consideration. Consequently, the machine is properly classified in 8477.

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