Friday, August 02, 2013

Next: La Crosse Technology or "The Return of Oscar Outlook"

When we last left Oscar Outlook, mascot of La Crosse Technology, the United States Court of International Trade determined that several combinations of meteorological instruments and clocks had the essential character of clocks or various weather related instruments for purposes of tariff classification and were not properly classifiable as meteorological instruments. Now we have the Court of Appeals for the Federal Circuit stating its disagreement with that determination.

As background, the Federal Circuit stated that all of the devices at issue in the appeal include  wireless instruments to measure outdoor conditions and a base unit to measure indoor conditions. The devices have an LCD display, a barometer, and a microprocessor. The processor is programmed to analyze historical barometric readings and predict the weather. The forecast shows up on our friend Oscar Outlook in the form of his clothing. And, it is important to note, they all include a clock.

The first issue here was whether this case can be decided on the basis of General Rule of Interpretation 1, which states in relevant part that "classification shall be determined according to the terms of the headings and any relative section or chapter notes . . . ." According to La Crosse, Heading 9015 covering meteorological appliance is sufficiently broad to cover all of the products without resort to any other rules of interpretation. The Court, however, determined that this undervalues the contribution of the clock. Because Heading 9015 does not cover clocks and clocks are "substantially in excess" of the features of the articles in Heading 9015, the Court moved on to General Rule of Interpretation 3(b).



Rule 3(b) addresses composite goods. A composite good is an article composed of two or more dissimilar articles. Imagine a teddy bear with a corn popper in its belly and you will have an idea of what is happening in General Rule of Interpretation 3(b). The rule states:

Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable


According to the Federal Circuit, all of the devices in question monitor weather conditions and provide forecasts. These are not features performed by clocks. In addition, the weather functions add significant cost over the clocks alone. Consequently, the Court found the essential character to be imparted by the meteorological capabilities.

This did not resolve the matter. At this point, all we know for sure is that the merchandise is not clocks. There were still two competing headings: Heading 9015 covering meteorological appliances not covered elsewhere and 9025 covering thermometers, barometers, hygrometers, etc. and combinations thereof. Because of the weather forecasting capabilities of the devices, the Court of Appeals reversed the Court of International Trade and held that the goods are properly classified in 9015.80.80. According to the Court, "[T]he forecasting feature is central to the devices at issue and takes the devices at issue out of the narrow scope of instruments described by 9025, and into the broader category of meteorological devices described by Heading 9015, and more specifically by subheading 9015.80.80."

Dissenting Circuit Judge Bryson had a different and important take on the clock issue. He agreed with much of the analysis and, in particular, that this is a GRI 3(b) case involving composite goods. Where Judge Bryson differed was on the determination of essential character. He noted that the so-called "clock models" had very prominent clock features including alarms, calendars, and the ability to project the time onto walls. Also, the clocks were advertised as such.

According to Judge Bryson, when the Court of International Trade determined that these models had the essential character of clocks, it made a factual determination. To reverse a finding of fact, a federal court of appeals must find that the lower court committed clear error. Judge Bryson did not find clear error in the decision of the Court of International Trade and, therefore, would not have reversed.



 


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