Friday, July 17, 2015

Tyco Re-Ignited

After having failed to convince the Court of International Trade that it had all the facts necessary to classify liquid-filled glass bulbs, Tyco is back. This time, the Court found that it had all the information needed to resolve the case. Unfortunately, Tyco did not get the result it wanted.

This case involves the liquid-filled glass bulbs you often see in fire sprinkler systems. In the event of a fire, the liquid gets hot. As it heats up, it expands. If it gets hot enough, it shatters the glass. This is useful, because the glass was holding closed a valve. Once the glass is gone and the valve opens, water sprays on the fire. A similar arrangement is used as a safety device in water heaters.

The legal question here is whether these bulbs are parts of sprinklers and water heaters in Chapter 84 or as articles of glass in Chapter 70. Tyco is arguing for Chapter 84. The problem for Tyco is that Chapter 84 includes Note 1(c), which excludes parts made of glass. To get around this limitation, Tyco argued that although the bulbs are partially of glass, they are not articles of glass because the glass is a "static" element and the liquid component is the "dynamic" element in this mechanical arrangement.

The Court of International Trade disagreed. Looking to the Explanatory Notes to Chapter 84, the Court found that the bulbs would not be "of glass" if the glass were combined with a "high proportion" of other materials or with "mechanical components" of other materials, such as a motor or pump. It turns out that the fluid in these bulbs in about 16% to 31% by weight of the total. The history of the "high proportion" language is that it relates to a similar note in Chapter 90, which was interpreted to mean that the item is "mainly" of other materials. Because the bulbs are mainly glass, the are excluded from Chapter 84.

The Court also held that the liquid is not "mechanical" within the meaning of the Note. This is a tougher call (if you ask me, which you did not). The expansion of the liquid creates physical, mechanical pressure on the glass. It is the dynamic element. The glass stands there static until it breaks. The Court did not find that similar to a motor or pump, but acknowledged that those are just examples of what might be considered mechanical. What if these devices were slightly less elegant and slightly more Rube Goldberg? If the fluid were replaced with a metal bar or spring, would the result change? It would certainly be more "mechanical," but also probably more expensive and no more effective.

Having excluded the bulbs from Chapter 84, the Court moved on to confirm the correct classification. Based on the relative values and weights, the Court found that the essential character of the bulbs is imparted by the glass. Both the glass and the liquid play a similar role in function, so that was a wash. That leaves the correct classification as 7020.00.60, which is a win for the United States.

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