Composite Machines and Classification
One of the tricky things about classifying modern devices is that they often have more than one function. Is your smartphone a phone, a computer, a music player, or a device used primarily for whatever this is? That is the issue in McMesson Canada Corp. v. United States, in which the Court of International Trade classified a device that dispenses, packages, and labels medications in a way that helps to ensure accurate dispensing and patient compliance with medical instructions. Here is a promotional video of a related, if not the same, machine.
The machine is composed of a pill canister at the top. The lower part contains reels of plastic packing material and a printer. Based on input from the touch screen, pills are weighed on an internal scale and dispensed into plastic pouches, which are printed with patient information and a bar code. All of this is driven by Pacmed software running on a Windows computer.
This is how I envision Pacmed service technicians. And, this is why.
Customs & Border Protection classified the machines in 8479.89 as "other" machines having individual functions not specified elsewhere (2.5%). McKesson protested seeking classification in Heading 8422.40 as packing or wrapping machinery (Free).
Everything in this case starts from the premise that the Pacmed is a composite machine. That seems pretty unassailable. Note 3 to Section XVI tells us what to do with composite machines:
The question here is whether the principal function of this device is within the scope of 8422. The relevant language from that heading includes:
The Pacmed machine does not fill an existing bottle, can, box or other container. So that cannot be its primary function. That leaves "other packing or wrapping machinery including heat-shrink wrapping." Note that the Explanatory Notes clarify that these machines may also label. Is that what we have here?
Customs does not think so. The Government's argument is that all of the various functions of the machine are equally as important to the primary function, which is the distribution of medication. According to the government, in the absence of a single primary function, the classification in last numerical order is applicable under GRI 3(c). Or, in the alternative, if the principal function is distribution, there is no heading covering that and the basket provision of 8477 is correct.
The Court did not buy the Government's argument. The Court noted that many (I might guess "most") packing machines have some capacity to store and measure quantities of the product to be packaged. They also have some capacity to physically deliver the material to the package and often label the package. The Court pointed out that Customs has reached a similar conclusion in prior rulings on, for example, machinery to fill pouches with milk (NY 879640 (Nov. 17, 1992)) and machines to fill pots and trays with planting soil (NY 866831 (Sep. 19, 1991)).
There was also some debate about whether the machine dispenses medication. Apparently, the Government's position that the machine is for the distribution of medicine is bolstered by the notion that it is a dispenser and dispensing is not a function listed in 8422. I guess because that sounds more "medical" than saying the pouches drop out the front and are picked up by a human being who then takes the medicine to the patient. In reality, this machine strikes me as an ATM for drugs. By the way, ATM's are classified as "automatic bank note dispensers" of 8472. Dispensing is what packing machines do. If they did not, the machines would create lots of convenient packages that no one could ever access or distribute.
Finally, the fact that the machine incorporates and works in conjunction with automatic data processing equipment does not change the classification. Chapter 84, Note 5(E) covers that. When machines work in conjunction with computers but are designed to perform a specific function other than data processing, the correct classification is based on that function. This is why ATM machines and modern gas pumps are not classified as computers; they have perform functions other than data processing.
Based on all of this, the Court reached an interesting conclusion. Without regard to Note 3, the Pacmed is a packing machine. All of the addition operations support packing. In other words, those operations are there to facilitate packing rather than as additional separate functions.
But, just to be complete, the Court provided the Note 3 analysis and found the principal function to be packing.
That's a win for McKesson and a reminder that I need to use more Star Trek references here. Future spoiler alert, the Red Angel is Wesley Crusher. There, I have taken a controversial stance. Now I will go see Captain Marvel to the ire of internet trolls everywhere.
From McKesson
The machine is composed of a pill canister at the top. The lower part contains reels of plastic packing material and a printer. Based on input from the touch screen, pills are weighed on an internal scale and dispensed into plastic pouches, which are printed with patient information and a bar code. All of this is driven by Pacmed software running on a Windows computer.
This is how I envision Pacmed service technicians. And, this is why.
Customs & Border Protection classified the machines in 8479.89 as "other" machines having individual functions not specified elsewhere (2.5%). McKesson protested seeking classification in Heading 8422.40 as packing or wrapping machinery (Free).
Everything in this case starts from the premise that the Pacmed is a composite machine. That seems pretty unassailable. Note 3 to Section XVI tells us what to do with composite machines:
Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.Keep in mind that this Note only comes into play if there is no heading that describes all of the functions of the particular item. For example, a clock radio combines two distinct machines performing connected functions. If there were no heading that addressed both functions, the classification would be based on the principal function (which is a good discussion topic I often use in law school classes). Fortunately, 8527 covers radio receivers whether or not combined with a clock, making Note 3 inapplicable.
The question here is whether the principal function of this device is within the scope of 8422. The relevant language from that heading includes:
machinery for filling, closing, sealing or labeling bottles, cans, boxes, bags or other containers; machinery for capsuling bottles, jars, tubes and similar containers; other packing or wrapping machinery (including heat-shrink wrapping machinery)
The Pacmed machine does not fill an existing bottle, can, box or other container. So that cannot be its primary function. That leaves "other packing or wrapping machinery including heat-shrink wrapping." Note that the Explanatory Notes clarify that these machines may also label. Is that what we have here?
Customs does not think so. The Government's argument is that all of the various functions of the machine are equally as important to the primary function, which is the distribution of medication. According to the government, in the absence of a single primary function, the classification in last numerical order is applicable under GRI 3(c). Or, in the alternative, if the principal function is distribution, there is no heading covering that and the basket provision of 8477 is correct.
The Court did not buy the Government's argument. The Court noted that many (I might guess "most") packing machines have some capacity to store and measure quantities of the product to be packaged. They also have some capacity to physically deliver the material to the package and often label the package. The Court pointed out that Customs has reached a similar conclusion in prior rulings on, for example, machinery to fill pouches with milk (NY 879640 (Nov. 17, 1992)) and machines to fill pots and trays with planting soil (NY 866831 (Sep. 19, 1991)).
There was also some debate about whether the machine dispenses medication. Apparently, the Government's position that the machine is for the distribution of medicine is bolstered by the notion that it is a dispenser and dispensing is not a function listed in 8422. I guess because that sounds more "medical" than saying the pouches drop out the front and are picked up by a human being who then takes the medicine to the patient. In reality, this machine strikes me as an ATM for drugs. By the way, ATM's are classified as "automatic bank note dispensers" of 8472. Dispensing is what packing machines do. If they did not, the machines would create lots of convenient packages that no one could ever access or distribute.
Finally, the fact that the machine incorporates and works in conjunction with automatic data processing equipment does not change the classification. Chapter 84, Note 5(E) covers that. When machines work in conjunction with computers but are designed to perform a specific function other than data processing, the correct classification is based on that function. This is why ATM machines and modern gas pumps are not classified as computers; they have perform functions other than data processing.
Based on all of this, the Court reached an interesting conclusion. Without regard to Note 3, the Pacmed is a packing machine. All of the addition operations support packing. In other words, those operations are there to facilitate packing rather than as additional separate functions.
But, just to be complete, the Court provided the Note 3 analysis and found the principal function to be packing.
That's a win for McKesson and a reminder that I need to use more Star Trek references here. Future spoiler alert, the Red Angel is Wesley Crusher. There, I have taken a controversial stance. Now I will go see Captain Marvel to the ire of internet trolls everywhere.
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