IPad Covers are Not Furniture

The Court of International Trade has determined the classification of plastic Smart Covers for iPads in Apple Inc. v. United States. These are the covers in question (or similar enough for our purposes). They provide a protective and decorative cover for an iPad 2 and, through engineering magic and origami, also serve as stands for the device because Apple has not yet perfected the kickstand.

Along the way, a few interesting issues surfaced, at least in my brain.

Apple sued the U.S. government following unsuccessful protests addressing plastic and leather Smart Covers for iPads. Customs & Border Protection classified the plastic covers in 6307 as other made up articles, which are dutiable at 7%. Customs classified leather Smart Covers in 4205 as other articles of leather, which is duty free from the get go. Apple asserted that the correct classification is as an accessory to a computer in 8473 (free). CBP subsequently issued a ruling classifying the plastic Smart Covers in 3926 as other articles of plastic (5.3%).

Let's start with the procedural issue. In litigation, there needs to be something the plaintiff can ask the court to fix. In customs litigation, that is almost always (but not always always) a refund of duties, taxes, and fees paid. For the leather Smart Covers, that presented a problem. The merchandise was liquidated as duty free. There was no issue with respect to Harbor Maintenance Tax, Merchandise Processing Fee or any other tax, duty, or fee. Despite that, Apples argued that the Court should reclassify the leather Smart Covers to ensure uniformity with the classification of the plastic Smart Covers. Furthermore, if the Smart Covers are misclassified, the Census data is incorrect, causing a public harm and potentially upsetting business planning. Finally, classification of the merchandise in 4205 might lead to additional administrative expenses relating to admissibility.

The Court determined that Apple had not presented a case or controversy for decision. Apple's main contention appears to have been that different classifications for plastic and leather Smart Covers will increase compliance demands and add cost. Apple, however, did not quantify that cost. The dispute was, according to the Court, an abstract proposition in which Apple has not suffered any damages that the Court can remedy. The injuries posited by Apple were broad and non-specific. Thus, the Court did not decide the classification of the leather Smart Covers.

This raises interesting issues for future litigants. Sometimes, a classification triggers other compliance requirements such as additional paperwork. Often, such as with dumping and countervailing duties, the classification is not determinative but is used by Customs to identify merchandise that needs review. For example, if the leather Smart Covers were actually made of endangered reptile skins, Apple would need to secure appropriate documentation showing that it had complied with the U.S. requirements under CITES. Maybe there are Lacey Act or textile labeling requirements. If those costs can be quantified, and the classification really matters to the legal treatment, there might have been something for the Court to order as relief, although it seems like the relief would have to be in the form of an injunction order CBP to act consistent with the outcome. Clearly, this is one of those questions that seems legally important but will only get resolved by a motivated litigant with the right set of facts. That might be Apple. We'll have to see.

It also raises broader questions. If there is no case or controversy without a potential refund, then is the protest process futile? It certainly seems to have been futile for Apple with respect to the leather Smart Covers. Does that mean that Apple could pursue this same issue through a different kind of case? Specifically, in customs matters, where a protest is futile, plaintiffs can often proceed in the Court of International Trade on the basis of the 28 U.S.C. 1581(i), which provides the Court with "residual jurisdiction." The remedy, again, would seem to be an injunction requiring classification. This is theoretical as the plaintiff would still need to show both injury and that there can be a judicial remedy.

Regarding the plastic Smart Cover, Apple wanted the merchandise classified in 8473 as an accessory to a machine of 8471, in this case an iPad, which is classifiable in 8471. The full language is:

Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of headings 8470 to 8472

Looking to dictionary definitions, the Court found that an "accessory" is an item that is related directly to some other item but serves a secondary or subordinate functions to the thing being accessorized. The Smart Cover is clearly that. It is designed specifically for the iPad and provides subordinate functionality including acting as a stand, providing protection, and cleaning the display.

Unfortunately, 8473 specifically excludes "covers, carrying cases, and the like." On this front, the Court again turned to dictionaries. Among the relevant definitions of "cover" are "a protective overlay" and "an overlay or outer layer, especially for protection."
The Explanatory Notes provide the following guidance:

But the heading excludes covers, carrying cases and felt pads; these are classified in their appropriate headings. It also excludes articles of furniture (e.g., cupboards and tables) whether or not specially designed for office use (heading 94.03). However, stands for machines of headings 84.70 to 84.72 not normally usable except with the machines in question, remain in this heading.

The exclusion of covers is consistent with the tariff heading language. The next two sentences, on the other hand, are problematic. First, we learn that articles of furniture are excluded even when specially designed for office use. The third sentence is the complicated one. It indicates that stands for computers of 8471 that are not normally usable with other devices remain classifiable as accessories to the machine. The Smart Cover is a stand. Does that resolve this in Apple's favor?

Not according to the Court, which reads the last sentence as a limitation on the second. In other words, the only stands that remain are stands that are also furniture. I gather that is the meaning taken from the conjunction "However," which joins the ideas. It makes the "stands" exception a limitation on the kind of furniture that is excluded from the heading. These stands, which do not rest on the floor or get affixed to a wall are not furniture and, therefore, are not exempted from the exclusion.

Another way to read the third sentence is a separate thought the meaning of which is that stands dedicated to use with a computer (whether or not they are also furniture) remain classified in 8473. The problem with that reading, as the Court sees it, is that it eliminates the need for the second sentence. The drafters could have just tossed "furniture" into the first sentence's list of exclusions. I guess that is true. There might be a better way to draft that, but I also think the third sentence can "stand" on its own.

Heading 6307 covers other made up articles of textile. This seems an incongruous possibility for what are described as "plastic Smart Covers." However, the products have a microfiber (i.e., "textile") lining that is in contact with the screen when the cover is closed. The lining provides functionality in that it buffs the screen clean of finger prints.

In addition to the plastic outer layer and the textile interior, the Smart Cover is composed of magnets and aluminum hinges. As a result, the Court could not classify it as either plastic or textile on the basis of GRI 1. Instead, the Court moved on to look for the essential character of the item pursuant to GRI 3(b).

The Court noted that the plastic provides the protective outer layer to which the textile is attached. The plastic also provides the base to which the hinges and magnets are attached. Finally, the plastic is the rigid part that allows the cover [l'm calling it a cover now] to act as a stand, but not as a stand that is furniture. Accordingly, the plastic provides the essential character, making 3926.99.90 the correct classification for plastic Apple Smart Covers, but not for leather ones.

I thought I would jump off from this to a discussion of the Microsoft Type Cover, which is a similar cover that incorporates a keyboard but does not function as a stand. But, this post is long enough and I am typing in a very uncomfortable plane seat. So, here is my quick and dirty analysis. There appear to be no rulings from CBP on this item. It seems clear that it is a composite good consisting  of a textile cover, internal bits and a fully functional keyboard. Without the benefit of facts or research, it strikes me that users buy these for the keyboard functionality. The keyboard is also the "active" part and is composed of numerous parts. The keyboard, therefore, should impart the essential character. That lands us at the duty free conclusion of 8471.60.20.