Getting Smart on Classification

 Plexus Corp. v. United States is a decision of the U.S. Court of International Trade in which the Court denied cross motions for summary judgment on the tariff classification of printed circuit board assemblies and chassis imported by Plexus for use in encoders, multiplexers, and remultiplexers. These devices are used to compress audio and video digital data, including voice so that it takes up less digital storage space and transmission bandwidth. While not technically required to successfully transmit data in networks, these devices make it cost effective to do so in a cost-effective manner, which is SMART. The compressed output can be viewed on computers, smartphones, television screens and other devices.

The classification of the PCBA and chassis that are parts of the encoders, multiplexes, and remultiplexers are classified based on the classification of the devices of which they are parts. Henceforth, unless there is a reason to differentiate, I am going to refer to all three of these devices as "encoders." The relevant headings are 8517 and 8529, which requires understanding the scope of 8525.

8517 Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network) other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528; and parts thereof

8517.70    Parts

8525 Transmission apparatus of radio-broadcasting or television, whether or not incorporating reception apparatus or sound recording or reproducing apparatus or sound recording or reproducing apparatus; television cameras, digital cameras and video camera recorders . . . .

 8529 Parts suitable for use solely or principally with the apparatus of headings 8525 to 8528:

8528.90    Other: Printed Circuit Assemblies: Of television apparatus:

8528.90.13    Other

                        Of radar, radio navigational aid or radio remote control apparatus

8528.90.83    Other

Plexus argued that the parts are classifiable in 8517.70.00 because the encoders apparatus for the transmission or reception of voice, images, or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network). According to Plexus, 8525 covers apparatus that transmit the radio or television signal while 8517 covers equipment that supports transmission but does not actually transmit. The latter would appear to cover the encoders. 

The Government, as you might image, disagreed. It took the position that so long as the data did not remain on the encoder forever, it was being "transmitted." The encoder, in this view, is a station along the transmission route. 


Getting from this general statement of positions to a conclusion to this matter is a long (and still incomplete walk). The Court identified six discrete issues involving the definition of key terms, whether either heading is a principal use classification, the possible impact of the Explanatory Notes to Heading 8517, and others. I am not going to be able to summarize all of that here. You should read the full opinion. Would you believe it is 52 pages long? So, I will hit the highlights that may be relevant to the professional classifiers out there.

First, this case is a good reminder that when the tariff schedule does not define a term, the Court is required to determine the common and commercial meaning. It can do that by looking to dictionary definitions, other authoritative sources (including prior Court decisions), and its own understanding of the term. Doing so, the Court found that "transmission" refers to sending a signal from one location to another. It also found that an apparatus is a device, instrument appliance used for a particular purpose or a given end. 

Next, the Court had to construe Explanatory Note (A) to Heading 8525 to determine whether "transmission apparatus" is limited to actual transmitters of signals or has a broader meaning. The EN states that the group of items "includes," among other things transmitters and relay apparatus. The Government asked the Court to read this list using the legal principal ejusdem generis, which states that when a list is followed by a general term, the list should be interpreted to include only items that are of the same class as the listed items. You see this all the time in headings that cover a list of specific things "and similar articles." In those cases, the scope of the heading includes articles that are similar to the listed items. If applicable here, 8528 would be limited to transmitters and relays and similar items. 

But, ejusdem generis, is not applicable. The EN does not include a list followed by a general term. Instead, it starts with "including," which indicates that the list is not exclusive. There is no general term at the end. Thus, 8528 is not limited to transmitters and relays.

Next on the classification hit parade is the question of whether either of these headings is a use provision. The answer is clearly affirmative for 8529, which covers parts "suitable for use solely or principally with the apparatus of headings 8525 to 8528." Plaintiff admits that the encoders are used in television broadcasting, but argues that they are also used in other applications. Importantly, Plexus did not present evidence of what use is the most common use in the U.S. When trying to classify goods in a use provision, remember that the question is not how the importer or the importer's customers use the products. The question is the most common use in the U.S. of merchandise of the same class or kind. The Court found there to be a genuine question of fact as to the principal use (as opposed to CHIEF use) of this merchandise. Spoiler: that is not good for a lawyer hoping to avoid a trial.

Next up is what to do about a prior CBP ruling on a similar product in which Customs adopted the theory that any equipment that lies in the path of transmission belongs in 8525 as transmission apparatus for radio or television. The question presented is whether the Court should treat this is a persuasive authority or relegate it to its own CONE OF SILENCE. This is an important point in classification litigation. The Court of International Trade is not bound by CBP's decisions. But, it is not allowed to ignore them. Rather, under the Supreme Court decision in United States v. Mead Corp., the Court has to look and see whether the prior ruling is persuasive enough to deserve deference. That requires the Court to look at whether the ruling or rulings are logical, consistent, and thorough. If so, the Court can give them due weight and consideration. As one Judge has summed it up, if the ruling is persuasive it can persuade the Court. In that light, the whole deference question has caused less KAOS  than many (including me) expected.

In this case, the Court found that the ruling letters, on the whole, support a consistent application of the transmission path theory of classifying this merchandise. But, because other questions remain, the Court reserved judgment on the issue.

The last bit for discussion is whether a 1972 decision from the Court of Customs and Patent Appeals (now the Federal Circuit) construing television transmission equipment under the old Tariff Schedule of the United States informs the outcome here. The Federal Circuit has said that TSUS decisions do not CONTROL the interpretation of the HTSU but may be instructive, which is exactly what the Court of International Trade held.

With all of that cleared up, the Court tried to put the pieces together to classify the merchandise. Because Heading 8517 expressly excludes goods of Heading 8525, the question is whether the encoders are goods of 8525. Unfortunately, there are open questions of fact as to whether this merchandise is classifiable in 8525. In other words, Plaintiff MISSED IT BY THAT MUCH. The main question seems to be whether the encoders are principally used for television as opposed to another application such as video conferencing. That issue, and the final resolution is going to require a trial. So, watch this space.

Which brings us to the SHOE PHONE. As is his wont, Judge Reif tied the decision to a pop culture reference. This time it was the shoe phone of bumbling CONTROL Agent 86, Maxwell Smart, which is, I guess, a radio transmission device and, therefore, apropos to the discussion.

And that takes care of the 2020 backlog. Here's hoping I can stay on top of this better in 2021.

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