United States Court of Appeals for the Federal Circuit
2006-1375
OPTREX AMERICA, INC.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
Steven P. Sonnenberg, Sonnenberg & Anderson, of Chicago, Illinois, argued for
plaintiff-appellant. With him on the brief was M. Jason Cunningham.
Amy M. Rubin, Attorney, International Trade Field Office, Commercial Litigation
Branch, Civil Division, United States Department of Justice, of New York, New York,
argued for defendant-appellee. With her on the brief were Peter D. Keisler, Assistant
Attorney General; and David M. Cohen, Director, of Washington, DC; and Barbara S.
Williams, Attorney in Charge, of New York, New York. Of counsel on the brief was Beth
C. Brotman, Attorney, Office of Assistant Chief Counsel, United States Customs and
Border Protection, of New York, New York.
Appealed from: United States Court of International Trade
Judge Evan J. Wallach
UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT
2006-1375
OPTREX AMERICA, INC.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee
________________________
DECIDED: February 7, 2007
_________________________
Before MAYER, SCHALL and GAJARSA, Circuit Judges.
MAYER, Circuit Judge.
Optrex America, Inc. (“Optrex”) appeals the final decision of the United States
Court of International Trade, which entered judgment in favor of the government
concerning tariff classifications following a trial. Optrex Am., Inc. v. United States, 427
F. Supp. 2d 1177 (Ct. Int’l Trade 2006). We affirm.
Background
Between 1998 and 1999, Optrex imported a variety of liquid crystal displays (or
devices) (“LCDs”) into the United States. These LCDs included (1) alphanumeric
(character) modules, (2) graphic modules, and (3) glass sandwiches (also called glass
panels). Some of these imports were sold to specific customers, while others were sold
to multiple customers or through distribution, in which case Optrex may not have known
the ultimate consumer. The trial court made findings concerning the physical
characteristics of the goods, including whether a particular LCD had permanently
etched icons and the number of characters that a character module was capable of
displaying. It also determined, where evidence was available, the end use devices in
which each import was incorporated after importation.
The United States Customs Service (“Customs”)1 liquidated the imports under
various subheadings, including 8531.20.00 and 9013.80.70, of the Harmonized Tariff
Schedule of the United States (“HTSUS”). Optrex appealed the classifications to the
Court of International Trade, and, based on information obtained during discovery,
Customs counterclaimed to reclassify certain imports under different subheadings,
including 9013.80.70, 9013.80.90, and 8537.10.90. Following a trial, judgment was
entered in favor of the government, including its counterclaims. Optrex appealed, and
we have jurisdiction under 28 U.S.C. § 1295(a)(5).
Discussion
A classification decision involves two underlying steps: determining the proper
meaning of the tariff provisions, which is a question of law reviewed de novo; and then
determining which heading the disputed goods fall within, which is a question of fact
reviewed for clear error. Universal Elecs. v. United States, 112 F.3d 488, 491 (Fed. Cir.
1997) (citing Intel Sing., Ltd. v. United States, 83 F.3d 1416, 1417-18 (Fed. Cir. 1996)).
In reviewing classifications, we accord deference to a Customs classification ruling in
1
Effective March 1, 2003, the United States Customs Service was renamed
the United States Bureau of Customs and Border Protection. Homeland Security Act of
2002, Pub. L. No. 107-296, § 1502, 116 Stat. 2135, 2308-09 (2002).
2006-1375 2
proportion to its “power to persuade” under the principles of Skidmore v. Swift & Co.,
323 U.S. 134 (1944). United States v. Mead Corp., 533 U.S. 218, 234-35 (2001); Mead
Corp. v. United States, 283 F.3d 1342, 1345-46 (Fed. Cir. 2002) (citations omitted). In
addition, “Customs’ relative expertise in administering the tariff statute often lends
further persuasiveness to a classification ruling, entitling the ruling to a greater measure
of deference.” Mead Corp., 283 F.3d at 1346.
Optrex’s primary contention on appeal is that its goods are classifiable as parts of
automatic data processing (“ADP”) machines. ADP machines are classifiable under
heading 8471, and ADP machine parts are classifiable under heading 8473. To be
classified as an ADP machine part, an import must be “suitable for use solely or
principally with” ADP machines. Heading 8473, HTSUS. ADP machines are defined
as:
Digital machines, capable of (1) storing the processing
program or programs and at least the data immediately
necessary for execution of the program; (2) being freely
programmed in accordance with the requirements of the
user; (3) performing arithmetical computations specified by
the user; and (4) and executing, without human intervention,
a processing program which requires them to modify their
execution, by logical decision during the processing run . . . .
Chapter 84, Note 5(A)(a), HTSUS. Because Optrex has failed to prove that its imports
are solely or principally incorporated into machines meeting the second and third criteria
listed above, the trial court did not clearly err in determining that they are not properly
classified as parts of ADP machines under heading 8473, nor did it err in interpreting
those requirements.
First, Optrex has not established that any of its imports are incorporated into
devices that are freely programmed in accordance with the requirements of the user.
2006-1375 3
Optrex contends that the “user” of an ADP machine is not limited to the end user or
consumer, but may also include the manufacturer. We find no support for such a
strained interpretation, as the “user” is the one who will be “using” the device, not the
one making it. Optrex also contends that Customs erred by requiring the machine to be
freely programmable, instead of mirroring the language of the chapter note, which
requires that it be capable of being freely programmed. We also reject this argument;
there is no substantive difference in the terminology.
Moreover, we agree with the interpretation given to this requirement by Customs:
“Customs believes that a freely programmable ADP machine is one that applications
can be written for, does not impose artificial limitations upon such applications, and will
accept new applications that allow the user to manipulate the data as deemed
necessary by the user.” HQ 964880 (Dec. 21, 2001) (emphasis added); accord HQ
956839 (Mar. 28, 1996); HQ 952862 (Nov. 1, 1994). This interpretation is further
supported by the World Customs Organization’s Explanatory Notes (“Explanatory
Notes”),2 which, although not controlling, may inform our analysis, Mita Copystar Am. v.
United States, 21 F.3d 1079, 1082 (Fed. Cir. 1994) (citing Lynteq, Inc. v. United States,
976 F.2d 693, 699 (Fed. Cir. 1992)). These notes provide that “machines which operate
only on fixed programs, that is programs which cannot be modified by the user, are
excluded [from heading 8471] even though the user may be able to choose between a
number of such fixed programs.” Explanatory Note 84.71(I)(A).
Having found no legal error in the interpretation of this freely programmable
requirement, we also find no factual error in the trial court’s determination that none of
2
Customs Co-operation Council, Harmonized Commodity Description and
Coding System: Explanatory Notes (2d ed. 1996) (“Explanatory Notes”).
2006-1375 4
the imported goods are solely or principally incorporated into machines meeting this
requirement. The court determined that the end use devices, with the possible
exception of computer servers, operate on fixed programs that the user cannot modify.
Optrex Am., Inc., 427 F. Supp. 2d at 1197. For instance, some of the imported LCDs
are incorporated into devices such as automotive trip odometers, desktop phones, and
photocopying machines. Such devices generally are not capable of being freely
programmed by a user, and Optrex has not established otherwise.
Optrex also failed to establish that any of its imports are incorporated solely or
principally into machines that are capable of performing arithmetical computations
specified by the user, which is required of ADP machines. The trial court correctly
interpreted this element as requiring the end user to be capable of specifying such
functions to be performed, and Optrex has failed to establish any evidence showing
clear error in the finding that the end use goods in which its imports are incorporated
satisfy this criterion.
We note one potential exception to our discussion thus far. Two imported LCD
character display modules were identified by the trial court as being incorporated in or
used with file servers. Optrex Am., Inc., 427 F. Supp. 2d at 1181. The court observed
that these servers may constitute ADP machines, which would render the imports
principally incorporated into those machines prima facie classifiable as ADP machine
parts. However, it concluded that classification under either heading 8531 or 9013
would be proper over heading 8473. Id. at 1197. This conclusion was based upon
Sharp Microelectronics Technology, Inc. v. United States, 122 F.3d 1446 (Fed. Cir.
1997), which held that heading 9013 is more specific than, and prevails over
2006-1375 5
classification in, heading 8473. Indeed, Optrex contends on appeal that its imports are
prima facie classifiable under chapter 84, 85, and 90. To the extent this argument has
any merit, Sharp dictates that none of the imports be classified under heading 8473.
Having determined that the imports were not classifiable under heading 8473, the
trial court analyzed each group of imports and classified them under either heading
8531 (signaling devices), 8537 (control panels), or 9013 (LCDs not constituting articles
provided for more specifically in other headings). We see no error. To fall under
heading 8531 as a signaling apparatus, a device must be used for signaling.3 Thus, the
trial court properly concluded that the imported graphic display modules fell within this
category, particularly subheading 8531.20.00, because they contain permanently
etched graphics and accordingly are limited in the information they can convey.4
The trial court also classified all character display modules capable of displaying
eighty or less characters as indicator panels under subheading 8531.20.00. This
classification was guided by Customs’ “80 character rule.” Under this principle,
Customs considers LCD modules capable of displaying eighty characters or less as
being operationally limited to performing signaling functions. Because Customs has
consistently applied this guideline, see HQ 960318 (Feb. 22, 1999); HQ 954638 (Dec. 2,
1993), it is due some deference, SL Serv., Inc. v. United States, 357 F.3d 1358, 1362
(Fed. Cir. 2004). Moreover, it is merely a guideline in determining whether a good is
3
If this conclusion is not obvious from the heading itself, the Explanatory
Notes further explain that “this heading covers all electrical apparatus used for signaling
purposes.” Explanatory Notes to Heading 8531.
4
The trial court also correctly classified two imported graphic display
modules as control panels under subheading 8537.10.90 because they contain touch
panels. To the extent Optrex has separately challenged this classification, we perceive
no error.
2006-1375 6
operationally limited to signaling. When properly used as a guideline, and not as a rigid
rule, we see no harm in the analysis. However, an importer should not be precluded
from establishing that a device capable of displaying more than eighty characters is
operationally limited to signaling, or that a device capable of displaying eighty
characters or less is not so operationally limited. Ultimately, the inquiry must remain
whether the device performs a signaling function. Cf. HQ 954638 (“Clearly, the instant
LCDs contain less than 80 characters, but even more importantly, the principal use of all
of the instant LCDs is that of signaling . . . .” (emphasis added)).
Regardless, Optrex has not pointed to any of its imported character display
modules exceeding eighty characters that would otherwise be operationally limited to
signaling. Thus, the trial court did not err in interpreting this heading, nor did it err in
classifying the character display modules with no more than eighty characters and the
graphic display modules as indicator panels under heading 8531. Moreover, because
these imports are classifiable under heading 8531, they are precluded from
classification under heading 9013, which is expressly limited to LCDs “not constituting
articles provided for more specifically in other headings.” Heading 9013, HTSUS.
Finally, the remaining imports consist of LCD panels (or “glass sandwiches”) and
character display modules capable of displaying more than eighty characters. Having
determined that these goods were not classifiable in the other headings asserted by
Optrex, we find no error in the trial court’s classification of these goods under heading
9013, as LCDs “not constituting articles provided for more specifically in other
headings.” Regarding the LCD panels, this classification comports with Sharp, 122 F.3d
1446, which concerned similar goods and is not distinguishable in any meaningful way.
2006-1375 7
Conclusion
Accordingly, the judgment of the United States Court of International Trade is
affirmed.
AFFIRMED
2006-1375 8