Thank You, Otterbox

Etiketler : Classification Customs Law False Claims Act Protests Value
As previously discussed, the tariff classification of plastic cases for mobile phones, tablets, and similar electronic devices has been subject to much dispute. Customs and Border Protection has long held that they are usually, but not always, classified in Heading 4202 as if they are trunks, attaché cases, or musical instrument cases. I previously explained, in a fair amount of detail, why I think this is wrong. Turns out, barring interventions from the Court of Appeals, that I was right. Being right is a circumstance that always makes me happy.

In a thorough and thoroughly well reasoned decision, the Court of International Trade has decided that cases for iPhones and similar products imported by Otter Products ("Otterbox") are not classified in Heading 4202. Rather, they are articles of plastic in Heading 3926.

Customs had classified the goods in 4202 on the basis of Note 2(m) to Chapter 39, which excludes from Chapter 39 "containers" of Heading 4202. The primary question, therefore, is whether the cases are containers of 4202. Specifically, to be excluded from 3926, the containers would have to be "similar" to the exemplars in the first clause of Heading 4202, including "[t]runks, suitcases, vanity cases, attaché cases, briefcases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers." To do that, the cases would have to have the same essential characteristics and purposes that unite all of the items in the list. According to prior court decisions, that means that the cases must be useful for organizing, storing, protecting, and carrying the contents of the case.

Before jumping into an analysis of those four factors, the Court of International Trade took the wise step of looking at the bigger picture. Are these cases even "containers?" If not, they cannot be similar containers.

The government proposed various definitions of "container" as things that contain or enclose other things. These definitions included examples such as boxes, crates, and jars. While the list of examples is not complete or dispositive, it does illustrate the nature of a container as something that completely encloses an article in a way that makes it inaccessible without some effort to open the container. That is not true for an iPhone case. When fully "encased," the iPhone remains completely accessible and useful to the owner. That is important. An iPhone in an Otterbox case is not "put away" like dried beans in a can or dirty socks in a suitcase. I cannot wear my socks (clean or dirty) when they are in a trunk. I cannot read my newspaper when it is in my attaché case. Thus, an iPhone case is not a container.

It seems to me that the Court might have stopped there. If these cases are not containers, they are not "similar containers." But, to avoid any confusion for later proceedings, the Court analyzed the four factor test as well. On that front, both parties agreed that the cases at issue "protect" the electronic devices. That is not disputed.

But, the cases do not provide any organizational functionality at all. There is no organizational difference between your phone in a case and your naked phone. You can lose it just as easily and the cases do not facilitate holding any other items with the phone. "Organization" is the act of putting more than one item in some kind of useful order. These cases do not do that.

Nor are they useful for storing the phone or other device. To "store" something is to put it away for later use. These cases are designed to permit use while inside the case. Thus, they are not for storage.

Regarding the feature of "carrying" the contents of the case, the Court noted evidence that some of the cases included a belt clip for the fashion impaired. While the belt clip may facilitate carrying the phone, it is not always used. Further, and this is my thought, the phone continues to be fully functional while clipped to a belt. In fact, it is there so that the owner can get a call, possibly from a stylist or from Steve Urkel. This was not an important factor.

What was important is that the function of continuing to be fully functional while inside the case is inconsistent with all of the exemplars in Heading 4202. That divergent functionality separates the electronic cases from containers of 4202, some inconsistent Customs rulings notwithstanding.

That's that. A thorough, thoughtful, and to my way of thinking, correct analysis of the tariff classification of plastic electronic cases.

There is a second and also interesting point in this case.

The protests in this case were addressed to the classification question. In Court, the plaintiff sought a refund based on the change in tariff classification applied to the full value of the merchandise including an assist voluntarily disclosed after the time of entry. I suspect, but do not know for certain that this disclosure relates to the False Claims Act case involving Otter Products. According to the government, because the assist was voluntarily paid, it was not a "charge or exaction" subject to protest.

The Court started with the proposition that because CBP must liquidate an entry at the correct classification by applying the corresponding rate of duty to the correct value, a protest of the classification applied at liquidation necessarily requires a determination of the correct value to be applied to the rate of duty. That makes perfect sense. When CBP refunds the overpaid duties as a result of the change in classification, it should refund all of the excess duties paid. That necessarily includes the duty on the disclosed assist. Customs will presumably keep that portion of duty owed on the assist at the lower rate of duty. The issue here is not that Otterbox is disputing the appraised value of the merchandise. The issue is that any refund should be calculated on the undisputed value of the merchandise, which includes the assist.

Nice work Otterbox. High five.