Baxter Healthcare v.US

• Decision Date: 02 July 1999
• Citation: 182 F.3d 1333
• Parties: (Fed. Cir. 1999) BAXTER HEALTHCARE CORPORATION OF PUERTO RICO, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee. 98-1343 DECIDED:
• Court: U.S. Court of Appeals — Federal Circuit

Page 1333

182 F.3d 1333 (Fed. Cir. 1999)

BAXTER HEALTHCARE CORPORATION OF PUERTO RICO, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.

98-1343

United States Court of Appeals for the Federal Circuit

DECIDED: July 2, 1999

Rehearing Denied; Suggestion for Rehearing In Banc Declined: September 20, 1999

Appealed from: United States Court of International Trade

Chief Judge Gregory W. Carman

Michael E. Roll, Katten Muchin & Zavis, of Chicago, Illinois, argued for plaintiff-appellant. With him on the brief were Mark S. Zolno, and Jennifer F. Kessinger.

Barbara S. Williams, Attorney, International Trade Field Office, Department of Justice, of New York, New York, argued for defendant-appellee. With her on the brief were David M. Cohen, Director, Civil Division, Commercial Litigation Branch, Department of Justice, of Washington, DC; and Joseph I. Liebman, Attorney-in-Charge, International Trade Field Office. Of counsel on the brief was Sheryl A. French, Attorney, Office of Assistant Chief Counsel, International Trade Litigation U.S. Customs Service, New York, New York.

Before MAYER, Chief Judge, NEWMAN, and LOURIE, Circuit Judges.

Opinion for the court filed by Circuit Judge LOURIE. Dissenting opinion filed by Circuit Judge NEWMAN.

LOURIE, Circuit Judge.

Baxter Healthcare appeals from the February 24, 1998 decision of the United States Court of International Trade denying its motion for summary judgment and granting the United States' cross-motion for summary judgment that the United States Customs Service (Customs) correctly classified its imported Oxyphan(r) product under subheading 5404.10.80, Harmonized Tariff Schedule of the United States, 19 U.S.C. 1202 (1994) (HTSUS). See Baxter Healthcare Corp. of Puerto Rico v. United States, 998 F. Supp. 1133 (Ct. Int'l Trade 1998). Because we conclude that Customs correctly classified the merchandise, we affirm.

BACKGROUND

Between 1992 and 1994, Baxter bought and imported a product known as Oxyphan(r) in ten-kilometer spool units from Akzo Nobel Faser AG (Akzo) in Germany. Oxyphan(r) is a 0.4 mm-diameter polypropylene filament with a linear density greater than 67 decitex. However, it has characteristics unique among filaments in that it is hollow, it has a capillary-sized diameter, its microporous walls are gas-permeable, it has low tensile strength, and it does not undergo a drawing step during manufacturing. Akzo specifically designed Oxyphan(r) with these characteristics in mind for use as the gas-exchanging membrane of an oxygenator.¹ It has no other known use. Baxter uses Oxyphan(r) to make its Univox(r) membrane oxygenator product. To make an oxygenator, Baxter groups seven or eight lengths of Oxyphan(r), ties them together, wraps them around a cylindrical steel bellow twenty-two times, and encloses the assembly in a polycarbonate manifold with two sets of inlet and outlet ports. Each spool of Oxyphan(r) membrane contains enough membrane to make approximately four oxygenators, but the exact length of membrane required per oxygenator is not fixed. During operation, oxygen-deficient blood is pumped around the Oxyphan(r) membranes while oxygen is simultaneously pumped through the membranes. Because the membrane is gas-permeable, oxygen diffuses out of the membrane hollows into the blood, and carbon dioxide diffuses from the blood into the membrane hollows and out an exit port.

At issue in this case is Oxyphan(r)'s proper classification in the HTSUS. The parties dispute which of the following headings and subheadings constitutes the proper classification for Oxyphan(r):

5404 Synthetic monofilament of 67 decitex or more and of which no cross-sectional dimension exceeds 1 mm; strip and the like (for example, artificial straw) of synthetic textile materials of an apparent width not exceeding 5 mm:

5404.10 Monofilament:

5404.10.80 Other

9018 Instruments and appliances used in medical, surgical, dental or veterinary sciences, including scintigraphic apparatus, other electro-medical apparatus and sight-testing instruments; parts and accessories thereof:

9018.90 Other instruments and appliances and parts and accessories thereof:

Other

Electro-medical instruments and appliances and parts and accessories thereof:

9018.90.60 Electro-surgical instruments and appliances, other than extracorporeal shock wave lithotripters; all the foregoing and parts and accessories thereof

9018.90.70

Other 9019 Mechano-therapy appliances; massage apparatus; psychological aptitude-testing apparatus; ozone therapy, oxygen therapy, aerosol therapy, artificial respiration or other therapeutic respiration apparatus; parts and accessories thereof:

9019.20.00 Ozone therapy, oxygen therapy, aerosol therapy, artificial respiration or other therapeutic respiration apparatus; parts and accessories thereof

HTSUS (1994 ed.).²

Customs classified Oxyphan(r) under subheading 5404.10.80 and liquidated it at the corresponding general duty rate of 7.8% ad valorem. See Baxter, 998 F. Supp. at 1135. Baxter timely protested Customs' classification, which protest was denied. See United States Customs Service Headquarters Ruling Letter No. 950047 (Dec. 3, 1991). Baxter then challenged Customs' classification in the Court of International Trade. It asked the court to order Customs to reliquidate its Oxyphan(r) entries either under subheading 9019.20.00, as a "part" of an "artificial respiration apparatus," at the corresponding 3.7% general duty rate, or under subheading 9018.90.70, as a "part" of an "other" "electro-medical instrument or appliance," at 4.2%, and to refund the excess duty with interest. See Baxter, 998 F. Supp. at 1135. The government responded that Customs either correctly classified Oxyphan(r) under subheading 5404.10.80, or that it should have classified it under subheading 9018.90.60, as a "part" of an "electro-surgical instrument or appliance," and liquidated it at 7.9%. See id. at 1137.

Baxter and the government each cross-moved for summary judgment. See id. at 1135. The court held that Customs correctly classified Oxyphan(r) as a synthetic monofilament because it was both "synthetic" and a "monofilament" as both those terms are defined by the Notes in the HTSUS, the Explanatory Notes, several general and technical dictionaries, and Baxter's expert witnesses. See id. at 1139-45. The court in fact relied heavily on Baxter's expert witnesses. The court further reasoned that: Customs properly classified Oxyphan(r) as an independent article, not as a "part" or "unfinished part," because its use as a "part" of an oxygenator could not be discerned at the time of import and because each spool of Oxyphan(r) underwent substantial processing--cutting, intertwining with another monofilament, wrapping around a bellow, and further cutting--before it obtained the character of an oxygenator "part." See id. at 1145-49. The court rejected Baxter's argument that Customs should have classified Oxyphan(r) as a "part" of an artificial respiration apparatus for the further reason that Baxter's oxygenator did not perform the mechanical breathing function common to other artificial respiration apparatuses. See id. at 1149-50.

Baxter timely appealed to this court. We have jurisdiction pursuant to 28 U.S.C. 1295(a)(5) (1994).

DISCUSSION

A Standard of Review

We review the Court of International Trade's grant of summary judgment in a trade classification case for correctness as a matter of law, deciding de novo whether genuine issues of material fact exist. See Bauerhin Techs. Ltd. Partnership v. United States, 110 F.3d 774, 776 (Fed. Cir. 1997). Determining the meaning of a tariff term is a question of law. See Totes, Inc. v. United States, 69 F.3d 495, 498 (Fed. Cir. 1995). However, if we determine that an HTSUS provision is ambiguous and that Customs has promulgated a regulation that "fills a gap or defines a term in a way that is reasonable in light of the legislature's revealed design, we give [that] judgment 'controlling weight.'" United States v. Haggar Apparel Co., -- U.S. --, --, 119 S. Ct. 1392, 1399 (1999) (alteration in original) (quoting Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984)) (overruling prior Federal Circuit cases that failed to give Chevron deference to Customs regulations). "Determining whether a particular imported item falls within the scope of the various classifications as properly construed is a question of fact." Bauerhin, 110 F.3d at 776. Furthermore, Customs' classification determination is presumed to be correct. See 28 U.S.C. 2639(a)(1) (1994). Therefore, as the party challenging the classification, Baxter bore the burden of proof. See Totes, Inc., 69 F.2d at 498. In this case, the structure and use of Oxyphan(r) is not in dispute, and Customs has not promulgated any regulations interpreting these headings and subheadings. Our analysis concerning whether Oxyphan(r) has been properly classified only requires a determination of the proper meaning and scope of the relevant provisions and a determination of the ultimate classification.

B The Meaning and Scope of the Proposed Headings

The HTSUS consists of "(A) the General Notes; (B) the General Rules of Interpretation [GRI]; (C) the Additional U.S. Rules of Interpretation [US GRI]; (D) sections I to XXII, inclusive (encompassing chapters 1 to 99, and including all section and chapter notes, article provisions, and tariff and other treatment accorded thereto); and (E) the Chemical Appendix. . . ." See 19 U.S.C. 3004(a) (1994) (set out as a note preceding 19 U.S.C. 1201). The proper classification of all merchandise is governed by the GRI, containing rules which are applied in numerical order, and the US GRI. See, e.g., Orlando Food Corp. v. United States, 140 F.3d 1437, 1439 (Fed. Cir. 1998).

"Classification is to be determined according to the terms of the headings and any relevant section or chapter notes." GRI 1. "[A] court first construes the language of the...