Apple Inc. v. United States

• Decision Date: 02 July 2020
• Docket Number: 2019-1869
• Citation: 964 F.3d 1087
• Parties: APPLE INC., Plaintiff-Appellant v. UNITED STATES, Defendant-Appellee
• Court: U.S. Court of Appeals — Federal Circuit

964 F.3d 1087

APPLE INC., Plaintiff-Appellant

v.UNITED STATES, Defendant-Appellee

2019-1869

United States Court of Appeals, Federal Circuit.

Decided: July 2, 2020

Catherine Emily Stetson, Hogan Lovells US LLP, Washington, DC, for plaintiff-appellant. Also represented by Craig A. Lewis, Michael West; James Edward Ransdell, IV, David Phillips Sanders, Cassidy Levy Kent USA LLP, Washington, DC.

Beverly A. Farrell, International Trade Field Office, Commercial Litigation Branch, Civil Division, United States Department of Justice, New York, NY, for defendant-appellee. Also represented by Justin Reinhart Miller ; Joseph H. Hunt, Jeanne Davidson, Washington, DC; Paula S. Smith, Office of the Assistant Chief Counsel, United States Bureau of Customs and Border Protection, United States Department of Homeland Security, New York, NY.

Before Newman, Dyk, and Wallach, Circuit Judges.

Wallach, Circuit Judge.

Appellant Apple Inc. ("Apple") filed suit against Appellee United States ("the Government") in the U.S. Court of International Trade ("CIT"), challenging U.S. Customs and Border Protection's ("Customs") classification of Apple's iPad 2 Smart Cover ("Smart Cover"), model number MC939LL/A, under Harmonized Tariff Schedule of the United States ("HTSUS") Subheading 6307.90.98.¹ Apple and the Government filed cross-motions for summary judgment, with Apple contending that its subject merchandise is properly classified under HTSUS Subheading 8473.30.51, duty free, and the Government contending that Apple's subject merchandise is properly classified under HTSUS Subheading 3926.90.99, at a duty rate of 5.3 percent ad valorem. The CIT denied Apple's Cross-Motion and granted the Government's, concluding, inter alia, that the subject merchandise was properly classified under HTSUS Subheading 3926.90.99. Apple Inc. v. United States , 375 F. Supp. 3d 1288, 1305 (Ct. Int'l Trade 2019) ; see J.A. 1 (Judgment).

Apple appeals. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(5). We affirm.

BACKGROUND

I. The Subject Merchandise

This appeal involves a single entry of merchandise, made by Apple "at the port of San Francisco International Airport, San Francisco, California on January 28, 2011." Apple , 375 F. Supp. 3d at 1295 (citation omitted).² The entry consisted of two models of the Smart Cover, which "differ[ed] as to their outer layer," with one made of leather and the other "composed of plastic." Id. (citation omitted). Only the classification of the Smart Cover with plastic outer layer, model number MC939LL/A, remains at issue on appeal. See Appellant's Br. 4; Appellee's Br. 2.³

The Smart Cover is a "thin, durable cover" designed for exclusive use with the iPad 2. J.A. 164; see J.A. 306–07 (Apple stipulating that the Smart Cover is described as a "computer cover" in commercial invoices); see also Apple , 375 F. Supp. 3d at 1295 (providing that the Smart Cover is "sized to fit directly and precisely over the screen of an iPad 2").⁴ The Smart Cover is "rectangular in shape" and "is constructed of [four] rectangular panels" that may be "fold[ed] ... into a [triangular] ‘stand’ position" for viewing the iPad's screen. Apple , 375 F. Supp. 3d at 1295–96 ; see J.A. 71 (Apple expert declaration, explaining that the Smart Cover consists of "four panels" that may be folded to function as both a cover and a stand), 78–79 (advertising materials with images of the Smart Cover "fold[ed] into ... [a] stand"), 164 (advertising materials, explaining that the "Smart Cover does double duty as a ... stand"). Its exterior "is composed of plastic," Apple , 375 F. Supp. 3d at 1295 n.8 ; see id. (noting that Apple avers that the exterior is, more specifically, "comprised of polyethylene and polyurethane"), with interior microfiber lining to clean the iPad 2's screen, id. at 1296, and "an aluminum hinge" spine, id. at 1295. "The Smart Cover aligns with" and "attache[s] to the iPad 2" by means of "magnets that are integrated into the edge of the iPad 2 and the Smart Cover's spine." Id. ; see J.A. 80 (advertising materials, explaining that magnets within the iPad 2 "align ... with the Smart Cover hinge" and that "magnets inside the Smart Cover help it stay put"). The iPad 2 contains a sensor such that, "when the Smart Cover is closed, the iPad 2 automatically enters sleep mode, and when it is open, the iPad 2 [automatically] turns on[.]" Apple , 375 F. Supp. 3d at 1296 ; see J.A. 80 (similar).

II. Procedural History

In July 2011, Customs liquidated the plastic Smart Covers under HTSUS Subheading 6307.90.98, at a duty rate of 7 percent ad valorem . Apple , 375 F. Supp. 3d at 1295 ; see HTSUS Subheading 6307.90.98 (covering "Other made up articles, including dress patterns: Other: Other"). Apple filed a protest of this action, asserting that the Smart Cover should have been classified under HTSUS Subheading 8473.30.51, duty free. Apple , 375 F. Supp. 3d at 1294 ; see 19 U.S.C. § 1514 (providing that an importer may protest to Customs "the classification and rate and amount of duties chargeable" on an entry); HTSUS 8473.30.51 (covering "Parts and accessories (other than covers, carrying cases and the like) suitable for use solely or principally with machines of headings 8469 to 8472: Parts and accessories of the machines of heading 8471: Other"). In October 2012, Customs issued ruling HQ H216396, "address[ing] the proper classification" of two different Smart Cover models "materially similar" to, but not the same as that at issue here. Apple , 375 F. Supp. 3d at 1293–94 ; see J.A. 55 (HQ H216396) (addressing Smart Cover model nos. MS309/LLA and MD301/LLA, with plastic and leather exteriors, respectively). HQ H216396 "rejected [Apple's] position" that Smart Covers "are classifiable under [HTSUS] [H]eading 8473" and "ruled that the plastic iPad Smart Cover is properly classified under [HTSUS] [S]ubheading 3926.90.99," at a duty rate of 5.3 percent ad valorem. Apple , 375 F. Supp. 3d at 1294 ; see HTSUS Subheading 3926.90.99 (covering "Other articles of plastics and articles of other materials of headings 3901 to 3914: Other: Other"); see also J.A. 61 (HQ H216396). In January 2013, Customs denied Apple's protest. Apple , 375 F. Supp. 3d at 1293 ; see 19 U.S.C. § 1515 (providing Customs with the authority to review protests made under 19 U.S.C. § 1514 ).

In July 2013, Apple filed a summons and complaint before the CIT, contesting Customs’ denial of Apple's protest. Apple , 375 F. Supp. 3d at 1294 ; see 28 U.S.C. § 1581(a) (giving the CIT "exclusive jurisdiction of any civil action commenced to contest the denial of a protest, in whole or in part, under [ 19 U.S.C. § 1515 ]"). The parties cross-moved for summary judgment. Apple , 375 F. Supp. 3d at 1292. Apple continued to argue for classification of its merchandise under HTSUS Subheading 8473.30.51, duty free. Id . The Government sought classification of Apple's merchandise under HTSUS Subheading 3926.90.99, in keeping with HQ H216396, rather than HTSUS Subheading 6307.90.98, under which Customs had originally liquidated the plastic Smart Covers. Id. at 1292–93.

The CIT concluded that the plastic Smart Covers "are properly classifiable within [HTSUS] [S]ubheading 3926.90.99." Id. at 1305. The CIT reasoned that, because HTSUS Subheading 8473.30.51 expressly excludes accessories that are "covers, carrying cases and the like," id. at 1300, and Apple's Smart Cover was, undisputedly, an accessory, but also a cover, the Smart Cover could not be properly classified under HTSUS Subheading 8473.30.51, id. at 1303. The CIT then concluded that, while the Smart Cover is a "composite good," composed of, inter alia, a "plastic outer layer," "a microfiber lining, an aluminum hinge, and magnets," "[t]he plastic outer layer of the Smart Cover gives the merchandise its essential character," such that the plastic Smart Cover is properly classifiable under HTSUS Subheading 3926.90.99. Id. at 1304.

DISCUSSION

I. Standard of Review and Legal Framework

The CIT "grant[s] summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." U.S. Ct. Int'l Trade R. 56(a). We review the CIT's grant of summary judgment de novo, applying "the same standard employed by the [CIT] in assessing Customs’ classification determinations." Otter Prods., LLC v. United States , 834 F.3d 1369, 1374–75 (Fed. Cir. 2016) (internal citation omitted). "[W]e give great weight to the informed opinion of the CIT and it is nearly always the starting point of our analysis." Schlumberger Tech. Corp. v. United States , 845 F.3d 1158, 1162 (Fed. Cir. 2017) (internal quotation marks, alterations, and citation omitted).

"The classification of merchandise involves a two-step inquiry." ADC Telecomms., Inc. v. United States , 916 F.3d 1013, 1017 (Fed. Cir. 2019). First, we "determin[e] the proper meaning" of the terms within the relevant tariff provision, "which is a question of law," and, second, we determine whether the subject merchandise "falls within" those terms, "which is a question of fact." Sigma-Tau Health Sci., Inc. v. United States , 838 F.3d 1272, 1276 (Fed. Cir. 2016). "The first step presents a question of law that we review de novo, whereas the second involves an issue of fact that we review for clear error." Schlumberger , 845 F.3d at 1162. "Where, as here, no genuine dispute exists as to the nature of the subject merchandise, the two-step inquiry collapses into a question of law we review de novo." ADC , 916 F.3d at 1017 (internal quotation marks and citation omitted).

The HTSUS governs the classification of merchandise imported into the United States. See Wilton Indus., Inc. v. United States , 741 F.3d 1263, 1266 (Fed. Cir. 2013). The HTSUS is "considered ... [a] statutory provision[ ] of law for all purposes." 19 U.S.C. § 3004(c)(1) ; see Chemtall, Inc. v. United States , 878 F.3d 1012, 1026 (Fed. Cir. 2017) (explaining that "the tenth-digit statistical suffixes ... are...