Optrex America, Inc. v. U.S.

• Decision Date: 07 February 2007
• Docket Number: No. 2006-1375.,2006-1375.
• Citation: 475 F.3d 1367
• Parties: OPTREX AMERICA, INC., Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

475 F.3d 1367

OPTREX AMERICA, INC., Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee.

No. 2006-1375.

United States Court of Appeals, Federal Circuit.

February 7, 2007.

Steven P. Sonnenberg, Sonnenberg & Anderson, of Chicago, IL, 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, NY, 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.

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 proportion to its "power to persuade" under the principles of Skidmore v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161, 89 L.Ed. 124 (1944). United States v. Mead Corp., 533 U.S. 218, 234-35, 121 S.Ct. 2164, 150 L.Ed.2d 292 (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. 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 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...