CLA-2 OT:RR:CTF:TCM H236026 TNA
Mr. Chingyu Tsoi
8840 Costa Verde Blvd.
Apt. 3356
San Diego, CA 92122
Re: Revocation of NY N058455; Modification of HQ H083275; Classification of DVDs and Blu-Ray Discs
Dear Mr. Tsoi:
This letter is in reference to New York Ruling Letter (“NY”) N058455, issued to you on April 29, 2009, concerning the tariff classification of blu-ray discs with movies on them. There, U.S. Customs and Border Protection (“CBP”) classified the merchandise under subheading 8523.49.50, Harmonized Tariff Schedule of the United States (“HTSUS”), as “Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37: Optical media: Recorded optical media: Other: Other.” We have reviewed this ruling and found it to be in error.
This ruling letter also concerns HQ H083275, dated June 17, 2010, classifying similar merchandise in subheading 8523.49.40, HTSUS, of the 2010 tariff, as other recorded media capable of being manipulated by an ADP machine. Although we adhere to the conclusion set forth in HQ H083275, we have reviewed this ruling and have found its analysis to be incorrect. For the reasons set forth below, we hereby revoke NY N058455 and modify HQ H083275.
Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. §1625(c)(1)), as amended by section 623 of Title VI, notice proposing to revoke NY N058455 and modify HQ H083275 was published on January 1, 2015, in Vol. 49, No. 1, of the Customs Bulletin. CBP received no comments in response to this notice.
FACTS:
NY N058455 classified Blu-ray discs that were prerecorded with movies on them in digital form. A Blu-ray disc is an optical disc storage medium. Blu-ray discs are plastic discs that are 120 mm in diameter and 1.2 mm thick, the same size as DVDs and CDs. The format of Blu-ray discs allows their movies to be played on both televisions and computers.
Blu-ray discs also contain a comprehensive content management system designed to protect the material on the discs from piracy- i.e., the sale of unauthorized copies of pre-recorded media. This system contains three primary components: Advanced Access Content System (AACS); “BD Plus”; and ROM Mark. AACS allows the user to manage copies in an authorized and secure manner. ROM Mark embeds a unique and undetectable identifier in pre-recorded BD-ROM media such as movies, music and games. The ROM Mark is invisible to consumers and can only be mastered with equipment available to licensed BD-ROM manufacturers, essentially preventing unauthorized copies of a disc. “BD Plus”, sometimes called “BD+”, is a Blu-ray-specific content protection. Instead of preventing the discs themselves from being copied, it checks the player to see if it has been hacked and then locks down the media.
Content that is recorded on DVDs, such as movies, contain a similar system of content protection as do the subject Blu-ray discs. In addition, movies that are recorded on the subject DVDs are done so within a restricted system of licensing and authorization. Companies that seek to duplicate these movies, as well as manufacturers that produce conforming movie players that descramble the encrypted data file content, are required to obtain a license to the material. The DVDs that are duplicated in this manner are protected from further duplication by a copy prevention system encoded in the data, which protects the intellectual property rights of the studios. Furthermore, DVDs, like Blu-ray discs, are encoded in such a way so that they can only be played in certain regions of the world, as both DVDs and Blu-ray discs are formatted differently for different regions. This encryption and regional formatting have become standard features on DVDs, and are now present whether the DVDs contain motion pictures or the types of instructional videos contained on the subject DVDs.
NY N058455 classified the subject merchandise in subheading 8523.49.50, HTSUS, as “Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37: Optical media: Recorded optical media: Other: Other.” HQ H083275 classified media optical discs for Wii machines that contain Wii software in subheading 8523.49.40, HTSUS, which provides for: “Discs, tapes, solid-state non-volatile storage devices, ‘smart cards’ and other media for the recording of sound or of other phenomena, whether or not recorded…: Optical media: Recorded optical media: Other: … proprietary format recorded discs.”
ISSUE:
Do the subject Blu-ray discs and DVDs constitute proprietary format recorded discs of subheading 8523.49.40, HTSUS?
LAW AND ANALYSIS:
Classification under the Harmonized Tariff Schedule of the United States (HTSUS) is made in accordance with the General Rules of Interpretation (GRI). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRI may then be applied. GRI 6 requires that the classification of goods in the subheadings of headings shall be determined according to the terms of those subheadings, any related subheading notes and, mutatis mutandis, to the GRIs 1 through 5.
The HTSUS provisions under consideration are as follows:
8523 Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37
8523.49 Optical media:
Recorded optical media:
Other:
8523.49.40 For reproducing representations of instructions, data, sound, and image, recorded in a machine readable binary form, and capable of being manipulated or providing interactivity to a user, by means of an automatic data processing machine; proprietary format recorded discs
8523.49.50 Other
The Harmonized Commodity Description and Coding System Explanatory Notes (ENs) constitute the official interpretation of the Harmonized System. While not legally binding nor dispositive, the ENs provide a commentary on the scope of each heading of the HTSUS and are generally indicative of the proper interpretation of these headings. See T.D. 89-80, 54 Fed. Reg. 35127 (Aug. 23, 1989).
It is not in dispute that the subject merchandise is classified in heading 8523, HTSUS, as discs for the recording of sound or of other phenomena, excluding products of Chapter 37, HTSUS. It is also not in dispute that the subject merchandise is described by the terms of subheading 8523.49, HTSUS, as other optical media. Rather, the dispute is at the eight-digit level.
While we agree with the reasoning in HQ 968124, dated June 19, 2006, declining to classify such discs in subheading 8523.49.40, HTSUS, as “capable of being manipulated by an ADP machine,” we neglected to analyze possible classification, in any of CBP’s rulings of substantially similar merchandise, as “proprietary format discs” of the same subheading.
The term “proprietary format” is not defined in the tariff or the ENs. As a result, CBP is permitted to consult dictionaries and other lexicographic materials to determine the term’s common meaning. See, e.g., Lonza, Inc. v. United States, 46 F.3d 1098 (Fed. Cir. 1995). The term in question is then construed in accordance with its common and commercial meanings, which are presumed to be the same. See, e.g., Nippon Kogasku (USA), Inc. v. United States, 69 CCPA 89, 673 F.2d 380 (1982); Toyota Motor Sales, Inc. v. United States, 7 C.I.T. 178 (Ct. Int’l Trade 1984); Carl Zeiss, Inc. v. United States, 195 F.3d 1375 (Fed. Cir. 1999); Lonza, 46 F.3d 1098.
Technical sources state that:
a file format is proprietary if the mode of presentation of its data is opaque and its specification is not publicly available. Proprietary formats are developed by software companies in order to encode data produced by their applications: only the software produced by a company who owns the specification of the file format will be able to read correctly and completely the data contained in this file. Proprietary formats can be further protected through the use of patents and the owner of the patent can ask for royalties for the use or implementation of the forms in third-party’s software.
See www.openformats.org/en1.
Other lexicographic sources note that:
a file format defines the structure and type of data stored in a file… A file format also defines whether the data is stored in a plain text or binary format…. Some file formats are proprietary, while others are universal, or open formats. Proprietary file formats can only be opened by one or more related programs. For example, a compressed StuffIt X (.SITX) archive can only be opened by StuffIt Deluxe or StuffIt Expander. If you try to open a StuffIt X archive with WinZip or another file decompression tool, the file will not be recognized. Conversely, open file formats are publicly available and are recognized by multiple programs. For example, StuffIt Deluxe can also save compressed archives in a standard zipped (.ZIP) format, which can be opened by nearly all decompression utilities.
See www.techterms.com/definition/file_format. See also http://warp.povusers .org/grrr/proprietaryvideoformats.html (“closed proprietary format… means that officially they can only be played with one player (provided by the owner of the format). There exist other players which also can play them, but only using third-party hacks.”); http://en.wikipedia.org/wiki/Proprietary_format (“A proprietary format is a file format of a company, organization, or individual that contains data that is ordered and stored according to a particular encoding-scheme, designed by the company or organization to be secret, such that the decoding and interpretation of this stored data is only easily accomplished with particular software or hardware that the company itself has developed. The specification of the data encoding format is not released, or underlies non-disclosure agreements.”)
Furthermore, while courts have not examined this issue in the context of tariff classification, courts that have examined DVDs in copyright cases have studied the factors that make them proprietary format. Universal City Studios v. Reimerdes, 111 F. Supp. 2d 294 (S.D.N.Y. 2000), for example, involved the decryption of DVDs with movies on them that are substantially the same merchandise at issue here. See Universal City Studios, 111 F.Supp.2d 294, 303-304. There, the court noted that the DVDs at issue were five-inch wide disks capable of storing more than 4.7 GB of data, whose relevant application to this case was that they were used to hold full-length motion pictures in digital form. Id. at 307. In addition, they were protected by CSS, an encryption program that involved two layers. First, CSS encrypted the digital sound and graphics files on a DVD that, together, constituted a motion picture; this encryption was according to a specific encryption algorithm. Secondly, a CSS-protected DVD can only be decrypted by an appropriate decryption algorithm that employs a series of keys stored both on the DVD and the DVD player. Thus, only players and drives containing the appropriate keys are able to decrypt DVD files and thereby play movies stored on DVDs. Id. at 309-310. The technology necessary to configure DVD players and drives to play CSS-protected DVDs must be licensed to manufacturers before they can produce compliant DVD players and drives; hundreds of manufacturers in the United States and around the world have received this license. Id. at 308.
Hence, “proprietary format” is encrypted in such a way that it can only read data if the devices with which the media are used contain a decryption algorithm that is not publicly available. We note that the question of whether merchandise is “proprietary format” is not necessarily tied to the content of the merchandise, which, like the movies on the subject DVDs and Blu-Ray discs, can be copyrighted. Copyright is a form of content protection, and the tariff term at issue is “proprietary format” rather than “proprietary content.”
This characterization of “proprietary format” is consistent with descriptions found in international agreements on similar merchandise. The Ministerial Declaration on Trade in Information Technology Products (“ITA”), which was concluded in December 1996 and to which the U.S. is a party, states that specific products are covered by this agreement, wherever they are classified in the HTS. This list includes “proprietary format storage devices, including media therefore for automatic data processing machines, with or without removable media and whether magnetic, optical or other technology, including Bernouli Box, Syquest, or Zipdrive cartridge storage units.” See Ministerial Declaration on Trade in Information Technology Products, December 1996, at Annex B. The Bernouli Box, Syquest, or Zipdrive, all technologies that were prevalent at the time this agreement was signed, are storage devices whose data is stored and read in a certain way that can only be read by devices that specifically contained the algorithm to decode the data. This decoding ability was unique to these devices and therefore was not publicly available.
In the present case, the subject DVDs and Blu-ray discs contain data in the form of full-length feature films, which is encrypted in such a manner that the DVDs can only be played by a DVD player, computer, or Blu-ray player that contains the decryption algorithm to decode the data. These machines must be specifically encoded so as to be able to read the data properly. In fact, Blu-Ray discs can only be read by a Blu-Ray player. Thus, many devices, such as Wii stations or X-boxes, cannot read these discs because they lack the decryption algorithm for both Blu-Ray discs and encoded DVDs. Even most personal computers cannot play a Blu-ray disc without special software being installed. Furthermore, the encryption system is such that it is region-specific. As such, DVDs and Blu-ray discs that are formatted for use in North America could not be played in other regions of the world, as the encryption system differs abroad. DVD and Blu-ray disc players are similarly formatted with region-specific decryption algorithms whose manufacturers must be licensed in order to produce players with the algorithm on them. As a result, we find that the subject DVDs and Blu-ray discs are “proprietary format recorded discs” within the meaning of subheading 8523.49.40, HTSUS. This conclusion is consistent with Universal City Studios, supra.
These DVDs and Blu-Ray discs are in contrast to the instructional DVDs of rulings such as HQ 968124, NY N060016, dated May 20, 2009, NY N030310, dated July 9, 2008, NY N016372, dated September 12, 2007, NY N065586, dated July 15, 2009, and NY N075356, dated October 2, 2009. As imported, these instructional DVDs were not encrypted and could be played by computers and other media players regardless of whether those players contained a licensed decryption algorithm. As a result, we distinguish HQ 968124, NY N060016, NY N030310, NY N016372, NY N065586, and NY N075356 on this basis. The merchandise of these rulings were properly classified in subheading 8523.49.50, HTSUS, as other recorded optical media.
Lastly, HQ H083275 classified media optical discs containing Wii software that could only be used with Wii game consoles and not with PCs or other gaming machines as proprietary format discs of subheading 8523.49.40, HTSUS. While we affirm this classification, we modify the ruling’s reasoning. In HQ H083275, we explained why optical discs containing proprietary software were classified in heading 8523, HTSUS. However, we did not explain why, pursuant to HQ 968124, the discs did not meet the definition of “interactivity” and “capable of being manipulated” as those terms appear in subheading 8523.49.40, HTSUS. Applying the reasoning in HQ 968124, we now find that the media optical discs of HQ H083275 do not meet these terms for the same reasons that the DVDs and Blu-ray discs discussed above do not meet them. Furthermore, as stated in HQ H083275, and for the same reasons as the DVDs and Blu-ray discs discussed above meet these definitions, the subject media optical discs meet the definition of the term “proprietary” of subheading 8523.49.40, HTSUS.
HOLDING:
By application of GRI 1, the subject DVDs, Blu-ray discs, and media optical discs with Wii software are classified under heading 8523, HTSUS. They are specifically provided for under subheading 8523.49.40, HTSUS, which provides for: “Discs, tapes, solid-state non-volatile storage devices, “smart cards” and other media for the recording of sound or of other phenomena, whether or not recorded, including matrices and masters for the production of discs, but excluding products of Chapter 37: Optical media: Recorded optical media: Other:… proprietary format recorded discs.” The general, column one, rate of duty is free.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the internet at www.usitc.gov/tata/hts/.
EFFECT ON OTHER RULINGS:
NY N058455 is REVOKED.
HQ H083275 is MODIFIED with respect to its analysis, while the classification of its merchandise remains the same.
In accordance with 19 U.S.C. §1625(c), this ruling will become effective 60 days after its publication in the Customs Bulletin.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division