OT:RR:CTF:VS: H284617 JMV
David E. Fletcher, Esq.
Cooley LLP
1299 Pennsylvania Avenue, NW Suite 700
Washington, DC 20004-2400
RE: U.S. Government Procurement; Title III, Trade Agreements Act of 1979 (19 U.S.C. § 2511); Subpart B, Part 177, CBP Regulations; Tablet Computers, Health Mobile and Hub Platforms
Dear Mr. Fletcher,
This is in response to your letter of March 21, 2017, on behalf of Care Innovations requesting a final determination concerning the country of origin of a product that you refer to as “the Hub Platform and the Mobile Platform,” pursuant to subpart B of Part 177, U.S. Customs and Border Protection (CBP) Regulations (19 C.F.R. § 177.21, et seq.). You state in your letter that this request is being made pursuant to a letter from the Department of Veterans Affairs (VA) to Care Innovations requiring the filing of a request for a country of origin determination from CBP.
As a domestic importer of merchandise, Care Innovations is a party-at-interest within the meaning of 19 C.F.R. § 177.22(d)(1) and is entitled to request this final determination.
FACTS:
The products at issue are referred to as the Hub Platform and the Mobile Platform. The Hub Platform is a home based platform that operates via Plain Old Telephone Systems (“POTS”), while the Mobile Platform is a handheld platform with wireless connectivity. Both platforms begin as iPad tablet computers that are produced by Apple in China, which are later encased with protective cases that are also manufactured in China. The tablet is designed for use by patients at home to collect health data that is measured by other peripheral devices such as blood pressure monitors, spirometer etc. These other devices are not imported with the tablet.
After the tablets are imported into the United States, Care Innovations performs additional production steps in its Roseville, California facility to create the Hub Platform and Mobile Platform. Care Innovations installs the Health Harmony Mobile software on the tablet computers, adds a Subscriber Identity Module (“SIM”) card supplied by the cellular service provider, and packages the tablets in the protective cases. For the Hub Platform, which runs on POTS, Care Innovations attaches a POTS modem and router, manufactured in the United States with imported components. For both the Hub Platform and the Mobile Platform, Care Innovations installs the Airwatch Mobile Device Manager application, which removes the functionality usually available on an Apple iPad Mini tablet so that the user will only be able to run the Health Harmony Mobile software. The end result is a tablet locked into “single app mode,” running only the Health Harmony application functionality and Bluetooth linked peripheral screens.
Care Innovations also adds physical asset tags to each tablet and registers them on Care Innovation’s Mobile Device Management server; registers component details in the customer database; and verifies and documents the testing of the image and registered software. Care Innovations then packages the Hub Platform and Mobile Platform with the necessary licenses, privacy notices, and quick start guides. Finally, Care Innovations activates the platforms’ features and prepares the platforms to be assigned to a specific end user.
ISSUE:
Whether the imported tablets are substantially transformed by the installation of Care Innovations’ software, so as to make them a product of the United States.
LAW AND ANALYSIS:
CBP issues country of origin advisory rulings and final determinations as to whether an article is or would be a product of a designated country or instrumentality for the purposes of granting waivers of certain “Buy American” restrictions in U.S. law or practice for products offered for sale to the U.S. Government, pursuant to subpart B of Part 177, 19 C.F.R. § 177.21 et seq., which implements Title III of the Trade Agreements Act of 1979, as amended (19 U.S.C. § 2511 et seq.).
Under the rule of origin set forth under 19 U.S.C. § 2518(4)(B):
An article is a product of a country or instrumentality only if (i) it is wholly the growth, product, or manufacture of that country or instrumentality, or (ii) in the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed.
See also 19 C.F.R. § 177.22(a).
In rendering final determinations for purposes of U.S. Government procurement, CBP applies the provisions of subpart B of Part 177 consistent with the Federal Procurement Regulations. See 19 C.F.R. § 177.21. In this regard, CBP recognizes that the Federal Acquisition Regulations restrict the U.S. Government's purchase of products to U.S.-made or designated country end products for acquisitions subject to the Trade Agreements Act. See 48 C.F.R. § 25.403(c)(1). The Federal Acquisition Regulations define “U.S.-made end product” as “an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed.” See 48 C.F.R § 25.003.
In Data General v. United States, 4 C.I.T. 182 (1982), the court determined that the programming of a foreign PROM (Programmable Read-Only Memory chip) in the United States substantially transformed the PROM into a U.S. article. In the United States, the programming bestowed upon each integrated circuit its electronic function, that is, its “memory” which could be retrieved. A distinct physical change was effected in the PROM by the opening or closing of the fuses, depending on the method of programming. The essence of the article, its interconnections or stored memory, was established by programming. See also, Texas Instruments v. United States, 681 F.2d 778, 782 (CCPA 1982) (stating the substantial transformation issue is a “mixed question of technology and customs law”); HQ 735027, dated September 7, 1993 (programming blank media (EEPROM) with instructions that allow it to perform certain functions that prevent piracy of software constitutes a substantial transformation); and HQ 734518, dated June 28, 1993 (motherboards are not substantially transformed by the implanting of the central processing unit on the board because, whereas in Data General use was being assigned to the PROM, the use of the motherboard had already been determined when the importer imported it).
“The term ‘character’ is defined as ‘one of the essentials of structure, form, materials, or function that together make up and usually distinguish the individual.’” National Hand Tool Corp. v. United States, 16 C.I.T. 308, 311 (1992) (citing Webster's Third New International Dictionary (1981)). In National Juice Prods. Ass'n v. United States, the Court of International Trade applied the “essence test” and found that the fundamental character of orange juice concentrate was not changed by the addition of water, orange essences, and oils to make frozen concentrated orange juice, and hence, there was no substantial transformation. 10 C.I.T. 48, 628 F. Supp. 978 (1986).
HQ H258960, dated May 19, 2016, reviewed the country of origin of hardware components of certain transceivers in two scenarios that are instructive to the case at issue here. The hardware components of the transceivers were wholly manufactured in a foreign country and imported into the United States. In the first scenario, the transceivers were “blanks” and completely non-functional and specialized proprietary software was developed and downloaded in the United States, making the transceivers functional and compatible with the OEM technology. In the second scenario, the transceivers were preprogrammed with a generic program that was replaced with specialized proprietary software. It was argued that in both scenarios, the imported hardware was substantially transformed by the development, configuration, and downloading operations of the U.S. origin software. In the first scenario, we found that the non-functional transceivers were substantially transformed as a result of downloading performed in the United States, with proprietary software developed in the United States. However, in the second scenario, it was determined that since the transceivers had generic network functionality, programming them merely to customize their network compatibility would not actually change the identity of the imported transceivers. See also HQ H241177, dated December 3, 2013. Accordingly, it was determined that the country where the last substantial transformation occurred was China or another Asian country where the hardware components were manufactured.
In this case, you assert that the software downloading operations performed in the United States transform the generic tablet computers into medical devices. You further argue that the tablets undergo a complex production process performed by skilled production associates at Care Innovations’ Roseville, California facility. You emphasize that the U.S. operations disable the generic Apple iPad applications and install health monitoring software that cannot be undone by third parties during the normal course of operations. Therefore, you contend that this operation substantially transforms the Apple iPad tablet into a new medical device with a distinct name, character and use.
In essence, what is being done by the installation of the software in the United States, is to limit the original capacity of the imported tablets for the purpose of facilitating the reception, collection and transmission of a patient’s medical data to VA clinicians for their review. The original tablet has the ability to perform these functions, but it was determined that in order to meet FDA regulations, it is best to disable the various functions of the tablet and to replace them with one function via the specialized software. In other words, when the tablets are created, they have the ability to receive, collect, and transmit data. The installed software just enables the tablets to receive and collect an individual patient’s medical data from the peripheral devices and transmit this medical data to the clinicians at the VA.
It is clear that loading specialized software onto the tablet computer that remains fully functional as a computer would be insufficient to constitute a new and different article of commerce, since all of the functionality of the original computer would be retained. In this case, however, in addition to adding the software, we are being asked to consider the effect of disabling the general applications that have been programmed onto the tablet. In our judgment, this added factor does not cause or require a different result. The functions of the original tablet produced in China that are necessary to receive and transmit data are in essence still present on the modified tablet, as aided by the software. While the tablet is no longer a freely programmable machine, we find the imposition of this limitation is insufficient to constitute a substantial transformation of the imported tablets in the United States.
Furthermore, we note that the converted tablets loaded with the Health Harmony software do not actually measure any health related functions, such as blood pressure, or oxygen saturation levels, nor do they provide any medical treatment to patients. Instead, the converted tablets function to receive medical data that is obtained from other peripheral devices, such as a blood pressure monitor or pulse oximeter, and to transmit that medical data to a clinician for review. Therefore, it appears that after the proprietary software is downloaded onto the tablets, the tablets continue to basically function as a type of communications device.
It is also claimed that the FDA considers the Hub Platform and the Mobile Platform to be medical devices and that the IRS will tax the Health Harmony system, including the tablet, as a medical device. Thus, you contend that CBP should also consider the tablets loaded with the Health Harmony software to be medical devices rather than tablets. We note, however, that the IRS and FDA’s determinations as to whether any items are considered medical devices are based upon different criteria from what CBP must apply in determining the country of origin of a product using the substantial transformation test. In HQ H019436, dated March 17, 2008, CBP considered the tariff classification of a SONA Sleep Apnea Avoidance Pillow imported from China. The ruling noted that while the subject merchandise was considered a Class II therapeutic cervical pillow for snoring and mild sleep apnea by the FDA, this determination did not control tariff classification. Similarly in this case, the IRS and FDA’s determinations that the imported tablets are medical devices and will be taxed as such are of limited relevance to CBP’s determination as to the country of origin of the devices.
In reviewing the processing performed in the United States on the imported tablets under consideration, we note that it is analogous to the situation of the transceivers described by the second scenario of HQ H258960. The imported tablets are preprogrammed with a generic program, which is the standard Apple iPad operating system, prior to their importation. When they are first imported, the tablets can perform all of the standard functions of an Apple iPad tablet, and can in their imported condition be used in conjunction with the proprietary software. Accordingly, like the transceivers described in the second scenario of HQ H258960, we find that the name, character, and use of the imported tablet computers remain the same. Therefore, we further find that the imported tablets are not substantially transformed in the United States by the downloading of the proprietary software, which allows them to function within the VA Healthcare network. After the Health Harmony software is downloaded, the country of origin of the imported tablets remains the country where they were originally manufactured, which in this case is China.
Finally, you argue that since CBP concluded that a predecessor of the Health Harmony System, Stehekin, was considered part of a patient monitoring system rather than a standard computer in NY Ruling N004877 dated January 26, 2007, it would be inconsistent to conclude that Health Harmony, as Stehekin’s descendant, is, for purposes of government procurement, merely a “standard computer” manufactured outside the United States. You claim that Stehekin is analogous to the tablet computer that Care Innovations uses today because it included a purpose-built computer, produced in China, that was used to deliver remote patient monitoring software and capability. However, the issue decided in N004877 was a question of tariff classification, not substantial transformation, and is therefore, not applicable.
HOLDING:
Based on the facts of this case, the imported tablets used with the Mobile Platform and the Hub platform are not substantially transformed by the installation of the proprietary Health Harmony software. Therefore, the country of origin of the tablets will remain the country where they were originally manufactured.
Notice of this final determination will be given in the Federal Register, as required by 19 C.F.R. § 177.29. Any party-at-interest other than the party which requested this final determination may request, pursuant to 19 C.F.R. § 177.31, that CBP reexamine the matter anew and issue a new final determination. Pursuant to 19 C.F.R. § 177.30, any party-at-interest may, within 30 days of publication of the Federal Register Notice referenced above, seek judicial review of this final determination before the Court of International Trade.
Sincerely,
Alice A. Kipel, Executive Director
Regulations and Rulings
Office of Trade