HQ H266820
CLA-2 OT:RR:CTF:TCM HQ H266820 TSM
Port Director, Port of Los Angeles/Long Beach
U.S. Customs and Border Protection
301 E. Ocean Blvd.
Suite 1400
Long Beach, CA 90802
Attn: Dirik J. Lolkus, Senior Import Specialist
Re: Protest and Application for Further Review No. 2720-15-100415; Classification of DVD sets.
Dear Port Director:
The following is our decision regarding Protest and Application for Further Review No. 2720-15-100415, timely filed on May 5, 2015 by Ranko Balog Co., on behalf of Vintage Inc. (“Protestant”) regarding the tariff classification of DVD sets under the Harmonized Tariff Schedule of the United States (HTSUS).
FACTS:
The merchandise under consideration is DVD sets containing DVDs stated to feature digital catalogs, brochures, and educational, documentary and marketing videos.
The DVD sets at issue were entered in three separate entries on May 22, 2014, June 2, 2014 and June 6, 2014, under subheading 8523.49.5000, 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: Other: Other: Other.” On March 27, 2015, April 3, 2015 and April 10, 2015, the subject merchandise was liquidated under subheading 8523.49.5000, HTSUS, as entered. Protestant claims that the correct classification is in subheading 8523.49.4000, 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: Other: Other: 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.”
ISSUE:
Whether the DVD sets at issue are classified under subheading 8523.49.4000, HTSUS, or under subheading 8523.49.5000, HTSUS.
LAW AND ANALYSIS:
Initially, we note that the matter protested is protestable under 19 U.S.C. §1514(a) (2) as a decision on classification. The protest was timely filed, within 180 days of liquidation of the first entry. (Miscellaneous Trade and Technical Corrections Act of 2004, Pub.L. 108-429, § 2103(2) (B) (ii), (iii) (codified as amended at 19 U.S.C. § 1514(c) (3) (2006)).
Further Review of Protest No. 2720-15-100415 is properly accorded to Protestant pursuant to 19 C.F.R. § 174.24 (a) because Protestant alleges that the decision against which the protest was filed is inconsistent with Headquarters Ruling Letter (HQ) H236026, dated March 27, 2015.
Merchandise imported into the United States is classified under HTSUS. Tariff classification is governed by the principles set forth in the General Rules of Interpretation (GRIs) and, in the absence of special language or context which requires otherwise, by the Additional U.S. Rules of Interpretation. The GRIs and the Additional U.S. Rules of Interpretation are part of the HTSUS and are to be considered statutory provisions of law for all purposes.
GRI 1 requires that classification be determined first according to the terms of the headings of the tariff schedule and any relative section or chapter notes and, unless otherwise required, according to the remaining GRIs taken in their appropriate order.
In addition, in interpreting the HTSUS, the Explanatory Notes (ENs) of the Harmonized Commodity Description and Coding System may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the HTSUS at the international level. See T.D. 89-80, 54 Fed. Reg. 35127 (August 23, 1989).
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:
Optical media:
8523.49 Other:
Other:
8523.49.4000 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
8523.49.5000 Other
It is not in dispute that the DVD sets at issue are classified in heading 8523, HTSUS, as “discs … for the recording of sound or of other phenomena.” It is also not in dispute that the subject DVD sets are described by the terms of subheading 8523.49, HTSUS, as “other optical media.” Rather, the dispute is at the eight digit level. In its submission, Protestant argues that the DVD sets at issue are classified under subheading 8523.49.4000, HTSUS, as proprietary format recorded discs,” in accordance with HQ H236026, dated March 27, 2015. Protestant alleges that the subject DVD sets contain data that is encrypted in such a manner that they can only be played by a machine specifically encoded to read the data properly. Protestant submitted a sample DVD entitled “Edelbrock Russell 2014 Digital Catalogue Brochure, Video and More!”
In HQ H236026, CBP determined that certain Blu-ray discs and DVDs constituted proprietary format recorded discs of subheading 8523.49.40, HTSUS. The term “proprietary format” is not defined in the HTSUS or the ENs. However, in HQ H236026, we consulted dictionaries and other lexicographic materials to determine the term’s common meaning, and concluded 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.” In HQ H236026, we also stated:
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 as 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.
Based on the foregoing, in HQ H236026 we defined “proprietary format” as being 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. 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.”
In HQ H236026 we also noted that 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 storage devices, 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.
Other than to allege that the protest decision is inconsistent with HQ H236026, Protestant has not submitted any additional argument or product literature, and the sample DVD that was provided cannot be traced to any of the invoices. There is nothing in the protest that indicates how the subject DVDs are formatted. Accordingly, we conclude that the DVD sets are classified in subheading 8523.49.5000, 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: Other: Other: Other.”
HOLDING:
By application of GRIs 1 and 6, the DVD sets at issue are classified in heading 8523, HTSUS, and specifically in subheading 8523.49.5000, 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: Other: Other: Other” The column one, general rate of duty is 2.7% ad valorem.
You are instructed to DENY the protest.
In accordance with Sections IV and VI of the CBP Protest/Petition Processing Handbook (HB 3500-08A, December 2007, pp. 24 and 26), you are to mail this decision, together with the CBP Form 19, to the Protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision.
Sixty days from the date of the decision, the Office International Trade, Regulations and Rulings, will make the decision available to CBP personnel, and to the public on the CBP website at www.cbp.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division