MAR-2-05 CO:R:C:V 735027 RSD

Mr. Moti J. Dover, President
EliaShim Microcomputers Inc.
4005 Wedgemere Drive
Tampa, Florida 33610

RE: Country of origin marking of a device used to prevent privacy of software called a MemoPlug; computer devices; programing; computer chips; 19 CFR 134.35

Dear Mr. Dower:

This is in response to your letter dated March 2, 1993, requesting a ruling on the country of origin marking requirements for a device used to protect software called a MemoPlug. A sample of a MemoPlug has been submitted.


EliaShim sells a device for computer systems that is called a "MemoPlug". The MemoPlug is a device that software companies use to protect their software from piracy. Your customer's software is modified to run only when a memoPlug is attached to the printer port of a personal computer. This modification in the software is supplied by EliaShim.

The MemoPlugs themselves are assembled in Israel from parts that are purchased from and manufactured by worldwide sources. The MemoPlug contains an EEPROM inside a plastic case. These parts are made in Taiwan. The connectors are also made in Taiwan. In Israel the internal board is assembled and the MemoPlug is put together.

At your Florida facility, a unique customer code is burned into each Memoplug. It is our understanding that you have to program each EEPROM in the MemoPlug with special software, to prevent the piracy of your customer's software. The MemoPlug becomes part of their products. The average selling price of the MemoPlug is about $25, with the highest selling price being $75.00. You estimate that more 50% of the selling price of the finished MemoPlug is attributable to U.S. operations.


Are the MemoPlugs substantially transformed when they are processed in the U.S. by the programing of the EEPROMs inside the MemoPlugs?


Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co. 27 C.C.P.A. 297 at 302; C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "country of origin" as the country of manufacture, production or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of the marking laws and regulations. The case of U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940), provides that an article used in manufacture which results in an article having a name, character or use differing from that of the constituent article will be considered substantially transformed. (See 19 CFR 134.35). In such circumstances, the imported article is excepted from marking. The outermost containers of the imported articles shall be marked.

In Data General Corporation v. United States, 4 CIT 182, (1982), the Court of International Trade held that a PROM fabricated in a foreign country but programmed in the United States for use in a computer circuit board assembled abroad was substantially transformed causing the article to become a product of the United States within the contemplation of Customs Regulation 19 CFR 10.14(b) and qualifying the article for duty allowance under 807.00, TSUS. The court noted that a PROM which is programed is no longer programmable because a from can be only programed once. It further stated that the electronic pattern introduced into the circuit by programming solely gives it the function as a read only memory, and that the essence of the article, its pattern of interconnection or stored memory is established by programing. In making its conclusion that the PROM was substantially transformed, the court pointed out:

Thus altering the non-functioning circuitry of an integrated circuit comprising a PROM through expertise in order to produce a functioning read only memory device possessing a desired distinctive circuit pattern, is no less a 'substantial transformation' than the manual interconnections of transistors, resistors and diodes upon a circuit board creating a similar pattern. This court must not be unwilling to construe our customs laws and regulations with such elasticity as may be necessary to keep pace with the explosive advancements being made in the electronic word of today.

In HQ 732087, February 7, 1990, Customs ruled that the writing of a program onto a computer diskette is a substantial transformation of the diskette. We stated that the character of the diskette has changed from one of a blank storage medium to one with a predetermined electronic pattern encoded onto it. The ruling further indicated that use of the diskette has changed from that of an unreadable, therefore meaningless, article of software, to that of an encoded instruction guide to enable to computer to perform various commands.

It our understanding that EliaShim is performing an operation analogous to the work done in DATA GENERAL and in HQ 732087, by programming the EEPROMs inside the MemoPlugs. Eliashim is taking a blank media, an EEPROM, and putting instructions on it that allow it to perform certain functions of preventing piracy of software. The character and use of the article has been changed from that of blank media to that of a programed one. Therefore, we believe that the unprogramed MemoPlugs are substantially transformed when they are programed with the software which allows them to function to prevent piracy of the user's software. Accordingly, under 19 CFR 134.35, Eliashim is the ultimate purchaser of the imported MemoPlugs. The MemoPlugs are excepted from having to be individually marked with the country of origin provided that outermost boxes which reach EliaShim are marked to indicate the country of origin of the MemoPlugs.


The imported MemoPlugs are substantially transformed by EliaShim's programing of the EEPROM inside the MemoPlugs. EliaShim is the ultimate purchaser of the MemoPlugs, and they are excepted from individual country of origin marking and provided Customs officials at the port of entry are satisfied that the MemoPlugs will be used by EliaShim only in the manner set forth above.


John Durant, Director
Commercial Rulings Division