CLA-2 OT:RR:CTF:TCM H075336 RM
Port Director
Port of San Francisco
U.S. Customs and Border Protection
555 Battery Street, Room # 319
San Francisco, CA 94111
RE: Internal Advice Request 09/031; classification of Apple’s iPod Touch
Attn: Lori Becquet, SIS
Kathleen Maguire, SIS
Dear Port Director:
This is in response to your memorandum dated September 3, 2009, forwarding a Request for Internal Advice initiated by counsel on behalf of Apple, Inc. (“Apple”) on August 12, 2009, concerning the tariff classification of the Second Generation iPod Touch (“iPod Touch” or “the device”) under the Harmonized Tariff Schedule of the United States (“HTSUS”). In reaching our decision, we considered the additional arguments raised by counsel in written submissions dated October 27, 2009, November 15, 2010, and April 7, 2011, and during in-person meetings on December 14, 2010, and March 9, 2011.
FACTS:
Product Description
Apple’s Second Generation iPod Touch is a portable music, video and game player equipped with a built-in Wi-Fi (802.11b/g) platform. It is available with 8, 16 or 32 GB of flash memory. The device measures 4.3 inches in height, 2.4 inches in width, and 0.33 inches in depth. It weighs 4.05 ounces. It has a 480-by-320-pixel, 3.5-inch multi-touch display which allows the user to control the device using only fingertips. The bottom of the device houses a dock connector, a built-in speaker, and a 3.5-mm headphone jack. External buttons and controls include the Home Screen button, which lists the icons for the available applications (below the screen), the hold switch and sleep/wake button (on top), and the volume control buttons (on the left edge). It is imported together with a dock connector used to connect the device to a desktop PC or a laptop, earphones, a built-in rechargeable lithium-ion battery, a USB 2.0 cable, and an instructions manual.
The iPod Touch runs Apple’s iPhone 3.1 operating system (“iOS”) (minus the telephony capabilities). It comes with various software applications (“apps”) already installed, including Apple’s Safari® web browser, iTunes (with access to the iTunes Music Store and the App Store), YouTube®, Podcast support, a photo viewer, an email reader (compatible with Gmail, Yahoo, AOL, etc.), and a host of smaller utilities (e.g., weather, calendar, maps, stocks, quotes, voice memos, contacts, and a calculator). It also has a touch screen keyboard and a built-in accelerometer, which detects when the user rotates the device from portrait to landscape and adjusts the display accordingly.
Additional applications can be obtained for free or for a price and loaded onto the iPod Touch via: (1) Apple’s App Store (“the App Store”), a web-based application marketplace with over 350,00 apps available for download that can be accessed from a computer or directly through the iPod Touch, (2) a third-party’s website, as “web apps” – applications written in a programming language typically used to create web sites (e.g., HTML5) which are accessible to the public on the Internet, or (3) the iOS Developer Program, a platform through which its members can develop and distribute applications in three ways: (i) through the App Store, (ii) through enterprise deployment (to a company's employees only), and (iii) on an ad hoc basis to up to 100 devices. In addition, a user may write programs directly on the iPod Touch using a Beginner’s All-Purpose Symbolic Instruction Code (“BASIC”) programming application.
Native and Web Applications
The apps distributed through the App Store and the iOS Developer Program are “native” – they are created to run on a particular central processing system (the iPod’s processor) and for a particular operating system (Apple’s iOS). Native apps are stored on the NAND flash memory storage of the device. When launched by the user, they are executed by the iOS.
Web apps, in contrast, are “non-native” – they are written in a programming code supported by a variety of web browsers (e.g., HTML5) which must be converted by the OS in order to run on the CPU. On the iPod Touch, the conversion process is handled by the iOS with WebKit – the part of the iOS that contains the code necessary to read HTML5, display JPEG files, control scrolling, etc. Once downloaded, web apps are also stored on the NAND flash memory storage of the device. When launched by the user, they are executed by the iOS. While some web apps require internet connectivity in order to function, others do no not (i.e., they can run while the iPod Touch is completely offline).
Apple indicated that most native apps can also be developed as web apps. However, native apps can do certain things that web apps cannot. For example, web apps cannot access all of the iPod’s hardware and software features; specifically, they cannot use its camera or microphone, read its address book, photo gallery, or calendar (although a web app can add data to those applications), or access certain graphics libraries. (Apple claims that security concerns dictate the above list.) In addition, web apps cannot access particular features housed within certain native apps installed on the device, including audio files locally stored in the native music app and certain gaming features. Developers are not precluded, however, from creating web apps that mimic the above features.
Web apps have at least one feature that native apps do not: they can dynamically update themselves when in use. Native apps require explicit user action to update (e.g., tap on the App Store app, then tap on “Updates”, then tap on “Download” to get the updates).
iii. Apple’s Screening Process
Applications intended for commercial distribution via the App Store are screened by Apple for conformity with the company’s iOS Developer Agreement as well as numerous other provisions regarding technical and legal requirements. They also undergo a review process that tests for vulnerabilities (such as software bugs, instability on the iPhone OS, and the use of unauthorized protocols) and to ensure that they comply with Apple’s review guidelines designed to, among other things, protect privacy concerns and safeguard children from inappropriate content.
Apps developed using the iOS Developer Program which are intended for distribution to employees of a member organization, or on an ad hoc basis to up to 100 devices, are not subject to Apple’s screening process. Likewise, web apps can be loaded onto the iPod Touch without interaction, restriction, review by, or permission from Apple. (The company has no policy against it, not does it have any technical means in place to block a web app.) Loading such apps does not void the device’s hardware warranty or compromise its functions. They can be installed directly on the devices over Wi-Fi or by attaching an iPod Touch to a Mac or PC with the included USB cable.
iv. Procedural Posture
Apple began importing these devices into the U.S. in September of 2007 under subheading 8517.62.00, HTSUS, the provision covering apparatus for transmission or reception of data in a wired or wireless network. On November 14, 2008, the Port of Chicago issued an Informed Compliance Notice informing Apple that the device was properly classified under subheading 8528.59.15, HTSUS, the provision for video monitors. Accordingly, as of December 1, 2008, Apple has entered the device under that provision. However, it is Apple’s position that the iPod Touch is properly classified under subheading 8471.30.00, HTSUS, as a portable automatic data processing machine, or in the alternative, under subheading 8517.62.00, HTSUS, as originally entered.
ISSUE:
What is the proper tariff classification under the HTSUS of Apple’s iPod Touch?
LAW AND ANALYSIS:
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRIs”). 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 GRIs 2 through 6 may then be applied in order.
GRI 3 provides, in relevant part:
When by application of rule 2(b) or for any other reason, goods are, prima facie classifiable under two or more headings, classification shall be effected as follows:
…
(b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.
The 2011 HTSUS headings under consideration are the following:
Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included:
8471.30.01 Portable automatic data processing machines, weighing no more than 10kg, consisting of at least a central processing unit, a keyboard and a display …
* * *
Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528; parts thereof:
Other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network):
8517.62.00 Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus …
* * *
Monitors and projectors, not incorporating television reception apparatus; reception apparatus for television, whether or not incorporating radio-broadcast receivers or sound or video recording or reproducing apparatus:
Other monitors:
Other:
Color:
With a flat panel screen:
Incorporating video recording or reproducing apparatus:
With a video display diagonal not
exceeding 34.29 cm …
* * *
Note 5 to Chapter 84, HTSUS, provides, in relevant part:
(A) For the purposes of heading 8471, the expression “automatic data processing machines” means machines capable of:
Storing the processing program or programs and at least the data immediately necessary for the execution of the program;
Being freely programmed in accordance with the requirements of the user;
Performing arithmetical computations specified by the user; and
Executing, without human intervention, a processing program which requires them to modify their execution, by logical decision, during the processing run.
The Harmonized Commodity Description and Coding System Explanatory Notes (“ENs”) constitute the official interpretation of the Harmonized System at the international level. While not legally binding or 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, 35128 (August 23, 1989).
The ENs to heading 8471 provide, in pertinent part:
AUTOMATIC DATA PROCESSING MACHINES
AND UNITS THEREOF
Data processing is the handling of information of all kinds, in pre-established logical sequences and for a specific purpose or purposes.
Automatic data processing machines are machines which, by logically interrelated operations performed in accordance with pre-established instructions (program), furnish data which can be used as such, or, in some cases, serve in turn as data for other data processing operations.
…
AUTOMATIC DATA PROCESSING MACHINES
The automatic data processing machines of this heading must be capable of fulfilling simultaneously the conditions laid down in Note 5(A) to this Chapter. […]
Thus, machines which operate only on fixed programs, i.e., programs which cannot be modified by the user, are excluded even though the user may be able to choose from a number of such fixed programs.
These machines have storage capability and also stored programs which can be changed from job to job.
Automatic data processing machines process data in coded form. A code consists of a finite set of characters (binary code, standard six bit ISO code, etc.).
…
Automatic data processing machines may comprise in the same housing, the central processing unit, an input unit (e.g., a keyboard or scanner) and an output unit (e.g., a visual display unit) …
The ENs to subheading 8471.30 provide:
This subheading covers portable data processing machines weighing not more than 10kg. These machines, which are equipped with a flat screen, may be capable of operating without an external source of electric power and often have a modem or other means for establishing a link with a network.
Initially, we note that the iPod Touch is classified as a “set” pursuant to GRI 3(b) because it is imported packaged as sold at retail, that is, with earphones, a 3.5 mm headphone jack, a USB 2.0 cable, a dock adapter, and the instructions manual. GRI 3(b) states that “[g]oods put up in sets for retail sale shall be classified as if they consisted of the material or component which gives them their essential character.” All the items here are classifiable in different headings, are “put up together” to enable a user to charge, carry, and listen to the iPod, and are offered for sale directly to users without repacking. See EN (X) to GRI 3(b). The item which imparts the essential character of this set is clearly the iPod Touch, as it is the dominant component, by use and cost in relation to the other constituent components of the set. It is also the reason why a consumer would purchase the set. As such, the set will be classified as if consisting only of the iPod Touch.
To be classified as an ADP machine under heading 8471, HTSUS, a machine must satisfy the requirements set forth by Note 5(A) to Chapter 84, which provides as follows:
For the purposes of heading 8471, the expression “automatic data processing machines” means machines capable of:
Storing the processing program or programs and at least the data immediately necessary for the execution of the program;
Being freely programmed in accordance with the requirements of the user;
Performing arithmetical computations specified by the user; and
Executing, without human intervention, a processing program which requires them to modify their execution, by logical decision, during the processing run.
It is clear that the iPod Touch is capable of “storing the processing program or programs and at least the data immediately necessary for the execution of the program” (it holds 8, 16 or 32 GB of flash memory, depending on the model); “performing arithmetical computations specified by the user” (it does so to accomplish its principal purpose); and “executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run” (it includes a sophisticated processor). See Note 5(A)(i), (iii) and (iv) to Chapter 84, HTSUS. At issue in this case is whether the device is “capable of … being freely programmed in accordance with the requirements of the user.” See Note 5(A)(ii) to Chapter 84, HTSUS.
In Optrex America Inc. v. United States, 472 F. Supp. 2d. 1177 (Ct. Int’l Trade 2006), aff’d, 745 F.3d 1367 (Fed. Cir. 2007) (“Optrex”), the U.S. Court of Appeals for the Federal Circuit (“CAFC”) upheld CBP’s longstanding interpretation that a “freely programmable” ADP machine is one that: (i) applications can be written for, (ii) does not impose artificial limitations upon such applications, and (iii) will accept new applications that allow the user to manipulate the data as deemed necessary by the user. 745 F.3d at 1368. See also Headquarters Ruling Letter (“HQ”) 964880, dated December 21, 2001. The Optrex court noted that “[CBP’s] interpretation is supported by the World Customs Organization’s Explanatory Notes […] which 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 from a number of such fixed programs.’ Explanatory Note 84.71(I)(A).” Id. The court added that “[a]pplication programs are not ‘fixed’ because they can be installed or deleted from a machine.” 427 F. Supp. 2d at 1197.
At issue in Optrex was the tariff classification of liquid crystal display (“LCD”) character-display modules. The court held that the modules were not classifiable as “parts” of “ADP machines,” in heading 8473, HTSUS, because the end-use devices to which they would be incorporated – e.g., odometers, desktop phones and photocopying machines – were not freely programmable because they operated programs fixed by the manufacturer that the user could not modify. 427 F. Supp. 2d at 1197.
In keeping with Optrex, CBP has ruled that devices which enable the user to decide which applications to install or delete from the device are freely programmable. For example, in HQ 964880, dated December 21, 2001, CBP examined the classification of the Palm VII and VIIx – personal digital assistants (PDAs) with Internet connectivity. Both models used Palm’s 3.2.0 OS, a 16MHz microprocessor, and came with 2 MB of random access memory (RAM) and 2 MB of read-only memory (ROM). They were imported with pre-installed applications (including a date book, an address book, a memo pad, and desk top e-mail connectivity software) and could accept additional applications that were available directly from Palm or from third-party vendors. In finding that the devices were freely programmable, CBP stressed the fact that they could be programmed in several ways: directly on the devices, with a host computer to generate a generic application, or with a host computer to generate a native application. CBP also noted that:
the Palm [OS] is an open operating system; programming tools are readily available to any user either directly from Palm or from other commercial sources;
programming tools are readily available to any user either directly from Palm or from other commercial sources; [and]
hundreds of software applications are currently available for the Palm OS through a variety of vendors who distribute them either as freeware, shareware, or commercial applications …
CBP ultimately classified the PDAs in subheading 8471.30.00, HTSUS, as portable ADP machines.
Similarly, in HQ W968223, dated January 12, 2007, CBP ruled that the Hewlett-Packard iPAQ Mobile Messenger (“iPAQ”), a PDA with high-speed voice and data communication (Internet) capabilities, was freely programmable. The device incorporated an LCD screen, a built-in QWERTY keyboard, an antenna, a 312 MHz processor, and had 128 MB of total memory, 75 MB of which were user available memory. It ran Microsoft’s Windows Mobile OS (2003 edition). CBP determined that the device was freely programmable because:
[t]he iPAQ uses the Windows [OS], which according to the Microsoft website is “an open platform that supports needs beyond mobile messaging. It is based on Microsoft.NET, giving developers freedom to innovate. Over 18,000 Windows Mobile applications are available from third-party developers.”
There, CBP found that the IPAQ was prima facie classifiable under heading 8471, HTSUS, as an ADP machine, but classified it under heading 8525, HTSUS, as transmission apparatus for radiotelephony, pursuant to Note 3 to Section XVI and GRI 3(c).
Conversely, in HQ H026665, dated July 9, 2008, CBP ruled that the AIDA System Compact II, a machine used in hospitals to archive images, video and audio files associated with patient information onto a database, was not freely programmable because users were not free to add or remove software from the device. There, we noted, first, that the importer could not provide “… an affirmative representation that the hardware and software are installed into the AIDA without any proprietary restrictions or blocks” and second, that “the software installation manual and license prohibited the downloading of additional software and also identified such action as an impediment to the operation of the device.” Similarly, in HQ 964682, dated July 15, 2002, we determined that the Sony PlayStation2, a video game console, is not freely programmable because:
[p]roprietary blocks in the PS2 prevent the console from running any commercially available Linux OS and only specially designed Sony disks can be read by the system. If a non-PS2 compatible disc is inserted in the console, the hardware layer (with the firmware) determines that the disc does not contain one of the accepted formats and thus does not acknowledge it as accepted media.
Significantly, we noted that to run additional Linux-based programs on the PS2, the user was required to install Sony’s version of the Linux OS, which was not included with the console.
Applying Optrex and CBP’s administrative precedent, we conclude that the iPod Touch is a freely programmable ADP machine. Apple demonstrated that applications can be written for it (either in native or non-native format); that it does not impose artificial limitations upon such applications (they can be programmed to do whatever the end-user wants them to do, within the machine’s capabilities); and that it accepts new applications that allow the user to manipulate data as he or she deems necessary (the programs which reside in the device are not “fixed”; the end-user can install and remove programs at will).
We note that Apple’s application screening process does not effectively limit the applications available to its user because it only affects the apps intended for distribution via the App Store. As discussed above, web apps and native apps obtained through a third party’s website, or through the iOS Developer Program, are not subject to Apple’s screening process; they can be loaded onto a device without the company’s approval and without harming the device or voiding its warranty. While it is true that native apps can do certain things that web apps cannot – e.g., access all of the iPod’s hardware and software features – web apps can be designed to perform the same essential tasks, even if through different means.
Based on the foregoing, we conclude that the iPod Touch satisfies the terms of Note 5(A) to Chapter 84, HTSUS, and is therefore classified under heading 8471, HTSUS, as an ADP machine. It is specifically described by subheading 8471.30.01, HTSUS, as a “ … [p]ortable [ADP] machine, weighing no more than 10kg, consisting of at least a central processing unit, a keyboard, and a display.” See also EN to subheading 8471.30. Inasmuch as the good is fully described by heading 8471, HTSUS, its classification under headings 8517 or 8528, HTSUS, is precluded.
HOLDING:
By application of GRI 1 (Note 5(A) to Chapter 84) and GRI 3(b), Apple’s Second Generation iPod Touch is classified under heading 8471, specifically in subheading 8471.30.01, HTSUS, as: “Automatic data processing machines …: Portable automatic data processing machines, weighing no more than 10kg, consisting of at least a central processing unit, a keyboard, and a display.” The column one, general rate of duty is: free.
You are to mail this decision to the internal advice requester no later than 60 days from the date of the decision. At that time, the Office of International Trade, Regulations and Rulings, will make the decision available to CBP personnel and to the public on the CBP Home Page on the World Wide Web 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