CLA-2 OT:RR:CTF:EMAIN H285617 NCD
Neil Helfand
Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP
599 Lexington Avenue, FL 36
New York NY 10022-7648
RE: Tariff classification of Fossil Q Hybrid Smartwatches
Dear Mr. Helfand:
This is in response to your letter of October 27, 2016, issued on behalf of Fossil Group, Inc. (“Fossil”), in which you request a binding ruling as to the classification of Fossil Q Hybrid Smartwatches (“Fossil Qs”) under the Harmonized Tariff Schedule of the United States (“HTSUS”). In reaching the below determination, we have considered information presented in your October 27, 2016 letter (hereinafter “ruling request”) and your various supplemental submissions. We have also considered information presented in an April 3, 2018 meeting (“the meeting”) with representatives of Fossil, as well as a product demonstration provided in that meeting. Lastly, to confirm narrative descriptions of the subject merchandise, we have inspected samples of various Fossil Q models.
FACTS:
The Fossil Qs are, according to your ruling request, a type of “hybrid smartwatch…?which blends an analog design with smart connectivity to a user’s smartphone via Bluetooth.” The exterior design of each Fossil Q emulates that of a traditional analog wristwatch, replete with fixed-number dials, a crown-replicative side button, and additional superjacent and subjacent side buttons all embedded in cases of steel or rose gold. Within the dial of several models is a chronograph-style “sub-eye” whose exact position varies by model type.
The following is a depiction of the “Q Gazer” model reproduced from official product literature:
According to your ruling request, and as demonstrated at the meeting, a typical Fossil Q does not contain a mechanical or quartz watch movement. It is equipped instead with a microcontroller which “incorporates a central processing unit (24 MHz 32bit ARM Cortx-M4F), random access memory (64 kB), flash memory (512 kB), vibrating motors, 3-axis accelerometer, and a radio transceiver (Bluetooth).” The Bluetooth transceivers enable wireless pairing and two-way interactivity with mobile devices. More specifically, the Fossil Qs synchronize with a dedicated mobile device application which both displays certain data received from the watch and transmits data to the watch for the purpose of configuring it. As contended in your ruling request and further demonstrated at the meeting, a Fossil Q is incapable of keeping time or performing any other mechanical or electronic function until synchronized. Prior to this, the watch hands are completely inactive; not only are they unmoving, but they cannot be actuated or manually adjusted by the user. Consequently, at the time they are entered, Fossil Qs cannot actively keep time.
Following initial pairing of the Fossil Q to the mobile application, the latter automatically sets the time by remotely synchronizing its hands to the local time of the zone in which the mobile device is located. From that point forward, the Fossil Q autonomously keeps the time of that zone throughout any interruptions to the connection with the mobile application. However, even following initial synchronization, the time cannot be adjusted manually by the user. Instead, any adjustments to the watch hands – based, for example, on a change in time zone – are orchestrated automatically by the mobile application.
In addition to setting and updating the time, the application provides a user interface with which the user can program (and subsequently reprogram) each of the side buttons to conduct one of several collateral functions. These functions include, among others, displaying social media notifications, calendar events, or incoming emails, text message, or telephone calls from a pre-selected range of contacts; remotely triggering the camera of a paired device; remotely playing, pausing, or controlling the volume of music stored on a paired device; displaying daily step goal progress; displaying the date or the local time in a second time zone; prompting a paired mobile telephone to ring. The mobile application also receives and displays data related to the wearer’s daily physical movement and nightly sleep patterns, including the number of steps taken, miles traveled, calories burned, hours slept, and quality of sleep.
ISSUE:
Whether the Fossil Q Hybrid Smartwatches are classified as “other” apparatus for the transmission or reception of voice, images or other data in heading 8517, HTSUS, as checking instruments in heading 9031, HTSUS, or as wrist watches in heading 9102, HTSUS.
LAW AND ANALYSIS:
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. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the heading and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order. GRI 2(b) states, in pertinent part, that “[a]ny reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance” and that “classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.” GRI 3(b) provides that "composite goods consisting of different materials or made up of different components” are to be classified, where possible, “as if they consisted of the material or component which gives them their essential character.”
The Harmonized Commodity Description and Coding System Explanatory Notes (“ENs”) constitute the official interpretation of the Harmonized System at the international level. While neither 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, 35128 (August 23, 1989).
The HTSUS headings under consideration in the instant case are as follows:
8517 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
9031 Measuring or checking instruments, appliances and machines, not specified or included elsewhere in this chapter; profile projectors; parts and accessories thereof
9102 Wrist watches, pocket watches and other watches, including stop watches, other than those of heading 9101
As a preliminary matter, it is undisputed that the Fossil Qs are partially, though not wholly, described by each of the headings at issue. To the extent they adorn the wrist and display the time following initial synchronization, they are partially described as wristwatches of heading 9102, HTSUS. See EN 91.02 (“This heading covers mechanical and electrical (mostly electronic) timekeeping instruments with case and movement, of a kind intended to be worn or carried and designed to function in all positions, which indicate the time or measure intervals of time.”). However, because they also transmit and receive data in the course of setting and updating the time and performing other functions, they are also described in part by heading 8517, HTSUS. Finally, because one of the collateral functions is step-tracking via an accelerometer application, the watches fall partially within the scope of heading 9031, HTSUS. Consequently, as in other cases involving multifunctional wristwear, the Fossil Qs cannot be classified pursuant to GRI 1. See, e.g., Headquarters Ruling Letter (“HQ”) H271909, dated July 8, 2016, and HQ H268657, dated March 28, 2016 (setting forth analytical framework for determining the classification of “hybrid smartwatches”).
Rather, pursuant to GRI 3(b), they are composite goods which must be classified as if they consisted of the component which imparts their essential character. It is well-established that a determination as to “essential character” is driven by the particular facts of the case at hand. See, e.g., Alcan Food Packaging (Shelbyville) v. United States, 771 F.3d 1364, 1366 (Fed. Cir. 2014) (“The ‘essential character’ of merchandise is a fact-intensive issue.”); see also EN(VIII) to GRI 3(b) (“The factor which determines essential character will vary as between different kinds of goods.”). That said, essential character has traditionally been understood as “that which is indispensable to the structure, core or condition of the article, i.e., what it is” and as “the most outstanding and distinctive characteristic of the article.” Structural Indus. v. United States, 360 F. Supp. 2d 1330, 1336 (Ct. Int’l Trade 2005) (citing various Customs Court decisions).
Additionally, EN(VIII) to GRI 3(b) counsels that essential character “may, for example, be determined by the nature of the material or component, its bulk, quantity, weight or value, or by the role of a constituent material in relation to the use of the goods.” See Home Depot USA, Inc. v. United States, 491 F.3d 1334, 1337 (Fed. Cir. 2007) (“Many factors should be considered when determining the essential character…?specifically including but not limited to those factors enumerated in Explanatory Note (VIII) to GRI 3(b).”). It is therefore common practice to determine essential character by applying some combination of the above-mentioned factors – e.g., physical predominance, indispensability, and/or relation to article use and identity – as warranted by the unique facts of the case. Compare Alcan, 771 F.3d at 1367 (affirming determinants of essential character to be relative weight, value, indispensability, and impartation of the “qualities that define…a product”) with Pomeroy Collection, Ltd. v. United States, 893 F. Supp. 2d 1269, 1287 (Ct. Int'l Trade 2013) (“The function of each article as a whole is to hold and display an object or objects; and the glass vessel is the component that gives the article its ability to serve that function…Thus, the essential character of the Floor Articles is imparted by the glass vessels.”).
In the present case, the balance of relevant factors supports a determination that the Fossil Qs’ essential character is that of an apparatus for the transmission or reception of data. We initially note that the Fossil Qs are capable of keeping and displaying time, and that their most prominent physical components, which account by far for the majority of their outer surface areas, are those that are related to timekeeping or are otherwise characteristic of analog wristwatches. These features include the analog dials, crown-replicative side buttons, and steel bezels and lugs, which, collectively, make up almost the entirety of the articles’ faces. In prior cases involving “hybrid smartwatches,” CBP has viewed timekeeping capability and physical resemblance to traditional analog watches of heading 9102, HTSUS, as factors that are highly probative of the articles’ essential character. See HQ H271909, supra (finding that the Metropolitan+ Watch is primarily a timepiece” in large part because “the watchcase and dial…are substantially similar to those of a quartz analog wristwatch”); see also HQ H268657, supra (making a similar determination with respect to the “Fossil Grant Connect Watch”).
However, it is ultimately the Bluetooth transceiver of each Fossil Q which proves to be both an indispensable component and the component which plays the greatest role with relation to the article’s use. This is because the data transmission and reception conducted by the transceiver is an absolute prerequisite to the article’s above-mentioned use as a timekeeping device, or as anything else of utilitarian value. Again, since the Fossil Qs lack quartz or mechanical watch movements, they cannot be initially set or subsequently updated absent reception of data. Thus, in their condition as imported, they look like – but do not act as – wristwatches. See Mita Copystar Am. v. United States, 21 F.3d 1079, 1082 (Fed. Cir. 1994) (emphasizing the importance of the “condition when imported” of merchandise to be classified). Nor can they be programmed to conduct, or can they actually conduct, the majority of their available collateral functions without a conduit for data transmission and reception. The display of notifications, remote music and camera control, display of a second time zone, and provision of geo-tracking and sleep pattern updates to the mobile application are all dependent on two-way interactivity with paired mobile device. In previous cases involving transceiver-equipped wristwear, CBP has found a comparatively high dependence upon data transmission and reception to be grounds for classification in heading 8517, HTSUS, per GRI 3(b). See, e.g., HQ H265035, dated January 19, 2016 (“When the Microsoft Band is ‘unpaired’…[it] operates with substantial functional limitations that render it unable to perform many of the tasks for which [it] is marketed. Consequently…?it is the Bluetooth transceiver that is indispensable to the core, essential condition of the Microsoft Band…”); see also HQ H260060 and HQ H257947, both dated July 14, 2015 (making similar determinations with respect to the “Apple Watch” and Samsung “Gear™ Live Android™ Smartwatch”, respectively).
Therefore, despite the Fossil Qs’ timekeeping capability and physical resemblance to analog wristwatches, we find the indispensability and comparative importance of the transceiver components to tip the balance of factors toward a determination that the Fossil Qs have the “essential character” of “apparatus for the transmission or reception of data.”* They are consequently classified in heading 8517, HTSUS, pursuant to GRI 3(b). We caution, however, that this determination does not supersede or otherwise modify our general position regarding the classification of other products describable as “hybrid smartwatches”, such as those subject to HQ H271909 and HQ H268657, supra.
HOLDING:
By application of GRI 3(b), the Fossil Q Hybrid Smartwatches are classified in heading 8517, HTSUS. They are specifically classified in subheading 8517.62.00, HTSUS, which provides for, “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 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): Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus.” The 2018 column one, general rate of duty for merchandise of subheading 8517.62.00, HTSUS, 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/.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division