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.
FACTS:
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.
ISSUE:
Are the MemoPlugs substantially transformed when they are
processed in the U.S. by the programing of the EEPROMs inside the
MemoPlugs?
LAW AND ANALYSIS:
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.
HOLDING:
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.
Sincerely,
John Durant, Director
Commercial Rulings Division