CLA-2 OT:RR:CTF:TCM H092260 RM
Mr. Sergio Langarica
Director, Trade Strategy and Compliance
Sony Electronics, Inc.
16530 Via Espirillo
San Diego, California 92127
RE: Tariff Classification of the Sony LMT-300 Digital Cinema Media Block
Dear Mr. Langarica:
This is in response to your letter, dated October 27, 2009, submitted on behalf of Sony Electronics, Inc. (“Sony”) to U.S. Customs and Border Protection (“CBP”), concerning the classification of the LMT-300 Media Block under the Harmonized Tariff Schedule of the United States (“HTSUS”). In reaching our decision, we considered the arguments raised in your supplemental submission dated January 20, 2010.
FACTS:
Sony proposes to import the LMT-300 Media Block (hereinafter “LMT-300” or “media block”), a digital cinema server that operates exclusively with Sony’s SRX-R320 Digital Cinema Projector (“SRX-R320” or “projector”). The device contains several hard disk drives (“HDDs”) with approximately 1 terabyte (“TB”) of storage capacity, a Redundant Array of Inexpensive Discs (“RAID”) – i.e., a category of disc arrays that provide increased storage reliability by copying the data onto multiple interconnected drives, and Sony’s Screen Management System (“SMS”) software, which enables the operator to perform a variety of tasks related to digital cinema presentation (e.g., show scheduling, play back control, content management, log collection, and equipment diagnosis) from one location.
In use, the LMT-300 converts digital cinema package (“DCP”) files (i.e., picture, audio and subtitle data files) that are encoded and encrypted in accordance with the Digital Cinema Initiative’s Specification (“DCI”) into data that can be projected onto a theatre screen. To that end, the device stores the DCP data received from an external storage device onto its hard drive(s), plays back the file after using a “security key” to decrypt and decode the data, and sends it to the projector over a secure connection.
Upon importation, the LMT-300 is connected to the chassis of the SRX-R320 through its multiple video and audio output connectors (pictured below).
ISSUE:
What is the correct tariff classification of Sony’s LMT-300 Media Block under the HTSUS?
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.
The 2010 HTSUS headings under consideration are the following:
8521 Video recording or reproducing apparatus, whether or not incorporating a video tuner:
8521.90.00 Other …
* * *
8543 Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof:
Other machines and apparatus:
Other:
8543.70.96 Other:
Note 3 to Section XVI, HTSUS, provides:
Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function.
Additional U.S. Rule of Interpretation 1(a), HTSUS, provides:
In the absence of special language or context which otherwise requires –
a tariff classification controlled by use (other than actual use) is to be determined in accordance with the use in the United States at, or immediately prior to, the date of importation, of goods of that class or kind to which the imported goods belong, and the controlling use is the principal use[.]
The Harmonized Commodity Description and Coding System Explanatory Notes (“ENs”) constitute the official interpretation of the HTSUS. While not 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 (August 23, 1989).
EN 85.21 provides, in part:
RECORDING AND COMBINED RECORDING AND REPRODUCING APPARATUS
….
The heading also includes apparatus which record, generally on a magnetic disc, digital code representing video images and sound, by transferring the digital code from an automatic data processing machine (e.g., digital video recorders).
….
When used for reproduction, the apparatus convert the recording into video signals. These signals are passed on either to a transmitting station or to a television receiver.
….
EN 85.43 provides, in part:
This heading covers all electrical appliances and apparatus, not falling in any other heading of [Chapter 85, HTSUS], nor covered more specifically by a heading of any other Chapter of the Nomenclature, nor excluded by the operation of a Legal Note to Section XVI or to this Chapter.
…
The electrical appliances and apparatus of this heading must have individual functions. The introductory provisions of the Explanatory Note to heading 84.79 concerning machines and mechanical appliances having individual functions apply, mutatis mutandis, to the appliances and apparatus of this heading.
…
EN 84.79, which applies mutatis mutandis to EN 85.43 provides, in part:
[T]he following are to be regarded as having “individual functions”:
…
Mechanical devices which cannot perform their function unless they are mounted on another machine or appliance, or are incorporated in a more complex entity, provided that this function:
is distinct from that which is performed by the machine or appliance whereon they are to be mounted, or by the entity wherein they are to be incorporated, and
does not play an integral and inseparable part in the operation of such machine, appliance or entity.
The LMT-300 is a multi-function machine pursuant to Note 3 to Section XVI, HTSUS (i.e., it is designed to perform two or more complementary or alternative functions described in different headings of Section XVI). It records and reproduces DCP files (functions described by heading 8521, HTSUS). See EN 85.21. It also controls a variety of screen management operations through its SMS software (a function described by heading 8543, HTSUS). Accordingly, by the terms of that Note, it is classified “as if consisting only of that component … which performs the principal function.”
To determine the principal function of a multi-function machine, CBP consults the principal use of the class or kind of good to which the article belongs. See U.S. Additional Rule of Interpretation 1(a). See also Headquarters Ruling Letter (“HQ”) H012561, dated April 28, 2009. U.S. courts have provided several factors, which are indicative but not conclusive, to determine whether merchandise falls within a particular class or kind. They include: (1) general physical characteristics, (2) expectation of the ultimate purchaser, (3) channels of trade, environment of sale (accompanying accessories, manner of advertisement and display), (4) use in the same manner as merchandise which defines the class, (5) economic practicality of so using the import, and (6) recognition in the trade of this use. See Lennox Collections v. United States, 20 CIT 194, 196 (1996). See also United States v. Carborundum Co., 63 CCPA 98, 102, 536 F.2d 373, 377 (1976), cert denied, 429 U.S. 979 (1976); Kraft, Inc. v. United States, 16 CIT 483, 489 (1992); and G. Heileman Brewing Co. v. United States, 14 CIT 614, 620 (1990).
Applied to the merchandise at issue:
i. Physical Characteristics
As noted in the FACTS section, the LMT-300 is a digital cinema server that contains several HDDs with approximately 1TB of storage capacity, a RAID system, and Sony’s SMS software. It is fitted with multiple video and audio output connectors on its rear panel for installation into the SRX-320 projector.
The device’s physical characteristics – in particular, its large storage capacity and RAID system, which improves the reliability and performance of the stored data – are indicative of its principal use as a data storage and reproduction apparatus. The playback control functions enabled by its SMS software, while important, are secondary.
ii. Expectation of the Ultimate Purchaser
Digital movies which conform to the DCI specifications are distributed by movie studios to movie theatres on hard disk drives along with security keys to unlock the protected data. Chapter 7.5.4.2 of the DCI Specification explains that, to project these movies, theatres must install projection systems inclusive of a media block which:
… converts, in real time, the packaged content data from storage into data for playback to downstream devices. Its main function is to provide a secure environment within which to perform content essence decryption.
It follows from the above that a purchaser of the media block does so because he or she expects that it will play back DCP files.
iii. Channels of Trade & Environment of Sale
The LMT-300 and SRX-R320 are marketed and sold together as Sony’s “4K Digital Cinema Projection System.” The System’s brochure highlights the LMT-300’s “large storage capacity” and its ability to “handle DCP files … that are ‘wrapped’ into an MXF [material exchange format] file … and play back the file by using advanced data processing to decrypt and decode the data ….” The brochure also promotes the media block’s SMS function, but only as a bonus feature. As such, we conclude that the way in which the product is sold and marketed suggests that it functions primarily to store and play back DCP files.
iv. Use in the Same Manner as Merchandise Which Defines the Class
The LMT 300 is used in the same manner as the media blocks which define the class to which it belongs; namely, it converts the encrypted and encoded DCP files it receives into streaming data that can be projected onto a movie screen.
v. Economic Practicality of So Using the Import
While the LMT-300 may be used solely to operate the SMS software, it would not make economic sense to purchase it for that purpose. What makes the media block economically attractive is that it enables the SRX-R320 to project DCP files.
vi. Recognition in the Trade of this Use
Chapter 2.1.1.10 of the DCI Specification explains that a media block is “the hardware device that converts the packaged content into the streaming data that ultimately turns into the pictures and sound in the theatre.” In addition, you submitted a copy of a recent press release from Barco/GDC Technology, a market competitor, wherein that company unveiled its own media block – the “GDC Integrated Media Block” – which, like the LMT-300, is “designed to meet the DCI v1.2 Specification and supports … uncompressed playback for resolutions up to 4k.” The above indicates that the trade recognizes that media blocks are used principally to store and reproduce DCP files.
Based on all of the foregoing, we find that the principal function of the LMT-300 is to record and reproduce DCP files. The screen management functions enabled by the SMS software are subsidiary. As such, the merchandise is classified under heading 8521, HTSUS, as a “Video recording or reproducing apparatus.”
HOLDING:
By application of GRI 1 (Note 3 to Section XVI, HTSUS), the LMT-300 Media Block is classified under heading 8521, HTSUS, specifically in subheading 8521.90.00, as: “Video recording or reproducing apparatus, whether or not incorporating a video tuner: Other.” The 2010 column one, general rate of duty is: Free.
Duty rates are provided for convenience only and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on the World Wide Web 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,
Gail A. Hamill, Chief
Tariff Classification and Marking Branch