On August 24, 2016, in Otter Products v. US, Court of Appeals for the Federal Circuit (CAFC) agreed with the Court of International Trade (CIT) decision that protective cases for smartphones that are specifically designed to fit these smartphones are not classifiable under HTSUS heading 4202. For Otter Products, LLC this decision lowered duty from 20% to 5.3%, allowing them to use HTSUS 3926.90.99 (other articles of plastic provision). Perhaps more interesting, if not important, outcome of the opinion is the analysis and well-reasoned attack on the part of both plaintiff and defendant.
HTSUS 4202 heading provides for:
Trunks, suitcases, vanity cases, attache cases, briefcases, school satchels, spectacle cases, binocular cases, camera cases, musical instrument cases, gun cases, holsters and similar containers; traveling bags, insulated food or beverage bags, toiletry bags, knapsacks and backpacks, handbags, shopping bags, wallets, purses, map cases, cigarette cases, tobacco pouches, tool bags, sports bags, bottle cases, jewelry boxes, powder cases, cutlery cases and similar containers, of leather or of composition leather, of sheeting of plastics, of textile materials, of vulcanized fiber or of paperboard, or wholly or mainly covered with such materials or with paper:
Since smartphone cases are not specifically provided under heading notes, the question is whether these cases be regarded as “similar containers.” CAFC agreed with CIT that “similar container” implies “same essential characteristics or purposes that unite the listed exemplars” (i.e. binocular cases, camera cases … etc.). For factors that unite items listed in 4202 heading are:
Of course, in a multi-factor analysis, the question is that of degree. For example, can one factor, such as protection, render the smartphone cases within 4202 “similar containers” category. CAFC went beyond CIT, and said:
[T]there is no requirement that the subject merchandise meet all four characteristics to qualify as a “similar container” under Heading 4202. Courts should consider the four characteristics collectively and then determine whether, in light of those considerations, the classification would lead to an inconsistency. * * * Allowing a single factor to satisfy the inquiry would, in almost all conceivable scenarios, render the scope of “similar containers” so broad that it would lead to absurd results and make consistent application of the standard all but impossible. * * * It would, moreover, divorce consideration of the individual characteristics from any consideration of a unifying purpose, making the latter virtually impossible to define.
So, we are left with totality of circumstances analysis. Government was prepared for totality of circumstances outcome and prepared the attack on each factor.
For organization, government said that camera and binocular cases are no different from cellphone cases. They are designed to hold specific cameras and binoculars and are provided under 4202. Otter Products rebutted that camera and binocular cases are different: “camera cases often contain extra lenses, batteries, cables, and memory cards. Binocular cases often contain straps, cleaning cloths, lens caps, and other accessories. Gun cases and holsters may contain multiple guns and rounds of ammunition.” Government lost the argument because “organization requires at least the possibility of storing multiple items.” Here, cellphone cases were only designed to hold a single cell phone.
For storage, government said that cases keep “the enclosed devices safe while in the pockets, backpacks or handbags of their owners until their next use” and therefore store cellphones within the case. CAFC was not persuaded saying “because the devices remain fully functional, the cases do not comport with the common understanding of the term ‘storing.'”
For protection, there was no dispute: cellphone cases are designed to protect cellphones within them. But, CAFC noted that:
- Allowing a single factor to satisfy the inquiry would, in almost all conceivable scenarios, render the scope of “similar containers” so broad that it would lead to absurd results and make consistent application of the standard all but impossible.
- It would, moreover, divorce consideration of the individual characteristics from any consideration of a unifying purpose, making the latter virtually impossible to define.
Government knew that reliance on “storage” alone would be a losing position.
For carriage, government’s proposed dictionary definition of “carry” as “to hold or support while moving.” Since cellphones are held within cases while they are being moved, they must be “carried.” Otter Products rebutted that carriage prong is not applicable, because cellphone cases “add nothing to the carrying capability that the electronic device, standing alone, would not already have.” Read verbatim, government should win, because technical definition elements are met. But Otter Products was able to turn that definition against the government – “[i]f anything, the electronic device ‘carries’ the case” – ultimately getting the Court on its side of the trenches (“the subject merchandise simply does not ‘carry’ anything for purposes of being classified under Heading 4202.”