Defining OtterBox for Tariffs

by Dennis Crouch

A substantial portion of the Federal Circuit’s appellate involve customs disputes stemming from the Court of International Trade (CIT).  Usual disputes center on the proper tariff classification of goods being imported into the US.  The Harmonized Tariff Schedule of the United States (HTSUS) is the primary code-book that includes thousands of classifications  and a tariff rate (typically ad valorem).

In the new decision of Otter Producs  v. US (Fed. Cir. 2016), the Federal Circuit was simply asked the question of whether OtterBox phone cases being imported from China should be classified under HTSUS 4202.99.00 as “similar containers” or instead under 3926.90.9980 as “Other articles of plastics.”  The US Customs argued for the first classification – associated with a 20% ad valorem tax – while Otter preferred the second and its 5.3% rate.

As in patent law infringement analysis, the basic process is to look at the classification statements and determine whether the product in question fits within that description.  A major distinction, however, is the reality that every product must fit somewhere. That means that the process focused on the best fit rather than the yes/no analysis used in infringement cases.

The tariff schedule (HTSUS) was passed by congress and thus is interpreted as a statute.  And, as with patent claim construction, the court sees the tariff interpretation as the first step in Customs’ classification determinations and one that is a question of law reviewed de novo on appeal.  Once the tariff provision is interpreted, the court then goes to the second step of figuring out whether the product in question fits the interpreted tariff.  Of course, (as with claim construction) that process has to be somewhat iterative because needs of tariff interpretation (or claim interpretation) are driven by any unique features of the product.

In interpreting the statute, the Federal Circuit has taken the approach of construing HTSUS terms according to “common and commercial meanings, which we presume are the same.”  Although not required by the statute, the court has also taken to relying upon the explanatory notes in the World Customs Organization tariff schedule to aid its interpretation.

In OtterBox, the US proposes that that the the proper classification fit within the category 4202 that includes “Trunks, suitcases, … , binocular cases, camera cases, musical instrument cases … 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 … .”  OtterBox proposes a broader category of “3926 Other articles of plastics …”

In siding with OtterBox, the federal circuit stepped through Heading 4202 and found, inter alia, that the OtterBox cases would only fit as “similar containers,” but that they were not really similar.  The important distinction is that OtterBox cases are designed so that the device is fully functional while in the case – that is not true for any of the cases listed in the heading.

The case is a good one to read for those interested in the court’s jurisprudence beyond their usual patent cases.

7 thoughts on “Defining OtterBox for Tariffs

  1. 3

    I have difficulties understanding the difference between the Court of International Trade (CIT) and the International Trade Commission (ITC). Can anyone help me to understand this? It seems to me that the CAFC has exclusionary jurisdiction over cases appealed from the ITC, but some articels states that the CIT can hear disputes made by the ITC. So, I am quite confusing.

    1. 3.1

      The easiest way to think about this might be to keep in mind that the Court of International Trade is an Article III court, and not an Article I agency like the International Trade Commission. The CIT has jurisdiction over “civil actions” arising from adverse agency actions pertaining to import transactions. So if Congress creates a “civil action” for some trade issue, it gets heard by the Court of International Trade, and then the CAFC has appellate jurisdiction from the CIT.

      Some examples of cases that the CIT considers are civil actions relating to Customs Service decisions (classification of merchandise, liquidations (like this case), etc.).

      There are also civil actions arising from trade decisions of the Department of Commerce and the International Trade Commission in the areas of antidumping and countervailing duty determinations. Those decisions are first made by the Dept. of Commerce/ITC, and then the civil action arising from that decision gets heard by the CIT, with the appeal from the CIT to the CAFC.

      On the other hand, some of the decisions of the International Trade Commission — 337 unfair importation cases — are appealed directly to the CAFC. There is no intervening “civil action” that is first heard by the CIT.

  2. 1

    Otter imported these products in 2012, and they were designed for specific smartphone models then in existence. Presumably, these products were sold to consumers years ago. I wonder if Otter marked up the price of these products to cover the higher tariff rate. If so, this win for Otter is pure profit (minus attorneys’ fees).

    1. 1.1

      Otter Boxes are great products outrageously overpriced. They should cost $2 and they do cost closer to $40. They are not suitcases. They are clearly other articles of plastic combined with other articles of rubber …or maybe gaskets. That customs would try to call them suitcases is outrageous alarming.

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