In ruling HQ H303881 (April 30, 2021), Customs and Border Protection (CBP) discussed the classification of certain footwear incorporating Nike wearable technology (“Nike Adapt BB” or “Adapt”). The Adapt platform has five primary components:
- Bluetooth® system-on-chip (SoC)
- Sensor pack consisting of a gyroscope, accelerometer, and capacitive sensor
- System and subsystem components including three microcontroller unit (MCU) processors, flash memory and a wireless power receiver
- Auto-lacing platform with an optical quadrature rotary encoder and a low-resistance, high-torque, DC motor
- “Performance basketball shoe” housing
When imported, the Nike Adapt BB contains one pair of shoes (incorporating the above electronics components), a wireless charging pad, a USB cable/wall charger combo and operating manual packaged together for retail sale.
Nike provided a list of the components along with proposed classifications: Bluetooth SoC (heading 85.17), sensors (heading 90.31), system technologies (data processing – heading 85.42; memory – heading 85.23; auto-fit technology – heading 85.01; wireless charging pad – heading 85.04), and Shoe – heading 64.04
Both CBP and Nike agreed that the Adapt is a composite good made of different components, and therefore, it is appropriate to classify it in accordance with GRI 3(b), which states:
- Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3 (a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable
Nike claimed that the essential character is imparted by the Bluetooth transceiver and therefore classified under 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.” However, CBP disagreed and believed that the essential character is imparted by the Adapt shoe, and thus should be classified as footwear.
Nike cited to Structural Industries v. United States, which provides that “the component which imparts ‘essential character’ will ‘vary as between different kinds of goods,’ but is generally understood to be the component ‘which is indispensable to the structure, core or condition of the article, i.e., what it is.’ 360 F. Supp. 2d 1330, 1336 (Ct. Int’l Trade 2005).”
They believed it was the Adapt’s transceiving subsystem that is indispensable to the Adapt’s core and condition.
CBP disagreed. The agency explained that “although the Adapt may enable the wearer to enhance his or her experience via a smartphone or other device, the wearer must actually wear them and use them as footwear. If the wearer chooses to enable some or many of the additional features or capabilities, that is his or her option; that is the way the Adapt platform will gather data and subsequently transmit data to the user. However, the wearer will always use the Adapt as footwear.” Furthermore, CBP stated that “the Bluetooth SoC is just one of the electronic components of the Adapt. This article provides wireless capability to the module, which is in turn also incorporated within the footwear. In [CBP’s] view, the act of providing wireless connectivity supports the primary function of the electronic module, which is imparted by the fitness sensors or the auto-lacing platform. The act of wirelessly exchanging that data with a host device is a support or secondary function. The function of the Bluetooth chip, in theory, could be replaced by a wire, but there is no way to replace the sensor assembly, it is the component that proves to be indispensable. This makes it clear that the wireless function is a support function and not the essential character when viewing the electronic module on its own.”
Comparison to “Similar” Devices
Nike had also compared the Adapt to wrist-worn “smart” devices, which monitor health and provide the user data on physical activities and were classified under heading 8517, HTSUS. They presented various rulings pertaining to these devices (HQ H260060 (July 14, 2015), HQ H257947 (July 14, 2015), along with others). Additionally, Nike presented rulings that classified goods with embedded Bluetooth module under heading 8517, HTSUS, despite having utilitarian functions (see NY N237289 (Feb 6, 2013) and NY N307688 (Dec 11, 2019)).
CBP also disagreed with these comparisons and cited “significant differences.” The devices, also known as “smart watches,” are “worn on the user’s wrist and in most of the cases, despite their name, cannot set the correct time themselves unless they are paired with a ‘host’ device, such as a computer or laptop, tablet computer or mobile phone. These wearable smart-devices not only gather data and transmit it to the host device, but interact directly with the user through touch, sight and sound (ex., display screen with or without touch-sensitivity, speakers, haptics). They contain their own mobile operating system (OS) and can perform functions such as sending and receiving text messages, emails, mobile telephone calls, and remotely control music, to name a few.”
Value of Components
The ruling states that the “value of the Bluetooth SoC, sensors, memory, and other electronic components, when taken together, constituted the largest percentage of landed costs when compared to the footwear base and packaging.” Furthermore, Nike argued that the “Adapt platform’s commercial value is unlocked by its Bluetooth transceiver. [Nike] note[s] that the expansive functionality offered by the Adapt is reflected in product costs and retail values that are significantly higher than those of analog footwear.”
CBP described the basketball shoe as “indispensable for the engagement of all of the ‘experience’ options” provided by the other components. Additionally, CBP stated the shoe “predominates in size, weight, function (if not the cost) and delivers the experience of walking, running, and training as compared with the ancillary use of the technological features.”
Ultimately, CBP determined that the Nike Adapt BB is classified under subheading 6404.11.90, HTSUS, as footwear with outer soles of rubber, plastics, leather or composition leather and uppers of textile materials, tennis, shoes, basketball shoes, gym shoes, training shoes and the like: other: valued over $12/pair. The general, column one rate of duty will be 20 percent ad valorem.