Court of Appeals Finds Battery-Powered LED Candles Classifiable as Lamps

The U.S. Court of Appeals for the Federal Circuit on Aug. 6 affirmed a lower court ruling on the classification of battery-powered candles in heading 9405 as lamps and lighting fittings. CAFC largely agreed with the Court of International Trade's finding in a Gerson Company challenge to CBP's classification of the candles after liquidation in heading 9405 with a 3.9 percent duty rate during 2009 and 2010 (see 1708030011). Gerson appealed CIT's ruling over what the company said were errors in the court's analysis.

The goods are various models of Gerson "candles" and "tea lights" that use battery-powered LEDs for illumination. The company's lawsuit said that the candles are best classified in heading 8543 as electrical machines and apparatus with a 2 percent duty rate. In its appeal, Gerson cited CIT's mention that the candles could "plausibly" be classified in 8543. While CIT did say the heading could include Gerson's candles, "insofar as the candles, like all electrical lamps ever in existence, qualify in the abstract as electrical machines or apparatus, the court correctly and emphatically rejected that reading as nonsensical," the appeals court said.

Gerson also questioned CIT's reliance on Explanatory Notes to narrow the classification language. Unlike in cases cited by Gerson in the appeal, here "the language of heading 8543 is ambiguous standing alone," the appeals court said. Only after CIT "construed heading 8543 in view of heading 9405 to conclude that it does not cover Gerson’s candles" did it "note that the ENs supported its construction," it said. Also, CIT used the ENs to properly "clarify the scope," rather than to limit the scope, CAFC said.

The company also "pounces on the Trade Court’s statement that its candles 'are within a class or kind of electric lamps that are self-contained, i.e., independently used,' and therefore fall within chapter 94 rather than chapter 85," the appeals court said. Gerson said this type of "'class or kind' analysis" is only used for other types of classification issues. CIT wasn't performing a legal "class or kind" analysis and only "used the phrase for its ordinary meaning to make the point that Gerson’s candles are the type of articles classified under heading 9405 rather than heading 8543."

Target General Merchandise and 12 other companies filed a friend of the court brief in support of Gerson's position that the CAFC should focus on the subheading "8543.70.70, which covers 'electric luminescent lamps.'" The claim is that "the placement of subheading 8543.70.70 within heading 8543 evidences Congress’s intent for all 'electric luminescent lamps' to qualify as 'electrical machines and apparatus,'" the appeals court said. "We disagree on all counts."

The notion that the court should start with the subheading and move backward in its analysis, or "bottom-up," is a flawed approach, CAFC said. The "top-down" approach must be used, as it "ensures that the more specific subheading characterizations are informed by the more general headings in which they appear," the court said. "Beginning the analysis with the subheading, as Gerson urges, would effectively divorce the analysis from the necessary context provided by the higher-level headings."

(The Gerson Company v. U.S., # 2018-1011, dated 08/06/18, Judges Lourie, O'Malley and Chen)

(Attorneys: Ralph Sheppard of Meeks Sheppard for plaintiff The Gerson Company; Hardeep Josan for defendant U.S. government)