Protest and Application for Further Review No 4701-2018-100232; Classification of a Bitmain Antminer S9 Bitcoin Miner

HQ H300063 December 11, 2019 CLA-2 OT:RR:CTF:EMAIN H300063 PF CATEGORY: Classification TARIFF NO.: 8543.70.99 Port DirectorU.S. Customs and Border ProtectionJohn F. Kennedy International AirportBuilding 77, 2nd Floor Jamaica, NY 11430 Attn: Gregory Dailey, Import Specialist Re: Protest and Application for Further Review No: 4701-2018-100232; Classification of a Bitmain Antminer S9 Bitcoin Miner Dear Port Director: The following is our decision as to Protest and Application for Further Review No. 4701-2018-100232, which was filed on June 20, 2018 on behalf of North Country Data Center Corporation (“Protestant”). The protest pertains to the classification of a Bitmain Antminer S9 Bitcoin Miner (“Antminer S9”) under the Harmonized Tariff Schedule of the United States (“HTSUS”). The subject merchandise was entered by protestant on July 24, 2017 at the John F. Kennedy International Airport. On January 5, 2018, CBP liquidated the entry under subheading 8543.70.99, HTSUS, which provides for “Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof: Other machines and apparatus: Other: Other: Other.” On June 20, 2018, protestant filed a protest and AFR regarding the tariff classification of the subject merchandise and claiming that the correct classification of the subject merchandise should be in subheading 8471.50.01, HTSUS, which provides for “Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included: Processing units other than those of subheading 8471.41 or 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units.” In the alternative, protestant maintains that the subject merchandise should be classified in subheading 8471.80.90, HTSUS, which provides for Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included: Other units of automatic data processing machines: Other: Other.” Our decision takes into account the arguments presented during a February 27, 2019 meeting and supplemental submissions received on March 14, 2019 and April 26, 2019. FACTS: The subject Antminer S9 is a machine used in mining various types of cryptocurrency. Cryptocurrency is defined as a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Individuals who possess cryptocurrency, such as Bitcoin, and seek to conduct a financial transaction rely on the network of “miners” to validate their transactions through mining. The act of “mining cryptocurrency” is the process of updating a ledger of cryptocurrency transactions known as the blockchain. The blockchain is a series of blocks and a block is a collection of cryptocurrency transactions. Mining is done by application specific integrated circuit (“ASIC”) miners, such as the subject Antminer S9, which compete against other cryptominers in an attempt to guess a specific number that is associated with a block containing transaction data. The first cryptominer to guess the correct number is rewarded by being able to authorize the transaction, update the blockchain, and receive a fraction of cryptocurrency. The Antminer S9 consists of an aluminum enclosure, two cooling fans, a controller printed circuit board assembly (“PCBA”), three separate PCBAs that are commonly referred to as hashboards, and 189 ASIC chips. The Antminer S9 requires at least one separate external power supply unit (“PSU”) that is attached to the hashboards and controller board, but may use up to three PSUs, one for each hashboard, depending on the capabilities of the PSUs employed. Once power is supplied to the Antminer S9 and the unit is connected to a dynamic host configuration protocol (“DHCP”) network, the Antminer S9 will obtain an IP address automatically from a DHCP server. In order to verify the IP address, a user will download the Antminer S9’s software on an automatic data processing (“ADP”) machine, click on the IP Report button on the controller board, and view the IP address in a window on a computer screen. A user will subsequently open a browser, enter the IP address and a username and password, and configure the Antminer S9. Once configured, the Antminer S9 receives data from a mining pool and begins to randomly produce hash calculations until solved. The Antminer S9 is continuously communicating with the mining pool. Neither the power supply nor the ADP machine are imported with the Antminer S9. The controller boards contain a single Ethernet RJ45 connection, a reset button, status LED indicator(s), and a memory card slot. The memory card is used to update the controller’s firmware or hardware recovery. Each hashboard is populated with numerous ASICs and heat sinks on both sides. The hashboards slide into the aluminum enclosure and are connected to the control board through a ribbon cable on the data connector. There is no “motherboard” or backplane slot that connects the hashboards to the controller, they merely rest vertically in a channel inside the enclosure. The Antminer S9 has minimal onboard flash memory and otherwise does not include a storage medium. There is no method for connecting a storage unit like a solid state drive or hard disk drive. A user cannot install, modify or remove program applications on the Antminer S9. The Antminer S9 also does not have a graphics interface, USB or similar control interface, a Bluetooth interface, audio input/output or a power supply. The Antminer S9 does not allow for general purpose computing tasks nor is it capable of displaying graphics. The Antminer S9 is programmed through firmware updates held on the memory card and configured and initialized through a network/Ethernet connected ADP machine. Mining functions are measured in “hash” calculations and are depicted as MH, GH, or TH. Pictures of the Antminer S9 are provided below: ISSUE: Whether the Antminer S9 is classified as a processing unit of heading 8471, HTSUS, as a unit of an ADP machine of heading 8471, HTSUS, or as an electrical machine and apparatus, having individual functions, not specified or included elsewhere in Chapter 85, of heading 8543, HTSUS. LAW AND ANALYSIS: Initially, we note that the matters protested are protestable under 19 U.S.C. §1514(a) (2) as decisions on classification. The protest was timely filed, within 180 days of liquidation of the first entry. (Miscellaneous Trade and Technical Corrections Act of 2004, Pub.L. 108-429, § 2103(2) (B) (ii), (iii) (codified as amended at 19 U.S.C. § 1514(c) (3) (2006)). Further Review of Protests No. 3004-17-100339 is properly accorded to Protestant pursuant to 19 C.F.R. § 174.24(b) because the decision against which the protest was filed is alleged to involve questions of law or fact, which have not been ruled upon by the Commissioner of Customs or his designee, or by the courts.  Merchandise imported into the United States is classified under the HTSUS. Tariff classification is governed by the principles set forth in the General Rules of Interpretation (“GRIs”) and, in the absence of special language or context which requires otherwise, by the Additional U.S. Rules of Interpretation. The GRIs and the Additional U.S. Rules of Interpretation are part of the HTSUS and are to be considered statutory provisions of law for all purposes. GRI 1 requires that classification be determined first 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 heading and legal notes do not otherwise require, the remaining GRIs 2 through 6 may then be applied in order. The 2018 HTSUS headings under consideration are as follows: 8471 Automatic data processing machines and units thereof; magnetic or optical readers, machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included…. 8471.50.01 Processing units other than those of subheading 8471.41 or 8471.49, whether or not containing in the same housing one or two of the following types of unit: storage units, input units, output units…. 8471.80 Other units of automatic data processing machines: Other: 8471.80.90 Other. 8543 Electrical machines and apparatus, having individual functions, not specified or included elsewhere in this chapter; parts thereof…. 8543.70 Other machines and apparatus: Other: Other: 8543.70.99 Other. Additional U.S. Rules of Interpretation 1 (AUSR1), HTSUS, provides, in part: 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[.] ADP machines are defined in Legal Note 5(A) to Chapter 84, HTSUS, which provide as follows: For the purposes of heading 8471, the expression "automatic data processing machines" means machines capable of: Storing the processing program or programs and at least the data immediately necessary for the execution of the program; Being freely programmed in accordance with the requirements of the user; Performing arithmetical computations specified by the user; and Executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run. To be classified as an ADP unit under heading 8471, HTSUS, an article must meet the terms of Legal Note 5(C) to Chapter 84, HTSUS, which provides that: Subject to paragraphs (D) and (E) below, a unit is to be regarded as being a part of an automatic data processing system if it meets all the following conditions: (i) It is of a kind solely or principally used in an automatic data processing system; (ii) It is connectable to the central processing unit [CPU] either directly or through one or more other units; and (iii) It is able to accept or deliver data in a form (codes or signals) which can be used by the system. Separately presented units of an automatic data processing machine are to be classified in heading 8471…. In understanding the language of the HTSUS, the Explanatory Notes (ENs) of the Harmonized Commodity Description and Coding System, which constitute the official interpretation of the HTSUS at the international level, may be utilized. The ENs, although not dispositive or legally binding, provide a commentary on the scope of each heading, and are generally indicative of the proper interpretation of the HTSUS. See T.D. 89-80, 54 Fed. Reg. 35127 (August 23, 1989). The ENs to heading 8471 provide, in pertinent part: AUTOMATIC DATA PROCESSING MACHINES AND UNITS THEREOF Data processing is the handling of information of all kinds, in pre-established logical sequences and for a specific purpose or purposes. Automatic data processing machines are machines which, by logically interrelated operations performed in accordance with pre-established instructions (program), furnish data which can be used as such, or, in some cases, serve in turn as data for other data processing operations.   This heading covers data processing machines in which the logical sequences of the operations can be changed from one job to another, and in which the operation can be automatic, that is to say with no manual intervention for the duration of the task…. However, the heading excludes machines, instruments or apparatus incorporating or working in conjunction with an automatic data processing machine and performing a specific function. Such machines, instruments or apparatus are classified in the headings appropriate to their respective functions or, failing that, in residual headings (See Part (E) of the General Explanatory Note to this Chapter).   AUTOMATIC DATA PROCESSING MACHINES The automatic data processing machines of this heading must be capable of fulfilling simultaneously the conditions laid down in Note 5(A) to this Chapter. […] Thus, machines which operate only on fixed programs, i.e., programs which cannot be modified by the user, are excluded even though the user may be able to choose from a number of such fixed programs. These machines have storage capability and also stored programs which can be changed from job to job…. (B) SEPARATELY PRESENTED UNITS  ….Constituent units are those defined in Part (A) above and in the following paragraphs, as being parts of a complete system. An apparatus can only be classified in this heading as a unit of an automatic data processing system if it: Performs a data processing function; (b)   Meets the following criteria set out in Note 5 (C) to this Chapter: (i)    It is of a kind solely or principally used in an automatic data processing system; (ii)   It is connectable to the central processing unit either directly or through one or more other units; and (iii)  It is able to accept or deliver data in a form (codes or signals) which can be used by the system.   (c) Is not excluded by the provisions of Notes 5 (D) and (E) to this Chapter…. The EN to heading 8543, HTSUS, provides in pertinent part: This heading covers all electrical appliances and apparatus, not falling in any other heading of this Chapter, 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 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.   The EN to heading 8479, HTSUS, provides, in relevant part: For this purpose the following are to be regarded as having “individual functions”: Mechanical devices, with or without motors or other driving force, whose function can be performed distinctly from and independently of any other machine or appliance. The Antminer S9 is capable of “storing the processing program or programs and at least the data immediately necessary for the execution of the program;” “performing arithmetical computations specified by the user;” and “executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during the processing run.” See Note 5(A)(i), (iii) and (iv) to Chapter 84, HTSUS. At issue in this case is whether the device is “capable of … being freely programmed in accordance with the requirements of the user.” See Note 5(A)(ii) to Chapter 84, HTSUS. In Optrex America Inc. v. United States, 427 F. Supp. 2d. 1177 (Ct. Int’l Trade 2006), aff’d, 475 F.3d 1367 (Fed. Cir. 2007) (“Optrex”), the U.S. Court of Appeals for the Federal Circuit (“CAFC”) upheld CBP’s longstanding interpretation that a “freely programmable” ADP machine is one that: (i) applications can be written for, (ii) does not impose artificial limitations upon such applications, and (iii) will accept new applications that allow the user to manipulate the data as deemed necessary by the user. 475 F.3d at 1368. See also Headquarters Ruling Letter (“HQ”) 964880, dated December 21, 2001. The Optrex court noted that “[CBP’s] interpretation is supported by the World Customs Organization’s Explanatory Notes […] which provide that ‘machines which operate only on fixed programs, that is, programs which cannot be modified by the user, are excluded [from heading 8471] even though the user may be able to choose from a number of such fixed programs.’ Explanatory Note 84.71(I)(A).” Id. at 1370. The court added that “[a]pplication programs are not ‘fixed’ because they can be installed or deleted from a machine.” 427 F. Supp. 2d at 1197. CBP has ruled that devices which enable the user to decide which applications to install or delete from the device are freely programmable. For example, in HQ 964880, supra, CBP examined the classification of the Palm VII and VIIx – personal digital assistants (“Palm PDAs”) with Internet connectivity. Both models used Palm’s 3.2.0 OS, a 16MHz microprocessor, and came with 2 MB of random access memory and 2 MB of read-only memory.  They were imported with pre-installed applications (including a date book, an address book, a memo pad, and desk top e-mail connectivity software) and could accept additional applications that were available directly from Palm or from third-party vendors. In finding that the devices were freely programmable, CBP stressed the fact that they could be programmed in several ways: directly on the devices, with a host computer to generate a generic application, or with a host computer to generate a native application. CBP also noted that: the Palm [OS] is an open operating system; programming tools are readily available to any user either directly from Palm or from other commercial sources; programming tools are readily available to any user either directly from Palm or from other commercial sources; [and] hundreds of software applications are currently available for the Palm OS through a variety of vendors who distribute them either as freeware, shareware, or commercial applications … CBP classified the PDAs in subheading 8471.30.00, HTSUS, as portable ADP machines.  Conversely, in HQ H026665, dated July 9, 2008, CBP ruled that the AIDA System Compact II, a machine used in hospitals to archive images, video and audio files associated with patient information onto a database, was not freely programmable because users were not free to add or remove software from the device. There, CBP noted, first, that the importer could not provide “… an affirmative representation that the hardware and software are installed into the AIDA without any proprietary restrictions or blocks” and second, that “the software installation manual and license prohibited the downloading of additional software and also identified such action as an impediment to the operation of the device.”  Similarly, in HQ 964682, dated July 15, 2002, we determined that the Sony PlayStation2 (“PS2”), a video game console, was not freely programmable because:   [p]roprietary blocks in the PS2 prevent the console from running any commercially available Linux OS and only specially designed Sony disks can be read by the system.  If a non-PS2 compatible disc is inserted in the console, the hardware layer (with the firmware) determines that the disc does not contain one of the accepted formats and thus does not acknowledge it as accepted media. Significantly, we noted that to run additional Linux-based programs on the PS2, the user was required to install Sony’s version of the Linux OS, which was not included with the console. Moreover, in HQ 952862, dated November 1, 1994, CBP determined that Teklogix data collection devices were not freely programmable, in part, because they were not “general purpose” machines and were designed for certain specific applications and could not by themselves perform the typical applications of computers or personal computers. HQ 952862 discussed the concept of freely programmable by examining the definitions of computer and p