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HQ 558868




FEBRUARY 23, 1995

MAR-02-05 CO:R:C:V:S 558868 BLS

CATEGORY: MARKING

Harold Loring, Esq.
Grunfeld, Desiderio, Lebowitz & Silverman 12 East 49th Street
New York, New York 10017

RE: Country of origin marking of programmed SecurID Cards for computer systems; clarification of HRL 733085

Dear Mr. Loring:

This is in reference to your letter dated October 26, 1994, requesting clarification of Headquarters Ruling Letter (HRL) 733085, dated June 13, 1990. That ruling involved country of origin marking for certain "SecurID Cards" imported by Security Dynamics, Inc. ("SDI"). You now advise that in the ruling request dated January 17, 1990, one of the manufacturing steps was stated to have occurred in the U.S., when in fact the process was actually performed in Japan. You believe that this fact is not relevant to the determination; however, you request that HRL 733085 be clarified to include the changed facts.

FACTS:

The SecurID Card is a user identification and authentication card which, in conjunction with an Access Control Module ("ACM"), provides security access to computers. The U.S. programming inputs a 64-bit "seed" in binary code into the SecurID Card and the ACM. The "seed" generates a 4-8 digit code number ("Passcode") which changes in a psuedo-random pattern (most commonly every 30 or 60 seconds). This code number is displayed on the SecurID Card's LCD panel. The changing numbers in the SecurID Card and ACM are synchronized. Thus, when a user logs onto his computer, the ACM software prompts the user to enter the psuedo-random number Passcode then showing on the SecurID Card's LCD display panel, as well as a personal identification number ("PIN"). If the ACM software makes a valid match between its own generated Passcode and the card's Passcode, the user is then authorized access into the computer. The U.S. programming also inputs the personal identification number ("PIN") into the SecurID Card as well as customer-specified functionality such as the number of digits, frequency of the display changes, and the life of the card.

You state that the original request was inaccurate in that it erroneously indicated that the time synchronization algorithm was manufactured into the microprocessor chip in the U.S. In fact, the
algorithms are manufactured into the chip abroad. The manufacturing process is as follows:

The microprocessor in the card is purchased from Sanyo in Japan. The firmware that was developed in the U.S. is put into micro code and sent to Japan to be "burned" into the chip. This is called a "mask." The mask is proprietary to SDI but is physically placed on the chip by Sanyo. This mask contains the instruction sets (algorithms) to process the information which will later be directly programmed into the assembled SecurID Card in the U.S. From time to time SDI employees change the mask and re-ship the revised mask to Japan to be burned onto the chip.

Sanyo then ships the chip with the mask directly to the manufacturing plant in China where it is assembled into a raw card. The raw card is then shipped to SDI's headquarters in Cambridge, MA. The assembled raw card is not functional at this point. Showing on the card's LCD display is only a flashing diamond. The card is in "sleep" mode. Until it receives certain information (in binary code) which is programmed at SDI, the raw card is useless.

When the card arrives in the U.S. it is inspected for defects and then serialized. It is then sent into card programming. Using a PC, and a manufacturing software program ("ACEPROG"), developed in the U.S. by SDI engineers, the unique seed (a random 64 bit Hexadecimal number) for the card is calculated and all of the "custom" parameters ordered by the customer are processed. Using other manufacturing equipment designed and developed by SDI technical personnel including a mechanical robot, a synchronization station and an interface with a purchased quartz monitor, the card is programmed, taking the information calculated by the ACEPROG software and converting it into binary code and then mechanically programming the RAM [random access memory] of the microprocessor chip.

The information supplied by SDI's programming process, combined with the instruction set (algorithms) already on the chip's mask, allow the card to function.

ISSUE:

Whether the processing of the SecurID Card in the U.S. constitutes a substantial transformation, thereby excepting the article from country of origin marking.

LAW AND ANALYSIS:

Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), provides that unless excepted, every article of foreign origin imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to the ultimate purchaser in the U.S. the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. 1304 was "that the ultimate purchaser should be able to know by an inspection of the marking on the imported article the country of which the goods is the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will." United States v. Friedlaender & Co., 27 CCPA 297 at 302; C.A.D. 104 (1940).

Part 134, Customs Regulations (19 CFR Part 134), implements the country of origin marking requirements and the exceptions of 19 U.S.C. 1304. Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines "country of origin" as the country of manufacture, production or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of the marking laws and regulations. The case of United States v. Gibson-Thomsen Co., Inc., 27 CCPA 267, C.A.D. 98 (1940), provides that an article used in manufacture in the U.S. which results in an article having a name, character or use differing from that of the imported constituent article will be considered substantially transformed. In such circumstances the U.S. manufacturer will be considered the ultimate purchaser. The imported article will be excepted from the marking requirements and only the outermost container is required to be marked. (See 19 CFR 134.35.)

In HRL 733085, we analyzed the matter as follows, based on the facts as related in the earlier request:

In determining whether there is a substantial transformation, it is necessary to analyze whether programming the SecurID Cards changes their name, character, or use. In HRL 732087 (February 7, 1990) we ruled that a blank computer diskette is substantially transformed by having a program written onto it and the party performing the programming is considered the ultimate purchaser of the blank diskette for country of origin marking purposes. We noted that the character of the diskette had changed from one of a blank storage medium to one with a predetermined pattern coded onto it. The use of the diskette had changed from that of an unreadable, therefore meaningless, article of software, to that of an encoded instruction guide to enable a computer to perform
various commands.

In Data General v. United States, 4 CIT 182(1982), the court found that for purposes of determining eligibility under item 807.00, Tariff Schedules of the United States [predecessor to subheading 9802.00.80, HTSUS], the programming of a foreign PROM [Programmable Read-Only Memory chip], substantially transforms the PROM into a U.S. article. The court noted that it is undisputed that programming alters the character of a PROM. Programming changes the pattern of interconnections within the PROM. A distinct physical change is effected in the PROM by the opening or closing of the fuses, depending on the method of programming. This physical alteration, not visible to the naked eye, may be discerned by electronic testing of the PROM. The essence of the article, its interconnections or stored memory, is established by programming. The court concluded that altering the non- functioning circuitry comprising a PROM through technological expertise in order to produce a functioning read only memory device possessing a desired distinctive circuit pattern, is no less a "substantial transformation" than the manual interconnection of transistors, resistors and diodes upon a circuit board creating a similar pattern.

In this case, we find that the programming done in the U.S by Security Dynamics changes the name, character and use of the SecurID Cards. It can only really be called a SecurID Card after it is programmed. Before programming, the card has an LCD, battery, chip, and printed circuit board; but it is essentially useless. The function of the SecurID Cards is to generate a random code that is compatible with a code on the computer security system. This allows the user to enter the code so that he can gain access to the computer system. SecurID Cards will not function with the computer security system unless they are properly programmed. The programming of the card gives it its character so that it can function as part of a computer security system. The programming also makes a permanent change in the card that cannot be undone.........Accordingly, we find that since the programming is so integral to proper functioning of the SecurID Cards, it creates a new and different article of commerce and it results in a substantial tranformation. [Emphasis added.]

Under the facts as clarified by your new submission, the programming of the SecurID Card in the U.S. remains unchanged. As a result, our analysis, above, applicable to the facts as set forth in HRL 733085, is equally applicable to the amended facts.

HOLDING:

The programming of the SecurID Cards results in a substantial transformation. Therefore, the U.S. imported/manufacturer is the ultimate purchaser of the imported articles, and under 19 CFR 134.35, the articles are excepted from individual marking requirements. However, upon importation, the outermost container is required to be properly marked with the country of origin. HRL 733085 is clarified.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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