Safety Car Heating & Lighting Co. v. United States, 2526

• Decision Date: 01 December 1933
• Docket Number: 2527.,No. 2526,2526
• Citation: 5 F. Supp. 276
• Parties: SAFETY CAR HEATING & LIGHTING CO. v. UNITED STATES (two cases).
• Court: U.S. District Court — District of New Jersey

5 F. Supp. 276

SAFETY CAR HEATING & LIGHTING CO. v. UNITED STATES (two cases).

Nos. 2526, 2527.

District Court, D. New Jersey.

December 1, 1933.

Wall, Haight, Carey & Hartpence and Thomas G. Haight, all of Jersey City, N. J., and Henry T. Stetson, of Orange, N. J., for petitioner and plaintiff.

Phillip Forman, U. S. Atty., of Trenton, N. J., Oliver Randolph, Asst. U. S. Atty., of Newark, N. J., and R. P. Hertzog, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C FAKE, District Judge.

The major facts and the issues arising on them are so concisely stated in defendant's brief that the language cannot be improved upon, so I quote:

"The Safety Car Heating and Lighting Company was organized in 1887 and was engaged in the manufacture and sale of electric lighting equipment for railway cars. In 1907 it secured by assignment from John R. Creveling United States Letters Patent No. 747686, which had been issued to said assignor by the United States Commissioner of Patents in 1903. Said patent covered a train lighting system for use on railway cars.

"In January, 1912, plaintiff instituted a suit for damages in the United States District Court for the Western District of New York for the alleged infringement of said patent against the United States Light and Heating Company. The suit was contested and no action was taken thereon prior to March 1, 1913. An interlocutory decree was entered for plaintiff Dec. 11, 1914 (D. C. 222 F. 310) and affirmed in June, 1915 (C. C. A. 223 F. 1023). Thereafter, proceedings were held before a Special Master to determine the amount of the recovery to which the Safety Car Heating and Lighting Company was entitled. A report thereon was rendered in 1923 allowing damages for $501,180.32, and judgment was entered in that amount October 5, 1924. Said amount represented the recovery allowed by the Special Master for the entire period of infringement from January 1, 1909 to April 30, 1914. The amount of said sum applicable to the period prior to March 1, 1913, was $436,137.41.

"In May, 1925, plaintiff accepted in settlement of said judgment the sum of $200,000. The expenses of litigation after the filing of the supplemental bill were $23,468.05 (R. 119), leaving a net amount received by plaintiff of $176,531.95, of which $153,621.72 is attributable to infringement of the patent during the period prior to March 1, 1913.

"In filing its return for the calendar year 1925, the Safety Car Heating and Lighting Company did not include any portion of the amount received in settlement of the patent litigation in its taxable net income but reported the sum of $176,531.95 as nontaxable income. Thereafter, upon audit of said return, the Commissioner of Internal Revenue determined, assessed and collected an additional tax of $22,162.07, as shown by letter dated December 18, 1929, based upon the addition to taxable income of the said sum of $176,531.95. Claim for refund was thereafter filed for $19,970.28 of the said additional tax, and a claim was also filed for $69,729.18, representing a portion of the tax paid on the return. Said claims were subsequently rejected by the Commissioner prior to institution of these suits."

Questions involved:

"The question of law involved in the suit against the Collector is whether the net amount received in settlement of a contested suit for patent infringement, which was instituted prior to March 1, 1913, is taxable income when received in 1925, while the question of law involved in the suit against the United States is whether a loss was sustained upon said settlement based on the difference between the amount received and the March 1, 1913 value of the claim for the patent infringement."

Taking up the issues in the order of their statement, we are first called upon to answer the question as to whether or not the net amount received by plaintiff in settlement of a patent suit instituted prior to March 1, 1913, and settled in 1925 is taxable income in the latter year. The...