INCO ELECTROENERGY CORPORATION v. Commissioner
| Decision Date | 31 August 1987 |
| Docket Number | Docket No. 29491-84,934-86. |
| Citation | 1987 TC Memo 437,54 TCM(CCH) 359 |
| Parties | Inco Electroenergy Corporation, Successor in Interest to ESB Incorporated & Consolidated Subsidiaries v. Commissioner. Inco Alloys International, Inc. (formerly Huntington Alloys, Inc., and formerly International Nickel Company, Inc.) v. Commissioner. |
| Court | U.S. Tax Court |
Dennis I. Meyer, and C. David Swenson, 815 Connecticut Ave. N.W., Washington, D.C., for the petitioner. Alan E. Cobb, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in petitioners' Federal income taxes:
Petitioner Taxable Year Ended Deficiency
Inco Electroenergy Corporation.........................March 31, 1970 $114,617.00
March 31, 1971 25,942.00
March 31, 1972 28,173.00
March 31, 1973 23,317.00
March 31, 1974 762,234.00
Inco Alloys International, Inc...........................December 31, 1974 58,994.34
After concessions, the only remaining issue is whether the proceeds received by ESB Incorporated, a predecessor to both petitioners, from a settlement agreement with EXXON Corporation constituted capital gain or ordinary income.
Some of the facts have been stipulated and are so found.1 The stipulation of facts and exhibits associated therewith are incorporated herein by reference.
Petitioner in docket No. 29491-84, Inco Electroenergy Corporation, a Pennsylvania corporation, had its principal office in New York at the time it filed its petition. Petitioner in docket No. 934-86, Inco Alloys International, Inc., a Delaware corporation had its principal office in West Virginia at the time it filed its petition. On brief both parties have indicated that all issues in docket No. 934-86 have been disposed of by agreement. Consequently, hereinafter the word petitioner in the singular shall refer only to Inco Electroenergy Corporation unless otherwise indicated.
Both petitioners are successive successors-in-interest to ESB Incorporated (ESB) and its consolidated subsidiaries. ESB was originally organized as Electric Storage Battery Company under the laws of the State of New Jersey in 1888. In 1967, Electric Storage Battery Company changed its name to ESB Incorporated.2 Throughout its history the company has been continously engaged in the manufacturing business. Its products include storage batteries and related accessories.
In 1901, ESB adopted and began using the trademark "EXIDE." It applied the trademark, and variations thereof, to its storage batteries, related parts and accessories from 1901, through the years in issue. In 1932, ESB began to register the EXIDE trademark, and variations thereof, with the United States Patent Office when it received a certificate of registration from the Patent Office for the trademark "EXIDE" for use with respect to its batteries, related parts and accessories. In 1935, it received a certificate of registration for the trademark "EXIDE IRONCLAD" for use with respect to storage batteries and parts. In subsequent years similar certificates of registration were obtained for the trademarks "EXIDE ACCUMULATOR," "EXIDE-TYTEX," "EXIDOL," and "WHEN IT'S AN EXIDE YOU START."
ESB intensively advertised and promoted its trademarks and they became well known nationally and internationally. Batteries and other products bearing the EXIDE trademark were consistently and conspiciously used in cars, airplanes and other vehicles and in events of historical significance including the first self-starting automobile, Admiral Byrd's first flight over the North Pole, Piccard's balloon flight to the stratosphere, and various planetary, lunar and other explorations in space, including voyages by the Mariner, Ranger, and Surveyor rockets.
EXIDE was ESB's most important trademark and over the years preceding 1967 ESB had established a policy of taking any action necessary to prevent the unauthorized use of any trademark confusingly similar to or which tended to infringe upon the EXIDE trademark. Such actions included trademark cancellation and opposition proceedings in the United States as well as foreign countries. For example, in Electric Storage Battery Company v. Ex-Cell Battery & Equipment Company, 537 Off. Gaz. Pat. Off. 721 (April 6, 1942) (Cancellation No. 3979), ESB obtained the cancellation of the trademark EXCELL which had been issued to the Ex-Cell Battery & Equipment Company for use with respect to storage batteries.
Prior to January of 1968, Standard Oil Company of New Jersey ("Standard Oil"), the predecessor to EXXON Corporation, undertook to register the trademark "EXXON" in a number of foreign countries for use with respect to any product Standard Oil might wish to sell, including batteries and related products.
Upon becoming aware in January 1968 of Standard Oil's plan to adopt and use the EXXON trademark, ESB immediately instituted legal proceedings to prevent such registrations in every country in which Standard Oil had attempted to register the EXXON trademark for use with respect to batteries or any class of product that could include batteries or related products covered by the EXIDE trademark. ESB's opposition to the EXXON trademark was limited because ESB did not oppose the registration or use of the EXXON trademark with respect to products other than batteries or other products that were sold by ESB under its EXIDE trademark. Furthermore, ESB did not oppose Standard Oil's proposal to adopt "EXXON" as its corporate name.
In March 1968, ESB notified Standard Oil that it wished to protect its EXIDE trademarks "from any dilution or invalidity," and advised Standard Oil that "unless . . . we can arrive at a settlement whereby your Company undertakes not to use EXON or EXXON on batteries (and related items such as parts and accessories), and also to delete coverage for these goods from existing registrations and applications for EXXON and EXON, we will be compelled to take appropriate proceedings to protect our trademark." In April 1968, counsel for ESB, met with counsel for Standard Oil, to discuss the EXXON trademark. At this meeting ESB expressed concern that the EXXON trademark would be confusingly similar to the EXIDE trademark if used with respect to batteries.
Nevertheless, on April 29, 1968, Standard Oil filed with the United States Patent Office an application for registration of the EXXON trademark for use with respect to batteries. In response, ESB filed a notice of opposition to the application with the Trademark Trial and Appeal Board of the United States Patent Office. In its notice of opposition, ESB claimed that the use of EXXON as a trademark with respect to storage batteries would result in confusion, mistake, or deception as to the source of storage batteries; the use of such trademark would damage ESB; and, therefore, Standard Oil should not be permitted to register the EXXON trademark with respect to storage batteries.
In addition to the above application for registration of the EXXON trademark for use in the United States with respect to batteries, Standard Oil during the next four years applied for registrations of the EXXON trademark for various other uses in several foreign countries, as well as in the United States.3 The other uses included rubber tires, asphalt, and rust preventing materials. ESB continued to counter by filing notices of opposition to and petitions for cancellation of such registrations on the grounds that ESB had built up and owned valuable good will and a reputation symbolized by its EXIDE mark and that the registration of the EXXON trademark would result in confusion, mistake or deception with resulting damage to ESB, its products, and services. At no time did ESB allege, claim, refer to, or attempt to obtain "lost profits" in any of the documents filed with the United States Patent Office or any other tribunal or administrative body with respect to the EXXON trademark.
Throughout this period, ESB and Standard Oil were continuously engaged in settlement negotiations. Initially, ESB offered to settle the dispute if Standard Oil would agree not to register or use the EXXON trademark with respect to batteries in those countries, including the United States, in which ESB had legal interest by reason of its EXIDE trademark. However, Standard Oil was unwilling to settle the dispute in this manner.
As negotiations progressed, Standard Oil raised the possibility of settling the dispute on a monetary basis with an offer in July 1971 of $300,000, which ESB rejected. Again in October 1972 Standard Oil offered "to pay to ESB the sum of one million ($1,000,000) dollars as `compensation' for the alleged detriment to ESB's goodwill in the trademark EXIDE, and to reimburse ESB for its expenses to date in challenging Standard Oil's trademark EXXON" provided ESB would withdraw all objections to the EXXON trademark.
This offer was followed by a series of meetings between officers of ESB and Standard Oil, and later its successor, EXXON Corporation. At these meetings Standard Oil and later EXXON Corporation made it clear that they wanted the flexibility of using the EXXON trademark with respect to any and all products. ESB indicated that it would be willing to settle for just compensation for "destruction of a valued asset."
After this series of meetings ESB made a counter offer to settle the dispute for $9,945,000, which amount ESB "calculated" by estimating "future damage to its goodwill" by projecting one-half of one percent of its estimated annual sales under the EXIDE mark "during the ten years following 1972."
On June 14, 1973, a final meeting was held,...
To continue reading
Request your trial