Redler Conveyor Company v. CIR

• Decision Date: 07 June 1962
• Docket Number: No. 5886.,5886.
• Parties: REDLER CONVEYOR COMPANY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — First Circuit

303 F.2d 567 (1962)

REDLER CONVEYOR COMPANY, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 5886.

United States Court of Appeals First Circuit.

June 7, 1962.

Robert J. Richards, Jr., with whom John T. Powell and Hale and Dorr, Boston, Mass., were on brief, for petitioner.

Michael I. Smith, Attorney, Department of Justice, Washington, D. C., with whom John B. Jones, Jr., Acting Asst. Atty. Gen., and Lee A. Jackson and Harold C. Wilkenfeld, Attorneys, Department of Justice, Washington, D. C., were on brief, for respondent.

Before WOODBURY, Chief Judge, and HARTIGAN and ALDRICH, Circuit Judges.

WOODBURY, Chief Judge.

This is a petition to review a decision of the Tax Court of the United States holding that certain sums received by the taxpayer-petitioner during its tax years 1939, 1940, 1945 and 1946 were payments of royalties and therefore constituted personal holding company income under the applicable statutes. Section 403(a) of the Revenue Act of 1938, 52 Stat. 558; Section 502(a) of the Internal Revenue Code of 1939, 26 U.S.C. § 502(a) quoted in the margin.¹

The taxpayer-petitioner, Redler Conveyor Company, a Massachusetts corporation and the owner of a number of United States and Canadian patents on conveyor belt devices of one sort or another, is a wholly owned subsidiary of another Massachusetts corporation, Pneumatic Scale Company, Limited. In the income tax returns which Redler filed with the Collector of Internal Revenue for the District of Massachusetts it gave its business as: "Grantors of Licenses on Conveyors." It did not file personal holding company tax returns for any of the years here involved.

From 1932 through the tax years in question Redler entered into various agreements, concededly in the form of licenses with Stephens-Adamson Mfg. Co. of Illinois and Stephens-Adamson Mfg. Co. of Canada, Limited, involving some of its United States and Canadian patents and applications. The sole question is whether the agreements under which it received payments during the years in dispute are license agreements or assignments. If the agreements are licenses the payments made under them are royalties as defined in the applicable statutes. If they are not, and the agreements are assignments, the payments are not royalties and not taxable under the statutes.

"Whether a transfer of a particular right or interest under a patent is an assignment or a license does not depend upon the name by which it calls itself, but upon the legal effect of its provisions." Waterman v. Mackenzie, 138 U. S. 252, 256, 11 S.Ct. 334, 34 L.Ed. 923 (1891). And in the same case the Court at page 255, 11 S.Ct. at page 335, although in a context different from the present, laid down the rule for deciding whether a particular instrument is an assignment or a license in the following language:

"The patentee or his assigns may, by instrument in writing, assign, grant and convey, either, 1st, the whole patent, comprising the exclusive right to make, use and vend the invention throughout the United States; or, 2d, an undivided part or share of that exclusive right; or, 3d, the exclusive right under the patent within and throughout a specified part of the United States. Rev.Stat. § 4898. A transfer of either of these three kinds of interests is an assignment, properly speaking, and vests in the assignee a title in so much of the patent itself, with a right to sue infringers; in the second case, jointly with the assignor; in the first and third cases, in the name of the assignee alone. Any assignment or transfer, short of one of these, is a mere license, giving the licensee no title in the patent, and no right to sue at law in his own name for an infringement."

The agreements with which we are here concerned are described in detail in the opinion of the Tax Court. We shall not undertake to describe them all...