Opinion ID: 1507986
Heading Depth: 1
Heading Rank: 1

Heading: Volume and Second Serial Rights.

Text: Mr. Sabatini entered into a number of contracts with Houghton Mifflin Company, publishers in Boston, Mass., under which he granted to that company the volume and second serial rights in certain books he had written. These books were themselves of what should now be treated as two kinds. They were (1) those on which a United States copyright could be obtained and the right to apply for one either in its own name or that of the author was given the company with the agreement of Sabatini to co-operate to obtain permissible renewals for the benefit of the publishers; and (2) those under which it was stated in the contracts that no copyrights were obtainable. We take this to mean that the works in the latter class were already in the public domain. As to the first class, the exclusive right to publish in this country during the copyright term and any renewals thereof was granted. As to the second class the author agreed not to grant to anyone else in this country the right to publish the work here so long as said Houghton Mifflin Company shall keep in print their editions of the above-named books. In each instance the contracts were negotiated by the author's literary representatives in this country but only subject to the final approval of the author who did approve and execute all of them in London, England. In each instance the author was to be paid a stated percentage of the publisher's retail trade list price, or an otherwise stated amount, for each volume sold. All the payments were to be made to the author's representatives here for his benefit. In so far as these works were copyrightable the payments received fall within the author's gross income from sources within the United States under Sec. 119 (a) (4), 26 U.S.C.A. § 119 (a) (4) providing that such income includes: Rentals or royalties from property located in the United States or from any interest in such property, including rentals or royalties for the use of or for the privilege of using in the United States, patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like property. They were clearly in name and in fact royalties for the use of United States copyrights during their terms and renewals. Though we are not fully advised as to what copyrights were actually secured, in so far as any which might have been obtained were not, the receipts by the author nevertheless fall within the statute as rentals or royalties for the use of or the privilege of using other like property. In this last named category fall also the payments received by the author from his contracts covering the publication of his uncopyrightable works. The payments were received in consideration of his granting the publisher the exclusive right to publish here. To be sure, that may not have been of great value but the parties did value it and the author received the payments as agreed. We are not now concerned with the quality of the consideration he gave but only with the taxability of that which he received. The payments were made to him for foregoing his right to authorize others for a time to publish the works here. Though others may, perhaps, lawfully have published them they could not do so under his express authority. As in respect to the copyrightable works, he received royalties for granting the exclusive right to publish with his express permission. The rights he granted were an interest in property in the United States, in the one instance the statutory copyrights obtainable and in the other the exclusive right to publish with his permission. The order of the Board is affirmed as to the taxability of this income.