Document: 367 U.S. 303 81 S.Ct. 1579 6 L.Ed.2d 859 John T. JARECKI, Former Collector of Internal Revenue, et al., Petitioners,v.G. D. SEARLE & CO. POLAROID CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE. Nos. 151, 169. Argued March 21, 22, 1961. Decided June 12, No. 151: Mr. Wayne G. Barnett, Washington, D.C., for petitioners. Walter J. Cummings, Jr., Chicago, Ill., respondent. 169: Isaac M. New York City, petitioner. Chief Justice WARREN delivered the opinion Court. 1 These cases present problems in interpretation § 456(a) Revenue Code 1939, a section Excess Profits Tax Act 1950, 64 Stat. 1137, 26 U.S.C.A. Taxes, 456(a). The Act, which is intended to tax at high rates unusually profits earned during Korean War, imposes on excess an amount deemed represent taxpayer's normal profits.1 Recognizing, however, that some otherwise subject under this scheme might stem from causes other than inflated wartime economy, Congress enacted 456. This grants relief certain 'abnormal income' as defined 456(a)2 by allocating income years those it was received purposes computing tax. 2 dispute these whether sales new products falls within statutory definition income.' Taxpayers claim their resl ting 'discovery.' They therefore class 456(a)(2)(B) 3 'Income resulting exploration, discovery, or prospecting, any combination foregoing, extending over period more 12 months.' 4 Taxpayer 151 corporation engaged manufacture and marketing drugs. As result research months, produced two drugs, 'Banthine,' used treatment peptic ulcers, 'Dramamine,' motion sickness. patents both asserts were not merely improvements pre-existing compounds. sale 'Banthine' 'Dramamine' 1950 through 1952. It paid its without claiming 456, then claimed refund. On denial claim, taxpayer filed complaint District Court Northern illinois. dismissed complaint, but Appeals Seventh Circuit reversed. held 'discovery' include preparation case must be remanded trial issue drugs 'were actually discoveries.' 274 F.2d 129, 131. 5 169 inventor producer 'Polaroid Land Process,' camera film produce photograph 60 seconds, 3—D Synthetic Polarizer,' device incorporated 'viewers' audiences watched three dimensional pictures vogue ago. inventions, each product months' research, are novel, according taxpayer, has been patented. Polaroid equipment 238 end 1958, characterizes invention 'revolutionary.' Its production departure business had hitherto primarily manufacturing selling such optical polarizing sunglasses, visors filters. In returns 1951 1953 utilized provisions 456 photographic polarizers. Commissioner determined applicable, upheld his determination deficiency. First affirmed, holding inventions 'discoveries' 278 148. We grant certiorari resolve conflict between decisions Circuits. 364 812, 813, 50, 53, 45. I. 7 For we accept, did Circuit, taxpayers' assertions novelty products. But also agree with court word may receive special provided 8 look first face statute. 'Discovery' usable many contexts various shades meaning. Here, does stand alone, gathers meaning words around it. strongly suggest precise narrow application conjunction, 'exploration,' 'prospecting,' all describe income-producing activity oil gas mining industries, difficult conceive industry they apply. Certainly development manufacturer cameras industries. maxim noscitur sociis, known company keeps, while inescapable rule, often wisely applied where capable meanings order avoid giving unintended breadth Acts Congress. See, e.g., Neal Clark, 95 704, 708—709, 24 L.Ed. 586 here leads conclusion means only discovery mineral resources. 9 When examine further construction 456(a)(2) compare subparagraphs (B) (C), becomes unmistakably clear meant patentable If so wide scope, there would no need provision subparagraph (C) patents, formulae, processes.' All income, reading 'discovery,' 'resulting * discovery' (B). To borrow homely metaphor Judge Aldrich 'If big hole fence cat, small one?' (278 153). statute admits reasonable gives effect provisions. circumstances will adopt strained renders one part mere redundancy. United States Menasche, 348 528, 538—539, 75 513, 519—520, 99 615. 10 assert 'ordinary meaning' govern. find ample evidence and, shall show, legislative history technical usage intended. even if should believe apply layman's research. do lead necessity drawing line things found made, ordinary present-day revealed discoveries, fabrications inventions.3 appear senseless usage, provide discoveries yet make inventions. Perhaps patent law uncommonly taxpayers suggest, fields taxation lores unto themselves, (which entirely favor)4 unpersuasive here. intend introduce distinction into law. 11 relevant fortifies conclusions us. laws, always limited finding deposits. 1918, enacting earliest limit placed 'a bona fide mines, wells, interest therein, principal value proprety demonstrated prospecting exploration work done taxpayer.' 337, 40 1096.5 An identical limitation imposed levied Act,6 same obtained allowance depletion deductions.7 proceeds deposits re-enacted significant change 1921, 1924, 1926, 1928, 1932, 1936 1938.8 remains 1939 105, carried forward 632 1954 Code, 632. re-enactment linked 'exploration' restrictively extractive A correspondingly use continued since 1918 sections9 appears 114(b)(2) 114(b)(2). 30 preceding enactment issue, time re-used successive taxing statutes, developed term art 1940, 54 975, made specific mention types qualifying earlier indication worked transformation Section 721, 986, amended, 55 classified six Among them following, 721(a)(2)(C): 13 tangible property, processes, 14 invention, having previously obtainable, all, 'general relief' Acts.10 instructive formula 'exploration, prospecting' considered broad enough cover 'research' 'development' added source income. plainly, retained World War II previous have then-current code.11 15 construe, modeled 721 different respects. classifications gave separate minerals invention. prospecting,' (Emphasis added.) Subparagraph encompass patent, sort is, realistically pseaking, 'abnormal' businesses mine prospector. Their spirit say, letter clear, Congress, recognized abnormal nature chose deliberately deny (C). 16 'flexible rules,'12 uncertain affair. administering faced task separating 'research, development' improved management efforts. difficulty led hold 'by exercising common sense judgment,' 'It possible allocation person never match another.' Ramsey Accessories Mfg. Corp. Commissioner, T.C. 482, 489. delay uncertainty caused element administrative discretion other13 sections set about drafting principle 'subjective judgments avoided law.' H.R.Rep. 3142, 81st Cong., 2d Sess. 20. expressly followed Senate Committee reported follows: 17 'The equivalent (sec. 721) permitted adjustments reference particularly property arising out extended months. old potential loophole major dimensions. Because appeared restricting adjustment truly meritorious introduction large degree type required general clause WarI I 722), because reallocation seemed materially less classes described above, bill omits item list can made.' S.Rep. 2679, 14. 18 House Report virtually identical. 13. 19 recognize, must, language kinds eligible relief. excluded. That comes sufficiently revoluntionary called 'genuine discoveries' still protection impossible amendment designed eliminate law—without congressional warning explanation—a vague, dependent upon nuances scientific opinion, unprecedented urged taxpayers. II. 20 another argument, rejected reach. Paragraph (1) defines 'income paragraph (2)' meets requirements. (2) lists four provides concluding sentence: 21 classification (A) (D), inclusive, regulations prescribed Secretary.' 22 argue (2), nevertheless included final sentence hence 23 decide on. light purpose cut down prevailed predecessor scope available relief, power Secretary extend far beyond corners doubted.14 sufficient note that, unlike income,' specified particular class),15 applies 456(a)(2). terms contains create embracing And relied expand somewhat enumerated statute, he clearly regulations16 specifically months constitute section.' exclusion furtherance deleting effecting barred issue. last regulation, rely, aid them. properly includible applies. held, fall class. 25 Therefore, judgment reversed affirmed. ordered. 27 Judgment reversed; affirmed See 2; 2. part: '(a) Definitions.—For section— '(1) Abnormal income.—The gross taxable year subchapter derive class, or, normally derives 115 per centum average years, existence existence. '(2) Separate income.—Each following income: '(A) Income award, judgment, decree, foregoing; '(B) months; '(C) foregoing '(D) rather reason method accounting. 'All classifiable irrevocably elects. lay terms, Polaroid's Searle's probably better discoveries. Webster's International Dictionary, Unabridged (2d ed.) p. 745, makes distinction: 'One DISCOVERS what existed before, remained unknown; INVENTS forming combinations either new, attain unknown before; as, Columbus discovered America; Newton gravitation; Edison invented phonograph *.' Constitution, Art. I, 8, cl. secure 'Inventors exclusive Right Discoveries.' While 'discover' throughout seem generally 'invent' 'invention' meanings. 35 U.S.C. 101, 101: 'Whoever invents discovers useful process, machine, manufacture, composition matter obtain therefor see Dolbear American Bell Telephone Co. (Telephone Cases), 126 1, 532—533, 778, 780—781, 31 863. 42 277. 211(b), 1064. §§ 214(a)(10), 234(a)(9), 1067, 1078, providing 'That fair market disproportionate cost, based date 237; 43 267; 44 23; 102(a), 45 812; 47 192; 1936, 49 1678; 1938, 52 484. 241, 256; 204(c), 260; 204(c)(1), 16; 114(b)(2), 821; 202; 1934, 48 710; 1686; 114(b) 495. 327(d) 1093, 'the would, owing conditions affecting capital corpoa tion, exceptional hardship tax, whatever section. I.R.C. 728 989, when chapter Code. 146, 77th 1st 722, 23, 701, 56 914, 57 56, 601, 58 55, computation base established, among things, 'what just representing earnings' period. fact, reports state 'Adjustments (under 456) of' (D). 13; 21. 721(a)(1) Treas.Reg. 130, 40.456—2(b) (1951), T.D. 6026, 1953—2 Cum.Bull. 235: 'Other incom, (A)—(D) 456(a)(2), applicable grouped approval examination return, similar conducts, appropriate experience accounting practice. However, example, 456(a)(2)(D).'

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