Court Opinion

ID: 4624473
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:55:13.413486+00
Date Added: 2024-06-11T07:56:32.046161
License: Public Domain

ALMA I. WAGNER, EXECUTRIX, ESTATE OF ROBERT G. WAGNER, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Wagner v. CommissionerDocket No. 32981.United States Board of Tax Appeals23 B.T.A. 879; 1931 BTA LEXIS 1806; June 26, 1931, Promulgated *1806  Upon the evidence, held that petitioner has not overcome the presumption of the correctness of the respondent's determination that an invention, patent for which had not been applied for on March 1, 1913, had no fair market price or value at that date.  George H. Koster, Esq., and John B. Milliken, Esq., for the petitioner.  R. W. Wilson, Esq., for the respondent.  MCMAHON *879  This is a proceeding for the redetermination of a deficiency in income tax for the year 1920 in the amount of $13,380.44.  The only error alleged is that in determining the profit realized from the sale of Wagner's interest in a certain patented invention to the Wagner-Woodruff Corporation in 1920 the respondent refused to allow any amount whatsoever as representing the March 1, 1913, value of such invention, which date was previous to the filing of an application for a patent and the granting thereof.  *880  FINDINGS OF FACT.  The petition is filed in the name of Alma I. Wagner, as executrix of the estate of Robert G. Wagner, deceased.  Robert G. Wagner is hereinafter referred to as the decedent.  The decedent was an individual with office at 830 South*1807  Olive Street, Los Angeles, Calif.In 1911, the decedent and one Ernest J. Schweitzer were the owners of the stock of the Wagner-Woodruff Corporation, a corporation engaged in the business of manufacturing and selling electric lighting fixtures in Los Angeles.  About that time, due to the fact that a new type of gas light was brought out which was very bright, several kinds of indirect electric lighting fixtures appeared on the market.  Among these were the Brascolite, manufactured by the St. Louis Brass Works, and the Phoenix Light.  Most of the commercial houses, General Electric, the Edison Company, and others were putting in these indirect lighting fixtures.  In 1912 and 1913 the Brascolite was the most popular one of these types of fixtures and was in great demand.  At that time the Brascolite had been installed in a great many commercial buildings in Seattle, Denver, Salt Lake City, Chicago, Minneapolis, Detroit, and the important eastern cities.  This fixture is still in great demand.  This Brascolite fixture was an indirect lighting unit having a translucent globe inverted and a reflecting pan above it.  In 1912 Schweitzer and the decedent, working in the factory of the*1808  Wagner-Woodruff Corporation, invented an indirect electric lighting fixture which they called the Briterlite.  This was a lamp mounted in a globe of translucent material and having above it a reflector of curved contour so as to diffuse the light downward.  These lights were being manufactured and sold to a very limited extent in 1912 and 1913.  In January or February, 1913, the decedent and Schweitzer had obtained a contract for the production and installation of a number of Briterlites.  Schweitzer and the decedent in the latter part of 1912 consulted Frederick S. Lyon, an attorney at law, who, at that time, had been engaged for about 20 years in practicing exclusively in patent, trademark and copyright matters, and who had represented decedent in a number of patent matters.  Lyon caused an examination of the records of the patent office to be made and rendered to Schweitzer and the decedent an opinion or report as to the patentability of the Briterlite invention.  He advised Schweitzer and the decedent that the Briterlite did not infringe the original Guth patent, which was the patent covering the Brascolite.  The Guth patent had been originally *881  in litigation and the*1809  original claims were held to a certain limitation.  Subsequently, an application was made by the owner of the Guth patent for a reissue or amended patent on the Guth invention and a reissue was granted.  The result was that while the Guth patent was sustained generally, the rights of the decedent and Schweitzer could not be cut off because they were intervening rights, the decedent and Schweitzer having invested their money, made their application for patent, and gone into actual manufacture of the Briterlite.  Decedent and Schweitzer were thus able to continue in the manufacture and sale of the Briterlite without regard to the fact that the reissue of the Guth patent shut out others who were not licensed.  The only fixture in competition with the Brascolite not infringing the Guth patent was the Briterlite, which did not infringe because of the intervening rights of the decedent and Schweitzer.  One of the material differences between the Briterlite and the Brascolite was that the upper reflecting surface of the Brascolite or Guth patent was flat.  The original Guth patent was limited to a flat upper reflecting surface and to the patent arrangement of the other reflecting surfaces*1810  with relation to it.  The Briterlite differed essentially in that it had a curved pan at the top.  It was not within the scope of the original Guth patent although the reissue Guth patent did not limit the Guth invention in that same manner.  The Briterlite also had three hooks on the bowl and the bowl could be more easily removed than the bowl on the Brascolite.  The Briterlite was an improvement over other fixtures of the same type and could be sold readily in competition with them.  An application for patent covering the Briterlite fixture was filed some time during the year 1914 and a patent was thereafter granted about September 21, 1915.  The Briterlite was made in about eight different sizes and styles.  In 1913, the best seller sold for from $18 to $20.  In computing the sales list price for the Briterlite the cost of labor and material was taken as a basic cost and 50 per cent of this amount added for overhead.  The retail selling price was double that amount.  In 1920 the demand for these indirect lighting fixtures was not as great because a new type of glass had been invented which was thin in texture so as to allow maximum rays of light to pass entirely through the*1811  glass.  This was very cheap to market.  In 1920 the decedent and Schweitzer sold the patent on the Briterlite fixture to the Wagner-Woodruff Corporation for $85,000.  They each owned a one-half interest in this patent.  The respondent determined *882  that the decedent derived income from this transaction in the amount of $42,500.  OPINION.  MCMAHON: The question here presented is whether the respondent erred in computing the gain in 1920 upon the sale of the Briterlite patented invention for $85,000.  Respondent contends that the invention on March 1, 1913, which was prior to the date application for patent upon such invention was filed, and before a patent was issued, had no value.  It is the contention of the petitioner that the invention had a fair market value on that date of at least $100,000 and that the deficiency should be redetermined.  There is no evidence as to the cost of the invention, and therefore, the basis to be used in the determination of gain upon the sale of the asset in question is its fair market price or value at March 1, 1913.  Section 202(a)(1) of the Revenue Act of 1918.  See also *1812 . The petitioner does not contend that a loss was sustained upon the sale.  Petitioner contends that an invention, prior to the time the patent is issued thereon and even prior to the date that an application for a patent is filed, is property capable of being valued, citing, among other cases, ; ; and . However, in the view we take of the evidence in this proceeding, we do not deem it necessary to determine whether or not this contention of petitioner is correct.  Even if we assume, for the purpose of argument only, that the Briterlite invention on March 1, 1913, was valuable property, the evidence does not establish its fair market price or value at that time.  At March 1, 1913, the decedent and Schweitzer did not have exclusive right to manufacture and sell the Briterlite, since no patent had been granted thereon.  See . Furthermore, from a consideration of all the evidence, we do not believe that the issuance of a patent*1813  upon the Briterlite was assured at March 1, 1913.  At that time decedent and Schweitzer had not even filed an application for patent, and there was a patented invention, the Brascolite, which was quite similar to the Briterlite.  The Brascolite patent had been in litigation and its limitations had not been clearly defined.  There is no evidence whatsoever in the record as to the fair market price or value of the Briterlite invention or the rights of the decedent and Schweitzer therein at March 1, 1913.  It follows that the determination of the respondent must be approved.  Judgment will be entered for the respondent.