Court Opinion

ID: 9446540
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:58:00.632582+00
Date Added: 2024-06-11T17:30:41.683614
License: Public Domain

JOHN R. BROWN, Circuit Judge
(specially concurring).
I concur in what is done as well as what is so well said in all but the first three out of the last four sentences of the opinion relating to the option to license others.
The contract with Schlumberger expressly provided that for the exclusive “license” a royalty of 7Yi% would be due. But Bannister was given the express right, on 30 days’ notice, to license others, in which case the “royalty” would be 5%. The Court’s opinion, on the authority of Watson v. United States, 10 Cir., 1955, 222 F.2d 689, characterizes this as one somewhat in the nature of a condition subsequent.
But it is not necessary to determine whether it is a condition subsequent or whether Watson, as such, is controlling. There, as in similar cases relied on in Watson, the contract, and hence the continuing “royalty” payments constituting the deferred “purchase” price, was to terminate if production by the “licensee” fell below a specified volume. In others the termination flowed from a failure on the part of the vendee-licensee promptly to perform, e.g., make payments, or the like.
But here termination of the exclusive license is not dependent on action or failure of action by the vendee, Schlumberger. It depends on the desire and action of Bannister, the so-called vendor, alone. And this action is in no way dependent on the state of performance or non-performance by the vendee, or even its wishes. It is an absolute right of termination of the exclusive right subject only to the slight condition of a short (30-day) notice. Whatever may be its status in the conceptual dialectic of contract law, it is plain that within the principles reflected by the cases set forth in note 3, and which Congress has, with unflagging persistence, undertaken to secure despite the intramural opposition of the taxing authorities, there was the ostensible reservation of a valuable and significant right.
Indeed, the difference between an ordinary patent license with the royalties treated as income, rather than an assignment (or sale) with capital gains treatment, is that the assignee-vendee has the exclusive enjoyment of the patent rights conveyed. If the same rights (e.g., specified claims, geographical, industry, trade use or application, etc.) are available to others, then it is not a sale or assignment. Here, by express terms, Bannister could let others use it for precisely the same purposes permitted to Schlumberger. That was a reservation of one of the principal attributes of ownership — the right to decide who else might use the invention in the future.
Were it to end there an affirmance of the District Court would, in my judgment, be compelled. But it does not end there. This is so because the record compels the factual conclusion that the reservation was a paper, theoretical right, without any real, substantial, practical, commercial value.
As the opinion so well points out, the patent had only a nuisance value to Schlumberger. Viewed from Bannister’s financial point, it might have been better described as an attractive nuisance. This was presumably because the patent may have been the first express disclosure of the use of an explosive in the taking of a core sample. Bannister’s patent called for a bottom, not a side wall, core. The nature of the apparatus was also such that, unless it were used in conjunction with the Bannister rubber hose drilling apparatus — whose complete lack of functional-commercial utility is the one thing on which Mike Hogg, Phillips Petroleum, Bannister, the Collector and Commissioner of Internal Revenue, the Attorney General and the District Court all agree — it would take extraordinary, *180if not Goldbergish, improvisations to use it in connection with a traditional rotary rig drilling setup. Not a little of this improvisation would have been required as to the mechanism for firing the explosive charge since Schlumberger (and perhaps others) had patent rights on the electrical means. And after surmounting all of these difficulties, all a user would have obtained was a bottom hole core — something quite different from what the industry wanted.
It is now a matter of established history that the pudding’s proof was in its inedibility. Despite its availability to the oil industry, no one else ever sought the use of this patent. No one ever approached Bannister to request a parallel license with Schlumberger. Bannister never sought out any such prospect. Bannister did not do so because there was and could have been none. That fact stands out like an oil derrick, quite without regard to whether it was the Taxpayer or the Government on whom rested the burden either of proof or of going forward with the evidence.
As the reservation had in fact no real value it becomes insignificant for this case.