United States v. Safety Car Heating & Lighting Co., 297 U.S. 88 (1936)
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United States v. Safety Car Heating & Lighting Co.
No. 75
Argued December 20, 1935
Decided January 6, 1936 *
297 U.S. 88
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE THIRD CIRCUIT
Syllabus
A patent owner began suit in 1912 to restrain infringements and for damages and profits. The litigation was pending on February 25, 1913, the effective date of the Sixteenth Amendment, and March 1, 1913, the effective date of the first statute enacted under it, and was continued for many years thereafter during which the patent owner obtained a decree finally sustaining the patent followed by a decree on accounting, of which a definite part was for profits received by the infringer before March 1, 1913, and the remainder for profits received thereafter, the claim for damages having been waived. Pending an appeal by the infringer involving the extent of his liability, a compromise occurred (1925) in which the patent owner accepted a smaller amount in satisfaction of the judgment.
Held:
1. The profits thus received accrued to the patent owner and became taxable as his income at the time of the settlement and liquidation. P. 93.
2. There is no ground for treating the profits from the infringements committed prior to March 1, 1913, as having accrued to the patent owner before that date and as being therefore excepted from taxation by the Act of October 3, 1913, and later Revenue Acts. P. 94.
3. The Treasury Regulation classifying claims that existed unconditionally on March 1, 1913, as nontaxable income, "although actually recovered or received subsequent to that date," was impliedly ratified by Congress by the passage of Revenue Acts without sign of disapproval. P. 94.
4. This regulation implies that conditional or contingent claims, though they may have had an inchoate existence before March 1, 1913, are to be taxed when they become unconditional. P. 95.
5. A claim of a patent owner to profits received by an infringer, while its validity and amount remain uncertain, is not property transmuted into capital, but rather is contingent income. P. 96.
6. The claim of a patent owner against an infringer for damages, like a claim for the infringer’s profits, is too contingent and uncertain to have a determinable market value while the validity of the patent is unsettled and contested and while the factors of damage are conjectural. P. 97.
7. The claim in this case cannot be treated as one for damages, since the taxpayer abandoned his claim against the infringer for damages and recovered profits. P. 97.
8. This case must be distinguished from one where the basis of the claim is an injury to capital, with the result that the recovery is never income, no matter when collected. P. 98.
9. Congress has power to tax income which accrued after the adoption of the Sixteenth Amendment through the liquidation and settlement of a claim which was inchoate, but remained uncertain and contested, before the effective date of the Amendment. P. 98.
10. The acceptance in settlement of less than the claim involves no loss deductible by the taxpayer where, from its origin up to the time of settlement, the claim was uncertain and contested. P. 99.
76 F.2d 133 reversed.
Certiorari, 296 U.S. 555, to review judgments affirming Judgments of the District Court in two cases -- one an action against the United States to recover money paid as income taxes, 5 F.Supp. 276, and the other an action to recover a payment from the Collector.