author: FRIENDLY, Chief Judge:

text:
    SIRBO HOLDINGS, INC., Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
    No. 167, Docket 72-1617.
    United States Court of Appeals, Second Circuit.
    Argued Nov. 6, 1972.
    Decided March 23, 1973.

      James R. McGowan, Providence, R. I. (Lester H. Salter, Salter, McGowan, Arcaro & Swartz, Providence, R. I., of counsel), for petitioner-appellant.
    Mary J. McGinn, Atty., Dept, of Justice, Washington, D. C. (Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Ernest J. Brown, Attys., Tax Div., Dept, of Justice, Washington, D. C., of counsel), for respondent-appellee.
    Before FRIENDLY, Chief Judge, MANSFIELD and TIMBERS, Circuit Judges.
   FRIENDLY, Chief Judge:

The issue is whether a tenant’s payment to its landlord of $125,000 in satisfaction of the tenant’s obligation to restore leased premises to their pre-lease condition is entitled, in whole or in part, to long-term capital gains treatment under § 1231 of the Internal Revenue Code of 1954. The Commissioner determined the payment, which was received by petitioner, Sirbo Holdings, Inc. (“Sirbo”) from its tenant, to be taxable as ordinary income, and accordingly found a deficiency in petitioner’s income tax for the taxable year ending June 30, 1964, which was upheld by the Tax Court. Petitioner then sought review pursuant to 26 U.S.C. § 7482.

The essential facts are undisputed: At all relevant times Sirbo was engaged in the trade or business of renting real estate. In 1944 it purchased premises at 254-6 West 54th Street, New York, N. Y., which consisted of a building with offices and a theatre called The New Yorker Theatre, subject to an existing lease of the theatre to the Columbia Broadcasting System, Inc. (“CBS”), which used it for radio broadcasting purposes. In July, 1944, Sirbo notified CBS that it had purchased the entire building and would assume all the terms and obligations of the theatre lease. In anticipation of the expiration of the existing lease term in 1948, Sirbo in November, 1947, negotiated a new lease of the theatre to CBS. Thereafter Sirbo continuously rented the theatre to CBS under several successive leases until at least December 31, 1968. Each lease gave CBS the “right to use the premises as a theatre, and for radio broadcasting and television purposes of its business.” Until 1964 each lease provided that at the expiration of the lease term CBS “shall restore the premises substantially to the condition in which they existed on November 14, 1947, reasonable wear and tear and damage by the elements excepted, and . . . shall fully indemnify [Sirbo] for every and all costs and expenses of whatsoever name or nature that may be required for the purposes of reinstating the premises to said condition.”

Prior to December 31, 1963, according to findings of the Tax Court, CBS, becoming concerned over rising construction costs which made it difficult to predict its ultimate cost of fulfilling its obligations to restore premises leased by it, determined as a matter of corporate policy to eliminate or update restoration clauses from leases it held for theatres in New York and so advised Sirbo. The parties negotiated the terms of the 1964 lease, including an “updated” restoration clause which limited CBS’ terminal obligation to restore the theatre to removal of alterations or additions made after January 1, 1964, and repair of any damage caused thereby. Thereupon they entered into separate negotiations for settlement of CBS’ obligation under the former lease to restore the theatre to its 1947 condition. Each party caused appraisals of the cost of restoration to be made. Estimates of $70,000 and $200,000 were made by representatives of CBS and Sirbo, respectively, and the sum of $125,000 was agreed upon as a compromise figure. The sizable cost estimates reflected the changes CBS had made after 1947 to adapt the former legitimate theatre for use as a television studio. As found by the Tax Court, these “changes included the removal of approximately 300 to 400 theatre seats, . all carpeting, chandeliers, and stage curtains; the extension of the stage area . . ., a change in the floor level and the elimination of the ‘loop’ in the former seating arrangement, the construction of walls and partitions and appropriate structural changes to accommodate control rooms, the alteration of bathrooms and the heating system, and the installation of thousands of feet of electrical wiring.” The restoration clauses contained in the leases covering the period from 1953-1964 implicitly recognized the alterations made by CBS by providing for the eventual replacement of the removed seats, the removal of the control booths, and the removal of the extension of the stage apron.

In a settlement signed on January 31, 1964 but backdated to December 31, 1963, CBS paid Sirbo the $125,000 sum for the release of any claims, injury or damage Sirbo might have as a result of the provisions of the restoration clause contained in the lease dated July 15, 1958. The release stated that Sirbo had claimed at the expiration of the lease term that CBS had partially destroyed the premises and Sirbo therefore requested indemnification for the cost of reinstating the premises to their condition in 1947; CBS acknowledged its obligation so to indemnify Sirbo. No portion of the payment was used to restore the structure to its former use as a legitimate theatre, however, since CBS continued in occupancy. Indeed, the Tax Court found that, after entering into the 1964 lease, CBS made further modifications in the theatre to adapt it for use as a color television studio.

On its corporate tax return for. its taxable year ending June 30, 1964, Sirbo reported as long-term capital gain resulting from “involuntary conversion as a result of partial destruction of property used in trade or business,” the amount by which the $125,000 received from CBS exceeded Sirbo’s adjusted basis in the entire property, $93,333.51 (including the leased theatre as a part), i. e., $31,666.49. The Commissioner determined that the $125,000 payment from CBS was taxable as ordinary income rather than as long-term capital gain and accordingly noted a deficiency in Sirbo’s tax liability for the taxable year in question. Sirbo’s ordinary income was increased by that amount and capital gain was decreased by $31,666.-49, resulting in a net deficiency in income tax of $53,573.30. Sirbo was allowed additional depreciation for the year in issue in the amount of $4,444.44, however, which had not been taken because the taxpayer had claimed an involuntary conversion of the property.

The government does not dispute that the property to which the release of the obligation to restore related was “property used in [Sirbo’s] trade or business” within the meaning of § 1231. It denies, however, that the $125,000 payment constituted either gain on its compulsory or involuntary conversion, or from its sale or exchange. Insofar as petitioner rested its claim to capital gains treatment on the involuntary conversion clause of § 1231, we agree with the Tax Court that it failed. The New Yorker Theatre was voluntarily leased to CBS with the understanding that it might be converted for use as a television studio. When CBS sought to be released from its obligations to restore the theatre to its 1947 condition and to indemnify Sirbo for the cost of doing so, Sirbo voluntarily agreed to accept a cash payment rather than enforce these obligations. This was understandable from Sirbo’s vantage point, since CBS wanted to continue to occupy the converted theatre and use it as a television studio at a substantial rental. But the decision to accept the $125,000 rather than hold CBS to its obligation to restore was not “compulsory or involuntary.” It is not claimed that it resulted from duress or some external force over which Sirbo had no control, such as occurs when property is destroyed by natural causes, is stolen or seized, or is transferred under power or threat of eminent domain.

The cases relied upon by petitioner on this point are distinguishable. In Guy L. Waggoner, 15 T.C. 496 (1950), the taxpayers leased property to the United States under threat of condemnation. The lease gave the government a qualified right to alter the premises, but provided for restoration at the ■ taxpayers’ request. When the taxpayers subsequently requested restoration, the United States decided to pay the cost of repair for damage it had caused while in possession rather than itself restore the premises. Thus, as the Tax Court held, the property altered or destroyed was involuntarily converted into money within the meaning of the predecessor to § 1231, and the taxpayers’ acceptance of compensation for the property in lieu of actual restoration “did not alter the character of the lease agreement.” 15 T.C. at 503. See also C. I. R. v. Gillette Motor Transport, Inc., 364 U.S. 130, 135-136, 80 S.Ct. 1497, 4 L.Ed.2d 1617 (1960). Sirbo, however, was neither forced to lease the premises to CBS nor compelled to accept the payment instead of requiring renovation. The settlement it reached with its tenant did not arise from an occupancy imposed upon it pursuant to law, but from an occupancy it sought as part of its normal business operations. Unlike the taxpayers in Guy L. Waggoner, supra, it could choose whether it would lease its premises, the identity of the person to whom it might lease them, and the conditions of occupancy.

Similarly, in Walter A. Henshaw, 23 T.C. 176 (1954), and United States v. Pate, 254 F.2d 480 (10 Cir. 1958), the property of the taxpayer used in the trade or business (oil in place in Henshaw, a building in Pate) was physically damaged under circumstances beyond the taxpayer’s control, namely through the negligence of others. In both eases the taxpayer recovered monetary damages as a result of litigation, and the sums were taxed as long-term capital gains from the compulsory or involuntary conversion of the damaged property. Here the structural modifications needed to convert the theatre to a television studio were contemplated as a distinct possibility under the lease agreement and were essentially made with Sirbo’s consent, subject to the obligation to restore.

Relying on Grant Oil Tool Co. v. United States, 180 Ct.Cl. 620, 381 F.2d 389 (1967), Sirbo urges that prior contemplation of alterations in the leased structure does not deprive the lessee’s conversion of its involuntary character, even when the lease agreement provides for restoration or compensation to the lessor. We disagree. Grant Oil Tool Co. differs in a crucial respect. There the taxpayer could not have had restoration of the destroyed property, whereas Sirbo could. In that case a manufacturer leased oil well drilling tools to drillers for use in their business, subject to loss in the drill hole, misplacement, or damage beyond repair due to the driller’s negligence in use. The decision to abandon or try to retrieve the tools lost in the drill hole was found to be exclusively that of the driller-lessee, who was obligated in either event to reimburse the lessor at the sale price of new equipment. These payments were held to be entitled to capital gains treatment pursuant to § 1231(a) as a “compulsory or involuntary conversion,” for the reason that the “complete and unwanted destruction of [the] taxpayer’s tool bodies” which brought it “within the definition of ‘involuntary conversion’ as set forth in § 1231(a),” id. at 395-396, was beyond the taxpayer’s control once its property was leased. As far as the lessor was concerned the property destroyed in the lessee’s operations was irretrievably lost without opportunity of restoration or recovery. See also Philadelphia Quartz Co. v. United States, 179 Ct.Cl. 191, 374 F.2d 512 (1967). In contrast, not only did Sirbo have the power to fashion the lease agreement to prevent CBS from making the extensive alterations which were the subject of the payment, but it had the right to pursue the possible avenue of requiring CBS to restore the property to its former condition and voluntarily chose not to do so.

While involuntary conversion was the ground most strongly argued by Sirbo, it contended in the alternative that the transaction constituted the sale or exchange of property used in the trade or business. Judge Quealy rejected that contention, largely on the basis of extensive dicta in this court’s decision in Billy Rose’s Diamond Horseshoe, Inc. v. United States, 448 F.2d 549, 551-552 (2 Cir.), aff’g 322 F.Supp. 76 (S.D.N.Y.1971). In there holding that a landlord receiving a series of notes in satisfaction of an obligation to restore was not entitled to the benefits of the installment sales provision of I.R.C. § 453(a), the court noted that the landlord’s relinquishment of its rights to have the property restored caused these rights to have come “to an end and vanished” and thus could not constitute a “sale or other disposition of real property” under § 453(b)(1)(A). At least as applied to the question of capital gains treatment under § 1231, this seems to be taking somewhat of a keyhole view. Sirbo’s claim for capital gains treatment does not rest entirely on the release of the covenant to restore, which clearly was not “property used in the trade or business,” but it is based at least in part on CBS’ payment for removal or destruction of “property” such as the theatre seats, carpeting, chandeliers, stage curtains and various structural features of the theatre. Realistically CBS was paying Sirbo for what it had done to this property over the years. Under our decision in C. I. R. v. Ferrer, 304 F.2d 125, 131 (2 Cir. 1962), see Eustiee, Contract Rights, Capital Gain and Assessment of Income — the Ferrer Case, 20 Tax L.Rev. 1, 7-34 (1964), it would not be fatal that this property did not “pass” to CBS. If the lease, in lieu of an obligation to restore, had obligated CBS from the outset to pay for the property to be removed or damaged by it, there could be little question but that the payment would be viewed as a sale or exchange of property used in the trade or business, see Hamilton & Main Inc., 25 T.C. 878 (1956); Washington Fireproof Building Co., 31 B.T.A. 824 (1934), since the government does not contend that such a payment would represent “collapsed income.” See, e. g., Hort v. C. I. R., 313 U.S. 28, 61 S.Ct. 757, 85 L.Ed. 1168 (1941); Holt v. C. I. R., 303 F.2d 687 (9 Cir. 1962); W. Lawrence Oliver, 24 T.C.M. 438 (1965). From a practical standpoint it is hard to see why the transaction here at issue should be treated differently. Classification of CBS’s payment as ordinary income merely because of the parties’ failure to east the transaction at least partly in the form of a sale of the removed or damaged property would appear to exalt form over substance.

What makes a hard ease even harder is the following: Two months after the decision here, Judge Raum of the Tax Court accorded capital gains treatment to a payment almost identical in nature. Boston Fish Market Corp., 57 T.C. 884 (March 29, 1972). Sirbo immediately moved for reconsideration, but its motion was denied without a word of explanation. The government does not assert any pertinent distinction between the facts of the two cases; rather, it seeks to explain the disparate results on the ground that the taxpayer’s contention in Boston Fish Market was that the lessee’s payment was not income at all in light of the provision of I.R.C. § 109 excluding from gross income the value of a lessee’s improvements to which the lessor falls heir on the termination of a lease and, once that point was decided against the taxpayer, the Commissioner abandoned his challenge to the propriety of capital gains treatment, see 57 T.C. at 887 n. 2. The attempted explanation does not explain, for two reasons.

The first is that the Commissioner has a duty of consistency toward similarly situated taxpayers; he cannot properly concede capital gains treatment in one case and, without adequate explanation, dispute it in another having seemingly identical facts which is pending at the same time. Compare Moog Industries, Inc. v. FTC, 355 U.S. 411, 414, 78 S.Ct. 377, 2 L.Ed.2d 370 (1958), with FTC v. Universal-Rundle Corp., 387 U.S. 244, 250-252, 87 S.Ct. 1622, 18 L. Ed.2d 749 (1967); K. C. Davis, Discretionary Justice: A Preliminary Inquiry, ch. VII (1969); L. Jaffe, Judicial Control of Administrative Action 700 (1965). That the Commissioner’s seeming inconsistency may have arisen from the right hand’s ignorance of the posture of the left is little solace to taxpayers who are entitled to a non-discriminatory administration of the tax laws by him, much less to a taxpayer like Sirbo who is disadvantaged by the discrimination in its ease.

The second reason is that Judge Raum did not rest on the Commissioner’s concession. He said squarely that payments like that in Boston Fish Market and here “have generally been regarded as having been received in sale or exchange of the unrestored property,” 57 T.C. at 889, citing several cases including the highly pertinent one of Hamilton & Main, Inc., supra, 25 T.C. at 882, and Judge Murdock’s concurring opinion in Washington Fireproof Building Co., supra, 31 B.T.A. at 827-28.

The Tax Court’s failure to reconcile its decision here with that in Boston Fish Market, cf. IRC § 7460(b), may have rested, although this is only speculation, upon a belief that, under its ruling in Jack E. Golsen, 54 T.C. 742, 756-58 (1970), it was bound in this case by the dicta in Billy Rose, supra, 448 F.2d 549. We say dicta because, as indicated, the issue in that case was not whether the transaction came within I.R.C. § 1231 but whether a series of payments like the single payment here in question constituted income from “a sale or other disposition of real property” or “a casual sale or other casual disposition of personal property” so as to qualify for treatment as an installment sale under I.R.C. § 453(b). In view of the background of the installment sale provisions, which are to be strictly construed, see 2 Mertens, Law of Federal Income Taxation, § 15.01 (1967); see, e. g., Harry Leland Barnsley, 31 T.C. 1260, 1263 (1959), one could conclude that the transaction in Billy Rose was not a “sale or other disposition of real property” for purposes of § 453(b) without deciding whether the income it generated should be treated as capital gains or ordinary income under § 1231 — an issue which the taxpayer in that case did not raise. The case law offers examples of transactions allowed installment treatment under § 453(b)(1)(A) which were treated successively as capital gains and as ordinary income when the tax law changed before an installment obligation matured. See Murray v. United States, 192 Ct.Cl. 63, 426 F.2d 376, 381 (1970) (“The function of section 453 is one of timing, not characterization. [U]se of the installment method defers the reporting of taxable gain, but in no way characterizes the nature of the gain.”) See also Snell v. C.I.R., 97 F.2d 891 (5 Cir. 1938); Zola Klein, 42 T.C. 1000 (1964); 2 Mertens, supra, § 15.11. Furthermore, the committee reports on § 212(d) of the Revenue Act of 1926, 44 Stat. 23, which purported to “define the situations and business to which such [installment] basis might be applied,” neither made explicit reference to characterization as capital gains nor referred solely to classes of transactions which today would demand capital gains treatment. H.R.Rep. No. 1, 69th Cong., 1st Sess. (1926), reprinted in Cum.Bull. 1939-1 part 2, at 346-47. In view of the different purposes of the two provisions, Congress might well be thought to have intended a more restrictive meaning for “sale or other disposition” in § 453(b) than for “sale or exchange” in § 1231(a).

We freely concede that the Billy Rose court apparently considered the issues under §§ 453(b) and 1231 to be identical and that Judge Quealy cannot be faulted for believing that the Billy Rose panel would have rejected Sirbo’s claim. But the Tax Court fulfills its duties under Jack E. Golsen, supra, if it respects decisions of a court of appeals to which appeals will be taken and should be free to voice its disagreement with statements not essential thereto; indeed, Golsen speaks of a duty to follow a “Court of Appeals decision which is squarely in point.” 54 T.C. at 757. This is particularly true when, despite attempted distinction, Billy Rose, supra, 448 F.2d at 552 & n. 1, the statements here relied upon by Judge Quealy are to some extent inconsistent with the main thrust of this court’s earlier decision in Ferrer, which has been followed elsewhere. See, e. g., United States v. Dresser Industries, Inc., 324 F.2d 56, 59 (5 Cir. 1963).

The basic inconsistency in approach between Ferrer and Billy Rose has already attracted comment, see 14 B.C. Ind. & Comm.L.Rev. 183 (1972). It may be that en banc proceedings will be needed to resolve this. However, even though the question is one of law, this court, before going down that path, should have the benefit of the considered views of the Tax Court, hopefully the full court, I.R.C. § 7460(b), on whether it would follow Boston Fish Market on the facts here if it deemed itself free to do so, as we think it is.

The judgment of the Tax Court is vacated and the cause remanded for further proceedings consistent with this opinion. Costs shall abide the event.

      . For the taxable year involved in this appeal, 26 I.R.C. § 1231 provided in relevant part:
      § 1231. Property used in the trade or business and involuntary conrersions

      (a) General rule. — If, during the taxable year, the recognized gains on sales or exchanges of property used in the trade or business, plus the recognized gains from the compulsory or involuntary conversion (as a result of destruction in whole or in part, theft or seizure, or an exercise of the power of requisition or condemnation or the threat or imminence thereof) of property used in the trade or business and capital assets held for more than 6 months into other property or money, exceed the recognized losses from such sales, exchanges, and conversions, such gains and losses shall be considered as gains and losses from sales or exchanges of capital assets held for more than 6 months. .

        % :¡: í*í *
      (b) Definition of property used in the trade or business. — For purposes of this section—
      (1) General rule. — The term “property used in the trade or business” means property used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 167, held for more than 6 months, and real property used in the trade or business, held for more than 6 months, which is not—
      (A) property of a kind which would properly be includible in the inventory of the taxpayer if on hand at the close of the taxable year,
      (B) property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or
      (G) a copyright, a literary, musical, or artistic composition, or similar property, held by a taxpayer described in paragraph (3) of section 1221. .

      . The full leasehold obligation contained in the indenture covering the period July 1, 1958 through December 31, 1963, which is the subject of the payment in issue in this case, provides:
      Fourth: — At the expiration or other termination of the term hereby granted, the Tenant shall and will leave the said premises and the theatre whole and in good order and condition and will remove therefrom every and all its equipment, goods, and effects, and those of all persons claiming under it, and will deliver up the demised premises in good order and condition, reasonable wear and tear and damage by the elements excepted, it being understood that all scenery therein, stage hangings, properties, decorations and equipment, including but not limited to radio and/or audio equipment, and its associated equipment, installed and paid for by the Tenant, which may be affixed to or contained in the herein demised, premises may be removed by the Tenant whether the same constitutes fixtures or not, provided, however, that the Tenant shall restore the premises substantially to the condition in which they existed on November 14, 1947, reasonable wear and tear and damage by the elements excepted, and the Tenant shall fully indemnify the Landlord for every and all costs and expenses of whatsoever name or nature that may be required for the purposes of reinstating the premises to said condition. Tenant agrees to restore any and all seats heretofore removed by Tenants, to remove the control booths installed by Tenant and to remove the extension of the stage apron installed by Tenant.
      The prior instruments contained essentially the same provision.

      . The Tax Court’s findings of fact are published in Sirbo Holdings, Inc., 57 T.C. 530 (January 27, 1972).

      . See note 2 supra.

      . In addition, for nominal consideration, the parties mutually executed general releases from any liability arising out of the 1958 lease. In the release dated December 23, 1963, CBS also discharged Sirbo from any liability arising from the use and occupancy of its premises by CBS, and in the release dated January 31, 1964, Sirbro discharged CBS from any liability arising out of the “use, occupancy, alteration, addition, removal, or improvement” of the premises by CBS. Both general releases were to be held in escrow pending execution of the new lease which was to be simultaneous with the first installment of the payment by CBS for the “purchase” of the theatre equipment. A separate letter casting the $125,-000 payment by CBS in the form of the purchase price of personal property and theatre equipment owned by Sirbo, but not yet inventoried, was apparently never signed.

      . The Tax Court found that Sirbo had never apportioned the basis of the building between the theatre and the offices which make up the remainder, but that the adjusted basis for the whole building (cost basis of $266,666.67 less accumulated depreciation to 1964 of $173,-333.16) was $93,333.51.

      . This is not a situation where the Commissioner is obliged to take inconsistent positions in order to prevent the government from being whipsawed. See United States Steel Corp. v. United States, 445 F.2d 520, 525 n. 7 (2 Cir. 1971), cert. denied, 405 U.S. 917, 92 S.Ct. 940, 30 L.Ed. 2d 786 (1972).

      . Earlier Revenue Acts had provided for installment sales treatment only by implication. Regulations promulgated by the Commissioner, dating from 1919, providing for such treatment were ruled invalid or severly limited by earlier Board of Tax Appeals decisions. See Manomet Cranberry Co., 1 B.T.A. 706, 708 (1925); B.B. Todd, Inc., 1 B.T.A. 762, 767 (1925). The 1926 Act section was designed to “validate” these regulations. The 1926 provision has remained basically intact, undergoing only “the usual development in the case of new statutory provisions dealing with complicated problems.” 2 Mertens, supra, § 15.02, at 7.

      . We agree with the Commissioner that taxpayer’s attempt to use its basis for the entire building to determine the amount of gain was unwarranted. But there would be no more difficulty in allocating taxpayer’s basis in this case than in Boston Fish Market, see 57 T.C. at 889-90.

      . The Tax Court should require the Commissioner to explain and justify the different positions taken by him in this ease and in Boston Fish Market.


source: Caselaw Access Project

author: GODBOLD, Circuit Judge:

license: Public Domain

text:
    CREDIT BUREAU REPORTS, INC., Plaintiff-Appellee-Cross Appellant, v. RETAIL CREDIT COMPANY et al., Defendants-Appellants-Cross Appellees. CREDIT MARKETING SERVICES, INC., Plaintiff-Appellant, v. CREDIT BUREAU REPORTS, INC., Defendant-Appellee.
    No. 72-1572.
    United States Court of Appeals, Fifth Circuit.
    Rehearing and Rehearing En Banc Denied June 7, 1973.

      Leroy Jeffers, Charles T. Newton, Jr., Harry Reasoner, Houston, Tex., for Retail Credit and others.
    John H. Boman, Jr., Kent E. Mast, Atlanta, Ga., for Credit Marketing and others.
    William C. Harvin, Houston, Tex., King & Spalding, Atlanta, Ga., E. William Barnett, John L. Jeffers, Jr., William R. Burke, Jr., Houston, Tex., for appellee.
    Before JONES, GODBOLD and INGRAHAM, Circuit Judges.
   GODBOLD, Circuit Judge:

Credit Bureau Reports, Inc. (CBR) brought this anti-trust suit in the U. S. District Court for the Southern District of Texas, against Retail Credit Company (RCC) and its subsidiaries, seeking an injunction and a decree of divestiture under § 16 of the Clayton Act (15 U.S.C. § 26). CBR charged RCC with price fixing in the nonlocal credit reporting market in violation of § 1 of the Sherman Act (15 U.S.C. § 1), with monopolization of the insurance reporting market and attempted monopolization of the nonlocal credit reporting market in violation of § 2 of the Sherman Act (15 U.S.C. § 2), and with having violated § 7 of the Clayton Act (15 U.S.C. § 18) by acquisition of more than 100 local credit bureaus, which tended to lessen competition in the reporting markets. CBR alleges that these asserted violations significantly threatened its operations in the nonlocal credit reporting market and its potential entry into the insurance reporting market where it would be a competitor of RCC.

After CBR’s complaint was filed, Credit Marketing Services, Inc. (CMS), a subsidiary of RCC, brought suit in the U. S. District Court for the Northern District of Georgia, charging CBR with price fixing and monopolization in non-local credit reporting in violation of §§ 1 and 2 of the Sherman Act and seeking injunctive relief under § 16 of the Clayton Act. The Georgia federal court transferred CMS’s suit to the Southern District of Texas where it was consolidated with the action filed by CBR.

The District Court, sitting without a jury, found that RCC had not fixed prices in the nonlocal credit reporting market but had violated § 2 of the Sherman Act by monopolizing the insurance reporting market and by attempting to monopolize nonlocal credit reporting, and had violated § 7 of the Clayton Act by acquiring the local credit bureaus. The court enjoined RCC from (1) withdrawing its local bureaus from membership in CBR for three years; (2) from going forward in any manner to compete with CBR for the marketing of nonlocal credit reports for three years; and (3) from acquiring additional local bureaus for five years. The court refused to require divestiture of the local bureaus RCC had acquired. As to CMS’s complaint, the court found that, while owned by the local bureaus which provided the information it sold, CBR was a sole entity merely selling its own product, credit reports. The court held that CBR, therefore, had not violated the Sherman Act by conspiring with any other entity to fix prices, allocate territory, or refuse to deal.

RCC appeals from the order enjoining its activities and CBR cross-appeals from the refusal to order divestiture. We affirm on the basis of the District Court’s opinion, Credit Bureau Reports, Inc., v. Retail Credit Co. et al., 358 F. Supp. 780 (S.D.Tex.1971), and of the following discussion.

On appeal the parties have focused upon three issues: the “prematurity” of the interest of CBR which the District Court found to be threatened and for which CBR was granted injunctive protection, the requisites of the showing of a causal nexus between that interest and the antitrust law violations found by the District Court, and the claim that CBR has engaged in illegal territorial allocation.

1. Prematurity.

Section 16 of the Clayton Act entitles private litigants to injunctive relief from threatened injury resulting from a violation of the antitrust laws. To obtain such relief the complaining party must prove that the alleged offender either already has violated the antitrust laws or that such violation is impending and that, because of this violation, he is threatened with loss or injury. Zenith Radio Corp. v. Hazeltine Research, 395 U.S. 100, 130, 89 S.Ct. 1562, 23 L.Ed.2d 129, 152 (1969). A mere showing by the private plaintiff of a violation of the antitrust laws has no actionable significance because, while in a government action there need be established only an antitrust violation, a private litigant “ ‘must not only show the violation of the antitrust laws, but show also the impact of the violations upon him,’ i. e., some injury (or threatened injury where injunctive relief only is sought) proximately resulting from the antitrust violation.” McKeon Construction Co. v. McClatchy Newspapers, 1970 Trade Cas. ¶¶ 73, 212 (N.D.Cal.1969), quoting from Simpson v. Union Oil Company, 311 F.2d 764, 767 (9th Cir. 1963), rev’d on other grounds, 377 U.S. 13, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964).

The District Court’s grant of injunctive relief here was carefully premised upon three related determinations. First, it found that RCC had violated the antitrust laws by monopolizing the insurance reporting market, by attempting to monopolize the nonlocal credit reporting market, and by acquiring local credit bureaus. Second, it determined that CBR was a potential entrant into the insurance reporting market and that its interest as a potential entrant was protected by the antitrust laws. Third, the court determined that “defendants’ Clayton Act violations and their attempts to monopolize the nonlocal credit reporting market significantly threaten CBR [by closing tightly the door to the insurance reporting market] and entitle it to injunctive relief on that basis,” and that “CBR is threatened with injury because of the existence of RCC’s monopoly power in the field of insurance reporting.”

RCC’s “prematurity” argument is essentially an attack upon the court’s second determination, directed not at the correctness of the fact findings underlying it but at the sufficiency of those facts to establish that CBR was a potential entrant into the insurance reporting market. The evidence relied upon by the court related to the decisions of CBR executives to begin preparation for entry into the market, and to a survey conducted by CBR to determine local bureau interest in participation through CBR in insurance reporting. RCC contends that this evidence failed to establish that CBR was presently ready, willing, and able to enter the market. Also, RCC points to countervailing evidence relating to the existence of barriers, not caused by RCC, to CBR’s actual entry into the market, and to acknowledgment by CBR that when suit was filed, it did not have a product acceptable to the insurance companies. Additionally, RCC notes evidence showing that until recently CBR executives thought that ‘the Fair Credit Reporting Act (15 U.S.C. § 1681 et seq.) would impose upon local bureaus performing telephone investigations of potential insureds, legal duties and potential liability too onerous to accept.

RCC made the same arguments at trial, and the District Court correctly rejected them. The evidence relied upon was sufficient to establish that CBR had done enough to make its presence on the edge of the insurance reporting market have “competitive significance,” notwithstanding whether it ever would or could be able to actually enter that market because of the existence of other barriers not caused by RCC. In United States v. El Paso Natural Gas Co., 376 U.S. 651, 84 S.Ct. 1044, 12 L.Ed.2d 12 (1965), the government has sued for an order requiring El Paso to divest itself of Pacific Northwest, contending that the acquisition of Northwest had violated § 7 of the Clayton Act by removing El Paso’s potential competitor in the California gas market. The trial court found that Northwest could not have obtained a contract from California distributors, could not have received gas supplies or financing for a pipeline project to California and could not have put together a project acceptable to the regulatory agencies. 376 U.S. at 657-658, 84 S.Ct. 1044, 12 L.Ed.2d at 17-18. The Supreme Court, however, held that those findings were irrelevant, 376 U.S. at 658, 84 S.Ct. 1044, 12 L.Ed.2d at 18, and that a § 7 violation had been established because the mere existence of Northwest as a potential competitor on the edge of the California market — without regard to whether it would ever be able to actually enter that market — had “competitive significance” in the California market.

Similarly in Zenith Radio, supra, the Court reinstated injunctive- relief the trial court had granted Zenith against continued participation by Hazeltine Research in English and Australian patent pooling arrangements which created barriers to Zenith’s potential entry into those markets. 395 U.S. at 132-133 and n. 26, at p. 132, 89 S.Ct. 1562, 23 L.Ed. 2d 153 and n. 26, at 153. The relief was reinstated notwithstanding the Court’s earlier holding that treble damages were properly denied because Zenith had not shown that its failures to enter those markets were proximately caused by the defendants’ antitrust violations. The Court had noted that other restraints— Zenith’s failure to develop a television set which could operate on the different signals transmitted in England, government trade barriers, and high shipping costs — existed to block Zenith’s actual entry. 395 U.S. at 125-126, 129, 89 S.Ct. 1562, 23 L.Ed. 149-151. See also United States v. Falstaff Brewing Corp., 410 U.S. 526, 93 S.Ct. 1096, 35 L.Ed.2d 475 (1973).

2. Causation.

In finding that the antitrust laws were violated by RCC’s acquisitions of local credit bureaus and its attempt to monopolize, the District Court assessed the effects of those acts in the nonlocal credit reporting market, while the interest protected by the injunction was CBR’s potential entry into the insurance reporting market. RCC contends that the causal nexus required by § 16 of the Clayton Act between the antitrust violations and the interest of the private litigant allegedly threatened cannot be established where the violations and the threatened interest reside in different markets. This argument must be rejected.

The District Court expressly found that it is necessary to enjoin RCC from withdrawing its local bureaus in order to allow CBR to establish a beachhead in insurance reporting. To effectively compete on a national scale, that is, by selling reports on prospective insureds residing in one section to prospective insurers whose decisions to insure are made at offices located in other sections, CBR would necessarily rely on the nationwide coverage created by the geographical dispersion of its member locals. But, as CBR contended, RCC, by merely withdrawing from CBR membership the locals it owns (which constitute about 5% of CBR’s membership and accounted for 12.5% of CBR’s gross revenue in 1970 and which are concentrated in several metro-areas), could create large geographical gaps in CBR’s ability to service the needs of national insurance companies. To hold here that CBR must wait for injunctive protection until RCC has actually withdrawn its locals, acts which would have immediate effects in the same market for which CBR is a potential entrant, would be to strip this private plaintiff of the remedy clearly granted it by § 16 for impending violations, see Zenith Radio, supra, and relegate § 16 to cases of post-horse barn door closings. Furthermore it would contravene the congressional policies expressed in § 7 of the Clayton Act of protecting against the elimination of potential competitors and of arresting the anticompetitive effects of § 7 violations in their incipiency. “[Tjhere is certainly no requirement that the anticompetitive power manifest itself in anticompetitive action before § 7 can be called into play.” F. T. C. v. Procter & Gamble, 386 U.S. 568, 577, 87 S.Ct. 1224, 1229, 18 L.Ed.2d 303, 309 (1967).

Our conclusion that the court was correct in finding sufficient causation to warrant injunctive protection for CBR’s potential entry into insurance reporting is further supported by the fact that, while the court did not so find, the record would fully support a determination that RCC’s acquisitions also had the § 7 proscribed effect of substantially lessening competition in the insurance reporting market.

Moreover, even if we thought sufficient causation was not shown between the violations found in the nonlocal credit reporting market and CBR’s potential entry into the insurance reporting market, we would not reverse. The District Court also premised its grant of relief upon the alternative causation determination that “CBR is threatened with injury because of the existence of RCC’s monopoly power in the field of insurance reporting.” This links CBR’s threatened interest to an antitrust violation found by assessing its effects. in the same market as CBR’s interest.

3. Illegal territorial allocation by CBR.

RCC contends that in light of the Supreme Court’s decision in United States v. Topco Associates, 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972), decided after judgment was entered for CBR, the court erred in determining that CBR was a sole entity and therefore did not violate § 1 of the Sherman Act by generally restricting membership to only one local credit bureau in each city. That error requires a reversal, RCC argues, because § 16 of the Clayton Act permits injunctions to be granted in private actions only “when and under the same conditions and principles as injunctive relief ... is granted by courts of equity,” and courts of equity do not grant injunctions to protect an unlawful scheme. We do not agree that reversal is required, even if Topeo, supra, compels a different result on the issue of CBR’s alleged illegal territorial allocation and even if we assume that the doctrine of unclean hands is still available to RCC as a means of defending against a request for injunctive relief under the antitrust laws. What we said in Sunshine Packers, Inc. v. American Oil Co., 395 F.2d 86 (5th Cir. 1968), in reliance upon Kelly v. Kosuga, 358 U. S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959), concerning the restricted ambit of the in pari delicto defense is equally applicable here. See especially, Sunshine Packers, supra, 395 F.2d at 87-88 and n. 1, at 88. The illegality vel non of CBR’s conduct in allocating territories would not constitute a defense against the injunctive relief unless that injunctive relief itself enforces, maintains, or protects “the precise conduct” by CBR allegedly made unlawful by the antitrust laws. Kelly v. Kosuga, supra, 358 U.S. at 520-521, 79 S.Ct. 429, 3 L.Ed.2d at 478-479. There has been no showing here that CBR’s alleged territorial allocation is supported by the order enjoining RCC from withdrawing its local bureaus, from going forward with its own marketing service, and from acquiring additional local bureaus.

Affirmed.

      . The court defined the nonlocal credit reporting market as the servicing of needs of nonlocal credit grantors, such as oil companies, mail-order houses, bank charge-card systems, for information collected by local credit bureaus relevant to credit ratings of locally residing individuals.

      . The insurance reporting market was defined by the court as the gathering and the sale to insurance companies of information about prospective insureds, to guide the companies in making underwriting decisions, i. e., the determinations of whether to issue policies' and, if so, what premiums to charge. As defined by the court, this market includes both reports used for life and health policies and fire and casualty policies.

      . CBR alleged that these acquisitions had the § 7 proscribed effect of lessening com-, petition in both nonlocal credit reporting and insurance reporting. The court, however, determined that RCC’s acquisitions violated § 7 by assessing their effect only in the nonlocal credit reporting market. See infra Part 2, at 993.

      . RCC contended at trial that insurance companies would not accept reports prepared in the usual manner of CBR’s credit reports, from t.elenhone conversations. RCC’s insurance reports were prepared from data obtained through its investigators’ personal interviews.

      . In Topeo the Court held that a cooperative purchasing association of grocery chains, owned by its members who possessed power to exclude competitors operating in their areas from membership, had engaged in per se illegal territorial allocation.

      . See Skil Corp. v. Black & Decker Mfg. Co., 351 F.Supp. 65 (M.D.Ill.1972) and compare Singer v. A. Hollander & Son, 202 F.2d 55 (3rd Cir. 1953); Graham v. Triangle Publications, 233 F.Supp. 825 (E.D.Pa.1964); and Louisiana Petroleum Retail Dealers v. Texas Co., 148 F.Supp. 334 (W.D.La.1956) with Hawaiian Tuna Packers v. International L & W Union, 72 F.Supp. 562 (D.Haw.1947); and Magna Pictures Corp. v. Paramount Pictures Corp., 265 F.Supp. 144 (C.D.Cal.1967).

      . Prior to its demise in Perma Life Mufflers, Inc., v. International Parts Corporation, 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968). See also Hobart Bros. v. Gilliland, 471 F.2d 894, n. 5 at 901 (5th Cir., 1973). The District Court relied upon Perma Life to reject RCC’s attempted defense, even if CBR were guilty of antitrust violations.


author: PER CURIAM:

text:
    Irby SPROUSE, Jr., Petitioner-Appellant, v. Charles C. MOORE, Caseworker, U. S. Penitentiary, and J. D. Henderson, Warden, etc., Respondents-Appellees.
    No. 72-3426
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    April 24, 1973.
    Irby Sprouse, Jr., pro se.
    John W. Stokes, Jr., U. S. Atty., Anthony M. Arnold, Asst. U. S. Atty., Atlanta, Ga., for respondents-appellees.
    Before WISDOM, AINSWORTH and CLARK, Circuit Judges.

       Rule 18, 5 Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Company of New York et al., 5 Cir., 1970, 431 F.2d 409, Part I.

   PER CURIAM:

Appellant, an inmate of the federal penitentiary in Atlanta, Georgia, appeals from the denial by the United States District Court of his petition for mandamus to force the prison authorities to allow him the use of typewriters for legal correspondence and matters other than formal motions to the courts. We affirm.

As we just recently said in Stubblefield v. Henderson, 5 Cir., 1973, 475 F.2d 26: 433 F.2d 958; Durham v. Blackwell, 5th Cir., 1969, 409 F.2d 838; see also Tarlton v. Henderson, 5th Cir. 1972, 467 F.2d 200. It follows, therefore, that an inmate has no federally protected right to use typewriters for correspondence, whether personal or legal.”

“It is well established that an inmate has no federally protected right to the use of typewriters to prepare legal writs. Williams v. United States Department of Justice, 5th Cir., 1970,

Affirmed.


text:
    UNITED STATES of America, Plaintiff and Appellee, v. George Winslow PEARSON, Jr., Defendant and Appellant. In re Sherman ELLISON.
    No. 73-1280.
    United States Court of Appeals, Ninth Circuit.
    April 10, 1973.
    Sherman Marshall Ellison, Beverly Hills, Cal., for defendant and appellant.
    James L. Browning, Jr., U. S. Atty., San Francisco, Cal., for plaintiff and appellee.
   ORDER ASSESSING PENALTY

Before CHAMBERS and KILKENNY, Circuit Judges, and KING, District Judge.

For failure to prosecute the appeal with due diligence, Counsel Sherman Ellison is assessed a penalty of $100, in accordance with the provisions of Rule 46(c), Federal Rules of Appellate Procedure. The said sum should be paid into the registry of the clerk of the District Court for the Northern District of California within 14 days from the filing of this order.

       The Honorable Samuel P. King, United States District Judge for the District of Hawaii, sitting by designation.


text:
    UNITED STATES of America, Plaintiff-Appellee, v. Roscoe Lee FARMER, Defendant-Appellant. In re Lawrence MARQUETTE, Esq.
    No. 72-2696.
    United States Court of Appeals, Ninth Circuit.
    April 13, 1973.

      Lawrence Marquette (present, order to show cause), Sausalito, Cal., for defendant-appellant.
    Janet Aitken, Asst. U. S. Atty. (appeared, order to show cause), James L. Browning, Jr., U. S. Atty., San Francisco, Cal., for plaintiff-appellee.
    Before CHAMBERS and TRASK, Circuit Judges, and CONTI, District Judge.

       The Honorable Samuel Conti, United States District Judge for the Northern District of California, sitting by designation.

   It is the ORDER of this court that Attorney Lawrence Marquette is relieved as counsel in the above appeal.

For failure to prosecute the appeal with due diligence, Attorney Lawrence Marquette is assessed a penalty of $779.-40 in accordance with the provisions of Rule 46(c) of the Federal Rules of Appellate Procedure, this sum being the amount paid by the government for preparation of the reporter’s transcript on appeal.

The said sum shall be paid into the registry of the clerk of the United States District Court for the Northern District of California within eight weeks from the filing of this order.


author: RICH, Judge. BALDWIN, Judge, LANE, Judge, concurring, with whom MARKEY, Chief Judge, joins.

text:
    Application of Charles L. CORMANY et al.
    Patent Appeal No. 8775.
    United States Court of Customs and Patent Appeals.
    April 19, 1973.
    Mark Levin, Pittsburgh, Pa., atty. of record, for appellants; Chisholm & Spencer, Pittsburgh, Pa., Jones & Lockwood, George R. Jones, Arlington, Va., of counsel.
    S. Wm. Cochran, Washington, D. C., for Commissioner of Patents. Jack E. Armore, Washington, D. C., of counsel.
    Before MARKEY, Chief Judge, and RICH, ALMOND, BALDWIN and LANE, Judges.
   RICH, Judge.

This appeal is from the decision of the Patent Office Board of Appeals affirming the examiner’s rejection of claims 3-5, 7, and 9-12 of application serial No. 565,704, filed July 18, 1966, entitled “Stabilization.” We affirm.

The invention relates to the stabilization of methylchloroform, also called 1,-1,1-trichloroethane, a solvent having utility in industrial degreasing in both liquid and vapor phase. When so employed, methylchloroform has a tendency to decompose rapidly, especially when in contact with aluminum and other light metals, and in decomposing also has a corrosive effect on the metals. The claims are all directed to stabilized methylchloroform compositions in which the stabilizer is a mixture of a nitroalkane, such as nitromethane, and an organic epoxide having 2 to 8 carbon atoms, such as butylene oxide or propylene oxide.

Claim 12 is the main claim involved. It reads (emphasis ours):

12. Methylchloroform having therein dissolved the combination of (a) a minor amount of a nitroalkane selected from the group consisting of nitromethane and nitroethane large enough to stabilize liquid methylchloroform refluxing under atmospheric conditions under total reflux and in which is immersed an aluminum strip, and (b) from 0.05 to 10 percent by weight of an organic epoxide having 2 to 8 carbon atoms.

The emphasized quantity limitation is important to the main issues, as will appear. All other claims except claim 11 are dependent on claim 12. Claim 11 reads:

11. A composition of matter comprising methyl chloroform containing a stabilizing amount of a mixture of propylene oxide and a nitroalkane having 1 to 3 carbon atoms.

There are three closely interrelated grounds of rejection, one under 35 U.S. C. § 103, the other two being under 35 U.S.C. § 112. The only prior art relied on to support the § 103 rejection for obviousness consists of counts 1 and 2 of Interference No. 93,486 which involved appellants’ parent application, serial No. 812,791 (1959), and a patent to Brown, No. 3,049,571. Priority was awarded to Brown. Appellants prosecuted an intermediate application, serial No. 293,273 (1963), filed as a continuation-in-part of the one in interference, and the present application is a continuation of the latter. The examiner’s rejection under § 103 was on the ground that all claims on appeal are unpatentable over the counts of the interference. The examiner stated:

The determination of the optimum amounts of stabilizer to use is within the expected skill of a chemist in the art. No unobviousness is seen in the recitation of nitroethane (claims 4-5) and propylene oxide (claim 11) since these compounds would clearly be suggested by the homologous compounds recited in the Counts.

The § 112 rejections were newly made in the Examiner’s Answer and, as sustained by the board, apply to all appealed claims except claim 11. The grounds of rejection were that the claims are “indefinite and inadequately supported” in the specification.

Concerning ourselves for the present with all claims except claim 11, it appears from appellants’ brief that, notwithstanding the adverse award of priority, they have “continued to press for allowance of claims to the present invention” on the theory that they are distinguishing from the lost counts in their use of the quantitative limitation we have emphasized in claim 12, supra, “to set apart the claimed invention from the invention for which Brown was awarded priority.” Thus that limitation becomes the crux of this appeal. Appellants are candid in stating that for them to prevail this court must recognize that the board erred in holding “the claim language is indefinite and inadequately supported.”

We regard indefiniteness of claim language and inadequate support for it in the specification to be distinct questions, In re Borkowski, 57 CCPA 946, 422 F.2d 904 (1970); In re Hammack, 57 CCPA 1225, 427 F.2d 1378, 166 USPQ 204 (1970); In re Swinehart, 58 CCPA 1027, 439 F.2d 210, 169 USPQ 226 (1971), and we shall therefore consider them separately, the former being a question of compliance with the second paragraph of § 112 and the latter a question of compliance with the first paragraph.

Appellants have chosen to define the amount of nitroalkane used for stabilization by the phrase “large enough to stabilize liquid methylchloroform refluxing under atmospheric conditions under total reflux and in which is immersed an aluminum strip.” Why does the Patent Office deem that definition of quantity indefinite? Enough is enough. It is because of the word “stabilize.” The board said, “the stabilization standard in claim 12 and the claims dependent thereon is indefinite because the degree of stabilization is uncertain.” (Emphasis added.)

Translated in terms of a § 112, second paragraph, requirement, it is apparent that the board’s holding was that claim 12, and the claims dependent thereon, do not particularly point out and distinctly claim the subject matter which applicants regard as their invention. If that be true, the rejection of those claims must be sustained. In re Prater, 415 F.2d 1393, 56 CCPA 1381 (1969); In re Borkowski, supra; In re Moore, 439 F.2d 1232, 58 CCPA 1042 (1971); and In re Cohn, 438 F.2d 989, 58 CCPA 996 (1971).

Speaking of the requirement of the second paragraph of § 112, we said in Moore:

* * * the definiteness of the language employed must be analyzed— not in a vacuum, but always in light of the teachings of the prior art and of the particular application disclosure as it would be interpreted by one possessing the ordinary level of skill in the pertinent art.

Footnote 2 to that statement reads:

Discussing the second paragraph § 112 requirement in Borkowski, supra, we said:

If the scope of subject matter embraced by a claim is clear, and if the applicant has not otherwise indicated that he intends the claims to be of a different scope [citing Prater, supra, as an example of such a case], then the claim does particularly point out and distinctly claim the subject matter which the applicant regards as his invention. [Emphasis added.]

The Prater exception emphasized in the above quotation is what is important here. The relevant portion of the Prater opinion is the discussion of claim 9, as to which we first expressed our agreement with appellants that “claim 9 cannot be read in a vacuum but instead must be read in the light of the specification.” We next found that, so reading the claim, it “read on a mental process augmented by pencil and paper markings” and was not limited to a “machine-implemented process.” We had already found — not on the basis of anything in the Prater specification but on the basis only of contentions and admissions of the appellants in briefs and arguments — that they did not regard as their invention and did not intend their claim to cover a process which could be carried out by mental operations aided by pencil and paper. Having construed claim 9 in the light of the specification and found it to be of such scope as to include what appellants said they did not intend to include, we therefore held the claim did not comply tvith the second paragraph of § 112. As we shall show, we have a similar situation here.

The first step in the demonstration is to construe claim 12 in the light of appellants’ specification, having particular reference to the meaning of the word “stabilize.”

The specification teaches that unstabilized methylehloroform decomposes within “all too brief a period,” and “loses its practical value.” It decomposes in five minutes at reflux temperature in the presence of aluminum. It is disclosed that nitromethane alone may be used as a stabilizer in various concentrations between 2 and 10 per cent by weight of the methylehloroform. The discussion of the use of nitromethane by itself concludes with the sentence,

Lower concentrations, e. g., 0.5 weight per cent, are possible but not, as a rule, recommended when nitromethane is the sole stabilizing component of the composition.

But this is not the invention of claim 12, which is limited to stabilization by a mixture or “combination” of nitroalkane and certain epoxides. Using such mixtures, the teaching of the specification is in these words:

With other stabilizing materials, these lower concentrations are useful. An illustrated concentration range of nitromethane is, therefore, from 0.01 to 3.0 weight per cent.

There are two specific examples in the specification of the use of nitromethane in each of which the amount used is 3% by weight of the methylehloroform.

On the basis of this disclosure, there are two possible constructions of the key clause in claim 12. If we read “amount * * * large enough to stabilize” as referring .to a stabilizing amount of nitroalkane used alone, the disclosure teaches a lower “possible,” albeit not as a rule recommended, amount of “0.5 weight per cent.” If we read it as meaning enough nitroalkane to stabilize in the composition claimed, which includes organic epoxide, the lower amount is 0.01 weight percent. Taking the view most favorable to appellants— which is the former reading — we think the claim clearly includes as little as 0.5 weight percent. As we pointed out in Prater, citing many precedents, claims in pending applications must be given the broadest reasonable interpretation consistent with the specification. With the possibility of reading claim 12 to include 0.01 percent we think reading it to include 0.5 percent is very reasonable. Appellants’ brief has no adequate refutation to the propriety of the board having so read it and we so read it.

We turn now to the evidence which shows that appellants do not regard 0.5 weight percent of nitroalkane alone as “large enough to stabilize” and hence not within their invention. The evidence is in the form of two Reich affidavits filed under Rule 132. The first affidavit makes the following points : (1) Half a volume percent of nitromethane in methylehloroform in the presence of aluminum is not a stabilizing concentration. (2) 0.7 volume percent stabilizes methylehloroform for 20 minutes and 1.0% for 240+ hours; the former is not regarded as stabilized. (3) When butylene oxide, 0.5% by weight, is added to 0.5% by volume of nitromethane, the mixture “will not protect liquid methylehloroform against the aluminum induced decomposition.” (4) A “nitromethane concentration of at least about one weight percent is necessary to impart a significant degree of protection against the type of methyl-chloroform decomposition for which the procedure [of] Example I of this application tests.” The second Reich affidavit compares decomposition times of methylehloroform containing various concentrations of nitromethane, using the test procedure of Example I of the application, leading the affiant to conclude

"• * * that the minimum nitromethane concentration methylehloroform must contain to pass the test of the aforesaid Example I and demonstrate a stability under reflux conditions in the presence of aluminum is in excess of 0.85 volume percent and at least 0.9 volume percent. [Emphasis ours.]

Thus, to summarize appellants’ ov(m proofs, they establish that what they mean by “stabilize” is a condition brought about by the use of at least 0.9 volume percent of nitromethane. That amount is said to have prevented decomposition for 75 hours. In the test using 0.85% nitromethane decomposition occurred in 15 minutes.

From this evidence we are bound to conclude, first, that 0.9% is a critical minimum and, second, that “stabilize” means to appellants something of the order of 75 hours or better and not a mere matter of minutes.

Applying the law of § 112, second paragraph, as we have construed it in the cases referred to above, claim 12 and the claims dependent thereon include within their scope the use in the composition of an amount of a nitroalkane as small as 0.5 weight percent. Appellants’ affidavits make clear that this is not an “amount * * * large enough to stabilize” under the test conditions prescribed in these claims and that they do not regard it as within their invention. These claims, therefore, do not particularly point out and distinctly claim what appellants regard as their invention and do not comply with § 112, second paragraph. For this reason alone their rejection must be affirmed.

Turning to the other aspect of the § 112 rejection, the same facts discussed above establish that claim 12 and its dependent claims are not supported by the disclosure. This rejection rests on the first paragraph of § 112. The proofs show an amount “large enough to stabilize” is at least 0.9 volume percent. The specification not only lacks support for this but is in direct conflict with it. Furthermore, nowhere does the specification teach that when a mixture of stabilizers is used, as all the claims require, the nitroalkane component, by itself, must be in an amount sufficient to stabilize the methylchloroform. This ground of rejection was therefore well taken.

We have left for consideration only claim 11. The rejection for unpatentability over the counts lost to Brown is the only one before us as to this claim. The board said:

Brown being prior to appellants with a composition wherein the epoxide is butylene oxide, the only issue is the obviousness of substituting the closely related homologous epoxide propylene oxide. On its face, such substitution would be obvious within the meaning of 35 U.S.C. § 103, and appellants have furnished neither argument nor data to establish any semblance of unobviousness.

Appellants argue that “Brown is not prior as to the composition of this claim except for having used butylene oxide rather than propylene oxide,” which is a tacit admission that as to a butylene oxide-nitromethane mixture as stabilizer for methylchloroform Brown was prior. Moreover, the counts speak for themselves. Appellants appear to concede that 35 U.S.C. § 102(g) makes the prior invention of another, as established by an adverse award of priority, a bar to the patentability of the identical subject matter involved in the priority award. However, they contend that because the Brown invention “was unknown” it is not “prior art” under § 103. We have held otherwise in In re Taub, 348 F.2d 556, 52 CCPA 1675 (1965), and In re Risse, 378 F.2d 948, 54 CCPA 1495 (1967). It is not a relevant consideration that Brown’s prior invention was unknown, either under § 102(g) or the Taub and Risse cases. The subject matter of count 2, which presents the clearest case, being the prior invention of another, is, under the above cases, prior art under § 103 and the holding of obviousness by the board is without error.

The decision of the board is affirmed.

Affirmed.

BALDWIN, Judge,

(concurring).

I agree with Judge Lane’s treatment of the rejection of claims 3-5, 7, 9, 10 and 12 based on the first paragraph of section 112. The entire court having thus concluded that the rejection of the claims on that basis was correct, it becomes unnecessary for the disposition of this case to even consider any rejection which might have been made based on the second paragraph of section 112.

With regard to claim 11, I agree that appellants have neither established that the judicial doctrine of lost counts, with the limitations placed on it in Risse, should be overruled nor that it is not applicable to the facts before us. Appellants make much of the fact that because their application was in interference with a patent, they could not introduce a count covering the propyl species into the interference. At the same time, however, appellants appear to concede that Brown’s butyl species was prior to their own propyl species. That being the case, appellants could not have obtained a claim to the propyl species under the doctrine of lost counts even if they could have introduced into the interference a claim covering the propyl species, and thus could have brought in evidence showing their invention date regarding that species.

LANE, Judge, concurring, with whom MARKEY, Chief Judge, joins.

The board held claims 3-5, 7, 9-10 and 12 to be “inadequately supported” by the specification and sustained the rejection of those claims under 35 U.S.C. § 112. It did so on the finding that:

At no point in the application is there any indication that, when a mixture of nitroalkane and epoxide is used, the former component should be used in amount “large enough to stabilize liquid methylchloroform refluxing under atmospheric conditions under total reflux and in which is immersed an aluminum strip.”

The board’s holding was that there is no description of the claimed invention in the specification as required toy the first paragraph of § 112. In re Smith, 458 F.2d 1389, 59 CCPA _, _ (1972). That conclusion is well founded.

Appellants rely on example I of their specification in which 3.0% nitromethane was found sufficient to stabilize methylchloroform and was also used in conjunction with 1.0% butylene oxide to give an even longer stabilization period. That example does not suggest the claim limitation. It is at best only consistent with the claims. The example fails to indicate to one of ordinary skill in the art that the quantity of nitroalkane to be used when an epoxide stabilizer is added is an amount “large enough to stabilize liquid methylchloroform refluxing under atmospheric conditions under total reflux and in which is immersed an aluminum strip.” See In re Smith, supra; In re Lukach, 442 F.2d 967, 58 CCPA 1233 (1971).

The board’s decision is clearly sustainable on the ground that the specification lacks a legally sufficient description of the claimed subject matter. Affirmance on that basis renders consideration of the § 112, second paragraph, rejection unnecessary, and we do not reach it. Although the principal opinion would sustain the second paragraph rejection as well as the first paragraph rejection, we are not convinced of its correctness on the facts of this case. Having determined that the specification does not describe the claimed invention, we see no reason to attempt to define the claim language by reference to that specification.

We affirm the board’s decision with respect to claims 3-5, 7, 9-10 and 12 on the basis of the § 112, first paragraph, rejection.

We agree that In re Risse, 378 F.2d 948, 54 CCPA 1495 (1967) is controlling with respect to claim 11 and the board’s decision as to that claim is also affirmed.

      . The interference counts read:

        Cotint 1

      A composition of matter comprising methyl chloroform containing a minor amount of nitromethane and dissolved therein a stabilizing amount of vicinal monoepoxide having from 4 to 6 carbon atoms.

        Count 2
      A composition of matter comprising methyl chloroform containing a stabilizing amount of nitromethane and from 0.10 to 1.5 weight per cent of butylene oxide.

      . It is important here to understand that under this analysis claims which on first reading — in a vacuum, if you will — appear indefinite may upon a reading of the specification disclosure or prior art teachings become quite definite. It may be less obvious that this rule also applies in the reverse, making an otherwise definite claim take on an unreasonable degree of uncertainty. [Citing the Cohn and Hammach cases, supra.]


author: RICH, Judge.

text:
    SMITH BROTHERS MANUFACTURING COMPANY, Appellant, v. STONE MANUFACTURING COMPANY, Appellee.
    Patent Appeal No. 8947.
    United States Court of Customs and Patent Appeals.
    April 19, 1973.
    George R. Douglas, Jr. (Misc.ades & Douglas), Washington, D.C., attorneys of record for appellant; Sherman Levy, Washington, D.G., of counsel.
    B. P. Fishburne, Jr., Washington, D. C., attorney of record, for appellee.
    Before MARKEY, Chief Judge, RICH, BALDWIN, and LANE, Judges, and ALMOND, Senior Judge.
   RICH, Judge.

This appeal is from the decision of the Patent Office Trademark Trial and Appeal Board, one member dissenting, 168 USPQ 190 (1970), dismissing an opposition to the registration of “MERRY CAPERS” for “blouses, shirts, shorts, slacks, overalls, playsuits, jumpers, dresses and lingerie for infants, children and ladies,” application serial No. 278,534, filed August 17, 1967.

Opposer relies on prior use of “CAPER Casuals” on men’s and boys’ slacks or trousers.

Both parties produced evidence in the form of answers to interrogatories and exhibits. Both have had substantial sales and advertising expenditures. Op-poser’s priority is clear, its sales dating from 1956, whereas applicant’s business under the mark “MERRY CAPERS” commenced in July 1967. Applicant introduced thirteen third-party registrations of marks consisting of or including “Caper” or “Kaper” for clothing of various kinds, granted between 1940 and 1968.

The sole issue is likelihood of confusion, mistake, or deception under section 2(d) of the Trademark Act (15 U.S.C. § 1052(d)). The board divided on the question, the majority being of the view that “the mere inclusion of the word ‘caper’ or ‘capers’ in both marks is insufficient to create a likelihood of confusion or mistake.” The dissenting opinion reads:

It is my opinion that the word “CAPER” or “CAPERS” is not only completely arbitrary as applied to the goods here involved, but it is the characterizing feature of the marks of both parties. Such being the case, I would sustain the opposition.

The marks must, of course, be considered in their entireties. In doing so, however, the term “Casuals” in op-poser’s mark is seen to have the obviously descriptive connotation of casual clothes, leaving “CAPER” as the distinguishing or origin-indicating part of the mark. In applicant’s mark “MERRY” obviously stands in an adjectival or modifying position relative to the word “CAPERS,” which therefore stands out as the dominant feature of the mark. We agree with the dissenting member of the board that “CAPER,” in the singular or plural form, is arbitrary as applied to clothing, though highly suggestive of a fun thing, of frisking, frolicking, romping, prancing, and dancing, and hence of casual clothes.

Considering the marks as a whole and the total impressions they create, we believe that purchasers, actual or prospective, familiar with the “CAPER Casuals” line of men’s and boys’ slacks and trousers might well think that “MERRY CAPERS” infants’, children’s, and ladies’ casual clothing had a common source, and vice versa. We therefore think there is likelihood of confusion as to the origin of the goods sold by the parties, if sold under these two marks and the prior user is therefore entitled to have its opposition to registration by the latecomer sustained.

We have considered the cited third-party registrations and accept them as evidence that the term “Caper” has in the past appealed to others in the clothes-merchandising field as an appropriate term to use as a mark, or part of a mark, on various items of clothing. But in the absence of any evidence showing the extent of use of any of such marks or whether any of them are now in use, they provide no basis for saying that the marks so registered have had, or may have, any effect at all on the public mind so as to have a bearing on likelihood of confusion. The purchasing public is not aware of registrations reposing in the Patent Office and though they are relevant, in themselves they have little evidentiary value on the issue before us.

The decision of the board is reversed.

Reversed.

MARKEY, C. J., and BALDWIN, J., dissent.

       The Petition of Appeal states that appellant has complied with the provisions of 35 U.S.C. §§ 142 and 143, which pertain to appeals in patent rather than trademark cases. However, we have construed the appeal as if filed pursuant to 15 U.S.C. § 1071(a), the provision governing appeals to this court in trademark cases.


author: BALDWIN, Judge.

text:
    Joseph A. ABEEL and Charles L. Schrieber, Appellants, v. Julius HEZLER, Jr. and George C. Barnier, Appellees.
    Patent Appeal No. 8910.
    United States Court of Customs and Patent Appeals.
    April 19, 1973.

      Walter S. Zebrowski, Big Flats, N. Y., of record, for appellants.
    Dean L. Ellis, of record, for appellees.
    Before MARKEY, Chief Judge, RICH, BALDWIN, LANE, Judges, and ALMOND, Senior Judge.
   BALDWIN, Judge.

This is an appeal from the decision of the Board of Patent Interferences awarding priority of invention as to counts 1 and 2 in interference No. 96,469, to Hezler et al. (Hezler). The counts correspond to claims of Hezler patent No. 3,214,213, issued October 26, 1965, on an application filed April 30, 1963. Abeel et al. (Abeel) copied the counts in application serial No. 388,350, filed August 5, 1964, which was accorded, through an intermediate parent application, the benefit of the May 31, 1962, filing date of grandparent application serial No. 199,118 (’118 application).

The invention relates to the structure of a vehicle body having a curved window opening and suitable window closure guides in combination with a cooperating flexible window pane. The pane, which may be flexible glass, is preformed to some predetermined degree of curvature differing from the curvature of the window opening and possibly from the curvature of the guides.

Count 1 reads (paragraphing ours):

In a vehicle body, the combination comprising,
means defining a curved window opening in said body,
guide means mounted on said body adjacent said opening and merging with said window opening defining means,
said guide means being adapted to guidingly restrain edges of a window closure and having a degree of curvature substantially differing from the degree of curvature of said opening,
and a window closure of resilient semirigid construction mounted for movement in said guide means between a retracted position within said body wherein edges of said closure are substantially wholly restrained within said guide means and an extended position wherein edges of said closure are substantially wholly without said guide means and otherwise substantially wholly unrestrained,
said closure being preformed into a degree of curvature substantially differing from both the degree of curvature of said window opening and of said guide means,
said closure upon movement to said extended position thereof being resiliency bendable from said preformed curvature into a degree of curvature conforming to that of said window defining means and upon movement to the retracted position thereof being resiliently bendable from said predetermined curvature into a degree of curvature conforming to that of said guide means.

Count 2 is similar, containing substantially the same limitation which we find decisive of the appeal as to count 1. That limitation, as well as an additional pertinent requirement in count 2 only, is described more fully hereinafter.

The sole issue is whether appellants’ ’118 application supports the counts since appellants rely only on it for priority, the intermediate and involved applications having been filed subsequent to appellees’ filing date.

The form of invention in appellants’ ’118 application most pertinent to the issue is that shown as a “cross sectional elevation of a curved window assembly” in Fig. 9 thereof as follows:

The application states:

Fig. 9 illustrates flexible glass body assembly suitable as an omnibus side window, a station wagon type vehicle rear window or the like, wherein a window pane 90, consists of a flexible glass sheet which is either prebent, partially prebent or flat. Window tracks 92, disposed at opposite sides of said pane, engage the pane edge portions of pane 90 in the lowered position and form a desired path for said pane, which path may be oblique to the pane edges. As pane 90 is raised by suitable means, such as handle 94, the pane edges are engaged by window tracks 96 disposed within the roof portion 98 of the vehicle. Window tracks 96 may be formed to conform generally with the contour of said roof portion and form a path for said pane which is oblique to the pane edges. As pane 90 is raised, tracks 96 confine the pane edges causing the pane to follow the curved path, thereby bending said pane to substantially conform to the contour of said roof portion.

The board found, with the parties agreeing, that the count language is not ambiguous, and it held that the language was thus entitled to “the broadest interpretation which it reasonably will support.”

Considering the limitation in count 1 concerning the “degree of curvature” of the elements, the board stated:

* * * we feel that contrary to the implications Abeel seeks us to draw from his arguments, the “guide means” must be those within the roof of the vehicle body since the window closure is “substantially wholly restrained within said guide means” only in the body. Turning to Abeel’s disclosure, it cannot accurately be said that the tracks 96 clearly have a “degree of curvature substantially differing from the degree of curvature” of the window opening.

The board next expressed the view that certain of the language of count 1 setting forth characteristics of the window closure was met by the ’118 application. However, it pointed out that “count 1 (and count 2 as well) explicitly requires that the ‘window closure’ ” be:

mounted for movement in said guide means between a retracted position within said body wherein edges of said closure are substantially wholly restrained within guide means and an extended position wherein edges of said closure are substantially wholly without said guide means and otherwise substantially wholly unrestrained. [Emphasis by board.]
and count 1 (and count 2 as well) then further requires that
said closure upon movement to said extended position thereof
have the capability of bending as set forth in the language of the * * * lines of count 1 quoted above.

With respect to these requirements, the board then held:

We have found no basis in the overall disclosure of Abeel and he has failed to point out any disclosure clearly providing any basis for the concept defined in the above-quoted count language. There is nothing in Abeel’s application indicating any such concept much less providing clear support for the count language defining it.

The board next turned its attention to limitations appearing only in count 2 and held:

Further, solely in the interest of completeness we hold that the language of count 2, “sealing abutment shoulder means mounted adjacent said window opening” considered in the overall context of the count language with the recitation that the
closure upon movement to said extended position thereof (“wholly without said guide channel means and otherwise substantially wholly unrestrained”) being resiliently bendable . . . into engagement with said abutment should [er] means . . . (our insertions)
finds no support in Abeel’s disclosure; and particularly none in the structure adjacent to the handle 94 and in the cooperating spaced wall structure of the tail gate. * * *

Before us, appellants have filed a brief, including appendix, of 76 pages. Rather than limiting their argument to the ’118 application, which they admit must support the counts if they are to prevail, appellants refer at some length to their other applications which include additional subject matter.

Various different embodiments of automobile door and window assemblies illustrated in the application, along with a statement therein that “the window tracks may be either suitably grooved and shaped channels or shaped bars,” are relied on as teaching that the channel-like tracks shown in the Fig. 9 structure, supra, be replaced by a single bar on the inside at each side of the opening to provide a condition where the edges of the pane are outside the guide means and unrestrained. While appellants’ application does describe an embodiment using curved bars, engaging only one side of the pane, that embodiment uses the bars to constrain the pane against its prestressed curvature when the window is open. Nowhere in the application is there even the remotest suggestion that appellants’ preformed pane might be allowed to protrude outside of the window opening, unrestrained by any window tracks. Indeed, whether the window tracks be channels or bars the term “tracks” itself suggests some means which would conduct the pane into the shape of the window. It is thus clear that the modification of the Fig. 9 structure, that appellants advance is not disclosed in the application.

We have thoroughly considered all of appellants’ arguments that are even remotely related to the issue, but we find that appellants have failed to show any error in the board’s decision or its reasons therefor. Accordingly, the decision is affirmed.

Affirmed.

      . Appellees initially raised this issue through a motion to shift the burden of proof. Consideration of that motion, along with one questioning appellants’ right to make in their involved application, was deferred to final hearing because the Board of Appeals had rendered a decision touching on these matters, favorable to appellants. See Janeway v. Nystrom, 77 USPQ 229 (Com’r.Pats.1946).

      . The pertinent language of count 2 is not precisely, the same as that the board quoted from count 1 but is very similar.

      . Appellants identify their second or intermediate application as a continuation-in-part of ’118 and the involved application a “continuation” of the second.