author: GALSTON, District Judge.

text:
    McGRATH HOLDING CORPORATION v. ANZELL.
    No. 5191.
    District Court, E. D. New York.
    July 22, 1931.

      Hammond & Littell, of New York City (Nelson Littell, of New York City, of counsel) , for plaintiff.
    Darby & Darby, of New York City (Samuel E. Darby, Jr., of New York City, of counsel), for defendant.
   GALSTON, District Judge.

This is a patent infringement suit in which the defendant is charged with the infringement of letters patent No. 1,701,940, issued February 12, 1929, for an improvement in a tire mirror, and No. 1,719,821, issued July 9, 1929, for a rear-view mirror bracket.

The defenses to both patents are invalidity and noninfringement.

For purposes of simplicity, the former patent will in this opinion be referred to as the “tire mirror patent,” and the latter the “hinge mirror patent.”

The tire mirror was devised to be mounted on the spare tire on the side of the automobile, usually adjacent to the front fenders, so that the driver of the vehicle may see traffic conditions to the rear.

To effect the object of the invention, the patentee saw the necessity of securely fastening the device so as to prevent loss, looseness, or theft.

The mirror consists of a curved base designated 10 in the drawing, a post 12, adjustable head 14, and a reflector 16. The curvature of the base is for the purpose of enabling it to be fitted closely to the periphery of the spare tire. To attach the mirror to a suitable support, the base 10 is provided with eyelets 10b. A chain 30 is attached by two adjoining eyelets 10b, and the length of the portion 31 of the chain is such that it extends around and underneath the tire 32 and then upward in contact with the hook 34. The other eyelets 10b on the other side of the mirror base are similarly connected by a length of chain and are joined by a link or ring 36. The inventor then says: “The ring 36 is provided with a right angle projection 36a suitably perforated to receive a tum-buekle or screw 38. A hook 34 is suitably threaded to cooperate with the screw eyelet 38 and upon being turned the hook 34 may be drawn toward the ring 36 and the chain tightened about the tire. When the ehain has been sufficiently tightened, the lock 40 may be hooked through the eye of the screw 38 and the perforation in the ring 30 to hold the screw in position and prevent loosening of the ehain 30.”

In the adjustment of the chain, all slack is to be taken up before the tumbuekle is tightened, and it is said: “With the present device the adjustment is extremely fine due to the screw thread on the tumbuekle and the mirror may be positively secured to any and all forms of spare tire mountings.”

Claims 1, 3, 3, and 4 are in issue. Inasmuch as the defendant’s device embodies not a tumbuekle but a hasp, it is important to determine the scope of the claims. The defendant urges that the prosecution of the application in_the Patent Office compels the tum-buekle to be read as a necessary element of the combination.

The first action of the Patent Office was a rejection of all but original claim 9. In overcoming the objections, the applicant in the amendment of June 22, 1928 makes the following observations:

“One of the important features of this deviee is the particular means for securing the mirror to a spare tire. This includes a chain or other flexible means, a screw eye and an adjustable hook thereon. This hook will cooperate with any link in the chain and inasmuch as the end of the hook upstands to a greater height than the distance between the links, it is impossible to remove a link from the hook when the mirror is secured.
“Alperin (one of the prior patentees cited by the Patent Office) does not, in any manner, anticipate the particular features of the link ehain or the adjustable hook on the screw eye, nor the locking means for locking the screw eye from turning.”

In the following action of the Patent Office of September 20, 1928, certain claims are rejected on a reference to the Anzell patent, on the ground that no invention would be required to substitute the claimed chain and adjustable hook means for the fastening means of Anzell.

Replying to this action of the Patent Office, the applicant on September 28, 1928, in support of the amendment filed, wrote: “The applicant has provided a rear view mirror to be carried primarily on a spare tire of an automobile which is provided with a chain connection extending around the tire and under the rim, and with a turn-buckle for adjusta-bly tightening said chain whereby the mirror can be firmly secured upon the spare tire and can be adjusted to take up any slack and, at the same time, the entire assembly, which constitutes a fairly expensive unit, can be locked into position to prevent theft thereof.”

The Patent Office on October 9, 1928, again rejected claim 6, in which claim the applicant had sought to include broadly as an element “adjustable means to connect such flexible lengths of material,” and as amended on September 28, 1928, “and means to prevent locking of said last named means in adjusted position.”

Thereupon on October 12, 1928, the applicant, while protesting that claim 6 was patentable, requested cancellation of the claim.

Now original claims 5 and 8 of the application as filed, which are now claims 2 and 4 of the patent, specifically include the “turnbuckle” as an element. Original claim 7, now claim 3 of the patent, described this element as “adjustable means.'”

The history of claim 1 of the patent is curious. In the course of the amendments and prior to allowance, the claims referred to this element as “adjustable means,” but after allowance the term “adjustable” was canceled, and “slack take-up” substituted, on the ground that “it is believed that 'slack take-up’ is more properly definitive of applicant’s mechanism which secures the flexible chains together, and in view of the repetition of the word 'adjusted’ in the last line, the present change is made to present the claim in a more clear and less ambiguous manner. It is believed that the change does not involve the scope of the claim and it is considered, therefore, that the Examiner will permit the admission of this claim.”

The question then is whether any of the four claims in suit can be read upon the defendant’s structure. Certainly the hasp used by the defendant is not a tumbuckle in the sense in which that term is employed in the specification, nor can it be deemed the equivalent of the adjustable means disclosed in the specifications and drawings. The prosecution of the application forced the applicant to abandon a claim for any means for fastening the tire mirror to the spare, and accordingly he should not be permitted to read into the monopoly right granted him a broader combination than that which he accepted. At best, in view of the prior art, the patent is entitled to but a narrow construction.

I therefore conclude that none of the claims of this tire mirror patent is infringed by the defendant’s devices in suit.

The hinge mirror patent discloses a mirror provided with a bracket for attachment to the hinge pin in the upper door hinge of an automobile, so that the mirror will be in position to reflect rear-view traffic conditions. Both claims of the patent are alleged to be infringed.

Claim 2 reads as follows: “A mirror bracket for a door hinge of the class described, comprising a rigid inverted L-shape portion having a downwardly opening recess therein, a second rigid L-shaped portion re-movably and telescopically secured to said inverted L-shaped portion to form a C-shaped clamp, and having an upwardly opening recess therein, said clamp receiving the ends of the usual hinge pin in said recesses, and means to secure a mirror adjustably to the bracket.”

Comparing the defendant’s structure (Plaintiff’s Exhibit 4), one finds that though there are two L-shaped portions, as is set forth in the claim, nevertheless there is no telescopic connection between these two members, but, on the contrary, the adjustment of the two is secured by a bolt. This claim is so narrow that I think infringement of it is not proved.

Claim 1 is broader, and reads as follows: “In combination with a door of a closed automobile body with the usual hinge forward thereof having the usual hinge leaves and hinge pin, a rear-view mirror, and a bracket secured to said mirror, said bracket comprising a yoke having recessed sockets adapted to receive the ends of the hinge pin and means to clamp the yoke over the ends of the hinge pin.”

This claim is in terms infringed, if the claim is valid, because the defendant does employ means to clamp the yoke over the ends of the hinge pin of the automobile. The defendant contends, however, that the claim is invalid as directed to an exhausted combination. It is said that the only possible novelty of plaintiff’s device resides in the clamp structure, and that there is no material difference between the combination which includes this clamp and the same combination which includes any other clamp for the same purpose, and reliance is had upon Backstay Machine & Leather Co. v. Zenite Metal Co. (C. C. A.) 293 F. 23, and Langan v. Warren Axe & Tool Co. (C. C. A.) 184 F. 720. These cases and the law cited therein would be applicable providing defendant were able to show a combination of the claim with some different but equivalent clamp. The references cited hardly establish that position.

The Auto Car magazine, Defendant’s Exhibit GG, shows a telescopic clamping device for supporting a reflecting mirror, but it does not show a bracket, limited as is the bracket of claim 1. Nor does it appear that this device could effectively be clamped to the hinge of an automobile door.

The patent to Denoux, No. 1,521,508, was not pleaded and was admitted for the purpose of showing merely the state of the art. The inventor states that the arrangement is adapted for use on various accessories such as headlights on automobile ears. The patent shows what is known as a C clamp with corrugated jaws 12 and 13. It may be affixed to a windshield frame, but certainly could not effectively be affixed to -the hinge pin of a door of an automobile. The'danger of dislargement were it so affixed, would be very great.

Patent No. 1,223,962, to Godley shows a lamp mounting. There is a clamping member 12 of the C type intended to be applied to the windshield of a motor vehicle. Doubtless for this purpose the attachment is sufficient, but a windshield, as compared with the hinge of a door, is relatively stationary.

The C clamp is doubtless old as shown in a number of additional patents of the prior art, such as Christensen, No. 1,170,414, but this was intended also to be applied to a stationary support; to Cook, No. 518,733, to an invalid’s bedstead or chair; to Shelverton, No. 576,165, to a sewing machine; to Sand-berg, No. 1,061,328, for fixation to a stationary object such as the wall of a room, a chair rail, a picture rail, or the like. In the Automobile Trade Directory of October, 1920, a C clamp is shown, but no means disclosed of how it could be effectively applied to the hinge pin of an automobile door; the same is true of the Auto Car publication of March 23, 1923, and the Auto Dealer and Repairer of February, 1923.

Attachment devices of various kinds are shown in Bacon patent, No. 935,730; Wells patent, No. 1,485,102; Denman patent, No. 1,170,422; Place patent, No. 574,568; and the Auto Car publication of May 28, 1921. However, in none of these references is the combination of claim 1 disclosed.

I am unable, therefore, to find that the claim disclosed an exhausted combination. I think that the inventor successfully solved the particular problem that he presented to himself in seeking effectively to clamp a bracket supporting a mirror to a movable part such as the door hinge of an automobile, and at the same lime avoid drilling, tapping, or the loosening of bolts or other mechanical operation. The door of the automobile is subject to considerable vibration, both while the ear is in motion and when the door is opened and elosed. Such vibrations would tend to dislodge the ordinary type of C clamp. This tendency to dislodgment the inventor overcame by his very simple but effective clamping means. His invention is not of a fundamental nature, but I think he made a praiseworthy contribution to the art, and to that extent is entitled to the monopoly granted by claim 1 of the patent. Hartford v. Moore (C. C.) 181 F. 132; Washburn & Moen Mfg. Co. v. Beat ’Em All Barbed-Wire Co., 143 U. S. 284, 12 S. Ct. 443, 36 L. Ed. 154; General Electric Co. v. Hartman (C. C. A.) 187 F. 131.

The plaintiff may have a decree in accordance with the foregoing opinion.

If this opinion is not in sufficient compliance with the rule requiring findings of fact and conclusions of law, submit findings of fact and conclusions of law in accordance therewith.


source: Caselaw Access Project

license: Public Domain

text:
    HOOK & EYE DEVICES CORPORATION v. BELFIT BRASSIERE CO.
    No. 3771.
    District Court, E. D. New York.
    July 23, 1931.
    Edward M. Evarts, of New York City (Edward M. Evarts, Christopher C. Cousins, and Morris H. Wolsky, all of New York City,, of counsel), for plaintiff.
    Jeffery, Kimball & Eggleston, of New York City (Oscar W. Jeffery, of New York City, of counsel), for defendant.
   GALSTON, District Judge.

This is a patent infringement suit in which infringement is charged of letters patent No. 1,603,246. The application was filed by Louis Roeke on November 17, 1921, and the patent issued October 12, 1926. The improvement has reference to both an apparatus and a method for sewing tapes provided with fastening devices on articles of wearing apparel.

Apparatus claims Nos. 1, 2, 9,11, 12, 13, 15, 19, 22, 23, and 24, and method claim 18, are in issue. Defenses of want of invention and noninfringement are stoutly asserted.

The specification recites that it is the common practice in the garment trade to sew by machine a tape upon which, at suitable intervals, hooks or eyes have been secured directly upon the garment, in order to avoid the necessity of sewing each fastener separately to the garment. The old method, apparently, as described in the specification, involved two operations; first, sewing one edge of the tape to the edge of the garment, and then, by a separate or second operation, sewing the other edge of the garment to complete the matter of securing lie tape in place. It was for the purpose of avoiding one of these operations that the apparatus and the method of the patent were devised.

The two-needle sewing machine of standard type with the usual work table and a pair of needles are employed. A presser foot 14 having apertures 13 through which the needles 12 pass is part of the apparatus. This presser foot when the machine is in operation is actuated by a spring pressed in the common and well-known way, downwardly in contact with the feed plate 15. This plate is provided with the usual serrations 16 to engage the fabric passing through the machine. The feed plate is likewise provided with the customary slotted openings through which the serrated jaws of the usual form of reciprocating feeder project.

The applicant says that, due to the presence of the presser foot between the needles and the pressure between the presser foot and feed plate, it has heretofore been impossible to feed a tape, upon which- a number of fastening devices were secured, under the presser foot, so that both sides of the tape could be sewed simultaneously, for it is obvious that the fasteners could not pass between the presser foot and the feed plate.

To make possible this sewing of the tapes upon corsets, brassieres, and other garments in a single operation, the applicant devised a guiding means for the tape; and this is the essential feature of his device and method.

The work table of the machine is preferably slotted to receive a channel plate 26, the top of which is flush with the top of the table 11. The plate 26 is slotted to provide a guide way 27 for the tape 20, and, midway between the edges of the guide way, it is slotted to a greater depth so as to provide a channel 28 of sufficient depth to permit the free passage of the fasteners 18.

The method pursued in the use of the apparatus is described as follows: “The tape is introduced into the channel plate 26 with the edges of the tape between the sides of the guideway 27 and the fasteners 18 facing downwardly and in the channel 28. From the channel plate the end of the tape is led under the cover plate 33 and over the serrations of the feed plate. The operator then introduces the edge of the garment into the hemmer 23 which turns the hem 22, the presser foot 14 is then lowered upon the goods which occupy the position shown clearly in Fig. 4. The sewing machine is then started and the goods passed through the machine.”

It is thus seen that what Roeke broadly did was to provide a channel or groove of sufficient dimension to permit the passage of the tape with its hooks and eyes through the machine. The tape is engaged by the feed dog below and the presser foot above, and stitched in the usual manner.

The patentee had available a standard Singer sewing machine of the 112W115 type, and what he did in effect was to cut a channel in three of its parts, the throat plate, front plate, and feed dog. All of these were part of the machine as it was placed on the market in 1915.

To show that the provision of a channel or groove was old in the art, many patents were offered in evidence. Some of these were shown in the double needle type of sewing machine, as, for example, that to Esehner, No. 504,571; to Fogg, 555,476; and to Bew-sic, 839,706.

In addition to the patent showing of the prior art, defendant established the use by the Singer Manufacturing Company of various attachments which it manufactured, illustrating the not uncommon expedient of grooving throat plates and feed dogs to permit the passage between the needles of objects that otherwise would obstruct the free operation of the machine. Such a device is that, for example, shown in the throat plate, Defendant’s Exhibit K. The groove in the plate was designed to permit the free passage of the bone or reed of a corset beneath the presser foot. 'With this plate K, there was used a feed dog, Defendant’s Exhibit L. Both of these parts were set forth in a price list of the Singer Manufacturing Company as early as 1013. Defendant’s Exhibit J is another Singer throat plate of the prior art, grooved for the purpose in hand, and adapted to receive a corresponding feed dog.

Singer Manufacturing Company also made Defendant’s Exhibits S to I, inclusive, which are parts or attachments made in 1915 and 1916, and sold to the Ford Motor Car Company for the purpose of permitting the sewing of strip material, with metallic separable fasteners secured thereon, on a two-needle sewing machine having a groove or channel permitting free passage between the needles. This material consisted of a strip of leather having metal fasteners or pinch buttons attached to it, and were sewed to the folded edge of an automobile curtain.

The operation of the attachment was described by Mr. Waterman of the Singer Manufacturing Company:

“The object of this attachment is to lead this strip of material' and the part of the main curtain, or whatever it may be, of an automobile in proper, to get those two pieces in proper alignment sideways with respect to each other to the needles so that the stitching when done will be as nearly an even distance from each side of this strip as is possible to do after the strip has been turned under a certain distance on each side. In this particular case it was turned under more on one side than on the other, fully % of an inch on the right side and not over % on the left. This is an edge guiding folder, edge folder on the under side of the main material * * * and a strip folder, known as a strip folder on top. The two pieces come separately to the attachment. Perhaps I could show them by means of a paper separately, if so desired, how they are led to each part, if you wish. The under piece comes in here (indicating). The paper does not fold quite as readily as cloth would, but in that way it comes out; and if I were to hold it correctly it would come out all folded over in that way (indicating), as it does come out in the main strip of material just as you see, folded over in the same way. The upper strip is passed through. * * * ”
“In the regular course of manufacture this strip would come in an even width, and you will see 'as that emerges in front it has been folded over on one side under, and on the other side, and on this side it is wider, due to the fact that it is made to do that. In other words this strip folder passes the work through so that as it emerges from it it is folded over on one side and on the other, and if my material were exactly the right width it would be wider on this side than the other. In fact, it shows that here, although it is not to the exact degree that it should show it.”
“As these come out they are presented to the needle, one above the other. This should be inside the folder, but put one above the other in this way (indicating), and the needles are located right ahead here, and they stitch through this, stitch that up in two parallel rows of stitches, and that is the finished result we have here just as that comes out there. Is that complete? * * * ”
“The strips which are flat, are this width and flat when they are presented to this strip folder, have these fasteners attached to them that have been previously attached. * * *»
“And they are guided through by means of this clearance groove, they are allowed to pass through this guide. That is the purpose of this open space.”

Moreover, on the subject-matter of the method claim of the patent, the defendant shows in the Singer pamphlet of 1914 illustrations indicating that the wide tape, from a coil below the bed of the machine, is passed through a guide to a point where the needles pass down through the presser foot, as was testified by Mr. Waterman. It will be observed that this machine is provided with two needles. The material or garment, said Mr. .Waterman, which is on top of the tape, has its edge turned over by means of the folder, and, by means of the two needles, is stitched to and along the edges of the wide tape; and Mr. Waterman said: “There is a die for the tape which is shown on top of the webbing which lies underneath it. The two are both guided as you can see through guides which lead to the point where the needles pass down through the presser foot. It is always necessary in all sewing work to lead work, no matter what it may be, whether it be strips of material, or any material, directly to the needles in the way in which you wish to have the stitching done.”

I do not think that it involved invention to adapt the devices of the prior art to the standard sewing machine known to Roeke. What he did was the work of a skillful mechanic, but I cannot believe that it amounted to invention. Hollister v. Benedict Manufacturing Co., 113 U. S. 59, 5 S. Ct. 717, 28 L. Ed. 901; Concrete Appliances Co. v. Gomery, 269 U. S. 177, 46 S. Ct. 42, 70 L. Ed. 222.

As to the method claim, in addition to lack of novelty, I think it has the infirmity of expressing at most the function of the machine. Risdon Iron & Locomotive Works v. Medart, 158 U. S. 68, 15 S. Ct. 745, 39 L. Ed. 899.

Holding as I do that all of the claims-lack invention, it is not necessary to discuss the question of infringement, nor the defense raised by the Bogdonoff-Rocke interference.

The defendant may have a decree in accordance with the foregoing opinion dismissing the complaint.

If this opinion is not in sufficient compliance with the rule requiring findings of fact and conclusions of law, submit findings of fact and conclusions of law in accordance therewith.


author: DAWSON, District Judge.

text:
    STERLING OIL & GAS CO. v. LUCAS.
    No. 1198.
    District Court, W. D. Kentucky, at Louisville.
    July 21, 1931.
    Woodward, Hamilton & Hobson, of Louisville, Ky., and Edward C. O’Rear, of Frankfort, Ky., for plaintiff.
    T. J. Sparks, U. S. Atty., and Frank Ropke, Asst. U. S. Atty., both of Louisville, Ky., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and T. H. Lewis, Jr., and E. J. Dowd, Sp. Attys., Bureau of Internal Revenue, all of Washington, D. C., for defendant.
   DAWSON, District Judge.

In this suit plaintiff seeks a refund of income and profits taxes whieh it was required to pay for the taxable year 1920. The essential facts necessary to a proper understanding of the issues involved are as follows:

The Flesher Petroleum Company was organized as a corporation under the laws of the state of Delaware on January 13, 1919, with power to engage in the business of buying, selling, and developing oil and gas leases, and in 1924, by an amendment to its articles of incorporation, its corporate name was changed to Sterling Oil & Gas Company. In 1919, shortly after its incorporation, plaintiff acquired 3,800 acres of undeveloped oil leases in Kentucky, and also an interest in leases in Oklahoma. Development was started on these leases in 1919, which resulted in considerable production in 1919, 1920, and subsequent years. The Kentucky property was made up of many small tracts, but the plaintiff acquired these leases en bloc, paying a lump sum for the entire acreage. It sold a part of the Kentucky leases in 1919 and the remainder thereof in 1920, and the aggregate price received for the leases resulted in a profit to the plaintiff.

During the taxable year 1919 the plaintiff expended $149,670.48 in what it characterized as the intangible expenses of drilling and equipping producing oil wells on its Kentucky and Oklahoma properties. These so-called intangible expense items cover all the cost involved in the drilling and equipping of a producing well exeept the cost of the physical equipment having a salvage value, such as casing, pipe, pumping equipment, ete. During the year 1920 the plaintiff expended on account of the so-called intangible expenses in the drilling and equipping of producing wells on its Kentucky and Oklahoma properties, $162,684.20.

Prior to March 15, 1920, plaintiff filed its income tax return for the calendar year 1919, showing thereon a net taxable income of $1,-256.78. As this amount was less than its statutory exemption, of course it paid no tax. In this return plaintiff reported no profit on account of its 1919 sales of Kentucky leases, and the so-called intangible development cost incurred in 1919 was not deducted as an ordinary and necessary operating expense, but was treated as a capital expenditure. On or about February 10, 1921, after plaintiff had sold all of its Kentucky leases and prior to filing its income tax return for the year 1920, plaintiff filed an amended return for the year 1919, in which it reported as additional income for that year $48,561.82 profit on the sale of .those Kentucky leases which were sold in 1919. In the amended return plaintiff also claimed as an ordinary and necessary expense deduction $149,670.48, intangible development cost incurred in 1919. The amended return showed a net loss for the year 1919 of $96,612.98. In a letter which accompanied the amended return the taxpayer explained that the amended return was filed in order that it might report the profit realized in 1919 on sales of Kentucky leases. It was explained that, inasmuch as the entire tract of 3,800 acres of Kentucky leases was purchased for a lump sum, and when these leases were sold they were sold in small tracts, it was impossible to allocate to the year 1919 the profit realized on account of sales made that year until á sale of all the Kentucky leases had been effected, which was done in 1920. The total profit realized from a sale of these leases was allocated to the two years on the basis of the percentage of the total sale price realized in each year, and the amended return was made on this basis. The letter referred to contained the following explanation of the handling in the amended return of the intangible development expense item of $149,670.48: “In closing our books for 1929 we failed to make any final disposition of the development costs and expenses, and the accountant in the preparation of our original return capitalized these expenditures. Upon order from the proper officers, and approved by our board of directors, the accountant has been instructed to make final disposition of these costs and expenses by charging to capital expenditures only the physical property and charging to expense the incidental items of labor, hauling, drilling, etc., whieh do not represent physical property. This has been done and is so taken up on the amended return.”

Plaintiff made its tax return for the year 1920 on April 11,1921. In this return it did not capitalize the $162,684.20 of intangible development costs expended during the taxable year, but treated same as an ordinary and necessary expense in carrying on its business and claimed same as a deduction from gross income. On this basis the return showed no tax due.

In 1927, on a reaudit of plaintiff’s books, the Commissioner of Internal Revenue disallowed as a deduction for the year 1919 the $149,670.48 intangible development expense claimed as a deduction by the plaintiff in its amended return for that year, and $162,684.-20 claimed by the plaintiff as a deduction for the year 1920, and held that each of these items was a capital expenditure, and for eaeh of these years the Commissioner allowed only a proportionate part of these sums by way of a reasonable allowance for depletion and depreciation, under the provisions of section 234(a) (9) of the Revenue Act of 1918 (40 Stat. 1077). On this basis he determined that for the year 1919 the plaintiff had sustained a net loss of $7,656.65, and for the year 1920 had received a net income of $97,209.97. The Commissioner held that the net loss found by him to have been sustained in 1919 was not deductible from the net income found by him for the year 1920, under the provisions of section 204(b) of the Revenue Act of 1918 (40 Stat. 1060). As a result of this reaudit, the plaintiff was required to pay the taxes for the year 1920 which are sought to be recovered in this case.

The ease presents only two questions: (1) Was the plaintiff entitled to deduct the items of intangible development expense referred to, in arriving at net income for each of the years involved? (2) Was plaintiff entitled to deduct from the 1920 net income any net loss sustained in 1919 ? These questions will be dealt with in the order stated.

The provisions of the Revenue Act of 1918 applicable to the first question stated are as follows:

“Sec. 234. (a) That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions:
“(1) All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered, and including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title-, or in which it has no equity. * * *
“(9) In the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case, based upon cost including cost of development not otherwise deducted: Provided, That in the case of such properties acquired prior to March 1, 1913, the fair market value of the property (or the taxpayer’s interest therein) on that date shall be taken in lieu of cost up to that date; Provided further, That in the case of mines, oil and gas wells, discovered by the taxpayer, on or after March 1,1913, and not acquired as the result of purchase of a proven tract or lease, where the fair market value of the property is materially disproportionate to the cost, the depletion allowance shall be based upon the fair market value of the property at the date of the discovery, or within thirty days thereafter; such reasonable allowance in all the above cases to be made under rules and regulations to be prescribed by the Commissioner with the approval of the Secretary. In the case of leases the deductions allowed by this paragraph shall be equitably apportioned between the lessor and lessee.”

Article 223 of Regulations 45, promulgated by the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury for the administration of the Revenue Act of 1918, as authorized by section 1309 of that act (40 Stat. 1143), is as follows:

“Art. 223. Charges to Capital and to Expense in the Case of Oil and Gas Wells.— Such incidental expenses as are paid for wages, fuel, repairs, hauling, etc., in connection with the exploration of the property, drilling of wells, building of pipe lines, and development of the property may at the option of the taxpayer be deducted as an operating expense or charged to the capital account returnable through, depletion. If in exercising this option the taxpayer charges these incidental expenses to capital account, in so far as such expense is represented by physical property it may be taken into account in determining a reasonable allowance for depreciation. The cost of drilling nonproductive wells may at the option of the operator be deducted from gross income as an operating expense or charged to capital account returnable through depletion and depreciation as in the case of productive wells. An election once made under this option will control the taxpayer’s returns for all subsequent years. Casing-head gas contracts have been construed to be tangible assets and their cost may be added to the capital account returnable through depletion, following the rate set by the oil wells from which the gas is derived, or, if the life of the contract is shorter than the reasonable expectation of the life of the wells furnishing the gas, the capital invested in the contract may be written off through yearly allowances equitably distributed over the life of the contract. All oil produced during the taxable year, whether sold or unsold, must be considered in the computation of the depletion allowance for that year. In computing net income all oil in storage at the beginning and at the end of the taxable year must be inventoried at cost, that is, unit cost plus lifting cost. Where deductions for depreciation or depletion have either on the books of the taxpayer or in his returns of net income been included in the past in expense or other accounts, rather than specifically as depreciation or depletion, or where capital expenditures have been charged to expense in lieu of depreciation or depletion, a statement indicating the extent, to which this practice has been carried should accompany the return.”

If the Commissioner had the authority to grant to taxpayers the option of treating the so-called intangible costs of developing an oil property as either a deductible operating expense or a capital expenditure, as is done in article 223, then it is not important to determine whether, according to scientific accounting, this expense is a capital item or an operating expense. Taxation is a practical matter, and, in a system of taxation as complicated as the Federal Income Tax Law, Congress necessarily vested in the Commissioner considerable discretion in its practical administration. Of course, he has no right either to enlarge or to take from the provisions of the act; but he undoubtedly has the right to prescribe reasonable rules and regulations for the administration of the law, and within reasonable limits this power includes the authority to determine what are ordinary and necessary expenses to be deducted under the law in arriving at net income. I do not mean by this that he can arbitrarily declare an item to be deductible as an ordinary and necessary expense when no such classification can reasonably be given to the item under the statute; nor do I mean that he has the power, arbitrarily or unreasonably, by regulation, to exclude from deductible operating expense items that are clearly such under the act.

While it appears to me a sounder accounting practice to classify the so-called intangible development expenses as invested capital, yet the matter is a debatable one, and, even before the matter became a live subject with the enactment of the income tax laws, some oil-producing companies treated such items as invested capital, to be recovered by depletion and depreciation, while others treated them as operating expenses for the year in which incurred. I am of the opinion that the proper classification of these items is sufficiently debatable to authorize the Commissioner to determine the manner in which they shall be treated and to justify the regu- ■ lation that they may be treated either as operating expense or as invested capital, at the option of the taxpayer. At any rate, I think continued administrative acceptance and congressional sanction give the regulation the force and effect of law.

Article 223 was in force when the Revenue Act of 1921 was enacted, and was repeated in practically the same language in Regulation 62, promulgated for the administration of the Revenue Act of 1921, and in Regulations ,65, 69, and 74, promulgated for the administration of the Revenue Acts of 1924, 1926, and 1928, respectively. Each of these acts specifically authorizes the Commissioner, with the approval of the Secretary of the Treasury, to make all needful rules and regulations for the enforcement of its provisions. Each contains a substantial re-enaetment of that part of section 234 of the Revenue Act of 1918 which permits the deduction of ordinary and necessary operating expenses in determining taxable income, and each contains a substantial re-enactment of that part of section 234(a) (9) of the Revenue Act of 1918 which authorizes as a deduction from gross income a reasonable allowance for depletion and depreciation of oil wells and their improvements, under rules and regulations prescribed by the Commissioner, with the approval of the Secretary of the Treasury. At the time Congress enacted each of the revenue acts referred to, it must be presumed to halve known of the regulations promulgated at its direction by the Commissioner for the administration of the prior act. With this knowledge of the regulations of the Commissioner permitting the taxpayer, at his option, to capitalize these items and recover the costs thereof through depletion, or to deduct them as operating expense in the year in whieh incurred, under the Revenue Act of 1918; and with this ruling of the Commissioner repeated in the regulations promulgated for the administration of each of the succeeding Revenue Acts of 1921,1924, 1926, and 1928 (42 Stat. 227; 43 Stat. 253; 44 Stat. 9; 45 Stat. 791 [26 USCA § 2001 et seq.]), with no attempt in any of these acts to change or modify this ruling of the Commissioner, it will be presumed that Congress has given its sanction to the Commissioner’s classification of these items.

We thus have not only a long and unbroken ruling of the Commissioner, authorizing such items to be classified as ordinary and necessary expense, at the option of the taxpayer, but, in addition, legislative sanction of such ruling; and this departmental and legislative construction is binding upon the courts. Fawcus Machine Co. v. United States, 282 U. S. 375, 51 S. Ct. 144, 75 L. Ed. 397; Brewster v. Gage, 280 U. S. 327, 50 S. Ct. 115, 74 L. Ed. 457; National Lead Co. v. United States, 252 U. S. 140, 40 S. Ct. 237, 64 L. Ed. 496; United States v. Cerecedo Hermanos Y Compania, 209 U. S. 337, 28 S. Ct. 532, 52 L. Ed. 821. Therefore plaintiff is entitled to deduct these items as operating expense in the year in which incurred, unless by capitalizing them in its original return for the year 1919 it elected to treat them as capital expenditure, recoverable through depletion and depreciation.

I do not think the original 1919 return should be accepted as conclusive on this question of election. An election implies a deliberate choice. The plaintiff had not deliberately made this choice for any prior taxable year, because it was not in business prior to 1919. The letter accompanying the amended return for 1919 explains that no final disposition of the development expenses had been made by the taxpayer at the end of the taxable year. The fair inference to be drawn from the letter is that the accountant making up the original return was alone responsible for treating these items as capital expenditure. It is fairly inferable from the record in this ease that this accountant was inexperienced in such matters. The letter transmitting the amended return shows that, when the question of the method of treating these items was put up to the hoard of directors, that body elected to treat them as ordinary and necessary operating expense, and directed the accountant to so handle them on the books. They were so handled and reported in the amended return. The fair inference from the letter is that the matter first had the attention of the directors after the original return was filed and before the filing of the amended return. They were treated in like manner in the 1920 return, and, so far as this record discloses, have been so treated in all subsequent returns. This is not a ease where the taxpayer is claiming the right to treat them as capital expenditures one year and as operating expense another year. Prom the time the amended return for 1919 was filed, these items have been consistently treated as operating expense, and I am constrained to hold, under all the proof, that plaintiff never elected to treat them otherwise.

The remaining question for decision'is the right of the plaintiff to have deducted from its 1920 income its net loss sustained in 1919. Plaintiff’s rights in this respect are controlled by section 204(b) of the Revenue Act of 1918. The question is no longer an open one in this jurisdiction. It was thoroughly considered, and decided in favor of the plaintiff’s contention, by this court in the case of Stimpson Computing Scale Co. v. Lucas, 39 F.(2d) 473. See, also, United States v. Carroll Chain Co. (D. C.) 8 F.(2d) 529; Pennsylvania Chocolate Co. v. Lewellyn (D. C.) 27 F.(2d) 762, 763.

A finding of facts and judgment, conforming to the views herein expressed, may be prepared and presented for entry.


author: BYERS, District Judge.

text:
    GERRADIN v. UNITED FRUIT CO.
    No. 4324.
    District Court, E. D. New York.
    July 8, 1931.
    Benjamin Bernstein, of New York City (Jay S. Jones, of Brooklyn, N. Y., and Max J. Wolff, of New York City, of counsel), for plaintiff.
    W. Dale Williams, of New York City (M. L. Fearey and G. P. Tinker, both of New York City, of counsel), for defendant.
   BYERS, District Judge.

This case came to trial on the common-law calendar of this court (having been removed from the state Supreme Court) on March 5,1931.

' The plaintiff, an American citizen, sues to recover damages for personal injuries sustained by him, while in the employ of the defendant, as a cook’s mate on the steamship Castilla; that is, he sought employment on August 30, 1929, in the city of New York, at the office of the defendant, and was told to apply on hoard the Castilla at Pier 9, East River. This he did, and was accepted, and told to report for duty the following day, which was a Saturday. He worked on the ship as directed, and on the next day she sailed for' Central America.

The plaintiff signed on, before the chief steward, probably on August 30th; this is a matter of conjecture, as are the precise terms of employment, because the defendant testifies that the ship’s articles have been lost. [1] In the absence thereof, no presumptions can be indulged as to whether the contractual relations of the parties were ordinary or extraordinary, conventional or otherwise.

The importance of this element of the ease lies in the undisputed fact that the Cas-tilla is registered under the flag of the Republic of Honduras, although owned by one American corporation and chartered to another, the defendant.

The occurrence giving rise to the plaintiff’s claim happened on Tuesday, September 3, 1929, the third day out, when the vessel was qn the high seas.

The plaintiff was mounting a ladder con.necting two of the decks, carrying a pail of vegetables in his right hand, weighing 40 pounds or so. He grasped the rail of the ladder or steps with his left hand, and, having reached the seventh step, was precipitated to the deck below, falling on his left side, and suffering injuries, including the rupture of the left kidney, which later was removed at a hospital in this city.

At the trial, the plaintiff testified that he was caused to slip and fall, because, as he mounted the steps, his head being bowed, he received in his face and chest a pailful of soapy water, discharged by an unidentified sailor or deck hand toward the top of the steps which he was mounting; that some of the water fell on the steps, making them slippery, whereby he was caused to lose his footing, fall, and suffer the injuries in question.

The defendant called one or more witnesses who stated that, upon the return to this port of the Castilla, the plaintiff made known his injuries, but stated that he was caused to fall by a lurch of the ship, and that no mention was made of the pailful of soapy water.

At the close of the ease, the defendant moved for the direction of a verdict, and decision was reserved. The verdict of the jury was rendered on March 10,1931, and was for the plaintiff in the sum of $10,000.

The motion for the directed verdict has been carefully presented by both sides, and the single question discussed is whether the plaintiff, being an American sailor, employed in New York by an American corporation, is entitled to the benefit of the Jones Act (section 33 [46 USCA § 688]); the injury having occurred on the high seas, aboard a vessel of Honduran registry.

The absence of the ship’s articles manifestly removes any question of the plaintiff’s having contracted to be bound by the laws of the Republic of Honduras, touching his relations to his employer. Similarly it precludes considering whether there was a reservation of rights to seamen under the statutes of this country.

The question, therefore, seems to turn upon whether the Honduran registration of the Castilla necessarily imposed upon the plaintiff the law of that republic, by which alone his legal rights against the defendant were measured.

Under those laws, according to the testimony, the rights of an injured seaman are restricted to maintenance and cure; the plaintiff has been accorded such relief.

It is believed that the question here presented has not been previously adjudicated.

The contentions of the parties turn upon the effect to be accorded to the Honduran registration. The plaintiff asserts that the legal relations of the seaman and his employer are governed by the law of the United States, because the nationality of the vessel is determined by the domicile of its owner; and the defendant contends that the registration in Honduras, despite domestic ownership, brought the Castilla, and hence the plaintiff, within the exclusive domain of Honduran law.

That an American citizen who accepts employment on a foreign ship subjects himself to the laws of the country of the ship’s nationality, has been decided: In re Ross, 140 U. S. 453, 11 S. Ct. 897, 35 L. Ed. 581; Rainey v. N. Y. & P. S. S. Co. (C. C. A.) 216 F. 449, L. R. A. 1916A, 1149; The Hanna Nielsen (C. C. A.) 273 F. 171, and cases cited.

It becomes necessary to inquire, therefore, if the Honduran registry, and the display of the flag of that country, constituted the Cas-tilla a ship of Honduran nationality, so as to render those decisions controlling in this controversy.

That which has been written and decided upon this general subject involves, with but one exception (The San Jose Indiano-, Fed. Cas. No. 12322 infra), a discussion of the circumstances presented by ownership of a vessel by a citizen or resident, accompanied by failure to obtain a certificate of registry; that ease alone concerns ownership by a resident of one country and registry under the flag of another.

The departmental memoranda quoted in Judge Moore’s Digest of International Law, § 323, have to do almost exclusively with questions concerning ownership by citizens of the United States of vessels which have not been or could not be admitted to registry or enrolment in this country, and the rights accorded to such vessels to fly the flag of the United States, and claim the protection thereof. It is in this connection that an article contributed to Wharton’s Digest of International Law is quoted in volume 2, at page 1029, as follows: “A vessel as a subject of nationality is not considered a personality any more than any other chattel, and cannot have any other nationality impressed on it except that arising from ownership. The place in which a vessel is built does not give it nationality any more than the place of origin affects that of its cargo. It is-the residence of the owner which stamps alike the vessel and its cargo with its national character.”

Notwithstanding that the foregoing was ■written in connection with the exposition of a thesis not here involved, the abstract statement carries conviction, that a ship is like any other chattel in that its nationality is based upon ownership.

Applied to this ease, it means that the domicile of the Castilla is, of necessity, that of its owner. A contrary conclusion would mean that the nationality of an inanimate thing, an item of personal property, which according to all teachings is derivative, can be viewed as existing independently in the chattel, solely as the result of a certificate of registry which does not purport to be the conduit of title.

The essential features of that document, which is in evidence as Defendant’s Exhibit E, are as follows:

“April 22. — On this date appeared in this office and in behalf of the Tela Railroad Company, Mr. Donaldo Guerrero, requesting the registry of the steamship ‘Castilla’ under the Honduranean flag; and there not being reasons to deny the application of Mr. Guerrero, on this same date the vessel referred to is registered with the following description: Name of the vessel: ‘Castilla.’ — Gross tonnage of displacement: 4087. — Net tonnage of registry: 2159. — Dimensions: length, 342 feet; dimensions: width, 48 feet. — System of combustion: Oil. — Date of construction: March 22, 1927. — Owner of the vessel: Ellis Steamship Corporation. — Nationality of the owning company: American. — Tela, April 22, 1927. — J. Ines-Perez. — Seal.—Max Bar-dales. Secretary. — Seal.”

The unique feature of the problem here presented is apparent from the language of the certificate of registry. Coupled with the reference to the flag of the Republic of Honduras, is the certification that the nationality of the owner is American.

Plausible argument might be made that such a certificate, for reasons acceptable to the granting power, in express terms recognizes the national character of the vessel to be other than that of the Republic of Honduras.

Having in mind that the status of a vessel owned in one country and registered in another has not been the subject of adjudication so far as this court has been able to ascertain (with the exception noted), an understanding of what is comprehended in the registry of a ship or lack of it, as affecting the domicile of the vessel, may be promoted by a consideration of the following eases:

The Alta (C. C. A.) 136 F. 513, 517. A citizen of the United States, resident in the ■Philippines, purchased a British-built bark-entine from a Philippine corporation; the vessel was not registered, and cleared from Manila, P. I, carrying a certificate of ownership, for Port Townsend, Wash. Upon arrival, she was seized for nonpayment of tonnage dues and light money. Certain tonnage dues were tendered by the master. These, according to the applicable statute as to a foreign vessel, were greater than on “vessels of the United States.”

The opinion states that the quoted words mean more than a vessel whose nationality is American, and that the Alta could not be registered here because not built in this country. Continuing, “But while the Alta was not ‘a vessel of the United States,’ as spoken of and - defined in its statutes, she was an American vessel because of the nationality of her owner.” Citing cases.

Held that light duties were not collectible, but that the tax imposed by section 11 of the Act of June 19,1886 (24 Stat. 81 [46 USCA § 121]), of 6 cents per ton was payable; this was the taz offered by the master. The “light” duties, by the terms 'of the statute (46 USCA § 128), were to be levied and. collected on all vessels “not of the United States,” which might enter its ports, but in terms the statute expressly exempted unregistered vessels owned by citizens of the United States, carrying a sea-letter or other regular custom-house document.

Also tonnage duties levied upon a ship coming from a foreign port were held not to apply.

The Alta (C. C. A.) 148 F. 663. This case affecting the same vessel, on a later voyage from a foreign port, decided that the tonnage dues withheld in the first case, applied in the second. The ruling was the same as to light dues.

The Conqueror (D. C.) 49 F. 99, 106. A foreign-built yacht was purchased by a citizen of the United States, and a bill of sale given. She could not acquire American registry, and the collector of customs of this port sought to hold the yacht for nonpayment of import duty, on the theory that she was within the tariff on goods, etc. In denying this contention, Judge Addison Brown rendered an opinion in which the following occurs: “After the bill of sale was made, she was none the less governed by the shipping laws alone; and, but for the acts of 1870 and 1886, she would have remained subject to tonnage duties precisely as before, whether the bill of sale was presented and certified at once, or not till long afterwards. The certification has not the effect ascribed to it. It contributed nothing to give the yacht an American domicile, or to make her American property. She was made American property months before by the bill of sale, and her domicile followed that of her owner. The certification did not make her a ‘vessel of the United States/ nor give her the general rights or privileges of vessels of the United States. The Merritt, 17 Wall. 582 [21 L. Ed. 682]. She could not enter into the foreign trade, nor into the internal or coastwise trade of the country. Sections 2497, 4131, 4311. The only use of the certification was to serve as ‘proof of American ownership/ for her convenience in navigation as a pleasure yacht, and to absolve her from the payment of light-money.”

The decision as to the nonliability of the yacht to import duty was upheld by the Supreme Court. The Conqueror, 166 U. S. 110, 17 S. Ct. 510, 41 L. Ed. 937.

The Merritt, 17 Wall. 582, 21 L. Ed. 682. This vessel was owned by citizens of the United States, but was foreign-built, and was held subject to seizure, for having been used to import a cargo in violation of an act of Congress of 1817 (3 Stat. 351).

The domestic ownership did not constitute her a vessel of the United States, and the absence of registration or similar documents deprived her owners of the opportunity to demonstrate that she was a British vessel, and hence within the exception of the statute.

Tonnage duties are now prescribed in title 46, U. S. C. § 121 (46 USCA § 121), and light money in section 128 (46 USCA § 128). These statutes are of interest to the present discussion, as are the cases which have applied them, in so far as they point to a recognition by Congress of the difference between the national status said to be accorded to a vessel by virtue of registration, and the domicile of a vessel as a chattel, which is determined by the domicile of the vessel’s owner.

It is thought that these statutes and decisions mean that, so far as United States registry is concerned, it necessarily imports United States domicile of the vessel, but that domicile exists without, i. e., apart from, registration. This distinction is believed to be important in connection with the authorities cited by defendant to sustain the proposition that the law which governs the vessel, and hence all on board, is the law of the country whose flag she flies. The doctrine requires examination in the light of certain leading cases:

The Adula, 176 U. S. 361, 20 S. Ct. 432, 439, 44 L. Ed. 505. This ship, of British registry and flag, was chartered on June 28, 1898, to a Spanish subject, formerly a resident of Cuba, while war was pending between this country and Spain. The purpose of the charter was the conveyance of passengers from Cuban ports to Kingston. While so engaged, the Adula violated the blockade of Guantanamo, and was seized and condemned as a prize, and the decree of the District Court was affirmed.

During the course of the opinion of the court, reference was made to the nationality of the ship while under charter, as follows:

“From all the testimony in the case it appears very clear: * * *
“That the Adula was chartered to a Spanish subject for a voyage to Guantanamo, Santiago, or Manzanillo, for the purpose of bringing away refugees, and that such voyage was primarily, at least, a commercial one for the personal profit of the charterer. During such charter she was to a certain extent, pro hae vice, a Spanish vessel, and a notice to Solis [the charterer] of the existence of the blockade was a notice to the vessel.” Citing prize eases.

Cunard S. S. Co. v. Mellon, 262 U. S. 100, 43 S. Ct. 504, 507, 67 L. Ed. 894, 27 A. L. R. 1306. In deciding, among other things, that liquor carried on a British ship, for consumption by passengers and crew, was within the contemplation of the Eighteenth Amendment and the National Prohibition Law (27 USCA), the opinion of the court refers to the extension of territory theory, said to be the basis for the law of the flag principle, in this wise: “In support of their contention the defendants refer to the statement sometimes made that a merchant ship is a part of the territory of the country whose flag she flies. But this, as has been aptly observed, is a figure of speech, a metaphor. Scharrenberg v. Dollar S. S. Co., 245 U. S. 122, 127, 38 S. Ct. 28, 62 L. Ed. 189; In re Ross, 140 U. S. 453, 464, 11 S. Ct. 897, 35 L. Ed. 581; 1 Moore International Law Digest, § 174; Westlake, International Law (2d Ed.) p. 264; Hall, International Law (7th Ed. [Higgins]) § 76; Manning, Law of Nations (Amos), p. 276; Piggott Nationality, pt. II, p. 13. The jurisdiction which it is intended to describe arises out of the nationality of the ship, as established by her domicile, registry and use of the flag, and partakes more of the characteristics of personal than of territorial sovereignty. See The Hamilton, 207 U. S. 398, 403, 28 S. Ct. 133, 52 L. Ed. 264; American Banana Co. v. United Fruit Co., 213 U. S. 347, 355, 29 S. Ct. 511, 53 L. Ed. 826, 16 Ann. Cas. 1047; 1 Oppenheim International Law (3d Ed.) §§ 123—125, 128.”

In thus assigning to the expression its figurative value, and by way of indicating the practical difficulties encountered in applying it, the first ease cited by the court presents one aspect of the argument here made by the defendant:

Scharrenberg v. Dollar S. S. Line, 245 U. S. 122, 38 S. Ct. 28, 29, 62 L. Ed. 189. In this ease the respondent employed Chinese seamen, and the effort was made to show that this was a violation of our contract labor law. That the respondent’s ships, of United States registry, ownership, and domicile, were extensions of United States territory within the purview of the statute. As to this, the court says: “It is, of course, true that, for the purposes of jurisdiction, a ship, even on the high seas, is often said to be a part of the territory of the nation whose flag it flies. But in the physical sense this expression is obviously figurative (1 Moore, International Law Dig. §■ 174), and to expand the doctrine to the extent of treating seamen employed on such a ship as working in the country of its registry is quite impossible. Thus, the seamen employed on the Mackinaw were not within either the spirit or the letter of the law on which the petitioner bases his action, and in any point of view his contention is fanciful and, unsound and must be denied.”'

The bearing of the foregoing reasoning on the defendant’s contention, that the plaintiff, being on the Castilla, of Honduran flag, and registry, was in effect on Honduran territory, and hence that his relation to his employer is wholly to be determined by Honduran law, is thought to be significant.

The defendant relies upon St. Clair v. U. S., 154 U. S. 134, 14 S. Ct. 1002, 1009, 38 L. Ed. 936. Here was a charge of murder upon the high seas, committed on a vessel of United States registry, therefore within the jurisdiction of the United States courts. The certificate of registry was produced, but it did not show the nationality of the owners. Held this was sufficient, i. e., “a prima facie ease of proper registry under the laws of the United States and of the nationality of the vessel and its owners. ‘The purpose of a register,’ this court has said, ‘is to declare the nationality of a vessel engaged in trade with foreign nations, and to enable her to assert that nationality wherever found.’ ” Citing The Mohawk, 3 Wall. (70 U. S.) 566, 18 L. Ed. 67.

The court recites the requirement of ownership by citizens of the United States, of vessels built in this country, as the basis of registration, which explains the prima facie quality of the proof offered.

That decision is of 'no assistance in the problem here presented.

The Mohawk, supra, is likewise of no bearing on this controversy. A vessel of foreign construction was granted enrolment in this country, as the result of fraud; the certificate was canceled and the ship forfeited. The definition of registration was given in contrast to enrolment.

See also: Wynne v. U. S., 217 U. S. 234, 30 S. Ct. 447, 54 L. Ed. 748. This case is substantially like the St. Clair Case, supra.

Grand Trunk Ry. Co. v. Wright (C. C. A.) 21 F.(2d) 814. A vessel having United States registry was chartered by a Canadian corporation, and plied between inland ports of tbe two countries; the plaintiff’s decedent came to his death while discharging his duties as a member of the crew. The court says that the relation of master and servant existed between the Canadian corporation and the decedent, who was also a Canadian.

The court held that the Federal Employers’ Liability Act (45 USCA §§ 51-59) did not apply, although that is said to be the argument of “the flag.” The decision was affirmed but not on this point. , 278 U. S. 577, 49 S. Ct. 176, 73 L. Ed. 516.

U. S. v. Jenkins (1838) 26 Fed. Cas. 603, No. 15473. In a criminal ease, it is said that ownership determines a vessel’s national character, and may be shown in the same manner as that of any other chattel. The vessel was of American registry.

The San Jose Indiano (1814) Fed. Cas. No. 12322. During the War of 1812, a Portuguese vessel, 'flying that flag, was condemned as a prize, on proof that her owner, a native of Portugal, was domiciled in England. This is the only case which has been found in which ownership by a resident in one country was held to determine the national character of the ship, although she sailed under the flag of another country. It was decided by Mr. Justice Story, sitting as a Circuit Judge, and this aspect of the case seems not to have been appealed to the Supreme Court.

These eases seem to accord to the law of the flag, so called, such deference, as the exigencies of adjudication may seem to require in a given state of facts, and, in the presence of necessity, the courts will look beyond the registry of a vessel in order adequately to determine a given controversy.

Recurring now to the registration of the Castilla and its influence upon the plaintiff’s cause of action, it' is to be observed:

The registration is presumed to meet the requirements of the law under which it was granted, and no attempt has been made to question the authenticity or the legal effect of the document within the country of its issue. For purposes pertaining to that jurisdiction, every presumption is in its favor.

Conceding all of which, it is not considered to have accomplished the purpose of transmuting the national character of the ship, i. e., its domicile, into that of a vessel of the Republic of Honduras, so as to affect the legal relations of the plaintiff and the defendant. The remedy sought by the plaintiff is not against the ship, but against his employer, a corporation of the United States, and resort to the doctrine urged by the defendant is thought to be unavailing to destroy the plaintiff’s rights based upon the legislation enacted by Congress for the benefit of American seamen.

If a contrary result were to be reached, shipowners in this country could evade the requirements of our shipping law, by resorting to the expedient of registering their ships under the flags of such countries as do not require vessel ownership on the part of their citizens. In making whieh observation, there is no intention to indicate that there is anything in this record to lead to the belief that such was this defendant’s purpose.

It is considered that this case does not offend against the rule established in the Ross Case, supra, and those which follow it, because the domicile of the Castilla has always been that of her owner, a corporation of the ' United States; and the court, having so discovered by examining her registry, is justified in exacting from her owner obedience to the laws of the United States governing the relations of master and servant in the maritime sense.

The. 1928 treaty between this country and the Republic of Honduras contains the following: “Article X. Merchant vessels and other privately owned vessels under the flag of either of the High Contracting Parties, and carrying the papers required by its national laws in proof of nationality shall, both within the territorial waters of the other High Contracting Party and on the high seas be deemed to be vessels of the party whose flag is flown.” This is urged as requiring the granting of the defendant’s motion.

The duty which rests upon the courts to give effect to the treaties of the nation, as expounded in Asakura v. Seattle, 265 U. S. 332, 44 S. Ct. 515, 68 L. Ed. 1041, is too clear to admit of discussion. If the treaty above quoted means that, the Castilla being deemed to be the vessel of the Honduran Republic, the defendant may avoid the obligations imposed upon it by the Jones Law, then the treaty must prevail, and the plaintiff cannot succeed in this action. Is that what the treaty means?

In the first place, it will be recalled that this is not a proceeding in rem. The Castilla may continue to fly the Honduran flag, and thereunder to pursue her lawful occasions, quite without reference to the plaintiff’s success or failure in this case, the object of which is to procure a money judgment against an American corporation.

In the second place, it is not herein sought to demonstrate that the Castilla, in virtue of her American domicile and Honduran registration, is not a vessel of the Honduran Republic, within the contemplation of that registration. It would not be seemly to suggest that such registration is lacking in any essential to accomplish the complete identification of the vessel as one entitled to sail under the Honduran flag, for all purposes involving international relations on the part of either vessel or owner. Moreover, this court is not called upon to construe that registry, because it is not drawn into question as such. For these reasons, it is thought that the treaty is not involved in the plaintiff’s cause of action.

The decision of this case is confined to the holding that, as between the plaintiff and the defendant, the contract of employment has not been shown to exclude the plaintiff's rights under the Jones Law; that this result is not affected by the registration in question, because, for the purposes of this litigation, the domicile of the Castilla has not been shown to have been changed from that of her owner to that of the Republic of Honduras so as to constitute the vessel a floating portion of that country for the purpose of depriving the plaintiff of the status which he would have enjoyed if the vessel had sailed under the flag of her owner’s domicile.

It follows that the provisions of the Jones Law are held to apply to the plaintiff, and the defendant’s motion for a directed verdict must be denied, with exception.

It is considered that the defendant has made an appropriate motion to set aside the verdict upon all grounds, and that the motion has been denied, with exception.

Settle order on notice.


author: SIMONS, District Judge.

text:
    NATIONAL PIPE PRODUCTS CORPORATION et al. v. NATIONAL GOLF COURSE CO. et al.
    No. 4262.
    District Court, E. D. Michigan, S. D.
    July, 1931.
    Wilkinson, Huxley, Byron & Knight, of Chicago, Ill. (Francis D. Hardesty, of Detroit, Mich., of counsel), for plaintiffs.
    Robert M. Drysdale, of Detroit, Mich., for defendants.
   SIMONS, District Judge.

This is the usual patent infringement suit for the alleged infringement of the Fairbaim patent, No. 1,559,520, for golf putting greens and similar playing surfaces. It is submitted to the court upon stipulation and testimony taken before a notary. It is stipulated that Fairbaim and MeCart, the plaintiffs, are the joint owners of the letters patent in the suit; that National Pipe Products Corporation is the exclusive licensee for the state of Michigan; and that the patent, if valid, has been infringed by the defendants.

The invention described in the patent in the suit relates to new and useful improvements in method of constructing the surfaces of playing fields, and particularly adapted for the surfaces of putting greens for golf courses. One of the objects of the invention is to provide a surface for putting greens adapted for use on arid land, which surface will be as near as possible in appearance and effect as the densely-growing, closely-cropped grass, which makes the ideal put- ' ting green surface.

Another object of the invention is to use material in which a certain amount of surface friction may be had, rendering the surface action of the golf ball identical with its surface action on a grass green; and still another object of the invention is to use a material which is resistant to moisture. Other objects of the invention are to bring about economy of cost, both in construction and maintenance, and to use a material which will withstand heavy play without disturbing or affecting the putting surface and which may be dyed to simulate a grass putting green. These objects are claimed to be accomplished by covering a prepared and properly shaped surface with a suitable flocculent mass, and this flocculent mass is compressed by rolling or other compression. The pat-antee has found that a most desirable surface can be had by use of ground cotton-seed hulls, in whieh the hull portions still retain a certain amount of cotton fiber adhering thereto.

Such evidence as has been submitted to the court indicates that the patented greens have been very favorably received by the trade, and have enjoyed a wide commercial success; that they have displaced other putting surfaced competing therewith; and that they are simple, inexpensive, economical in maintenance; and this evidence is not in any way challenged.

It further appears that the plaintiff had brought a great many previous suits against other infringers, none of whom, however, undertook to defend, either by challenging the validity of the patent or denying infringement. A defense is here submitted, but not supported either by testimony, expert or otherwise, or by argument. It consists merely of depositing in the lap of the court a host of prior art references, covering a wide range of prior art surfaces and materials, from pavements to door mats, and from plush traveling rugs to packing for journals of railway cars. Most of them have no pertinency whatsoever. The only prior art patents whieh are entitled to any consideration at all are the Smith patent, No. 815,649, whieh discloses a putting mat made of asbestos felt or sponge rubber; the Stedman patent, No. 957,387, for an artificial playing-bed, having a rubber surface; and the Flynn patent, No. 1,513,978, for a putting green surface made of cattle hair, comprising bristly fibres. No one of these three, references can be seriously regarded as an anticipation. Nor in the absence of analysis and comparison should much weight be given to them, in the face of the presumptive validity of the patent that arises from its grant, the wide commercial success of the patent in practice, and the undoubted tribute paid it by the present and prior infringers. The patent in suit is held valid in all of its claims, and infringed by the present defendants.

A decree may be entered in accordance with the prayer of the bill and in conformity with this opinion.


author: KNOX, District Judge.

text:
    In re FISHER.
    District Court, S. D. New York.
    May 18, 1931.
    Hays, Hershfield, Kaufman & Schwabacher, Henry H. Kaufman, and Hyman N. Glickstein, all of New York City, for the Irving Trust Co.
    McManus, Ernst & Ernst and Irving L. Ernst, all of New York City, for the bankrupt.
   KNOX, District Judge.

It appears that the witness William Bernstein acted as bankrupt’s accountant for a number of years, and, after his admission to the bar, also acted as bankrupt’s attorney. Upon the basis of the privilege arising from the attorney-client relationship, he has refused to answer questions relating to bankrupt’s books and to produce in evidence monthly account sheets made by accountants in his employ in course of auditing bankrupt’s books.

There is no privilege with regard to communications made to accountants. The information given to the witness and to the accountants in his employ for the purpose of making financial statements and doing other work characteristically performed by accountants is not privileged, despite the fact that the witness may also have rendered legal advice on the basis of such data. See Matter of Robinson, 140 App. Div. 329, 125 N. Y. S. 193, where it was held that an attorney for a corporation, who was one of its directors, could not refuse to disclose information about corporate affairs by claiming his professional privilege.

Furthermore, the privilege accorded to an attorney is the privilege of the client and not of the attorney. Baumann v. Steingester, 213 N. Y. 328, 107 N. E. 578, Ann. Cas. 1916C, 1071. For this reason the attorney cannot claim privilege where the client has already disclosed the substance of the communication. Baumann v. Steingester, supra. Nor can he claim privilege where the communication was made with the understanding that it was to be imparted to third parties. Rosseau v. Bleau, 131 N. Y. 177, 30 N. E. 52, 27 Am. St. Rep. 578.

In the ease at bar it appears that the bankrupt has already testified with "respect to the matters contained in his books and records. And the income tax returns and financial statements drawn up from the communications made by bankrupt to the witness were obviously intended to be communicated to others.

For these reasons, the witness should be directed to testify with regard to the bankrupt’s books and to produce in evidence the monthly work sheets made by the accountants.


author: COXE, District Judge.

text:
    ANDERSON & WRITER CORPORATION v. KANE et al.
    District Court, S. D. New York.
    July 24, 1931.
    Kenyon & Kenyon, of New York City (Wm. Houston Kenyon and W. Houston Kenyon, Jr., both of New York City, of counsel), for plaintiff.
    O. Ellery Edwards, of New York City, for defendants.
   COXE, District Judge.

This is an infringement suit involving the Writer patent, No. 1,725,500, issued August 20, 1929, and covering a tam-pressing machine. ' The patent has already been before this court and the Circuit Court of Appeals on a motion for a preliminary injunction in the ease of Anderson v. Hanky (D. C.) 36 F.(2d) 412; Id. (C. C. A.) 40 F.(2d) 196. And in view of the exhaustive 'opinions in those courts it seems unnecessary to enter into any extended discussion of the patent or the prior art.

The claims in issue are Nos. 8, 9, 19, and 11, and the defenses are anticipation and lack of invention.

The device described and claimed is. a simple tam-pressing machine having an upper and a lower die, and a circular plate or former, all so arranged that by the simultaneous application of heat and pressure a tarn or beret may be produced quickly and inexpensively from a single piece of material. It is not contended that there is invention in the shaping of the dies, or that there is anything patentable in the manner of applying heat to the dampened cloth; but it is insisted that in the particular arrangement of the machine to produce a novel and beneficial result there is something more than ordinary skill.

The defenses are based entirely on: (1) The Kiwad patent, No. 1,530,001, issued March 17, 1925; and (2) the Kiwad application bearing Serial No. 111,017. The Ki-wad patent, No. 1,530,001, was part of the record in the Hanky Case; but the application, Serial No. 111,017, is now presented for the first time in this case.

The Kiwad patent, No. 1,5302001, is in no way an anticipation. To be sure it has an upper and a lower die, and a former, but the method of operation is essentially different from that of the patent in suit, and the result is not the same. Writer works on dampened cloth, which he molds into shape by the simultaneous stretching and ironing of the material; whereas, Kiwad removes the wrinkles by stretching instead of ironing, and applies steam to soften the material. The two machines are not the same, and anticipation is not available where modification is necessary. Block v. Nathan (C. C. A.) 9 F.(2d) 311, 312; Metropolitan v. Williamsburg (C. C. A.) 19 F.(2d) 442, 447.

The Kiwad application, Serial No. 111,-017, adds little to the Kiwad patent, No. 1.530.001, already referred to. It discloses merely the old collapsing blocks with a perforated steaming die; and it is no more an anticipation than the Kiwad patent, No. 1.530.001. It is doubtful, also, whether it may be considered as part of the prior art on the bare question of invention. Brown v. Guild, 23 Wall. 181, 23 L. Ed. 161; Sundh v. Interborough (C. C. A.) 198 F. 94; Alexander Milburn Co. v. Davis, 270 U. S. 390, 46 S. Ct. 324, 70 L. Ed. 651, But however that may be, it is insufficient to discredit the patent in suit.

I therefore hold that the machine of the' patent in suit discloses invention, and that claims 8, 9, 10, and 11 are valid; and, inasmuch as there is no contest on the question of infringement, it follows that there may be a decree for the plaintiff with costs.


text:
    UNITED STATES v. LANARO et al.
    No. 5458.
    District Court, E. D. New York.
    June 29, 1931.
    Howard W. Ameli, U. S. Atty., of Brooklyn, N. Y. (Francis F. Giles, Asst. U. S. Atty., of Brooklyn, N. Y., of counsel), for the United States.
    Joseph H. Wackerman, of Brooklyn, N. Y., for defendant Antonio Lanaro.
   GALSTON, District Judge.

This is a padlock proceeding wherein it is alleged that the defendant Antonio Lanaro was the occupant of the premises in question, and the defendant Elizabeth M. Segelken was the owner. Answers were interposed, both denying that Lanaro was the occupant of the premises.

At the trial it was proved that Lanaro, or at least a person of the same name as the defendant herein, had on December 5,1930, and February 4,1931, pleaded guilty to both possession and maintenance of a nuisance in the premises herein involved, and that William Malloy pleaded guilty on February 6, 1931, to unlawful possession of intoxicating liquor in the same premises.

That proof, it seems to me, connects the defendant Lanaro as one in control of the premises during the period of the violation complained of. The inference is inescapable that he was the occupant.

The only evidence introduced by the defendants was the lease of the premises in question from the owner, Segelkin, to one Cappuccio, for a period of two years from September 1,1930. It is obvious that the existence of the lease does not of itself dispel the proof of occupaney of Lanaro.

Accordingly, I find that Lanaro was the occupant, that the premises were used as a nuisance, and that the complainant is entitled to a decree in accordance with the complaint.

The contention of the defendants that such decree would violate the rights of the lessee is idle. He is not a party to the action, nor was it necessary for the complainant to name him as a party defendant. He could, had he so desired, have filed a petition for intervention.

Submit findings of fact and conclusions of law in accordance with the foregoing opinion. Settle decree on notice.


author: GRONER, Associate Justice.

text:
    ISAAC GOLDMANN CO. v. BURNET, Com’r of Internal Revenue.
    No. 5142.
    Court of Appeals of District of Columbia.
    Argued June 1, 1931.
    Decided June 29, 1931.
    Frederick Schwertner, of Washington, D. C., for appellant.
    Sewall Key, S. Dee'Hanson, C. M. Char-est, and Stanley A. Suydam, all of Washington, D. C., for appellee.
    Before MARTIN, Chief Justice, and HITZ and GRONER, Associate Justices.
   GRONER, Associate Justice.

Appellant kept its books and made its tax returns on the fiscal year basis. Its taxable year 1920-1921 was the twelve months’ period ending April 39, 1921. On July following, it filed its return under the provisions of the Revenue Act of 1918 (49 Stat. 1057), showing net income of $82,964.70 and a resulting tax liability of $15,830.26. Gross income was properly shown, the schedules required by Treasury regulations were attached, and the honesty and good faith of the return is not questioned. More than four years later the Commissioner made a deficiency assessment.

On November 23, 1921, the Revenue Act of 1921 was passed, and its provisions made retroactive as of January 1 (section 263). 42 Stat. 227, 271. The only effect of the 1921 act, so far as it concerned appellant’s tax liability for the period January 1 to the end of appellant’s fiscal year — April 39, 1921 — was to limit proportionately appellant’s right to a specific exemption, allowed 'under the 1918 act but not allowed under the 1921 act, to the period prior to January 1. The result of this was to make appellant liable, under the new act, for a small additional tax. The Commissioner claims that this fact made necessary the filing by appellant of a new return, and that its subsequent filing of an amended return, pursuant to Treasury Decision 3220, should either be treated as the only return for the fiscal year period in controversy, or else appellant should be regarded as never having fijed any return, and that, in either case, the deficiency assessment would be within the limitation period.

Treasury Decision 3229, issued the latter part of 1921, was designed to correct a practice apparently then more or less general on the part of taxpayers in using “appreciated” values in determining invested capital, and required, from such as had, an amended return within ninety days. The bulletin confined the requirements of the return to such additional information only as should be necessary to show the correct values to redetermine the amount of tax to be assessed. In obedience to this bulletin, and for the purpose only of correcting the item of invested capital as shown in the former returns, appellant) still claiming the 1918 exemption, filed on January 14,1922, an amended return, and the question which we have to answer is whether the four-year period of limitations began to run with the filing of the original return in July, 1921, because if it did not, the additional assessment is valid. The Board held, following Hutchinson Co. v. Commissioner, 14 B. T. A. 367, 8, that because the 1921 Act abolished the $2,999 exemption, appellant owed additional taxes under the provisions of that act, and, inferentially at least, since it owed additional taxes, it owed likewise the duty of filing a rétum with specific reference to the 1921 act, and that, until it did so, the limitation did not begin to run.

In this conclusion, we find ourselves unable to agree. We can find no provision in the Revenue Act of 1921 which requires the filing of a new return from taxpayers using the fiscal year basis, in cases where a return had been duly filed under existing law, except, perhaps, in those eases in which, under the 1921 act, new and different taxes are assessed or a new basis of taxation provided, as is the case in some few instances not here involved. The Commissioner himself realized the confusion and waste inevitable if the returns already made were wholly disregarded and new ones required, and, in Treasury Decision 3319, demanded new returns from taxpayers who had, under-the 1918 act, made returns for the fiscal year ending during 1921 only in those cases in which the taxpayer was subject to specific additional taxes under the 1921 act. The purpose of this ruling, obviously, we think, was to provide a new return only in those eases where, under the provisions of the latter act, a liability for other or additional taxes was created through a change in the basis of computation, .necessitating other information or new figures to allow the Commissioner to determine the tax liability under the act.

In this instance, the taxpayer had filed the return it was required to file under the then prevailing law, and paid the tax. The new law was in all respects the same as the old so far as its tax liability was concerned. The repetition of the figures already filed would have been a wholly vain and useless proceeding. The elimination of the part of the exemption not allowable after January 1 was a simple computation appearing from the returns filed, and the adjustment of this item to conform to the new law needed neither explanation nor new returns. The new act provided the occasion, and the return furnished the basis, and the act itself imposed on the Commissioner, section 250 (b), Revenue Act 1921, the duty of examination to the end that the correct tax should be ascertained. The retroactive provisions of the 1921 act present no novelty, for the 1918 act itself replaced retroactively the 1917 act. Under the provisions of the 1918 act, the tax was increased over that exacted under either the 1916 or 1917 act, but, under its provisions as to filing returns on the fiscal year basis, the Commissioner ruled (Treasury Decision 2797) that the new return required was satisfied by inclusion only of .the items embracing the additional tax, and spoke of the former returns, i. e., those filed before the act was approved, as original returns, and the additional returns required as supplemental or amended returns, and, while we do not invoke this use of words as foreclosing the question or as controlling, we nevertheless •think it clearly reflects the real situation, and that, in this aspect, the returns filed by appel-lánt were, especially in view of the admission that they were in all respects honestly believed to represent the true state of appellant’s liability, valid returns and not a nullity. The ease turns, we think, upon this: If the original returns filed by appellant \vere, as the Board apparently thought, a nullity, then, obviously, the deficiency assessment was in time, but if, on the contrary, they were valid returns susceptible of amendment by the Commissioner in the ascertainment- of the -correct tax, or requiring only a corrected return in eliminating that portion of the exemption which was abolished hy the later act, then, equally obviously, the deficiency assessment was made too late. It was conceded, in the opinion of the Supreme Court in Florsheim Brothers v. United States, 280 U. S. 453, 462, 50 S. Ct. 215, 218, 74 L. Ed. 542, that the filing of a return, though defective or incomplete, is "sufficient to start the running of the period of limitation; and that the filing of an amended return does not toll the period.” It was likewise held in Willingham Loan Co. v. Commissioner (C. C. A. 5) 36 F.(2d) 49, that the statute begins to run whenever the taxpayer has filed returns with the Commissioner which show facts upon which the proper assessment for the taxable period may be made. See also Thomas v. United States (D. C.) 22 F.(2d) 1000. The Board of Tax Appeals has also held that this is the rule. See Appeal of National Refining Co. et al., 1 B. T. A. 236; Appeal of New York Trust Co., 3 B. T. A. 583; Lancaster Lens Co. v. Commissioner of Internal Revenue, 10 B. T. A. 1153.

To say that the original return filed by appellant in this ease is no return, though filed in strict conformity to the law then prevailing, is, we think, wholly incorrect. To call the return whieh it later filed to conform to a ruling of the Department — a thing in itself wholly unresponsive to anything in the 1921 act — a new return, wholly unrelated to the other, is, we think, equally incorrect. Appellant, under the method which it had adopted with the consent of the Department, was required to file its returns within three months after the expiration of its fiscal year, and to pay its tax. If it had failed to do either, it would have made a default subjecting it to penalty. If it had filed a dishonest report, it would have been subject to still further penalty. As it happened, it did precisely what the law, as it then was, required it to do, and now to say that, because of the retroactive provisions of the new act, what it did was a nullity, is, it seems to us, without justification or support. If more was required, it was supplementary and not original, and hence, as the Supreme Court said, did not toll the statute. We do not mean to say that the Commissioner might not have required thejfiling of additional returns to make those already filed conform to the new law, but such new returns, if filed for that purpose, would, as we think, have relation to the original return, and the latter, rather than the former, would be the starting point for the limitation.

The precise question here involved was likewise involved in Myles Salt Co. v. Commissioner (decided by the Fifth Circuit C. C. A., April 21, 1931) 49 F.(2d) 232, and it was decided there, as we think correctly, that the original return established the period from which the limitations began to run.

Reversed.