author: KASHIWA, Judge.

text:
    IRVING BERLIN MUSIC CORPORATION v. The UNITED STATES.
    No. 508-69.
    United States Court of Claims.
    Nov. 14, 1973.

      William F. Sondericker, New York City, attorney of record, for plaintiff. Richard B. Rodman, New York City, and Richard D. Belford, Tarrytown, N. Y., of counsel.
    Richard B. Stone, Washington, D. C., with whom was Asst. Atty. Gen., Scott P. Crampton, for defendant. Gilbert E. Andrews, Jr., and Theodore D. Peyser, Jr., Washington, D. C., of counsel.
    Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHI-WA, KUNZIG and BENNETT, Judges.
   ON DEFENDANT’S MOTION AND PLAINTIFF’S CROSS-MOTION FOR SUMMARY JUDGMENT

KASHIWA, Judge.

Plaintiff filed this suit for the refund of federal personal holding company income taxes and assessed interest for the fiscal years ended January 31, 1965, and January 31, 1966, in the respective amounts of $137,524 and $160,851, plus interest.

The case comes before us on defendant’s motion for summary judgment and plaintiff’s cross-motion for summary judgment. The facts are stipulated and there are no material issues of fact. We hold for the defendant for the reasons hereinafter stated.

The essential facts are as follows. Irving Berlin has composed about 1,000 musical compositions, of which about 650 continued to be published and offered for sale to the general public and to professional users of music during the tax years in quéstion. In 1946 he incorporated Irving Berlin Music Corporation (hereinafter Berlin Music), a New York corporation. Irving Berlin has been the sole owner of all of the authorized and issued capital stock of Berlin Music since its formation. In 1946 Irving Berlin entered into an agreement with Berlin Music establishing their working relationship much along the lines prescribed by the Songwriters Protective Association standard form contract used by most music publishers in the industry.

On January 31, 1960, Irving Berlin and Berlin Music entered into a new agreement superseding the earlier 1946 agreement. Under the 1960 agreement, Berlin Music continued as exclusive licensee to publish or issue licenses to publish the music compositions of Irving Berlin; however, Irving Berlin engaged Berlin Music to act as his “exclusive agent” to: (1) issue licenses to manufacture parts of instruments serving to mechanically reproduce his compositions; (2) issue licenses to reproduce his compositions for broadcasting purposes; and (3) issue licenses with regard to all performing rights to his music. The publisher’s share of the compensation remained substantially the same as under the 1946 agreement.

Ever since its establishment, Berlin Music has been actively engaged in the music-publishing business. During the tax years in question, the company’s activities were performed solely with respect to compositions created in whole or in part by Irving Berlin, its sole shareholder. The Government does not make the claim that Berlin Music was a mere sham corporation. Indeed, in light of the substantial business activity of the plaintiff, as well as the admitted bona fide business purpose in creating the company, no such claim is feasible.

In today’s music industry, the composition of a song is only the first step in a highly sophisticated system of song creation, promotion, and distribution. By way of illustration, one powerful force in the music industry is the American Society of Composers, Authors and Publishers (hereinafter ASCAP). ASCAP’s constitution provides for two classes of participating membership: first, author and composer (or writer) membership, and, second, publisher membership. Irving Berlin was an original founder-member of ASCAP and remains a writer member to date. As a condition to writer membership, each writer member agrees that during the term of his written agreement with ASCAP, the nonexclusive, nondramatic rights of public performance of the writer’s musical compositions then existing or created during the term of his agreement are immediately vested in ASCAP.

Berlin Music has been a publisher member of ASCAP from its inception and continues so to be. Each publisher member, as a condition to membership, agrees that during the term of its written agreement, the nonexclusive, nondramatic rights of public performance of compositions published by it during the term of its agreement are vested in ASCAP.

ASCAP is a performing rights society. It has nothing to sell — no sheet music, no phonograph records, no “Broadway musicals,” no musicians or vocalists. ASCAP simply licenses radio stations and networks, television stations and networks, wired music services, orchestras, electrical transcribers, and others who perform musical compositions for profit, to perform nondramatic performances of all compositions in its catalogues in return for payment of royalties by such music users. Nondramatic performing rights are commonly referred to in the music industry as “small performing rights.” After payment of operating expenses and such reserves as are established by the ASCAP board of directors, the remaining royalties are divided into two pools, a writers’ pool and a publishers’ pool, each pool receiving 50 percent of the royalties which are thereafter distributed to the writer members and the publisher members.

In discussions with ASCAP as to its requirements for recognition of Berlin Music as a publisher member, ASCAP insisted that Berlin Music obtain from Irving Berlin, the copyright owner, an exclusive printing and publishing license, but it did not object to Irving Berlin’s desire personally to retain title to his song copyrights and engage his corporation as exclusive agent therefor. Accordingly, the publishers’ share of the ASCAP royalties from small performing rights licenses issued for the use of Irving Berlin’s musical compositions were distributed quarterly by ASCAP to Berlin Music as a publisher member.

The major revenues obtained from the exploitation and promotion of musical compositions by music publishers are derived from royalties paid by music users for grand performing rights licenses. It is with respect to grand performing rights that the controversy in this case arises. Unlike the situation with respect to ASCAP, no actual license was granted to Berlin Music. Unlike the small performing rights licenses handled by ASCAP, grand performing rights encompass dramatic performances of music, including legitimate stage productions, electrical transcriptions, phonograph records, motion picture sound synchronization, stock and amateur theater rights, and dramatic uses on radio and television. Finally, unlike small performing rights to Irving Berlin’s music, grand performing rights licenses are not within the purview of ASCAP’s authority but are separately negotiated and issued by Berlin Music to music users. Berlin Music collects royalties from music users under licenses issued solely for the use of or the right to use Irving Berlin’s musical compositions. In the case of recording companies, Berlin Music typically employs the Harry Fox Agency, whose responsibility it is, as agent and trustee, to execute such licenses and collect and remit the royalties therefrom to Berlin Music. During the life span of a particular song, these licenses number many hundreds, requiring specialized business expertise to achieve the highest possible royalties without pricing the musical composition out of the market.

It has been stipulated that all of the services performed by Berlin Music were performed in a manner similar to other established music publishers typical of the music industry. Under both the 1946 and 1960 agreements between Irving Berlin and his corporation, Berlin Music was empowered to deduct and retain as compensation for its music publisher services 50 per cent of the gross royalties paid by music users to Berlin Music under the performing rights licenses it issued. This arrangement represented the normal and customary percentage in the music industry as evidenced by the Songwriters Protective Association standard form contract. In addition, as with the standard form contract, supra, Berlin Music was also entitled to the royalties distributed to it by ASCAP as the result of its publisher membership and, as concerns the sale of printed sheet music, Berlin Music typically agreed to pay to Irving Berlin a fixed royalty as to each type of sheet music arrangement sold.

During the fiscal years ended January 31, 1965, and January 31, 1966, Berlin Music deducted and retained $233,877 and $230,565, respectively, as the 50 per cent portions of the gross royalties paid by music users under the performing rights licenses it issued for the use of or the right to use Irving Berlin’s songs. In a statutory notice of deficiency dated June 9, 1967, the Government determined that these amounts constituted copyright royalties under section 543(a)(4) of the Internal Revenue Code of 1954, and, therefore, that Berlin Music was a personal holding company under section 542 (a) of the Code.

The case was ably briefed and argued by the respective counsel for plaintiff and defendant, and the parties have succeeded in narrowing the issue before us to one of statutory construction. We are called upon to determine whether the shares of copyright royalties received and retained by taxpayer Berlin Music under performing rights licenses issued to music users for the right to use the musical compositions of taxpayer’s sole stockholder, Irving Berlin, constitute copyright royalties to it within the meaning of section 543(a)(4) and hence are subject to the tax on personal holding company income; or whether such amounts are merely compensation for services rendered.

The provisions dealing with personal holding companies (sections 541-547) have been a part of the federal tax law since 1937. Basically, the tax, now at a 70 per cent level, is imposed upon the undistributed income of those companies classified as personal holding companies. The basic factors which enter into this classification have been summarized as follows

* * * To constitute a personal holding company, a corporation must meet both an income test and a stock ownership test, viz., at least 60 percent of its “adjusted ordinary gross income” must be “personal holding company income” (primarily passive investment income, plus personal service income in the case of “incorporated talents,” * * *); and more than 50 percent of its stock (by value) must be owned — directly or indirectly, actually or constructively — by five or fewer individuals * * *. [Bittker & Eustice, Federal Income Taxation of Corporations and Shareholders 8-34, 8-35 (3d ed. 1971).]

Section 543, the relevant portions of which are set forth in the margin, defines exactly what income is to be classified as “personal holding company income.” Section 543(a)(4) is a long, intricate, but not altogether lucid paragraph which includes copyright royalties within the definition of personal holding company income; excepts from this' broad inclusion certain types of copyright royalties; and seeks to define exactly what is meant by the term “copyright royalties.” This definition is at the core of our inquiry:

For purposes of this subsection, the term “copyright royalties” means compensation, however designated, for the use of, or the right to use, copyrights in works protected by copyright issued under title 17 of the United States Code (other than by reason of section 2 or 6 thereof) and to which copyright protection is also extended by the laws of any country other than the United States of America by virtue of any international treaty, convention, or agreement, or interests in any such copyrighted works, and includes payments from any person for performing rights in any such copyrighted work * ■- *. [Emphasis supplied.]

Essentially, the taxpayer argues that for the definition of copyright royalties, included as one form of personal holding company income, we need look no further than the law of copyrights. It is asserted that section 543(a)(4) effectively adopts the copyright law definition, the latter of which requires that the party receiving “royalties” must hold a proprietary interest in the copyright. Since Berlin Music never had a proprietary interest in Irving Berlin’s copyrights, ■plaintiff would halt our inquiry at the definitional level. Thus’, according to plaintiff, Berlin Music never received “copyright royalties” but only mere compensation for services rendered. We cannot agree.

It is our view that the drafters of the personal holding company legislation purposefully drew the definition of copyright royalties to encompass precisely the case presently before us. The definition begins with words of limitation: “For purposes of this subsection, * * Thus, the definition is not to have application for every section of the Code but is to be limited to subsection (a) of section 543. We have noted in previous opinions that drafters of tax legislation have demonstrated keen awareness of the technique of identifying the scope of definitions. For example, the definition of a life insurance company in section 801(a) is to apply “[f]or purposes of this subtitle,” i. e., Code sections 1 through 1564. On the other hand, section 804(a)(1) refers to a rule solely “[f]or purposes of the preceding sentence * * See United American Ins. Co. v. United States, 475 F.2d 612, 619-620, 201 Ct.Cl. 32, 44-46, (1973). Thus we begin our inquiry into the definition of the term “copyright royalties” with the knowledge that the definition is to apply for purposes of identifying personal holding company income; i. e., “[f]or purposes of •» * * subsection [(a) of section 543.]”

While Congress could have merely adopted the definition of royalties contained in the copyright laws, this procedure was not followed. Rather, copyright royalties, for personal holding company income purposes, was broadly and specially defined as

* * * compensation, however designated, for the use of, or the right to use, copyrights in works protected by copyright issued under title 17 of the United States Code * * *, or interests in any such copyrighted works, and includes payments from any person for performing rights in any such copyrighted work * * *. [Emphasis supplied.]

The focus is thus not upon any proprietary interest in the copyright but rather that “compensation, however designated” be classified as copyright royalties (and, ultimately, as personal holding company income) when it is paid “for use of, or the right to use, copyrights.” We find that paragraph 10 of the 1960 agreement brings the income within the statutory definition when it was provided that

10. As full compensation for Publisher’s services, Writer agrees that Publisher may deduct and retain 50% of the gross license fees received by Publisher as Writer’s agent from licenses granted by Publisher on Writer’s behalf, pursuant to the terms and provisions of Paragraph 3 hereof.

The crucial point is that, although designated as compensation for “services,” the payment is solely a function, a percentage of the royalties received. Berlin Music was far more than a mere collection agent. It had the exclusive right throughout the term of the copyrights to issue licenses (subject to Irving Berlin’s personal approval in the case of an unusual or significant arrangement; see Footnote 3(d), supra) and, in general, to exploit those copyrights in return for which it received 50 per cent of the royalties derived from the copyrights. It is precisely the same arrangement, in fact if not in words, which would have existed had a standard publishing agreement to an outside firm been negotiated.

Irving Berlin was the sole shareholder of Berlin Music and could, in his unfettered discretion, choose to call the amounts retained by Berlin Music agency fees. However, whatever the consequences of this decision are in other tax and non-tax areas, with respect to personal holding companies, such a unilateral classification cannot alter what are, otherwise, copyright royalties in the hands of Berlin Music. The detailed and specific definition of copyright royalties for purposes of personal holding company income leaves no room for plaintiff’s argument that royalties cannot exist in the hands of a taxpayer not having a proprietary interest in the copyright.

Perhaps the best proof of what Congress meant by “copyright royalties” is the recent (1960) legislation on the subject. Prior to 1960, section 543(a)(1), as then in effect, merely defined personal holding company income to include royalties:

SEC. 543. Personal Holding Company Income.
(a) General Rule. — For purposes of this subtitle, the term “personal holding company income” means the portion of the gross income which consists of:
(1) Dividends, etc. — Dividends, interest, royalties (other than mineral, oil, or gas royalties), and annuities. * * * * * * * * *

Section 543 was amended in 1960 to deal more specifically with copyright royalties by P.L. 86-435, 74 Stat. 77. The reasons prompting this legislation are well stated in a Treasury Department Memorandum made a part of the Senate Committee on Finance Report pertaining to the bill ultimately enacted, H.R. 7588. The following excerpts from the Treasury memorandum bear crucially upon our inquiry:

3. Legislative history

The personal holding company provisions, first enacted in 1934, were developed to prevent the avoidance of income tax on individuals by means of the formation of closely held corporations to which were transferred the individuals’ investments and services or talents. In addition to the regular corporation income tax, personal holding companies are subject to a special tax of 75 percent of the first $2,000 of undistributed personal holding company income plus 85 percent of such income in excess of $2,-000. A corporation may, however, avoid the imposition of the personal holding company tax by actual or consent distributions of its personal holding company income. The personal holding company provisions have been modified over the years since 1934, but the fundamental purpose has not been altered by succeeding Congresses.

Personal holding company income is, in general, that income which is received from certain types of investment and personal service sources as specified in the code. Although the legislative history of the personal holding company provisions indicates, as a general rule, an intent not to apply such penalty tax to a true operating company, an operating company is not ipso facto excluded from the classification as a personal holding company and there is no indication that a true operating company could, or should, never be classified as a personal holding company.

The Treasury Department opposed an earlier version of the bill (H.R. 5478, introduced in the 1st sess. of the 85th Cong.) in a report to the House Ways and Means Committee, dated July 18, 1957, on the grounds that the terms used in the bill were too general and might permit avoidance of the personal holding company tax by many corporations to which the tax should appropriately apply. A revised bill (H.R. 8960, introduced in the same session) met some of our earlier objections, and was passed by the House of Representatives on August 16, 1957. However, the Department continued to study this matter and became concerned that the bill might still permit certain tax benefits which do not seem desirable. Therefore, we reported to your committee on January 28, 1958, that we were opposed to the enactment of H.R. 8960. H.R. 7588 appears to have met all of our objections to H.R. 8960.

4. Comments on the bill

(a) Policy. — Prior studies have been made regarding the amendment of the personal holding company provisions to provide relief from the personal holding company tax for corporations engaged in the music publishing business. It appears that a reasonably favorable showing has been made that some music publishers are operating companies and should not be subjected to the personal holding company tax merely by reason of the fact that their chief source of income consists of “copyright royalties.” (See H.Rept.No.1047, 85th Cong., 1st sess., on H.R. 8960.) It was pointed out that recent developments have tended to shift the source of income of music publishers from the sale of sheet music (which is not personal holding company income) to royalty income (which is personal holding company income), a shift that is due in part to the fact that radio, motion pictures, and television, and the expansion in the use of phonograph records have increased the royalty income derived from song copyrights, and in part to the fact that the more extensive use of the services provided by performing rights societies has increased the royalty income from live performances of songs by orchestras and others in hotels, night clubs, theaters, and in television. As a result of technological and other changes in the music-publishing industry, publishers today receive much of their income from royalties but, despite that fact, it is contended that most music publishers are not passive investment-type organizations.

Our principal objection to H.R. 8960 was that it would apparently have been possible for a composer of a song to incorporate and, by incurring costs in promoting the song equal to more than 50 percent of his gross income from the song, avoid both the personal holding company tax and the higher personal income tax rates that might be applicable if he did not incorporate. H.R. 7588 meets this objection by excluding royalties received from copyrights or works created by any shareholder from the 50 percent or more of gross income test. [Emphasis supplied.] [S.Rep.No.1041, 86th Cong., 2d Sess., pp. 5-6 (1960), U.S.Code Cong. & Admin.News, p. 1901 (1960-1 Cum.Bull. 817, 820-821).]

Further, the Committee’s own summary of the bill gives every indication that the amendment with respect to publishing firms was being applied to a broad definition of copyright royalties:

* * * Copyright royalties are defined as compensation with respect to copyrights protected by the U.S. Government, or protected by the laws of other countries as a result- of international treaties, etc., or interests in these copyrights. They are also to include payments with respect to those copyrights received from performing rights societies or organizations. * * [S.Rep.No.1041, 86th Cong., 2d Sess., p. 2 (1960) U.S.Code Cong. & Admin. News, p. 1898 (1960-1 Cum.Bull. 817, 818).]

Section 543(a)(4)(A) translates this Congressional purpose into law. Although the general rule is to be that copyright royalties are classified as one variety of personal holding company income, copyright royalties will not be so included if

(A) such royalties (exclusive of royalties received for the use of, or right to use, copyrights or interests in copyrights on works created in whole, or in part, by any shareholder) constitute 50 percent or more of the ordinary gross income,

Subparagraphs (B) and (C) further carry out the Congressional purpose of insuring that in order to qualify for the exemption, the company is actively engaged in the publishing business. What is significant about subparagraph (A) for our purposes is that for companies exploiting shareholder-created works, no amount of business activity on the part of the company will entitle that company to have its income exempted from the taint of copyright royalty personal holding company income. In the case of companies exploiting shareholder-created works and receiving copyright royalties, the intensity of business activity is totally irrelevant. Thus, plaintiff’s discussion of the bona fides of Irving Berlin’s need for a company to exploit his works and of the scope of the business activity of the company is really beside the point. Congress chose not to confer the benefit when shareholder-created works were being expjoited. We have before us the ultimate example of Congressional concern, as Berlin Music publishes nothing but the songs of its 100 per cent shareholder.

Plaintiff’s position in this case is that it could not, in any event, take advantage of the active publishing business exception contained in section 543(a)(4)(A), (B), and (C) because Irving Berlin, whose songs were being exploited and serviced by Berlin Music, owned 100 per cent of the stock of the plaintiff. However, plaintiff urges that the problems addressed by this aspect of the statute are beyond the facts of a case in which no “copyright royalties” are received. It is our view that the plaintiff’s definition of copyright royalties is so narrowly and technically circumscribed as to lead inexorably to a strained reading of the statute as a whole and to an effective undercutting of the intent displayed by Congress in enacting the 1960 limited amendments.

In enacting section 543(a)(4)(A), (B), and (C), Congress undoubtedly intended to exclude certain qualifying music publishers from the burden of the personal holding company tax. Berlin Music, however, simply does not fall within this exceptional class. Congress evidently determined that the relationship between an author and his own publishing company, regardless of the formal arrangements (dictated by the shareholder) governing that relationship and regardless of the similarities the company might bear to any other active publishing company, gave rise to the potential for use of that company as an “incorporated pocketbook” against which the personal holding company tax is aimed. Plaintiff’s interpretation of the statute would eat into the very fiber of this Congressional purpose.

Having withheld the benefits of the active publisher exception from taxpayers in plaintiff’s position, we cannot as-scribe to Congress an intent to open a loophole to a taxpayer when its sole shareholder simply relabels the amounts received as compensation for the work of an agent. In the context of a broad definition of copyright royalties together with a definite line being drawn between outside versus related companies, we cannot accept an argument that Congress intended to attach any significance to an arrangement, operationally identical to the classic royalty system, relabeled as an agency. It is for this very reason that Congress chose to give its broad definition, for purposes of subsection 543 (a), to the term “copyright royalties.” Under the plaintiff’s definition, on the other hand, any composer-shareholder of a closely held music publisher, engaged in issuing performing rights licenses in his behalf, would be permitted totally to frustrate the statute by merely relabeling the 50 per cent share of copyright royalties otherwise charged by unrelated music publishers as “compensation for agent’s services.” Congress could never have intended such an anomalous result; and, therefore, it cannot be reasonably imputed to the very broadly framed statute defining copyright royalties. See Select Tire Salvage Co. v. United States, 181 Ct.Cl. 695, 703, 386 F.2d 1008, 1012 (1967). We need not comment on what result would be reached had plaintiff been compensated under a different formula. It is enough to say that when compensation is “operationally” identical to that of the classic royalty scheme, such payments cannot be converted to something other than copyright royalties for the purpose of that definition.

We hold that section 543(a)(4) simply does not define copyright royalties in a manner which requires a finding of a “proprietary interest” in the underlying copyright. The definition does not spring from a finding of proprietary interest but rather from the situation in which compensation is to be measured in terms of a percentage of the royalties paid for the use or right to use copyrights.

For the foregoing reasons, we hold for the defendant and allow its motion for summary judgment. Plaintiff’s cross-motion for summary judgment is denied and the petition is hereby dismissed.

      . By this agreement, Irving Berlin granted to his corporation, which he designated as “Publisher,” among other things, the exclusive license to: (1) publish and issue licenses to publish his musical compositions worldwide; (2) issue licenses authorizing the manufacture of parts of instruments serving to ' mechanically reproduce his compositions worldwide ; (3) issue licenses to reproduce his compositions worldwide for broadcasting purposes ; (4) issue licenses with regard to all performing rights protected by all domestic and foreign copyrights to his musical compositions ; and (5) generally to exploit and market such musical compositions and rights therein. The corporation was entitled to retain the proceeds from the sale of sheet music less a set royalty on each sale. As additional compensation for its services, the corporation was entitled to deduct and retain 50 per cent of the gross fees it derived from licenses and to retain fully the publisher’s share of the distribution from the American Society of Composers, Authors and Publishers (ASCAP), or other performing rights societies.

      . Originally, it appeared that the change from the 1946 “license agreement” to the 1960 “agency agreement” was the basis upon which the taxpayer was building his argument. However, the taxpayer argued the case on the theory that, even under the 1946 contract, an agency was intended; and the word “license” was used but did not accurately describe the arrangement. In any event, the taxpayer does not allege that the change significantly altered the nature of the music-publisher services it performed on behalf of Irving Berlin, including licensing, as well as the method by which all of such services were performed. Like other established music publishers,- taxpayer continued under the 1960 agreement, as under the earlier 1946 agreement, to receive 50 per cent of the gross royalties derived from performing rights licenses it issued to music users for the use of Irving Berlin’s songs.

      . These activities can be categorized and described as follows:
      (a) Development of Songs. Plaintiff assisted Irving Berlin in preparing musical compositions for initial commercial and professional use. Plaintiff’s activities in this regard involved such technical aspects as the transcription of compositions in musical form.
      (b) Preparation of Musical Arrangements. Plaintiff’s employees prepared piano forte arrangements of each of Irving Berlin’s compositions for sale to the general public in sheet music form. In addition, plaintiff caused to be prepared arrangement for every conceivable user or purchaser of popular music. Plaintiff also prepared or caused to be prepared professional arrangements to be used by particular orchestras in connection with the promotion and exploitation of a particular musical composition.
      (c) Exploitation and Sales Promotion Services. Plaintiff supervised and conducted the sales of sheet music and the distribution of professional arrangements of Irving Berlin’s compositions. Sales of sheet music and arrangements were handled by plaintiff’s sales staff which called upon all major music stores and music jobbers throughout the United States.
      In some instances, as part of the promotion and exploitation of Irving Berlin’s songs, plaintiff also prepared special arrangements of songs to suit the particular style of many well-known singing personalities. This was done either by arrangers employed by the plaintiff or done by outside independent arrangers hired and paid for by the plaintiff for each particular transaction.
      To exploit and promote Irving Berlin’s compositions, the plaintiff employed “professional men” known to the public as “song pluggers,” whose responsibility was to make the rounds of orchestra leaders, band leaders, singers, instrumentalists, recording companies and producers of radio and television shows in order to insure frequent performances of the compositions. These men kept a constant watch on all users of songs whose public performance of a song would bring it to the public attention and create a demand for sheet music or records. In addition, demonstration records were made at plaintiff’s expense of any song deemed promising which was then given to recording companies, disc jockeys, and the like.
      (d) Licensing. The major revenues obtained from the exploitation of musical compositions were, during the taxable years in question, derived from ' the “grand performing rights” which included legitimate stage productions, electrical transcriptions, phonograph records, motion picture synchronization, stock and amateur rights, and dramatic uses on radio and television. Each grant or license of a grand performing right had to be separately negotiated and issued. During the life span of a particular song, such licenses number many hundreds requiring specialized business expertise to achieve the highest possible royalties to the author/composer without pricing the musical composition out of the market. Plaintiff, as “agent” and/or its subagents negotiated, prepared, and granted such licenses. Any unusual or significant request required the personal approval and consent of Irving Berlin before a license would be issued. No performing rights licenses were ever issued over Irving Berlin’s objection.
      (e) Bookkeeping and Accounting.

      (f) Stock Room, and Shipping.

      . All statutory references are to the Internal Revenue Code of 1954, as amended, unless otherwise stated.

      . SEC. 543. Personal Holding' Company Income.
      (a) General rule. — For purposes of this subtitle, the term “personal holding company in-eome” means the portion of the adjusted ordinary gross income which consists of:
      (1) Dividends, ete. — Dividends, interest, royalties (other than mineral, oil, or gas royalties or copyright royalties), and annuities. * * *
      * * * # *

        (4) Copyright royalties — Copyright royalties ; except that copyright royalties shall not be included if—
      (A) such royalties (exclusive of royalties received for the use of, or right to use, copyrights or interests in copyrights on works created in whole or in part, by any shareholder) constitute 50 percent or more of the ordinary gross income,
      (B) the personal holding company income for the taxable year computed—
      (i) without regard to copyright royalties, other than royalties received for the use of, or right to use, copyrights or interests in copyrights in works created in whole, or in part, by any shareholder owning more than 10 percent of the total outstanding capital stock of the corporation,
      (ii) without regard to dividends from any corporation in which the taxpayer owns at least 50 percent of all classes of stock entitled to vote and at least 50 percent of the total value of all classs of stock and which corporation meets the requirements of this sub-paragraph and subparagraphs (A) and (C), and,
      (iii) by including as personal holding company income the adjusted income from rents and the adjusted income from mineral, oil, and gas royalties, is not more than 10 percent of the ordinary gross income, and
      (C) the sum of the deductions which are properly allocable to such royalties and which are allowable under section 162, other .than'—
      (i) deductions for compensation for personal services rendered by the shareholders.
      (ii) deductions for royalties paid or accrued, and
      (iii) deductions which are specifically allowable under sections other than section 162, equals or exceeds 25 percent of the amount by which the ordinary gross income exceeds the sum of the royalties paid or accrued and the amounts allowable as deductions under section 167 . (relating to depreciation) with respect to copyright royalties.
      For purposes of this subsection, the term “copyright royalties” means compensation, however designated, for the use of, or the right to use, copyrights in works protected by copyright issued under title 17 of the United States Code (other than by reason of section 2 or 6 thereof) and to which copyright protection is also extended by the laws of any country other than the United States of America by virtue of any international treaty, convention, or agreement, or interests in any such copyrighted works, and includes payments from any person for performing rights in any such copyrighted work and payments (other than produced film rents as defined in paragraph (5) (B) received for the use of, or right to use, films. For purposes of this paragraph, the term “shareholder” shall include any person who owns stock within the meaning of section 544.

        at * at * *

      . It is also significant, although not directly applicable to the problem of grand performing rights, that the definition of copyright royalties also “includes payments from any person for performing rights in any such copyrighted work.” Thus, the royalty payments from ASCAP, half of which, after adjustments, were paid to Berlin Music, are clearly copyright royalties. It is noteworthy that, if anything, this language is an even clearer indication that the traditional notions (i. e., the proprietary interest requirement) as to what the status of a royalty recipient must be were being abandoned. Rather than concentrating on what proprietary relationships, if any, were required by the nature of the business, the choice of the word “payments” is suggestive that the compensation to be divided equally between writer and publisher was to be tainted as copyright royalties irrespective of technical arrangements.

      . The taxpayer admitted, during oral argument, that the arrangement, in the instant case was “operationally” identical with a classic royalty arrangement. The taxpayer attempted to distinguish the two cases by arguing that different consequences, such as those occurring in bankruptcy, resulted from a choice of system. Plaintiff even conceded that had a nonexclusive license been granted to Berlin Music, this would have been a sufficient interest to require a holding that copyright royalties had been received. While it is true that different consequences, such as on bankruptcy, may result (and while we admit that in different context we might be persuaded that these differences could command different tax treatment), Congress’ concern, at least with respect to personal holding company income, was specific: not to allow a benefit to companies deriving as income, however, this compensation is designated, a percentage of the copyright royalties collected. Simply stated, Congress provided that shareholder-created works could not be exploited without characterizing the royalties thereon as . personal holding company income.

      . It has long been a basic principal of statutory interpretation that
      “ * * * the court will not look merely to a j)articular clause in which general words may be used, but will take in connection with it the whole statute (or statutes on the same subject) and the objects and policy of the law, as indicated by its various provisions, and give to it such a construction as will carry into execution the will of the legislature, as thus ascertained, according to its true intent and meaning.” [Brown v. Duchesne, 60 U.S. (19 How.) 183, 194, 15 L.Ed. 595 (1856).]

      . Cases cited, such as Kiesau Petroleum Corp., 42 BTA 69 (1940), Campbell v. Great Nat’l Life Ins. Co., 219 F.2d 693 (5th Cir. 1955), and Hopag, S. A., 14 T.C. 38 (1950), by plaintiff for the proposition that a proprietary interest in the copyright is a sine qua non to a finding of royalty income, predate the 1960 amendments to the personal holding company provisions and do not deal with the specific statutory definition of copyright royalties at issue here.


source: Caselaw Access Project

author: MILLER, Judge.

license: Public Domain

text:
    The PROCTER & GAMBLE COMPANY, Appellant, v. MASTER KLEENS OF AMERICA, INC., Assignee of Otho Gordon Taylor, Appellee.
    Patent Appeal No. 9031.
    United States Court of Customs and Patent Appeals.
    Nov. 21, 1973.

      John W. Melville, Melville, Strasser, Foster & Hoffman, Cincinnati, Ohio, attorney of record, for appellant.
    George M. Thomas, Jones & Thomas, Atlanta, Ga., attorney of record, for ap-pellee.
    Before MARKEY, Chief Judge, and RICH, BALDWIN, LANE and MILLER, Judges.
   MILLER, Judge.

This appeal is from the decision of the Trademark Trial and Appeal Board dismissing oppositions by appellant to two applications by Taylor. We affirm.

Master Kleens of America, Inc., as Taylor’s assignee, seeks to register the following marks for dry cleaning services:

The word “Kleen” is lined for the color green and has been disclaimed. Appellant is the registrant of “Mr. CLEAN” for sudsing cleaner, cleanser, and detergent. The basis for its oppositions was (and still is, for purposes of this appeal) that appellee’s marks, when applied to dry cleaning services, so nearly resemble appellant’s mark, used on an all-purpose cleaning product, as to be likely to cause confusion. (15 U.S.C. § 1052(d)).

Appellant argues for a broad scope of protection for its mark under the decision and opinion of this court in Procter and Gamble Company v. Conway, D. B. A. Certified Chemical and Equipment Company, 419 F.2d 1332, 57 CCPA 865 (1970). In that case, the applicant sought to register “MISTER STAIN” for a stain-removing compound. We found that Procter and Gamble had established prior rights in the marks Mr. CLEAN, MR. CLEAR, MR. SHEEN, LADY CLEAN, MRS. CLEAN, and MASTER-KLEAN for cleaning preparations. All of them had been registered with the exception of MASTER-KLEAN, which was found to be a common law trademark. We also found that the cleaning compounds of both parties were sold through the same retail outlets to the same class of purchasers in the ordinary course of trade. Concerning the scope of protection to be afforded the family of marks introduced by Procter and Gamble, this court stated:

[I]t was the view of the board, ar-guendo, in which we share, that by virtue of its ownership and use of the marks of record, appellant has a right to preclude subsequent registration of a mark embracing the courtesy title “Mr.” or “Mister” associated with a word conveying a cleaning connotation. [Partial emphasis supplied.]

However, the court disagreed with the board’s determination that there would be no likelihood of confusion notwithstanding the above arguendo consideration. In holding for Procter and Gamble on this issue, we said:

But we think the cardinal consideration here is the impact of the marks as used on the basis of conditions and circumstances surrounding the purchase of the goods of the parties in the market place.

We believe appellant’s reliance on our decision and opinion in the above case is misplaced. First, the marks of both parties in that ease involved dleaning compounds. In contrast, appellee here is seeking registration of its mark for dry cleaning services. Second, the cleaning compounds of both parties'in the prior case were sold through the same retail outlets. Not so, here. Third, in the cited case Procter and Gamble pleaded and entered in evidence a whole family of trademarks, which allegedly showed a likelihood of confusion. No such family of trademarks has been entered or argued in this case; nor is there any evidence before us to indicate the continued use of such marks. Fourth, the above-quoted view of the board and the court concerning “Mr.” or “Mister” in association with a word conveying a cleaning connotation was only assumed for the sake of argument, and this, further, in a case involving only products.

The appellant further argues that the word MASTER does not indicate proficiency, skill or superlativeness in cleaning unless it is coupled with a noun, and that for appellee’s mark to indicate su-perlativeness it should be MASTER KLEENER; that the obvious sense in which MASTER is used in appellee’s mark is that of a courtesy title with the adjective KLEEN to create personification of the qualities of the adjective “clean”; ' and, finally (during oral argument) that appellee should be estopped from arguing that MASTER in its mark connotes superlativeness in view of its arguments before the trademark examiner.

In considering these arguments, we note that appellee contended before the examiner that the MASTER in its mark connotes both superiority and a courtesy title. Therefore, it is not estopped from advancing the argument of superlativeness now.

Until oral argument, appellant apparently overlooked the fact that “clean,” or its phonetic equivalent, “kleen,” is also a verb. When so regarded, the word “master” in a composite mark would indicate superlativeness — that appellee would clean clothes in a masterful way. The board was of the opinion, which we share, that “MASTER KLEEN,” when used to identify dry cleaning services, “would indicate to the average person proficiency, skill or superlativeness in cleaning rather than a courtesy title associated with a word conveying a cleaning connotation.”

Considering all the facts before us, together with the arguments of both parties, we conclude that the average consumer viewing appellee’s marks in conjunction with dry cleaning services would not be likely to think there was some connection with appellant’s Mr. CLEAN product.

Accordingly, we hold that there is no likelihood of confusion between the marks of the parties.

The decision of the board is affirmed.

Affirmed.

      . The board’s opinion is reported in full at 171 USPQ 382 (1971).

      . Serial Nos. 297,452 and 297,454, both filed May 6, 1968.

      . Registration No. 658,915 issued February-25, 1958.


author: MILLER, Judge. MARKEY, Chief Judge,

text:
    BARNEBEY-CHENEY CO., Appellant, v. The UNITED STATES, Appellee.
    Customs Appeal No. 5510.
    United States Court of Customs and Patent Appeals.
    Nov. 21, 1973.
    Markey, Chief Judge, dissented and filed opinion in which Rich, J., joined.
    Allerton deC. Tompkins, New York City, atty. of record, for appellant.
    Irving Jaffe, Acting Asst. Atty. Gen., Andrew P. Vance, Chief, Customs Section, Glenn E. Harris, New York City, for United States.
    Before MARKEY, Chief Judge, and RICH, BALDWIN, LANE and MILLER, Judges.
   MILLER, Judge.

- This appeal is from the’ judgment of the United States Customs Court, First Division, 68 Cust.Ct. 98, C.D. 4343 (1972), overruling appellant’s protest against the classification under paragraph 69 of the Tariff Act of 1930, as modified by T.D. 54108, of imported merchandise consisting of spent activated carbon salvaged in . Great Britain from canisters of gas masks. We reverse.

The referenced paragraph provides as follows:

Decolorizing, deodorizing, or gas-absorbing chars' and carbons, whether or not activated, and all activated
chars and carbons..... 19% ad val.

Appellant claims that the merchandise was properly classifiable under paragraph 1555 of the Tariff Act of 1930, as modified by T.D. 52739, which provides as follows:

Waste, not specially provided for............. 4% ad val.

FACTS

The merchandise in question was sold to appellant by J & J Maybank, Limited, which had purchased the gas masks from the Ministry of Supply. Some of the masks had been in storage since 1936 and the latest were 1945 manufacture. Maybank invented a machine to open the canisters to release the charcoal they contained through a screen into burlap sacks for storage and shipment. Small slivers of metal and bits of fabric from the canisters also came through the screen and were contained in the imported charcoal, which originally had been impregnated with various metallic salts of copper, silver and chromium (to improve its capacity for military gases). Appellant introduced evidence that the charcoal contained moisture from rain and snow due to open storage of the masks. The Customs Court found it to be “clear” that upon entry the merchandise “had a sufficiently high absorbed moisture content, i. e., 20 percent, to be regarded as ‘spent’ activated charcoal.”

Questioning of one of appellee’s expert witnesses by the court below brought out the distinction between spent activated charcoal and activated charcoal, namely: that spent activated charcoal is no longer, as such, without further treatment, capable of adsorption.

Testimony by another of appellee’s witnesses with respect to tests made in Customs Service laboratory disclosed that activated carbon purchased from a chemical supply house had an adsorbent capacity of 50 to 60 percent, while a representative sample of the merchandise in question (following a heating and drying process) had an adsorbent capacity of 21.9 percent.

In tendering the masks, the British government advised as follows: “CHARCOAL WHICH MAY BE RECOVERED FROM BREAKDOWN OF THE RESPIRATORS MAY NOT BE USED FOR THE PRESERVATION OF FOODSTUFFS OR THE PURIFICATION OF WATER.” The invoices covering the merchandise shipped from Maybank to appellant contained the description: “Scrap Charcoal From Gas Masks.”

Appellant introduced evidence that the merchandise was used as “raw material” for the production of a low grade of unspent activated carbon. Its process of “regeneration,” “rejuvenation,” or “revivification” consisted of burning out the absorbed material at high temperature under steam, with some of the carbon being leached to remove the metallic salts. The resulting product was sold as a deodorizer for diaper pails and refrigerators, for testing of. the gasoline content of natural gas, and (after grinding) as an ingredient for decolorizing dry cleaning solvent. In its “raw” state, the merchandise was not commercially suitable for any specific purification application.

THE ISSUE OVER WHAT THE CLASSIFICATION WAS

The record clearly shows that the Deputy Collector of Customs, in his reports dated February 7, 1964, (filed with the U. S. Customs Court February 10, 1964), on the various protests involved herein classified the merchandise in question as “non-activated decolorizing, deodorizing, or gas absorbing carbon,” although by letter dated January 20, 1960, from the Chief, Division of Classification and Drawbacks, appellant was advised that in the opinion of the Bureau of Customs the merchandise was classifiable “under the provision for decolorizing, deodorizing, or gas absorbing carbons and chars, whether or not activated.” The government (appellee), on the other hand, argues that in its opening statement before the U. S. Customs Court it made it clear that it was supporting the classification as “a gas absorbing carbon or an activated carbon” and that this statement was not disputed by appellant during the trial. The government further argues, without citation of authority, that the main purpose of the Customs reports was to indicate the paragraph, rather than specific language within the paragraph, under which the merchandise under protest was classified.

THE ISSUE OVER THE WORD “ABSORBENT”

The parties have devoted considerable argument over whether the Congress intended adsorbent carbons to be included when the word absorbent was used in paragraph 69. The Summary of Tariff Information, 1929, which was compiled by the U. S. Tariff Commission and printed for use of the Committee on Ways and Means of the House of Representatives, described decolorizing and deodorizing carbons as activated by special processes so that they are capable of absorbing much greater quantities of coloring matter than ordinary charcoal or bone char. (Vol. 1, p. 334.) The conclusion could thus be drawn that “absorbent” was used by Congress in a nonscientific sense to include carbons having adsorbent qualities. On the other hand, the principal testimony during the hearings before the Ways and Means Committee stated that activated carbons have superior decolorizing, deodorizing, and adsorptive properties. Hearings on Tariff Readjustment — 1929 Before the Committee on Ways and Means, House of Representatives, 70th Cong., 2d Sess., Vol. I, p. 805 (1929). Accordingly, it could be argued that the distinction between absorbing and adsorbing had been brought to the attention of those who drafted the legislation and that both words would have been used if it had been intended to include both types of carbons.

OPINION

As will appear below, we do not believe it necessary to decide the above issues. Taking the government’s classification, as set forth in its opening statement before the U. S. Customs Court, namely: “a gas absorbing carbon or an activated carbon,” and assuming that the word “absorbing” was intended to include “adsorbing,” the question is whether or not Congress, in its enactment of paragraph 69, intended to reach merchandise consisting of spent activated carbons possessing no commercial use except as a raw material.

A study of the legislative history of paragraph 69 of the Tariff Act of 1930 discloses that the one witness before .both the House Ways and Means Committee and the Senate Finance Committee who contended for an increase in the duty on decolorizing and deodorizing carbons was a representative of Darco Corp. of Wilmington, Delaware, one of the two U. S. manufacturers of activated decolorizing and deodorizing carbons. Hearings on Tariff Readjustment — 1929 Before the Committee on Ways and Means, House of Representatives, supra, Vol. I, pp. 803-808; Hearings on H.R. 2667 Before A Subcommittee of the Senate Committee On Finance, 71st Cong., 1st Sess., Vol. I, pp. 298-301 (1929). He complained of greatly expanded imports of activated carbons — a 300 percent increase in four years, and estimated to equal 30 to 50 percent of domestic production; said that in the last seven years the number of U. S. producers of decolorizing carbons had been reduced from four to two, and that the present rate of duty was not sufficient to enable his company to operate at a profit. He submitted a brief before the Ways and Means Committee warning of higher prices to consumers should domestic industry be destroyed and pointing out that factories capable of producing activated carbon for gas masks should be available in case of emergency.

The brief described decolorizing carbons as follows:

Decolorizing carbons are made by chemically treating raw materials such as wood, peat, lignite, black ash from paper mills, rice hulls, kelp, etc., and heating in nickel alloy retorts to temperatures of approximately 2,000°F. (1,100°C.). After cooling the charred material, it is ground and then given a further chemical treatment. . . . The process employed in making decolorizing carbon is called activation, and the carbons so produced are referred to as activated carbons.

Nowhere in the legislative history of paragraph 69 is there to be found any concern over importation of spent activated carbons or raw materials used in making activated carbons, although a passing reference to revivify-' ing a “spent Norit carbon” was made in a statement from the Dutch General Norit Co. in opposition to the proposed increase in duty. Hearings Before Subcommittee of Senate Comm, on Finance, supra, Vol. XVIII, p. 158. From a scientific point of view, it could be said that spent activated carbons are “activated carbons.” However, it is a familiar rule that a thing may be within the letter of the statute and yet not within its spirit, nor within the intention of its makers. Church of the Holy Trinity v. United States, 143 U.S. 457, 459, 12 S. Ct. 511, 36 L.Ed. 226 (1892). Moreover, tariff acts are not usually drafted in the terms of science but according to the meaning given by trade and commerce. Meyer & Lange v. United States, 6 Ct. Cust.App. 181, T.D. 35436 (1915).

Accordingly, we hold that Congress did not intend to reach merchandise such as that here in question by paragraph 69 and that the government’s classification under said paragraph was erroneous.

Turning now to appellant’s contention that the merchandise should be classified under paragraph 1555 as “Waste, not specially provided for,” appellant argues that the original purpose of the merchandise in question was that of a gas adsorbing char or carbon for gas masks and that it is no longer usable (either in its present state or after reactivation) for such purpose. The government, on the other hand, states the original purpose more broadly as “a gas-adsorbent activated charcoal” and points out that, after regeneration, rejuvenation, or revivification, “a good deal of it” was sold by appellant as a gas-adsorbent activated charcoal.

“Original purpose” is a critical issue in light of what the U.S. Customs Court refers to as the “classic” definition of waste in Harley Co. v. United States, 14 Ct.Cust.App. 112, T.D. 41644 (1926), namely :

In the tariff sense, waste is a term which includes manufactured articles which have become useless for the original purpose for which they were made and fit only for remanufacture into something else.

The government relies, as did the U.S. Customs Court, on Supreme Tire & Rubber Co. v. United States, 7 Cust.Ct. 193, C.D. 566 (1941), wherein old rubber automobile tires fit not only for remanu-facture for their rubber material but also for repair by vulcanizing or retreading were held dutiable as automobile tires and not as scrap or refuse in-dia rubber fit only for remanufacture. Apparently, it would equate the “repair” of automobile tires with “regeneration” of the spent activated carbon here involved. If the broad sense of “original purpose” contended for by the government is followed, the point might be well taken. Otherwise, it would not be, for no one is contending that the spent activated carbon here was regenerated to become a gas adsorbing carbon for gas masks. See also Selective Salvage Co., Inc. v. United States, 181 Ct.Cl. 695, 386 F.2d 1008 (1967) (holding imported tire carcasses not “tires” for purposes of federal excise tax).

We agree with appellant’s interpretation of “original purpose,” because it accords with practice in the commercial world. Meyer & Lange v. United States, supra. The legislative history to which we have already referred in our intei'pretation of paragraph 69 is highly pertinent. The Summary of Tariff Information, 1929, supra, stated (p. 334):

The industrial application of these carbons, also known as activated carbons, is largely a result of the wartime development of carbons for gas-mask cannisters [sic] to absorb chemically inert lethal gases.
* * * * * *
There are different grades of domestic and foreign carbons, for different purposes. (Emphasis supplied.)

The brief of the witness before the House Ways and Means Committee, referred to above, stated:

Activated decolorizing carbon is one of the products resulting from extensive research work done during the World War to develop an active carbon suitable for use in gas masks as an adsorbent for poisonous gases. Activated carbons for gas masks are made by a process and from a raw material designed to increase the gas adsorption property of the carbon, while activated carbons for decolorizing and deodorizing liquids are made by a process and from a raw material designed to increase to the utmost, the property of removing color bodies from liquids. The carbons cannot be used interchangeably. (Emphasis supplied.)

On the meaning of “remanufacture,” as distinguished from “repair” in the Supreme Tire & Rubber Co. ease and regeneration of spent activated carbon' in this case, we note particularly Chelten-ham Supply Corp. v. United States, 306 F.Supp. 472, 63 Cust.Ct. 271, C.D. 3908 (1969), cited by the U.S. Customs Court in its opinion. There the court used the words “regenerated,” “reprocessed” and “remanufactured” to describe the same activity. Moreover, it had no difficulty in following commercial practice by distinguishing the original purpose of the merchandise (cellophane), which was packaging of foods to be frozen, from wrapping of wall plate's and metal products following “regeneration.” The court specifically rejected the government's broad approach to “original purpose,” namely: use in the packaging trade. It should also be noted that, semantics aside, remanufacture is not an absolute requirement for classification as “waste” in any and all cases. United States v. Studner, 427 F.2d 819, 57 CCPA 122, C.A.D. 990 (1970).

Accordingly, we hold that appellant has sustained its burden of proof that the merchandise in question is classifiable under paragraph 1555, Tariff Act of 1930, as modified by T.D. 22739.

The judgment of the U.S. Customs Court is, therefore, reversed.

Reversed.

MARKEY, Chief Judge,

dissenting, with whom RICH, Judge, joins:

With due respect, I think the decision below is free of error.

I agree with the majority that the “classification” and “absorbent” issues should be disregarded. The first is based on a Customs “report” not of record and not argued below. The second has no relevance to “and all activated chars and carbons” in paragraph 69.

The majority opinion, turning as it does on legislative history, recognizes that nothing in that history reflects Congressional concern over importation of “spent” activated carbon. For all that can now be known, the employment of “and all activated chars and carbons” [emphasis mine] in paragraph 69 is equally interpretable as intended to cover activated carbon in any form, “spent” or not.

Whether considered from a scientific or commercial point of view, the imported merchandise was activated carbon. Once activated it remained so. “Activated” simply described its physical structure. It means that the cellular structure is such as to provide an abundance of entrapment areas. The merchandise may have been wet activated carbon and dirty activated carbon, but activated carbon it was.

“Spent” is not the same as “used up” when applied to activated carbon, which is no more “spent” when its interstices are full and dirty than a sponge is “spent” when it is filled with water and deleterious particles, regardless of the specific physical phenomenon involved in the entrapment process. The mere application of heat and cleaning, like the emptying and cleaning of a sponge, is sufficient to “unspend” or regenerate the activated carbon for its intended purpose, i. e., entrapment. To me, the imported goods were not “raw material” used in making activated carbon but the thing itself, albeit wet and dirty.

Appellant sold the imported goods, after regeneration, as activated carbon, to be used for a number of the well-known purposes to which activated carbon has normally, commercially been put over many years. Adhering to the analogy, a sponge originally employed to hold water becomes no less a sponge when squeezed and then employed to hold orange juice. Hence the prior use in gas masks and the acquisition of moisture would not, in my view, convert the imported activated carbon into something “useless for the original purpose” and “fit only for remanufacture into something else.” Harley Co. v. United States, 14 Ct.Cust.App. 112, T.D. 41644 (1926). There is nothing in paragraph 69 requiring restriction to any specific use of the activated carbon classified thereunder.

The government classified the imported merchandise, under paragraph 69, exactly as what it is, namely an activated carbon. That ends the matter and I would stop there.

Moreover, much of the decision below turns, in my view, on the testimony of witnesses, whose demeanor and forthrightness were observed by the trial judge and are denied to us. The facts of the present case, as I read them, parallel those in the Súfreme Tire case. I find therefore, no reversible error in the decision below and would, accordingly, affirm it.


author: MARKEY, Chief Judge.

text:
    Alvin L. BREEN and Herbert G. Lauterbach, Appellants, v. Edward S. COBB and Carl F. Jackson, Appellees. Edward S. COBB and Carl F. Jackson, Appellants, v. Alvin L. BREEN and Herbert G. Lauterbach, Appellees.
    Patent Appeal Nos. 9005, 9006.
    United States Court of Customs and Patent Appeals.
    Nov. 21, 1973.

      Vincent L. Barker, Jr., Toledo, Ohio (Owen & Owen, Toledo, Ohio), attorney of record for Cobb and Jackson, Staelin & Overman, Charles F. Schroeder, Toledo, Ohio, of counsel.
    Norris E. Ruckman, A. Newton Huff, Wilmington, Del., attorneys of record, for Breen and Lauterbach, Gerald A. Hapka, Washington, D. C., of counsel.
    Before MARKEY, Chief Judge, and RICH, BALDWIN, LANE and MILLER, Judges.
   MARKEY, Chief Judge.

These are consolidated appeals from the decision of the Board of Interferences in Interference No. 96,574, awarding priority as to counts 1 and 7 to Cobb and Jackson (Cobb) and priority as to counts 2-6 and 8 to Breen and Lauter-baeh (Breen). We affirm.

The invention relates to an air jet device for texturizing yarn.

The issue in appeal number 9005 is whether the drawings of Breen’s earlier applications provide support for counts 1 and 7. The issue in appeal number 9006 is whether Breen was properly awarded the benefit of a prior “grandparent” application when the notice of interference did not mention a bridging “parent” application.

OPINION

Counts 1 and 7 contain specific limitations, of which that in count 1 is illustrative:

* * * the axis of said nipple outlet passage being laterally offset in respect to the axis of the common cylindrical outlet an amount less than half the difference in diameters of said outlet passage and said common cylindrical outlet.

The written descriptions in the earlier Breen applications describe the nipple outlet passage only as “eccentric” or “slightly off-center” with respect to the common outlet. Breen argues, however, that the count, including the above-quoted phrase, “reads on” the drawings, particularly Figure 7 (reproduced below) of the parent application, and that the count is therefore supported by the drawing:

As stated in In re Reynolds, 443 F.2d 384, 58 CCPA 1287 (1971), on which Breen relies, a drawing may provide support for a claim. Unlike the situation in that case, however, the drawings herein do not present to the skilled artisan a teaching of any particular relationship between the amount or degree of nipple offset and the wall of the common cylindrical outlet. As the board noted, Figure 9 of the Breen grandparent application is inconsistent with Figure 7 of the parent application. In neither ease does the drawing convey to those skilled in the art anything more than the fact of offset. That the count may “read on” Figure 7 does not establish that the figure would constitute an adequate disclosure of the specific limitation of the count. The skilled artisan, if he noted the amount of offset in any of the drawings at all, would regard the showing as accidental or arbitrary. Hence the drawings fail to support the final portions of counts 1 and 7 and the decision of the board in appeal number 9005 must be affirmed.

Breen was awarded the benefit of a grandparent application in the notice of interference, which in pertinent pai’t read:

Applicants:

Alvin L. Breen and Herbert G. Lauter-bach 410 Shipley Road, Wilmington, Del. 19809; and 2300 Riddle Avenue, Wilmington, Del. 19806 Ser. No. 721,-403 filed April 15, 1968 Accorded benefit of Ser. No. 698,103 filed November 22, 1957

For: PROCESS AND APPARATUS

The Breen grandparent application serial No. 698,103 was abandoned prior to the filing of the involved grandchild application serial No. 721,403. Cobb, accordingly, moved to dissolve, citing a British patent. as a statutory bar and asserting that Breen was not entitled to the benefit of the grandparent application because Breen’s intermediate or parent application serial No. 43,897 was not specified in the notice and was not added by Breen under Rules 224 and 231. The examiner denied Cobb’s motion.

The board found a sufficient showing in the record to justify, under Rule 258 (b), the consideration of Breen’s right to the benefit of application serial No. 43,897 and held that the examiner, in awarding the benefit of the grandparent application, must be presumed to have considered the parent application to have bridged the hiatus between the grandchild and grandparent applications. The examiner’s decision on the motion was also cited as evidencing his consideration of Breen’s right to rely on the parent application. In view of the notice of interference given, the board found Breen to have been justified in not moving under Rule 231(a)(4) to obtain the benefit of the parent.

We agree with the board. Without incorporation of the parent application in the notice of interference, there could have been no interference. Cobb relies heavily on Myers v. Feigelman, 455 F.2d 596, 59 CCPA 834 (1972), decided after the board’s decision herein. In Myers, however, the original notice of interference did not specify any prior application and the examiner accorded the benefit of a prior application only in the denial of a motion to dissolve. Here there was an award of the benefit of a prior application in the original notice and the required bridging application serial No. 43,897 was identified in the involved application. Admittedly, Cobb was not prejudiced. It is true that we adopted, in Myers, the First Assistant Commissioner’s view that a rigid adherence to the rules, absent special circumstances which might justify their waiver under Rule 183, was necessary to provide an orderly procedure, even though no special damage occurred from their waiver.

Under the circumstances here present, we do not consider that a waiver of the rules occurred or is required. The purpose of Rule 224 was fully accomplished when the notice of interference set forth the award of the benefit of application serial No. 698,103. That notice necessarily and inherently included the bridging application serial No. 43,897 required to make the notice effective. In Myers there was no indication in the notice of interference of any award and thus nothing into which a missing application could be considered as incorporated. The notice of interference in Myers was complete in itself, requiring nothing more to make it effective. We do not disturb the holding in Myers, but we decline to extend it to the circumstances of this case. Accordingly we affirm the decision of the board in appeal number 9006.

Affirmed.


author: INGRAHAM, Circuit Judge:

text:
    Godfrey ARTHUR, Plaintiff-Appellee, v. FLOTA MERCANTE GRAN CENTRO AMERICANA S.A., Defendant-Third Party, Plaintiff-Appellant, National Cargo Bureau, Inc., Third Party Defendant-Appellee.
    No. 72-2597.
    United States Court of Appeals, Fifth Circuit.
    Nov. 27, 1973.
    Rehearing and Rehearing En Banc Denied Jan. 2, 1974.
    Clarence A. Frost, New Orleans, La., for plaintiff-appellant.
    Clifton S. Carl, Gordon F.- Wilson, Jr., New Orleans, La., for plaintiff-appellee.
    Before BELL, INGRAHAM and RO-NEY, Circuit Judges.
   INGRAHAM, Circuit Judge:

This controversy arises out of an accident that occurred when plaintiff God-frey Arthur, an employee of National Cargo Bureau, Inc., boarded the M/V QUETZALTENANGO, a vessel owned by the defendant Flota Mercante Gran Central Americana S.A., in order to inspect the vessel for grain loading. While the ship was docked at New Orleans, the Mississippi River reached a particularly low level and consequently the traditional gangway could not be used for boarding. Instead a brow gangway was placed on the wharf in such a manner that one end extended over the vessel’s after bulwark railing. From this brow gangway a short bulwark ladder consisting of four or five steps was ■ connected to the bulwark with the base of the ladder resting on the ship’s deck. Because the bulwark ladder was too short, the ladder’s steps were not parallel with the ship’s deck, but slanted downward towards the deck and away from the bulwark. Although the brow gangway was equipped with hand rails, the bulwark ladder was not so equipped. Also, where the brow gangway intersected with the bulwark ladder, there was an overhang, called a fishplate, extending from the vessel over the bulwark railing that created a limited opening through which the ship was boarded. As this opening was approximately four feet in height, it was necessary to stoop or lean to go through this opening and then step down on the bulwark ladder.

On June 20, 1969, plaintiff Arthur boarded the vessel to inspect the holds for grain loading. When plaintiff crossed the brow gangway, he stepped down on the bulwark ladder, one foot slipped and he fell striking his coccyx on a ladder step.

Arthur subsequently filed suit against defendant Flota Mercante alleging both negligence and unseaworthiness, and Flota Mercante filed a third party claim against Arthur’s employer, National Cargo Bureau, for indemnity. At trial the court dismissed the unseaworthiness claim because plaintiff was not performing services normally done by a seaman; Flota Mercante’s third party claim for indemnity was also dismissed. The case was tried on the negligence issue, and the jury returned a verdict in favor of plaintiff for $25,000. In answer to special interrogatories, the jury found plaintiff ten percent contributorily negligent. The award was reduced accordingly, and judgment was entered for plaintiff in the amount of $22,500. Flota Mercante appeals, urging that it fulfilled its duty of care owed to the plaintiff, that the trial court improperly instructed the jury that a violation of the Safety and Health Regulations was negligence per se, that the court improperly dismissed its third party claim for indemnity, and that the damages were excessive. We find no merit in these contentions and therefore Affirm.

The first question is whether the defendant fulfilled its duty of care owed to the plaintiff. While it is well established that a shipowner owes a duty to provide invitees boarding or leaving the vessel with a reasonably safe means of access, Tullís v. Fidelity & Casualty Co., 397 F.2d 22, 24 (5th Cir., 1968), defendant contends that it satisfied this duty. Because negligence is measured against the surrounding circumstances, Flota Mercante urges that the particularly low level of the Mississippi River justified its using this means of access. Indeed, Flota urges that under these circumstances this was the only method of access available.

A review of the record indicates ample evidence to support the jury’s finding that the defendant breached its duty of care and was therefore negligent. Testimony introduced at trial demonstrated that the method of access provided could have been modified so as to furnish a safer means of ingress or egress. Or an entirely different type of access, such as extending a shore gangway from the dock to the ship’s weather deck, could have been substituted. In short, the evidence supports the jury’s conclusion that the combination of the brow gangway and the bulwark ladder was not the only means of access that could have been furnished under these circumstances, and that the defendant breached its duty of care.

Also in regard to duty of care, defendant argues that it owed no duty to protect the plaintiff from the risk of harm created by the dangerous condition of the vessel because plaintiff, as an experienced seaman, knew or should have known of the dangerous condition. The trial court properly considered this contention as relating to plaintiff’s negligence in boarding the vessel in the condition in which it existed. Comparative negligence is the rule to be followed; the negligence of the plaintiff, regardless of how gross, does not preclude recovery, but only mitigates damages. Movible Offshore Co. v. Ousley, 346 F.2d 870, 873 (5th Cir., 1965). The jury found Arthur ten percent negligent, and the court reduced the plaintiff’s award of damages accordingly.

The next issue is whether the court erred in instructing the jury that a violation of the Safety and Health Regulations is neglience per se. The regulations provide:

“When the upper end of the means of access rests on or is flush with the top of the bulwark, substantial steps, properly secured and equipped with at least one substantial hand rail approximately 33 inches in height shall be provided between the top of the bulwark and the deck.”

29 C.F.R. § 1504.21(f). In accordance with this regulation, the trial court instructed the jury that, when such a ladder arrangement is employed, the steps must be secured and equipped with one substantial handrail. If this statutory duty is not fulfilled, the shipowner is negligent as a matter of law. Defendant contends that this instruction confused the jury in that it conflicted with another charge delineating contributory negligence. More importantly, defendant contends that.this regulation applies only where the plaintiff’s claim is for unseaworthiness because the instruction imposes too high a standard of care where the only basis of recovery is negligence. We do not agree.

This court was first confronted with the application of safety regulations as a standard for determining negligence in Marshall v. Isthmian Lines, Inc., 334 F.2d 131 (5th Cir., 1964). In Marshall there was a violation of the Coast Guard Regulations relating to the shipment of hazardous articles. Judge Brown, speaking for the court, stated:

“The law is well established that violation of a statute which is intended to protect the class of persons to which a plaintiff belongs against the risk of the type of harm which has in fact occurred is negligence in itself. Inherent in this statement of the legal principle are three questions which must be resolved before liability could be imposed in this case on a negligence per se theory. What proof makes out a violation of the regulations? Were the regulations designed to protect longshoremen? Were they intended to protect against the risk of the kind of harm that occurred here . . . . ”

Id. at 134 (citations omitted); see Phipps v. S.S. Santa Maria, 418 F.2d 615 (5th Cir., 1971); Manning v. M/V Sea Road, 417 F.2d 603 (5th Cir., 1969); Grigsby v. Coastal Marine Serv. Inc., 412 F.2d 1011 (5th Cir., 1969); Venable v. A/S Det Forenede Dampskibsselskab, 399 F.2d 347 (4th Cir., 1968); Provenza v. American Export Lines, Inc., 324 F.2d 660 (4th Cir., 1963); Simmons v. Gulf and South American S.S. Co., 260 F. Supp. 525 (E.D.La., 1966), aff’d, 394 F. 2d 504 (5th Cir., 1968); Bue, Admiralty Law in the Fifth Circuit — A Compendium for Practitioners I, 4 Houston L. Rev. 347, 404 (1966). The litigants cite us to no case, and our independent research reveals none, in which the regulations were applied when the sole basis for recovery was negligence. Moreover, in the cases dealing with both unseaworthiness and negligence, the courts have failed to say that the regulations apply to one theory of recovery, but not the other. E. g., Manning v. M/V Sea Road, supra,, 417 F.2d at 611-612; Provenza v. American Export Lines, Inc., supra, 324 F.2d at 665. Significantly, the purpose of these regulations are to promote safety in the industry and establish an unambiguous standard for measuring industrial safety as it relates to longshoremen, harbor workers or other business invitees that come into contact with a vessel. That purpose is advanced when the court instructs the jury as it did in this case. We hold that if the Marshall criteria are met, the court may instruct the jury that a violation of the Safety and Health Regulations is neglienee per se.

We turn then to these requirements. First, there was clearly sufficient proof to establish a violation of the regulations. The regulations specifically require that, when a means of ingress or egress is of the type involved in this case, the steps must be secured and equipped with one substantial handrail. It is undisputed that the bulwark ladder did not have a handrail of any type and that the steps were not secured so that they would be parallel with the ship’s deck.

Second, it is clear that the regulations were designed to protect plaintiff, a surveyor employed by National Cargo Bureau. The inspection and certification of vessels by a National Cargo Bureau surveyor is a prerequisite to the loading of grain, and the vessel must be recerti-fied when it is ready to sail. This activity is classified by the Department of Labor as employment related to long-shoring, ship repairing and ship building, and therefore falls within the scope of the regulations. 33 U.S.C.A. § 902(3).

Third, the regulations were designed to protect against the type of risk created in this case. Undoubtedly, the regulations requirements that the steps be properly secured and that the gangway be furnished with a handrail were intended to provide safe access for persons boarding or leaving the vessel, and to prevent accidents like the one involved in this lawsuit. Therefore, because the three criteria necessary to establish negligence as a matter of law have been met, we hold that the trial court did not err in instructing the jury that if they find the regulation was violated, then such a violation is regarded in law as negligence per se. The court went on to instruct the jury that before they may find for the plaintiff, such violation of the regulation must be shown by a preponderance of the evidence to have been the proximate cause of the plaintiff’s injury.

The third issue is whether the trial court erred in dismissing Flota Mercante’s claim against National Cargo Bureau for indemnity. Flota first relies on Ryan Stevedoring Co. v. Pan-Atlantic S.S. Corp., 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133 (1956), and contends that the indemnity rule enunciated there is applicable in this case. Alternately, Flo-ta Mercante urges that, even if the Ryan doctrine does not apply, National Cargo was contractually obligated to supply the defendant with competent personnel to inspect the vessel. Flota reasons that National Cargo warranted that its employee would inspect the vessel in a workmanlike manner, that the warranty was breached when plaintiff negligently contributed to his own injury, and that indemnity therefore follows.

It is unnecessary to decide whether the Ryan doctrine applies because the facts of this case simply do not support Flota Mercante’s claim for indemnity. The responsibility for providing safe access was solely that of the shipowner, not the responsibility of the employees of National Cargo. There is no evidence showing that National Cargo’s employees contributed in any way to the creation of the dangerous condition. The shipowner did not fulfill its duty to furnish safe access, and it is responsible for its own negligence. Flota’s claim that it is entitled to indemnity from National Cargo for its own negligence is meritless.

Finally, Flota Mercante contends that the award of damages was excessive, and therefore the trial court abused its discretion in not granting a new trial or ordering a remittitur. The jury heard testimony from three doctors who described the plaintiff’s injury as coccydynia, a painful condition of the coccyx. Additionally, there was testimony telling of the painful inconveniences that must be endured by the plaintiff in the future and that had been endured by him for the past three years. We believe the jury’s award of damages is supported by the evidence.

The judgment of the district court is affirmed.

      . Because of the way in which we dispose of this case, it is unnecessary for us to decide whether the plaintiff, an employee of National Cargo Bureau who inspects and certifies vessels for loadng grain, is a “seaman.”


author: ALDRICH, Senior Circuit Judge.

text:
    UNITED STATES of America, Plaintiff, Appellee, v. James Robert HARSTAD, Defendant, Appellant.
    No. 73-2248.
    United States Court of Appeals, Ninth Circuit.
    Nov. 8, 1973.
    Paul Harris (argued), San Francisco, Cal., for defendant, appellant.
    James L. Browning, Jr., U. S. Atty., F. Steele Langford, Joseph E. Reeves, Asst. U. S. Attys. (argued), San Francisco, Cal., for plaintiff, appellee.
    Before ALDRICH, DUNIWAY and SNEED, Circuit Judges.

       Hon. Bailey Aldrich, United States Senior Circuit Judge, First Circuit, sitting by designation.

   ALDRICH, Senior Circuit Judge.

This case is another illustration of the technicalities, real or imagined, that it is possible to find in an area as broadly and necessarily regulated as the Selective Service. We do not find the registrant’s contentions persuasive, and conclude that he was properly convicted of refusal to be inducted, in violation of 50 U.S.C. App. § 462(a).

The important facts, which omit irrelevant circumstances involving defendant’s transfer from one local board to another, are these. Defendant registered for the draft, and in due course was granted I-A-0 — non-combatant military service — status. Following receipt of an order to report for induction on February 24, 1971 (first order) he submitted a claim to be reclassified as I-Q, conscientious objector. We find it difficult to accept the district court’s finding that, in content, this was not a prima facie claim, and we will assume in defendant’s favor that it was. The question becomes whether the board properly refused under Ehlert v. United States, 402 U.S. 99, 91 S.Ct. 1319, 28 L.Ed.2d 625 (1971), to reopen defendant's classification to consider this claim because it was filed after the order to report had been mailed.

On February 24 defendant appeared at the induction center, but refused to be inducted. Thereafter, without a hearing, he was notified that his 1-0 claim was denied. Our difficulties stem from the fact that on April 26, 1971, the secretary of the local board wrote defendant she had discovered that the first order to report had not noted thereon his I-A-0 classification, and hence was unenforceable. She added that his duty to report was a continuing one and set a new reporting date. Defendant ultimately was ordered to report on May 26, 1971 (second order). He appeared on that date, but again refused induction, for which refusal he was indicted. The defense is that the second order was not a postponement of the first or a continuing duty order, but a new order, so that Ehlert, does not apply and Mulloy v. United States, 398 U.S. 410, 90 S.Ct. 1766, 26 L.Ed.2d 362 (1970), would require the board to have reopened defendant’s classification before its issuance.

The absence of a recitation of defendant’s classification on the first order, while apparently not in accordance with the then current custom, violated no statute or regulation. The order was in all other respects valid. Nor was there any misstatement of his classification, by which defendant might have been misled. Defendant can support his claim only by saying that under such cases as Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 65 S.Ct. 1215, 89 L.Ed. 1700 (1945), and Hunt Foods & Industries, Inc. v. FTC, 286 F.2d 803 (9th Cir. 1961), cert, denied 365 U.S. 877, 81 S.Ct. 1027, 6 L.Ed.2d 190, the secretary^ conclusion as to the legal necessity of a reference to defendant’s classification constituted a binding agency interpretation. That such weight should attach to a letter expressing the opinion of a secretary of a local board reminds one of the question asked by Lord Ellenborough .in Buchanan v. Rucker, 103 Eng.Rep. 546, 547 (1808) : “Can the Island of Tobago bind the rights of the whole world?” We do not regard the secretary’s authority as worthy of discussion. Nor does the fact that, for administrative convenience, there may have been a custom to note on his induction order the registrant’s classification (which already appeared on his notice of classification) mean that its omission made the order void.

Had the government, on this record, prosecuted defendant for failure to submit to induction on February 24 there would have been no defense. A complication, however, was introduced by the fact that the prosecution is for the refusal to be inducted on May 26. Defendant contends that there was no basis for continuing the operative effect of the first order, so that the second order was, in substance, a new order, post-dating his request for change of classification, and so precluding reliance on Ehlert v. United States. This involves, at the outset, an interpretation of then 32 C.F.R. § 1632.14(a) (1971), which in pertinent part reads as follows:

“Regardless of the time when or the circumstances under which a registrant fails to report for induction when it is his duty to do so, it shall thereafter be his continuing duty from day to day to report for induction to his local board and to each local board whose area he enters or in whose area he remains.”

Defendant says that since he did not “fail to report for induction” the first time, the regulation is inapplicable.

While in other aspects there is a difference between refusing to report and refusing induction, see, e. g., Schutz v. United States, 422 F.2d 991, 994 (5th Cir. 1970), we think the short answer here is that the court could find defendant did not in fact report for induction. Rather, he appeared in order to announce, if he passed his medical, his intention not to be inducted. As the court said in United States v. Collura, 139 F. 2d 345 (2d Cir. 1943) at 345, “Obviously the duty to report for induction means more than putting in an appearance at the induction station. The selectee must not only appear but must be ready to go through the process which constitutes induction into the army.” Billings v. Truesdell, 321 U.S. 542, 557, 64 S.Ct. 737, 88 L.Ed. 917 (1944); Estep v. United States, 327 U.S. 114, 119, 66 S. Ct. 423, 90 L.Ed. 567 (1946). Defendant may have physically come to the induction station, but in no real sense to report for induction. United States v. Collura; Schutz v. United States, 422 F.2d at 993. Jeffries v. United States, 169 F.2d 86, 89 (10th Cir. 1948); Smith v. United States, 148 F.2d 288, 290 (4th Cir. 1945), rev’d on other grounds, 327 U.S. 114, 66 S.Ct. 423, 90 L.Ed. 567 (1946). Accordingly, under 32 C.F.R. § 1632.14, defendant, after failing to obey the first order, remained under a continuing duty to report. And,. if we look at the regulation broadly rather than, perhaps, strictly, we think it only too apparent that the regulation did not intend to permit a registrant to terminate his obligation by the very act of refusing to comply with it.

Since the board’s'action was authorized under section 1632.14, there is no need to examine the other arrow in its quiver, 32 C.F.R. § 1642, the one, if we can understand the government’s discoursive brief, upon which it seems to depend. In sum, while the case is different, we find clearly apposite our language in Palmer v. United States, 401 F.2d 226 (9th Cir. 1963) at 227-228, “[A] registrant cannot, by refusing to submit to induction, impose upon the board any new duties respecting reclassification or reopening.” Since there remained a continuing order, defendant cannot rely on Ehlert. It follows that the judgment of the district court must be affirmed.

      . 32 C.F.R. § 1642.2 (1971) reads, “When it becomes the duty of a registrant . . . to perform an act . . . the duty or obligation shall be a continuing duty or obligation from day to day and' the failure to properly perform the act . . . shall in no way operate as a waiver of that continuing duty.”