text:
    ARMSTRONG CORK & INSULATION CO. v. BANNER ROCK PRODUCTS CO.
    Patent Appeal No. 2645.
    Court of Customs and Patent Appeals.
    May 25, 1931.
    Edward S. Rogers and Allen M. Reed, both of Chicago, 111. (T. L. Mead, Jr., of Washington,- D. C., of counsel), for appellant.

      Lockwood, Lockwood, Goldsmith & Gált, of Washington, D. C., for appellee.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   BLAND, Associate Judge.

This is an appeal from the decision of the Commissioner of Patents, dismissing a petition for cancellation of a trade-mark registered by the Banner Rook Products Company March 5, 1912.

The trade-mark sought to be canceled consists of the words “Rock Cork,” the letters of which are consolidated and so placed as to R C present a novel appearance, o k repreC R sents the arrangement of the letters; the C and K being in large black type and occupying more than twice the space of the other letters, which are in smaller type.

The Banner Rock Products Company, which uses the “Rock Cork” trade-mark, is the manufacturer and originator of a thermoinsulating material which it began manufacturing and selling under the name “Rock Cork” in 1907. The material is in the form of a board made by binding rock wool with a waterproof binder. The process of making it is a water process, in which the material is molded into different thicknesses and dried. The rock is obtained from a quarry adjacent to the factory of appellee, which rock is termed “argillaceous” limestone. The rock is melted in a specially designed equipment by means of coke. The melted rock as it runs from the melting equipment is first hit with either a high pressure air jet or steam jet and shredded into fibers. This is then known as “roek wool” with which is mixed, in a special vat, a binder that secures the fibers into permanent position. This material is then molded into different shapes and thicknesses, and is dried, trimmed, and placed on the market to be sold chiefly to the manufacturers of refrigerating units, and to the builders of structures which require low temperatures.

The appellant, the Armstrong Cork & Insulation Company, operates the insulation division of the Armstrong Cork Company, and is one of three manufacturers of cork board in the United States. It operates several factories in this country, and has factories and depots abroad. It manufactures and sells many different kinds of cork products. Its sales run between forty and seventy-five million board feet of cork insulation per year. Cork board is a well-known standard insulating material. Its good insulating properties have long been known to those familiar with the subject of thermoinsulation. Cork board is made-from cork, and cork is the outer bark of the cork oak tree which grows principally in Spain, Portugal, and Algeria. Cork, in the common understanding, is a vegatable substance. In manufacturing cork board, the cork bark is granulated, sized, cleaned, pressed in molds, and baked. The record shows that the petitioner, and its predecessors, have been manufacturers of cork articles since 1861 and of cork board since 1904, and that appellant and appellee, during a period of almost a quarter of a century, have been merchandising their products to the same class of customers with the full knowledge of each of the parties of the composition of each other’s product and the trade terms used in describing the same.

Appellant bases its petition for cancellation of the trade-mark “Rook Cork” upon the proposition that the term is deceptive and misleading, and is misdeseriptive of appellee’s product, inasmuch as its product contains no cork and is bhiefly a mineral substance, and claims the right to petition for cancellation under section 13 of the TradeMark Act of February 20, 1905 (15 USCA § 93), for the reason that it is damaged by the alleged misconception brought about by the misdeseriptive character of the term “Rock Cork” as applied to appellee’s thermoinsulating mateiial. •

The Examiner of Interferences dismissed the petition and recommended that appellee’s registration be not canceled, which decision was affirmed by the Commissioner of Patents.

The Examiner of Interferences held that the record showed that from the very beginning it was the intention of the users of the “Rock Cork” trade-mark to inform purchasers of the properties of its material and also of its mineral origin, and that it was not intended to deceive, and that the term “Rock Cork” was not misdeseriptive to the extent that the purchasers of this character of material would be misled into believing that appellee’s merchandise consisted of cork, and, among other things, said:

“ * * * In the new use of such a word, or combination of words, information is imparted concerning one or more characteristics of the article designated thereby. Such for example are the notations ‘Steel Wool/ ‘Dry lee/ ‘Ivory Soap’ and ‘Gold Dust Washing Powder.’ In the last two instances, the marks are used 'to obtain tbe function of indicating origin of tbe goods. Tbe word ‘Ivory’ used on soap informs tbe purchasers of the soap that it has -an appearance somewhat like' Ivory.- Similarly, the use of. the words ‘Gold Dust’ on a washing powder of a golden color, tells purchasers something of this property. The record clearly shows that it was the intention of' the respondent from the very beginning to so use the notation ‘Rock Cork’ as to inform purchasers of some of the properties of the material and also its mineral origin. This is especially shown by the circulars which enables this function to be obtained from the notation ‘Rock Cork.’ * * * The notation ‘Rock Cork’ so used performs a function similar to that performed by the notations ‘Steel Wool’ and ‘Dry Ice.’ ”

The Examiner called attention to the fact that purchasers of “Rock Cork” ordinarily were those who bought for the purpose of building it into other structures, and that they were a discriminating class of purchasers, and, further, that the record, though long, was devoid of a single instance where a purchaser of registrant’s product had been led to believe that it contained cork. The Examiner furthermore pertinently said:

“ * * * Improbable as it may seem, the examiner realizes that there may he here and there an architect who may purchase the respondent’s material and who may assume that it contains cork. It is also theoretically conceivable that here and there a person may exist who assumes that there is cream in cream of tartar; milk in the pharmaceutical substance known as milk of magnesia; that there are edible sponges in sponge cake; that the confection known as Eskimo Pie is pie that is either made by Eskimos or a formula obtained from Eskimos; and that there is soda in soda water. As to such persons, it is believed, however, that it is justifiable to apply the maxim ‘Qui vult deeipi, deeipiatur.’ ”

We agree with the above-quoted views expressed by the Examiner of Interferences and the views, on this phase of the ease, which are well expressed in the decision of the Commissioner, which decision affirmed the decision of the Examiner of Interferences.

The Examiner of Interferences furthermore ruled that there was a distinction between a public and a private right of action in a case of this character and that the petitioner had no. such private right as entitled it to claim that it was damaged within the meaning of the statute. In view of our conclusions hereinafter reached, it is not necessary for us to pass upon the right of appellant to bring such action in event it was*held that the mark “Rock Cork” was deceptive and misleading.

Much testimony was taken by both parties, chiefly of witnesses who were in some way interested in or had been interested in the manufacture, sale, or construction of refrigerating units of some kind. Most of appellant’s witnesses testified that, upon seeing the term “Rock Cork,” they would assume that the material contained cork; a few of them said that they did assume that it contained cork; but no one Of them testified that he had been influenced, in any degree, to purchase appellant’s product on account of his believing that it contained cork.

Appellant seems to proceed upon the theory that genuine cork is a material which, for a very long time, has been better and more favorably known as an insulating material than any other, and that appellee seeks by its alleged misleading trade-mark to palm off on the puhlie, for genuine cork board, a cheaper and less efficient material. The witnesses differ as to which is the best insulating material. Some of the witnesses point out that cork has been proven to be more effective in its nonconducting properties and that the material which some of them style “asbestos cork” or a “mineral wool” product is, for other reasons, less desirable than genuine cork. Some of the testimony is to the effect, however, that appellee’s mineral product is not so subject to decay as is genuine cork, and has other properties which are desirable and which are not present in the genuine cork.

One thing stands out prominently, and that is that the whole picture presented by the record is not a ease of the owner of cheap inferior goods attempting to palm off his goods as the goods of another or of attempting to represent that his goods have qualities which they do not possess. On the contrary, appellee’s business is large and obviously prosperous, and no reason is shown why it should trade upon the good will of others. There is no evidence in the record of any misunderstanding in the minds of those who purchased “Rock Cork” from appellee, and we do not think there is any reasonable likelihood of any such misunderstandings arising in the future.

Appellant has pointed out that the salesmen of Erigidaire which makes use of “Rock Cork” as its insulating material, have misrepresented, either ignorantly or designedly, that the “Rock Cork” used in Frigidaire insulation is, at least in part, composed of genuine cork. While it may he that this is a matter that might have some hearing in some cases, under certain statements of fact, we cannot see how it can be controlling under a statement of facts such as is at bar. See American Washboard Co. v. Saginaw Mfg. Co. (C. C. A.) 103 F. 281, 50 L. R. A. 609.

Appellee’s exhibits diselose that, in advertising its goods, it keeps prominently to the front the fact that its product is a mineral one. Much of its advertising is devoted to putting forth-the rock character of its produet, using such statements as “Originators of Rock Wool Products” and by associating a portion of the corporate name “Banner” and the word “Rock” to produce the word “Ban-rock” and adding the word “Products.” In fact, to us the use of the term “Rock Cork” suggests that the product has the qualities of rook and cork. It may not suggest all 'the properties of either, but does suggest some of the properties of both, and we think it does so without being offensively descriptive or misdeseriptive.

In this view of the case we conclude that appellant has not been nor is it likely to be damaged within the meaning of section 13 of the Trade-Mark Act, supra, and that the decision of the Commissioner of Patents properly affirmed the action of the Examiner in dismissing the petition for cancellation, and 'the decision of the Commissioner is affirmed.

Affirmed.


source: Caselaw Access Project

author: HATFIELD, Associate Judge.

license: Public Domain

text:
    COFFEE v. CREVELING.
    Patent Appeal No. 2733.
    Court, of Customs and Patent Appeals.
    June 1, 1931.
    Paul Ar. Blair and J. Harold Kilcoyne, both of Washington, D. C. (Robert S. Blair and William T. Knieszner, both of New York City, of counsel), for appellant.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   HATFIELD, Associate Judge.

This is an appeal from the decision of the Board of Appeals of the United States Patent Offiee reversing the decision of the Examiner of Interferences awarding priority of invention to appellant.

The invention in issue relates to railway ear lighting systems,' wherein a generator driven from one of the axles of the car is employed to supply the lamps of the ear with electricity and to charge a storage battery which supplies the lamps when the ear is standing or running at a slow rate of speed, and particularly to automatic means for adjusting the voltage regulators in such systems only when they are ineffective, as more fully defined in the counts in issue.

- Count 6 is sufficiently illustrative of the 14 counts involved. It reads:

“6. In a ear lighting system, in combination, an axle-driven- generator, a battery adapted to be charged thereby, an electro responsive regulator to control the generator ip. accordance with the relative normal state of charge of the battery,- and automatic means operative only during regulating ineffectiveness of said regulator to establish the standard of subsequent effectiveness thereof in accordance with the actual capacity for charge of the battery.”

Appellant, Coffee, the senior party, filed his application June 17, 1919.

Appellee, Creveling, filed his application May 24, 1920.

The real issue in the case is whether pat-tent No. 1,419,494, issued to appellee, Creveling, June 13, 192-2, on an application filed May 2, 1916, supports the counts in issue. If it does, it is admitted by counsel for appellant that appellee is entitled to an award of priority.

The Examiner of Interferences held that the means disclosed in the Creveling patent, No. 1,419,494, was so constructed and arranged as to change the adjustment of the voltage regulator when it was either effective or ineffective,, and, as the counts in issue were limited to a means for changing the adjustment of the voltage regulator only when it was ineffective, the - structure disclosed in the patent did not support the involved counts, and, accordingly, awarded priority of invention to appellant.

The Board of Appeals agreed with the holding of the Examiner of Interferences that the Creveling patent, No. 1,419,494, disclosed means for changing the adjustment of the voltage regulator when it was either effective or ineffective. However, the Board, after carefully analysing and describing the structure disclosed in the patent, held that the patent also disclosed means for changing the adjustment of the voltage regulator “only during regulating ineffectiveness of said regulator” ; that the involved counts were readable on the Creveling patent; and that therefore appellee, Creveling, was entitled to an award of priority. In its decision, the Board, among other things, said:

“As to patent Ño. 1,419,494, relied on by Creveling as, disclosing the subject matter of all of the counts, it is apparent that the patent discloses a ear lighting system with a regulator, of the general type forming the subject matter of the issue, and it appears to be agreed that the carbon pile 54 of the patent is an element which can be operated to change the standard of regulation of the regulator. This carbon pile 54 is functionally related to the meter 60 thru gearing 59, 58 and arms 56, 57. The pile 54 is also functionally related to the magnet 61 by armature 62, spring 65 on disc 58 and arms 56, 57. It is contended by Creveling that the magnet 61 and its related parts are operative to change the standard of regulation of the regular, and to change it only while the regulator is ineffective. If this operation be possible with the construction shown, the construction would support all of the counts, as no other respect in which the construction fails to support the counts is urged.
“The examiner of interferences found that the meter 60 affected the standard of operation of the voltage regulator while the voltage regulator is effective, and also found that 54 might be changed, either by meter 60 or by magnet 61 releasing its armature 62, when the voltage regulator was ineffective, therefore concluding, since the standard of operation may be affected either when the voltage regulator is effective or when it is not effective, that the structure disclosed in the Creveling patent 1,419,494, will not support the functional limitations of the counts.
“The party Coffee does not agree entirely with the finding of the examiner of interferences, since the party Coffee argues that the magnet 61 can never affect resistance 54, but it is always the meter 60 itself that affects the resistance 54. The party Creveling admits in his brief that it is quite true that the meter mechanism 60 affects the standard of the voltage regulator by varying the resistance 54 while the regulator is effective, but points out that there may be any number of devices which affect the voltage regulator while the regulator is effective, so long as the system contains one means which shall affect the regulator only while the regulator is ineffective. Clearly resistance 54 is not such means, since 54 can be operated, as pointed out above, while the regulator is effective. Nor can 54 in combination with meter 60 be such means for the same reason. The only possibility of reading the counts on the Creveling patent 1,419,494, is to find such means in the magnet 61 and related parts operating on resistance 54.
“In the decision below it was clearly pointed out how the magnet 61 operating through armature 62, spring 65, disc 58 and levers 56, 57 might alter the resistance 54, and thus the standard of operation of the voltage regulator while the regulator is ineffective. This conclusion was reached notwithstanding the argument of the party Coffee to the effect that the magnet 61 can never affect resistance 54, but it is always the meter 60 itself that affects the resistance 64 [54]. To hold that 61 can have no effect as pointed out in the decision below to change the resistance 54 would be to ignore entirely the function of the element 61, which is dearly brought out in the patent to be to reset the metering mechanism to measure out a full charge to the battery if at any time its voltage fall below a predetermined limit. So long as the battery is connected to the generator, that is when the regulator is effective, there is voltage on magnet 61 which attracts the armature 62. It is only by removal or reduction of this voltage on magnet 61, to a value so low that generator 1 is no longer connected, i. e., voltage regulator ineffective, that magnet 61 is capable of effecting a change in resistance 54 under the circumstances pointed out below. This is quite independent of the fact that with lever 57 in the position shown in the patent drawing the magnet 61 is of course incapable of effecting any change in resistance 54. It is still true that under the circumstances indicated below the magnet 61 can change the resistance 54 and therefore the standard of operation of the voltage regulator while the regulator is ineffective.
“It remains only to note that the means 60, 59, 58, 57, 56, 54, which can change the standard of operation of the voltage regulator either when the regulator is effective or when it is not effective, is not the means 61) 62, 65, 58, 57, 56, 54, which latter means, as indicated below, can also at times change the standard of operation of the voltage regulator, but for reasons fully explained hereinbefore can change it only when the regulator is ineffective. From what has already been said, it follows that all of the counts are readable upon the Creveling patent 1,-419,494.”

The brief of counsel for appellant contains a lengthy and technical discussion of the issues involved, and it is therein vigorously contended that the Board of Appeals erred in holding that the patent to Creveling disclosed means for changing the adjustment of the voltage regulator only when it is ineffective, as required by the counts in issue.

We have carefully considered the briefs of counsel and the decisions of the various tribunals of the Patent Office, and' have reached the conclusion that the Board of Appeals has correctly construed the Creveling patent, No. 1,419,494; that it discloses means for changing the adjustment of the voltage regulator when it is either effective or ineffective, and also means for changing the adjustment when the regulator is ineffective only, as pointed out in the Board’s decision; and that all of the involved counts are readable thereon. This being so, appellee is entitled to an award of priority of invention.

The decision is affirmed.

Affirmed.


author: LENROOT, Associate Judge.

text:
    In re NETH.
    Patent Appeal No. 2757.
    Court of Customs and Patent Appeals.
    June 1, 1931.
    H. A. Toulmin and H..A. Toulmin, Jr., both of Washington, D. C. (James T. Newton, of Washington, D. C., of counsel), for appellant.
    T. A. Hostetler, of Washington, D. C. (Howard S. Miller, of Washington, D. C., of counsel), for the Commissioner of Patents.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   LENROOT, Associate Judge.

This is an appeal from a decision of the Board of Appeals of the United States Patent Office, affirming a decision of the examiner, rejecting claims 1, 2, 3, 4, 5, and 9 of appellant’s application for failure to define patentable invention.

Claims 1, 4, and 9 are illustrative, and read as follows:

“1. In an autographic register having a plurality of sheets with'spaced perforations, means to engage and eject said sheets, means to render said engaging and ejecting means inoperative, reciprocating means mounted independently of said engaging and ejecting means to align said sheets and to move said aligned sheets into final position by the aligning means, whereupon the engaging means re-engages the sheets and the aligning means is withdrawn, and means to withdraw the aligning means.”
“4. In an autographic register having a plurality of sheets with spaced perforations, actuating means, means to eject and engage the plurality of sheets, means to render the engaging and ejecting means temporarily inoperative and to restore said means to operation at a predetermined time, and reciprocating means mounted independently of said engaging and ejecting means to align the sheet and move the sheets in aligned condition to their final position where they are engaged by the clamping and ejecting means, means for actuating said aligning means to move it to a position to be inserted in the paper to move the paper to position to be re-clamped by the engaging and ejecting means, to withdraw the aligning means at that point from the paper, to restore it to its initial position for another aligning and paper moving operation, said means to render the ejecting means inoperative, to actuate the aligning means and to actuate the ejecting means being commonly operated from the actuating means.”
“9. In an autographic register having a plurality of sheets with spaced perforations, means for actuating the sheets, means for rendering the actuating means inoperative during a portion of the cycle of operations, aligning pins located adjacent the actuating means during that portion of the cycle of operations for pushing the aligning pins upwardly into said perforations to align the sheets and after alignment moving said pins forwardly to the final position of the sheets, at whieh time the ejecting means re-engage the sheets and withdraw the pins from the sheets.”

The references cited are:

Sherman, 1,525,664, February 10, 1925.
Sherman, 1,445,108, February 13, 1923.

The invention relates to an autographic register of the type having a reciprocating pin carriage for engaging the file perforations in the sheets, moving the sheets along a short distance after the main feeding operation by the ejecting rolls, and aligning the sheets during such auxiliary feeding operation whieh brings the sheets into proper position. During the aligning operation the rolls are spread apart by curved arms, the end portions of whieh are positioned beneath the upper roll and the lower portions of whieh ride on cams on a shaft.

With regard to claims 1 to 3, inclusive, the board in its decision said: “Claims 1 to 3, inclusive, are deemed unpatentable over Sherman, No. 1,525,664. The means to engage and eject the sheets is rendered inoperative by the provision of the spaces between the ends of the segments 43, 46 and' also the disks 42 for holding the upper roll from downward movement. The claims are broadly drawn and do not attempt to differentiate from the reference by statements of specifically different structures but rely on the broad definitions of the structures as means qualified by' statements of function. The stated functions are performed by the patented machine and it is believed that the structure disclosed in said machine fairly responds to the broad definitions of structure included in these claims.”

Appellant’s counsel earnestly contends that said Sherman patent' does not have the element recited in said claims of “means to render said engaging and ejecting means inoperative.” This contention is based upon the argument made by him that “the absence of a portion of the periphery of Sherman’s segment is not the equivalent of appellant’s positive means” (the arms and cams for acting on the roller 16 shown in appellant’s drawings) to render the ejecting means inoperative.

Upon this point we agree with the solicitor for the Patent Office, who contends that the function of ceasing to feed is in the Sherman device, by reason of the shape of the segmental feed discs, and that it is obvious that the element or means for performing the function exists positively and not negatively. For this reason, we do not consider the case of Ex parte Davin, 100 0. G. 452,' applicable, whieh held that a mere opening, being an intangible thing, should not be included as an element by itself.

We find no error in« the decision of the board as to said claims 1 to 3, inclusive.

As to claim 4, we agree with the board’s conclusion that it contains nothing patentable over the Sherman patent, No. 1,525,664, in view of the Sherman patent, No. 1,455,-108.

Claim 5 contains, in addition to the elements in claim 4, the following: “ * * * and independent means to render the ejecting and clamping means temporarily inoperative to permit of independent adjustment of the sheets.”

With regard to claim 5, error is assigned that the board rejected it without citing any reference to meet it. The decision of the board affirmed that of the examiner as to claim 5, and the examiner, with regard to claims 4, 5, and 6, said: “ * * * Claims 4, 5 and 6 contain certain limitations with respect to the roller separating device which distinguished them from the reference, and •as above indicated, were rejected on the ground that no invention is involved in substituting in the principal reference any other roller separating device than that originally shown. This substitution involves no new function in the present ease, and if the corresponding limitations of the claims render them patentable, patents may be multiplied indefinitely by the expedient of providing other roller separating means and contrasting the claims to same from Sherman merely by limitations relative thereto.”

The solicitor for the patent office, in his brief, points out that the Sherman patent, No. 1,445,108, provides, for the purpose of raising the tension roll by hand, a cam pivoted to the side of the easing, which cam is adapted to be pressed upwardly by a pin carried on a lever, which pin extends out far enough to be grasped in the fingers, and we agree with the examiner .that no invention is involved in the last element of claim 5 for the reason that it required no inventive skill to use the feature above described with the device of the other Sherman patent, No. 1,525,664.

We have carefully examined claim 9', and we agree- with the board’s conclusion that said claim contains nothing patentable over Sherman’s patent, No. 1,525,664.

Before an appeal was taken from the decision of the examiner to the Board of Appeals, and after a final rejection, appellant submitted to the Commissioner of Patents proposed claims, to be numbered 11 to 16, for purposes of appeal. The examiner refused to admit the claims and the commissioner denied appellant’s petition to enter said claims. Appellant asks us to consider these proposed claims. In the reasons for appeal, no error was assigned with respect to the refusal to enter said claims, and they cannot be considered by us. In re Smith, 36 F. (2d) 522, 17 C. C. P. A. 752.

The decision -of the Board of Appeals is affirmed.

Affirmed.


author: BLAND, Associate Judge.

text:
    FARMER v. PRITCHARD.
    Patent Appeal No. 2718.
    Court of Customs and Patent Appeals.
    June 1, 1931.
    Otto P. Barthel, of Detroit, Mich., for appellant.
    William H. Gross, of Boston, Mass. (Whittemore, Hulbert, Whittemore & Belknap, of Detroit, Mich., of counsel), for appellee.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   BLAND, Associate Judge.

This is an interference ease in which Parmer appeals from the decision of the Board of Appeals of the United States Patent Office, affirming the decision of the examiner of interferences, awarding priority of invention to appellee, Pritchard.

The subject-matter of the interference is a measuring valve for lubricating systems to be used on automobiles, printing presses, etc. The valve is designed for use in “one-shot” systems and is so constructed as to permit a definite measured quantity of oil' to pass through the valve to the bearing to be lubricated every time the pressure in the lubricating system is raised by any actuating device.

The appeal involves fourteen counts, of which count 1 is regarded as illustrative and follows: “I. The combination with a part to be lubricated and a source of lubricant supply, of a valve including a normally closed lubricant measuring chamber, means operable by the lubricant pressure to open said chamber to the source of lubricant supply, and further operable to close said opening and other means operable by the lubricant pressure to open communication between said chamber and the part to be lubricated.”

Pritchard filed his application on October 5, 1925, and Parmer filed the application involved in this interference on February 12, 1926.

Both parties took testimony which shows, that Parmer, in the spring of 1925, brought to the Motor Products Company, where Pritchard was employed as an engineer, an idea for a lubricating system, together with a drawing or drawings of a valve which represented, substantially, the same valve as was later constructed and called valve No. 1, which valve No. 1 Is shown in the drawing known as Parmer’s Exhibit 9: Parmer went to the Motor Products Company for the purpose of selling or leasing his device. The Motor Produets Company took an option for ninety days and paid Parmer the sum of $1,200 for the same. The purpose of the option was to afford opportunity to build and test out the Parmer device. No valves had been built by Parmer up to the time fie went to work with Pritchard.

Parmer, during the period of the option, on June 16, 1925, filed an application for a patent which disclosed the structure of valve No. 1. During the ninety-day period, experiments had been made with the Farmer valve and between seventy-five and one hundred of the same had been built. The testimony differs as to whether the valve was operable, Farmer claiming that there were a number of the valves built that would operate and some that would not. Pritchard claims that none of the valves would operate.

At any rate, other valves were made and tested with the result that valves (2, 2a) similar to those in Pritchard’s application were produced. After leaving the Motor Products Company, Farmer constructed valve No. 3, which is the basis of his present application. It is admitted that valves Nos. 2, 2a, and 3 are similar, and it is also admitted that they are operable.

In Farmer’s second application, no; mention is made of his first application or of the structure disclosed therein.

It is contended here by Farmer that the counts in interference read on his original No. 1 valve and that he, therefore, is the inventor. He also contends that whatever improvements were made upon same, which resulted in later built valves, were his, and if these improvements amount to an invention, that he was the inventor.

The Board of Appeals in its decision refers to the fact that in that tribunal Farmer admitted “that the counts will not read on the valve of his prior application but he contends that this is because of 'some useless limitations and functional clauses’ in the counts.”

The counts in controversy here, which are taken from Pritchard’s application, are quite broad in scope, and we have entertained some doubt as to whether or not they read upon the structure of valve No. 1. However, Farmer’s Exhibit 9, which is the drawing of the original Fanner valve, and the drawings in the applications herein involved, show that the structures differ very materially in form, and, we think, in the principle of their operation. At any rate, it- is not clear to us that the concurring tribunals erred in holding that the counts involved did not read on valve No. 1.

The fact that Farmer filed a new appli- , cation for a patent, embodying the new subject-matter of valve No.’ 3,; without in any manner connecting up the first patent application, would seem to indicate that Farmer, himself, regarded the two structures as being different inventions. If they were not, no reason has been pointed out to us why Farmer should not have made his first invention the basis of his Patent Office activities.

In this court Farmer points out that the application of Pritchard was filed before the expiration of the option contract and without his knowledge, and that the purchasing or leasing of his device was later refused by the Motor Products Company, and that all his papers and valves were turned over to him by the Motor Products Company without denying that he was the inventor; that the signing of the contract was postponed-from day to day, without any denial that the invention was Farmer’s, until he made no further effort to get it signed, and that he then went about trying to sell the latest developed valve and later manufactured the same; that the evidence as a whole shows that Pritchard’s concern acted in bad faith with him in taking his idea, permitting him to assist in testing and perfecting the valves and then appropriating to its own use the result of such perfections as were added to Farmer’s device.

Regardless of what our conclusions might be as to whether or not there was any bad faith on the part of Pritchard or his company, although it may be an important matter for consideration in weighing evidence and determining the credibility of witnesses, it is sufficient to say that a showing of bad faith cannot supply the necessity for proof of invention. One having an invention to sell, and who proceeds as Farmer did, necessarily runs the risk of meeting with bad faith and later being handicapped in proving the actual facts, owing to the interest of the witnesses.

After eliminating valve No. 1 from consideration, the only question in the case is: Who was the inventor of the valve which is the subject-matter of this interference? Farmer claims he invented it, while Pritchard claims that it was his invention. Three of the Motor Products Company’s employees state that in the shop it was known as Pritchard’s valve, and that Farmer himself had called it “Bill’s valve.” They also state that Pritchard first disclosed to them the new valve. Muncy, an engineer employed by the Studebaker Corporation, to whom Pritchard and Farmer talked about the valve, said he understood the later valve was Farmer’s invention, but gives no reason for his understanding, except-' that he never heard Pritchard claim that it was his. ■

The board summarized the evidence and held that the new valve was the invention of Pritchard; that the case was one of originality; that the relation of employer and employee did not exist; that Pritchard was entitled to priority; and affirmed the decision of the examiner of interferences.

It has not been made clear to us that the concurring findings of the tribunals below are erroneous, and the decision of the Board of Appeals, awarding priority of invention to Pritchard, is affirmed.

Affirmed.


author: LENROOT, Associate Judge. BLAND, Associate Judge

text:
    SPICER v. W. H. BULL MEDICINE CO.
    Patent Appeal No. 2741.
    Court of Customs and Patent Appeals.
    May 25, 1931.
    Joseph W. Milbum, of Washington, D. C. (John A. Griesbauer, of Washington, D. C., of counsel), for appellant.
    John D. Rippe-y and Laurence C. Kings-land, both of St. Louis, Mo., for appellee.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   LENROOT, Associate Judge.

This is an appeal from a decision of the Commissioner of Patents of the United States Patent Office, affirming a decision of the Ex- - aminer of Interferences, sustaining the petition of appellee for the cancellation of registration No. 207,451, issued to appellant on January 5, 1926, and holding that said registration should be cancelled.

Appellant’s registration is for a mark consisting of the notation “Spicer’s Nux Herbs and Iron,” the name “Spicer’s” appearing as a facsimile signature, and the words “and Iron” appearing under the words “Nux Herbs.” Included in the description of the mark is the following: “* * * No claim being made to the name ‘Spicer’s’ or the words ‘Nux,’ ‘Herbs,’ and ‘Iron,’ exeept in the manner shown. * * * ”

It is stated in the application that the mark is applied to “liquid medicine in the form of a general tonic and laxative,” and has been so applied since December 19, 1917.

Appellee’s petition for cancellation is based upon the alleged use by it and its predecessor in business, since prior to 1879, of a composite mark containing the words “Herbs and Iron,” as applied to a medicinal preparation. Appellee alleges that said words constitute a predominant and distinguishing feature of said mark. Registration of this mark is also alleged, the registration being No. 80,703. It is further alleged that the descriptive significance, if any, of the words “Herbs and Iron” became lost, due to long use by appellee, whereby a secondary meaning arose indicating origin of the goods to which the mark is applied in appellee.

Appellant’s answer to the petition for cancellation denies all of its allegations except as to the issuance of said registration No 80,703, and as to said registration denies that it was duly registered, and alleges that it is invalid and ineffective in so far as it may purport to be a registration of the words “Herbs and Iron” alone.

Both parties took testimony.

It appears that said registration No. 80,-703 was granted to appellee on January 24, 1911, under the ten-year clause of the TradeMark Act of February 20,1905 (15 USCA § 85). The mark, as shown in said registration, consists of the words “W. H. Bull’s” at the top, beneath which are the words “Herbs and,” and between these words and the word “Iron” is a faneifül picture containing many features:

The goods to which the respective marks are applied are clearly of the same descriptive properties and are so conceded to be by the parties.

The tribunals of the Patent Office concurred in holding that the words “Herbs and Iron” are descriptive in a primary sense, but that, since appellee’s registration was granted under the ten-year clause of section 5 of said Trade-Mark Act (15 USCA § 85), its mark must be given the effect, both for the purpose of registration and in determining the. question of the likelihood of confusion, of a valid trade-mark. The Commissioner expressly found that appellee’s registration was duly made and was valid, and held that the two marks were confusingly similar, thus affirming the decision of the Examiner of Interferences.

It is apparent from the decision of the Commissioner that he regarded the words “Herbs and Iron” as the essential feature of appellee’s mark, and for that reason held that the marks were confusingly similar.

We think the Commissioner erred in holding that the words “Herbs and Iron” are the essential or dominant feature of appellee’s mark. In appellee’s application, upon which the registration was issued, it is stated that it adopted the mark “for a medicinal preparation made from herbs and iron.” We think it apparent that these words were used in the mark solely to describe t‘he goods, and that the essential and dominant features of the mark were the name “W. H. Bull’s” and the pictorial representation. We may say, in passing, that the words “Trade Mark” are found in the oval containing the picture and above the word “Iron.”

The testimony shows that appellee manufactures a number of medicines in addition to “W. H. Bull’s Herbs and Iron,” among them “Bull’s Liver Pills” and “Bull’s Oil Liniment.” If the contention of appellee is well founded, as held by the tribunals of the Patent Office, if appellee could establish ten years’ exclusive use of “Bull’s Liver Pills” and “Bull’s Oil Liniment” prior to February 20, 1905, it could Secure a monopoly of the words “Liver Pills” as a mark for medicine in pill form for liver diseases, and of the words “Oil Liniment” for any liniment containing oil.

We have carefully examined the voluminous testimony in the ease, and it is clearly established that appellee never made a trademark use of the words “Herbs and Iron,” standing alone, but its trade-mark use was always the words “W. H. Bull’s Herbs and Iron,” either with or without the pictorial representation.

Furthermore, we think the evidence clearly shows that purchasers did not rely upon the words “Herbs and Iron” as indicating origin of the goods. The testimony fairly establishes that retail customers ordinarily called for either “Bull’s Herbs and Iron” or “Spicer’s Nux Herbs and Iron.” The testimony shows that appellee’s representative went to a number of drug stores and called for “Herbs and Iron.” In some instances he Avas sold “Spicer’s Nux Herbs and Iron,” in others he was asked if he wanted “Spicer’s Herbs and Iron,” and in one instance he was asked whether he desired “Spicer’s” or “Bull’s” Herbs and Iron. It is the contention of appellee that this testimony shows confusion, and that, because there was a greater profit to the druggist in selling “Spic-er’s Nux Herbs and Iron” than in selling “W. H. Bull’s Herbs and Iron,” druggists would palm off appellant’s goods for those of appellee. We think, hoAvever, that this does not constitute any proof of palming off or of deception. When a customer asked for a medicine as “Herbs and Iron,” the druggist would understand him to make the inquiry in a descriptive sense, and the natural inquiry, where the druggist handled more than one such preparation, would he whether the customer desired “Bull’s” or “Spicer’s” or some ’other preparation of herbs and iron, of which there were a number on the market when the testimony herein was taken.

We are of the opinion that appellee’s mark must be considered as a whole, and, so regarding it, there is no confusing similarity between it and the mark of appellant, and that the Commissioner of Patents erred in this respect.

Appellee further contends that, regardless of any statutory right it may have by virtue of its registration, the testimony shows that it has established a secondary meaning of the words “Herbs and Iron” entitling it to the exclusive use of those words, and that appellant has not the right to use them in a descriptive sense or otherwise.

It should be noted that appellant claims no exclusive right to the words “Herbs and Iron” apart from its mark, and has expressly disclaimed such words in its application.

It is clear that appellant uses the words “Herbs and Iron” in their primary and not in any secondary sense, and that, whether or not appellee has established a secondary meaning of said words, appellant can not be deprived of their use in a primary sense, provided he uses them in a way that is not deceptive to the public.

The Commissioner, in his decision, quoted at length from the opinion in the ease of Thaddeus Davids Co. v. Davids, 233 U. S. 461, 34 S. Ct. 648, 651, 58 L. Ed. 1046, to the point that a registration under said ten-year elause is a valid trade-mark, which point we do not controvert. That ease involved the registration under said ten-year elause by Thaddeus Davids Company of the name “Davids” used upon ink. The defendants used the name “C. I. Davids” in a similar manner upon the same kind of goods.

The court there did not hold that such registration of the word “Davids” under said ten-year clause gave the complainant the exclusive right to that word. The court said:

“ * * * It is not to be supposed that Congress intended to prevent one from using his own name in trade, or from making appropriate reference to the town or city in which his place of business is located; and we do not find it necessary to consider the question of the validity of such an attempt if one were made. Congress has admitted to registration the names or terms belonging to the class under consideration simply because of their prior use as trademarks, although they had not been such in law. Their exclusive use as trademarks for the stated period was deemed, in the judgment of Congress, asuffieient assurance that they had acquired a secondary meaning as the designation of the origin or ownership of the merchandise to which they were affixed. And it was manifestly in this limited character only that they received statutory recognition, and, on registration, became entitled to protection under the act.
“In the ease, therefore, of marks consisting of names or terms having a double significance, and being susceptible' of legitimate uses with respect to their primary sense, the reproduction, copy, or imitation which constitutes infringement must be such as is calculated to mislead th:e public with respect to the origin or ownership of the goods, and thus to invade the right of the registrant to the use of the name or term as a designation of Ms merchandise. * * * ”

In this case, the court did not prevent the defendant from using the word “Davids” as applied to ink, but enjoined it from so using the name as to simulate complainant’s mark.

We think it is well established by the above and other cases that¡ even where a secondary meaning of a word is established, others have the right to use such word in its primary sense, provided it is so used as not to lead the public to believe that it is purchasing the goods of one who has established such secondary meaning.

In the ease of Elgin National Watch Co. v. Illinois Watch Case Co., 179 U. S. 665, 21 S. Ct. 270, 275, 45 L. Ed. 365, the court, after reviewing a number of cases upon the subject of secondary meaning of a descriptive mark, said:

“These and like cases do not sustain the proposition that words wMeh in their primary signification give notice of a general fact, and may be used for that purpose by every one, can lawfully be withdrawn from common use in that sense; but they illustrate the adequacy of the protection from imposition and fraud in respect of a secondary signification afforded by the courts.
“In the instance of a lawfully registered trade-mark, the fact of its use by another creates a cause of action. In the instance of the use in bad faith of a sign not in itself susceptible of being a valid trademark, but so employed as to have acquired a secondary meaning, the whole matter lies in pais.”

The ease of Kellogg Toasted Corn Flake Co. v. Quaker Oats Co., 235 F. 657, decided by the United States Circuit Court of Appeals, Sixth Circuit, is similar in many respects to the case at bar. It involved the right of the Kellogg Company to the exclusive use of the words “Toasted Com Flakes.” There, as here, the descriptive words alone had never been used as a trade-mark, and the court held that the word “Kellogg’s” could not be dissociated from the words “Toasted Corn Flakes,” and a meaning given to said words which had never been relied'upon by .the Kellogg Company. The law as to secondary meaning of marks was also fully discussed, and it was held that, where a manufacturer establishes in a descriptive word a secondary meaning, as indicating his goods, he is entitled as against another to only such protection as will prevent such othér from using that term to pass off his goods as those of the original appropriator.

The case of Maatschappij Tot Exploitatie Van Rademaker’s Koninklijke Cacao & Chocoladefadrieken v. Kosloff et al., 45 F.(2d) 94, 96, 6 U. S. Pat. Quart. 133, decided by the United States Circuit Court of Appeals, Second Circuit, involved the marks “Rademaker’s Hopjes” and “Frank Rademaker’s Hopjes,” “hopjes” being the Dutch word for a species of candy. Plaintiff had registered under the ten-year clause of said Trade-Mark Act of February 20, 1905, the words “Rademaker’s Hopjes,” which registration was sustained by this court in the case of Maatschappij, etc., v. Rademaker, 41 F.(2d) 406, 17 C. C. P. A. 1260. The Circuit Court of Appeals expressly concurred with said conclusion of this court, and further held that a secondary meaning had been established of the words “Rademaker’s Hopjes.” The court said: “Clearly plaintiff had and has no exclusive right to the Dutch word ‘Hopjes.’ It has not used that word alone, to indicate the origin of a speeies of candy; it has always coupled it with ‘Rademaker.’ ”

It further held that Frank Rademaker, for whom the defendant was the agent, had the right to call his product “Frank Rademaker’s Hopjes,” provided, in so doing, he made it clear that they were his own and not plaintiff’s product.

It is unnecessary to cite further authority upon this point.

Appellant’s use of the words “Herbs and Iron” is in their primary sense. The reeord clearly shows that it relies upon the word “Spicer’s” to indicate origin of its goods and not the words “Herbs and Iron,” and that in its advertising and labels it emphasizes the word “Spicer’s.”

Therefore, while we do not believe that the evidence establishes a secondary meaning of the words “Herbs and Iron” as indicating origin of appellee’s product, even were it otherwise, appellant is using the words in their primary and not their secondary sense, in a proper way. We may say, in passing, that much of appellee’s testimony as to a secondary meaning of the words “Herbs and Iron” is to the effect that customers often ordered from appellee its product under the words “Herbs and Iron.” We do not think such testimony tends to establish a secondary meaning, because, when orders were given to appellee for “Herbs and Iron,” it was naturally understood that “W. H. Bull’s Herbs and Iron” was meant.

In view of the conclusion we have reached, it is unnecessary to consider the contention by appellant that appellee’s registration is invalid, or whether such question could properly be considered by us in this proceeding. We hold that the petition of appellee should be dismissed.

The decision of the Commissioner of Patents is reversed.

Reversed.

BLAND, Associate Judge

(specially concurring).

I agree with the conclusion of the majority that confusion is not likely to result between the trade-mark “W. H. Bull’s Herbs and Iron,” associated with an elaborate pictorial representation and appellant’s registration “Spicer’s Nux Herbs and Iron,” the word “Spicer’s” appearing as a facsimile signature.

I am not'convinced that the phrase “Herbs and Iron” is not the “dominant feature” of appellant’s mark, and, in my view, this consideration is not important to the decision of the ease.

Although appellee registered, under the ten-year clause, its mark containing the words “Herbs and Iron,” and although the term is presumed to have acquired a secondary meaning, it is not the exclusive property of the registrant to the extent that registrant can prevent any one else from using the term if the other, in using same, so uses it as to avoid confusion of origin. Thaddeus Davids Co. v. Davids, 233 U. S. 461, 34 S. Ct. 648, 58 L. Ed. 1046.

Irrespective of which is the dominating part of appellee’s mark, appellant, under the circumstances of this case, has no right to use this part of appellee’s valid trade-mark, which is presumed to acquire a secondary meaning, without including in its mark other matters which are sufficient, to make confusion in origin improbable. This, I think, appellant has done, and I therefore specially concur in the result.


author: GRAHAM, Presiding Judge.

text:
    BRAREN v. HORNER.
    Patent Appeal No. 2600.
    Court of Customs and Patent Appeals,
    May 27, 1931.
    For former opinion, see 47 F. (2d) 358.
    Edward H. Cumpston, of Rochester, 1ST. Y., for appellant.
    Allen E. Peek, of Washington, D. C., for appellee.
    Before GRAHAM, Presiding Judge, and BLAND, HATFIELD, GARRETT, and LENROOT, Associate Judges.
   GRAHAM, Presiding Judge.

A petition for rehearing has been filed herein, and the same is hereby denied. There seems to be no reason for a change in the views expressed by us in our opinion filed in this ease on February 25, 1931. 47 F.(2d) 358.

It is argued that the court failed to pass upon this question: The Board of Appeals held that Braren was estopped from claiming that the invention in issue was a new and improved drive, because he did not seek, under Rule 109 of the Patent Office, to add counts covering such broader claim. What we said in our original opinion, on the general merits of the claims, we believe disposed of this question. Certainly Braren did nothing in this particular which ought to close his mouth from seeking a proper legal construction of the counts in the interference. Estoppels, not ordinarily favored, do not arise in this way.

The court was advised, on. the argument of this ease, that the reference patents contained in the record, were cited on the original Braren application. It now appears, by the agreed statements of counsel, that they were cited upon the Homer application.

Our attention is called by the petitioner to our holding that Horner should have appealed and assigned error if he intended to ask for a finding of an earlier date of conception than that awarded him by the Patent Office tribunals. As to this, it is contended that, the decision below being favorable to Homer on all the counts, he had no right of appeal. On more mature consideration, we are of the opinion the point is well taken, and that the whole field of priority of conception, on this record, is now before us. Therefore our former opinion is hereby modified in this respect. In this connection, the following authorities are thought to be in point: Guarantee Company, etc. v. Phenix Ins. Co. (C. C. C.) 124 F. 170; Rogers v. Penobscot Mining Co. (C. C. A.) 154 F. 606; Smart v. Wright (C. C. A.) 227 F. 84; Millward v. Vulcan Furnace, etc. (C. C. A.) 26 F.(2d) 78.

In view of this holding, we have re-examined the record, and are convinced that the tribunals of the Patent Office did not err in holding Homer to be entitled to no earlier date than February, 1923, for a reduction to practice. We agree with the Examiner of Interferences in his statement that the testimony of Homer’s witnesses "Gustafson, Henkes, and Falkenrath is too slight and indefinite to amount to proof of conception.” The shipment of the completed machine to the Sehoder & Lombard Company is the first definite proof the record contains as to reduction to practice.

A petition for writ of certiorari, suggesting a diminution of the record, was filed by appellee in this cause. The writ was issued, and.a supplemental record, consisting of twenty-one printed pages, was filed herein. Part of the matter contained in this supplemental record is fairly essential to a consideration of the ease, and a portion of it is - not. Accordingly, the costs occasioned thereby will be taxed one-half to the appellant and one-half to the appellee.

Petition denied.


author: HICKS, Circuit Judge..

text:
    PORTAGE SILICA CO. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 5536.
    Circuit Court of Appeals, Sixth Circuit.
    Jan. 9, 1931.
    Rehearing Denied June 30, 1931.
    W. J. Dawley, of Cleveland, Ohio (Prank H. Pelton and Olive Payne Deering, both of Cleveland, Ohio, on the brief), for petitioner.
    John Y. Groner, of Washington, D. C. (G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, C. M. Charest, and Percy S. Crewe, all of Washington, D. C., on the brief), for respondent.
    Before DENISON, HICKS, and HICKENLOOPER, Circuit Judges.
   HICKS, Circuit Judge..

Petitioner, Portage Silica Company, seeks a review of an order of redetermination entered by the Board of Tax Appeals sustaining a deficiency assessment in the sum of $7,974.76 of income and profit taxes for the year 1918. Petitioner has been engaged in the excavation and sale of sand and gravel since 1908. In 1908 and 1909 it acquired real properties at a cost of $40,892.87. Certain of these properties containing conglomerate consisting of sand and gravel were acquired at the cost of $31,740.87. Originally petitioner intended that its output be used in making concrete. This project proved unprofitable, but after experimentation it was developed that petitioner’s sand had superior qualities for sand-blasting and steel-molding uses'. To successfully prepare and market its sand for these purposes, it was necessary to either remodel the old plant or to construct a new one. A plan for a new plant failed for lack of necessary capital. The old one as remodeled and electrified in 1911 and 1912 had a maximum capacity of 300,000 tons annually on the basis of day and night operation. At that- time petitioner owed $305,395.64. For the year 1912 petitioner had one contract for a maximum of 30,000 tons of molding sand at 65 cents a ton f. o. b., only 23,000 tons of which were called for. In November, 1912, petitioner- contracted to supply the same customer with 30,000 tons for the year 1913 at $1 per ton f. o. b., only 15,000 tons of which were delivered; During 1912 petitioner supplied a few other customers but refused to accept several contracts for lack of facilities to produce and deliver. In addition to the demand for its product, petitioner enjoyed a favorable location, good mining conditions, cheap transportation, and fair prospects. Such was the general situation beginning with the year 1913.

In its income and profit tax return for 1918 petitioner took deduction to the amount of $39,931.50 for depletion of 156,126 tons at 25 cents per ton. This was disapproved by the Commissioner and depletion was allowed upon the same tonnage at 5 cents per ton or $7,806.25. This readjustment gave rise to the additional taxes complained of. The assessment was prima facie right and the burden was upon petitioner to show before the board that it was wrong. U. S. v. Anderson, 269 U. S. 422, 443, 46 S. Ct. 131, 70 L. Ed. 347; Wickwire v. Reinecke, 275 U. S. 101, 105, 48 S. Ct. 43, 72 L. Ed. 184; Austin v. Comm’r, 35 F.(2d) 910, 912 (C. C. A. 6). As a basis .it became necessary for petitioner to establish the fair market value of its silica deposits as of March 1, 1913. Revenue Act 1918, e. 18, § 234(a)(9), 40 Stat. 1057, 1078; Reinecke v. Spalding, 280 U. S. 227, 229, 50 S. Ct. 96, 74 L. Ed. 385; Merle-Smith v. Comm’r, 42 F.(2d) 837, 842 (C. C. A. 2). To this end it relied upon the “present valué method” set out in article 206, cl. (b) et seq., Tr. Reg. 45, under section 234(a), supra, aided by Hoskold’s Tables. Yital factors among others were:

(1) The total ton units of the recoverable conglomerate; (2) the estimated average annual output from March 1, 1913; (3) the useful life of the deposits...from the same date; (4) the net profit for the entire period, that is, the selling price less the cost of placing the sand upon the market; and (5) the hazard.

The compact and well-defined form of the deposits and a thin overburden served to make the mining hazard almost negligible. There were admittedly 6,000,000 tons of the conglomerate. For the remaining factors petitioner relies principally upon, an analysis found in the brief based largely upon the testimony of its vice president and general manager. This analysis sets up the estimated average annual production át 300,000 tons, the life of the deposit at 20 years, and the estimated average net annual income based upon 1912 operations at 66 cents per ton, or $198,000 or básed upon the sale price of $1.20 per ton at 76 cents per ton, or $228,-000.

By the aid of Hoskold’s formula applied to the first estimate, petitioner arrives at a present worth of $2,115,796, and upon the second estimate at a present worth of $2,-436,371, and upon said present worth estimates fixes a depletion rate at 32 cents and 36 cents, respectively. The striking differences in these estimates create a doubt as to the evidential value of either. It is noted that in the application of the Hoskold formula counsel used 6 per cent, and 4 per cent., which is permissible in the silica industry but C. S. Gilbert, petitioner’s expert witness, testified that in the use of the formula he would use 8 per cent, and 4 per cent., which even for a 20-year period, would materially reduce the present value claimed for petitioner. It is also noted that the witness Gilbert furnished the Board with no estimate of present value.

But petitioner is confronted with a more serious obstacle. The-record embraces a valuation schedule filed by petitioner with the Bureau on October 11, 1920. This schedule was sworn to by both its vice president and secretary. It appears therein that the estimated average annual production as of March 1, 1913, was only 115,000 tons; that the estimated life was 30 years; that the profit J>er ton for 1912 was $.087 or $8,716.-70; and-that the value of the deposits was $400 per acre, or $120,000. This schedule under a separate heading values the conglomerate in place at 27 cents per ton as of March 1, 1913, or at $1,620,000. Petitioner insists that this high per-ton valuation should have been accepted because the valuation per acre was simply an error. There was, of course, a wide discrepancy in the two valuations, but the valuation per acre was so particularized in the schedule as to lessen the probability of a mistake therein. The chance of a mistake is also discounted by the appearance twice in the schedule of a valuation of $250,000 assigned to the entire property of petitioner, including its equipment. But the Commissioner was not compelled to adopt either the per-ton or the per-acre valuation in the schedule. His duty was to determine for himself a value upon which a willing seller and a willing buyer would have agreed after a fair consideration of any and all relevant factors. Reg. 45, art. 206, supra. He was confronted with a practical question and theories were only helpful as theories. It was his ultimate duty to determine a reasonable allowance for depreciation, i. e., such an amount as if allowed annually as the sand was sold would enable petitioner when the deposits were exhausted to have recovered the March 1, 1913, value free of taxes. Obviously this could not be arrived at to a mathematical certainty. See Hitchcock v. Comm’r (C. C. A.) 44 F.(2d) 756, decided November 5, 1936. It was a matter for sound judgment (see Williamsport Co. v. U. S., 277 U. S., 551, 562, 48 S. Ct. 587, 72 L. Ed. 985), and to his task the Commissioner is presumed to. have brought the technical skill and knowledge of trained assistants.

The Board concluded that the failure of petitioner to erect a new plant in 1912 for lack of finances was inconsistent with its claim of 1913 value; that the anticipated output of 300,009 tons annually was not justified by the orders in hand or by the prospect for business; that there was no reasonable, expectation that petitioner would he required by day and night shifts to produce 300,000 tons annually; and that the estimated annual profit of 76 cents per ton based upon 1912 operations, the cost of which was in turn largely based upon the estimated cost of labor for one particular day, was not altogether reliable in view of the, $.087 profit per ton, exclusive of depletion, reported in the aforementioned schedule for the years 1912 et seq. We cannot say that the Board was unjustified. In addition,- we think it might have properly concluded that a rise in values from $31,740.87 in 1909 to over $2,000,000 in 1913 was fanciful rather than real and based upon hope rather than upon favorable prospects. The Board no doubt gave due weight 'to the report of October 11, 1920, as to annual production and life of the property both of which factors materially affect the 1913 value and the depletion rate. The Commissioner’s expert witness, Madison, fixed the March 1, 1913, value at $300,000, the annual output at 200,000 tons, and the approximate life of the property at 30 years. This evidence, although not specifically objected to before the Board, is challenged upon the ground that Madison considered developments subsequent to March 1, 1913, in violation of Reg. 45, art. 206, supra. This is a fault difficult to avoid and was indulged in to some extent by both parties. As an illustration, petitioner’s estimated profit of 76 cents per ton was based not altogether upon the sale price per ton in 1913 but upon $1.20 the March sale price for the years 1913 to 1917, inclusive. But assuming the justice of this criticism it does not appear . that Madison’s conclusions were ever considered by the Commissioner. The record indicates that the Commissioner had assembled his data before May 20, 1924, and that no examination of the property or other investigation was made by Madison until O'ctober 3, 1924. His testimony was given in rebuttal, and we think that such portions of it as • dealt with developments subsequent to March 1, 1913, were,competent, at least, for whatever value they might have had in determining the soundness of petitioner’s presumption. See Dwight & Lloyd Sintering Co., 1 B. T. A. 179; 185. The opinion of the Board. of Tax Appeals indicates that this was the purpose for which it was admitted.

A further detailed discussion of the evidence introduced before the Board will serve no worth while purpose. The record in some of its aspects is somewhat confusing, but we have made a careful examination of it and find no sufficient reason for rejecting the allowance made by the Commissioner or disagreeing with the findings of the Board. Its decision is therefore affirmed.


author: LEWIS, Circuit Judge. COTTERAL, Circuit Judge

text:
    STEWART et al. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 231.
    Circuit Court of Appeals, Tenth Circuit.
    May 18, 1931.

      COTTERAL, Circuit Judge, dissenting.
    O. L. O’Brien, of Independence, Kan. (W. N. Banks, of Independence, Kan., Walter F. Mehrlieh, of Washington, D. C., Banks, O’Brien & MeVey, of Independence, Kan., and Hopkins,* Starr & Hopkins, of Chicago, HI., on the brief), for petitioners.
    Á. H. Conner, Sp-. Asst, to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., and C. H. Charest, Gen. Counsel, Bureau of Internal Revenue, and De Witt M. Evans, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.
    Before LEWIS and COTTERAL, Circuit Judges, and POLLOCK, District Judge.
   LEWIS, Circuit Judge.

A. W. Shulthis of Independence, Kansas, died December 29, 1923, leaving a large estate. For the purpose of ascertaining the federal estate tax, his administrators filed with the collector March 12, 1924, the required statement showing the value of the gross estate and the deductions therefrom. The value of certain municipal bonds then held by the Citizens’-First National Bank of Independence, Kansas, was included in the gross estate, and an amount necessary to he paid by Shulthis to the bank to recover those bonds was deducted from the gross estate, the latter amount being in excess of the fair market value of said bonds in the sum of approximately $189,000.00. The Commissioner struck out both items which resulted in his order of a deficiency in the tax to the amount of approximately $23,000.00. The Board of Tax Appeals sustained the action of the Commissioner, and the administrators come here with a petition to review the action of the Board.

Section 402 of the Revenue Act of November 23,1921 (42 Stat. 227, 278), provides-that value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property of every kind to the extent of the interest of the decedent therein, and the following section provides for deducting from the value of the gross estate certain items for the purpose of ascertaining its net taxable value. One of the items thus named is “claims against the estate, * * * as are allowed by the laws of the jurisdiction. * * * ”

The issue is whether the amount necessary to be paid by Shulthis to.the bank to recover the bonds was a claim against his estate under the laws of Kansas. There is no dispute as to the amount of that item, nor as to the fair reasonable value of said bonds at the time of the death of Mr. Shulthis, which was included in the value of the gross estate in said return. If said bonds were the property of Shulthis at the time of his death they were correctly included in his gross estate, and if the amount required to recover them, which was later paid to the bank for that purpose by the administrators under probate order, was an allowable claim against his estate, that amount was properly deducted from the gross estate in ascertaining its net value for the purpose of the tax.

We must, therefore, inquire whether the bonds were the property of Shulthis at his death. He was president and director of the bank. He was the principal owner and controlled the business policy of three brick companies and a cement company. He was a member of a partnership which did contract work and used brick and cement for paving and other purposes. Other contractors who did like work also used brick and cement made by the companies in which Shulthis was interested. These municipal bonds of the face value of more than $400,000.00 were issued by towns and cities in payment for improvements made of the kind just indicated. Shulthis took them to the hank about two years prior to his death. He handed them to the auditor of the bank, told him to enter them on the books as bank assets and to give credit for their face value as he then directed. The auditor complied. When other officers of the bank soon thereafter heard of the transaction, they disapproved. Shulthis replied that he was behind everything he put in the bank and that if they did not like his methods he would resign. The board of directors objected. It never gave its approval. The bank examiner criticized the transaction shortly before Shulthis’ death, and he told the board of directors and the examiner he would take up the bonds with his private funds. On several previous occasions he made like stateménts to the board.

In short on the facts of record it appears. that Shulthis treated the municipal bonds as his private property when he took them, to the bank. They were issued for improvements that had been made, and he plainly was using them to raise the cash necessary to pay for the material and labor. No one else has ever claimed, so far as the reeord shows, to be the owner of the bonds or disputed Shulthis’ ownership'. So, the inference that Shulthis was the owner when he took them to the bank, left them there and had the auditor enter them as bank assets and give corresponding credits as he directed seems to unavoidably follow. Unless the transaction, just stated, between Shulthis and the bank’s auditor constituted a sale and purchase of the bonds, they were a part of his estate at the time of his death. There has been no claim that anything was said by Shulthis or the bank’s auditor about a sale and purchase, nor by the directors or other officers of the bank when thé transaction later came to their attention. Their position throughout was that Shulthis had improperly and without authority and their consent put the bonds in the bank and gotten bank’s funds on them, and he should take them out which he repeatedly thereafter promised to do. Of course, that meant that Shulthis must reimburse the bank in the transaction he had with the auditor. There was no proof that the auditor had authority to purchase the bonds for the bank. That Shulthis did not intend a sale of the securities to the bank seems clear from his statement made when his attention was at one time directed to the fact that he did not indorse the securities. He gave as his reasons for not doing so that he found it convenient-to use them as collateral at other banking institutions. He was indebted to the bank in a very large amount on promissory notes when he handed the bonds to the auditor, and his evident purpose was to avoid a showing of an increase of that indebtedness on the bank’s bqoks. He dominated -the board of directors and the bank’s other officers and continued to be so indebted until his death.

It is our conclusion that title to the bonds remained in Shulthis, that the bank’s interest in them was only that of a lienor for the amount gotten on them by Shulthis when he left them with the auditor, and that he was debtor therefor, which not being paid, became a claim against his estate “as allowed by the laws of the jurisdiction.”

But if the conclusion just stated is not sustained by the facts — if the transaction with the auditor constituted a sale of the bonds to the bank — then we conclude from what occurred thereafter Shulthis purchased from the bank and the bank sold to him said bonds, and they again became the property of Shulthis and were a part of his estate at his death for which he had not paid the purchase price. As before stated, when the other officers and directors learned of the transaction with the auditor, they protested and demanded that he take the bonds up. He first put them off, said he was back of everything he put in the bank, but later he promised the board of directors that he would take the bonds up with his personal funds. He died shortly thereafter without doing so. This constituted a sale and purchase if the bonds were not then his property. The Statute of Frauds of the state of Kansas, where all these transactions were held, does not include the sale and purchase of chattels, and such transactions, although resting in parol, are there valid. The English statute provided:

“No contract for the sale of any goods, wares, or merchandise for the price of ten pounds sterling, or upwards, shall be allowed to be good, except the buyer shall accept part of the goods so sold, and actually receive the same, or give something in earnest to bind the bargain, or in part of payment, or that some note or memorandum in writing of the said bargain be made and signed by the parties to be charged by such contract, or their agents thereunto lawfully authorized.”

Many of the states have a like statute, but Kansas has omitted this from its Statute of Frauds.

1 In Leonard v. Davis, 1 Black, 476, 483, 17 L. Ed. 222, the court said:

“When the terms of sale axe agreed on, and the bargain is struck, and everything 'the seller has to do with the goods is complete, the contract of sale, says Chancellor Kent, becomes absolute as between the parties, without actual payment or delivery, and the property and the risk of accident to the goods vests in the buyer. He is entitled to the goods on payment or tender of the price, and not otherwise, when nothing is said at the sale as to the time of delivery, or the time of payment. But if the goods are sold upon credit, and nothing is agreed upon as to the time of delivering the goods, the vendee is immediately entitled to the possession, and the right of property vests at once in him. 2 Kent’s Com. (9th Ed.) 671; Bradeen v. Brooks, (22 Me. 470); Davis v. Moore, (13 Me. 427).
“Nothing in fact remained to be done in this ease, so far as the sale and purchase were concerned. Defendants bought and plaintiffs sold, without condition or reservation, and the measurement was simply to ascertain the amount to be paid by the defendants. Sellers had nothing to do but receive the agreed price, unless the boom-master refused to act, which contingency did not happen in the case. Cushman v. Holyoke, (34 Me. 292); Riddle v. Varnum, (20 Pick. 280).
“It is clear, therefore, that the title in the logs passed to the defendants at the time the contract was executed. Cunningham v. Ashbrook, (20 Mo. 553); Cole v. Transp. Co., (26 Vt. 87).”

See also, Hatch v. Oil Co., 100 U. S. 124, 25 L. Ed. 554. So, whether we regard the transactions between the board and Shulthis, last noted, as a present sale and purchase or only as an executory contract to sell and purchase, Shulthis was liable to the bank for an amount required to take up the bonds, and after his death that amount constituted a claim against his estate “as allowed by the laws of the jurisdiction.” Revised Stat. of Kansas 1923, c. 22, art. 7.

While the order of the probate court in which the estate was administered has been subjected to criticism as not being in the usual form of an allowance of a claim against an estate, still it is in substance an allowance of the claim of the bank for the money that Shulthis obtained on the bonds when he left them with the bank’s auditor. It directed the administrators to invest the funds of the estate in taking up the bonds, “being certain municipal bonds and obligations held” by the bank, all as set forth in the petition. At the time of Shulthis’ death the bonds had depreciated in value to the extent of $180,000.00. The board of directors and the bank’s officers, except, Shulthis, objected to his putting the bonds in the bank as a means of taking its money. They demanded that he restore what he had gotten and take them out. He promised from time to time to do so, but delayed. He stood in a fiduciary relation to the bank and had imposed on it to its damage. The bank had a claim against him, and in turn against his estate, which it could have enforced. That was the effect of the probate order.

The order of the Board of Tax Appeals is reversed.

COTTERAL, Circuit Judge

(dissenting).

The question involved is whether the administrators were entitled to deduet from the gross estate $179,986.87, reached by listing as assets the market value of municipal bonds, $244,414.57, and as a claim against the estate the amount paid the banks for the bonds, $424,401.44. These items were properly eliminated, because Shulthis did not own the bonds at his death, as was required by section 402, Revenue Act of 1921 (42 Stat. 278, 279), and the banks had no claim against his estate, “allowed by the laws of the jurisdiction,” as required by section 403 of that act.

The majority opinion justifies decedent's ownership of the bonds on the untenable theories that he did not sell them to the banks, or he later repurchased them from the banks.

Shulthis was president and director of the banks. He was also a stockholder, officer, and director of three brick and cement companies, and a partner in a paving company. Those concerns furnished materials to contractors engaged in constructing municipal improvements, for which bonds were issued, payable from assessments. In order to finance these operations he took over the bonds and lodged them with the banks, instructing the auditor to record them as assets, and credits therefor were given to the contractors and material companies. Shulthis advanced $40,000 to the paving company, and agreed to repurchase from the banks its bonds at par and interest, on demand. Tr. pp. 13,14,15. Clearly those bonds were sold to the banks. He did not indorse or guarantee the payment of any of the bonds in writing. The auditor testified Shulthis said the bonds were a good investment for the bank, and at any time the directors so desired he would take them up. Tr. 43. There was no testimony that aside from the paving bonds he gave the banks any note or evidence of a debt to them, pledged the bonds to the banks, or agreed to pay them any interest on their outlays, which amounted to $480,931.85.. However, he indorsed personal notes to the bank for about $1,000,000.

In their petition for review, counsel for the administrators concede that Shulthis was the managing head of the banks and the companies, and that he negotiated the bonds with the banks. Tr. p. 29. In their brief, they make the same statement. Page 3. And the Board of Tax Appeals necessarily found the banks had title to the bonds in stating that Shulthis did not have “such an interest in the bonds that their value should be included in his gross estate,” the banks sold some of them to their own customers, and that, though “the transfer to the banks was voidable,” no action was taken by the banks prior to his death to .set aside such transfers. Tr. p. 24. The álarm of the other directors was due only to the amount of paper Shulthis placed with the banks and not to his authority, and their criticism related to his judgment. Tr. p. 15. He repeatedly stated he was back of anything he put in the banks, and would take it up on demand, and, about two weeks before his death told the directors and the examiners he would clean up his personal obligations and write off or handle the others satisfactorily to the banks. But these statements were quite consistent with' the title of the banks to the bonds.

It is equally certain he did not regain title to the bonds. As he held a fiduciary relation to the banks, the transactions in its behalf wherein he had a contrary interest were voidable at its election. Morse on Banks and Banking (6th Ed.) § 125a; 2 C. J. 694; 14A C. J. 115. The rule has, however, the qualification that, where the transactions are authorized or ratified, they bind the principal. In this ease, they were not only authorized by the banks, but accompanied by an agreement of Shulthis’ to be responsible for them. In any event, some affirmative action was necessary to divest the banks of their title to the bonds. This required a rescission and a tender of the bonds to Shulthis, assuming the banks were entitled to adopt that course. 14A C. J. 115. But there was no such action.

Nor was there any valid contract whereby he agreed to repurchase the bonds, except those of the paving company, to the extent of $40,000. His original agreement to be responsible for the other bonds was invalid under the Kansas statute of frauds, because it was not in writing to answer for the debts of the municipalities issuing the bonds by the party to be charged. Rev. St. Kan. 1923, 33 — 106. ■ Shulthis was the party to be charged. Edgar v. Reeser, 46 F.(2d) 277 (10 C. C. A. Jan. 2, 1931). We need not inquire whether a later contract with the directors to take up the bonds might have been, although oral, a direct undertaking with the banks, and supported by the consideration of forbearance on its part to exact payment-See Williston.on Contracts, Vol. 1, §§ 135, 136; 13 C. J. 342, 348, 349-; 6 R. C. L. 658, 659. Such- a demand of the banks would have survived against the estate. Rev. St. Kan. 1923, 60 — 3201. And the statute of frauds would have been inapplicable. 27 CJ. 147. But there was in fact no such contract of repurchase, because notice of acceptance of the proposal was wanting. Equitable Life Assur. Soc. v. McElroy (C. C. A.) 83 P. 631. Shulthis offered toi take up the bonds. There was only inaction on the part of the banks, and nothing but a satisfactory assurance on his part. The title to the bonds therefore remained in the bands, and the value of them could not properly be included as assets in the return of the administrators.

A deduction of the payment by the administrators to the banks for the bonds was not warranted as a claim against the estate. There were certain proceedings concerning-the bonds. The widow and two daughters of Shulthis, his sole heirs, filed a petition in the probate court, reciting he had placed the securities in the bank in financing his companies, and had promised the directors to withdraw them on demand; that the banks held his obligations upon notes for $1,068,389.26 and upon bonds for-$437,173.31; that the estate had the cash with which to take them up, -and it'was just and right to do so; and they prayed an order to pay from the estate the notes, and, if deemed to its best interest, to take up the bonds, in discharge of his obligations. The probate court directed 'and authorized the administrators to invest the funds of the estate in taking up both the notes and bond obligations. The directors of the banks, by resolution, ratified the transaction, with the right to repurchase some of the bonds it had sold and charge the cost to the estate. Later-the estate paid, between December, 1923, and July, 1928, amounts aggregating $424,401.44, to the banks and vendees holding bonds guaranteed to them. The bonds had declined, because of delinquent municipal assessments, litigation, etc., so that their fair market value was $244,414.57.

Under the laws of Kansas, a claim against an estate must be formally exhibited, and must not be allowed unless the claimant shall make oath in open court or file an affidavit that he has given credit for all payments and offsets, and the claim must be established by competent testimony before it is allowed or adjusted. Rev. St. Kan. 1923, 22 — 701, 22— 705, 22 — 708, 22 — 709. By article 33 of Regulation 63 a decision of a local court as to the amount of a claim, even by consent, is accepted. No claim was ever presented by the banks. It is true the probate court found the order to be proper and to the best interest of the estate. But the authorization to the petitioners was not to pay a claim, but to invest the funds of the estate in taking up the bond obligations. There was no claim, as the banks did not rescind the sale of the bonds to them, there was no contract for the resale of them to Shulthis, and the demand of the banks was not embodied in a claim “as allowed by the laws of the jurisdiction.” Whether a claim of the banks, if it had been presented, would have been allowed and to what extent was not determined or adjudicated. The conclusion seems unassailable that the payment made by the administrators to the banks was not of a claim which was authorized as a deduction by the Revenue Act of 1921.

In my opinion, the decision of the Board of Tax Appeals should be affirmed.