author: Mr. Justice Douglas Mr. Justice Hablan,

text:
    BRULOTTE et al. v. THYS CO.
    No. 20.
    Argued October 20, 1964.
    Decided November 16, 1964.

      Edward S. Irons argued the cause for petitioners. With him on the briefs was Charles C. Countryman.-

      Elwood Hutcheson argued the cause for respondent. With him on the brief was George W. Wilkins.

      Solicitor General Cox, Aséistant Attorney General Orrick and Robert B. Hummel filed a brief for the United States, as amicus curiae, urging reversal.

      Rujus S. Day, Jr., Robert W. Fulwider and Robert J. Woolsey filed a brief for Well Surveys, Inc., as amicus curiae, urging affirmance.
   Mr. Justice Douglas

delivered the opinion of the Court.

Respondent, owner of various patents for hop-picking, sold ,a machine to each of the petitioners for a flat sum and issued a license for its use. Under that license there is payable a minimum royalty of $500 for each’ hop-picking season or $3.33% per 200 pounds of • dried hops harvested by the machine, whichever is greater. The licenses by their terms may not be assigned nor may the machines be removed from Yakima County. The licenses issued to petitioners listed 12 patents relating to hop-picking machines; but only seven were incorporated into the machines sold to and licensed for use by petitioners. Of those seven all expired on or before 1957. But the licenses issued by respondent to them continued for terms beyond that date.

Petitioners refused to make royalty payments accruing both before and after the expiration of the patents. This suit followed. One defense was misuse of the patents through extension of the license agreements beyond the expiration date of the patents. The trial court rendered judgment for respondent and the Supreme Court of Washington affirmed. 62 Wash. 2d 284, 382 P. 2d 271. The case is here on a writ of certiorari. 376 U. S. 905.

We conclude that the judgment below must be reversed insofar as it allows royalties to be collected which accrued after the last of the patents incorporated into the machines had expired.

The Constitution by Art. I, § 8 authorizes Congress to secure “for limited times” to inventors “the exclusive right” to their discoveries. Congress exercised that power by 35 U. S. C. § 154 which provides in part as follows:

“Every patent shall contain a short title of the invention and a grant to the patentee, his heirs or assigns, for the term of seventeen years, of the right to exclude others from making, using, or selling the invention throughout the United States, referring to the specification for the particulars thereof. ...”

The right to make, the right to sell, and the right to use “may be granted or conferred separately by the patentee.” Adams v. Burke, 17 Wall. 453, 456. But these fights become public property once the 17-year period expires. See Singer Mfg. Co. v. June Mfg. Co., 163 U. S. 169, 185; Kellogg Co. v. National Biscuit Co., 305 U. S. 111, 118. As stated by Chief. Justice Stone, speaking for the Court in Scott Paper Co. v. Marcalus Co., 326 U. S. 249, 256:

“. . . any attempted reservation or continuation in the patentee or' those claiming, under him of. the patent monopoly, after the patent expires, whatever the legal device employed, runs counter to the policy and purpose of the patent laws.”.

The Supreme Court of Washington held that in the present case the period during which royalties were required was only “a reasonable amount of time over which to spread the payments for the use of the patent.” 62 Wash. 2d, at 291, 382 P. 2d, at, 275. But there is intrinsic evidence that the agreements were not designed with that limited view. As we have seen, the purchase price in each case was a flat sum, the annual payments not being part of the purchase price but royalties for use of the' machine during that year. The royalty payments due for the post-expiration period are by their terms for use during that period, and are not deferred payments for use during the pre-expiration period. Nor is the case like the hypothetical ones put to us where non-patented articles are marketed at prices based on use. The machines in issue here were patented articles and the royalties exacted were the same for the post-expiration period as they were for the period of the patent. That is peculiarly significant in this ease in view of other provisions of the license agreements. The license agreements prevent assignment of the machines or their removal from Yakima County after, as well as before, the expiration of the patents.

Those restrictions are apt and pertinent to protection of the patent monopoly; and their applicability to the post-expiration period is a telltale sign that the licensor was using the licenses to project its monopoly beyond the patent period. They forcefully negate the suggestion that we have here a bare arrangement for a sale or a lease at an undetermined price, based on use. The sale or lease of unpatented machines on long-term payments based on a deferred purchase price or on use would present wholly different considerations. Those arrangements seldom rise to the level of a federal question. But patents are in the federal domain; and “whatever the legal device employed” (Scott Paper Co. v. Marcalus Co., supra, at 256) a projection of the patent monopoly after the patent expires is not enforceable. The present licenses draw no line between the term of the patent and the post-exp'iration period. The same provisions as respects both use and royalties are applicable to each. The contracts are, therefore, on their face a bald attempt to exact the same terms and conditions for the period after the patents have expired as they do for the monopoly period. We are, therefore, unable to conjecture what the bargaining position of the parties might have been and what resultant arrangement might have emerged had the provision for post-expiration royalties been divorced from the patent and nowise subject to its leverage.

In light of those considerations, we conclude that a patentee’s use of a royalty agreement that projects beyond the expiration date of. the patent is unlawful per se. If that device were available to patentees, the free market visualized for the post-expiration period would be subject to monopoly influences that have no proper place there.

Automatic Radio Co. v. Hazeltine, 339 U. S. 827, is not in point. While some of the patents under that license apparently had expired, the royalties claimed were not for a period when all of them had expired. That license covered several hundred patents and the royalty was based on the licensee’s sales, even when no patents were used. The Court held that the computation of royalty payments by that formula was a convenient and reasonable device. We decline the invitation to extend it so as to project the patent monopoly beyond the 17-year period.

A patent empowers the owner to exact.royalties as high as he can negotiate with the leverage of that monopoly. But to use that leverage to project those royalty payments beyond the life of the patent is analogous to an effort to enlarge the monopoly of the patent by tieing the sale or use of the patented article to the purchase or use of unpatented ones. See Ethyl Gasoline Corp. v. United States, 309 U. S. 436; Mercoid Corp. v. Mid-Continent Inv. Co., 320 U. S. 661, 664—665, and cases cited. The exaction of royalties for use of a machine after the patent has expired is an assertion of monopoly power in the post-expiration period when, as we have seen, the patent has entered the public domain. We share the views of the Court of Appeals in Ar-Tik Systems, Inc. v. Dairy Queen, Inc., 302 F. 2d 496, 510, that after expiration of the last of the patents incorporated in the machines “the grant of patent, monopoly was spent” and that an attempt to project it into another term by continuation of the licensing agreement is unenforceable.

Reversed.

Mr. Justice Hablan,

dissenting.

The Court holds that the Thys Company unlawfully misused its patent monopoly by contracting with purchasers of its patented machines for royalty payments based on use beyond the patent term. I think that more discriminating analysis than the Court has seen fit to give this case produces a different result.

The patent laws prohibit post-expiration, restrictions on the use of patented ideas; they have ho bearing on use restrictions upon nonpatented, tangible machines. We have before us a mixed case involving the sale of a tangible machine which incorporates an intangible, patented idea. My effort in what follows is to separate out these two notions, to show that there is no substantial restriction on the use of the Thys idea, and to demonstrate that what slight restriction there may be is less objectionable than other post-expiration use restrictions which are clearly acceptable.

I.

It surely cannot be questioned that Thys could have lawfully set a fixed price for its machine and extended credit terms beyond the patent period. It is equally unquestionable, I take it, that if Thys had had no patent or if,its patent had expired, it could have sold its machines at a flexible, undetermined price based on use; for example, a phonograph record manufacturer could sell a recording of a song in the public domain to a jukebox owner for an undetermined consideration based on the number of times the record was played.

Conversely it should be equally clear that if Thys licensed another manufacturer to produce hop-picking machines incorporating any of the Thys patents, royalties could not be exacted beyond the patent term. Such royalties would restrict the manufacturer’s exploitation of the idea after it falls into the public domain, and no such restriction should be valid. To give another example unconnected with a tangible machine, a song writer could charge a royalty every time his song — his idea — was sung for profit during the period of copyright. But once the song falls into the public domain each and every member of the public should be free to sing it.

In fact Thys sells both a machine and the use of an idea. The company should be free to restrict the use of its machine, as in the first two examples given above. It may not restrict the use of its patented idea once it has fallen into the public domain. Whether it has done so must be the point of inquiry.

Consider the situation as of the day the patent monopoly ends. Any manufacturer is completely free to produce Thys-type hop-pickers. The farmer who has previously purchased a Thys machine is free to buy and use any other kind of machine whether or not it incorporates the Thys idea, or make one himself if he is able. Of course, he is not entitled as against Thys to the jree use of any Thys machine. The Court’s opinion must therefore .ultimately rest on the proposition that the purchasing farmer is restricted in using his particular machine, embodying as it does an application of the patented idea, by the fact that royalties are tied directly to use.

To test this proposition I again put a hypothetical. Assume that a Thys contract called for neither an initial flat-sum payment nor any annual minimum royalties; Thys’ sole recompense for giving up ownership of its machine was a royalty payment extending beyond the patent term based on use, withqut any requirement either tó use the machine or not to use a competitor’s. A moment’s thought reveals that, despite the clear restriction on use both before and after the expiration of the patent term, the arrangement woúld involve no misuse of patent leverage. Unless the Court’s opinion rests on technicalities of contract draftsmanship and not on the economic substance of the transaction, the distinction between the hypothetical and the actual case lies only in the cumulative investment consisting of the initial and minimum payments independent of use, which the purchaser obligated himself to make to Thys. I fail to see why this distinguishing feature should be critical. If anything the investment will encourage the purchaser to use his machine in order to amortize the machine’s fixed cost over as large a production base as possible. Yet the gravamen of the majority opinion is restriction, not encouragement, of use.

II.

The essence of the majority opinion may lie in some notion that “patent leverage” being used by Thys to exact use payments extending beyond the patent term somehow allows Thys to extract more onerous payments from the farmers than would otherwise be obtainable. If this be the case, the Court must in some way distinguish long-term use payments from long-term installment payments of a flat-sum purchase price. For the danger which, it seems to fear would appear to inhere equally in both, and as I read the Court’s opinion, the latter type of arrangement is lawful despite the fact that failure to pay an installment under a conditional sales contract would permit the seller to recapture the machine, thus terminating — not merely restricting — the farmer’s use of it. Furthermore, since the judgments against petitioners were based almost entirely on defaults in paying the $500 minimums and not on failures to pay for above-minimum use, any such distinction of extended use payments and extended installments, even if accepted, would not justify eradicating all petitioners’ obligations beyond the patent term, but only those based on use above the stated minimums; for the minimums by themselves, being payable whether or not a machine has been used, are precisely identical in substantive economic effect to flat installments.

In fact a distinction should not be accepted based on the assumption that Thys, which exploits its patents by selling its patented machines rather than licensing others to manufacture them, can use its patent leverage to exact more onerous payments from farmers by gearing price to use instead of charging a flat sum. Four possible situations must be considered. The purchasing farmer could overestimate, exactly estimate, underestimate, or have no firm estimate of his use requirements for a Thys machine. If he overestimates or exactly estimates, the farmer will be fully aware of what the machine will cost him in the long run, and it is unrealistic to suppose that in such circumstances he would be willing to pay more to have the machine on use than on straight terms. If the farmer underestimates, the thought may be that Thys will take advantage of him; but surely the farmer is in '.a better position than Thys or anyone else to estimate'his own requirements and is hardly in need of the Court’s protection in this respect. If the farmer has no fixed estimate of his use requirements he may have good business reasons entirely unconnected with “patent leverage” for wanting payments tied to use, and may indeed be willing to pay more in the long run to obtain such an arrangement. One final example should illustrate my point:

At the time when the Thys patent term still has a few years to run, a farmer who has been picking his hops by hand comes into the Thys retail outlet to inquire about the mechanical pickers. The salesman concludes his description of the advantages of the Thys machine with the price tag — $20,000. Value to the farmer depends completely on the use he will derive from the machine; he is willing' to obligate himself on long credit terms to pay $10,000, but unless the machine can substantially outpick his old hand-picking methods, it is worth no more to him. He therefore offers to pay $2,000 down, $400 annually for 20 years, and an additional payment during the contract term for any production he can derive from the machine over and above the minimum amount he could pick by hand. Thys accepts, and by doing so, according to the majority, commits a per se misuse of its patent. I cannot -believe that this is good law.

III.

The possibility remains that the Court is basing its decision on the technical framing of the contract and would have treated the case differently if title had been déclared to pass at the termination instead of the outsfet of the contract term, or if the use payments had been verbally disassociated from the patent licenses and described as a convenient means of spreading out payments for the machine. If indeed the impact of the opinion is that Thys must redraft its contracts to achieve the same economic results, the decision is not only wrong, but conspicuously ineffectual.

I would affirm.

       One petitioner paid $3,125 for “title” to a machine, the other petitioner, $3,300.

       All but one of the 12 expired prior to the expiration of the license agreements. The exception was a patent whose mechanism was not incorporated in these machines.

       Petitioners purchased their machines from prior purchasers under transfer agreements to which respondent was a party.

       Note 1, supra.

       The petition for certiorari did not in the questions presented raise the question of the effect of the expiration of any of the patents on the royalty agreement. Also, the Hazeltine license, which covered many patents, exacted royalties for patents never used. But that aspect of the case is likewise not apposite here for the present licensees are farmers using the machines, not manufacturers buying the right to incorporate patents into their manufactured products.

       Installment, of a patented, coin-operated washing macKirje. in the basement of ail apartment building without charge except' that the landlord and- his tenants must deposit 25 cents for every use, should not constitute patent misuse. - ■

       Petitioner'Charvet was indebted to Thys only to the extent of the minimums; petitioner Brulotte was in default approximately $4,500 of which $3,120 was attributable to minimums

       The Court also adverts to the provisions in the license agreements prohibiting “assignment of the machines or their removal from Yakima County” (ante, p. 32) during the terms of the agreements. Such provisions, however, are surely appropriate to secure performance of what are in effect conditional sales agreements and they do not advance the argument for patent misuse.
      Furthermore, it should not be overlooked that we are dealing here with a patent, not an antitrust, case, there being no basis in the record for concluding that Thys’ arrangements with its licensees were such as to run afoul of the antitrust laws.


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    SCRANTON, GOVERNOR OF PENNSYLVANIA, et al. v. DREW et al.
    No. 201.
    Decided November 16, 1964.

      Walter E. Alessandroni, Attorney General of Pennsylvania, and Edward Friedman and Alan Miles Ruben, Deputy Attorneys General, for appellants. Marvin Comisky, Thomas D. McBride, Goncer M. Krestal and Marshall J. Seidman for appellees.
   Per Curiam.

The judgment of the District Court appealed from was entered on April 9, 1964, 229 F. Supp. 310 (D. C. M. D. Pa.). The District Court held invalid under the Four- ' teenth Amendment to the United States Constitution, the Pennsylvania Representative Apportionment Act of January 9, 1964, P. L. 1419, 25 Purdon’s Pa. Stat. Ann. §§ 2221-2222 (1963 Supp., including Acts of the 1963 Extra Session), the Pennsylvania Senatorial Apportionment Act of January 9, 1964, P. L. 1432, 25 Purdon’s Pa. Stat. Ann. §§2217-2220 (1963 Supp., including Acts of the 1963 Extra Session), and the Pennsylvania Constitution’s legislative apportionment provisions, Art. II, §§16, 17. The court restrained appellants from conducting any future elections under the apportionment acts, but stayed its order pending the disposition of an appeal to this Court. Thereafter on June 15, 1964, this Court decided Reynolds v. Sims, 377 U. S. 533, and companion cases: WMCA, Inc. v. Lomenzo, 377 U. S. 633; Maryland Comm. for Fair Representation v. Tawes, 377 U. S. 656; Davis v. Mann, 377 U. S. 678; Roman v. Sincock, 377 U. S. 695; Lucas v. Forty-Fourth General Assembly of Colorado, 377 U. S. 713. On September 29, 1964, the Supreme Court of Pennsylvania handed down a decision construing the legislative apportionment provisions of the Pennsylvania Constitution, and holding these provisions constitutional as construed. The court, however, declared invalid, under the Fourteenth Amendment to the United States. Constitution, the Pennsylvania legislative apportionment laws at issue in this appeal. Butcher v. Bloom, 415 Pa. 438, 203 A. 2d 556. The Pennsylvania court retained jurisdiction of the case, stating:

“We have indicated that it is our expectation that the Legislature will proceed in timely fashion to enact reapportionment laws which conform to constitutional requirements. We must recognize, however, that if the General Assembly fails to act in a timely fashion, we shall be obliged to take necessary affirmative action to insure that the 1966 election of Pennsylvania legislators will be conducted pursuant to a constitutionally valid plan. Proper regard for our responsibility compels us to retain jurisdiction of this matter pending legislative action.
“Should the Legislature fail to enact a constitutionally valid plan of reapportionment as soon as practical, but not later than September 1, 1-965, we shall take such action as may be appropriate in light of the then existing situation.
“Jurisdiction retained in accordance with this opinion.” Id., at 468-469, 203 A. 2d, at 573.

The judgment of the District Court is therefore vacated and the cause is remanded for further consideration in light of the decisions supervening since the entry of the judgment of the District Court.

Vacated and remanded.


text:
    BOLES, WARDEN v. STEVENSON.
    No. 298.
    Decided November 16, 1964.

      Charles Robert Sarver and Claude A. Joyce, Assistant Attorneys General of West Virginia, for petitioner. Daniel J. Meador for respondent.
   Per Curiam.

The respondent, Stevenson, was convicted of murder in the first degree and sentenced to death in the Common Pleas Court of Cabell County, West Virginia. The conviction was affirmed on appeal by the West Virginia Supreme Court of Appeals. State v. Stevenson, 147 W. Va. 211, 127 S. E. 2d 638. Certiorari was denied here. 372 U. S. 938. He then filed a petition for habeas corpus in the United States District Court. Stevenson v. Boles, 221 F. Supp. 411. That court issued the writ on the ground that the State Supreme Court of Appeals used an erroneous standard for determining voluntariness and that an oral admission of guilt contained in the testimony of three state police officers was involuntary. The District Court ordered Stevenson’s release conditioned on the failure of the State to retry the defendant within a reasonable time, and the Court of Appeals affirmed. Without reaching the voluntariness of the confession, it held that the defendant was denied a fair and effective resolution of the voluntariness issue at trial when the trial court failed to hold a preliminary examination on this issue and failed to submit it to the jury under appropriate instructions. We grant certiorari and modify the order of the Court of Appeals to conform to our subsequent decision in Jackson v. Denno, 378 U. S. 368.

At Stevenson’s trial Officer Coleman testified for the State that he, and two other police officers, arrested the defendant and took him to the Atlantic Sea Food Store to show him the badly mutilated body of the victim. On cross-examination Coleman stated that the defendant strongly resisted efforts to confront him with the still undisturbed scene of the crime inside the building. Another of the officers gave the defendant a choice between entering the store or explaining what he knew about the crime. Coleman testified that the defendant then admitted committing the crime. At the conclusion of this testimony the defensé moved to strike the oral confession of guilt because it “does not comply with the rules covering the introduction of a confession in that he was not’ warned that any statement he made may and would be. used against him or any of the other requirements on- entering of a..confession.” This motion was overruled without comment and without a hearing on voluntariness. Subsequent motions to exclude the testimony of the other two officers in respect to the same challenged admission of guilt were similarly overruled without comment. After this confession was thrice admitted, the defendant took the stand in his own defense . and denied ever having made the admission to the officers.

• Relying on this denial, the State Supreme Court of Appeals ruled that no preliminary examination was required in this case and that the confession was voluntary.

The practice in West Virginia, when an objection to a confession is interposed, is to hold a preliminary hearing out of the presence of the jury at which the trial judge fully determines the coercion issue. State v. Vance, 146 W. Va. 925, 124 S. E. 2d 252. In light of this practice, we cannot ascertain on this record whether the trial judge declined to hold a hearing and declined to rule explicitly on voluntariness because he thought there could not be any issue in light of defendant’s not-guilty plea, because he thought the confession was in fact voluntary, or because he thought the objections were inadequate or untimely. Hence we do not know if thé-trial judge decided volun-tariness, one way or the other, and, if he did, what standard was relied upon. We think the procedures were not “fully adequate to insure a reliable and clear-cut determination of the voluntariness of the confession.” Jackson v. Denno, 378 U. S. 368, 391.

. Hence we agree with the Court of Appeals that the writ should issue. Bui it does not follow that the State is required to order a new trial. As we held in Jackson, supra, where a state defendant has not been given an adequate hearing upon the voluntariness of his confession, he is entitled to a hearing in the state courts under appropriate procedures and standards designed to insure a full and adequate resolution, of this issue. “A state defendant should have the opportunity to have all issues which may be determinative of his guilt tried by a state judge or a state jury under appropriate state procedures which conform to the requirements of the Fourteenth Amendment.” Rogers v. Richmond, 365 U. S. 534, 547-548. Accordingly the judgment below is modified and the case is remanded to the District Court to allow the State a reasonable time to afford Stevenson a hearing or a new trial, failing which Stevenson is entitled to his release. As so modified, the judgment is affirmed.

Mr. Justice Black would affirm the judgment of the Court of Appeals affirming the District Court’s judgment which ordered Stevenson’s release conditioned on the failure of the State to retry the defendant within a reasonable time.

       The respondent’s motion to dispense with the printing of the brief in opposition is granted.


text:
    BOYER et al. v. ELKINS et al.
    No. 438.
    Decided November 16, 1964.

      George J. Francis for appellants.

      Frank A. Bruno and H. D. Reed for appellees.
   Per Curiam.

The motion to dismiss is granted and the appeal is dismissed for want of a properly presented federal question.


text:
    ASSOCIATED PRESS et al. v. WALKER.
    No. 449.
    Decided November 16, 1964.

      Billy R. Pesnell and Ashton Phelps for appellants.

      W. Scott Wilkinson for appellee.
   Per Curiam.

. The motion to dismiss is granted and the appeal is dismissed for want, of jurisdiction. Treating the papers whereon the appeal was taken as a petition for writ of certiorari, certiorari is denied.


author: Mr. Justice Harlan Mr. Justice Douglas,

text:
    UNITED STATES et al. v. POWELL et al.
    No. 54.
    Argued October 14-15, 1964.
    Decided November 23, 1964.

      Bruce 3. Terris argued the cause for the United States et al. With him on the briefs were Solicitor General Cox,

      Assistant Attorney General Oberdorfer, Joseph M. Howard, Meyer Rothwacks and Norman Sepenuk.

      Bernard G. Segal argued the cause for respondents. With him on the briéf was Samuel D. Slade.

   Mr. Justice Harlan

delivered the opinion of the Court.

In March 1963, the Internal Revenue Service, pursuant to powers afforded the Commissioner by § 7602 (2) of the Internal Revenue Code of 1954, summoned respondent Powell to appear before Special Agent Tiberino to give testimony and produce records relating to the 1958 and 1959 returns of the William Penn Laundry (the taxpayer), of which Powell was president. Powell appeared before the agent but refused to produce the records. Because the taxpayer’s returns had been once previously examined, and because the three-year statute of limitations barred assessment of additional deficiencies for those years except in cases of fraud (the asserted basis for this summons), Powell contended that before he could be forced to produce the records the Service had to indicate some grounds for its belief that a fraud had been committed. The agent declined to give any such indication and the meeting terminated.

Thereafter the Service petitioned the District Court for the Eastern District of Pennsylvania for enforcement of the administrative summons. With this petition the •agent filed an affidavit stating that he had been investigating the taxpayer’s returns for 1958 and 1959; that based on this investigation the Regional Commissioner of the Service had determined an additional examination of the taxpayer’s records for those years to be necessary and had sent Powell a letter to that effect; and that the agent had reason to suspect that the taxpayer had fraudulently falsified its 1958 and 1959 returns by overstating. expenses. At the court hearing Powell again stated his objections to producing the records and asked the Service to show some basis for its suspicion of fraud. The Service chose to stand on the petition and the agent’s affidavit,, and, after argument, the District Court ruled that the agent be given one hour in which to re-examine the records.

The Court of Appeals reversed, 325 P. 2d 914. It reasoned that since the returns in question could only be reopened for fraud, re-examination of the taxpayer’s records must be barred by the prohibition of § 7605 (b) of the Code against “unnecessary examination” unless the Service possessed information “which might cause a reasonable man to suspect that there has been fraud in the return for the otherwise closed year”; and whether this standard has been met is to be decided “on the basis of the showing made in the normal course of an adversary proceeding . ...” The court concluded that the affidavit in itself was not sufficient to satisfy its test of probable cause. Consequently, enforcement of the summons was withheld.

Because of the differing views in the circuits on the standards the Internal Revenue Service must meet to obtain judicial enforcement of its orders, we granted certiorari, 377 U. S. 929.

We reverse, and. hold that the Government need make no showing of probable cause to suspect fraud unless the taxpayer raises a substantial question that judicial enforcement of the administrative summons would be an abusive use of the court’s process, predicated on more than the fact of re-examination' and the running of the statute of limitations on ordinary tax liability.

I.

This enforcement proceeding was brought by the Government pursuant to § 7604 (b) of the Code. In Reisman v. Caplin, 375 U. S. 440, decided last Term subsequent to the rendering of the decision below, this Court stated that § 7604 (b) “was intended only to cover persons who were summoned and wholly made default or contumaciously refused to comply.” 375 U. S:, at 448. There was no contumacious refusal in this case. Thus the Government’s conceded error in bringing its enforcement proceeding under § 7604 (b) instead of § 7402 (b) or § 7604 (a), each of which grants courts the general power to enforce the Commissioner’s summonses “by appropriate process,” raises a threshold question whether we must dismiss this case and force the Government to recommence enforcement proceedings under the appropriate sections. Since the Government did not apply for the prehearing sanctions of attachment and arrest peculiar to § 7604 (b), and since these constitute the major substantive differences between the sections, we think it would be holding too strictly to the forms of pleading to require the suit to be recommenced, and therefore treat the enforcement proceeding as having been brought under §§ 7402 (b) and 7604 (a).

II.

Respondent primarily relies on § 7605 (b) to show that the Government must establish probable cause for suspecting fraud, and that the existence of probable cause is subject to challenge by the taxpayer at the hearing. That section provides:

“No taxpayer shall be subjected to unnecessary examination or investigations, and only one inspection of a taxpayer’s books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Secretary or his delegate, after investigation, notifies the taxpayer in writing that an additional inspection is necessary.”

We do not equate necessity as contemplated by this .provision with probable cause or any like notion. If a taxpayer has filed fraudulent returns, a tax liability exists without regard to any period of limitations. Section 7602 authorizes the Commissioner to investigate any such liability. If, in order to determine the existence or nonexistence of fraud in the taxpayer’s returns, information in the taxpayer’s records is needed which is not already in the Commissioner’s possession, we think the examination is not “unnecessary” within the meaning of § 7605 (b). Although a more stringent interpretation is possible, one which would require some showing of cause for suspecting fraud, we reject such an interpretation because it might seriously hamper the Commissioner in carrying out investigations he thinks warranted, forcing him to litigate and prosecute appeals on the very subject . which he desires to investigate, and because the legislative history of § 7605 (b) indicates that no severe restriction was intended.

Section 7605 (b) first appeared as § 1309 of the Revenue Act of 1921, 42 Stat. 310. Its purpose and operation were explained by the manager of the bill, Senator Penrose, on the Senate floor:

“Mr. PENROSE. Mr. President, the provision is entirely in the interest of the taxpayer and for his relief from unnecessary annoyance. Since these income taxes and direct taxes have been in force very general complaint has been made, especially in the large centers of wealth and accumulation of money, at the repeated visits of tax examiners, who perhaps are overzealous or do not use the best of judgment in the exercise of their functions. I know that from many of the cities of the country very bitter complaints have reached me and have reached the department of unnecessary visits and inquisitions after a thorough examination is supposed to have been had. This section is purely in the interest of quieting all this trouble and in the interest of the peace of mind of the honest taxpayer.
“Mr. WALSH; ... So that up to the present time an inspector could visit the office of an individual or corporation and inspect the books as many times as he chose?
“Mr. PENROSE. And he often did so.
“Mr. WALSH. . . . And this provision of the Senate committee seeks, to limit the inspection to one visit unless the commissioner indicates that there is necessity for further examination?
“Mr. PENROSE. That is the purpose of the amendment.
“Mr. WALSH. ... I heartily agree with the beneficial results that the amendment will produce to the taxpayer.
“Mr. PENROSE. I knew the Senator would agree to the amendment, and it will go a long way toward relieving petty annoyances on the part of honest taxpayers.” . 61 Cong. Rec. 5855 (Sépt. 28, 1921).

Congress recognized a need for a curb on the investigating powers of low-echelon revenue agents, and considered that it met this need simply and fully by requiring such agents to clear any repetitive examination with a superior. For us to import a probable cause standard to be enforced by the courts would substantially overshoot the goal which the legislators sought to attain. There is no intimation in the legislative history that Congress intended the courts to oversee the Commissioner’s determinations to investigate. No mention was made of the statute of limitations and the exception for fraud.

We are asked to read § 7605 (b) together with the limitations sections, in such a way as to impose a probable cause standard upon the Commissioner from the expiration date of the ordinary limitations period forward. Without some solid indication in the legislative history that such a gloss was intended, we find it unacceptable. Our reading of the statute is said to render the first clause of § 7605 (b) surplusage to a large extent, fbr, as interpreted, the clause adds little beyond the relevance and materiality requirements of § 7602. That clause does appear to require that the information sought is not already within the Commissioner’s possession, but we think its primary purpose was no more than to emphasize the responsibility of agents to exercise prudent judgment in wielding the extensive powers granted to them by the Internal Revenue Code.

This view of the statute is reinforced by the general rejection of probable cause requirements in like circumstances involving other agencies. In Oklahoma Press Pub. Co. v. Walling, 327 U. S. 186, 216, in reference to the Administrator’s subpoena power under the Fair Labor Standards Act, the Court said “his investigative function, in searching out violations with a view to securing enforcement of the Act, is essentially the same as the grand jury’s, or the court’s in issuing other pretrial orders for the discovery of evidence, and is governed by the same limitations,” and accordingly applied the view that inquiry must not be “ ‘limited ... by forecasts of the probable result of the investigation.’ ” In United States v. Morton Salt Co., 338 U. S. 632, 642-643, the Court said of the Federal Trade Commission, “It has a power of inquisition, if one chooses to call it that, which is not derived from the judicial function. It is more analogous to the Grand Jury, which does not depend on a case or controversy for power to get evidence but can investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.” While the power of the Commissioner of Internal Revenue derives from a different body of statutes, we do not think the analogies to other agency situations are without force when the scope of the Commissioner’s power is called in question.

III.

Reading the statutes as we do, the Commissioner need not meet any standard of probable cause to obtain enforcement of his summons, either before or after the three-year statute of limitations on ordinary tax Labil-ities has expired. He must show that the investigation will be conducted pursuant to a legitimate purpose, that the inquiry may be relevant to the purpose, that the information sought is not already within the Commissioner’s possession, and that the administrative steps required by the Code have been followed-j-in particular, that the “Secretary or his delegate,” after investigation, has determined the further examination to be necessary and has notified the taxpayer in writing to that effect. This does not make meaningless the adversary hearing to which the taxpayer is entitled before enforcement is ordered. At the hearing he “may challenge the summons on any appropriate ground,” Reisman v. Caplin, 375 U. S. 440, at 449. Nor does our reading of the statutes mean that under no circumstances may the court inquire into the underlying reasons for the examination. It is the court’s process which is invoked to enforce the administrative summons and a court may not permit its process to be abused. Such an abuse would take place if the summons had been issued for an improper purpose, such, as to harass the taxpayer or to put pressure on him to settle a collateral dispute, or for any other purpose reflecting on the good faith of the particular investigation. The burden of showing an abuse, of the court’s process is on the taxpayer, and it is not met by a mere showing, as was made in this case, that the statute of limitations for ordinary deficiencies has run or that the records in question have already been once examined.

The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

Mr. Justice Douglas,

with whom Mr. Justice Stewart and Mr. Justice Goldberg concur,

dissenting.

Congress, by the three-year statute of limitations that bars assessments of tax deficiencies except (so far as relevant here) in case of fraud, 26 U. S. C. §§ 6501 (a) and (c), has brought into being a “statute of repose” that I would respect more highly than my Brethren. I would respect it by requiring the District Court to be satisfied that the Service is not acting capriciously in reopening the closed tax period. Since the agency must go to the court for process to compel the production of the records for the closed tax period, I would insist that the District Court act in a judicial capacity, free to disagree with the administrative decision unless that minimum standard is met.

Oklahoma Press Pub. Co. v. Walling, 327 U. S. 186, does not seem to me to be relevant. It dealt with the usual investigative powers of administrative agencies; and as the Court said in that case, Congress set no standards for administrative action which the judiciary first had to weigh and appraise. Id., 215-216. Here we have a congressional “statute of repose” embodied in the three-year statute of limitations. I would make it, meaningful by protecting it from invasion by mere administrative fiat. Where the limitations period has expired, an examination is presumptively “unnecessary” within the meaning of § 7605 (b) — a presumption the Service must overcome. That is to say, a re-examination of the taxpayer’s records after the three-year period is “unnecessary” within the meaning of § 7605 (b), unless the District Court is shown something more than mere caprice for believing fraud was practiced on the revenue. Without that minimum safeguard the statutory status of repose becomes rather meaningless.

       I. R. C., §6501 (a).

       I. R. C., § 6501 (c) (1), which in relevant part provides: “In the case of a false or fraudulent return with the intent to evade tax, the tax may be assessed, or a proceeding in court for collection of such tax may be begun without assessment, at any time.”

       The parties subsequently agreed that if the Government was upheld in its claim of right to examine without showing probable cause, the one-hour time limitation would be removed.

       See page 52, infra.

       325 F. 2d 914, 915-916.

        Id,., at 916.

       “Probable cause” as used hi this opinion is meant to include the full range of formulations offered by lower courts.

       Compare Foster v. United States, 265 F. 2d 183 (C. A. 2d Cir. 1959); United States v. Ryan, 320 F. 2d 500 (C. A. 6th Cir. 1963), affirmed today, post, p. 61, with O’Connor v. O’Connell, 253 F. 2d 365 (C. A. 1st Cir. 1958), followed in Lash v. Nighosian, 273 F. 2d 185 (C. A. 1st Cir. 1959); Globe Construction Co. v. Humphrey, 229 F. 2d 148 (C. A. 5th Cir. 1956); De Masters v. Arend, 313 F. 2d 79 (C. A. 9th Cir. 1963).

       Section 7604 (b) provides:
      “Whenever ■ any person summoned under section 6420 (e) '(2), 6421 (f)(2), or 7602 neglects or refuses to obey such summons, or to produce books, papers, records, or other data, or to give testimony, as required, the Secretary or his delegate may apply to the judge of the district court or to a United States commissioner for the district within which the person so summoned resides or is found for an attachment against him as for a contempt. It shall be the duty of the judge or commissioner to hear the application, and, if satisfactory proof is made, to issue an attachment, directed to some proper officer, for the arrest of such person, and upon his being brought before him to proceed to a hearing of the ease; and upon such hearing the judge or the United States commissioner shall have power to make such order as he shall deem proper, not inconsistent with the law for the punishment of contempts, to enforce obedience to the requirements of the summons and to punish such person for his default or disobedience.”

       The two sections are virtually identical. Section 7402 (b) provides:
      “If any person is summoned under the internal revenue laws to appear, to testify, or to produce books, papers, or other data, the district court of the United States for the district in which such person resides or may be found shall have jurisdiction by appropriate process to compel such attendance, testimony, or production of books, papers, or other data.”

       See n. 18, infra.

       Section 7602 provides;
      “For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of' any internal revenue tax, or collecting any such liability, the Secretary or his delegate is authorized—
      “(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry;
      “(2) To summon the person liable for tax or required to perform the act, or any officer'or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and
      “(3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry.”

       Other relevant legislative history to like effect may be found in H. R. Rep. No. 350, 67th Cong., 1st Sess., 16 (1921) ; S. Rep. No. 275, 67th Cong., 1st Sess., 31 (1921) ; 61 Cong. Rec. 5202 (Aug. 18, 1921), remarks of Mr. Hawley. The provision was. re-enacted in 1926. In the Senate, a substitute measure was adopted which would have limited the Commissioner to two examinations appertaining to returns of any one year. Senator Reed’s objection to the original provision was: “By merely claiming fraud the Government at any time can make examination after examination, subject only to one limitation, that it must give notice that it is going to make the examination. That, in ordinary course, is • done by the mere writing of a letter,” 67 Cong. Rec. 3856 (Feb. 12, 1926). There is no indication in the discussion that the courts were thought to play any significant limiting role. The Senate substitute was ultimately deleted by the Conference Committee and the original provision resubstituted. H. R. Rep. No. 356, 69th Cong., 1st Sess., 55. The section was re-enacted in 1939 and 1954 without substantial change and without further elaboration of the congressional intent. Respondent contends that in re-enacting the provision, Congress must have been aware of, and acquiesced in, decisions of lower courts that a showing of probable cause is required. In re Andrews’ Tax Liability, 18 F. Supp. 804 (1937); Zimmermann v. Wilson, 105 F. 2d 583 (C. A. 3d Cir. 1939); In re Brooklyn Pawnbrokers, 39 F. Supp. 304 (1941); Martin v. Chandis Securities Co., 128 F. 2d 731 (C. A. 9th Cir. 1942). These cases represent neither a settled judicial construction, see In re Keegan, 18 F. Supp. 746 (1937),; nor one which we would be justified in presuming Congress, by its silence, impliedly approved. Compare Shapiro v. United States, 355 U. S. 1.

       Revenue Act of 1921, §250 (d), 42 Stat. 265, provided a four-year period of limitation on ordinary tax liability.

       The contrary view derives no support from the characterization •■of the limitations provision as a' “statute of repose.” The present three-year limitation on assessment of ordinary deficiencies relieves the taxpayer.of concern for further assessments of that type, but it by no means follows that it limits the right of the Government to investigate with respect to deficiencies for which no statute of limitations is imposed.

       The Court of Appeals 'appears to have been led astray by the fact that the Government argued its case on the premise that § 7604 (b) was the governing statute.

       See 1 Davis, Administrative Law, §3.12 (1958).

       Because § 7604 (a) contains no provision specifying the procedure to be followed in invoking the court’s jurisdiction, the Federal Rules of Civil Procedure apply, Martin v. Chandis Securities Co., 128 F. 2d 731. The proceedings are instituted by filing a complaint, followed, by answer and hearing. If the taxpayer has contumaciously refused to comply with the administrative summons and the Service fears he may flee the jurisdiction, application for the sanctions available under § 7604 (b) might be made simultaneously with the filing of the complaint.

       See 1 Davis, Administrative Law, § 3.12 (1958).

       See Jaffe, The Judicial Enforcement of Administrative Orders, 76 Harv. L. Rev. 865 (1963).

       See the remarks of Senators Smith, Ashurst, and Reed in 67 Cong. Rec. 3852-3853.

       The First Circuit requires the Commissioner to show that “a reasonable basis exists for a suspicion of fraud,” O’Connor v. O’Connell, 253 F. 2d 365, 370; the Ninth Circuit requires that the decision to investigate for fraud appear as “a matter of rational judgment based on the circumstances of the particular case,” De Masters v. Arend, 313 F. 2d 79, 90; the Third Circuit requires that the agent’s suspicion of fraud be “reasonable” in the eyes of the District Court. 325 F. 2d 914, 916.

       The case is more like United States v. Morton Salt Co., 338 U. S. 632, where, as respects the power of the Federal Trade Commission to require issuance of “special” reports, the Court reserved the right to prevent the “arbitrary” exercise of that administrative power. Id., at 654.*,


author: Mr. Justice Harlan

text:
    RYAN v. UNITED STATES.
    No. 12.
    Argued October 14, 1964.
    Decided November 23, 1964.

      William R. Bagby argued the cause and filed briefs for petitioner.

      Bruce J. Terris argued the cause for the United States. On the brief were Solicitor General Cox, Acting Assistant Attorney General Jones, Joseph M. Howard and Norman Sepenuk.

   Mr. Justice Harlan

delivered the opinion of the Court.

In August 1961, Internal Revenue Agent Whelan issued a summons to taxpayer Ryan ordering him to pro-ducé his books for the years 1942 through 1953 inclusive. Ryan appeared but refused to produce the records, claiming that because tax liability for those years was long since barred except for fraud, the agent had no right to examine the records unless he could show grounds for suspecting fraud.

The Government then instituted an enforcement proceeding in a federal district court pursuant to § 7402 (b) of the Internal Revenue Code of 1954. The complaint alleged that on the basis of estimated net worth calculations the agent' strongly suspected fraud, and that examination of the records for the years in question was relevant and material in determining its existence. The taxpayer answered, putting the question of probable cause in issue, and, in addition, stating that he had not received the letter required by § 7605 (b) informing him that the Secretary or his delegate had determined the examination to be necessary.

At the hearing the District Judge clearly indicated his opinion that the Government need not show probable cause for suspecting fraud, and ordered Ryan to produce those records which he had available. Although the hearing confirmed Ryan’s assertion that no “necessity letter” had been sent to him, the judge made no mention of this, probably because counsel did not press the point.

The Court of Appeals affirmed, 320 F. 2d 500, on the theory that no full-scale showing of probable cause need be made. Except for the records relating to the year 1945, which appeared to have been once previously examined, the court ruled that no necessity letter was required by § 7605 (b) because the Government had made no previous examination of those years.!

We granted certiorari, 376 U. S.. 904, on the only issue raised by petitioner, whether the Government must show probable cause for its examination of the records. On that issue we sustain the judgment of the Court oT Appeals for the reasons given in United States v. Powell, decided today, ante, p. 48.

Affirmed.

Mr. Justice Stewart and Mr. Justice Golderg concur in the result, because they believe that through the testimony of Internal Revenue Agent Whelan a sufficient showing was made that the Government was not proceeding capriciously in this case.

Me. Justice Douglas dissents for the reasons given in his separate opinion in United States v. Powell, ante, p. 59.

       I. R. C., § 6501. See United States v. Powell, decided today, ante, p. 48, at p. 49, note 2.

       See id., at p. 52, note 10.

       See id., at p. 52.

       The propriety of the court’s interpretation of the necessity letter requirement of § 7605 (b) is, therefore, not before us. See Trailmobile Co. v. Whirls, 331 U. S. 40, 48.