# Petition for a Writ of Certiorari — Raytheon Production Corp. v. Commissioner > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA34806415_2352%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for a Writ of Certiorari - **Published:** January 1, 1944 - **Citation:** 323 U.S. 779 ## Text ¥FILUD off 18 1944 CHARLES ELMORE OROPLEY / OLERK No 8 609 Supreme Court of the United States. Oocroser Term, 1944, RAYTHEON PRODUCTION CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. PETITION FOR WRIT OF CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FIRST CIRCUIT AND BRIEF IN SUPPORT THEREOF. EDWARD C. THAYER, Attorney for Petitioner. ADDISON ©. GETOHELL & SON, LAW PRINTERS, BOSTON. eer a a ERS 5 AE ROLE TE DOTY EN 2 at PRR LCR tay Re Subject Index. Page PETITION 1 Opinions below 2 Jurisdiction 2 Question presented 2 Statutes involved 2 Statement 2 Specification of errors 6 Reasons for granting the writ 6 BrigF 9 1. The decision below is in conflict with decisions in other Cireuit Courts of Appeals 9 2. The decision below is in conflict with principles announced by this Court 10 Appendix 13 Table of Authorities Cited. CasEs. Bowers v. Kerbaugh-Empire Co., 271 U.S. 170 11 Central R. Co. of New Jersey v. Commissioner, 79 Fed. (2d) 697 9 Doyle v. Mitchell Bros. Co., 247 U.S. 179 11 Edward N. Clark, 40 B.T.A. 333 10n. Kisner v. Macomber, 252 U.S. 189 10 Farmers & Merchants Bank of Catlettsburg, Ky., v. Commissioner, 59 Fed. (2d) 912 9 Highland Farms Corporation, 42 B.T.A. 1309 10n. Stratton’s Independence v. Howbert, 231 U.S. 399 10 . United States v. Safety Car Heating Co., 297 U.S. : 88 11 pe Le 4 s : Supreme Court of the United States. Octoser Term, 1944. RAYTHEON PRODUCTION CORPORATION, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. PETITION FOR WRIT OF CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE FIRST CIRCUIT. To the Honorable the Justices of the Supreme Court of the United States: The petitioner, Raytheon Production Corporation, prays that a writ of certiorari may issue to review the decree of the Cireuit Court of Appeals for the First Circuit entered July 28, 1944, in the case between the above-named par- ties, docketed therein as No. 3956. Said decree affirmed a decision of the Tax Court of the United States that an amount received in settlement of a damage suit under the federal anti-trust laws (charging damage to business good will through illegal licensing agreements) is taxable in- come in full in the absence of any showing of cost or other basis of the good will injured. 2 Opinions Below. The findings and opinion of the Tax Court are reported in 1 T.C. 952, and printed in the Record, pp. 16-31. The opinion of the Cireuit Court of Appeals is not yet officially reported (but see 1944 C.C.H. § 9424). It is printed in the Record, pp. 139-148. Jurisdiction. This Court has jurisdiction to review said decree under U.S. Code, Title 28, See. 347. This application is made within three months after the entry of such decree, as required by Section 350. Question Presented. Is an amount received in settlement of a suit under the federal anti-trust laws (charging tortious injury in dam- aging the valuable good will of a radio business but not involving accounting for any income or compensation for taking or conversion of any asset) income in the absence of shewing of cost or other basis of the good will? Statutes Involved. The statute involved is the Revenue Act of 1936, Sees. 22, 111, 112, and 113. The relevant parts of these sections are set out in the appendix (infra, p. 13). Statement. The petitioner, Raytheon Production Corporation, came into existence as a result of a series of tax-free reorgan- ERA EAS IES ACNE DER TTR IAT AEN RES LOLA AOS EES PE MS A izations having no effect upon this case (R. 140). Like the court below, we will refer to any one of the original or successive companies as ‘‘Raytheon.’’ The original Ray- theon Company was a pioneer manufacturer of a rectify- ing tube which made possible the operation of radio re- ceiving sets on alternating house current. In 1926 and 1927 it was doing a large and profitable business produc- ing over half the rectifying tubes being used (R. 41). This business continued in 1928 on a diminishing scale. Earn- : ings were: 1926, $450,000; 1927, $150,000; 1928, under : $10,000 (R.-46, 45). It was producing these tubes under patents of its own, free of any license fees. Radio Cor- poration of America (R.C.A.) had many patents covering most of the practical circuits used in radio sets (R. 42), and it developed a competitive tube which produced the same kind of rectification as Raytheon’s. Karly in 1927 R.C.A. offered licenses to set manufactur- ers under its patents and cross-licensing agreements with General Electrie Company, Westinghouse, and American Telephone & Telegraph Company. In the licensing agree- ment it incorporated ‘‘Clause 9,’’ which provided that the licensee was required to buy its tubes from R.C.A. (R. 50). Clause 9 was held to be illegal in Lord et al. v. Radio Cor- poration of America, 24 Fed. (2d) 565 (D.C. Del.); af- firmed, 28 Fed. (2d) 257 (C.C.A. 3); certiorari denied, 278 US. 648. In 1928 practically all manufacturers were operating under R.C.A. licenses; and, as a consequence of the re- striction in Clause 9, Raytheon was left with only replace- ment sales, which soon disappeared (R. 43). When Ray- theon found it impossible to market its tubes in the early part of 1929, it obtained a license from R.C.A. to manu- facture tubes on a royalty basis under the latter’s patents. The license agreement contained a release of all claims of Raytheon against R.C.A. by reason of illegal acts of ! 5 ; } A seat Sa eee 4 the latter under Clause 9. But a side agreement provided that, if R.C.A. were to pay compensation to any other company on account of ‘‘Clause 9’’ damages, the right of Raytheon to assert its claim would be reinstated (R. 51). In 1931 R.C.A. admitted making cash settlements of other claims (R. 56). On December 14, 1931, suit was brought on the Raytheon claim against R.C.A. in the United States District Court for the District of Massachusetts for triple damages under the Sherman and Clayton Acts, ad damnum $15,000,000. The declaration alleged that the plaintiff had by 1926 created and then possessed a large and valuable good will in interstate commerce in rectifying tubes for radios and had a large and profitable established business therein; that the defendant conspired to destroy the busi- ness of the plaintiff and others by a monopoly of such business and did suppress and destroy the existing com- panies; that by the early part of 1928 the tube business of the plaintiff and its property and good will had been to- tally destroyed at a time when it had a present value in excess of $3,000,000 (R. 141). The suit was brought by the petitioner’s predecessor, a Massachusetts corporation, but wholly for the benefit of the petitioner. The case came before this Court on a preliminary issue, 296 U.S. 459, and thereafter was referred to an auditor, who found that Clause 9 was not the cause of damage to the plaintiff but that the decline in the plaintiff’s business was due to ad- vancement in radio art and competition. He also found, however, that, if the plaintiff were entitled to recovery, the damages would be $1,000,000 (R. 142). A jury trial had been claimed, and it was open to the jury to come to dif- ferent conclusions (R. 80, 83° In the spring of 1938, just prior to the time for the commencement of the trial before a jury, officers of the Raytheon affiliated companies began negotiations for the settlement of the litigation with R.C.A. In the meantime, a suit brought by R.C.A. against DADs At Tee AEM Deh ERIE TERE LAS RM OR LE the petitioner for the non-payment of royalties resulted in a final judgment of $410,000 in favor of R.C.A. The par- ties finally agreed on the payment by R.C.A. of $410,000 in settlement of the anti-trust action, R.C.A. stating, how- ever, that it wanted some of Raytheon’s patent rights “thrown in’’ to R.C.A. (R. 60). Patent license rights were included in the settlement, but R.C.A. declined to allocate the amount paid. The agreement of settlement contained a general release of all claims between the par- ties (xs. 19, 20, 24, R. 97-105). The officers of the Raytheon companies testified that $60,000 of the $410,000 was the maximum worth of the patents (R. 68, 78). In the proceedings in the Tax Court the Commissioner admitted that the value of the patent rights did not exceed $60,000 (Answer, paragraph V B, R. 13). The petitioner returned $60,000 of the $410,000 as in- come from the patent rights and treated the remaining $350,000 as a realization from a chose in action and not as taxable income. The Commissioner determined that the $850,000 constituted income on the following ground only: ‘tIt is the opinion of this office that the amount of $350,000 constitutes income under See. 22(a) of the Reve- nue Act of 1936. There exists no clear evidence of what the amount was paid for so that an accurate apportionment can be made as to a specific consideration for patent rights transferred to Radio Corporation of America and a con- sideration for damages. The amount of $350,000 has there- fore been included in your taxable income’’ (R. 9). The Tax Court sustained the Commissioner on the grounds (1) that in view of the general language in the in- struments of release ‘‘We are unable to allocate any por- tion of the settlement to non-taxable capital recovery in the face of the presumption that the Commissioner’s de- termination to the opposite effect is correct’? 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