Opinion of the Commissioner 145 C. Cls. The case was referred to Mastin G. White, a trial commissioner of the court, with directions to make findings of fact and recommendations for conclusions of law which he has done in his report filed June 26, 1958. The court after having considered the evidence, the briefs and argument of counsel agrees with the findings and conclusions reached by the trial commissioner as hereinafter set forth. They are hereby adopted and made the basis of the court's judgment in this case. Plaintiff is therefore entitled to recover, together with interest as provided by law, and judgment is entered to that effect. The amount of recovery will be determined pursuant to Rule 38 (c). It is so ordered. OPINION OF THE COMMISSIONER This suit arose because of the action of the Commissioner of Internal Revenue in rejecting alternative claims for refund filed by the plaintiff on the theory that it had overpaid its income tax for 1943 or 1944 or 1945. The plaintiff asserted before the Commissioner of Internal Revenueand it asserts in the present litigation-that it was entitled, in computing its taxable income for one of the three years mentioned, to take a deduction because of a loss in the amount of $244,375, representing the cost to the plaintiff of three trade-marks which it had acquired in February 1924. The defendant apparently concedes that the cost of the three trade-marks 1 was deductible as a loss for income tax purposes at an appropriate time, but the defendant contends that the proper time for the taking of such a deduction occurred prior to 1943, and, accordingly, that the plaintiff waited too long to assert its right in this respect. 1 The three trade-marks referred to above consisted of the names "Neutrodyne," "Neutroformer," and "Neutrodon." They were acquired by the plaintiff, along with other assets, in February 1924 by assignment from the Hazeltine Research Corporation. 1 The defendant says that the evidence in the present case does not show the actual amount of such cost. It is found as a fact, however, that the cost of the trade-marks amounted to $244,375. (See finding 5 (d).) 138 Opinion of the Commissioner The most important of the assets acquired by the plaintiff from the Hazeltine Research Corporation in February 1924 were four inventions that had been made by Professor Louis A. Hazeltine in an effort to eliminate the oscillations, and the resulting squeals, whistles, and howls, which characterized radio reception in the early days of the radio industry. Professor Hazeltine's study and work resulted in several inventions covering a neutralization method for eliminating the trouble previously mentioned, and also covering a radio receiver incorporating such method. paper describing these inventions (which will usually be referred to in this opinion as the "neutralization inventions") was read by Professor Hazeltine before a meeting of the Radio Club of America at Columbia University in March 1923. A model of a radio receiver utilizing such inventions was also demonstrated at the same meeting. The production of this type of receiver on a commercial scale by manufacturers holding licenses for the use of the neutralization inventions was begun a few months thereafter, and it soon found wide public acceptance. As of February 1924, when the ownership of the neutralization inventions was acquired by the plaintiff, one of these inventions-the basic invention-was covered by a patent which had been issued on March 27, 1923; and two of these inventions were covered by applications for patents, which subsequently resulted in the issuance of a second patent on April 1, 1924 and a third patent on April 14, 1925. There was a fourth invention in the neutralization group as of February 1924; and a patent application relative to this invention was filed on April 7, 1924, resulting in the issuance of a fourth patent on March 16, 1926. The trade-marks Neutrodyne, Neutroformer, and Neutrodon had been registered by the Patent Office on August 21, 1923, prior to their acquisition by the plaintiff in February 1924. The trade-mark Neutrodyne was registered "for radio receiving sets," and it was used to refer to receiving sets embodying the neutralization inventions. The trade-mark Neutroformer was registered "for electrical transformers"; the trade-mark Neutrodon was registered "for electrical condensers"; and both of these trade-marks were used to Opinion of the Commissioner 145 C. Cls. refer to components of the type of radio receiving set embodying the neutralization inventions. By the time when the plaintiff acquired the ownership of the neutralization inventions and the three trade-marks in February 1924, the public demand for the type of radio receiver utilizing such inventions was so great that the manufacturers of the receivers were able to sell all that they could produce. At that time, and for several years thereafter, the licenses that authorized the use of the plaintiff's neutralization inventions also granted to the licensees the right to use the trade-marks Neutrodyne, Neutroformer, and Neutrodon. Such licenses required that radio receiving sets manufactured through the use of the neutralization inventions be advertised and marked as Neutrodyne sets. The public demand for and the production of radio receivers utilizing the neutralization inventions continued to grow until 1928, when a peak was reached. Thereafter, this type of receiver began to be superseded by receivers utilizing a device known as the screen grid tube. By 1930, the neutralization type of receiver was obsolete, and no such receivers were manufactured after that year. No licenses authorizing the use of the neutralization inventions, apart from other inventions, were issued after 1930. The popularity of the trade-marks Neutrodyne, Neutroformer, and Neutrodon, and their use for advertising and marking radio receiving sets manufactured by persons holding licenses for the use of the plaintiff's neutralization inventions, waxed and waned along with the popularity of the neutralization type of receiving set. These trade-marks were not used subsequent to 1930. After the neutralization type of radio receiving set became obsolete in 1930, the plaintiff discontinued the issuance of licenses that related solely to the use of the neutralization inventions and the trade-marks Neutrodyne, Neutroformer, and Neutrodon. However, the plaintiff, in addition to the ownership of the neutralization inventions, owned other inventions that were useful in the radio field. After 1930, the plaintiff continued in the business of issuing licenses authorizing the use of inventions owned by it, and collecting fees for such use. Beginning in about 1932, 138 Opinion of the Commissioner the licenses issued by the plaintiff customarily granted the right to use all of its inventions, including the neutralization inventions, although the latter were not actually used after 1930. These blanket licenses did not refer specifically to the use of the trade-marks Neutrodyne, Neutroformer, and Neutrodon. Although the trade-marks Neutrodyne, Neutroformer, and Neutrodon were not actually used by the plaintiff or its licensees after 1930, the plaintiff's books and records continued to show the trade-marks as an asset until 1944. In February 1943, the prospective expiration of the Federal registrations of the trade-marks Neutrodyne, Neutroformer, and Neutrodon was considered by the plaintiff's board of directors, which adopted the following resolution: Resolved, that (1) the trademarks Neutrodyne, Neutroformer and Neutrodon be not re-registered in the U. S. Patent Office but that said registrations be allowed to expire and (2) that this corporation abandon the said trademarks, surrender the same and renounce the exclusive right or privilege to use or employ the same in its business. The plaintiff permitted the registrations of the three trademarks to expire in August 1943, but it did nothing further during 1943 by way of abandoning the trade-marks. At a meeting of the plaintiff's board of directors held on December 13, 1944, the following resolutions were adopted: Resolved, that the corporation abandon both the said registration of said trademarks and the said trademarks and any and all right, exclusive or otherwise, arising from the said registration and trademarks at common law and further Resolved, that the officers be and hereby are instructed to reflect in the accounts the abandonment of the trademarks by writing off the amount [$244,375] at which such trademarks are reflected in the accounts. Appropriate adjustments were subsequently made in the plaintiff's books of account pursuant to the instruction contained in the second of the two resolutions quoted in this paragraph. On February 15, 1945, the plaintiff's board of directors adopted a further resolution which approved the charging Opinion of the Commissioner 145 C. Cls. of the loss on the trade-marks in the amount of $244,375 against earnings for 1944. In the March 28, 1945 issue of Radio and Television Weekly, the plaintiff published an announcement giving notice that "as of and from December 1, 1944," it had abandoned the trade-marks Neutrodyne, Neutroformer, and Neutrodon and had "dedicated said trademarks and trade names and all rights thereunder to the public." There is apparent agreement between the plaintiff and the defendant that under Section 23 (f) of the Internal Revenue Code of 1939 (26 U. S. C., 1952 ed., 23 (f)) the plaintiff was entitled, in computing its net income for the taxable year during which it sustained a loss on the three trade-marks previously mentioned, to take a deduction in an amount representing the cost of the trade-marks to the plaintiff. The principal problem in the case, therefore, is to determine in what year the loss on the trade-marks occurred. Before a taxpayer can take a capital loss deduction for income tax purposes, the capital asset must be completely liquidated by disposing of it or permanently abandoning it as worthless. United States v. Huntington Laboratories, 82 F. 2d 356, 357 (C. A. 7, 1936); Reporter Pub. Co. v. Commissioner of Internal Revenue, 201 F. 2d 743, 744-745 (C. A. 10, 1953), cert. denied 345 U. S. 993. With regard to the three trade-marks involved in the present litigation, the plaintiff says that it abandoned the trade-marks in 1943 or 1944 or 1945, whereas the defendant contends that the plaintiff abandoned these trade-marks prior to 1943. The defendant's basic contention on the subject of abandonment is that the trade-marks Neutrodyne, Neutroformer, and Neutrodon were actually abandoned sometime in 1930, when the plaintiff's licensees stopped using the trade-marks in advertising and marking radio receiving sets, and when the plaintiff stopped issuing licenses which expressly authorized the use of these trade-marks. It has been held by the courts, however, that mere non-use of a trade-mark is not enough to establish abandonment. Beech-Nut Co. v. Lorillard Co., 273 U. S. 629, 632 (1927); Application of 2 See footnote 1. |