Commonwealth v. Westinghouse Elec., 151 Pa. 265 (1892)

“ 1. The defendant is a Pennsylvania corporation originally chartered April 9, 1872, P. L. of 1873, p. 1096. This act refers [p. 266] to the act of May 12, 1871, P. L. 787, and both are therefore made part of this 'finding. During the tax year of 1890 it had an average capital stock of $6,502,405, but declared dividends amounting to seven per cent upon an average capital stock of only $4,798,164.10. Upon the last named amount this settlement seeks to recover a tax of three and one half mills.

[“ Upon these facts and for the reasons given in Commonwealth v. William Mann Co., No. 385 January term, 1892, we [p. 267] hold that the defendant is a corporation organized exclusively for manufacturing purposes and actually carrying on manufacturing within the state, and therefore that no portion of its capital stock is taxed by section twenty-one of the act of 1889; but if this position is not correct it is clear that so much at least of its capital stock as is invested in its manufacturing plants in New York and New Jersey are not taxable. Commonwealth v. Pennsylvania Coal Co., 5 Pa. C. C. 90; Commonwealth v. American Dredging Co., 122 Pa. 386.

“An assignment, then, operates upon both elements above referred to, upon the invention and also upon the monopoly, and cannot transfer either separately. It must convey the [p. 268] entire interest of the patentee, or an undivided part thereof, and must embrace the whole United States. A grant differs from an assignment only in the fact that the area within which it operates is defined, and must be less than the whole United States. A license is the conveyance of any more restricted interest in the invention than that which is the proper subject of a grant, and does not transfer the monopoly except by way of estoppel against the owner of the patent. The distinction is thus stated in Robinson on Patents, § 792: ‘A transfer of the right to make, or use or sell, or of the exclusive right to make, use or sell, does not convey the entire interest; the grant must operate on all three of these rights and be exclusive as to all; and a transfer which does not thus operate is a mere license.’ And in § 806 the distinction is thus stated: 4 Any conveyance of an interest in a patented invention, which cannot operate as an assignment or a grant, is a license.’ For a full discussion of the whole subject of transferring letters patent we refer to Robinson on Patents, chap. Y, § 752 et seq., and § 806 et seq. See also Oliver v. Rumford Works, 109 U. S. 81.

“ The case of a license stands in a somewhat different position. This form of conveyance does not rest upon the acts of congress, but upon custom and judicial sanction : 2 Rob. Pat. § 760. It is governed and defined by state law as distinguished from statutory patent law, and is subject to the incidents which attach to all agreements: lb. § 806. Its extent depends entirely upon the contract of the parties, but even where it takes the usual form or exclusive right to use, or to make and use, [p. 269] or to make and sell, within a specified territory, it does not in any degree transfer the monopoly. This is only affected by estopping the licensor from exercising his prohibitory powers in derogation of the privileges conveyed by him to the licensee: lb. § 606. The exclusive licensee is entitled to enjoy the privileges thus conveyed without interference from the licensor, and to be protected by him against the violation of these privileges by others (Ibid. § 819), but this right of enjoyment and protection rests upon express or implied contract and not upon the federal law. The licensee cannot protect himself against one who is infringing upon his privilege ; he must call upon the licensor as the person who possesses the monopoly, and can only hope for relief through his successful action. If the licensor refuses to exert his monopoly in behalf of the licensee, the latter has no remedy against the infringer; his only right of action lies against the licensor for an ordinary breach of an express or implied agreement. While, therefore, the licensee may be seriously affected by the monopoly, he has no legal interest in it; he cannot control it or wield any of its power, and his connection with it is sensibly different from the connection enjoyed by an assignee or a grantee.

“The tax now in question is upon the defendant’s capital stock, and not upon the dividends, which only furnishes the measure of taxation: Phoenix Iron Co. v. Com., 59 Pa. 104; Bridge Co. v. Com., 117 Pa. 265. Being upon the capital stock, it is a tax upon the company’s property and assets: Com. v. Standard Oil Co., 101 Pa. 119; Fox’s Ap., 112 Pa. 354; and is, therefore, upon the patent rights themselves, whether they are original patents or assignments or grants or licenses. They must be considered as property of some kind, although thq right is intangible, and is merely ‘ a property in notion,’ to use Lord Mansfield’s phrase concerning copyright in Miller v. Taylor, 4 Burr. 2396; see also Rehfuss v. Moore, 134 Pa. 471. Considered, therefore, as a tax upon the right itself, we think [p. 271] it cannot possibly be supported, because it restrains and interferes with a right granted by congress in the exercise of power exclusively committed to the government of the United States by the federal constitution. That instrument, by section 8 of article 1, gives power to congress ‘ to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective rights and discoveries,’ and this power has been exercised for nearly a century. In respect to the subjects and exercise of other powers of congress, express or implied, it is abundantly settled that the states cannot interfere with either by taxation, because the power to tax to any degree involves the power to destroy. Thus, it has been held that a state could not tax the operations of a branch of the United States bank: McCullouch v. Maryland, 4 Wheat. 816; Osborne v. Bank, 9 Wheat. 738. And it cannot tax the loans of the United States : Bank v. Mayor, 7 Wall. 16; Pittsburgh v. Bank, 55 Pa. 45; or the office or emoluments of a federal officer: Dobbins v. Erie, 16 Pet. 435; or commerce between the states : Com. v. Canal Co., 1 Mona. 86 ; or the carriage of the mails : Com. v. R. R. Co., 21 W. N. 412; or the operations of a federal agency: R. R. Co. v. Peniston, 18 Wall. 5; or the franchise of a railroad company granted by congress: Cal. v. C. P. Ry. Co., 127 U. S. 1.

‘- The reasoning of this latter case seems to us to be decisive of the point before us. The court says, p. 40: ‘Assuming, then, that the Central Pacific Railroad Company has received the important franchises referred to by grant of the United States, the question arises, whether they are legitimate subjects of taxation by the state. ... It may undoubtedly tax outside visible property of the company situated within the state. That is a different thing. But may it tax franchises, which are the grant of the United States ? In our judgment it cannot.’ After describing the character of the franchise, the opinion proceeds: ‘ Recollecting the fundamental principle, that the constitution, laws and treaties of the United States are the supreme law of the land, it seems to us almost absurd to contend that a power given to a person or a corporation by the United States may be subjected to taxation by a state. The power conferred emanates from, and is a portion of, the power of the government that confers it. The tax is not onfy derogatory [p. 272] from the dignity but subversive of the powers of the government and repugnant to its paramount sovereignty.’ While a patent right may not be a franchise in the strict sense of that word, it certainly resembles it in being a privilege which concerns and is intended to benefit the public, and which depends for existence and preservation upon the government which confers it. Such a right granted by congress would be exposed to serious danger if every state could tax it at will, either directly or by means of a tax upon capital stock. In Pennsylvania it could be reached without difficulty by exercising a legislative power to classify subjects of taxation. Suppose a taxing statute to put together in one class all corporations whose capital stock was invested, either in whole or in part, in patents granted by the United States, and to tax them at a different rate from all other corporations. If this would be constitutional the class first named might be destroyed; and before it is pronounced unconstitutional the objector may be recommended to lay down the rules which, in his opinion, ought to govern the legislature in classifying, and may then be referred to Com. v. Del. Div. Canal Co., 128 Pa., and the cases cited on pages 620 and 621, and to Com. v. Germania Brewing Co., 144 Pa., as illustrations of the extensive and undefined and perhaps indefinable nature of this great power.

This cause was submitted to the decision of the court below without a jury under the act of 1874. In such cases it has [p. 274] been repeatedly held that the findings of fact are no more reviewable by this court than is the verdict of a jury: Jamieson v. Collins, 83 Pa. 359; Lee v. Keys, 88 Pa. 175; Brown v. Dempsey, 95 Pa. 243; Commonwealth v. Railroad Co., 104 Pa. 89; Bradlee v. Whitney, 108 Pa. 362; Railroad Co. v. Moyer, 125 Pa. 506; Commonwealth v. Hulings, 129 Pa. 317. For this reason the first five specifications of error cannot be noticed farther than to say that the exceptions referred to in the fourth and fifth appear to have been sustained by the court below.

The sixth specification of error raises the question whether the defendant corporation is within the proviso to the twenty-first section of the act of June 1, 1889, P. L. 431, exempting the capital stock of corporations, limited partnerships and joint stock associations organized exclusively for manufacturing purposes and actually carrying on manufacturing within this state from taxation. The learned judge of the common pleas found that the company was incorporated by and in virtue of an act of the general assembly of this commonwealth approved April 9, 1872, entitled “An act to incorporate the Chartiers Improvement Company, and to define the powers thereof,” which referred to another act entitled “An act to incorporate the Improvement and Co-operative Company, with powers to acquire and improve property, to use and dispose of the same, and for other purposes,” approved May 12, 1871, for a definition of its powers, and made these acts part of his finding. Turning to the acts in question it is fouzid that the defendant corporation was empowered to engage in enterprises so vaguely defined that it would be unsafe to say what was not authorized, if anything could be authorized by such generalities, except the issue of its own obligations as currency which was expressly excluded, and manufacturing which the most liberal construction of the language of the act of 1871 would not comprehend. It was, however, expressly authorized “ to make purchases and sales of and investments in the securities of other companies,” and to do many other enumerated things which were not manufacturing. He farther found that during the tax fear 1890, and for some time previous thereto the defend- ' ant Was exclusively engaged in the manufacture of electrical apparatus and appliances and machinery for the generation, [p. 275] transmission and utilization of electricity, and in no other business, and because it was so engaged he held that it was organized exclusively for manufacturing purposes. In Commonwealth v. William Mann Company, 150 Pa. 64, it was held that a corporation is organized when the agents or officers by which alone it can perform its appropriate functions have been appointed and taken upon themselves the burden of their offices, and that it is then organized for the purposes authorized by the law of its creation. It is necessarily organized for all of its lawful purposes, because, until organization, it cannot, from mere incapacity to perform any corporate act, abdicate or surrender any of its franchises. Whether it could lose by mere non-user, or abdicate or surrender any part of its franchises after organization is not a question of any moment in this cause. Neither the loss, or surrender of franchises granted, nor the usurpation of others not granted could change the fact that this defendant corporation was organized for the purpose, among other things, of making purchases and sales of and investments in the securities of other companies. It cannot, therefore, be said to have been organized exclusively for manufacturing purposes, and hence is not within the proviso to the twenty-first section of the revenue act of 1889.