21 F.(2d) 773 ings (see Lorain Steel Co. v. New York defendant in other tribunals plaintiff's rights Switch & Crossing Co. [C. C.] 153 F. 205) to this and to other closely related inventions. but otherwise it was not pressed upon the at- There is no indication that plaintiff did anytention of the court until the case was before thing to prevent defendant from bringing the master. I think the defendant has not this suit on for hearing earlier, if it had dewaived any rights to invoke the provisions of sired so to do. The element of equitable esthe statute. Lorain Steel Co. v. New York toppel is wanting. See Walker on Patents Switch & Crossing Co., supra; Flat Slab (5th Ed.) § 596, and cases cited. The dePatents Co. v. Turner (C. C. A.) 285 F. 257; fendant has not made out this defense. Dunlap v. Schofield, 152 U. S. 244, 14 S. Ct. [8] The only exceptions remaining to be dis576, 38 L. Ed. 426. Nor do I think the order posed of are those which relate to findings of of reference to the master precluded him from fact bearing upon the claim of plaintiff to excluding damages sustained by plaintiff increased damages under R. S. §§ 4919 and prior to notice. In Austin-Western Road 4921, and those relating to the exclusion of Machinery Co. v. Disc Grader & Plow Co. evidence. (C. C. A.) 291 F. 301, cited by the master, the order of reference required the master to find damages for a definite period. In the present case the order is to find "all damages to which the plaintiff may be lawfully entitled." The plaintiff further contends that, even if the question is open to the defendant and the master has authority to exclude such damages, he ought not to do so since the defendant had actual knowledge of the infringement. It is true that defendant had knowledge of the patent soon after it was granted, and was aware of the infringement, but the plaintiff does not prove that he ever gave defendant notice of the infringement prior to date of the filing of this bill of complaint. The statute requires some affirmative act on the part of the patentee. Compliance is not proved by showing that the defendant acquired knowledge of the patent, or even of the possible infringement, from some independent source. Pairpoint Manufacturing Co. v. Eldridge Co. (C. C.) 71 F. 307; Gibson v. American Graphophone Co. (C. C. A.) 234 F. 633; Westinghouse E. & Mfg. Co. v. Condit Elec. Mfg. Co. (C. C.) 159 F. 154; Dunlap v. Schofield, supra. I rule, therefore, that plaintiff cannot recover damages accruing before the filing of the bill of complaint, and, in accordance with an alternative finding of the master, the damages will be reduced by the amount of $20,800, which is the part of said damages on the basis of reasonable royalty that accrued prior to August 19, 1916. 6. The last of the issues above referred to arises on defendant's claim that plaintiff has not diligently prosecuted his suit. The findings of fact do not support this contention. Notwithstanding plaintiff's suit, defendant elected to continue its acts of infringement, and it should abide the consequences. Much of the 51⁄2 years between 1916 and 1922 was spent in litigating with this Shall plaintiff's damages be increased? The master has made no recommendation, but has reported findings of such facts as will enable the court to determine whether it shall, "according to the circumstances of the case," order a decree for any sum above the amount of actual damages sustained These findings of fact are amply justified by evidence adduced before the master. The controlling facts gathered, not only from the master's report but from the whole record, including the opinion of Judge Anderson, are these: Prior to 1914, defendant had put out blind-eyeletting devices which had not proved satisfactory. In January, 1914, plaintiff filed his application for the patent in suit, and soon thereafter began to put on the market his eyeletting punch. About the same time, defendant began to put on the market a similar device, claiming under rights (subsequently held invalid) secured February 19, 1914, from one Cote, whose invention did not include the recess above the setting shoulder. Defendant's tools, however, were made both with and without this recess. In May, 1914, plaintiff acquired alleged rights in the Deitsch invention covering the upsetting shoulder, and on August 7, 1914, disclaimed as to this feature of the tool on his application and on August 10, 1914, filed an application based on the invention of Deitsch. In the meantime, on August 1, 1914, one Henry Doulett had filed an application for a patent on a tool quite unlike plaintiff's, but embodying the features of the restricted shoulder and adjustable abutment but without any recess above the setting shoulder; in fact, Judge Anderson finds that the "contracted portion above the setting shoulder would be inconsistent with the clinching theory involved in Doulett's alleged invention." Plaintiff's patent issued October 6, 1914. On October 9, three days later, defendant's eyeletting department was advised by defendant's patent department that the eyeletting tools with the recess, put out by the defendant, clearly infringed plaintiff's patent, and on that day all the infringing tools were called in. Almost immediately thereafter defendant bought Doulett's rights, and in November, 1914, it caused Doulett to file an amended application claiming the recess above the shoulder, and brought about an interference with the plaintiff's patent. It also brought about interference with the Deitsch application. In the Patent Office and on appeal to the Court of Appeals for the District of Columbia, the defendant was successful. In the interference proceedings of Doulett v. Muther, 51 App. D. C. 201, 277 F. 600, the defendant not only refused to produce, but strenuously and successfully resisted all attempts to compel the production of, correspondence between Doulett and his patent attorneys, which had a strong tendency to show that Doulett first conceived and reduced to practice his invention in March, 1914 (two months after Muther had filed his application), and which also tended to show that Doulett's conception did not include the recess. This correspondence was known to defendant as early as June, 1916, but the nature of it was not disclosed to the attorney who was representing the defendant in the interference proceedings until after Doulett's case had been closed. It was produced at the hearing in this court and given due weight by the learned judge, who found, by an overwhelming weight of evidence that Doulett had not invented any blind-eyeletting device with a contracted portion above the restricted shoulder in 1913, or at any other time. I gather from his opinion that much of the testimony, offered to overcome Doulett's written statement that he had first used his invention in March 1914, did not impress the court. It is inconceivable, on this state of facts, that the defendant could have entertained, at any time after it began to infringe in May, 1915, a sincere belief that Doulett was the prior inventor of the Muther device, whatever grounds it may have had for believing that Doulett had first invented the upsetting shoulder and an adjustable abutment. One cannot escape the conclusion reached by the master that the defendant "deliberately continued the infringement in entire disregard of plaintiff's rights until enjoined, and "that the defendants at least after June, 1916, did not infringe in the sincere conviction that the Muther patent was anticipated and invalid, or under a merely mistaken belief in their legal rights, but took the risk under the incentive of large benefits to be derived from the infringing business, and infringed at their peril." The infringement was willful, deliberate, and intentional, and a case seems to be presented for the exercise of the discretionary power of the court to increase plaintiff's legal damages. The more difficult matter is to determine the extent of the increase. While doubtless one of the purposes of the statute was to deter acts of infringement and compel a due respect for the monopoly secured by the patent, yet I do not conceive it to be the intent of the law to unjustly enrich the injured party at the expense of the wrongdoer. As I had occasion to point out in a recent opinion, the early decisions upon the statute indicated a purpose to administer the law "more with a desire to render full justice to the party wronged than to inflict punishment upon the infringer. The underly ing purpose of the statute is to provide ade quate compensation for the injury sustained by infringement of patent rights, where the strict rules of law would not afford it." Beacon Folding Machine Co. v. Rotary Machine Co. (D. C.) 17 F. (2d) 934. In the case at bar, the plaintiff not only has suffered loss in royalties, but, in order to meet the succession of attacks by the defendant upon his exclusive rights, he has been to no small expense. Moreover, as the master finds, the plaintiff has been deprived of profits, not determinable and not compensated by the damages to which the plaintiff is legally entitled. An increase reasonably adequate to compensate for these losses will impose sufficient punishment to satisfy the statute. I have adjudged a sum equal to 25 per cent. of the amount of damages, or $48,367.80, to be a proper sum to add to the damages legally due the plaintiff. [9] The only exception to the exclusion of evidence argued related to the refusal of the master to admit, as evidence in the case, the record in the suit of Muther v. United Shoe Machinery Co. (D. C.) 7 F. (2d) 954, prosecuted in the federal courts of New Jersey, and the opinion of Judge Bodine rendered in said suit. This suit was brought by Muther to compel the issuance of a patent on an application based upon the alleged invention of one Deitsch involving an unrecessed tool. The question there was one of priority of invention between Deitsch and Doulett, and the plaintiff's invention covered by the patent in this suit was not there involved. The record and the opinion were clearly immaterial and incompetent. The sixty-seventh exception of defendant 21 F.(2d) 781 is sustained. All other exceptions are overruled. Plaintiff may recover in these proceedings the sum of $241,839.00 arrived at as follows: $214,271.20 less $20,800.00, plus $48,367.80. Decree accordingly may be entered. UNITED STATES v. RODENBOUGH. George W. Coles, U. S. Atty., of Philadelphia, Pa. Porter, Foulkrod & McCullaugh, of Philadelphia, Pa., for defendant. Finding of Facts. KIRKPATRICK, District Judge. The court finds the facts as stipulated and adopts District Court, E. D. Pennsylvania. August 12, the respective stipulations of fact filed by the 1927. No. 11898. 1. Words and phrases "Exchange" means the giving of one thing for another, excluding transactions into which money enters. "Exchange" means the giving of one thing for another. To constitute an exchange in a legal sense, the mutual transfers must be in kind, and any transaction into which money enters, either as the consideration furnished by one party or as a basis for measuring the value of the thing transferred, is excluded. [Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Exchange.] 2. Internal revenue 8(14)-Where decedent deposited proceeds of inherited property in bank and checked it out in payment of securities she held at her death, estate held not entitled to deduction of value of property as received "in exchange for" property inherited within five years (Revenue Act 1918, § 403 (a), subd. 2 [Comp. St. § 63363⁄4d]). Decedent, within five years prior to her death, inherited property from her father, including securities which she sold, and stock of a corporation which was subsequently liquidated. Proceeds of the sales and the liquidation dividends she deposited in her general bank account, with money from other sources, and from that account, during the next two years she checked in payment for other securities which she bought and held at the time of her death. Held, that the value of such securities was not deductible from the value of her estate in computing estate tax under Revenue Act 1918, § 403 (a), subd. 2 (Comp. St. § 63364d), as property which could be "identified as having been acquired in exchange for" property received from her father's estate. 3. Internal revenue 28(2)-Discharge of executor from personal liability for estate tax does not bar suit against him in representative capacity (Revenue Act 1921, § 407 [Comp. St. § 633634h]). The provision of Revenue Act 1921, § 407 (Comp. St. § 6336h), discharging an executor from personal liability for any additional estate tax on payment of amount assessed, does not bar action against him in his representative capacity for such additional tax. At Law. Action by the United States against Elmer E. Rodenbough, executor of the will of Elizabeth McCahan Rodenbough, deceased. Judgment for the United States. See, also, 14 F. (2d) 989. parties of record as its findings of fact. Conclusion of Law. Mrs. Rodenbough as a basis for deduction The property claimed by the executor of is not property which can be identified as having been acquired by the decedent in exchange for property received by her as a share in the estate of any person who died within five years prior to her death. Opinion of the Court. This is an action by the United States to recover the sum of $111,852.58 with interest, the balance of a deficiency assessment of estate tax in the estate of Elizabeth MeCahan Rodenbough. The Commissioner of Internal Revenue determined a deficiency due of $113,649.70. On appeal from this determination, the Board of Tax Appeals entered an order determining the deficiency to be $1,797.12, which amount was paid by the defendant. This action was thereupon brought to recover the balance of the deficiency determined by the Commissioner, but which had been disallowed by the Board of Tax Appeals. Mrs. Rodenbough died October 15, 1921. She was a daughter of William J. McCahan, who died within five years prior to her death. Value of Mrs. Rodenbough's share in her father's estate was $3,831,506.22. In the distribution of her father's estate, Mrs. Rodenbough received certain stocks and bonds which are set forth at large in the fourth stipulation of fact, together with certain other securities which remained in her possession until the time of her death. As to these latter, no question is raised, and they were not included in the decedent's gross estate by the Commissioner of Internal Reve nue. All of the securities, particularly referred to in the fourth stipulation of fact, were converted into cash during the lifetime of Mrs. Rodenbough. Some of them were sold by her. Others matured, and were paid off at their maturity dates, Mrs. Rodenbough receiving the cash. In the case of W. J. McCahan Sugar Refining Company (the largest item in the list) this company sold its The question involved is whether the securities claimed as a deduction constituted property "which can be identified as having been acquired by the decedent in exchange for property so received;" that is, received from the estate of a person who died within five years prior to the death of the decedent. assets and distributed their proceeds in liqui- exchange for property so received, if an esdation to the stockholders. Mrs. Roden- tate tax under the Revenue Act of 1917 or bough received, as a result of this distribu- under this act was collected from such estion, $1,296,675 in cash in two installments. tate, and if such property is included in the Upon receipt of the proceeds of the sales, decedent's gross estate." maturities, and liquidating distributions referred to, Mrs. Rodenbough deposited the money to her credit in a general banking account in the Philadelphia Trust Company, where the proceeds were mingled with funds derived from other and miscellaneous sources. From time to time, Mrs. Rodenbough invest ed in other securities, purchasing them by checks drawn against this account. Between the time of the receipt by Mrs. Rodenbough of the securities of her father's estate and the time of her death, she deposited in her bank account from proceeds of sales, maturities, and distributions arising out of the same the sum of $1,716,834.93, and from other and miscellaneous sources the sum of $774,095.14. During that time, she drew checks against her bank balance to purchase other securities referred to in the stipulation of facts in the amount of $1,444,382.20, and for other purposes the sum of $1,018,652.48. She also purchased a house for the sum of $100,000, drawing the funds by check from her general account in the Philadelphia Trust Company. At the time of her death, she was in possession of certain investments which had been purchased in the manner above indicated and paid for by checks drawn upon her general account. The defendant, her executor, claims a deduction under section 403 (a) (2) of the Revenue Act of 1918 (Comp. St. § 633634d), representing the greater part of the value of the securities so purchased. This deduction was disallowed by the Commissioner of Internal Revenue and the deficiency in tax arising from its disallowance is the subject of this suit. Section 403(a) (2) of the Revenue Act of 1918 (40 Stat. 1057) is as follows: "Sec. 403. That for the purpose of the tax the value of the net estate shall be determined "(a) In the case of a resident, by deducting from the value of the gross estate "(2) An amount equal to the value at the time of the decedent's death of any property, real, personal, or mixed, which can be identified as having been received by the decedent as a share in the estate of any person who dies within five years prior to the death of the decedent, or which can be identified as having been acquired by the decedent in The plaintiff's position is based upon the strict legal interpretation of the word "exchange." It is contended that property deductible must have been acquired by a transaction constituting an exchange at common law which is equivalent to barter and exclude all transfers of property for money; that the statute limits the deduction to cases where one such exchange only has taken place; that none of the transactions by which Mrs. Rodenbough acquired the property now claimed as a deduction was an exchange; and that therefore the entire question of the identification of these securities as having been purchased with the proceeds of those received from her father's estate is wholly immaterial. On the other hand, it is the position of the defendant that, looking toward the substance of the transactions and not the form, Mrs. Rodenbough's purchase of new securities in substitution for those obtained from her father's estate and subsequently paid off, liquidated, or sold, constituted acquiring property in exchange, and that, by tracing the proceeds through her bank account, the securities claimed as a deduction can be identified as property so acquired. [1] There is no difficulty about the legal 21 F.(2d) 781 which money enters, either as the consideration furnished by one party or as a basis for measuring the value of the things transferred, is excluded. To constitute an exchange in the legal sense, the mutual transfers must be in kind. So far the contention of the government is correct, and is supported by ample authority. [2] But we are here concerned with the meaning, not of a single word, but of a phrase, viz. "acquired in exchange for." If the statute referred to property "exchanged," or if the words were "acquired by an exchange," or even "acquired by exchange," the conclusions drawn by the government would undoubtedly follow. But the phrase under consideration has a broader meaning. Thus, in case of a sale, say of a bond for $1,000 in cash, it is perfectly correct to say that the money was acquired or received in exchange for the bond, although the transaction is a sale and not an exchange at all in the legal sense. Courts have even made use of the phrase in question in defining a sale. "Sale means transfer of property in exchange for money or security for money." Brown v. Fitz, 13 N. H. 283. Whatever the strict legal intendment of the word "exchange" may be, the phrase "in exchange for," according to common usage, does not exclude the idea of money as a medium for carrying out the transaction. The or On the other hand, it is obvious that, in providing for the deduction in question, the Congress took care to place definite limits upon it. It carefully avoided allowing a general deduction to the amount of the property received from the prior decedent. phrases adopted to define and limit the scope of the deduction were: "The value of any property, which can be identified as having been received by the decedent as a share in the estate which can be identified as having been acquired by the decedent in exchange for property so received." In arriving at the intention of Congress in using the latter of these limiting phrases, we may consider the object which it sought to obtain by the section in question and the evil which it endeavored to remedy. In enacting the second subdivision of section 403 (a) of the Revenue Act, providing for the deductions here claimed, Congress unquestionably had in mind the hardship arising from the double taxation of the same or substantially the same estate, which under the old law would arise from the accident of two successive deaths occurring within a comparatively short time. It was the subjection of the same property the second time to the taxing power that in the judgment of Congress called for a remedy. On this point the report of the ways and means committee on the Revenue Bill of 1918, Sixty-Fifth Congress, Second Session, Report 267, accompanying H. R. 12863, is illuminating. That report says: "It has come to the attention of the committee that persons closely related have died within such a short space of time that the same estate passing within a short period of time has been subject to the estate tax and thereby diminished because of the short period within which the two levies have been made." In introducing the bill in the House of Representatives, Mr. Kitchen said: "We have another very just provision that, if a person who receives a share of an estate dies within five years from the death of the person from whom he receives the estate, his share shall not pay another transfer tax within the five-year period." It is quite true that the tax is not in theory a direct tax upon the property, but upon the right to transmit it; but the tax was as a practical matter usually borne by the property of the estate. It was the depletion of the same estate by the second imposition of a tax that Congress sought to avoid. Another consideration which may also have been present in the adoption of the phrases in question is the practical difficulty in applying the statute and the intricacies of proof involved in tracing funds where property had passed through a number of changes in form, or where money had been commingled with other funds. At any rate, it is clear that, in allowing the deduction, the Congress deemed the substantial identity of the property of the estate sought to be taxed with that received from the prior decedent to be the essential and controlling fact. With this as the paramount purpose in mind, it was entirely consistent and reasonable to extend the deduction to cases where, by reason of the mode of its acquisition, the new property was so closely related with that received as to be essentially the same property, changed in form only, and this is clearly the intent underlying the second clause providing for cases where property had been acquired in exchange for property of the prior decedent. If the language used by the Congress to express its purpose be carefully considered, it will be seen that it is nicely adapted to that object. These considerations are overlooked by the defendant in his argument as to the meaning of the phrase in question. The result of his contention, so far as it applies to |