27 F.(2d) 777 WHITE, Collector of Internal Revenue, v. HORNBLOWER et al. Circuit Court of Appeals, First Circuit. August 27, 1928. No. 2217. 1. Internal revenue 19(1)-Taxability of certificates of interest issued by trustees of corporation depends on whether trust constituted "association" conducting business for profit (Revenue Act 1918, § 1100 [Comp. St. § 63181], and § 1107, Schedule A-3 [Comp. St. 6318p, Schedule A-3]; Revenue Act 1921, § 1100 [Comp. St. § 63181], and § 1107, Schedule A-2 [Comp. St. § 6318p, Schedule A-2]). Taxability of certificates of interest issued by trustees of corporation depends on whether trust constituted an "association," under Reve tions of Treasury Department, and hence certificates of beneficial interest issued by trustees were not subject to stamp tax under Revenue Act 1918, § 1100 (Comp. St. § 6318i), and section 1107, Schedule A-2 (Comp. St. § 6318p, Schedule A-2), Revenue Act 1921, § 1100 (Comp. St. § 6318i), and section 1107, Schedule A-3 (Comp. St. § 6318p, Schedule A-3). In Error to the District Court of the United States for the District of Massachusetts; James Arnold Lowell, Judge. Action by Henry Hornblower and others, trustees, against Thomas W. White, Collector of Internal Revenue. Judgment for plaintiffs (21 F. [2d] 82), and defendant brings error. Affirmed. J. M. Leinenkugel, Sp. Asst. U. S. Atty., nue Act 1918, § 1100 (Comp. St. § 6318i), and of Boston, Mass. (Frederick H. Tarr, U. S. section 1107, Schedule A-3 (Comp. St. § 6318p, Schedule A-3), and Revenue Act 1921, § 1100 (Comp. St. § 6318i), and section 1107, Schedule A-2 (Comp. St. § 6318p, Schedule A-2), not whether it was strict trust under the Massachusetts law; determining factor not being measure of control over trust vested in bene ficiaries, but whether trustees are conducting business for profit, in quasi corporate form. 2. Internal revenue 19(1)-Powers of holders of certificates issued by trustees of corporation are significant, in determining taxability of certificates, only as showing association for profit (Revenue Act 1918, § 1100 [Comp. St. § 63181], and § 1107, Schedule A-2 [Comp. St. § 6318p, Schedule A-2]; Revenue Act 1921, § 1100 [Comp. St. § 63181], and 1107, Schedule A-3 [Comp. St. § 6318p, Schedule A-3]). In determining taxability under Revenue Act 1918, § 1100 (Comp. St. § 6318i), and section 1107, Schedule A-3 (Comp. St. § 6318p, Schedule A-3), and Revenue Act 1921, § 1100 Atty., of Boston, Mass., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., on the brief), for plaintiff in error. Felix Rackemann and Harrison M. Davis, both of Boston, Mass. (Dunbar & Rackemann, of Boston, Mass., on the brief), for defendants in error. Before BINGHAM and JOHNSON, Circuit Judges, and MORTON, District Judge. MORTON, District Judge. The question is whether certain certificates of interest, issued by the trustees of the Costilla Trust, were subject to the stamp tax imposed on certificates of stock by Revenue Act 1918, § 1100 (Comp. St. § 6318i), and section 1107, Schedule A-3 (Comp. St. § 6318p, Schedule (Comp. St. § 6318i), and section 1107, Sched- A-3), and Revenue Act 1921, § 1100 (Comp. ule A-2 (Comp. St. § 6318p, Schedule A-2), of certificates of interest issued by trustees of corporation, powers of certificate holders and effect of trust deed as constituting partnership or strict trust are significant only as tending to show whether what interested parties did amounted to forming of association for carrying on business enterprise in quasi corporate form for profit or gain. 3. Internal revenue 19(1)-Trust organized to liquidate embarrassed corporation held not "association," and certificates of interest issued by trustees were not subject to stamp tax (Revenue Act 1918, § 1100 [Comp. St. § 63181], and § 1107, Schedule A-2 [Comp. St. § 6318p, Schedule A-2]; Revenue Act 1921, § 1100 [Comp. St. § 63181], and § 1107, Schedule A-3 [Comp. St. § 6318p, Schedule A-3]). Where purpose of trust of real estate corporation was to liquidate embarrassed corporation, and trustees never owned any property, except securities deposited with them, nor took any part in management of company's affairs, and power to run corporation was limited by purpose for which trust was created, trustees did not carry on business enterprise, and trust was not an "association," defined by Regula27 F. (2d)-49%1⁄2 St. § 6318i), and section 1107, Schedule A-2 (Comp. St. § 6318p, Schedule A-2). The Costilla Estate Development Company was a Delaware corporation organized to develop a tract of land in Colorado and New Mexico. It issued two series of mortgage bonds, and preferred and common stock. It also incurred large direct liabilities in the course of its business. It was unsuccessful, and got into financial difficulties. As the holders of its securities were widely scattered, it was deemed best by the various parties in interest to put all the securities into the hands of trustees, who would thus be in a position most direct and least expensive manner. to work out the affairs of the company in the The plaintiffs below-whom we shall refer to as the plaintiffs-acted as such trustees. They received from various depositors most of the securities issued by the Costilla Company, and also certain claims against it, and they issued in return therefor their own certificates of five kinds (depending on the security received), carrying different rights against the property in the trustees' hands. These are the certificates on which the stamp tax was exacted. By the trust agreement the trustees were given full powers to act in the matter as their judgment might dictate. As owners of practically all securities issued by the corporation they controlled it completely, and they were authorized to continue, reorganize, or liquidate it, or to take over its business themselves. The purpose of the arrangement, as stated in the declaration of trust, was "taking such steps and measures as will insure the most prompt and efficient realization upon the values in the Costilla property and a winding-up of its affairs and the affairs of this trust." Vacancies in the office of trustees were to be filled by the remaining trustees. The provisions of the trust deed might be modified by the trustees, if assented to by a majority of the certificate holders. This was the only power relating to the management of the trust vested in the certificate holders. No property of the corporation was in fact transferred to the trustees. One of them went on the company's board of seven directors, but the corporation was left in possession and management of its assets. The trustees kept in touch with its affairs and conferred with its officers about them. The trustees have had no office, no income, and no expenses, except for traveling. [1,2] The taxability of the certificates depends on whether this trust constituted an "association" under the Revenue Act. That it was a strict trust under Massachusetts law is too clear for discussion. But this is no longer the test of taxability as an "association" under the federal statutes. The measure of control over the trust vested in the beneficiaries does not seem to be the determining factor, but rather whether the trustees are conducting a business for profit or gain. In Hecht v. Malley, 265 U. S. 144, 44 S. Ct. 462, 68 L. Ed. 949, it was said that, as the trustees were "associated together in much the same manner as the directors in a corporation for the purpose of carrying on business enterprises, the trusts are to be deemed associations within the meaning of the act of 1918." "We do not believe that it was intended that organizations of this character described as 'associations' by the Massachusetts statutes, and subject to duties and liabilities as such-should be exempt from the excise tax on the privilege of carrying on their business merely because such a slight measure of control may be vested in the beneficiaries that they might be deemed strict trusts within the rule established by the Massachusetts courts." Sanford, J., 265 U. S. at page 161, 44 S. Ct. 468. See, too, Id., 265 U. S. 157, bottom, 160, 161, 44 S. Ct. 466, 468. This test was again applied in BurkWaggoner Oil Ass'n v. Hopkins, 269 U. S. 110, at page 114, 46 S. Ct. 48, 70 L. Ed. 183. The powers of the certificate holders, and the effect of the trust deed-i. e., whether it constitutes a partnership or a strict trust-are significant only as they tend to show whether what the interested parties did amounted to forming themselves into an association for carrying on a business enterprise in quasi corporate form for profit or gain. See 3 Cook on Corporations (8th Ed.) pp. 2255, 2256. [3] In the case before us the basic purpose of the trust was to liquidate an embarrassed corporation. The trustees never owned any property, except the deposited securities, nor took any part in the management of the company's affairs. Their activities were only such as naturally followed ownership of the securities which they held. This was not carrying on a business enterprise. Von Baumbach, Collector, v. Sargent Land Co., 242 U. S. 503, at page 516, 37 S. Ct. 201, 61 L. Ed. 460; and cf. The Wachusett Realty Trust, as described in the opinion in the Hecht Case at 265 U. S. 159, 44 S. Ct. 467, 68 L. Ed. 949. Moreover, this trust would not come within the definition of an "association" in the Regulations of the Treasury Department, which defines "association" as including an operating or business trust "where the trustees are not restricted to the mere collection of funds and paying them over to the beneficiaries, but are associated together in much the same manner as directors in a corporation for the purpose of and are actually engaged in carrying on business enterprise." The power to take over and run the business of the Costilla corporation given to the trustees in the deed of trust is limited by the purpose for which the trust was created. It does not change the essential character or object of the trusteeship; i. e., liquidation, not continuing business activity. In our opinion the trustees of the Costilla Trust were not an association under the acts in question and the certificates of beneficial interest which they issued were not subject to the stamp tax thereby imposed. The judgment of the District Court is affirmed. BINGHAM, Circuit Judge (concurring). If the Costilla Trust was an "association," either under the Massachusetts statute (Gen. 27 F.(2d) 779 Laws Mass. c. 182, § 6), or according to the ordinary meaning of the term, I agree with the conclusion reached in the opinion of the court. But the Costilla Trust was a strict - trust, and the Massachusetts court, in construing its statute, has held that a strict trust is not an "association," within the meaning of chapter 182, § 6, supra (Bouchard v. First People's Trust, 253 Mass. 351, 148 N. E. 895), and, being a strict trust, it clearly was not an association according to the ordinary meaning of the term. Such being the case, its certificates were not subject to the tax in question. The trusts directly under consideration in Hecht v. Malley, 265 U. S. 144, 161, 44 S. Ct. 462, 468 (68 L. Ed. 949), were only such as are denominated ""associations' by the Massachusetts statutes, and subject to duties and liabilities as such." Hecht v. Malley, 265 U. S. at page 161, 44 S. Ct. 468, supra. There is dictum in the opinion in the Hecht Case, based on the assumption that a strict trust is an association within the meaning of the Massachusetts statutes, that such a trust is an association taxable under the federal statutes. But this is a mistaken assumption. Bouchard v. First People's Trust, 253 Mass. 351, 148 N. E. 895. HARDINGE BROS., Inc., v. MARR OIL Circuit Court of Appeals, Seventh Circuit. Rehearing Denied Sept. 25, 1928. 1. Patents 23-0mission of element of com bination which defeats success of combination may be invention. Omission of an element of a combination which does not contribute to success of combination, but prevents or defeats it, may be invention. Appeal from the District Court of the United States for the Eastern Division of the Northern District of Illinois; Walter C. Lindley, Judge. Patent infringement suit by the Marr Oil Heat Machine Corporation and another against Hardinge Bros., Inc. From a decree for complainants (20 F.[2d] 241), defendant appeals. Affirmed. Lynn A. Williams, of Chicago, Ill., for appellant. Thomas H. Sheridan, of Chicago, Ill., for appellees. Before EVANS, PAGE, and ANDERSON, Circuit Judges. PAGE, Circuit Judge. The District Court (20 F. [2d] 241) held claims 1, 2, 5, and 101 of plaintiffs' (appellees') patent, No. 1,158,058, to King, for centrifugal oil burner, valid and infringed. The defenses were noninfringement and invalidity in view of the prior art. 1 In a centrifugal burner, the combination of a casing open at its upper end, an open enlarged cup-shaped centrifugal atomizer, journaled in the casing, said atomizer having its open end projecting through the upper end of the casing, and means for introducing oil into the lower end of the atomizer. 2. In a centrifugal burner, the combination of a casing open at its upper end, an open outwardly flaring enlarged cup-shaped centrifugal atomizer, journaled in the casing, said atomizer having its open end projecting through the upper end of the casing and spaced from same, means for introducing oil through the lower end of the atomizer, and means for inducing an air current through the casing between the atomizer and casing. 5. In a centrifugal burner, the combination of a casing open at its upper end, an oil-delivering hollow standard, centrally disposed and secured within the casing, a sleeve revolubly mounted on said standard, an open cup centrifugal atomizer secured to the sleeve and projecting through the upper end of the casing, said atomizer and casing inclosing an air con 2. Patents 328-1,158,058, for centrifugal duit, means for forcing an air current through oil burner, claims 2, 5, 10, held valid. Patent No. 1,158,058, to King, for centrifugal oil burner, claims 2, 5, 10, held valid. 3. Patents 328-1,158,058, for centrifugal oil burner, claim 1, as limited to cup of specification and to vertical burner, held valid. Patent No. 1,158,058, to King, for centrifugal oil burner, claim 1, as limited to cup of specification and to vertical burner, which, though not stated, must be inferred from language of claim, held valid. 4. Patents 328-1,158,058, for centrifugal oil burner, claims 1, 2, 5, 10, held infringed. Patent No. 1,158,058, to King, for centrifugal oil burner, claims 1, 2, 5, 10, held infringed. the conduit, a collar mounted on the upper end of the casing, said collar in conjunction with the atomizer forming an annular discharge for the air conduit, and means for adjusting the position of the collar to increase or decrease the area of the annular discharge opening. 10. The combination, in a centrifugal oil burner, of a casing open at its upper end, a vertically disposed tubular shaft, journaled in the case, an open top cup fixed on the shaft constituting a centrifugal atomizer, said cup having an outwardly extending flanged lip overhanging the upper end of the casing and forming therebetween an air outlet, air induction means on the cup for creating an air current through said air outlet, an oil pipe extending through the hollow shaft and discharging into the bottom of the cup, and means for revolving the cup. The prior art dates back to Cook patent, No. 73,506, issued in 1868. The Klein patent, No. 473,759, issued in 1892, and Eddy, No. 540,650, issued in 1895, are also relied on. In those three patents, the main feature was a cone-shaped rotating oil distributor, on the end of a horizontal shaft, inserted into the fire box. Those inventions did not come into general use, and, from the evidence, we conclude that, if burners of that type do come into general use, they must be based on principles not disclosed or involved in burners such as shown in the King patent, operating on a perpendicular shaft. In 1904, the United States Naval Liquid Fuel Board made a report, which it is urged disclosed some of the features of the King invention. No such burner was ever built. The main reliance is on Becker, No. 1,101,779, copending with King. For the purposes of this opinion, we shall consider Becker as relevant, and that King knew of the contents of the Becker specifications. For a better understanding of the King and Becker devices, Figures 1 of each patent are shown below: izer 6, then out of the cup at 22', into the combustion chamber. Defendant's main contention is that King did nothing more than to omit from his device the cap, or cover, shown above the cup 6 in Becker Figure 1. Plaintiffs' expert testimony is, for the most part, squarely contradicted by that of the defendant, so that the court is left to find its way about alone. There are two things that seem quite clear from the evidence: (a) That the margin between success and failure in oil burners is very narrow; (b) that much expensive experimentation was carried on for many years, both by the plaintiffs and the defendant, before a successfully operating burner was devised. Plaintiffs did not succeed until they acquired the right to use and adopted the King device. Defendant did not succeed until it adopted what is here claimed to be an infringement. Of the many difficulties encountered, we will refer to a few. For various reasons, the revolving cup required occasional cleaning, and the difficulty of doing that cleaning where there was a cap or cover, as shown in Labricaling In the King device (Fig. 1), the fuel passes from the duct 25 to the hollow shaft, or standard, 5, and then into the open cup centrifugal atomizer 7. Following the course of the arrows in the cup, it passes out of the cup, over the discharge flange 14, into the fire box, which is ordinarily the fire box of coal-burning furnaces. The shaft and atomizer are revolved by the mechanism 20 and the shaft 21. In the Becker (Fig. 1), the oil goes through the shaft 3, through the opening 11, into the centrifugal cup or atom Becker and a number of other patents, was one of the things that made expert servicing necessary. To accomplish perfect combustion, a proper air mixture and a flow of an air current along with the oil current as it passed over the flange of the atomizer, were very necessary things. Destructive heating of parts, so that they became warped and inoperative, had to be overcome. Preliminarily, it may be said that the King device worked, and the Becker device did not. It seems clear that the removal 27 F.(24) 779 of the cover obviated to some extent the necessity for expert servicing. In Becker, the cup 6 broadened out at the top, but was not as wide as the top of the casing 19, so that the movement of the oil from the top of the cup, directed by the cover and centrifugal force, would be directly across the path of the upwardly moving current of air, forced by the fan 17 through the outlet 22. In King, the centrifugal force, independently of any cover, throws the oil in the direction of the arrows horizontally along the extended lip 14 of the cup 7, and that lip, extending over the top of the adjustable collar 15, causes the air, forced by the fan 9 through the opening 13, to go, not up through the oil current as in Becker, but to travel with the oil on a horizontal line. The tendency of the air current in King is to broaden the flame. The tendency of the air current in Becker is to break up the oil current and destroy the saucer-shaped flame. Becker specified several advantages he thought would result from the use of his cover: (a) To protect the rotating parts from injury while being cleaned by careless operatives; (b) to protect the same parts from excessive heat; (c) to prevent liquid fuel from accumulating and becoming carbonized by radiated heat from the fire box when the burner is stopped. It does not appear that there was ever danger from (a), but that, on the contrary, the cover was a hindrance to necessary cleaning operations. The cover was not an aid, but rather a hindrance, to the solution of the difficulties (b) and (c). The evidence shows that the film of oil, as it is thrown by rotation from the bottom of the cup out over the lip or rim, affords protection to the cup from heat during operation, and that when the burner is stopped the cover, by confining the heat within the cup, is a detriment. There is evidence of backfiring that injured the moving parts of the burner, which was eliminated by the removal of the cover. [1] In view of the long and expensive experiments made by defendant and by King in their efforts to make a burner, with a cover on it, work successfully, defendant's urge that its removal was the obvious thing to do is not at all persuasive. The omission of an element of a combination, without retaining its function, is not invention. Yet, if the element does not contribute to the success of the combination, but prevents or defeats it, the omission of such an element may be invention. The latter is what King did, although not all he did, over Becker. Becker had no means by which the air current could be adjusted. King introduced the adjustable collar 15, controlled by the screw 16, to regulate the volume and velocity of the air current through 13. The omission of the cover must have resulted in considerable economy in manufacture. Becker says: "The upward direction of the fuel is very necessary, inasmuch as combustion does not take place at the point where the atomized fuel leaves the atomizing device. Experiments have shown that combustion takes place at a point from 4 to 6 inches from the point of discharge." Speaking of the atomizer cup, King says: "The inner surface of the atomizer constructed as here shown is exposed to the radiated and reflected heat in the furnace. The thin film of oil passing up the wall of the cup is thus thoroughly heated, and is finally discharged over the edge of the cup into the furnace proper, having in its passage through the cup obtained the proper heat to immediately burst into flame when leaving the cup." [2] The evidence is that this result was actually accomplished by the King device, and that the preheating of the oil in the manner described was one of the things contributing to the successful operation of the King burner. We have no question about the validity of claims 2, 5, and 10. [3] Claim 1, if held valid, must be limited to the vertical atomizer of the specification; otherwise, it is open to the objection that it will read upon either Eddy, No. 540,. 650, or Klein, No. 473,759. Those were horizontal burners, and from the evidence we conclude that there is little probability that the King device would work successfully on a horizontal shaft. We are of opinion that, limited to the cup of the specification and to a vertical burner, which, though not stated, must be inferred from the language of the claim, claim 1 is valid. Defendant uses [4] There seems to be little ground upon |