The point at issue in the case was whether the sale of patents
was a transaction on trading account or the disposal of fixed
capital assets, i.e. did the trade include the buying and selling
of patents.
The company was formed for, amongst other things, the purpose
of acquiring patents to use, develop, grant licences or otherwise
turn to account. It acquired stainless steel patent rights and was
granted further foreign patent rights, relating to the invention,
in 22 different countries. The company granted licences, for use of
these patents, in a number of countries in return for royalty
payments. However, in three cases they sold the patents outright.
In one case in return for royalty payments throughout the life of
the patent, in another for shares in what then became a subsidiary
company and, in the third instance, for a lump sum payment and
royalty payments throughout the life of the patent.
The company contended that the patents were fixed capital
assets and had not been disposed of by way of trade.
The Commissioners decided that the amounts realised "
were an appreciation of capital and not
assessable profits" and the Court of Appeal agreed that they
had abundant evidence to support a finding that the company's trade
did not include the buying and selling of patents.
Atkins L.J. noted, at p. 573, that:
" The question arises as to what was the trade of that Syndicate, because that it indeed carried on a trade I think cannot be disputed. But the question is what was the scope of the trade. For that purpose I think in order to examine the facts you must look at what the company purported to do, and also at what it did in fact".
He concluded that there was nothing in the company's memorandum of association that indicated its intention was to deal and trade in patent rights. He then posed the question whether there was anything in what the company did to indicate that it had not acquired the patent rights on fixed capital account, concluded there was not, and that the agreements " support very strongly the view taken by the Commissioners".
