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 the general purpose of acquiring
patents, licences and concessions, to improve them, use them and
turn them to account. A specific purpose was the acquisition of
patents in a centrifugal turbine pump. The company's memorandum of
association contained the power to sell, dispose, turn to account
and grant rights and privileges in respect of the company's
property.
The company acquired an interest in the patent relating to
the pump and subsequently also acquired interests in foreign
patents granted in respect of the invention. The company did not
undertake manufacturing activities under the patents, but granted
licences for others to manufacture the pump in return for the
payment of royalties. The agreements it entered into with some
manufacturers contained the right, in certain circumstances, for
them to acquire the whole of the foreign patent rights. A number of
the manufacturers duly exercised this option, acquiring the foreign
patent rights in return for a further payment.
The company contended that the company's business did not
include buying and selling patents, that the patents were fixed
capital assets of the company and were held for the purpose of
obtaining royalty income.
The Commissioners held that the profits on the sale were
trading profits.
Rowlatt J. in the High Court, concluded that the
Commissioners had found that the company's trade included the
buying and selling of patents and that they had evidence on which
to base their conclusion. However, he expressed his unease, given
that the opposite conclusion had been reached, on very similar
facts, in the case of Collins v The Firth-Brearley Stainless Steel
Syndicate Ltd [1925] 9TC520 (see
BIM21015).
The House of Lords agreed, unanimously, that the
Commissioners had not misdirected themselves and had abundant
evidence on which to base their conclusion of fact.
