Goldsmith v. Commissioner of Internal Revenue , 143 F.2d 466 ( 1944 )

CHASE, Circuit Judge.

The petitioners are a husband and wife who filed joint income tax returns for 1938 and 1939. In each year payments made to .the husband by Paramount Pictures, Inc., for an assignment- of the exclusive motion picture rights in a play which the husband had written and on which he had been granted a statutory copyright were reported as capital gains resulting from a sale of capital assets. The Commissioner treated such payments as ordinary income and determined a deficiency for each year accordingly. The Tax Court sustained that determination on two grounds, viz., that the amounts received were royalties and in the alternative that if they were receipts from a sale of property they were not from the sale of a capital asset as that term is defined in § 117(a) (1) of the Revenue Act of 1938, 26 U.S.C.A.Int.Rev.Code, § 117 (a) (1), since if any property was sold it was of a character subject to the allowance for depreciation provided for in § 23(1) of the same Act.

The play which Mr. Goldsmith had written was called “Enter to Learn” and the copyright on it was granted to him on July 7, 1936. He later revised that play in collaboration with one Taylor without, however, materially changing the plot or principal characters, and called ■ the revision “What A Life.” It was then successfully presented on the stage. It is the only play the author has written, though he has since written many radio scripts in which characters that appeared in the play are featured. In his income tax returns he stated that he was a playwright, and the Tax Court so found. The copyright on the play was treated as property used in his business in reaching the conclusion that it was not a capital asset within the definition of § 117(a) (1) of the 1938 Act.

More than two years after the copyright was granted, Mr. Goldsmith disposed of what are called the exclusive motion picture rights 'by assigning them to Paramount Pictures, Inc. He also granted to the assignee the right to assign them to others and agreed to permit it to sue in his name, but for its own benefit and at its own risk and expense, to enjoin infringement of any of the rights granted and to recover damages for infringement.

There can be no doubt that a copyright owner can assign separately to whomsoever he may desire one or more of the sum of the separable rights which together make up the copyright property. Photo-Drama Motion Picture Co., Inc., v. Social Uplift Film Corp., 2 Cir., 220 F. 448; Westway Theatre, Inc., v. Twentieth Century Film Corp., D.C., 30 F.Supp. 830, 835, affirmed 4 Cir., 113 F.2d 932. But when he does split off such rights by assignment the assignee does not become the owner of the copyright itself and acquires only what lesser rights are granted by the terms of the assignment. Goldwyn Pictures Corp. v. Howells Sales Co., 2 Cir., 282 F. 9

When by those terms the assignee acquires less than the sum of all the rights which together make up the copyright which as a whole is property and may be conveyed as such, it does not matter whether he is called an assignee in the instrument or whether that is called an assignment or something else. If he gets only the rights of a licensee, the so-called assignment amounts only to a license. M. Witmark & Sons v. Pastime Amusement Co., D.C., 298 F. 470, affirmed 4 Cir., 2 F.2d 1020. And when that is so the amount which the assignee pays for what he gets is for tax purposes to be treated as ordinary income to the recipient because it is in fact royalty income. Unless the assignment conveys to the assignee the title to the copyright, no sale of property is made. Sabatini v. Commissioner, 2 Cir., 98 F.2d 753.

In this instance there was no sale of the copyright since title remained in the assignor and therefore no asset, capital or otherwise, was sold. The assignee obtained only the rights of an exclusive licensee by virtue of the assignment, and the amounts it paid for those rights which were reported for taxation as capital gains were royalties and were properly taxed as ordinary income when the Commissioner audited the returns. Sec. 23(a) of the Revenue Act of 1938. I would affirm the decision on this ground alone.

My brothers, however, concur in the result for other reasons which are stated in the concurring opinion of Judge L. Hand.

Affirmed.