Appeal from the District Court of the United States for the Western District of Wisconsin; Walter C. Lindley, Judge.
Before ALSCHULER and SPARKS, Circuit Judges, and CARPENTER, District Judge.
ALSCHULER, Circuit Judge.
Appellant filed its bill against the tax commissioners of Wisconsin, seeking the cancellation of certain assessments for income taxes for the years 1924, 1925, and 1926, and injunction against collection of the taxes so assessed.
The cause was heard in the District Court, which dismissed the bill upon the merits, save as to an item growing out of the operations of the "Buckingham Agency," a subsidiary Illinois corporation. The appeal is from this decree, save as to that part relating to the Buckingham Agency.
The business, which involved mainly, if not entirely, the making and marketing of Palmolive soap, was first incorporated in 1894 in Wisconsin, and it grew rapidly, its sales in each of the years in question being about $23,000,000. Up to January 1, 1924, its entire business was conducted in Wisconsin, the manufacturing for supplying the United States and some other countries being done at its large factory at Milwaukee. The large profits of the business entailed large income taxes under the Wisconsin Income Tax Law (St. Wis. 1923, § 71.01 et seq., as amended).
By a series of intercorporate transactions, effective from December 31, 1923, all the stock of the Wisconsin company, as well as its property, passed to Delaware corporations, and its business offices were removed to Illinois, from whence, beginning with 1924, its commercial operations were mainly conducted. Under further intercorporate arrangement its products continued as before to be manufactured at the Milwaukee factory by the Wisconsin company, whose corporate existence had been preserved, and shipped out thence to the trade.
The quite complicated intercorporate transactions whereby these changes were effected are sufficiently set forth in the opinion of Judge Lindley in the District Court, as reported in 43 F.2d 226; and it would involve only repetition to undertake restatement here. Indeed, since we have reached the conclusion that the decree must be affirmed, and are in substantial accord with the reasoning of the opinion, we might refrain from further comment. But our study of the case induces us to present some further discussion.
Since the decree was entered the Supreme Court handed down an opinion in Hans Rees' Sons v. North Carolina ex rel. Maxwell, 283 U.S. 123, 51 S. Ct. 385, 75 L. Ed. 879, upon which appellant places much reliance. We gather from the report of that case, as well as from the report of it in 199 N.C. 42, 153 S.E. 850, from which last-named court the appeal was prosecuted, that the appellant there was a corporation of New York, where it had long been engaged in the business of handling sole and belting leathers. It had several factories, which were ultimately combined with its factory in North Carolina where for some time its leathers had been fabricated. The customary practice had been to ship the leather, when manufactured, to the taxpayer's warehouses in New York, where some finishing work was done and from whence it was distributed, except that such of the product as was cut up into pieces for retail use was generally shipped, under orders from New York, from the factory directly to the retailer. Of the taxpayer's total net income the tax commission allocated to North Carolina for the year 1923, 83 per cent., for 1924, 85 per cent., for 1925, 66 per cent., and, for 1926, 85 per cent., and assessed thereon the North Carolina statutory income tax. The court found that the percentage of income thus attributed to North Carolina was "out of all appropriate proportion to the business transacted by the appellant in that State," and that, "in this view, the taxes as laid were beyond the State's authority." Language was used indicating the court's appreciation of the importance of the buying and selling departments of the business, as well as of the manufacturing branch.
But we have here a situation quite different from that in the Rees Case. Until the removal of its offices to Illinois and its corporate headquarters to Delaware, the Palmolive business, in all its branches, was conducted in Wisconsin. The outstanding factor in its rapid and huge success was the persistent, effective, and highly expensive exploitation of its product. For years next preceding those in question millions were so expended in each year. The company's trade names, marks, and brands became ingrained and associated with the product which had thus become known to most households throughout the land, thus building up a good will of great value.
Advertising of this sort looks not to the past, but to the future. If it proves successful, its influence is of necessity projected indefinitely forward. Had the advertising of this product ceased when the offices were removed from Wisconsin, the momentum of the business, gained in Wisconsin, would no doubt have been a most significant factor in carrying it on, diminishing probably as time went on. But for the years in question, immediately following these great and effective expenditures, doubtless the continued sale of the product was induced in large degree through the operations for the years next before as carried on in Wisconsin.
Trade-marks, names, brands, and good will are as nothing when dissociated from articles to which they are applied or business wherein the good will arose. They could not be separately sold or transferred apart from the product or business to which they relate. Metropolitan Nat. Bank v. St. Louis Dispatch Co. et al., 149 U.S. 436, 446, 13 S. Ct. 944, 37 L. Ed. 799; Kidd v. Johnson, 100 U.S. 617, 25 L. Ed. 769; Lindemann v. Rusk, 125 Wis. 210, 233, 104 N.W. 119.
The marks, brands, and good will which attached to this concern were woven about and intimately associated with the product of this factory, and so continued, even though the buying and selling functions were transferred from Milwaukee to Chicago. This great manufacturing plant grew with the company's growth, and was developed to fit into the company's peculiar requirements, and, notwithstanding the removal of the offices, the manufacturing continued in the same old way, in the same old place, to supply this prime essential of continued success.
The manufacturing contracts themselves indicate the quite indispensable relation of this particular factory to the organization. They specify the intent that the manufacturing shall be carried on as before, and standards and quality of the output maintained as theretofore; also that the quantity of the output be maintained, "it being understood that any failure on the part of the Wisconsin company so to do, or any ...