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RUST-OLEUM CORPORATION v. UNITED STATES

December 26, 1967

RUST-OLEUM CORPORATION, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Will, District Judge.

DECISION ON MERITS

Plaintiff sues for income tax refunds of deficiency assessments heretofore paid, attributable to disallowed deductions for "professional fees" of $8,296.82*fn1 for its fiscal year 1961 and $59,008.49*fn2 for its fiscal year 1962. The expenditures were payments to plaintiff's attorney, Charles B. Cannon, in connection with litigation instituted on April 28, 1960, in Ohio against the Tremco Manufacturing Company, and the costs of public surveys made during the course of that litigation, which was settled,*fn3 the surveys later being used in connection with plaintiff's advertising.

Subsequent to the settlement of the suit, a stipulation was filed in the Patent Office stating that: "Whereas, Civil Action No. 36,093 in the United States District Court for the Northern District of Ohio between Applicant and Opposer has been terminated by agreement of the parties; it is hereby stipulated that the above identified opposition be and is hereby withdrawn." On June 20, 1962, a notice from the "Members, Trademark Trial and Appeal Board" was filed: In view of the stipulation filed June 18, 1962, the opposition is dismissed.

A stipulation and supplemental stipulation of facts have been entered into by the parties which reveal these undisputed facts: Plaintiff, an Illinois corporation, which manufactures and sells rust preventive surface coatings, reported income of $553,797.23 for the fiscal year 1961 on which it paid corporate income tax of $282,474.56. A $7,489.40 deficiency was assessed and paid, with $923.35 interest, the Government disallowing a $14,402.70 deduction for professional fees out of a claimed amount of $45,139.88. Plaintiff maintains it is entitled to a deduction of $8,296.82 of the $14,402.70 disallowed with a resulting refund of $4,314.34 and $531.96 interest.

As to 1962, plaintiff reported income of $665,183.73 on which it paid a tax of $340,395.54, and the Government assessed a deficiency of $32,619.34, which plaintiff paid with interest of $2,064.40. For that year, the Government disallowed a deduction of $68,085.57 advertising and professional fees, and plaintiff believes it is entitled to a deduction of $59,008.49 for which a refund of $30,684 and $1,942.32 interest are sought.

The Amended Complaint in the Tremco litigation in the Northern District of Ohio alleged two separate causes of action: the first for infringement of plaintiff's trademark "Stops Rust," the second, for unfair competition (re-alleging all the assertions as to the first cause of action) and then alleging unfair competition and aggravation of the trademark infringement, by dressing of products in a color scheme and paint motif closely resembling that of plaintiff and by employing sales displays resembling those long employed by plaintiff, thereby deceiving and tending to deceive purchasers and the consumer public into believing that, contrary to fact, defendant's products had their source in plaintiff, constituting unfair competition both at common law and under the Trademark Act. In addition to damages, an injunction against unfair competition was also sought.

The following considerations and evidence are relevant:

(1) The Tremco litigation was settled prior to trial, with the result that the survey evidence was not used in an actual trial. Further costs of litigation were saved by plaintiff, but past costs of litigation concerned both the trademark protection and the unfair competition litigation.

(2) While the settlement of the litigation assured the dropping of the Patent Office opposition to plaintiff's trademark by Tremco, thus ensuring plaintiff the sole use of the mark, it also stopped the alleged unfair competition by Tremco apart from any trademark rights, and prescribed a permissive but restricted dress for Tremco's products in the future.

(3) The surveys were extensively used in subsequent advertising. Some 588,000 copies of the summary of the results of the Lampa-Meier survey were made and sent to over 12,000 distributors and salesmen. Plaintiff had in previous years spent large sums in advertising. It had made over a hundred surveys. It had used these surveys to guide its advertising programs.

(4) Plaintiff's business was greatly enhanced as a result of the advertising.

(5) Attorney Cannon testified that the Ohio suit was primarily to enjoin Tremco's unfair competition and recover damages and not for infringement of the trademark.

(6) Attorney Cannon further testified that the surveys, although initially prepared for the suit, were not used in the Tremco litigation, although they had been "submitted to counsel." The Ohio court suggested settlement talks. The court had not been shown the surveys nor was there discussion about them ...


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