FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BLUETOOTH SIG INC., No. 08-35312
Plaintiff-Appellant,
v. D.C. No.
2:05-cv-1778-JCC
UNITED STATES OF AMERICA,
OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Western District of Washington
John C. Coughenour, District Judge, Presiding
Argued and Submitted
July 9, 2009—Seattle, Washington
Filed July 8, 2010
Before: Robert R. Beezer, Diarmuid F. O’Scannlain, and
Andrew J. Kleinfeld, Circuit Judges.
Opinion by Judge O’Scannlain
9819
9822 BLUETOOTH SIG INC. v. UNITED STATES
COUNSEL
K. Lee Marshall, Bryan Cave LLP, Saint Louis, Missouri,
argued the cause for plaintiff-appellant and filed the briefs.
Mary Gassmann Reichert, Thomas C. Walsh, and B. Derek
Rose, Bryan Cave LLP, Saint Louis, Missouri were on the
briefs.
Bridget M. Rowan, Tax Division, Dep’t of Justice, Washing-
ton, District of Columbia, argued the cause for the defendant-
BLUETOOTH SIG INC. v. UNITED STATES 9823
appellee and filed the brief. Kenneth L. Greene, Tax Division,
Dep’t of Justice, Washington, District of Columbia was on the
brief.
OPINION
O’SCANNLAIN, Circuit Judge:
We must decide whether an association which owns and
markets a wireless networking protocol and trademark is enti-
tled to exemption from federal income tax as a business
league.
I
A
Bluetooth is a technological specification that allows for
two-way wireless data transmission using radio frequencies
between multiple electronic devices over short distances (typ-
ically less than thirty feet). In less technical (and hence less
precise) jargon, it provides a language for electronic devices
to talk to one another. Originally, it was primarily used to
connect mobile phones and wireless headsets. It is now also
used for wireless communication between a great variety of
products, including personal computers, printers, digital cam-
eras, keyboards, home audio equipment, and medical devices.
Ericsson Technology Licensing AB began to develop Blue-
tooth. It worked with a few other major manufacturers
(Toshiba, IBM, Intel, and Nokia) in refining the Bluetooth
technology in an association called Bluetooth Special Interest
Group. Ericsson initially owned the Bluetooth name and pat-
ents. Subsequently, the technology companies caused the Spe-
cial Interest Group to be incorporated as Bluetooth SIG
(“SIG”) on November 13, 2000 as a Delaware nonprofit cor-
9824 BLUETOOTH SIG INC. v. UNITED STATES
poration to own the name and patents. Its stated purpose: “de-
velopment and regulation of technical standards for the
compatibility and interoperability of wireless products within
a wireless personal network.”
Ericsson sold all of its rights to the Bluetooth name and
patents to SIG on February 20, 2001. According to the terms
of the transfer, Ericsson was reimbursed for some of its legal
expenses and received the right to “eighty percent (80%) of
all Net e-Commerce Revenue . . . up to a maximum aggregate
of all such payments of thirty million United States dollars”
as consideration. The organizers of SIG had some interest —
it is not clear how much — in running an online store at
which consumers could buy Bluetooth-compatible devices.
For whatever reason, this did not come about, and thus there
was no “e-Commerce Revenue.”
B
SIG’s operations fall into four major categories: specifica-
tion development, marketing, trademark enforcement, and certi-
fication/licensing.1
First, SIG develops, refines, and adapts the Bluetooth spec-
ification. SIG acts as a forum through which different technol-
ogy manufacturers collaborate in the development process. It
1
We note that SIG’s status after 2002 is not before us. SIG appears to
seek a declaratory judgment that it is eligible for business league status.
We lack jurisdiction over such a claim. See 28 U.S.C. § 2201 (barring
jurisdiction over federal tax controversies). Although the Declaratory
Judgment Act allows for suits to determine non-profit status, they are lim-
ited to organizations claiming exemption under § 501(c)(3), not
§ 501(c)(6). See I.R.C. § 7428. Furthermore, SIG’s suit seeks relief for
only the 2000-2002 tax years. However, because both parties freely dis-
cuss post-2002 evidence, and because the result does not hinge on consid-
eration of such evidence, we will discuss it as well. We do not decide
whether consideration of post-2002 evidence would be proper if objected
to by one of the parties.
BLUETOOTH SIG INC. v. UNITED STATES 9825
does this through meetings, conferences, working groups, and
by sharing research results. As a result, the Bluetooth specifi-
cation is constantly evolving.
Second, SIG engages in marketing, public relations, and
other promotional activities designed to “influence the accep-
tance, understanding, and use of Bluetooth enabled products.”
It conducts market research, sponsors trade fairs, and pub-
lishes handouts and flyers for trade shows and other events.
It also publishes newsletters for members in order to keep
them informed of the organization’s activities.
Third, SIG enforces its trademark both by ensuring that its
members conform to the “Bluetooth Brand Book” and by
detecting unauthorized use of the Bluetooth trademark. It
employs trademark counsel to protect its mark both in the
United States and around the globe. According to SIG’s mar-
keting manager, unauthorized users were encouraged to
become part of SIG and have their products certified. It does
not appear that any infringement suits have been filed. SIG
works to have infringing products seized and destroyed if they
pass through U.S. customs.
Fourth, SIG operates a certification and listing program.
The organization does not directly provide product testing ser-
vices to its members. Until 2006, a member desiring certifica-
tion needed to submit its product to a Bluetooth Qualification
Testing Facility. The results of the testing would, in turn, be
submitted to a Bluetooth Qualification Board for review. The
boards and testing facilities were independent entities, but had
to be approved by SIG and pay an annual fee. The fees
charged by the testing facilities varied and were unregulated
by SIG. Once the product was certified by a board, its manu-
facturer could use the Bluetooth trademark on the product by
paying a listing fee. The product would also be listed as
Bluetooth-compliant on the SIG website. This process needed
9826 BLUETOOTH SIG INC. v. UNITED STATES
to be repeated for each product that used the Bluetooth specifica-
tion.2
C
As of October 2005, SIG had 4,148 members, all indepen-
dent businesses. SIG has three membership classes: Adopters,
Associates, and Promoters. Adopters pay no annual fee, but
pay a listing fee of $10,000 per product.
Associates pay an annual fee of either $7,500 or $35,000
depending on the size of the manufacturer. They pay a
reduced listing fee of $5,000 per product and have the right
to participate in the continuing development of the Bluetooth
specification. They receive certain marketing and promotional
opportunities that may not be available to Adopters.3
Promoters pay no annual fee but enjoy the same benefits as
Associates, plus a seat on the board of directors. Each of the
original five companies involved with the technology has Pro-
moter status. New applicants must be approved by the board
of directors and pay a one-time fee in an amount set by the
board. As of the date of the district court’s ruling, only three
additional members had been permitted to join the Promoter
group.
D
Between its incorporation and the end of 2000, SIG real-
ized $309,180 in income with $146,985 in expenses. At the
2
Beginning in August of 2006, the third-party testing program became
optional in most cases. Instead, manufacturers could declare their products
compliant after conducting testing with a software program.
3
For example, according to Lindsay Puett, marketing coordinator for
SIG during 2003-2004, “if an opportunity comes along, we often try and
go to them first with it.” For instance, if members of the media asked SIG
for product recommendations for a “gift guide or whatnot, [it would] pass
the opportunity to Associate members first.”
BLUETOOTH SIG INC. v. UNITED STATES 9827
end of 2001, it had about $4 million in assets against about
$2 million in liabilities (mostly deferred revenue). Its 2001
annual income of about $5.3 million came from four sources:
membership fees (about $2.8 million, or 52% of total
income); “brand management”4 (about $1.8 million, or 34%),
license fees (about $50,000, or less than 0.1%), and confer-
ences/events (about $700,000, or 13%). Expenses of about $4
million were broken down into “brand management” (about
$700,000, or 18% of total expenses), “development and core
services” (about $500,000, or 13%), sales and marketing
(slightly less than $500,000, or 11%), and “general and
administrative” expenses (about $2.3 million dollars, or 59%).
Net income was thus about $1.3 million.
At the end of 2002, SIG’s assets had grown to about $5.6
million, mostly in cash and investments. Liabilities were less
than two million dollars, mostly in deferred revenue. Reve-
nues of over $6.7 million were primarily derived from mem-
bership fees (about $3 million, or 44%) and product
registration fees (about $2.7 million, or 40%). Events brought
in almost a million dollars in revenues. Major expenses
included events (which cost about $800,000), about $600,000
each for “development and core services” and market-
ing/promotion, plus around $800,000 for legal fees. The bulk
of the remainder was apparently staff salaries (management
services and wages/contracts services). Total expenses were
almost five million dollars. Net assets increased by about $1.8
million in 2002.
E
In 2002, SIG applied for an exemption under I.R.C.
§ 501(c)(6), which exempts business leagues from taxation. In
2004, the IRS denied the application, stating:
4
Apparently, this means listing fees.
9828 BLUETOOTH SIG INC. v. UNITED STATES
Your primary purpose and activity is to promote
a single brand of inter-connection technology, rather
than the improvement of business conditions of one
or more lines of business. In addition, one of your
substantial activities consists of providing particular
services to individual persons.
SIG responded by paying the assessed tax and penalties for
2000, 2001, and 2002 (about $900,000) and then filing admin-
istrative refund requests for those years. After waiting the
required time period and receiving no response, it then sued
in the Western District of Washington. The complaint sought
a refund of income tax, penalties, additions, and interest paid
for 2000-2002 under 28 U.S.C. § 1346(a) and I.R.C. § 7422.
The district court granted summary judgment for the United
States. SIG timely appeals.
II
The district court reviewed the Commissioner’s decision to
deny § 501(c)(6) status de novo. Our review of the district
court decision is also de novo, because the existence of a busi-
ness league is a mixed question of law and fact. See Eng’rs
Club of S.F. v. United States, 791 F.2d 686, 688-89 (9th Cir.
1986).5
5
Our precedent is unclear as to the distinction between fact and law in
§ 501(c)(6) cases. For instance, in Engineers Club, we “assume[d], with-
out deciding, that the district court was not clearly erroneous in determin-
ing that the Engineers Club food and beverage service was incidental to
the main purpose of the organization.” Eng’rs Club, 791 F.2d at 689. The
government has not argued for a more deferential form of review, and we
note that the district court decision in Engineers Club was the result of a
bench trial. See Eng’rs Club of S.F. v. United States, 609 F. Supp. 519
(N.D. Cal. 1985), overruled by Eng’rs Club, 791 F.2d at 687. In any case,
the result here is the same irrespective of the standard of review. We do
not imply that every appellant who challenges a § 501(c)(6) determination
is entitled to a fully de novo review.
BLUETOOTH SIG INC. v. UNITED STATES 9829
Section 501(c)(6) of the Internal Revenue Code exempts
from income tax
[b]usiness leagues, chambers of commerce, real-
estate boards, boards of trade, or professional foot-
ball leagues (whether or not administering a pension
fund for football players), not organized for profit
and no part of the net earnings of which inures to the
benefit of any private shareholder or individual.
[1] The operative Treasury regulation, which “merits seri-
ous deference,” see National Muffler Dealers Ass’n v. United
States, 440 U.S. 472, 484 (1979), states that
[a] business league is an association of persons
having some common business interest, the purpose
of which is to promote such common interest and not
to engage in a regular business of a kind ordinarily
carried on for profit. It is an organization of the same
general class as a chamber of commerce or board of
trade. Thus, its activities should be directed to the
improvement of business conditions of one or more
lines of business as distinguished from the perfor-
mance of particular services for individual persons.
An organization whose purpose is to engage in a reg-
ular business of a kind ordinarily carried on for
profit, even though the business is conducted on a
cooperative basis or produces only sufficient income
to be self-sustaining, is not a business league. An
association engaged in furnishing information to pro-
spective investors, to enable them to make sound
investments, is not a business league, since its activi-
ties do not further any common business interest,
even though all of its income is devoted to the pur-
pose stated.
Treas. Reg. § 1.501(c)(6)-1 (26 C.F.R. § 1.501(c)(6)-1).
9830 BLUETOOTH SIG INC. v. UNITED STATES
[2] We have distilled that regulation into a six-factor test:
Thus, for an organization to achieve business
league status, the requirements as stated in Treas.
Reg. § 1.501(c)(6) must be met. Section 1.501(c)(6)
requires a business league to be an association (1) of
persons having a common business interest; (2)
whose purpose is to promote the common business
interest; (3) not organized for profit; (4) that does not
engage in a business ordinarily conducted for profit;
(5) whose activities are directed to the improvement
of business conditions of one or more lines of busi-
ness as distinguished from the performance of partic-
ular services for individual persons; (6) of the same
general class as a chamber of commerce or a board
of trade.
Eng’rs Club, 791 F.2d at 689.
[3] The district court focused its discussion on factors four
and five. We do likewise.
III
A
[4] We first consider prong four: whether SIG “does not
engage in a business ordinarily conducted for profit.” Reve-
nue Rulings published by the Internal Revenue Service guide
our inquiry. Revenue Rulings are entitled to at least Skidmore
deference, as they constitute “a body of experience and
informed judgment to which courts and litigants may properly
resort for guidance.” Texaco Inc. v. United States, 528 F.3d
703, 711 (9th Cir. 2008) (quoting Skidmore v. Swift Co., 323
U.S. 134, 140 (1944)).6
6
See also Tualatin Valley Builders Supply, Inc. v. United States, 522
F.3d 937, 946-48 (9th Cir. 2008) (O’Scannlain, J., specially concurring)
BLUETOOTH SIG INC. v. UNITED STATES 9831
[5] Revenue Ruling 58-294 demonstrates an instance in
which business league status was denied. The association
there “operated for the purpose of promoting uniform busi-
ness, advertising and fair trade practices in connection with
the manufacture and sale of a certain patented product.” Rev.
Rul. 58-294, 1958-1 C.B. 244. The association indirectly
owned the patent, granted licenses thereunder, and sold equip-
ment and materials needed to manufacture the product. The
similarities between the association in the Ruling and SIG are
substantial. Here, SIG aims to promote uniform practices in
connection with a certain patented technology, directly owns
the relevant trademark and patent, and grants licenses to its
members.
[6] Revenue Ruling 70-187 is relied on by both parties. It
states that a “nonprofit organization formed by manufacturers
of a particular product to conduct a program of testing and
certification of the product to establish acceptable standards
within the industry as a whole qualifies” as a business league.
Rev. Rul. 70-187, 1970-1 C.B. 131. The organization “per-
mits manufacturers to display its ‘seal of acceptance’ on all
product models that have been certified as meeting its stan-
dards.” Id. It “fixes its charges at amounts sufficient to defray
only the cost of the program.” Id. Deciding that the organiza-
tion’s testing and certification program to enforce its product
standards was “a self-regulatory measure to prevent trade
abuses in the industry,” the Ruling concludes that the organi-
zation is a business league. Id.
[7] Although the organization in Revenue Ruling 70-187
and SIG are similar in some ways, there are critical differ-
ences. First, the Ruling does not address an “industry” that
was created and established by the members themselves.
(asserting that the Revenue Ruling at issue in that case should be entitled
to Chevron deference, but acknowledging confusion in circuit precedent
concerning the deference to be given to informal agency action more gen-
erally).
9832 BLUETOOTH SIG INC. v. UNITED STATES
Nothing in the Ruling suggests that the members’ very ability
to make or to market the product itself was controlled by the
organization. (Whether SIG set its charges to cover only certi-
fication expenses will be discussed later.).
[8] As the district court recognized, the Bluetooth trade-
mark is a “valuable commodity” which is “for sale.” Under
different circumstances, Ericsson (or the original Promoters)
might have licensed its intellectual property for a low price.
Companies license their intellectual property rights all the
time, and here — where competitors could just as easily come
up with a different standard — the owner will likely license
its intellectual property at a low enough cost to prevent the
formation of rival standards. If Ericsson had decided to
license the Bluetooth brand and technology, it would be
engaging in business activity of the sort ordinarily engaged in
for profit. A low selling price and a manufacturer-agnostic
rights holder do not change the fundamental commercial
nature of the transaction. See Treas. Reg. 1.501(c)(6)-1 (“An
organization whose purpose is to engage in a regular business
of a kind ordinarily carried on for profit, even though the busi-
ness is conducted on a cooperative basis or produces only
sufficient income to be self-sustaining, is not a business
league.” (emphasis added)). Nothing about the way SIG con-
ducts its business leads to a contrary conclusion.
American Plywood Ass’n v. United States, 267 F. Supp.
830 (W.D. Wash. 1967), can be readily distinguished and, in
any event, is not controlling authority. In that case, a business
league comprised of plywood manufacturers was allowed to
test and to certify member plywood in order to promote the
acceptance of plywood by the public. As the district court
here put it:
Whereas the plywood association served as a
vehicle for advancing a common and pre-existing
interest between members, [SIG] was formed to
create a common interest between its members. Put
BLUETOOTH SIG INC. v. UNITED STATES 9833
another way, the product in American Plywood was
something the members were already selling to
begin with; the product here is something the mem-
bers banded together to create. Thus, the collective
enterprise of [SIG] derives from the fact that it has
created a thing of value, which its members can then
use to enhance the value of the products they sell.
This is a distinction of consequence under the
rationale of American Plywood, because of that
court’s emphasis on “principal” and “incidental”
activities. American Plywood, 267 F.Supp. at 832-33
(“The rule is well established that a trade association
whose main purpose justifies exemption from
income tax will not forfeit tax exempt status by
engaging in incidental activities which, standing
alone, would be subject to taxation”). In delineating
principal activities from incidental activities in that
case, it was significant that the association’s mem-
bers came together with a common interest in
expanding the use of plywood as a building material.
While they surely sought to compete with each other
over whose plywood was better, they could all agree
that selling more plywood was better for everyone,
and it was this latter purpose for which the associa-
tion was principally formed. Thus, while that associ-
ation’s quality control and promotional activities did
create a basis for choosing between plywood manu-
facturers, this was “incidental” to the organization’s
main purpose, which was to broaden the use of ply-
wood in the building materials market. In the present
case, [SIG] creates, markets, and sells a thing of
value. That it also helps [SIG’s] members sell their
products does not change this fact.
B
[9] Next, we turn to prong five: whether SIG’s activities
“are directed to the improvement of business conditions of
9834 BLUETOOTH SIG INC. v. UNITED STATES
one or more lines of business as distinguished from the per-
formance of particular services for individual persons.”
Eng’rs Club, 791 F.2d at 689. First, we consider whether
SIG’s activities benefit at least one “line of business.” We
must select between dueling concepts of this term of art. One
category of possible definitions does not support SIG’s posi-
tion, and the alternative is implausible.
1
[10] Most obviously, the “line of business” could be a
broad industry such as the wireless communication industry
or the consumer electronics industry. However, SIG does not
benefit all or nearly all members of any such line of business.
It is implausible that most of — or even a substantial amount
of — the benefits of SIG’s activities fall upon members and
non-members alike. SIG claimed that Bluetooth had no “rea-
sonable commercial substitute” while maintaining that non-
Bluetooth manufacturers would benefit (in the words of the
district court) because consumers “would opt for the unrea-
sonable choice [i.e., a non-Bluetooth product] with greater
frequency because of how impressed they are with the Blue-
tooth brand.” As the district court stated, “[b]oth simple logic
and [SIG’s] dominant market position belie this theory.”
Rather, it is clear that the business interests of SIG’s members
are advanced at the expense of other industry members.
[11] A review of the case law indicates that a benefit to
non-members is a key characteristic of business leagues. For
instance, the Seventh Circuit rejected an organization’s bid
for business league status in Guide International Corp. v.
United States, 948 F.2d 360 (7th Cir. 1991). Although
“Guide’s stated purpose [was] to facilitate the use and
exchange of information regarding data processing equipment
in general, the primary benefit inure[d] to IBM which [was]
only a segment (70 to 75%) of the mainframe computer busi-
ness, not a line of business.” Id. at 362. “[W]hile Guide’s
members reflect[ed] a wide variety of businesses, no single
BLUETOOTH SIG INC. v. UNITED STATES 9835
business [was] enhanced and Guide only benefits IBM and
those individuals within various lines of business who use
IBM mainframes.” Id. Accordingly, the organization was not
a business league. Accord Nat’l Prime Users Group, Inc. v.
United States, 667 F. Supp. 250 (D. Md. 1987) (denying busi-
ness league status to a similar group); Rev. Rul. 83-164,
1983-2 C.B. 95 (same, despite Rev. Rul. 74-147 finding a
business league where users owned computers made by vari-
ous manufacturers).
Likewise, Revenue Ruling 70-80 stated that a “nonprofit
trade association of manufacturers whose principal activity is
the promotion of its members’ products under the associa-
tion’s registered trademark does not qualify for exemption
under section 501(c)(6) of the Code.” Rev. Rul. 70-80, 1970-
1 C.B. 130. If minimum quality criteria were met, members
could sell their products under the trademarked name. “[A]
significant number” of manufacturers in the industry were not
members. Id. Because the trademark was promoted such as to
give members a competitive advantage, the trademarking pro-
gram did not benefit the industry as a whole. Id.
[12] In contrast, Revenue Ruling 55-444 states that a busi-
ness league may be “formed to promote the business of a par-
ticular industry . . . . by conducting a general advertising
campaign to encourage the use of products and services of the
industry as a whole . . . . notwithstanding the fact that such
advertising to a minor extent constitutes the performance or
[sic] particular services for its members.” Rev. Rul. 55-444,
1955-2 C.B. 258. The organization’s “receipts [were] derived
from assessments on members and from contributions from
the national industry association.” Id. “[S]ome of the newspa-
per and radio advertisements urged consumers to buy from an
organization member.” Id. Despite the pro-member slant of
some advertisements, the Service found the organization to be
a business league: “[m]ost of the benefits to members of the
organization were indirect and accrued alike to members and
other persons in the industry” and the advertising favoring
9836 BLUETOOTH SIG INC. v. UNITED STATES
association members was only “a minor portion of total
advertising expenditures.” Id.
[13] SIG’s advertising campaign is not “general” or
intended to promote “the use of products and services of the
industry as a whole.” It benefits members directly and pre-
dominately by giving them a competitive advantage over non-
members. Although consumers using Bluetooth products may
benefit, that is not enough. SIG is more like the organizations
in Revenue Ruling 70-80 and Guide than the organization in
Revenue Ruling 55-444.
2
We cannot accept the idea that “Bluetooth-enabled prod-
ucts” constitute an industry. No one can manufacture Blue-
tooth products (at least in any meaningful way) without
joining and contributing money to SIG. Accordingly, mem-
bership in the proposed line of business would be necessarily
limited to members of SIG. SIG has not identified any line of
business that has such a requirement. Nor has SIG pointed to
any industry where the industry organization created the
industry itself. The “Bluetooth industry” is inextricable from
SIG itself, which controls the rights to the technology and
trademark. To quote the district court, the industry must be
“what members did aside from the particular organization . . .
not what they developed as a result of their membership.”
Furthermore, while Bluetooth may be the best available
technical solution for certain wireless applications, it is hardly
the only game in town. Other protocols have their advantages
and disadvantages. While Bluetooth is predominant in its
home market of cellular headsets and handsets, its superiority
in other markets is less clear. For instance, SIG discusses
other technologies on its website, often emphasizing their
shortcomings in relation to Bluetooth. If Bluetooth were truly
the only viable specification, SIG would not need to trumpet
its superiority over other options.
BLUETOOTH SIG INC. v. UNITED STATES 9837
3
SIG relies heavily on the district court decision in Ameri-
can Plywood. The American Plywood Association (the
“APA”) was granted business league status from 1936 to
1960. Am. Plywood, 267 F. Supp. at 831. The district court
noted that the APA’s work in promoting the plywood industry
and public acceptance thereof was “largely . . . responsible”
for the massive increase in plywood sales over that period. Id.
After the APA passed a bylaw which increased “its member-
ship dues ‘to be devoted to the promotion of . . . plywood
[with the APA’s seal of approval] primarily through the
medium of television,’ ” the Commissioner revoked its
§ 501(c)(6) status, and the APA sued for a refund of taxes
paid thereafter. Id.
The court noted that the APA’s promotional and quality
control activities must be viewed in the context of the APA’s
“inter-related activities as they have developed in the past
thirty years,” activities which had been carried out “to the
great benefit of all softwood plywood manufacturers, whether
members of plaintiff association or not.” Id. at 832-33. The
government countered that, once the bylaw passed, the “qual-
ity control and promotional activities . . . became more than
incidental to plaintiff’s main purpose and activities.” Id. at
833. The court noted that no profits accrued from the quality
control activities, that the APA’s income was “derived solely
from membership dues,” and that “there [was] no possibility
that dues may be reduced because of profits.” Id. at 834. The
court held that the quality control services were not more than
incidental and were consistent with the organization’s long
history of promoting quality in other ways. Id.7 The benefits
derived from the APA’s quality control were “inherently and
most immediately group benefits in that quality control
7
For instance, the APA had lobbied government agencies to allow only
the use of plywood meeting certain commercial standards. Id. at 835.
9838 BLUETOOTH SIG INC. v. UNITED STATES
insures [sic] safe plywood, a prerequisite to its acceptance by
the public.” Id. at 835.
SIG is dissimilar to the APA in many important ways.
Chief among them is that, as discussed above, Bluetooth-
compatible products do not constitute an industry. We have
no difficulty in treating plywood as a line of business apart
from the larger building products industry (e.g., drywall). Ply-
wood is made of a specific material by a specific process. In
contrast, Bluetooth-compatible products stand in relation to
non-Bluetooth-compatible products more as IBM mainframes
stood in comparison to other mainframes in Guide.
[14] Other differences run in favor of the government as
well: all funding for the APA inspection came from general
dues, and the trademark program could not turn a profit or
lead to reduced dues. Id. at 834. With SIG, in contrast, fund-
ing comes from specific licensing fees, and such funding
could be keeping membership dues down. The district court
found that the APA’s operation benefitted non-members, id.
at 832-33; the district court here quite properly determined
that SIG’s certification and the advertising based on it do not.
Finally, American Plywood places great weight on the trade-
mark activity in the context of the APA’s tireless thirty-year
history of successfully promoting plywood of all kinds.8 See
id. at 832. In this case, there is no such history to fall back
upon. SIG advertises Bluetooth and only Bluetooth, and in no
way seeks to promote products which lack the Bluetooth
trademark. Indeed, the key point of the Bluetooth advertising
message is that consumers should ensure their devices will
work together by selecting those products whose manufactur-
ers have paid SIG for permission to brand their products with
the Bluetooth logo.
8
Of course, we are not bound by American Plywood, but we do not
think its holding can be divorced from the APA’s history and broad scope
of activity which benefitted member and non-member alike.
BLUETOOTH SIG INC. v. UNITED STATES 9839
C
[15] Continuing our analysis of prong five, we also con-
clude that SIG engages in particular services for particular
member-manufacturers. We recognize that the promotion of
products under an organization’s registered trademark is not
necessarily inconsistent with business of a non-profit flavor.
Am. Plywood, 267 F. Supp. at 832-33. Nor do we deny that
an industry organization may create a ‘seal of approval’ for
products meeting trade standards to combat abuse in the
industry. Here, however, there is no industry, only an organi-
zation promoting one of a number of possible technologies for
the interest of its members as opposed to an industry writ
large.
SIG is similar to the alleged business league in MIB, Inc.
v. Commissioner, 734 F.2d 71 (1st Cir. 1984). MIB was (and
still is) a clearinghouse for life insurance companies. See id.
at 73. It helps member companies determine whether an appli-
cant is hiding any medical limitations, participation in avia-
tion, and the like. See id. About half of MIB’s revenue came
from fees charged for each applicant’s name that was submit-
ted to an insurance company. The other half came from
assessments on member companies based on the amount of
insurance in force. See id. at 74. The court concluded that
MIB provided particular services for individual persons. See
id. at 77. “The ultimate inquiry,” said the court, “is whether
the association’s activities advance the members’ interests
generally, by virtue of their membership in the industry, or
whether they assist members in the pursuit of their individual
businesses.” Id. at 78.9 It was not enough that “members of a
particular industry or trade have banded together to provide a
service which all of them need,” even if that activity is “to-
9
But: “ ‘[I]t can hardly be supposed that individuals would often join
organizations without the expectation of receiving some personal benefits
therefrom.’ ” MIB, Inc., 734 F.2d at 78 (quoting Nat’l Leather & Shoe
Finders Ass’n v. Comm’r, 9 T.C. 121, 126 (1947)).
9840 BLUETOOTH SIG INC. v. UNITED STATES
tally commendable” and serves the public interest. Id. at 77;
see also Guide, 948 F.2d at 362 (acknowledging that the orga-
nization benefitted members of the public who used IBM
mainframes).
[16] “[A] major factor in determining whether services are
‘particular’ is whether they are supported by fees and assess-
ments in ‘approximate proportion to the benefits received.’ ”
MIB, Inc., 734 F.2d at 79. Here, about half of the revenue
came from per-use charges. Although the remainder of the
funding came from dues based on size and sales volume —
a traditional business league revenue source — that funding
was not unrelated to the number of requests and were in any
event not enough to “defeat the inference of particular ser-
vices created by the service charges.” Id. Accordingly, the
business league exemption was denied.
[17] Even though the Bluetooth certification fees are not as
proportional to the benefit received as were the fees in MIB,
Inc., there still exists an obvious quid pro quo: in each trans-
action, the ability to use the Bluetooth trademark on one prod-
uct is exchanged for several thousand dollars. Cf. Am.
Plywood, 267 F. Supp. at 834 (certification costs were cov-
ered by member dues, not special fees). As with MIB, Inc.,
there is no reason that the presence of membership dues (here
based, albeit roughly, on manufacturer size) overrides that
perception. And although some of SIG’s activities promote
Bluetooth generally, the certification program primarily aids
members in the pursuit of their businesses. That is, after all,
why members pay the listing fees. Like the MIB, Inc. court,
we mean to cast no aspersions on SIG or the public benefit
that accrues from collaboration in the wireless industry. Yet,
a finding of group and public benefit does not necessarily
make an organization a business league. See MIB, Inc., 734
F.2d at 80.
D
[18] Finally, we consider whether the particular services
SIG performs for its members are incidental. Incidental activi-
BLUETOOTH SIG INC. v. UNITED STATES 9841
ties which fall outside of the definition of a business league
will not bar an organization from receiving non-profit status.
See Am. Plywood, 267 F. Supp. at 832 (“The rule is well
established that a trade association whose main purpose justi-
fies exemption from income tax will not forfeit tax exempt
status by engaging in incidental activities which, standing
alone, would be subject to taxation.”). However, we conclude
that the services at issue here are not incidental. Unlike in
American Plywood, there is no long-standing overarching pro-
gram of SIG promoting the wireless industry — or any other
industry — as a whole. It would be as if the only activities of
the American Plywood Association were certification, devel-
opment of its standard, and promotion of the same. Every-
thing that SIG does supports, in one way or another, the
Bluetooth brand which is the organization’s central asset and
focus.
We may consider “the fact that . . . . a large percentage of
[an organization’s] income was derived from activities for the
benefit of individuals is a strong indication that these activi-
ties were more than merely incidental.” Ind. Retail Hardware
Ass’n, Inc. v. United States, 366 F.2d 998, 1002 (Ct. Cl. 1966).10
Indiana Retail also relied on the amount of staff time con-
sumed by the supposedly incidental function. Id.11
SIG is stuck between a rock and a hard place: if it is mak-
ing a profit off of qualifications, it is clearly distinct from the
10
In Indiana Retail, the supposedly incidental activities were the source
of almost 60% of the organization’s revenue. Id. at 1002. Accord Associ-
ated Master Barbers & Beauticians of Am., Inc. v. Comm’r, 69 T.C. 53,
68-69 (1977) (relying on receipts and expenses averaging about thirty per-
cent to find that sickness and disability insurance program for members
was not incidental).
11
See also, e.g., Evanston-North Shore Bd. of Realtors v. United States,
320 F.2d 375, 380-81 (Ct. Cl. 1963) (considering the costs, as well as the
revenues, attributable to the supposed incidental activity); Associated
Master Barbers, 69 T.C. at 68 (considering disbursements from insurance
program).
9842 BLUETOOTH SIG INC. v. UNITED STATES
organizations in Revenue Rulings and cases which did not
charge more than was necessary for the costs of administering
the certification program. See, e.g., Rev. Rul. 70-184. If it
spent as much on certification as it brought in, then a quite
substantial part of the organization’s efforts are tied up in cer-
tification, proving that the activity is not merely incidental.
Either way, SIG’s certification program is inconsistent with
business league status.
Furthermore, SIG’s advertising promotes only its members’
interests, in contrast with the situation in American Plywood.
There, “[a]ssuming advertising use of the plywood association
grade trademarks tends to negative plaintiff’s qualification for
tax exempt status,” the court wrote, “the ‘incidental’ excep-
tion is applicable.” Am. Plywood, 267 F. Supp. at 835. “The
main purpose” of the advertising was to promote plywood. Id.
at 836. “[T]he reference to trademarks in [the APA’s] adver-
tising [was] of minor importance”: the “grade trademark
[was] shown as a symbol of quality plywood and [was] pres-
ented without special emphasis or embellishment.” Id. Almost
always, the trademark was used “in an incidental manner and
in subordinate position.” Id. No specific producer of the trade-
marked wood was ever mentioned. Id. “It can reasonably be
inferred from the evidence that use of trademarks in plaintiff’s
advertising produce[d], at least indirectly, benefits for the few
plywood manufacturers who are not members of [the] associa-
tion.”12 Id. at 835. Accordingly, the promotional activities did
not preclude classification as a business league.
[19] The overwhelming purpose of SIG’s promotional
activities was to promote the Bluetooth brand. Far from being
of minor importance, the Bluetooth trademark was the focus
of SIG’s advertising campaign. Specific producers are some-
times named. Any benefit on the wireless communication
industry or non-Bluetooth manufacturers was, in fact, merely
12
We might not necessarily endorse this particular factual finding, but
the record in the American Plywood case is not before us.
BLUETOOTH SIG INC. v. UNITED STATES 9843
incidental. SIG’s advertising was neither an incidental part of
its operations nor only incidentally biased in favor of its mem-
bers as opposed to others in the industry. It cannot avail itself
of the incidental activities exception.
IV
[20] We agree with the district court that SIG engages in
a business of the sort ordinarily engaged in for profit. We also
agree that it provides non-incidental services for particular
members. Accordingly, the district court properly held that
SIG is not entitled to exemption from taxation under I.R.C.
§ 501(c)(6) in granting summary judgment to the United
States.
AFFIRMED.