*1543 The value on March 1, 1913, for a group of patents acquired by the taxpayer prior to that date determined, and held that a reasonable allowance for exhaustion of such value may be computed upon the basis of the average remaining life of the several patents as of that date.
*281 By these proceedings, consolidated for hearing, redetermination is sought of deficiencies for years and in amounts as follows:
| Docket No. | Fiscal year | Amount |
| 33159 | 1923 | $2,098.48 |
| 1924 | 569.69 | |
| 36393 | 1925 | 2,826.14 |
| 40873 | 1926 | 2,324.32 |
FINDINGS OF FACT.
Petitioner is a Minnesota corporation, organized in 1906, and has been engaged since that time in manufacture, sale and installation of gravity conveyor systems. For several years following its organization petitioner was unable to operate profitably. The reasons for this were several. Upon its organization petitioner issued most of its stock for patents and had insufficient cash capital. Conveyor systems were not in general use in industry, their value in speeding production being*1544 not generally recognized, nor had industry realized the value of mass production. Most industrial plants then in existence had not, when originally built, been equipped with such systems and their installation thereafter was more difficult and expensive, as the systems had to be adapted to buildings the construction of which had made no allowance for their inclusion. In addition to this, the president of petitioner, although an able inventor and an efficient salesman, was not a good business executive. Furthermore, there was a general business depression following the year 1907.
The result was that in 1910 petitioner was unable to pay off its indebtedness and was having difficulty in raising the cash needed for pay rolls and other expenses, and its stockholders were discouraged. With these conditions existing, petitioner's stockholders in 1910 succeeded in inducing one W. S. McCurdy, a man of means and proven executive ability, to acquire control of petitioner and undertake the direction of its affairs. McCurdy, on taking charge, reorganized *282 petitioner's personnel, including its sales force, employed more competent factory help, advertised the business and contributed*1545 working capital, and the business at once began to develop and its prospects improve.
By 1913 the business of petitioner was well established. Its conveyor systems had been installed in many lines of manufacture over the country and their mechanical efficiency was being demonstrated. By that time the financial success of petitioner could reasonably be anticipated.
On March 1, 1913, petitioner was the owner of seven patents covering distinct features of the conveyor systems which it manufactured, as follows:
| Elapsed time at Mar. 1, 1913 | Remaining life | ||||||
| Patent number | Date issued | Years | Months | Days | Years | Months | Days |
| 833,209 | Oct. 16, 1906 | 6 | 4 | 15 | 10 | 7 | 15 |
| 833,326 | do | 6 | 4 | 15 | 10 | 7 | 15 |
| 980,523 | Jan. 3, 1911 | 2 | 1 | 28 | 14 | 10 | 2 |
| 1,021,876 | Apr. 2, 1912 | 10 | 29 | 16 | 1 | 1 | |
| 1,022,681 | Apr. 9, 1912 | 10 | 22 | 16 | 1 | 8 | |
| 1,046,386 | Dec. 3, 1912 | 2 | 28 | 16 | 9 | 2 | |
| 1,050,478 | Jan. 14, 1913 | 1 | 17 | 16 | 10 | 13 |
The average remaining life on March 1, 1913, was 14 years, 6 months, 21 days.
These patents petitioner had acquired for its stock of a par value in excess of $350,000. These patents neither individually nor collectively*1546 gave petitioner the exclusive monopoly of the manufacture of gravity conveyors. A number of such conveyors were being manufactured by competitors. All of these patents, however, were of features of such conveyors constituting improvements on the prior art and tending either to make them more efficient or less expensive to operate than other systems. Under these patents petitioner was enabled to manufacture, at less cost than its competitors, two types of conveyors, operating at lower grade and with greater efficiency around right angle turns. Two of these patents, Nos. 1,021,876 and 1,050,478, covering automatic loading devices, permitted of the dispensing with the services of a man necessary in the operation of competing systems.
The seven patents in question were worth collectively on March 1, 1913, not less than $230,000. Respondent, in determining the deficiencies here in controversy, failed to allow any amount as [*] exhaustion of such patents, upon the ground that they were [*] that date.
*283 OPINION.
TRAMMELL: Respondent has disallowed for each of the taxable years before us, deductions taken by petitioner as representing exhaustion of the group of*1547 patents owned by it on March 1, 1913, and based on a valuation of $230,000 as of that date. Respondent here contends that the patents had no value as of that date, or, if they had a value, it is necessary for petitioner to show such value separately in the case of each patent and not collectively, in view of the fact that two of these patents expired in 1924, the second taxable year of the five years before us.
Upon careful consideration of the evidence adduced, we can not agree with either of respondent's contentions. We think the evidence amply supports a finding of substantial value for these patents on March 1, 1913. Respondent calls attention to the prices at which petitioner's stock sold prior to that date and its failure to earn a profit as showing an absence of value in the patents. We do not think, however, that a low market price for petitioner's stock during the lean years of operation before the value of its product was recognized, and while it was laboring under the handicap of general business depression, insufficient working capital and inefficient executive management, establishes the fact that after such period was over and it had begun to realize profits from*1548 operation, its patents were without value. On March 1, 1913, facts were known and other facts reasonably could be forseen or anticipated which clearly indicated that the patents were valuable. Petitioner introduced the testimony of three witnesses with long experience in patent valuation and qualified to express opinions with respect thereto. We think this testimony, together with other evidence in the record respecting the business of petitioner as of March 1, 1913, its growth and reasonable expectation of future development, and the position it occupied among the manufacturers of conveyor systems by reason of its possession of these patents, amply supports the valuation of $230,000 placed upon the group of patents as of that date, and claimed by the petitioner.
As to the second question, it is evident that it is impossible to value these seven patents separately. Their value, as in the case of many groups of patents representing improvements on the prior art, appears largely to consist of their combination. We have held heretofore under such conditions that the reasonable allowance permitted by the statute for exhaustion of their value is by computing their average remaining*1549 life as of March 1, 1913, and exhausting their group value, as of that date, over this period. ; *284 . In , we said:
The respondent urges that a deduction can not be computed and hence may not be allowed unless each patent is separately valued. If this were true it would effectively preclude, in many cases, the deduction which the statute contemplates, for the difficulty of patent valuation generally would become an impossibility. Congress is not to be supposed to have allowed a deduction and at the same time intended a method of computation so rarely available as to deprive most taxpayers of the deduction allowed. The statute expressly prescribes a reasonable allowance, and this we think is met by adopting the average method in this instance.
The deficiencies will be recomputed in accordance with the foregoing opinion.
Judgment will be entered under Rule 50.