Long v. Rockwood

1928-05-14

Headline: Court blocks Massachusetts from taxing income from U.S. patents, ruling state cannot treat patent royalties as a taxable patent right and protecting federal patent privileges from state income tax.

Holding: The Court held that Massachusetts cannot tax royalty income from U.S. patents because such a tax would amount to taxing the federal patent right, which the Constitution forbids.

Real World Impact:

Prevents Massachusetts from taxing patent royalty income in this case.
Protects federally granted patent privileges from state income taxation.
Limits states’ ability to treat federal patent grants as ordinary taxable property.

Topics: patent royalties, state income tax, federal patent rights, state versus federal power

Summary

Background

A Massachusetts tax official tried to collect state income taxes for 1921 and 1922 on royalties paid to a local patent owner for use of patents issued by the United States. The state’s highest court held that taxing those royalties would amount to taxing the patent right itself, which it said the Federal Constitution forbids, and the issue came to the Supreme Court for review.

Reasoning

The Court, speaking through Justice McReynolds, explained that the Constitution authorizes Congress to grant inventors an exclusive right to their inventions for a limited time. That exclusive right — the power to keep others from using the invention — serves a public purpose and is the instrument Congress created to encourage invention. The Court relied on prior decisions saying federal grants of exclusive franchises may not be taxed by a State. It concluded that treating royalty payments as taxable income would effectively tax the federal patent right itself, so Massachusetts could not impose the claimed state tax. The Court affirmed the lower-court judgments in favor of the patent owner.

Real world impact

The decision prevents Massachusetts, in this case, from taxing royalties tied to patents issued by the United States and reinforces a rule protecting federally granted patent privileges from state taxation. Patent owners may rely on this protection, while states cannot treat patent grants as ordinary taxable property in ways that amount to taxing the federal patent right.

Dissents or concurrances

Justice Holmes (joined by Justices Brandeis, Sutherland, and Stone) disagreed, arguing patents are private property used for individual advantage and that States may tax patent income so long as the tax does not discriminate or destroy the property’s use.