Securities and Exchange Commission v. Aqua-Sonic Products

687 F.2d 577 (1982)

From our private database of 45,900+ case briefs, written and edited by humans—never with AI.

Securities and Exchange Commission v. Aqua-Sonic Products

United States Court of Appeals for the Second Circuit
687 F.2d 577 (1982)

Facts

Aqua-Sonic Products (Aqua-Sonic) (defendant) sold licenses to distribute its dental products. Licensees had the option to use Ultrasonic (defendant) as their sales agent, which meant Ultrasonic would be responsible for all significant marketing activities. Both Ultrasonic and Aqua-Sonic were owned by the same parent corporation. However, licensees could cancel the Ultrasonic sales-agency relationship, could exercise some control over pricing and other sales terms, and could inspect Ultrasonic’s records. The licenses were marketed to investors looking for tax benefits—not to experienced dental-supply distributors—and licensees were advised that using Ultrasonic would be tax-advantageous. Between May 1 and December 31, 1978, all 50 purchasers of Aqua-Sonic licenses also entered into agency agreements with Ultrasonic. The Securities and Exchange Commission (SEC) (plaintiff) sued Aqua-Sonic, Ultrasonic, and others, alleging that the Aqua-Sonic licenses were investment contracts—and thus securities—within the meaning of the Securities Act of 1933 (securities act) and the Securities Exchange Act of 1934 (exchange act). Aqua-Sonic and Ultrasonic responded that the licenses were not investment contracts because the licensees’ profits did not depend solely on the efforts of others, as the licensees did not have to use Ultrasonic as their agent and they retained certain rights and obligations even if they did use Ultrasonic. The SEC argued that the licenses were investment contracts even if their financial success was not literally solely dependent on the efforts of nonlicensees and that the purportedly optional nature of the Ultrasonic relationship was irrelevant. The district court ruled that the licenses were investment contracts and issued an injunction prohibiting their continued sale. Aqua-Sonic and Ultrasonic appealed.

Rule of Law

Issue

Holding and Reasoning (Friendly, J.)

What to do next…

  1. Unlock this case brief with a free (no-commitment) trial membership of Quimbee.

    You’ll be in good company: Quimbee is one of the most widely used and trusted sites for law students, serving more than 734,000 law students since 2011. Some law schools—such as Yale, Berkeley, and Northwestern—even subscribe directly to Quimbee for all their law students.

    Unlock this case briefRead our student testimonials
  2. Learn more about Quimbee’s unique (and proven) approach to achieving great grades at law school.

    Quimbee is a company hell-bent on one thing: helping you get an “A” in every course you take in law school, so you can graduate at the top of your class and get a high-paying law job. We’re not just a study aid for law students; we’re the study aid for law students.

    Learn about our approachRead more about Quimbee

Here's why 734,000 law students have relied on our case briefs:

  • Written by law professors and practitioners, not other law students. 45,900 briefs, keyed to 984 casebooks. Top-notch customer support.
  • The right amount of information, includes the facts, issues, rule of law, holding and reasoning, and any concurrences and dissents.
  • Access in your classes, works on your mobile and tablet. Massive library of related video lessons and high quality multiple-choice questions.
  • Easy to use, uniform format for every case brief. Written in plain English, not in legalese. Our briefs summarize and simplify; they don’t just repeat the court’s language.

Access this case brief for FREE

With a 7-day free trial membership
Here's why 734,000 law students have relied on our case briefs:
  • Reliable - written by law professors and practitioners, not other law students
  • The right length and amount of information - includes the facts, issue, rule of law, holding and reasoning, and any concurrences and dissents
  • Access in your class - works on your mobile and tablet
  • 45,900 briefs - keyed to 984 casebooks
  • Uniform format for every case brief
  • Written in plain English - not in legalese and not just repeating the court's language
  • Massive library of related video lessons - and practice questions
  • Top-notch customer support

Access this case brief for FREE

With a 7-day free trial membership