Bloch v. United States

• Decision Date: 11 December 1951
• Citation: 102 F. Supp. 457
• Parties: BLOCH v. UNITED STATES.
• Court: U.S. District Court — Southern District of New York

102 F. Supp. 457

BLOCH v. UNITED STATES.

United States District Court, S. D. New York.

December 11, 1951.

Arthur Weissbarth, New York City, for plaintiff.

Myles J. Lane, U. S. Atty. for S. D. N. Y., New York City, for defendant.

SUGARMAN, District Judge.

On January 15, 1932 in Czecho Slovakia, plaintiff and two other persons entered into an agreement concerning a bimetal thermometer, of which the plaintiff shortly thereafter completed development. Application for a United States patent, made on March 3, 1932, was granted the plaintiff on August 14, 1934. Under the partnership agreement the plaintiff held this patent as trustee for all of the partners equally as tenants in common. Subsequent to April 9, 1935 a fourth equal partner was admitted.

On April 29, 1935, the partners made an agreement with Weston Electrical Instrument Corporation of Newark, New Jersey in which the partners were denominated as "the Licensors" and Weston was denominated as "the Licensee". It was therein agreed, among other things, that Weston would pay the partners $75,000, of which $40,000 was to be paid upon the execution of the agreement; that the partners granted to Weston "an exclusive license to make, use, exercise and vend" throughout the United States, its Territories and Possesall kinds of thermometers under the partners' patent; that other licensees or assignees of the partners would not compete with Weston in said territories; that at certain periodic intervals Weston would pay the partners "a royalty" made up of stipulated amounts or percentages on varying types of thermometers, but, that after 1935 the minimum annual payment to be made by Weston to the partners was to be $25,000, provided further that the percentages were to be reduced as "total royalty payments" reached given amounts; that the balance "between the contract consideration of $75,000 and the down payment of $40,000" was to be liquidated by means of "excess royalties" of stipulated amounts on varying types of thermometers until complete amortization of the $35,000 balance; that Weston would not "sell or assign in any manner whatsoever the entire license" without the partners' written consent and upon the proposal of such sale the partners were to "have the right of first refusal to repurchase the license for themselves"; that the partners would not, without Weston's written consent, "make, use, exercise or vend" any such thermometers in the United States or its Territories and Possessions or license any one else to do so; that should Weston default in payment under the contract, the partners could, after a grace period, "terminate the license" whereupon Weston's rights thereunder would "cease and terminate"; that upon Weston's notice to the partners of its decision to discontinue making the thermometers, the agreement would end; and that if, for three consecutive years, the total annual "royalties" of $25,000, although paid by Weston, exceeded the earned amount under the percentage terms of the agreement, the partners could cancel the agreement. Appended to the said agreement and separately executed, is a "Schedule" reciting that "by this deed * * * and in pursuance of the within agreement" the partners granted to Weston "full, sole and exclusive license and authority to make, use, exercise and vend thermometers" under the patent for its duration in the United States and its Territories and Possessions.

Under the foregoing agreement, plaintiff received, in 1935, $9,116.66 as his net share of the $40,000 down payment made by Weston to the partners. On March 5, 1946, upon the insistence of the Bureau of Internal Revenue, the plaintiff filed a return for 1935 and paid an income tax of $499.67 which, together with interest of $289.81, aggregated $789.48 for which he duly claimed and was denied a refund.

Weston's obligation, under its agreement with the partners, required that it pay certain sums of which the plaintiff's share for the years 1944, 1945 and 1946 amounted to $5,718.02, $6,525.28 and $8,091.21, respectively. Instead, it paid sums from which the plaintiff received $4,002.62, $4,567.78 and $5,663.83, respectively, remitting to the defendant the respective differences as income taxes withheld, including $1,715.40, $1,957.50 and $2,427.38 of the plaintiff's shares. In October, 1948, at the request of the defendant the plaintiff filed returns for 1944, 1945 and 1946. Thereafter he filed claims for refund of said taxes withheld which were subsequently denied.

In due course, the plaintiff commenced this suit to recover the $6,889.76 total of his payment for 1935 and Weston's withholdings in 1944, 1945 and 1946. Defendant answered. The parties then stipulated that the plaintiff's suit was brought under §§ 119, 143 and 211 of the Internal Revenue Code; that the plaintiff was and is a German citizen and a non-resident alien not engaged in business and maintaining no office in the United States.

The facts above set forth, except those dealing with the 1935 tax, were, in substance, also stipulated. The plaintiff now moves and the defendant cross moves for summary judgment.

The resolution of these motions depends upon the agreement of April 29, 1935 between Weston and the partners. Was it a sale or a license? The effect of the instrument is determined by its substance and not by its appellation. If the agreement transfers the total rights of the grantor in his patent to make, use...