Saunders v. Commissioner

AUGUSTUS M. SAUNDERS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Saunders v. Commissioner Docket No. 10526. United States Board of Tax Appeals 11 B.T.A. 201; 1928 BTA LEXIS 3845; March 26, 1928, Promulgated *3845 Where petitioner applied in 1911 for a patent and at the same time assigned his rights to his invention and to the patents when secured, and where he was to receive as compensation what his patent when acquired was reasonably worth, and where the patent was issued in 1918 and petitioner was paid the sum of $25,000 in 1920, held, that in the absence of proof of value on March 1, 1913, the whole of said payment constituted taxable income. Maynard Teall, Esq., for the petitioner. Alva C. Baird, Esq., for the respondent. MILLIKEN *201 This proceeding involves the redetermination of a deficiency in income tax for the year 1920 in the amount of $5,324.25 of which $5,301.75 is in controversy. The only error alleged is that respondent included in petitioner's gross income for the year 1920 the amount of $25,000, which was paid to petitioner in that year by reason of a contract of sale and assignment of a certain invention and the right to secure a patent thereon executed in the year 1911. FINDINGS OF FACT. Petitioner is an individual who resides at 1416 Library Avenue, McKeesport, Pa. Petitioner has been employed by National Tube Co. since*3846 1883. From 1897 to 1924 he was superintendent of said company's mills at McKeesport, Pa. It was not part of petitioner's regular duties as superintendent to make inventions. From 1894 to and including the year 1911 it was the custom of the management of the National Tube Co. to sign and to request its employees to sign contracts on the following form: Whereas of is in the employ of the National Tube Company, as in the department thereof; and *202 Whereas on account of the position so held by him he has free access to the machinery, and special opportunity to become familiar with and study the methods practiced and machinery used in the said department, and may from time to time make improvements in apparatus or methods connected with the manufacture of tubing or products thereof, or used with, or in the manufacture of the same; NOW THEREFORE the said in consideration of such employment by said Company and the further consideration hereinafter named, hereby covenants and agrees that in case he shall during his employment by said Company make and invent any improvements in the manufacture of tubing or apparatus for the manufacture of tubing or products thereof, or apparatus*3847 used with, or for the manufacture of the same, he shall within a reasonable time of making such invention disclose the same to the Manager of the department of said Company in which he is then employed, or to the General Officers of the Company having charge of the Manufacturing Department, and if desired by such General Officers, shall at the expense of said Company, make application for Letters Patent of the United States for such invention or improvement, and assign the entire interest in such invention and application to the said The National Tube Company, its successors and assigns. IN CONSIDERATION WHEREOF the said The National Tube Company hereby covenants and agrees to pay unto said for every such invention so made and submitted to it, and for which application for patent shall be made at its request as above provided, the sum of Two Hundred Dollars ($200); and said Company further agrees that in case the invention for which such application is made, as above provided, shall be considered by the General Officers of the Company having charge of the Manufacturing Department to be of sufficient value to justify payment of a larger consideration for the same, then said The National*3848 Tube Company shall pay to said such sum in cash as shall be deemed proper by such General Officers. IN TESTIMONY WHEREOF the said has hereunto set his hand and seal, and the said The National Tube Company has hereunto signed its corporate name, attested by one of the officers of said Company this day of , 19 . Subsequent to 1894 and prior to 1911 the National Tube Co. became a subsidiary of the United States Steel Corporation. In 1909, the United States Steel Corporation promulgated certain rules for the guidance of the officials of its subsidiary companies in dealing with patents, whether made by its employees or other persons. These rules were in effect during and subsequent to the year 1911. The pertinent parts of these rules read: ARTICLE I. RELATING TO THE ORGANIZATION FOR HANDLING OF PATENT MATTERS. SECTION 1. It is not the purpose of the rules which follow to interfere with the organization of any subsidiary company, or to provide any unnecessary formalities. On the contrary, the effort has been to state a plan which shall be flexible and readily adaptable to the existing organization of each of the companies, and which, at the same time, will help*3849 to reach the end so obviously desirable in a substantially uniform method. The rules should be followed as accurately as practicable, and should only be departed from whenever in special *203 instances it is necessary for expeditious and effective transaction of the business in hand in accordance with the true intent and spirit of the rules. SECTION 2. The Patent Committee shall be a permanent Committee and shall consist of a representative appointed from time to time by each of the subsidiary companies; but for special reasons two or more companies may select the same person to represent them. The Patent Counsel of the United States Steel Corporation shall be chairman of the Patent Committee. SECTION 4. It is the theory of these rules that, as a matter of routine, all patent matters arising at any plant should converge at some stage in one man; all patent matters in which any company is interested should converge at some stage in one Executive Officer of that Company; and that all patent matters in which more than one company is interested should converge at some stage in the Patent Counsel of the United States Steel Corporation unless in each case the official handling*3850 the matter can clearly see that it is unnecessary. SECTION 5. Some person should be charged with responsibility for all patent matters arising at each plant. This person may be the manager, superintendent, chief engineer, master mechanic, or other proper person. * * * For convenience we will call him the "Patent Man". SECTION 6. No patents should be taken out, no patents should be purchased, and, where there is a possibility of a patent being involved, no articles should be purchased, no improvements should be introduced, and no new processes should be adopted at any plant, without requiring the plant Patent Man to go on record in regard to the matter. The system starts with him, and if he is officient in the work the purpose of the plan will be accomplished. SECTION 8. A copy of the rules should be in the hands, not only of all of the officials who are a part of the system, but of all officials and employes who are likely to deal directly or indirectly with the matters covered. ARTICLE III. RELATING TO INVENTIONS MADE BY EMPLOYEES OF ANY OF THE SUBSIDIARY COMPANIES, THE POLICY TO BE ADOPTED IN REGARD TO SUCH INVENTIONS, AND THE PROCEDURE FOR HANDLING THEM. *3851 SECTION 1. There are two principles which should be kept clearly in mind in this connection, each of prime and, perhaps, of equal importance. (a) Such an incentive should be given to the employes as will inspire them with a spontaneous and enthusiastic desire and ambition to conceive improvements in machinery, devices, processes, methods of mill work and articles of mill production, and then to put such conception in concrete, definite form. This inventive conception will not come freely and fully in response to a demand made for it as being included in the duties of the employment. It is more apt to come vigorously and effectively if the right inspiration is offered. This is true, at least, as to that class of men whose regular duties are to carry on existing operations and not to devise new things. Yet it is this class of men, making up the rank and file, whom we hope to help and whose help we seek by these suggestions. (b) While giving such incentive, care should be exercised that the rights of the subsidiary companies be properly protected. It would be not only unfair, but it might be disastrous, to assist an employe to develop a new invention, to assist him to take*3852 out a patent, and then to permit him to give the advantages of his invention to a competitor and to refuse them to other subsidiary companies. *204 SECTION 2. Employes in each plant should be encouraged to present their ideas for improvements in machinery, devices, processes, methods of mill work and articles of mill production, to some official at such plant designated to receive the same. * * * If the matter be not presented to the Patent Man of the plant in the first instance, it should be promptly referred to him so that it will be certain that all patent matters at that plant coverage at one stage in this one man. SECTION 4. If the General Officer of the Company having charge of such matters concurs with the recommendations concerning such patent matter coming from the plant, he should refer the subject to the Patent Counsel of the United States Steel Corporation. * * * A broad view of the interests of the United States Steel Corporation, as a whole, should guide him in determining the extent of the rights he should secure. Reports of all licenses and assignments procured under the foregoing plan should be reported to the Patent Committee. SECTION. 5. It*3853 should be generally understood that when an employee discloses an invention to his company he is willing to assign a license to his company to use the invention in all of the plants then and thereafter operated by it in consideration of the payment by the company of the cost of taking out the patent. Where the invention covers something of no great importance, this plan is believed to care fairly for the rights and interests both of the inventor and of the company. (a) A suggestion is here made by way of warning that the purchase of a license by one subsidiary company, leaving the inventor free to sell a like license to competing companies might embarrass the other subsidiary companies. It might embarrass them by putting them at a disadvantage in competition with outside companies if the invention proved of value. A subsidiary company might become involved in a lawsuit, when the validity and scope of the patent would be in question, in which case the purchase of a license and use of the patent by another subsidiary company would be unfortunate. It is, therefore, better when practicable to acquire a license for the benefit of all the subsidiary companies or an assignment of*3854 the entire interest in the patent. SECTION 6. If the person having the negotiations in charge is of opinion that the invention will be of importance to other subsidiary companies, but that it is not important to acquire a monopoly and to exclude competing companies from its use, then he should secure a license for use by all subsidiary companies. But in such case, in addition to paying the cost of taking out a patent, it should be understood that the company will pay to the inventor a sum of money, the amount of which, of course, can not be suggested even in a general way, but can only be fixed by the circumstances of the case. SECTION 7. If the person having the negotiations in charge is of the opinion that the invention will be of importance to other subsidiary companies, and that it is desirable that competing companies should be excluded from the use of the inventions, then he should secure an assignment of the entire ownership in the patent. In this case likewise it should be understood that a sum of money will be paid to the inventor, the amount depending upon the circumstances. SECTION 8. The Patent Counsel of the United States Steel Corporation should apply for*3855 such patents and prepare such licenses or assignments as are requested. Every license or assignment should have his approval. Petitioner had notice of and was familiar with the above rules and operated under them. *205 Petitioner, having invented a certain pipe drawing apparatus, made application under date of May 6, 1911, to the Commissioner of Patents for a patent on said device. On the same date he executed the following assignment: ASSIGNMENT. WHEREAS I, AUGUSTUS M. SAUNDERS, of McKeesport, in the county of Allegheny and State of Pennsylvania, have invented certain new and useful Improvements in PIPE DRAWING APPARATUS: AND WHEREAS THE NATIONAL TUBE COMPANY, a corporation duly organized and existing under and by virtue of the laws of the State of New Jersey, and having its principal office and place of business at Pittsburgh, State of Pennsylvania, is desirous of acquiring the entire right, title and interest in and to said invention and in to and under any Letters Patent of the United States which may be obtained therefor: NOW THEREFORE TO ALL WHOM IT MAY CONCERN: BE IT KNOWN that for and in consideration of the sum of One dollar ($1.00) and other good and*3856 valuable considerations by me received from the NATIONAL TUBE COMPANY, aforesaid, the receipt of which is hereby acknowledged, I, the said AUGUSTUS M. SAUNDERS, have sold, assigned, transferred and set over and I do hereby sell, assign, transfer and set over unto the NATIONAL TUBE COMPANY, aforesaid, its successors and assigns, the full and exclusive right to the said invention, and in, to and under the application for Letters Patent of the United States therefor executed by me the 6th day of May, 1911, and in, to and under any Letters Patent that may be issued for said invention in the United States; and I do hereby covenant and agree, for myself and my legal representatives, and assigns, to assist my said assignee in the prosecution of my said application, and in any interference which may arise involving my said invention; and I do hereby authorize and request the Commissioner of Patents to issue said Letters Patent of the United States upon said application, of for said invention, to the NATIONAL TUBE COMPANY, aforesaid, as the assignee of my entire right, title and interest in and to the same for the sole use and behoof of my said assignee, its successors and assigns. The application*3857 for a patent was filed with the Commissioner of Patents on May 11, 1911, and the above assignment was recorded in the same office on April 7, 1917. The pipe drawing apparatus was installed and in operation in the plants of the National Tube Co. within one year after May 6, 1911. The application for the patent was prosecuted by and at the expense of the National Tube Co., the petitioner rendering such other service in the matter of prosecution of the application as was necessary. Subsequent to the filing of the application for the patent in the Office of the Commissioner of Patents, certain interferences developed. Litigation ensued. See Neckerman v. Saunders,46 App.D.C. 10. Letters patent were granted on October 15, 1918. Further litigation ensued between Neckerman and petitioner in the United States District Court for the Western District of Pennsylvania. All said litigation was conducted at the expense of the National Tube Co. and terminated favorably *206 to petitioner and his assignee. In September, 1920, the following letter was received by petitioner in due course of mailing: National Tube Company, Pittsburgh, Pa., Frick Building, Wm. B. *3858 Schiller, President, September 1, 1920. Dear Mr. Saunders: The Patent Committee has recommended payment to you in the sum of $25,000, as full compensation for the device invented by you, covered by United States Letters Patent No. 1,281,668 - Pipe Drawing Apparatus. The recommendation of the Patent Committee was concurred in by me, and I am this morning in receipt of a communication from the United States Steel Corporation recommending payment to you of the above sum. I have instructed our Auditing and Treasury Departments to send you a check or voucher for this amount, and it gives me great pleasure to so advise you. Very sincerely yours, WM. B. SCHILLAR, President. Mr. A. M. Saunders, c/o National Tube Co., McKeesport, Pa. Subsequently and during the year 1920, the National Tube Co. paid petitioner the said amount of $25,000, this being the only amount received by petitioner by reason of his assignment of May 6, 1911. On October 6, 1925, petitioner mailed the following letter: PITTSBURGH, PA. October 6, 1925. Mr. J. G. BRIGHT, Deputy Commissioner of Internal Revenue, Washington, D.C. IT:PA-3-ATH-303 DEAR SIR: In reply to letter*3859 of Mr. A. Lewis dated September 26, 1925, advising of a deficiency in my 1920 tax returns, I would say that the omission of the item of $150, "Dividends received from Nipissing Mines Co." was evidently an error on my part and I have accordingly executed form 7858 agreeing to an assessment of tax due to the omission of this item. In reference to the item of $25,000.00 paid me by National Tube Company, I must protest the inclusion of this item in my 1920 income subject to tax. This sum was paid me as the purchase price of a patentable idea conceived by me in 1910 and for which I made patent application in the year 1911, the application being assigned to National Tube Company on May 6, 1911 with the understanding that payment was to be made when patent was issued. Litigation delayed the issuance of the Patent until Oct. 15, 1918 and subsequent litigation was not finally disposed of until about a year later. In support of my contention that this payment was in liquidation of a debt accruing to me prior to March 1, 1913 by National Tube Company, subject only to the issuance of the patent, I attach hereto the sworn statement of the Secretary of National Tube Company. (Signed) *3860 AUGUSTUS M. SAUNDERS. *207 The above letter was verified by petitioner under oath. The letter referred to in the above letter reads: OCTOBER 3, 1925. Mr. AUGUSTUS M. SAUNDERS, 1416 Library Ave., McKeesport, Pa. DEAR SIR: In the return to the Federal Government of "Information At The Source, 1920" Form 1099, this Company included in the amount paid you the sum of $25,000.00 which was paid for the acquisition of your United States Patent No. 1281668, the application for which was assigned by you to us on May 6, 1911. The reason for the long interval between the date of sale (assignment) and the date of payment for this patent was on account of the delay in the issuance of the Patent and the litigation in which it was involved, both before and after issuance. This Company was in error in reporting this payment to the Internal Revenue Department on form 1099 for the year 1920, as payments for purchase of property do not come under the head of "Information at the Source" which was required to be reported by Sec. 256 of the "Revenue Act of 1918." (Signed) B. C. MASSY, Secretary. Petitioner made about twenty other inventions and applied for patents*3861 thereon. Some of these inventions were made prior to 1911 and some were made subsequent to that year. All said inventions and applications for patents were sold and assigned by petitioner under the same terms and conditions that applied to the assignment of May 6, 1911, to the National Tube Co. Patents were issued on all said applications. At the date of the hearing of this proceeding, petitioner had been paid for several of these patents and was to be paid for the remainder shortly thereafter. Petitioner received from $2,000 to $7,500 for the patents for which he had been paid. Seventeen or eighteen other men in the employ of the National Tube Co. during the period from 1911 to 1920 made inventions and assigned their rights to the National Tube Co. under circumstances similar to those above set forth. Some of these men received as much as $10,000 for their inventions and patents. Petitioner made his income-tax returns on a cash receipts and disbursements basis. OPINION. MILLIKEN: Petitioner insists that prior to March 1, 1913, he was the owner of an unconditional, assignable, vested right to receive the purchase price for the property sold and transferred by him to*3862 the National Tube Co. on May 6, 1911; that his right was not the less unconditional or vested because it was unliquidated in amount; that this right was in 1911 capital; and that the realization on this right in 1920 through payment did not result in taxable income in the latter *208 year. As an alternative to these contentions, he urges that if he did not possess an enforceable right in 1911, then the payment to him in 1920 was in the nature of a gift and therefore not taxable. Before these contentions can be discussed or decided, it is necessary to ascertain what was the contract or understanding between petitioner and the National Tube Co. under which the assignment of May 6, 1911, was made. Petitioner produced at the hearing the form of contract set forth in the findings of fact and testified as follows: Q. I show you Exhibit 1, Mr. Saunders, and ask you what that is; if you recognize that form of paper? A. Yes, I recognize it. Q. What is it? A. It is a contract that the National Tube Company drew up, I think in 1894. Q. Did you ever execute a contract in that form? A. To the best of my recollection, I did. Q. Do you have the original of that*3863 contract? A. No, I have not been able to find it. Q. What effort have you made to find it, if any? A. I looked for it, and the Company looked for it in their files. Q. If you signed such a contract, when did you sign it? A. It would have been in 1894 - I think that is the date on there. Q. And it would be in this form? A. Yes. Again he testified: Q. Mr. Saunders, in the general form of contract which you have testified the Company used and which has been introduced as Exhibit No. 1, it is provided that when an application is made for a patent that the sum of $200 should be paid. Did you get that $200 at the time the application was made? A. No, sir. Q. You still have something coming from the Company? A. That is included in the $25,000. Counsel for petitioner in his brief, filed in this proceeding, after referring to the above testimony, makes the following suggestion: "The printed form was signed in 1894, several years before the United States Steel Corporation was organized, and probably, therefore, the Rules of which Saunders had full notice, superseded it." It is significant that the president of the National Tube Co. in his letter*3864 to petitioner dated September 1, 1920, stated that the patent committee, which was a committee of the United States Steel Corporation, had recommended the payment to petitioner of $25,000, and that he was in receipt of a communication from the United States Steel Corporation recommending the payment. It thus appears that the amount of compensation was not determined by the general officers of the National Tube Co. having charge of the manufacturing department, as provided in the form of contract, but by the committee by the parent company, and that the assignment of May 6, *209 1911, was made under the rules of the United States Steel Corporation and not under the alleged contract. Reversing the order in which the questions are stated above, we will discuss first the issue whether the payment made in 1920 was in the nature of a gift. At the outset, it is pertinent to state that, under the facts of this case, whatever may have been the rights of the National Tube Co. in the nature of a license to use the patent, it had no right to the patent itself. See *3865 Hapgood v. Hewitt,119 U.S. 226; Gill v. United States,160 U.S. 426, 30 Cyc. 880. Before it can be held that the payment of $25,000 was a gift by the National Tube Co. to petitioner, it must first be found that petitioner made a gift to the company of his invention and his inchoate rights to the patent, since, if he made the assignment with the expectation of receiving compensation, all elements of gift disappear. The contract of assignment negatives the idea of gift. It is therein recited that the assignment was made in consideration of $1 and other valuable considerations. The record shows that it was the policy not only of the National Tube Co., but also of the United States Steel Corporation, to encourage their employees to make inventions and assign their rights to the corporation upon the expectation of receiving compensation therefor. It is aptly said in Steele County v. Erskine (C.C.A.), 98 Fed. 215: "To discharge an obligation which rests upon full value received is neither a 'gift' nor a 'donation.'" Under all the facts of this case, we are of the opinion that no gift was intended or made either by petitioner*3866 of his rights to the company or by the company when it made payment. Here we are met with the contention that as early as May, 1911, petitioner had a vested right to receive payment for his invention and his rights to a patent; that this right was in nowise contingent; and that the payment made in 1920 was but a liquidation of a claim which had vested prior to March 1, 1913. The solution of this question depends largely upon what was the subject matter assigned by the contract of May 1911, and upon what were the conditions which had to be fulfilled, not only to determine what amount petitioner should receive but also whether he would receive anything whatever. Prior to May 6, 1911, petitioner had designed and constructed a pipe drawing apparatus. On May 6, 1911, he applied for letters patent on the apparatus. On the same date he assigned to the National Tube Co. all his rights to such apparatus and in, to and under his application for letters patent. Because of certain interferences and litigation, the patent was not issued until October 15, 1918. Until the patent was issued, neither petitioner nor his assignee had any right to the exclusive use of the invention which *210 *3867 could be protected by injunction. Rees v. Lombard (C.C.A.), 21 Fed.(2d) 276; March v. Nichols, Shepard & Co.,128 U.S. 605. In Durham v. Seymour,161 U.S. 235, the rights of an applicant for a patent and of his assignee are thus defined: It is true that "the discoverer of a new and useful improvement is vested by law with an inchoate right to its exclusive use, which he may perfect and make absolute by proceeding in the manner which the law requires"; and that an assignment may, under circumstances, be made which will operate upon the perfect legal title which the discoverer had a lawful right to obtain, as well as upon the imperfect and inchoate interest which he may actually possess. Gaylor v. Wilder,10 How. 477, 493. So rights growing out of an invention may be sold, whether the sale in any case carries with it anything of value or not. Hammond v. Mason & Hamlin Organ Co.,92 U.S. 724, 728. But "until the patent is issued there is no property right in it, that is, no such right as the inventor can enforce. At all events there is no power over its use, which is one of*3868 the elements of the right of property in anything capable of ownership." Marsh v. Nichols,128 U.S. 605, 612; Brown v. Duchesne,19 How. 183. Turning to the rules promulgated by the United States Steel Corporation, we find that the controlling thought which ran through them is the avoidance of infringements of patents held by others and the acquisition of inventions which were susceptible of being patented. In several places, the subsidiaries are warned of the danger to which they would be subject if they permitted their employees to develop new inventions and sell their patent rights or grant licenses to competing companies. The rules relate to nothing but patents, and center all such matters in a patent committee and an expert legal advisor. Under the circumstances presented by this record, it is inconceivable that any subsidiary of the United States Steel Corporation would purchase and pay for an invention irrespective of whether a patent could be secured. Sections 6 and 7 of article III of the rules provide: SECTION 6. If the person having the negotiations in charge is of opinion that the invention will be of importance to other*3869 subsidiary companies, but that it is not important to acquire a monopoly and to exclude competing companies from its use, then he should secure a license for use by all subsidiary companies. But in such case, in addition to paying the cost of taking out a patent, it should be understood that the company will pay to the inventor a sum of money, the amount of which, of course, cannot be suggested even in a general way, but can only be fixed by the circumstances of the case. SECTION 7. If the person having the negotiations in charge is of the opinion that the invention will be of importance to other subsidiary companies, and that it is desirable that competing companies should be excluded from the use of the inventions, then he should secure an assignment of the entire ownership in the patent. In this case likewise it should be understood that a sum of money will be paid to the inventor, the amount depending upon the circumstances. It is to be noted that where a license only is to be secured, it is provided that the amount to be paid therefor is not even to be suggested *211 in a general way but is only to be fixed by the circumstances of the case. Section 7 is tied up*3870 with section 6 by the use of the word "likewise." In both sections the amount to be paid depends upon the "circumstances." Both these sections relate not to the purchase of inventions but to the purchase of patents or patent rights and indicate that if no patent is secured, nothing is to be paid. This conclusion is borne out not only by the rules but by the facts as they appear in the record. Petitioner has assigned to his company about twenty applications for patents, all of which have been granted, and it does not appear that he was paid on any assignment until a patent was secured. For several he had not been paid at the date of the hearing. In this particular case, no sooner had the application for the patent been filed than interferences developed and litigation ensued. Over seven years elapsed between the filing of the application and the granting of the patent. During all this time the petitioner and his assignee possessed only an inchoate right to a patent which might or might not develop into an absolute right. During all this time their rights were contingent on, among other things, whether someone else had or had not anticipated the invention. This is just what Neckerman*3871 alleged both before the Commissioner of Patents and in the Court of Appeals of the District of Columbia. It is most significant that no payment was made until all these obstacles had been removed. These views are confirmed by the statements of the secretary of the National Tube Co. in his verified letter to petitioner dated October 23, 1925, where it is stated that the reason for the long interval (9 years) between the date of the assignment and "the date of the payment for this patent was on account of the delay in the issuance of the patent and the litigation in which it was involved both before and after issuance." Here it is distinctly stated that the payment was made for the patent and that the payment was delayed because the issuance of the patent was delayed and because of litigation Petitioner in his verified letter to the Deputy Commissioner of Internal Revenue wrote: In reference to the item of $25,000.00 paid me by National Tube Company, I must protest the inclusion of this item in my 1920 income subject to tax. This sum was paid me as the purchase price of a patentable idea conceived by me in 1910 and for which I made patent application in the year 1911, the application*3872 being assigned to National Tube Company on May 6, 1911, with the understanding that payment was to be made when patent was issued. Litigation delayed the issuance of the Patent until Oct. 15, 1918, and subsequent litigation was not finally disposed of until about a year later. When confronted with these letters, petitioner testified that there was no understanding either oral or written between him and the National Tube Co. as to whether he was to be paid for the patent *212 or as to the amount of payment, other than as provided in the form of contract or in the rules. Giving full credit to petitioner who, when on the witness stand, made a full and fair disclosure of all the facts as he recalled them, we must remember that he testified 16 years after he executed the assignment. We are of opinion that the statements made in petitioner's verified letter of October 6, 1925, have greater evidential value than his oral testimony at the hearing, especially since those statements are in harmony with the verified letter of the secretary of the National Tube Co. of October 3, 1925. Taking into consideration all the facts as shown by the record, we are of opinion the amount of*3873 petitioner's compensation was largely, if not wholly, dependent on the acquisition of a patent. While nothing remained for petitioner to do after March 1, 1913, except to furnish such aid in the prosecution of the claims for patents as might be required, his right to payment was determined by contingencies which were not resolved until after that date. In this respect, this proceeding is similar to Edwards v. Keith (C.C.A.), 231 Fed. 110, and Woods v. Lewellyn (C.C.A.), 252 Fed. 106. In both these cases the court sustained the right of the Government to tax as income amounts paid to insurance agents under contracts which give them commissions on renewal premiums. In each case the taxpayer had prior to March 1, 1913, done all that was required to earn the commissions. Each court based its decision on the ground that the right of the taxpayer on March 1, 1913, was contingent upon the payment of the premiums by the various policy holders. At this point we are met by the further contention of petitioner that conceding that events which occurred subsequent to March 1, 1913, may have served to increase the amount of his compensation, yet*3874 his right thereto was vested prior to that date and that increase in value is not taxable income. This contention overlooks the fact that what petitioner possessed in 1913 was an unliquidated conditional claim and that he had realized on this claim in 1920. Of course, so long as he held only the claim mere increase in its value did not result in taxable income but when he realized on it and received the money, he was taxable on all value that accrued subsequent to March 1, 1913. Petitioner relies on Platt v. Bowers, 13 Fed.(2d) 951, and Hewes v. Heiner, 24 Fed.(2d) 748. The facts in Platt v. Bowers were that an insurance agent in the year 1909 surrendered his right to receive commissions on renewal premiums in consideration of the payment of $10,000 a year for 15 years. The court held that the taxpayer was not taxable on so much of said payments received after March 1, 1913, as represented capital on that date, but concluded its opinion as follows: It is true that the obligation which the plaintiff possessed on March 1, 1913, was of a value less than its face amount, because the payments were deferred. *213 It may be inferred*3875 from the fact that the payments have been made that the company was entirely responsible financially. The amount of the discount which may be regarded as income is therefore susceptible of mathematical calculation at the legal interest rate. Counsel are requested to agree, without prejudice to their clients' rights, upon a computation of the amount recoverable in accordance with this opinion. Not only did the court hold that the amount of discount was income, but suggested that the responsibility of the obligor might, in a proper case, be taken into consideration in determining the March 1, 1913, value. See also Ruth Iron Co.,4 B.T.A. 1151, affirmed by Circuit Court of Appeals, Seventh Circuit, 26 Fed.(2d) 30. In Hewes v. Heiner, supra, the facts were the taxpayer had purchased in 1896 the fee simple title to a lot of ground in Erie, Pa. The owners of adjoining property claimed rights of way over the ground by reason of user for upwards of twenty-one years. Litigation ensued in which the taxpayer subsequent to March 1, 1913, succeeded in defeating all such claims. In 1918 he sold the property. *3876 The question before the court was whether the value of the ground on March 1, 1913, or the value of plaintiff's claim to the ground on said date was the proper basis of computing gain arising from the sale. The court held that the value of the ground on said date was the proper basis and, among other things, said: In truth, the plaintiff owned the property and was entitled to exclusive possession of the same, before as well as after March 1, 1913. The value of that property so held and owned was the true basis of the tax, not the invalid claim of some third party in reference to the land. It would appear to be beyond the power of any one to establish the value for the adverse claims asserted by adjoining owners. As soon as the case could be reached for adjudication the courts determined that such claims had no value. It certainly could not be the law that one man may change the basis of his neighbor's tax by wrongfully asserting an unfounded claim against his property. It is at once apparent that the Hewes case differs in most important particulars from this proceeding. There Hewes was the owner in fee simple of the ground on March 1, 1913. He could and did demand the*3877 protection of the courts. These courts decided that the claims of the adjoining lot owners were absolutely unfounded and that Hewes' title was good from the date of his purchase. Here neither petitioner nor his assignee had on March 1, 1913, the exclusive right to the use of the invention which they could enforce. It was this exclusive right which they sought to acquire. They had only an inchoate right to the patent. The patent, when granted, did not relate back to the date of application but was effective only from and after the date of issuance. The value of the patent in 1918, when granted, was quite different from the value of the inchoate right to apply for a patent. Petitioner had on March 1, 1913, the right to be *214 compensated for his invention, but this right was contingent either wholly or in part on whether a patent could thereafter be secured. We are of opinion that if no patent had been secured, no payment would have been made. Conceding, however, that in the absence of a patent, something might have been paid, it is apparent that such an amount would have been much less than what was in fact paid. If so, petitioner has not proved nor attempted to prove*3878 what such amount might have been - he has not attempted to prove value as of March 1, 1913. Whether, therefore, petitioner's right to compensation was partially contingent or wholly contingent, the action of respondent must be approved. Cf. Jackson v. Smietanka (C.C.A.), 272 Fed. 970; Forbes v. Nichols, decided by the United States District Court for the District of Massachusetts, July 27, 1927, unreported; Appeal of E. A. Armstrong,1 B.T.A. 296; and Appeal of Henry S. Kline,3 B.T.A. 1138. Reviewed by the Board. Judgment will be entered for the respondent.