
    PAUL KARRER v. THE UNITED STATES
    [No. 485-52.
    Decided May 8, 1957]
    
      
      Mr. Boswell Magill for the plaintiff. Mr. Albert Bosen-blwm, was on the briefs.
    
      Mr. Gerard J. O'Brien, with whom was Mr. Assistant Attorney General Charles K. Bice, for the defendant. Messrs. Andrew D. Sharpe and Jerome 8. Hertz were on the brief.
   LitxletoN, Judge,

delivered the opinion of the court:

This is an action to recover $201,504.88 in Federal income taxes which plaintiff alleges were erroneously and illegally assessed and collected from him for the years 1941 to 1946, inclusive. The question presented is whether payments made by a domestic corporation to a nonresident alien under a contract between the nonresident alien and a nonresident foreign corporation constitute income to the individual from sources within the United States for the purposes of the income tax imposed by § 211 (a) (1) (A) of the Internal Revenue Code of 1939.

The plaintiff, Paul Karrer, is, and has been since 1918, a professor of chemistry at the University of Zurich, Zurich, Switzerland, where he is Director of the Chemical Institute. He won the Nobel Prize in 1937 for his work in the field of synthetic vitamin structure. Professor Karrer has not been in the United States since 1933, when he spent several weeks here delivering lectures, and does not maintain an office or carry on any business activities in this country.

Plaintiff’s duties at the University of Zurich are to give lectures, direct and manage the Chemical Institute and to do scientific research work. Although the university requires him to devote full time to his work, he is free to do what he wishes in such spare time as he may have.

In the early 1930’s, Professor Karrer became interested in the flavins, which are yellow dyestuffs that occur frequently in the plant and animal kingdom. Since some researchers had assumed that vitamin B-2 was identical with certain flavins, plaintiff undertook the investigation of the vitamin B group, especially vitamin B-2. Karrer’s researches required the extraction of a flavin which could be most conveniently obtained from sweet whey, a by-product of the manufacture of cheese. This flavin substance extracted from whey was lactoflavin and is present in very small quantities only. It was therefore necessary for Karrer to make arrangements for the processing of large quantities of whey from which might be recovered the required amount of lacto-flavin needed for his research in the vitamin B field.

On May 7, 1934, plaintiff approached the F. Hoffmann-LaKoche & Co. Ltd. of Basle, Switzerland, hereinafter referred to simply as Basle, and asked it to support his investigations in the vitamin B-2 field by processing a large quantity of whey in accordance with his instructions. At this time, the chemical structure of vitamin B-2 was not known and consequently no one knew whether a synthesis of vitamin B-2 could be made or if it would have any commercial value. On May 8, 1934, Basle wrote plaintiff that it would be glad to cooperate with him and, in July 1934, began processing whey in accordance with instructions received from the professor. Just before Basle began processing the whey, it wrote plaintiff that it was proceeding with the work on the assumption that he would grant Basle the sole right to exploit the manufacturing processes resulting from his investigations if his research proved to be of commercial value. Basle stated that if any process worked out by plaintiff as a secret process showed considerable improvement over existing knowledge, or if the process led to a patent, Basle would grant plaintiff a participation in the net proceeds of the sales of vitamin B-2 products manufactured and sold by it. Plaintiff accepted Basle’s proposal by letter.

Under Swiss law the exchange of letters between plaintiff and Basle constituted a contract which may be designated as a special employment contract, under the terms of which all patents resulting from plaintiff’s discoveries belonged to Basle, the employer. Both parties understood that plaintiff would be responsible for the scientific work, that Basle would develop the processes for commercial exploitation, that all commercial rights in secret processes or formulae discovered by plaintiff would belong to Basle, together with the right to patent and market products developed therefrom, and that Basle would pay plaintiff a percentage of the net proceeds of the sale of such products. The contract at that time stated the rights of the parties, including the compensation to be paid to plaintiff, in general terms only, because commercial prospects could not then be evaluated.

From the processed whey produced by Basle in accordance with its special employment contract with Karrer, the professor isolated natural vitamin B-2 and sent the prescription to Basle. In August 1934, plaintiff determined the chemical structure of natural vitamin B-2 and from this he proceeded to discover how vitamin B-2 could be produced synthetically in the laboratory. Plaintiff turned this discovery over to Basle, which proceeded to develop the manufacturing processes for the commercial exploitation of vitamin B-2. Basle did not begin marketing synthetic vitamin B-2 in quantity until 1940, because it was not clear until about that time that the vitamin had an important function in the human body or was of any real commercial value.

During the period in 1934, when the plaintiff was doing research on synthetic vitamin B-2, Basle refused to allow plaintiff to work with others in vitamin B-2 experiments. From time to time plaintiff prepared scientific papers for publication in a Swiss chemical journal, but before he submitted such papers for publication he would send the paper to Basle for its approval. Basle would either approve the paper without change or suggest that certain statements be added or deleted.

During the period from 1934 to 1939, Basle filed applications in many countries for patenting the discoveries and syntheses of Karrer. The plaintiff actively assisted and materially aided Basle in preparing and filing the patent applications and also aided Basle during subsequent litigation involving the patents.

Early in 1939, plaintiff told Basle that he had heard that lactoflavin ampules were on the market and that he assumed Basle would give him a percentage of the sales. A representative of Basle stated that negotiations as to the extent of plaintiff’s participation would be concluded as soon as certain patent questions were settled.

On December 9, 1940, after he heard that the sales of lactoflavin could be increased in the future, plaintiff wrote Basle to remind it of its agreement to grant him a participation in the net proceeds of vitamin B-2 sales. After some bargaining between the parties as to the extent of plaintiff’s participation it was agreed that plaintiff was to participate in the sales for a period of twelve years. Basle gave the plaintiff the choice of starting participation either on January 1,1940, or on January 1, 1941, and he selected the latter date. On January 15,1941, the parties entered into a formal contract specifing the percentage of net proceeds to be paid by Basle to the plaintiff as 5 percent.

In 1937, plaintiff began the study of vitamin E. He discovered that vitamin E substance occurs in the germ of wheat. Because his laboratory in Zurich did not have the equipment necessary to perform all of the experiments required in his research on vitamin E, the plaintiff asked Basle to perform certain experiments for him on extracts from the wheat germ. After isolating natural vitamin E, plaintiff determined the chemical structure of the vitamin and was thereafter able to establish the synthesis of vitamin E. Dr. Otto Isler, a Basle employee, performed extensive experiments in connection with the synthesis of vitamin E, and Basle kept plaintiff informed of Isler’s work in that connection. Basle had the same relationship with plaintiff with respect to vitamin E as it had with respect to vitamin B-2. After Basle received the vitamin E synthesis from plaintiff, Basle proceeded to develop the manufacturing process that made it possible to exploit the synthesis commercially.

On August 11, 1938, plaintiff and Basle entered into a formal contract pertaining to the exploitation of the commercial possibilities of their work on vitamin E and fixing the percentage of the net proceeds of the sales which plaintiff was to receive. The contract provided that plaintiff and Basle would collaborate in the synthesis of vitamin E and referred to the parties as partners. Basle had the sole right to take out patents resulting from the collaboration either in its own name or that of Karrer. Patents that were taken in Karrer’s name had to be transferred to Basle upon its request, irrespective of whether the patents were applied for before or during the collaboration. The collaboration was to extend for a period of three years and thereafter until one party gave six months’ notice to end the agreement. Basle had the exclusive right to commercial utilization of the products of the collaboration and Karrer was to receive 3 percent of the net proceeds of synthetic vitamin E for a period of 12 years. In a supplement to the contract, plaintiff agreed to inform Basle before publishing any article with respect to vitamin E. Plaintiff received payments under the vitamin E contract from December 1, 1938 to November 30,1950.

In all of his collaboration with Basle, plaintiff never was asked by Basle to participate in the manufacture or sale of the vitamins, nor did he direct or exercise any control over the marketing of the vitamin products.

Basle did not, at any time pertinent to this suit, have a place of business or a permanent establishment in the United States, nor did it engage in any trade or business in this country. On January 27, 1941, Basle and Hoffmann-La-Roche, Inc., of Nutley, New Jersey, hereinafter called Nutley, a New Jersey corporation doing business in the United States as a chemical manufacturing firm with emphasis in the fields of pharmaceutical specialties and vitamins, entered into a contract whereby Nutley was granted the exclusive enjoyment and use within the United States of all of Basle’s secret processes and scientific developments pertaining to certain products, including the vitamins which had been synthesized by Karrer. In return, Nutley agreed to pay Basle 4 percent of the net proceeds of sales made by Nutley. This contract terminated a previous agreement between Basle and Nutley whereby for a stated consideration to be paid to Basle, Nutley was given the right to receive and commercially exploit in the United States the results of Basle’s research activities. Plaintiff, who had no contractual relationship with Nutley, was not a party to the January 27, 1941, contract between Basle and Nutley.

In all countries other than the United States, Basle applied for patents covering plaintiff’s discoveries in its corporate name. In the United States a patent application can be filed only by a natural person, the inventor, and Basle therefore required the plaintiff to file the applications on his vitamin B-2 and vitamin E discoveries. Plaintiff was reimbursed by Basle for all expenses that he incurred with respect to filing the patent applications. Also at Basle’s request, plaintiff assigned the vitamin B-2 and vitamin E United States patent applications to Nutley before the patents were granted. The patent assignments to Nutley were thereupon recorded in the United States Patent Office, and the patents themselves were issued to Nutley as owner and assignee of plaintiff, and, in a few instances in the case of vitamin E, as assignee of Dr. Isler, who had worked with plaintiff in vitamin E research. The procurement of the United States patents was paid for by Nutley or Basle.

The termination dates of the participation contracts entered into between plaintiff and Basle with respect to vitamin B-2 and vitamin E precede the expiration dates of all the United States patents on the two vitamins.

Nutley, the American corporation, produced and marketed vitamin B-2 and vitamin E products and, although Nutley had no contract of any kind with plaintiff, it paid to plaintiff a percentage of all its sales of products containing vitamin B-2 and vitamin E. The percentage paid depended upon the type of preparation involved and was in the amounts specified in the contracts entered into between plaintiff and Basle. Nutley was aware at the time it entered into its contract with Basle that plaintiff was entitled to a percentage of the net proceeds of vitamin B-2 and vitamin E sales made by Basle. In fact Nutley had copies of the contracts entered into between Basle and Karrer, but no mention was made anywhere or at any time in writing of a liability on the part of Nutley to make payments to Karrer. These payments to plaintiff were made by Nutley pursuant to instructions by the president of Nutley. He thought that, although Nutley had no contract with Karrer, since it manufactured synthetic vitamin B-2 and vitamin E products under the Karrer inventions, Nutley should make the payments to Karrer called for by the inventor’s contracts with Basle. These payments made to plaintiff by Nutley were characterized on the books of Nutley as royalties.

Nutley withheld and paid United States income taxes on behalf of plaintiff in the sum of $92,978.22 for the years 1941 through 1945. Plaintiff timely filed United States income tax returns for the years 1941 through 1946 and paid a balance shown to be due thereon of $108,526.66. Plaintiff has timely filed claims for refund amounting to $201,504.88, representing the total amount of United States taxes paid and withheld from plaintiff on account of the payments made by Nutley to plaintiff with respect to the sale in the United States of vitamin B-2 and vitamin E products. It is with respect to the payment of these taxes that plaintiff filed its claims for refund and now brings suit before this court. Switzerland accords to citizens of the United States the right to prosecute claims against the Government of Switzerland in its courts and therefore plaintiff has standing to sue in the United States in this court.

The defendant says that the payments from Nutley to Karrer were subject to Federal income tax because they were fixed, periodical income to plaintiff from sources within the United States falling within the provisions of section 211 (a) (1) (A) of the Internal Eevenue Code of 1939. This section provides in part as follows:

Tax on nonresident alien individuals—
(a) No United States business or office—
(1) General rule—
(A) Imposition of tax. — There shall be levied, collected, and paid for each taxable year, in lieu of the tax imposed by sections 11 and 12 upon the amount received, by every nonresident alien individual not engaged in trade or business within the United States, and not having an office or place of business therein, from sources within the United States as interest (except interest on deposits with persons carrying on the banking business), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emolumentSj or other fixed or determinable annual or periodical gains, profits, and income, a tax of * * * per centum of such amount, except that such rate shall be reduced, in the case of a resident of any country in North, Central, or South America, or in the West Indies, or of Newfoundland, to such rate (not less than 5 per centum) as may be provided by treaty with such country.

It is plaintiff’s position that the payments made to him by Nutley were for services performed outside of the United States and are therefore not from sources within the United States so as to provide a basis for the imposition of a United States income tax.

In order to determine this question we must define “gross income from sources within the United States” as that term is used in the context of the statutes imposing, limiting and defining the taxes on nonresident aliens.

Section 211 (a) (1) (A), above quoted, prescribes a tax upon income from sources within the United States which consists of fixed or determinable, annual or periodical, income. There seems little question from the facts in this case that Karrer received fixed, periodical income as those terms are used in the Code. We must determine, therefore, whether or not as a matter of contract or law the income was from sources within the United States, since section 212 (a) of the Code specifically includes gross income of a nonresident alien only income which is derived from sources within the United States. A definition of what is “gross income from sources within the United States” is contained in section 119 of the Code, which provides in pertinent part, as follows:

Income from sources withim, the United States — (a) Gross income from sources im, the United States.
The following items of gross income shall be treated as income from sources within the United States:
•I* $ 5}»
(4) Rentals and royalties. Kentals or royalties from property located in the United States or from any interest in such property, including rentals or royalties for the use of or for the privilege of using in the United States, patents, copyrights, secret processes and formulas, good will, trade-marks, trade Drands, franchises, and other like property; and
* * * * Sc
(c) Gross income from sources without the United States. The following items of gross income shall be treated as income from sources without the United States:
* * * # *
(3) Compensation for labor or personal services performed without the United States.

It is clear from the foregoing excerpt that if the payments to plaintiff by Nutley were for the use of plaintiff’s property located in the United States, then those payments are properly characterized as income from sources within the United States and subject to the tax imposed by section 211. On the other hand, should we determine, as plaintiff would have us do, that the payments were compensation for labor or services performed by plaintiff without the United States, we must necessarily hold that the income tax thereon was illegally assessed and collected on income exempted' from taxation by section 212 (a), supra. The issue is, therefore, directed to the precise nature of these payments.

The fact that the payments here in question were made by a United States corporation is not determinative of the right to tax the nonresident alien who is the recipient of such payments. The only criterion for imposing the tax is that the “source” of the income to be taxed must be within the United States. The “source” of income in this connection is not necessarily the payor, but may be the property or the services from which the particular income is derived as indicated in section 119 of the Internal Revenue Code. In the instant case the vitamin B-2 and vitamin E patents, together with the right to use and sell their commercial values, were income producing property and thus a “source” of income. Furthermore, the United States patents and Nutley’s right to use and exploit their commercial value were property located within the United States so that payments made by Nutley for such use or for the privilege of such use, would be clearly taxable to the recipient of such payments under section 211. However, we are of the opinion that the payment made by Nutley to Karrer were not payments for the right of Nutley to use any income producing property or interest therein belonging to Karrer.

The right to use and exploit in the United States the patents granted on the discoveries of Karrer was granted to Nutley by Basle pursuant to the terms of the contract of January 27, 1941, and not by Karrer. Basle was the owner of the commercial rights in Karrer’s discoveries and it alone could convey this right to another. Plaintiff’s only interest in the sales of the vitamins produced and sold arose out of his contractual relationship with Basle. Defendant urges that the payments made to Karrer were in the nature of royalty payments, but that argument is premised upon the assumption that Karrer’s contracts with Basle were royalty contracts. The contracts between Karrer and Basle under which the payments in question were made were entered into in Switzerland between Swiss nationals, and their character and interpretation must be governed by Swiss law. The only evidence as to the nature of the contractual relationship between plaintiff and Basle under Swiss law was offered by plaintiff and was to the effect that the relationship was one of special employment. As such, all payments under the Swiss participation contracts to Karrer were payments of compensation for services rendered in Switzerland. Inasmuch as defendant has not refuted this testimony, we must accept it as a correct statement of Swiss law.

Under all the facts and circumstances, and regardless of the particular manner in which the parties to the two Swiss contracts may have referred to each other, it does not appear that there ever existed between Basle and Karrer any relationship other than that of special employment. The arrangement was analogous to the usual one of a person employed to make inventions for his employer, the employer thereby acquiring title to such inventions and to any patents secured thereon. Payments made to such an employee, even though based on a percentage of the proceeds of the sales of the invented process or object, would be compensation for the employee’s services rather than royalties, because the employee’s right to such payments derives from his services to his employer and not from any rights in inventions owned by the employee. If the services just described were rendered in a foreign country by a nonresident alien they would not be taxable under the clear wording of section 119 (c) (3) and section 212 (a) of the Internal Eevenue Code.

It is true that Karrer received the payments in suit from Nutley, an American corporation, rather than from the Swiss corporation for which he had performed the services and which Swiss corporation was under contractual obligation to compensate him therefor. This circumstance, however, in no way alters the character of the obligation or of the payments made pursuant thereto. Since Nutley paid the plaintiff amounts due on an obligation owing to plaintiff by Basle for services performed for Basle by plaintiff in Switzerland, they do not represent payments for plaintiff’s rights or interest in property located in the United States, but rather' payments for services performed outside the United States, and are therefore exempt from taxation. Nutley’s denomination of the payments as royalties on its books cannot change the true character of these payments.

Defendant cites several cases and urges that Commissioner v. Wodehouse, 337 U. S. 369, and Bloch v. United States, 200 F. 2d 63, are applicable to this case. In the Wodehouse case, P. G. Wodehouse, a nonresident alien, sold to a United States publishing house the rights to publish and sell certain stories written by him. The consideration paid for such rights were lump sum payments which the taxpayer contended were the proceeds of the sale of personal property not taxable to a nonresident alien under section 211 of the Code, and, in the alternative, that if the court should find that these payments were in fact royalties, they were not “annual” or “periodical” payments and should therefore be excluded from taxation. The Supreme Court reversed the lower court decision favorable to the plaintiff and held that the lump sum payments were in the nature of advances of royalty payments which were intended to be taxed under section 211. The Court in the Wodehouse case necessarily found that the payments were from sources within the United States, and this finding would seem to follow readily from the fact that Wodehouse himself or his agent had sold the rights directly to a United States publishing house.

The situation presented in the case now before the court is clearly distinguishable on its facts since Karrer sold nothing to Nutley, the American corporation, nor did Basle sell anything to Nutley as the agent for Karrer. As we pointed out earlier herein, Karrer had nothing to sell to Nutley since all rights in his inventions and any patents thereon had vested in Basle.

In the Bloch case, supra, the taxpayer had retained rights in the patents and had in fact granted licenses. Karrer herein never granted to anyone a license to use or exploit his inventions or the patents thereon because he never had such rights under his contract with Basle.

It is the opinion of the court that the payments received by Karrer from Nutley were income from sources without the United States and were not taxable under the internal revenue laws in effect during the period in suit.

Plaintiff is entitled to judgment in the amount of $201,504.88, together with interest provided by law. Judgment will be entered to that effect.

It is so ordered.

Laramore, Judge; MaddeN, Judge; Whitaker, Judge; and Jones, Chief Judge, concur.

FINDINGS OP PACT

The court, having considered the evidence, the report of Commissioner Wilson Cowen, and the briefs and argument of counsel, makes findings of fact as follows:

1. The plaintiff, Professor Paul Karrer, is, and at all times pertinent to this action, has been a nonresident alien individual, who resides in and is a citizen of Switzerland.

2. Plaintiff brought this action to recover Federal income taxes, which he alleges were erroneously and illegally assessed upon and collected from him by the defendant for the years 1941 through 1946.

3. Switzerland accords to citizens of the United States the right to prosecute claims against the Government of Switzerland in its courts.

4. Plaintiff does not have any office in the United States and does not carry on any business activities in this country. He has not been in the United States since 1933, when he spent several weeks here delivering lectures. He was not at any time germane to this action engaged in any trade or business in the United States.

5. Since 1918, plaintiff has been Professor of Chemistry at the University of Zurich at Zurich, Switzerland, and the Director of the Chemical Institute at that university. He holds the degree of Doctor of Philosophy from the University of Zurich, as well as honorary degrees from twelve European universities.

On December 10, 1937, plaintiff won the Nobel Prize for his work in the field of synthetic vitamin structure, among other things.

6. Plaintiff’s duties as a university professor are to give lectures, direct and manage the Chemical Institute, and to do scientific research work. Although the university requires him to devote full time to his work, he is free to do what he wishes in such spare time as he may have.

7. F. Hoffmann-LaKoche & Co., Ltd. of Basle, Switzerland (hereinafter called Basle), is a corporation organized under the laws of Switzerland. It is engaged in business as a chemical manufacturing firm with emphasis in the fields of pharmaceutical specialties and vitamins. Basle did not, at any time pertinent to this suit, have a place of business or a permanent establishment in the United States, nor did it engage in any trade or business in this country. Activities in the United States were and are conducted by the Americanized company, Hoffmann-LaRoche, Inc., of Nutley, New Jersey (hereinafter called Nutley). It is a New Jersey corporation doing business in the United States as a chemical manufacturing firm with emphasis in the fields of pharmaceutical specialties and vitamins. As will hereinafter appear, Basle and Nutley entered into a written contract on January 27,1941, whereby Nutley was granted the exclusive enjoyment and use within the United States of all of Basle’s secret processes and scientific developments pertaining to certain products, including the vitamins that had been synthesized by Professor Karrer. In return, Nutley agreed to pay Basle four percent of the net proceeds of sales made by Nutley. The contract terminated an agreement of February 25, 1936, under the terms of which Nutley, for a stated consideration to be paid to Basle, was given the right to receive and commercially to exploit in the United States the results of Basle’s research activities.

8. Professor Karrer’s acquaintance with Basle began in the middle 1920’s when Dr. Guggenheim, then Basle’s director of research, spoke with Professor Karrer about the latter’s reports to the Swiss Chemical Society that carotine, a yellow pigment Professor Karrer had isolated while working on the coloring matter of flowers and berries, might have vitamin action.

9. In the early 1930’s, Professor Karrer became interested in the flavins, which are yellow dyestuffs that occur frequently in the plant and animal kingdom. Since some investigators had assumed that vitamin B-2 was identical with certain flavins, plaintiff undertook the investigation of the vitamin B group, especially vitamin B-2. His researches required the extraction of a flavin which could be most conveniently obtained from sweet whey, a by-product of the manufacture of cheese. The flavin substance extracted from whey was lactoflavin. Lactoflavin, riboflavin, and vitamin B-2 are synonymous and refer to the same substance.

10. Since lactoflavin is present in whey in very small quantities only, plaintiff’s studies required the processing of quantities of whey in excess of the capacity of his laboratory. On May 7, 1934, plaintiff approached Basle and asked it to support his investigations in the vitamin B-2 field by processing a large quantity of whey in accordance with his instructions. Plaintiff’s letter requested the assistance of Basle and stated, among other things, as follows:

*****
The composition of the flavins does not seem to be so complicated that after clarification of the constitution an eventual synthesis would have to be declared impossible.
*****

11. On May 8,1934, Basle wrote plaintiff that it would be glad to cooperate with him in the vitamin B-2 field, and in July 1934, it began processing 100,000 liters of whey in accordance with the prescription furnished by plaintiff. Later, it processed an additional 40,000 liters. Basle paid for the whey which it obtained from a cheese factory. From the 140,000 liters of whey Basle obtained about 2,000 grams of crude extract which it sent to Professor Karrer, who isolated 15 grams of natural vitamin B-2 therefrom and sent Basle his improved prescription for the isolated natural vitamin B-2.

12. In August 1934, plaintiff determined the chemical structure of natural vitamin B-2 and sent Basle the chemical formula for lactoflavin. Plaintiff then proceeded to discover how vitamin B-2 could be produced synthetically in the laboratory and completed the synthesis by September 13, 1935, when he sent Basle 20 grams of recently prepared synthetic lactoflavin.

13. After plaintiff completed the synthesis of vitamin B-2, Basle proceeded to develop the manufacturing processes for the commercial exploitation of vitamin B-2.

14. All of the work done by plaintiff with respect to vitamin B-2, as described in the preceding findings, was performed in his laboratory at the Chemical Institute of the University of Zurich, which supplied him with laboratory materials and assistance. The work done by Basle in extracting crude lactoflavin from whey and in testing plaintiff’s preparations was performed at its factory in Basle, Switzerland.

15. When plaintiff first approached Basle in May 1934 with a request to process the whey, the biological and thera-peutical importance of vitamin B-2 was not known. However, plaintiff’s research was of definite scientific interest. At that time, the chemical structure of vitamin B-2 had not been determined and, without this knowledge, it was not possible to synthesize the vitamin. Consequently, no one knew at that time whether a synthesis of vitamin B-2 would have commercial value.

16. Plaintiff first approached Basle in 1934 because of his acquaintance with Dr. Guggenheim and because plaintiff knew that, since Basle manufactured biological preparations, it would be interested in his scientific work if vitamin B-2 proved to be of commercial importance.

On July 6, 1934, just before it began processing the whey at plaintiff’s request, Basle wrote plaintiff that it was proceeding with the work on the assumption that he would grant Basle the sole right to exploit the manufacturing processes resulting from his investigations if his research produced knowledge which could be commercially exploited. In the same letter, Basle stated that if any process worked out by plaintiff as a secret process showed considerable improvement over existing knowledge, or if the process led to a patent, Basle would grant plaintiff a participation in the net proceeds of the sales of vitamin B-2 products manufactured and sold by it. By letter of July 7, 1934, plaintiff accepted Basle’s proposal.

Under Swiss law the exchange of letters between plaintiff and Basle in July 1934, constituted a contract which may be designated as a special employment contract under the terms of which all patents resulting from plaintiff’s discoveries belonged to Basle, the employer. Both parties understood that plaintiff would be responsible for the scientific work, that Basle would develop the processes for the commercial exploitation of the results of plaintiff’s researches, that all commercial rights in secret processes or formulae discovered by plaintiff would belong to Basle, which would also have the right to patent such discoveries and to market products manufactured pursuant thereto, and that Basle would pay plaintiff a percentage of the net proceeds of the sale of such products. The contract at that time stated the rights of the parties in general terms only, because commercial prospects could not then be evaluated. It was not until January 1941 that the parties entered into a written contract which specified the percentage of the proceeds of sales to be paid to plaintiff.

17. In November and December 1934, Basle refused plaintiff’s requests to work with others on the vitamin B-2 experiments.

18. From time to time, plaintiff prepared papers describing his work on vitamin B-2 for publication in Helvetica Qhimiea Acta a Swiss chemical journal. Before he would submit a paper for publication, plaintiff sent it to Basle for approval. Basle either approved the manuscript without change or suggested that certain statements be added or deleted. In some of his articles, plaintiff acknowledged the assistance he had obtained from Basle in the work on flavins and submitted the form of acknowledgment to Basle for approval.

19. Plaintiff and Basle agreed that Basle would take out patents in the field in which they had been collaborating. From 1934 to 1939, Basle filed applications for patenting the discoveries and syntheses of Professor Karrer in many countries. Although plaintiff had had no experience in the patent field, he materially assisted Basle in the patent matters. He kept Basle regularly informed of the work performed in his laboratory and supplied Basle with descriptions of chemical formulae and processes for inclusion in patent applications. Although he usually left it to Basle’s judgment whether patents should be applied for, there were occasions when he requested Basle to initiate patent applications.

From time to time, Basle requested advice from plaintiff as to the advisability of abandoning certain patent applications. Basle always consulted him before abandoning an application.

Basle’s patent department frequently suggested changes in manuscripts which plaintiff had prepared for publication in connection with his work on vitamin synthesis, and on one occasion he sent Basle an article prepared for publication with the suggestion that the publication be deferred until Basle had time to apply for a patent.

In a number of the countries in which Basle had filed patent applications, contests arose between it and the I. G. Farben Company of Germany, which had also applied in those countries for patents involving the synthesis of vitamin B-2. As a result of the contests, there were many lawsuits between Basle and the I. G. Farben Company. During the pendency of the contests and litigation, plaintiff devoted a substantial portion of his time to the writing of briefs in support of Basle’s patent applications and in opposition to the applications of competitors.

20. In accordance with detailed and exact instructions supplied by plaintiff, Basle began to produce synthetic vitamin B-2 in its laboratory in January 1936. In June 1939, Basle produced 720 grams of synthetic vitamin B-2 and made preparations to produce it thereafter at the rate of two kilograms per month. Basle did not begin the marketing of synthetic vitamin B-2 in quantity until 1940, because it was not clear until about that time that the vitamin had an important function in the human body. During the latter part of 1939, it was definitely established that cheilosis, a vitamin deficiency in the human body, was caused by a lack of vitamin B-2.

21. Early in March 1939, plaintiff told Basle that he had heard lactoflavin ampules were on the market and that he assumed Basle would give him a percentage of the sales. A representative of Basle stated that negotiations as to the extent of plaintiff’s participation would be concluded as soon as certain patent questions were settled. In April 1939, Basle agreed in principle to have plaintiff participate in the sales of the product but postponed the payment of participation for the time being.

On December 9, 1940, after he heard that the sales of lactoflavin could be increased in the future, plaintiff wrote Basle to remind it of its agreement to grant him a participation in the event vitamin B-2 was marketed and requested Basle to study the question of a participating contract. Basle replied on December 19, 1940, announcing its readiness to grant plaintiff a participation in the sales of lacto-flavin. However, Basle’s letter stated that certain unsettled patent questions might require the payment of license fees to third parties. Basle proposed to pay plaintiff a stated percentage of sales on the assumption that no license fees would have to be paid to third parties and agreed to send him a draft of the contract. After some further bargaining, it was agreed that plaintiff was to participate in the sales for a period of twelve years. Basle gave him the choice of starting participation either on January 1, 1940, or on January 1,1941, and he selected the latter date.

On January 15, 1941, the parties entered into a formal contract reading in pertinent part as follows:

1
Boche grants Prof. Karrer the following participation ' on sales of Lactoflavin:
a — 5% on the net proceeds of the Lactoflavin specialties sold by Boche but only if this specialty covers an application of Lactoflavin alone.
b — 3% on the net proceeds of the sales of Lacto-flavin substance.
c — If Boche sells Lactoflavin in combination spe-cialities then the 5% sales participation will be calculated on the declared percentage of Lacto-flavin in the preparation at the bulk sales price.
2
By net proceeds is understood the invoice price after deduction of rebates, duties, sales tax and other deductions which will affect the sales; furthermore, the cost for the packing: however without deduction of commission of representatives and other sales expenses. Samples of preparations which are free of charge and deliveries at reduced prices for research and promotional purposes do not come under the quantity where participation is granted.
3
For the quantities sold in the different countries, Eoche will pay the royalties within these countries and in the currency of these countries.
Professor Karrer is obliged to make known the bank or firm where such payments can be deposited and which are entitled to accept these payments. If Professor Karrer wishes to get payments at his domicile, then he will have to bear the risk and the costs of such transfers.
Taxes on the participation which will be imposed in the individual countries will be charged to Professor Karrer.
* * * * *
5
Eoche is obliged to keep special bookkeeping on its sales. Professor Karrer has the right to have an audit made by a person or firm agreeable to Eoche within three months after the participation has been submitted to Professor Karrer.
6
If Eoche should grant a license to third parties, for the manufacture of Lactoflavin, then Professor Karrer would participate to the extent of 15% of the amount that Eoche would receive for this license.
Firms of the Eoche organization are not considered as third parties.
* * ÜC #
8
The participation starts January 1, 1941 and covers the sales that are effected by Eoche from this date on for the period of twelve years. Therefore the last year covered by this contract will be the year 1952.

Under the above contract, plaintiff received payments from the sales of vitamin B-2 from January 1,1941 to December 31,1952.

22. Under Swiss law, the exchange of correspondence in July 1934, which resulted in the making of a contract at that time, did not constitute a joint venture, because (1) the contract did not provide for a joint enterprise; (2) plaintiff was given no control over the commercial exploitation of the invention; (3) there was no equality of status between the parties to the contract, and (4) the agreement did not provide for a sharing of profits and losses.

Under Swiss law, a joint venture may exist under a contract whereby two parties agree that one shall do a portion of the work and the other a different portion of the work without the right of one to control the other but with an agreement that they shall cooperate and exchange the work and work tasks jointly, provided there is equality among the members. If one party agrees to do the work, he may be released from participating in the losses, sharing only in profits. However, the receipt by one party to the contract of a percentage or share of the proceeds of sales is not, under Swiss law, a participation in the profits.

23. In 1937 plaintiff began his study of vitamin E. He discovered that vitamin E substance occurs in the germ of wheat and he began to extract large quantities of wheat germ oil. Because his laboratory in Zurich did not have all the required pharmacological facilities, he asked Basle to perform certain experiments on extracts obtained from wheat germ oil in support of his vitamin E research.

24. After isolating natural vitamin E, plaintiff determined the chemical structure of the vitamin and was thereafter able to establish the synthesis of vitamin E. All of his work on vitamin E was done in his laboratory at the Chemical Institute of the University of Zurich.

25. Basle had the same relationship with plaintiff with respect to vitamin E as with respect to vitamin B-2. After Basle received the vitamin E synthesis from plaintiff, Basle proceeded to develop the manufacturing process that made it possible to exploit the synthesis commercially.

26. Dr. Otto Isler, a Basle employee, performed extensive experiments in connection with the synthesis of vitamin E, and Basle kept plaintiff informed of Isler’s work in that connection.

27. On August 11,1938, plaintiff and Basle entered into a contract pertaining to tbe exploitation of the commercial possibilities of their work on vitamin E and fixing the percentage of the net proceeds of the sales which plaintiff was to receive. That contract provided in pertinent part as follows:

SECTION 1.
Professor Karrer and Boche will continue their collaboration on the synthesis of vitamin E in the same manner as heretofore and agree to inform each other continuously about the chemical and biological results achieved in the laboratories of the partners. The cooperation also extends to the intermediates necessary for the synthesis of vitamin E.
Boche will assist Professor Karrer as far as possible by supplying him with intermediates and will take charge of filing patent applications for suitable processes and of perfecting forms of preparations ready to use as well as their clinical tests.
SECTION 2.
Boche is entitled to protect the results of this collaboration by patents which, according to its choice, will be made out to either partner. Patents in Professor Karrer’s name will be transferred to Boche by Prof. Karrer upon request, irrespective of whether such patents were applied for before or during this collaboration.
Boche will defray the expenses of the patenting. Prof. Karrer will aid Boche to the best of his ability in obtaining patents, entering protests against the patent applications of third parties, and enforcing the patents.
SECTION 3.
Prof. Karrer binds himself for the duration of this collaboration to work in the area of vitamin E with Boche exclusively.
SECTION 4.
The collaboration is permanently contracted for a period of three years. If neither of the partners gives notice six months before its expiration it is extended for an unlimited time, each partner being entitled to give six months notice at any time.
SECTION 5.
Eoche has the exclusive right of the commercial utilization of the products of the collaboration.
SECTION 6.
If Eoche utilizes the synthetic vitamin E in. forna of preparations, Professor Karrer receives a participation of 3 percent of the net proceeds of these preparations for the period of 12 years starting with the first sale of the preparation. If Eoche introduces preparations in which the material subject to the contract does not represent the only active constituent part, the participation is calculated on the basis of the amount of the contractual material in the preparation, computed on the net proceeds of the corresponding quantity of the material in the preparation in which the material represents the only active constituent part.
Net proceeds are understood to be the amount invoiced less rebates, duties, taxes on turnover and other public duties charged to the sales act, also less the costs of the outer wrappings, but without deduction of agent’s commissions and other selling expenses.
Free deliveries of preparations and deliveries at special prices for scientific or advertising purposes do not come under the receipts subject to snaring.
SECTION 7.
In order to determine the net proceeds of the sales, Eoche will proceed from the wholesale price of the preparations in Switzerland; Eoche is entitled, however, in cases where the sales prices are lower than the Swiss wholesale price, to calculate with the actual sales prices. If the accounting is done from the sales in the individual countries, the participation belongs to Professor Karrer in the respective country in its standard currency. If Professor Karrer wishes to receive his participation of the sales in such countries in Basle, Eoche is willing to make it available to him in the amount in which Eoche can transfer the owed sum to Basle. If this participation in any country is subject to taxation to be paid at the source, Professor Karrer will be charged with the amount of such tax.
SECTION 8.
The participation in the sales will be paid out once a year, not later than May 1st for the preceding calendar year.
SECTION 9.
Roche is obligated to keep separate books recording its sales. Professor Karrer is entitled to have the settlement of accounts checked by a trusted person agreeable to Roche within three months after the presentation of the settlement of accounts.
SECTION 10.
If Roche transfers commercial rights to the manufacture of synthetic vitamin E to third parties, the third parties shall be bound to pay to Prof. Karrer the same participation in the sales as Roche.
SECTION 11.
_ If, when the collaboration is terminated, no synthetic vitamin-E preparation is on the market and Roche refuses to introduce such a preparation, Prof. Karrer is entitled, in return for payment of the costs of the patenting, to demand the surrender of the granted patents on the day of the expiration of the collaboration.

Plaintiff received payments from the proceeds of the sales of vitamin E from December 1, 1938, when Basle began marketing vitamin E, until November 30, 1950.

28. In a supplement to the vitamin E contract, plaintiff agreed with Basle’s request that he duly inform it before publishing any material with respect to vitamin E. He submitted such manuscripts to Basle, which either approved them, suggested changes, or urged delay in publication, so as to protect its patent position. Before discussing questions relating to vitamin E at meetings of the Swiss Chemical Society, plaintiff ascertained that Basle had no objection.

29. In May 1939, plaintiff and Basle entered into a contract which provided in Section 1 thereof as follows:

Professor Karrer obligates himself to work together with Roche in the field of organic chemistry and to offer Roche first of all the results of his work which appear to have commercial possibilities. If Prof. Karrer intends to work on a special problem with another interested industrial party, he will notify Roche before doing so and will reach an understanding with Roche in this respect.

As a consideration for the work to.be performed by plaintiff, Basle agreed to pay him the sum of 4,000 Swiss francs per year, to furnish raw materials or intermediates for his work, and to make certain payments for the salaries of his laboratory assistants.

30. In the collaboration between plaintiff and Basle, plaintiff was never asked by Basle to participate in the manufacture or sale of the vitamins, nor did he direct the marketing or exercise any control over the marketing of these vitamins. He did not participate in any way in the management of Basle.

31. On January 27, 1941, Basle and Nutley entered into a contract which provided in pertinent part as follows:

this AGREEMENT made this 27th day of January, 1941, Between F. Hoeemann-La Boche & Co. Limited, a corporation organized under the laws of Switzerland, hereinafter sometimes called “Basle”, and Hoeemann-La Boche Inc., a corporation organized under the laws of the State of New Jersey, hereinafter sometimes called “Nutley”;
whereas, under an Agreement dated February 25, 1936, Nutley amongst other things is entitled to receive from Basle the results of Basle’s research activities and commercially to exploit the. same in the United States of America, its territories and possessions (which in this Agreement shall not be deemed to include the Philippine Islands), against a compensation payable to Basle; and
whereas, the aforementioned Agreement provides that upon its termination Nutley shall continue to be entitled to commercial exploitation of the results of Basle’s research activities for such consideration as may be determined; and
whereas, in using the processes, formulae and secrets pursuant to such Agreement, Nutley created and developed prior to January 1,1941, a business in certain products based upon secret processes, secret formulae, technical and scientific developments and improvements and other rights pertaining to Old Products, as hereinafter defined, subject nevertheless to the provisions of said Agreement dated February 25,1936; and
whereas, the parties hereto have agreed to terminate the aforementioned Agreement and in doing so to provide for a rental to be paid by Nutley to Basle for the continued use and commercial exploitation for a term of years of the Old Products and all the aforementioned rights pertaining thereto.
WOW THEREFORE ? THIS AGREEMENT WITNESSETH:
In consideration of the mutual agreements hereinafter set forth the parties hereto agree as follows:
1. Definitions. The following terms, as used in this agreement, shall have the meaning set forth in this paragraph, to wit:
A) “Old Products” shall mean any chemical substance or pharmaceutical or dietetic preparation marketed by either party prior to January 1,1941, provided that the following preparations and all preparations containing them or any of them shall be deemed to be Old Products, whether or not in fact marketed prior to January 1,1941:
2-4-dioxo-3diethyl-tetrahydropyridin
Helborsid
Permonid
Activated Iron
Calcium Pedoxon
Benerva Acetylcholin
A preparation marketed in some countries under the trade name “Bedulco”,
A product consisting of Vitamin E. for veterinary use.
B) “Specialties” shall mean any Old Product which is (a} a pharmaceutical or dietetic preparation for therapeutic, diagnostic or prophylactic use in man or animal; and
(b) (i) marketed under a specific tradename used for the peculiar distinction of any one product of a given therapeutic, diagnostic or prophylactic effect, (such as “Allonal”), or (li) marketed under any other name, including a chemical name, in connection with a brand name (such as “Roche”) if and so long as such preparation or its principal ingredient(s) is manufactured under a patented process or covered by a product patent; and
(c) marketed in units ready packaged for sale and distribution as such to the consumer, physicians, dentists, veterinaries and nurses, or similar professions, or hospitals, clinics or similar institutions; and
(d) marketed in a form ready for immediate consumption or application.
C) “Special products” shall mean any Old Product which is
(a) a pharmaceutical or dietetic preparation for therapeutic, diagnostic or prophylactic use in man or animal; and
(b) (i) marketed under a specific tradename used for the peculiar distinction of any one product of a given therapeutic, diagnostic or prophylactic effect, or (ii) marketed under any other name, including a chemical name, in connection with a brand name such as “Noche” if and so long as such preparation is manufactured under a patented process or covered by a product patent; and
(c) marketed in units ready packaged for sale and distribution as such to the consumer, physicians, dentists, veterinaries and nurses, or similar professions, or hospitals, clinics or similar institutions.
D) “Vitamins in bulk” shall mean vitamins, to the extent that they fall under the definition of Old Products, sold in any form other than that of “specialties” or “special products”.
E) “Net proceeds of sale” shall mean the invoice amounts less all and any rebates, discounts, agency commissions, and excise taxes, sales or similar taxes; provided that, inasmuch as Nutley may make sales through a subsidiary company owned by Nutley to an extent of more than fifty percent. (50%) or through an agent, and any such subsidiary company or agent may purchase goods from Nutley, the invoice amount for purposes of this article shall be the invoice amount charged by such subsidiary company or agent to the customer and not that charged by Nutley to such subsidiary company or agent.
2. Nutley shall have the exclusive enjoyment and use in the United States of America, its territories and possessions, for the term of fifty years from January 1, 1941 of all of Basle’s secret processes, secret formulae, technical and scientific developments and improvements and other rights pertaining to Old Products; and Nutley agrees to pay as rent therefor quarterly commencing January 1, 1941, a sum equal to four percent. (4%) of the net proceeds of sales made by Nutley (as defined in Article IE) above) in the United States of America, its territories and possessions, of Specialties, Special Products and Vitamins in bulks as the same are defined in paragraph 1, subdivisions A, B and C thereof, except sales made for export from the United States, its territories and possessions.
3. Nutley binds itself, its officers and employees, to keep all and all parts of such secret processes, secret formulae, technical and scientific developments and improvements and all such other righs, [sic] secret and confidential, and to use the same only in its plant or plants owned or controlled by it.
4. At the expiration of the term hereof, to wit, on December 31, 1990, Nutley may, upon giving Basle six months’ written notice prior to said date, elect to purchase all the rights, title and interest of Basle in said secret processes, secret formulae, technical and scientific developments and improvements and other rights pertaining to Old Products, for such sum as may be mutually agreed upon between the parties or, if they are unable to agree, for such sum as may be agreed upon by arbitration as hereinafter provided.
If within thirty (30) days from the giving of notice of the exercise of such option by Nutley, the parties shall be unable to agree upon the sum to be paid by Nutley, each of the parties hereto shall appoint an arbitrator who in turn shall appoint a third; and the valuation determined by a majority of the three arbitrators shall be conclusive and binding upon the parties. If, within thirty (80) days from their appointment, the two arbitrators appointed by the parties as aforesaid shall be unable to agree upon a third arbitrator, then and in such event, the then chief executive officer of the Poyal Bank of Canada or of its successor or assign shall constitute such third arbitrator. Any question relating to. such arbitration and the effect thereof shall be determined under the laws of New Jersey.
5. If Nutley shall not exercise the foregoing option to purchase said rights pertaining to Old Products, at the expiration of the term hereof, then and in that event, all right and interest of Nutley in said rights shall cease and terminate; but Nutley, its officers and employees, shall continue to be bound by the provisions of paragraph 3 hereof.
6. Basle hereby authorizes Nutley, in Basle’s or its own name, to perfect, continue, renew, enforce and enjoin infringement of and take all other steps necessary to enforce and enjoin all such rights pertaining to Old Products and Basle will take all lawful steps in its power to assist Nutley in the protection and enforcement thereof. Basle will execute all such further documents and give such assurances as may be necessary or desirable fully to effectuate the provisions of this Agreement.
7. The Agreement between the parties dated February 25,1936, is hereby terminated.

32. Plaintiff, who had no contractual arrangements with Nutley, was not a party to the above-quoted contract between Nutley and Basle. Apart from some correspondence relating to payments made to Mm by Nutley, plaintiff never corresponded with Nutley.

33. Although Basle applied for patents in its own name in other countries, patents in the United States were applied for in plaintiff’s name, because in this country a patent application can be filed only by a natural person, the inventor. Basle prepared and sent to plaintiff all the papers for the United States patent applications and reimbursed him for his expenses in connection with the execution of them. At Basle’s request, plaintiff promptly executed the applications for the issuance of United States patents on vitamins B-2 and E and assigned those applications to Nutley. The applications, which were returned to Basle by plaintiff, were assigned to Nutley before the patents were granted. The patent assignments were thereupon recorded in the United States Patent Office in Nutley’s name, and the patents themselves were issued to Nutley as assignee of plaintiff, and in a few instances in the case of vitamin E, as assignee of Dr. Isler as well. The actual work on the procurement of the United States patents was done by Nutley or Basle.

34. Plaintiff executed the assignments of applications for the two United States patents on vitamin B-2 on March 14, 1939, and May 18, 1940, both of which dates preceded the date on which the contract between plaintiff and Basle was executed (finding 21).

35. There were two United States patents issued on the vitamin B-2 invention and ten United States patents issued on the vitamin E invention.

36. The two United States patents on vitamin B-2 were issued in the name of:

Paul Karrer, Zurich, Switzerland, assignor to Hoff-mann-LaBoche Inc., Nutley, N. J., a corporation of New Jersey.

The vitamin E patents were issued in the same name, with the exception of patents Nos. 2,411,967 through 2,411,970, which were issued in the names of:

Paul Karrer, Zurich, and Otto Isler, Basel, Switzerland, assignors to Hoffmann-LaRoche Inc., Nutley, N. J., a corporation of New Jersey.

37. The assignments of the patent applications in the case of the vitamin B-2 patents and the vitamin E patents provide in part as follows:

whsRbas i, raxil karrer, a citizen of Switzerland, and a resident of Zurich, Switzerland, have invented certain new and useful improvements * * * for which I have made application for Letters Patent of the United States,
«!• í» $ Í
whereas, Hoffmann-LaKoche, Inc., a corporation duly organized and existing under the laws of the State of New Jersey * * * is desirous of acquiring the entire right, title and interest in and to said invention within the United States of America and its territorial possessions * * * and any United States Letters Patent that may be granted therefor,
* * * for and in consideration of the sum of One Dollar * * * and other good and valuable considerations * * * I have assigned and transferred, and do hereby assign and transfer to the said assignee, the entire right, title and interest in and to the said invention, within the United States of America and its territorial possessions, and in and to any Letters Patent of the United States of America that may be granted therefor, * * * all said lights to be held and enjoyed by the as-signee for its own use and behoof, and for the use and behoof of its successors and assigns, for the full end of the term for which said Letters Patent may be granted, as fully and entirely as the same would have been held and enjoyed by me, if this assignment and sale had not been made. And I do hereby request and authorize the Commissioner of Patents to issue said Letters Patent, when granted, in accordance with this assignment * * *
IN further consideration of said sum of One Dollar, and said other good and valuable considerations, to me paid, I [Karrer] covenant and agree with the assignee [Nutley] that * * * I will * * * do all lawful and just acts, including the execution and acknowledgment of instruments, that may be or become necessary for obtaining, sustaining, or reissuing United States Letters Patent for the said invention, and for maintaining and perfecting the assignee’s right to said invention and Letters Patent, particularly in cases of interference and litigation.

38. The assignments of the two vitamin B-2 patent applications and the ten vitamin E patent applications were executed by plaintiff outside the United States in the presence of the American Consul.

39. The termination dates of the contracts entered into between plaintiff and Basle with respect to vitamin B-2 and vitamin E precede the expiration dates of all the United States patents on the two vitamins. As previously stated, the vitamin B-2 contract expired on December 31, 1952, whereas the first of the two vitamin B-2 patents expired on April 25, 1956, and the second will expire on April 1, 1958. The vitamin E contract expired on December 31,1950, whereas the earliest of the vitamin E patents will expire on July 23, 1957, and the latest of such patents will expire on December 3,1963.

40. Nutley paid plaintiff a percentage of the proceeds of all its sales of products containing vitamin B-2 and vitamin E. The percentage paid depended upon the type of preparation involved and was the same as specified in the contracts entered into between plaintiff and Basle.

41. Nutley’s books show the following amounts payable to plaintiff for the years indicated:

Vitamin B-2 Vitamm E Year Contract Contract
1941_ $2,253.16
1942_ 3,206.04
1943_ $19, 067. 90 3,269. 68
1944_ 102, 549.63 3,987.79
1945_ 91, 565. 83 5,322.71
1946_ 71, 584.09 8,444. 68
Totals_ 284, 767.45 26,484. 06

42.The payments made by Nutley to plaintiff were not made pursuant to any written contract to which Nutley was a party. Nutley’s former president verbally instructed the treasurer of the company to set up the payments to plaintiff on its books. The general import of his instructions was that since Nutley had manufactured synthetic vitamin B-2 and vitamin E products under the Karrer inventions, Nut-ley bad accepted, along witb that benefit, the liability to make the payments called for by the inventor’s contracts. At the time the payments were made to plaintiff, Nutley had in its files copies of the vitamin B-2 and vitamin E contracts entered into between plaintiff and Basle.

As shown in finding 31, Nutley had entered into a contract with Basle on January 27, 1941, under which Nutley agreed to pay Basle four percent of the proceeds of the sales made by Nutley in the United States of vitamin B-2 and vitamin E products, and it had also made an agreement with Basle which provided for the interchange between both companies of discoveries resulting from research. Since, under its agreement with Basle, Nutley was privileged to sell items coming from Switzerland and to make use inventions made in Switzerland for sales of products in the United States, Nutley considered that the benefits it obtained thereby carried with them a liability in the nature of a mortgage to make payments to the inventor, Professor Karrer, in the same amounts as were called for in his contracts with Basle.

43. In connection with its sales of vitamin B-2 and vitamin E products, Nutley paid Basle four percent of the proceeds of sales as provided for in the contract between Nutley and Basle. In addition, Nutley paid plaintiff a percentage of the proceeds of its sales of such products in amounts corresponding to those that plaintiff would have been entitled to receive under his contract with Basle if the product had been marketed by Basle instead of Nutley. Since Basle was obligated to pay plaintiff five percent of the proceeds of the sale of some vitamin B-2 products, Nutley realized that Basle would have lost one percent on every sale of such products if Nutley had not also paid plaintiff the amount of the participation provided for in his contract with Basle.

44. There is no written contract of any kind which states how the contracts between plaintiff and Basle have any bearing on the liability of Nutley to plaintiff.

45. The payments which were accrued on Nutley’s books in favor of plaintiff were designated in Nutley’s books as royalties. This designation was made by Nutley’s treasurer. He is a chartered accountant, but is not a lawyer and has no legal training. Accountants consider payments to inventors, based on a percentage of sales, as royalties. An additional reason for the designation is the fact that in large businesses, it is desirable to segregate in one place all payments made to inventors that are based on a percentage of the sales in order that these accounts may be reviewed with ease.

46. In tax returns, in applications to the Foreign Funds Control of the Treasury Department, in withholding reports, and in various other documents, Nutley designated the payments made to plaintiff as royalties.

47. Although Nutley’s officers had some reservations as to whether the payments made to plaintiff should be characterized as royalties, there is no evidence that these reservations were communicated to anyone outside its organization. On June 20, 1946, Nutley wrote plaintiff with respect to the vitamin B-2 payments accrued on its books as follows:

We have much pleasure in informing you that we have now been licensed to take up on our books the royalties due to you under contract dated January 12, 1941, and, therefore, acting under this license we have a net credit in your favor on our books of U. S. $199,-734.45. This amount represents royalties for the years 1942 to 1943, inclusive and totals $284,767.45 less U. S. Withholding Tax thereon in the amount of $85,033.00 leaving the balance due to you mentioned above.
We take this opportunity of suggesting that it is possible that American fiscal problems may arise in connection with this income and that, perhaps, you might wish to obtain legal opinion before instructing us on how you would wish us to liquidate our indebtedness to you.
We feel certain that you realize that under the present regulations a further license will be required by us before we can deposit this money to you.

Plaintiff replied on July 6,1946, that he was entrusting the matter to Mr. Ettinger, his tax expert, who would attend to the formalities and look after his interests in every respect.

48. Plaintiff did not receive any payments from Basle or Nutley with respect to synthetic vitamin B-2 that was sold prior to 1941. Although Nutley has sold substantial quantities of vitamin B-2 since December 31,1952, Karrer has not received any payments from either Basle or Nutley with respect to synthetic vitamin B-2 since that date, when his contract with Basle expired.

Nutley has also made substantial sales of vitamin E products since December 31, 1950, when plaintiff’s contract with Basle in respect to vitamin E expired, but Nutley has not made any payments to plaintiff with respect to sales made after that date.

49. Nutley withheld and paid United States income taxes on behalf of plaintiff in the sum of $92,978.22 to the Collector of Internal Bevenue for the First District of New Jersey, as follows:

Amount of tax withheld and paid Year in which sales made Vitamin B-2 contract Date paid Vitamin 33 contract Date paid 1940— 1941... 1942.. 1943.. 1944.. 1945.. $5, 323.12 30,764.89 27,469.75 21,476.24 Nov. 1944.. Nov. 1944.. June 1945... June 1946_ $675.95 961.81 980.90 1,196.34 1,596.81 2, 533.41 June 1946 June 1946 June 1946 June 1946 Junel946 June 1946 Totals-85,033.00 7,945.22

Nutley paid plaintiff the difference between the amounts set forth in finding 41 and the amounts stated above.

50. Plaintiff’s United States income tax returns for the calendar years 1941 through 1946 were timely filed on July 16, 1947, with the Collector of Internal Bevenue for the Third District of New York at New York, New York, and showed a balance of tax due as follows:

Year Balance of taw due
1941_ $(56.38)
1942_ none
1943 _ 2, 754.17
1944_ 44, 074.09
1945 _ 38,158. 82
1946 _ 23, 539. 58
Total_ 108, 526. 66

Said balance of tax was paid by plaintiff, who was on the cash receipts and disbursements basis during the years involved herein, to the Collector of Internal Eevenue for the Third District of New York on July 16, 1947.

51.Professor Karrer paid United States income taxes to the Collector of Internal Eevenue for the Third District of New York and to the Collector of Internal Eevenue for the First District of New Jersey in the following amounts:

Year Amount
1941_ $675.95
1942_ 961. 81
1943 _ 9,058.19
1944 _ 76,035.32
1945 _ 67,225. 38
1946_ 47, 548.23
Total_ 201,504.88

The dates on which such taxes were paid are set forth in findings 49 and 50.

52. On the dates shown below there were timely filed with the Collector of Internal Eevenue for the Third District of New York on behalf of plaintiff separate claims for refund of income tax for the years 1941 through 1946 in the following amounts:

Refund, Claimed for Year Date of Filing Amount
1941_September 7,1948_ $675.95
1942_ September 7, 1948_ 961. 81
1943_ December 31, 1947_ 9,058.19
1944_ December 31, 1947_ 76,035.32
1945_ May 25, 1948_ 67,225. 38
1946_ September 7,1948_ 47, 548.23
Total_ 201,504.88

Copies of said claims for refund are annexed to the petition as Exhibits A through F and are made a part hereof.

53. By registered letter dated May 12, 1952, the Commissioner of Internal Eevenue gave plaintiff notice of disal-lowance in full of each of the claims for refund. A copy of the notice of disallowance is annexed to the petition as Exhibit G and is made a part hereof.

54. This suit was not begun prior to the expiration of six months from the date of filing the aforesaid claims for refund nor after the expiration of two years from the date of mailing by registered mail by the Commissioner to plaintiff of the aforesaid notice of disallowance.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is entitled to recover, and it is therefore adjudged and ordered that he recover of and from the United States two-hundred one thousand five hundred four dollars and eighty-eight cents (201,504.88), together with interest as provided by law. 
      
       1942 amendment, Act Oct. 21, 1942, 56 Stat. 861, struck out the words “and not haying an office or place of business therein”.
     
      
       “§ 212. dross income — (a) deneral Rule.
      
      “In the ease of a nonresident alien individual gross income includes only the gross income from sources within the united States.”
     
      
      Reference Is also made to Dr. Isler In the case of patents Nos. 2,411,967 through 2,411,970.
     