Patent Law

California Demands $55 Million from Microprocessor Inventor

The state has been harassing him for decades

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SACRAMENTO—Business owners who have fled California often say their decision to leave wasn't just about tax rates, but about the punitive attitudes sometimes found among tax and regulatory authorities here. A new wrinkle in a high-profile, 22-year-old tax case gives fodder to those who make such claims.

In 1970, a young Southern California electrical engineer and inventor named Gilbert Hyatt filed a patent application for an innovative microprocessor chip. That was a year before Intel patented its chip, which led to the personal-computer revolution.

Twenty years later, after a complex legal battle over the origins of that technology, the U.S. patent office awarded Hyatt the patent for a microprocessor — a shocking and still controversial decision (that was later partially overturned) that would provide Hyatt with a multimillion-dollar windfall. He moved to Las Vegas, where he said he was a full-time resident before he received the earnings.

California's Franchise Tax Board (FTB) saw a newspaper article congratulating Hyatt for his patent and decided to seek $7.4 million in back taxes, claiming that he was still a resident of California when the money came in. That sounds like a simple enough dispute that could quickly be resolved, but what followed has been an ordeal that has consumed a good bit of Hyatt's adult life.

On Friday, Hyatt, now 76, filed a federal lawsuit accusing the state of violating his constitutional rights in pursuit of a sum that now tops $55 million as interest and penalties have accrued. He's asking for an injunction forbidding the state from pursing its claim any further. After all these years and legal expenses, he just wants California to leave him alone already.

The tax authorities have been pursing him through its administrative process. Tired of the endless investigations, Hyatt filed suit in Nevada court in 1998. California officials said they weren't subject to an out-of-state tort lawsuit. California lost that argument in the Nevada Supreme Court and the U.S. Supreme Court and the high court decision sent the case back to a Nevada district court, which awarded Hyatt nearly $400 million in damages after finding that the California authorities abused their power and invaded his privacy. That case is on appeal.

Hyatt believes that California officials are purposefully delaying. "Specifically, because of the 20 year delay Hyatt can no longer obtain a fair and full adjudication of whether he owes state taxes to California," according to his lawsuit. "During this time, material witnesses have passed away, memories of witnesses have faded, and documents relevant and important to Hyatt are no longer available." The board keeps assessing penalties, so he says it has every reason to keep delaying. He suspects the tax board is waiting for him to die so that it can go after his estate.

Under California law, the Franchise Tax Board has the "presumption of correctness," meaning that the onus always is on Hyatt to disprove what the tax officials say. And, he argues, they keep changing their stories and their allegations, thus resulting in more years of legal expenses and disputes.

"It's ruined my life. They keep coming up with these intensive positions, many hundreds of pages of allegations and such that we have to try and disprove decades later and it's just very consuming," Hyatt told me in an interview last week. "The FTB is out to get taxpayers' money and it will go to extreme ends to get money whether it is entitled to it or not…."

The state controller's office has yet to review the newly filed lawsuit. But former Board of Equalization member Bill Leonard, a former Republican Assemblyman, believes the state government is abusing rules designed to give taxpayers every opportunity to appeal a judgment to drag out a case against a taxpayer. The Legislature could fix the problem with a law granting a right to speedy trial on tax matters, he added.

It's hard not to conclude that California's tax agency is out of line as it continues to run up administrative and legal fees — not to mention risking potential multimillion-dollar liabilities — to pursue a decades-old dispute over where a taxpayer lived for six months. There's a troubling lesson here for wannabe entrepreneurs, who might want to think carefully about their residency before they hit the big time.

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  1. “The Legislature could fix the problem with a law granting a right to speedy trial on tax matters, he added.”

    I believe this is covered somewhere in one of those old paper documents.

  2. Under California law, the Franchise Tax Board has the “presumption of correctness,” meaning that the onus always is on Hyatt to disprove what the tax officials say.

    Guilty until proven innocent.

    1. I wonder: can any other plaintiff put the burden of proof on the defendant?

      1. Collegiate rape accusations?

      2. Global warmists?

      3. Moonshiners?

      4. Patent trolls?

        1. Nah, patent trolls have to prove that the defendant actually infringed the patent. The only presumption they get is that an issued patent is actually valid, but that can be challenged too.

          -jcr

          1. And having to spend thousands or hundreds of thousands of dollars to challenge that presumption isn’t a way of shifting the burden of proof to the defendant?

            1. Not really, no. This is because the patent holder has already spend thousands or hundreds of thousands of dollars to prosecute the patent, to get it issued.

              The necessity of spending thousands or hundreds of thousands of dollars to challenge the validity of a patent simply puts the patent holder and the challenger on equal footing.

      5. Burden of disproof.

      6. Gun grabbers?

    2. Innocent until proven broke is more the norm.

  3. I reallllllllllly hope CA taxpayers have to cough up $400 million for harrassing this guy.

    1. I really hope the money comes out of the Franchise Tax Board’s retirement find, operating budget, and office vending machines.

      1. Nice thought, but it won’t.

  4. Some people are much too patient with tyrrany. At 76, my bucket list would have had a new entry years ago.

  5. It is time to kick CA out of the union.

    1. I like how there’s no comments thread so nobody can call reeking bullshit.

  6. Of course he says he doesn’t owe it. That’s what they all say.

    WRECKERS!

    HOARDERS!

  7. “Everybody has to pay taxes. Even businessmen that rob and
    steal and cheat from people everyday, even they have to pay taxes.”

      1. JONATHAN Winters. JONATHAN.

        1. Also known as Mirth.

  8. And, he argues, they keep changing their stories and their allegations, thus resulting in more years of legal expenses and disputes.

    IANAL, but if “they keep changing their stories and their allegations”, shouldn’t it be easy to get whatever they claim the case to be thrown out?

    1. The actual effect is that you have to disprove each and every tale they spin.

      1. “Our *new* story is that the defendant is an alleged sheep fucker.”

        1. ….the defendant is an “alleged sheep fucker.”

          Still a more honorable calling than California state tax collector.

          1. Aren’t they the same? Sheep, sheeple, no difference.

  9. I hope he live to 107 and wrings their necks in court.

  10. “The FTB is out to get taxpayers’ money and it will go to extreme ends to get money whether it is entitled to it or not….”

    It’s difficult to believe this is about getting the money so much as wanting to teach one of the little people who’s boss. Since there is practically zero risk of any public employee ever suffering any consequences for abuse of power, they are basically free to wage a crusade against whomever they please.

    1. Moreover, whoever finally “settles” the case will undoubtedly be rewarded with a nice financial bonus.

    2. In the Hotel California, the Motel Mansion Washingtom D.C., as well as many others around the the country the servants have decided to appoint themselves our masters.

      1. They serve the public, which is everyone except you.

        1. See, they serve the public, plural, and if that means screwing over many individual members of the pubic, the plural has still been served. One dish at a time.

    3. Those public sector pensions don’t fund themselves.

    4. Losing $400 million in damages for abuse of power in pursuit of $7.4 million is an extreme end.

      1. That $400mm is racking up interest, too.

        This is a losing game for the state. But, they’re only losing other people’s money, so what the hey.

  11. California; living hell.

    1. California is like an artificial limb the rest of the country doesn’t really need. You can quote me on that. — Saul Bellow

  12. OT: Next line of pigs line up at BP trough.

    “We know from … research that’s been done on other oil spills, that people one to two years after … had respiratory symptoms and changes in their lung function, and then after a couple of years people start to return to normal,” said Dr. Dale Sandler, who heads the study overseen by the National Institutes of Environmental Health Sciences, an arm of the National Institutes of Health.

    “What nobody’s ever done is ask the question: Well, after five years or 10 years are people more likely to develop heart disease, or are they more likely to get cancer? And I’m sure that’s what people who experienced this oil spill are worried about.”

    Bonus for the anecdotal story about a man whose respiratory fitness declined markedly in his mid-50s, which happened to coincide with the BP spill.

  13. I hope this story has a happy ending.

      1. Hopefully after the doors are chained shut from the outside.

    1. I’d settle for something involving tectonic plates.

  14. Under California law, the Franchise Tax Board has the “presumption of correctness,”

    Wow, they actually have a FYTW clause. Of course, this is unconstitutional on its face, since even Californians have the right to due process of law.

    -jcr

  15. So, in 1990 Cali says he owes $7.4M. Today, they think penalties and interest increases that to $55M. Meanwhile, Nevada says Cali owes him $400M. His life and finances have been wrecked by the allegations. No matter what, Cali will pay more in legal fees than they could ever hope to possibly recover from this dude.

    So, Cali has decided to make a bunch of lawyers exceptionally rich at the expense of the citizens of the state and one unfortunate dude who was smart enough to invent something really cool, smart enough to realize he needed to get the hell out of Cali, but not smart enough to anticipate how crazy the state would really be.

    Awesome! I should totally move there.

    1. Yep – his mistake was not moving much farther away.

  16. “The FTB is out to get taxpayers’ money and it will go to extreme ends to get money whether it is entitled to it or not….”

    “Every government ever know to man is out to get taxpayers’ money and it will go to extreme ends to get money whether it is entitled to it or not….”

    FTFY

  17. Wonder what all he did to prove residency.

    Me, if I had such a windfall coming my way … drive as fast as I can to another state with no state income tax, immediately rent an apartment, register to vote, and register the car in that state, get utility bills in my name, and meanwhile hire someone to sell every asset I have left in CA in a fire sale including any houses.

  18. That is what you get when you let in millions of illegal aliens from Mexico: socialism. That is what you get when you validate homosexualit: socialism. Libertarians need to wake up. People who smoke pot want a free welfare check and will take the money they need for pot from those who invent and produce.

  19. It was a good demand of $55 million.

    Thanks,
    Marketplace script

  20. Demanding $55 Million from Microprocessor Inventor would be huge !

  21. Cant belive $55 million from Microprocessor.

  22. Imagine going out to lunch with a group of your friends. Some of your friends order drinks, others order horderves, some order expensive meals, others order bargain menu, some order fancy desserts, others don’t.

    But just before the waiter comes with the check, some of your friends excuse themselves, saying they need to use the restroom. But instead of going tot he restroom, they exit out the backdoor & leave without paying.

    Imagine how angry you’d be if you got stuck paying the tab for those that skipped out without paying.

    Because that is what happens in California every time someone doesn’t pay their fair share. The only difference is that those that have to pay more than their fair shares don’t know which persons are skipping out on their tabs.

  23. Well i think if they demand $55 million for Microprocessor then something is very special in this Microprocessor. Well we can’t believe this but engineer can do everything is possible.

  24. This is so embarrassing to hear! Money’s value has no limits these days.

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