Franchise Tax Board continues to pursue microchip inventor

The microchip powers the California, American and world economies. But the man who officially invented the chip, Gilbert Hyatt, just can’t shake the Golden State’s taxman, even after he moved to Nevada.

Reported the Sacramento Bee, “Hyatt, who moved from Southern California to Las Vegas after obtaining his patent, won a nearly $500 million judgment seven years ago over how he’s been treated by investigators from the California Franchise Tax Board.”

The FTB has been relentless in pursuing him into the desert. The latest: U.S. District Judge Garland Burrell Jr. said the FTB can continue its pursuit of the $50 million it says Hyatt owes the state.

Harassed in and out of court

The origins of the dispute go back another 20 years even before that — to the early 1970s. As AllGov described the race to patent the first microchip:

“Intel claimed victory in 1971, patented its creation and was generally regarded as the inventor of the microprocessor upon which the desktop computer industry was built. But in 1990, the U.S. Patent and Trademark Office reversed its decision and awarded that recognition to Gilbert Hyatt of La Palma, California, who had submitted a microprocessor patent application in 1970.

“In anticipation of earning millions for his invention, Hyatt moved to Nevada, where the tax laws were more favorable, and in 1991 he received a $40 million payment for licensing his patent. The Franchise Tax Board (FTB), which claimed Hyatt had been a citizen of California at the time of his windfall, audited him and in 1995 said he owed substantial taxes and a huge penalty payment for fraud.”

So began a series of claims, counterclaims and appeals that ensnared not only the FTB but the Board of Equalization, the agency roped in when taxpayers challenge the FTB’s determinations.

Hyatt alleged the FTB engaged in a campaign of harassment and abuse to muscle him into paying what they believed he owed. The FTB argued it couldn’t be sued in Nevada court, but federal and state courts disagreed. On remand from the U.S. Supreme Court, a Nevada district court awarded Hyatt some $400 million in damages.

As Steven Greenhut reported at Reason, the FTB appealed, leading Hyatt to claim in court the case against him should be dropped because of its extraordinary length and harassing nature:

“‘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.”

Unprecedented delays

The fight over Hyatt’s $50 million bill isn’t the only part of his epic legal battle. According to Bloomberg, Hyatt has been waiting 43 years for the U.S. Patent and Trademark Office to decide “whether his electronic signal to control machinery should be granted a patent. The patent-approval process takes 28.3 months on average. His idea for liquid crystal displays? That’s been sitting in the Patent and Trademark Office for 35 years.”

With his life already upended by the Franchise Tax Board, Hyatt decided, why not sue the PTO as well? In January, he did. USA Today reported, “[S]eeking a final decision on the applications he submitted in 1971 and 1972 for a device he calls a square-wave signal processor. He said the device converts analog and digital signals in control systems on machines, including those that make circuit boards and integrated circuits.”

Since the patents have been in process for so long, patent law places the PTO under a virtual gag order. With the cases confidential, they can’t be discussed by the government.

But Hyatt, 76 years old this month, has no interest in keeping quiet. The longer his saga drags on, the more attention seems to gather around it. Even if the FTB and PTO prevail, they face the prospect of an adverse ruling in the court of public opinion active in a place Hyatt’s invention made possible: the Internet.