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E.I. DuPont de Nemours and Co. v. United States
United States Court of Claims
153 Ct. Cl. 274, 288 F.2d 904 (1961)
E.I. DuPont de Nemours and Company (DuPont) (plaintiff) developed a process that, at the time, was believed to not be patentable. DuPont put the process into commercial use but kept its details secret. DuPont agreed to disclose the process to Associated Ethyl Corporation, Ltd. (Associated) in exchange for $225,000. The agreement authorized Associated to use the process worldwide and obligated Associated to keep the process secret for five years. The agreement imposed no restrictions on DuPont’s right to disclose the process to others. DuPont treated the payment from Associated as ordinary income for tax purposes but sued the Internal Revenue Service (IRS) (defendant) for a refund, arguing that the transaction was a sale of the trade-secret process that entitled DuPont to treat the proceeds as capital gains. The IRS took the position that the gain on the transaction constituted ordinary income.
Rule of Law
Holding and Reasoning (Jones, C.J.)
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