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U.S. Agri was the contractor selected to carry out the R&D
program under an R&D agreement. The offering included the R&D
agreement and the license agreement.
The partnership entered into the exclusive R&D agreement
with U.S. Agri on December 31, 1982. The license agreement
between the partnership and U.S. Agri was executed concurrently
with the R&D agreement, granting U.S. Agri the exclusive right to
utilize technology developed for the partnership for 40 years in
exchange for a royalty of 85 percent of all products produced.
The R&D agreement, according to its terms, expired upon the
partnership’s execution of the license agreement. Because the
two agreements were executed concurrently, amounts paid to U.S.
Agri by the partnership were not paid pursuant to a valid R&D
agreement but were passive investments. The partnership never
engaged in research or experimentation either directly or
indirectly.
We noted that Mr. Kellen exhibited a lack of concern about
the details of the partnership’s operations. He hastily signed
the R&D agreement and licensing agreement prepared by CFS and
admitted he did not read the offering until preparing the case
for trial. Mr. Kellen also never took any legal action to
enforce promissory notes signed by limited partners who had
purchased subscriptions in the partnership and defaulted.
We found in Utah Jojoba I Research v. Commissioner, supra,
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