Microsoft Corporation - Page 17




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         and white box products from masters petitioner supplied.  Microsoft          
         Japan, Microsoft Taiwan, and Microsoft Korea used subcontractors to          
         duplicate and distribute both retail and white box products.                 
              The CFC agreements with Microsoft Taiwan, Microsoft Korea, and          
         Microsoft Japan imposed a mandatory trademark branding requirement           
         on the CFC’s.  The CFC agreements with Microsoft Ireland included            
         an express trademark license.                                                
              Petitioner generally sent the master diskettes to the CFC’s             
         containing object code for the licensed retail products.  Similar            
         to the OEM agreements, the CFC agreements imposed obligations on the         
         CFC’s to maintain in confidence all trade secret information                 
         petitioner provided.                                                         
              Pursuant to the CFC agreements, petitioner ultimately received          
         royalties from the CFC’s.  MS-FSC reported the royalties on its              
         returns as FTGRs from transactions in qualifying export property.            
         The royalties in dispute are those received from Microsoft Japan,            
         Microsoft Korea, Microsoft Ireland, and Microsoft Taiwan in 1990 and         
         1991, paid  pursuant to the CFC agreements.  During the years in             
         issue, Microsoft Ireland accounted for approximately 85 percent of           
         petitioner’s royalty accruals from the CFC’s.                                
              Petitioner did not allocate or apportion the royalty stream             
         from the CFC’s and OEM’s among intellectual property rights.                 
         Respondent determined that the royalties petitioner accrued from its         
         export licensing transactions were not FTGR’s on the basis that the          






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Last modified: May 25, 2011