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was received was, at most, derivative or indirect in nature.
Therefore, we find that the License Agreement was a bona fide,
arm’s-length agreement, which did not result in constructive
dividends to Mr. Speer.
Even if the agreement itself were not arm’s length, it is
still enforceable, and thus will not give rise to constructive
dividends, if its terms, particularly the amount of the payments,
are fair and reasonable when judged by the standards of a
transaction entered into by parties dealing at arm’s length.
Sparks Nugget, Inc. v. Commissioner, 458 F.2d at 635; Stearns
Magnetic Manufacturing Co. v. Commissioner, 208 F.2d 849, 852
(7th Cir. 1954); Place v. Commissioner, 17 T.C. at 203. We must
assess the reasonableness of the License Agreement at the time it
was entered without the benefit of hindsight. If the terms were
reasonable as of that date, it is immaterial that HSN’s success
may have gone beyond the parties’ expectations and produced
license fees in excess of what would be considered reasonable for
a single year viewed in isolation. See Brown Printing Co. v.
Commissioner, 255 F.2d 436, 440 (5th Cir. 1958), revg. T.C. Memo.
1957-37.
At the time the parties agreed to license the Local Software
9(...continued)
that Mr. Speer really controlled Pioneer. Because of our holding
with respect to the constructive dividend issue, however, we need
not address the question of whether equitable recoupment would
apply.
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