- 19 -
own. SMP provided this assistance before the merger with
petitioner was proposed and with the knowledge that petitioner
would be taking over its terminated license. SMP was run by
members of the Nyingma community and controlled by DM and the
other Nyingma organizations. The assistance that petitioner
received from SMP supports a finding of a close relationship
between DM and petitioner.
Petitioner wants to appear as an entity independent from DM
with its own desire to earn a profit. However, petitioner
constantly paid the majority of its after-tax profits to DM and
even sustained an after-tax loss during one of the years in
issue. Moreover, after petitioner paid its profits to DM, it had
to go to DM and another Nyingma organization for financing when
it needed a new printing press to stay competitive in the
industry. Petitioner dedicated its profits to benefit Buddhist
culture and traditions. It made no difference to petitioner
whether it paid large or small royalties to DM because the
profits given to DM would be used for these purposes. Because of
the close relationship between petitioner and DM, we find that
the license agreement was not the result of arm's-length
bargaining.
The determination of the amount of reasonable royalties in
this case requires two lines of inquiry: (1) What assets did
petitioner license from DM, and (2) what is the value of the
licensed assets? Both parties presented expert witnesses
regarding the value of the license agreement. We are not bound
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011