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the question of whether the interest transferred is a
"franchise" in the first place. [Citation omitted.19]
Petitioner's sale of its Mister Donut operations to Duskin
constituted the sale of a "franchise" for purposes of section
865(d)(2). Petitioner transferred to Duskin its existing
franchise agreements, trademarks, and Mister Donut System in each
of the operating countries, as well as its trademarks and Mister
Donut System in the nonoperating countries. Petitioner's Mister
Donut operation utilized franchisees to prepare and merchandise
distinctive quality doughnuts. This system included methods of
preparation, serving, and merchandising doughnuts. In the
purchase agreement, petitioner not only sold Duskin petitioner's
rights as franchisor in the existing franchise agreements in the
operating countries, but also all its rights to exclusive use in
the designated Asian and Pacific territories of its secret
formulas, processes, trademarks, and supplier agreements; i.e.,
its entire Mister Donut System. Duskin received petitioner's
existing rights as franchisor, as well as the right to enter
franchise agreements in the nonoperating countries.
Respondent argues that any goodwill associated with the
Asian and Pacific franchise business was part of, and inseverable
19Petitioner transferred its interest in Mister Donut in
certain designated Asian and Pacific countries only. As of Jan.
31, 1989, petitioner presumably had retained its rights to the
Mister Donut System everywhere other than the 11 operating and
nonoperating countries and Japan.
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