International Multifoods Corporation and Affiliated Companies - Page 33

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          conveyed to Duskin.  Respondent alleges that the franchise rights           
          Duskin acquired provided it with the exclusive right to use the             
          know-how, trade secrets, trademarks, and other components of the            
          Mister Donut System in the operating and nonoperating countries.            
          Any competition or disclosure of the Mister Donut System by                 
          petitioner in these countries, respondent contends, would have              
          deprived Duskin of the beneficial enjoyment of the rights it had            
          acquired.  Thus, respondent maintains that petitioner's covenant            
          should be viewed as an inseverable element of the franchisor's              
          interest acquired by Duskin.  We disagree.                                  
               The covenant granted Duskin benefits in addition to those              
          necessarily conveyed by petitioner's transfer of its franchisor's           
          interests and trademarks.  The covenant prohibited petitioner               
          from conducting any business similar to the Mister Donut business           
          in the operating or nonoperating countries or from otherwise                
          selling doughnuts in any of these countries.  Since petitioner              
          possessed expertise, knowledge, and contacts regarding the donut            
          business, it was reasonable for Duskin to preclude petitioner               
          from reentering the donut business in Asia and the Pacific under            
          a different name.  We conclude that the covenant not to compete             
          possessed independent economic significance, as it did more than            
          simply preclude petitioner from depriving Duskin of rights which            
          it had acquired in purchasing petitioner's franchise rights and             
          trademarks.  As we stated in Horton v. Commissioner, 13 T.C. 143,           
          147 (1949) (Court reviewed):                                                




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