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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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