- 36 -
primarily because the license was granted in settlement of
litigation. We agree with respondent.
Although we agree that the Powertex/Insta-Bulk license
agreement covering the Amoco patents represents a transfer involving
"the same or similar intangible property," we do not believe that
the transfer occurred under "the same or similar circumstances" as
the transfer in issue in the instant case. We believe that the
cross-license agreements which Powertex and Insta-Bulk entered into
represent nothing more than the price at which those parties were
willing to discontinue their litigation and do not necessarily
establish an arm's-length royalty rate. License fees negotiated in
settlement of litigation may not be indicative of a true arm's-
length royalty rate because of the incentive to avoid high
litigation costs. See Rude v. Westcott, 130 U.S. 152, 164 (1889);
Panduit Corp v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152, 1164
n.11 (6th Cir. 1978). Consequently, we find that the
Powertex/Insta-Bulk license agreement covering the Amoco liner was
not a "sufficiently similar transaction" as contemplated by section
1.482-2(d)(2)(ii), Income Tax Regs.
Having found that the record does not contain a sufficiently
similar transaction involving an unrelated party, we must attempt to
construct an arm's-length royalty. In doing so, we look to the
relevant factors identified by section 1.482-2(d)(2)(iii), Income
Tax Regs.
Page: Previous 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 NextLast modified: May 25, 2011