- 40 -
determine the arm's-length consideration for the property
transferred to Powertex.
In arriving at our conclusion, we begin by considering the
prevailing royalty rates for intermodal container liners as
established by the record. The only liner for which we have data
concerning licenses granted to unrelated third parties is the Sea
Bulk liner.10 The record reveals that the license agreements for
use of the Sea Bulk liner patents have provided many different
royalty rates. Sea-Land initially licensed the Sea Bulk patents to
Tri-Wall Containers in exchange for royalties of 8 percent of net
sales for the first year, 9 percent for the second year, and 10
percent for subsequent years. Sea-Land licensed the Sea Bulk
patents to Powertex initially for a 10-percent royalty, then
included quantity discounts which could reduce the royalty first to
7 � percent and then to 5 percent, and finally for a flat 5 percent
for all sales after September 30, 1985.11 Powertex sublicensed the
Sea Bulk patents to Insta-Bulk in an agreement providing for 18-
percent royalties in the first year and 20 percent thereafter. The
10 Because the license by Powertex of the Amoco patents to
Insta-Bulk was granted in settlement of litigation, we do not
consider it useful here.
11 Mr. Parker, petitioner's expert, ignored the provision in
the agreement requiring Powertex to also pay 10 percent of net
sales for the purpose of marketing, advertising, and promotion
when he evaluated the royalties payable by Powertex for use of
the Sea Bulk patents. We do likewise.
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