- 42 -
The expert witnesses who appeared in the instant case presented
us with an overwhelming amount of information and arguments
concerning the validity, enforceability, and ownership of the Amoco
patents. In our Order dated December 6, 1996, we stated that the
parties were not permitted to introduce evidence to collaterally
attack the validity of the patents in this Court, Adams v.
Commissioner, 23 B.T.A. 71, 103 (1931), affd. 65 F.2d 262 (5th Cir.
1933); R.M. Smith, Inc. v. Commissioner, T.C. Memo. 1977-23, but
that the parties were permitted to introduce such evidence to show
the scope of the patents, the potential availability of
noninfringing substitutes, the potential for litigation over the
validity of the patents, and how such matters might affect the
royalty rate that would be set by parties bargaining at arm's
length. After evaluating the evidence and the arguments presented
by the parties, we believe that a licensee of the Amoco patents
would consider these issues when negotiating a royalty rate for
their usage. See Smith v. Commissioner, T.C. Memo. 1981-219 ("a
potential purchaser of a patent will consider its validity,
difficulty of enforcement, and potential litigation as relevant to
the amount it is willing to pay."), affd. without published opinion
691 F.2d 508 (9th Cir. 1982).
We believe that an evaluation of the foregoing factors results
in a royalty towards the middle of the 5- to 13-percent range we
identified above. Using our best judgment, and evaluating the
record as a whole, we conclude that a royalty of 9 percent of net
Page: Previous 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 NextLast modified: May 25, 2011