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Commissioner, T.C. Memo. 1997-504; Glassley v. Commissioner, T.C.
Memo. 1996-206; Mach-Tech, Ltd. Partnership v. Commissioner, T.C.
Memo. 1994-225, affd. without published opinion 59 F.3d 1241 (5th
Cir. 1995); Stankevich v. Commissioner, T.C. Memo. 1992-458;
Stauber v. Commissioner, T.C. Memo. 1992-128.
The grant of an exclusive license to exploit technology
prior to commencement of research and development may preclude a
licensor from engaging in a trade or business with respect to the
technology. Spellman v. Commissioner, supra; Levin v.
Commissioner, 87 T.C. at 725-728; Green v. Commissioner, 83 T.C.
667 (1984).
It is the licensee, rather than the licensor, who earns
profits from the sale of the product; the licensor merely
collects royalties from the licensee. Thus, by granting an
exclusive license, the licensor is deprived of control over
the manufacture, use, and sale of the product, and the
licensee is the one engaged in the trade or business of
exploiting the developed technology. [Medical Mobility Ltd.
Partnership I v. Commissioner, T.C. Memo. 1993-428.]
As a mere passive investor, the licensor will not be entitled to
a deduction under section 174(a) for research and experimental
expenditures. Nickeson v. Commissioner, 962 F.2d at 978; Zink v.
United States, 929 F.2d at 1022-1023; Diamond v. Commissioner,
supra at 443.
In Green v. Commissioner, supra, a partnership entered into
a research and development agreement under which it divested
itself of all ownership rights in the technology to be produced
under the agreement. We held that the taxpayer's partnership
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