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each case entered into an exclusive license agreement whereby the
limited partnership granted the prime contractor licenses to any
technology resulting from the prime contractor's research and
development efforts. As a royalty, the limited partnerships each
received specified percentages of the profit interests in the
jojoba crops grown on the acreage allocated to the limited
partnerships for research purposes. We held that the limited
partnerships were not entitled to a deduction for research and
experimental expenditures under section 174(a) because the
limited partnerships were not engaged directly or indirectly in a
trade or business because of the granting of the exclusive
licenses. We see no difference between the situations in Cactus
Wren Jojoba, Ltd. v. Commissioner, supra, and Stankevich v.
Commissioner, supra, and the facts presented in the case at bar.
See also Glassley v. Commissioner, supra.
The case before us now involves the simultaneous execution
by the limited partnership of an R&D agreement and an exclusive
license agreement with a term of 40 years. Additionally, the R&D
agreement terminated upon execution of the license agreement.
Section 5 of the R&D agreement entered into between Utah I
and U.S. Agri provides in part:
The property rights in and to all inventions,
discoveries, improvements, devices, designs, apparatus,
practices, processes, methods, or products (herein
individually or collectively called "Inventions"),
whether patentable or not, made, developed, perfected,
devised, conceived, either solely or jointly with
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