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those allocations that involve HIC, as discussed infra, we find
that the business development type activity constituted HIC’s
activity as a parent company. Accordingly, these allocations
either are not in issue or have no effect on the outcome.
B. Royalties Allocated to Hyatt Domestic for HIC’s Use of
the Hyatt Trade Names and Marks and Other Intangibles
Hyatt Domestic, beginning in 1968, provided HIC with a
license to use the Hyatt trade names and marks. In its 1980
taxable year, Hyatt Domestic provided more chain services to the
Hyatt International hotels than Hyatt Domestic had received.
Respondent, relying on the BVS report, contends that a 15-percent
royalty should be allocated from HIC to Hyatt Domestic based on
HIC’s revenues. The proposed allocation, according to
respondent, represents a profit split between HIC and Hyatt
Domestic reflecting Hyatt Domestic’s contribution of its
investment in chain services, Hyatt Domestic’s originator status
regarding the Hyatt trade name and marks, and HIC’s contribution
of capital and personnel.
Petitioners, relying on the Mercer Management Consulting
(Mercer) report, contend that the Hyatt name had little or no
value and did not increase the Hyatt International group’s
income-generating capability. The parties and their experts did
not focus on the specific factors that might influence the
amounts or the operation of the royalties. Instead, in a broad-
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