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separate the value attributable to trade names and marks from the
other items normally included in a franchise rate or agreement.
The parties’ experts appear to agree that the franchise
rates for luxury hotels charged by U.S.-based hotel chains were
the equivalent of about 2 percent of gross hotel revenue.27 In
determining the arm’s-length charge for the Hyatt trade names and
marks, we begin with a franchise rate of 2 percent of gross hotel
revenues. The Mercer report included a presentation of Hilton
franchise revenue and expenses from 1987 through 1990.
Approximately one-half of the Hilton franchise revenues were used
for expenses, exclusive of taxes. If approximately one-half of
franchise revenues represent expenses, the other half, or 1
percent of gross hotel revenues, remains for allocation to profit
on reservations, marketing, expertise, and other services, as
well as a royalty for trade names and marks. Of the 1 percent
representing profit, we attribute .5 percent to royalties and .5
percent to other items.
Based on the information available, we hold that the
appropriate arm’s-length charge for the Hyatt trade names and
marks and the chain services provided by Hyatt Domestic is two-
27 Accepting the premise that room revenues and food
revenues each comprise, on average, half of an international
hotel’s gross revenue, a franchise rate of 4 percent of room
revenues translates to a rate of 2 percent of hotel gross
revenues.
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