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substance, were “royalties”, as that term is used in section
512(b)(2). At trial and on brief, respondent variously claims
that petitioner was in the business of either (1) “marketing”,
(2) “sponsoring, promoting, and marketing”, or (3) “sponsoring,
endorsing, promoting, and marketing” a credit card (the credit
card). Respondent argues that none of the agreements licensed or
otherwise made available petitioner’s name, logo, or mailing list
to ABS or Chase Lincoln. Instead, respondent argues: The
agreements were for services only, and “[t]he income Sierra
received emanated from activities it engaged in and services it
performed”. Respondent argues that “in the first instance”, the
fee paid by Chase Lincoln pursuant to the Concept-Chase Lincoln
agreement was the income of petitioner, and petitioner then paid
ABS for services ABS provided to petitioner. Because we find
that the receipts constitute “royalties” within the meaning of
section 512(b)(2), we need not address petitioner’s alternative
arguments.
V. Discussion
A. Payment of Royalties
The principal agreement governing petitioner’s
participation in the credit card program is the SC-ABS agreement.
We have no doubt that petitioner and ABS, in entering into the
SC-ABS agreement, had in mind the use by ABS of petitioner's name
and marks in connection with ABS's marketing efforts under the
SC-ABS agreement. Our reasoning is essentially as follows.
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