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responses to the initial plan were accomplished in a relatively
short period. We do not view petitioner’s exercise of its
discretion as a disguised attempt to exercise creative or
production control over ABS’s efforts. Moreover, we do not find
the existence, or exercise, of petitioner’s rights to be
inconsistent with a royalty arrangement. In Wm. J. Lemp Brewing
Co. v. Commissioner, 18 T.C. 586 (1952), we dealt with an
agreement that allowed a party to manufacture and sell beer under
an old family name used by the taxpayer. The agreement reserved
to the taxpayer a right of approval over methods of brewing,
advertising, and the marketing of beer that would carry its name.
We stated:
The significance of such provision, when read in
the light of the entire agreement, is that petitioner,
having licensed the use of its formulae and trade name,
desired to retain the right to supervise the methods of
brewing, advertising, and marketing of beer sold under
the “Lemp” name for the protection and preservation of
what petitioner considered a valuable property right.
Since the license granted was for an indefinite period,
and could be canceled by * * * [the licensee] at will,
such a protective provision was a most desirable one.
* * *
Id. at 596. We found that payments made pursuant to the
agreement to manufacture and sell beer under the family name
were royalties. Id. at 597; see also Disabled Am. Veterans v.
Commissioner, 94 T.C. at 78.
Here, when viewed in light of the SC-ABS agreement and the
negotiations that preceded it, we conclude that petitioner’s
exercise of its right of approval with respect to ABS’s
marketing proposals evidences only petitioner’s concern with
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