- 30 -
in 1979. See Differential Steel Car Co. v. Commissioner, T.C.
Memo. 1966-65 (whether payments by a corporation to its
controlling shareholder for the purchase of a patent are
reasonable depends to a considerable degree on the value of the
invention or process and its salability in the open market).
Furthermore, Cascade was not required by the 1982 agreement
to pay $10 million for the patents. Rather, the terms were that
Cascade would pay 5 percent of the gross selling price of the
covered products, and the total payments could not exceed $10
million. Cascade was not obligated to pay $10 million unless
sales of the covered products totaled $200 million before the
patents expired or were supplanted by other patents or
technology. If Cascade had sold no products, it would have paid
Lea nothing, and if it had sold more than $200 million of
products, it would have paid Lea no more than $10 million. These
terms support a finding that the 1982 agreement was fair and
reasonable. Cf. Differential Steel Car Co. v. Commissioner, T.C.
Memo. 1966-65 (contracts that required payment of 80 percent of
net sales, which did not consider the possibility of avoidance by
competitors or invalidity, were not reasonable).
In fact, the parties adhered to the terms of the 1982
agreement; the payment percentage was adjusted to recognize the
decreased value of the patents to the corporation, and Cascade
paid Lea substantially less than $10 million.
Page: Previous 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 NextLast modified: May 25, 2011