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and white box products from masters petitioner supplied. Microsoft
Japan, Microsoft Taiwan, and Microsoft Korea used subcontractors to
duplicate and distribute both retail and white box products.
The CFC agreements with Microsoft Taiwan, Microsoft Korea, and
Microsoft Japan imposed a mandatory trademark branding requirement
on the CFC’s. The CFC agreements with Microsoft Ireland included
an express trademark license.
Petitioner generally sent the master diskettes to the CFC’s
containing object code for the licensed retail products. Similar
to the OEM agreements, the CFC agreements imposed obligations on the
CFC’s to maintain in confidence all trade secret information
petitioner provided.
Pursuant to the CFC agreements, petitioner ultimately received
royalties from the CFC’s. MS-FSC reported the royalties on its
returns as FTGRs from transactions in qualifying export property.
The royalties in dispute are those received from Microsoft Japan,
Microsoft Korea, Microsoft Ireland, and Microsoft Taiwan in 1990 and
1991, paid pursuant to the CFC agreements. During the years in
issue, Microsoft Ireland accounted for approximately 85 percent of
petitioner’s royalty accruals from the CFC’s.
Petitioner did not allocate or apportion the royalty stream
from the CFC’s and OEM’s among intellectual property rights.
Respondent determined that the royalties petitioner accrued from its
export licensing transactions were not FTGR’s on the basis that the
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