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according to petitioner, I-Tech could have legally marketed
products during or after the 6-month period.
The question is not whether it is possible in principle, or
by further contract, to engage in a trade or business, but
whether in reality, the taxpayer possessed the capability in the
years before the Court to enter a new trade or business in
connection with the discovery. See Diamond v. Commissioner, 930
F.2d at 375. The answer to the question of reality must be found
in economic reality. See id. Economically, it was not in I-
Tech’s interest to market the discoveries/products on its own
behalf during the 6-month nonexclusive period. I-Tech was
entitled to royalty income from each R&D company that
successfully completed its research and reduced it to practice
during the nonexclusive option period. If the R&D companies were
successful in exploiting their technology, they would exercise
their buy-out options to acquire all rights, title, and interest
in the technology at the expiration of the nonexclusive license
period and continue to pay I-Tech royalty income. I-Tech then
had the right to convert its royalty interests into substantial
equity interests in successful R&D companies.
Finally, the restrictions imposed by the Israeli Government
seriously undermined I-Tech’s ability to exploit the products in
the future. Under the terms of the Chief Scientist Agreement,
only I-Tech in its independent capacity could obtain any patent
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