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Author Topic: Tax Treatment of License vs. Assignment  (Read 622 times)

mersenne

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Tax Treatment of License vs. Assignment
« on: 04-10-17 at 03:22 pm »

Looks like this forum is not too active, but perhaps somebody will notice a new posting and have some info to help:

I have an inventor who licensed some of his US patents to a manufacturer.  Both parties intended a license, but a tax attorney has raised the possibility that the license will be treated as an assignment, which causes different tax implications.  (Cap gains for the inventor, rather than a license royalty; and different tax treatment for the licensor as well.)

Has anybody run into this?  Do you have magic words to put in an amended license to ensure "license" treatment rather than "assignment"?
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Patents, Trademarks & Copyrights for Small Biz & Startups
California, Oregon & USPTO

Tobmapsatonmi

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Re: Tax Treatment of License vs. Assignment
« Reply #1 on: 04-10-17 at 04:13 pm »

I'll assume it's an exclusive license else the tax attorney shouldn't have brought the question forward. 

I don't think there are magic words that will work here (i.e., "The Parties hereby mutually agree and intend that this Agreement is a License Agreement and not an Assignment Agreement, so there!").  It either functions legally as a license or it functions legally more like an assignment.

Generally an exclusive license starts to smell a lot like a transfer if the licensor ("Lor") doesn't hold much back to himself in the way of substantive rights relative to the patent, and instead gives all or substantially all of the rights in the bundle to the licensee ("Lee"). 

Does Lor give the Lee the right to sublicense?  Are there any conditions on it?  E.g., the right to vet and approve (or downthumb) potential sublicensees?  Or is it a totally free right to sub?

Are there any conditions on Lee's ability to divest/sell the license downstream to some other party?  Only by permission, or wide open?

Who's paying the maintenance fees, and what conditions are on a decision to no-pay?

Did Lor give Lee any rights to chase infringers?  If so, does Lor have a first right to bring suit, or are there conditions where Lor can deny Lee's ability to bring suit?  If not, can Lor still control the litigation?  Or does the Lee have a complete, unfettered right to sue infringers as if the Lor no longer has any rights in the patent, and Lor agrees to tag along in any suit in its own name to ensure Lee has SM jurisdiction?

I read a case a while back where CAFC said that even if there were some limitations on the Lee's abilities to do the things outlined above, it could still be held to be actually (legally) an assignment.  I'll see if I can find it.


ETA:  I found this article which is a little dated, but mentions several cases you could look at to see where the license was held to be a "virtual assignment" and some where it was not (even though in those cases, the licensee wanted it to be, for purposes of bringing suit in its own name).

https://www.ipo.org/wp-content/uploads/2013/03/exclusivepatentlicense1.pdf

« Last Edit: 04-10-17 at 04:29 pm by Tobmapsatonmi »
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mersenne

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Re: Tax Treatment of License vs. Assignment
« Reply #2 on: 04-10-17 at 05:17 pm »

Thanks, very helpful!
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