With the incidence of high personal surtax rates, a patentee is ordinarily interested in deriving the greatest monetary return after taxes, measured in proportion to the extent of use over what he expects to be the increasingly productive life of the intangible right evidenced by his patent, without surrendering his option to reclaim the patent in event of insolvency or lack of diligence on the part of the person to whom he transfers the patent for exploitation. Although ideal for these purposes, the favorable capital gain status under section 117(a) of the Internal Revenue Code, requiring recognition of only fifty per cent of gains resulting in any one year from· the sale or exchange of property held over six months, is not only difficult for such a patent owner to achieve, but expensive to maintain, in view of the Treasury's persistent efforts to have the courts overrule, or at least narrowly limit application of, the Edward C. Myers case, which is the leading authority relied upon by patentees seeking capital gain rather than ordinary income treatment of proceeds from transfers with price payable in installments measured by the transferee exploiter's production, sale or use under a patent.
Ruth E. Riddell,
PATENT ROYALTIES AS CAPITAL GAINS UNDER I.R.C., SECTION 117(a),
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol50/iss7/3