Aggregation of interrelated patents. P owns 10 individual patents that, in combination, can be used to manufacture and sell a successful product. P anticipates that it could earn profits of $25x from the patents based on a discounted cash flow analysis that provides a more reliable measure of the value of the patents exploited as a bundle rather than separately. P licenses all 10 patents to S1 to be exploited as a bundle. Evidence of uncontrolled licenses of similar individual patents indicates that, exploited separately, each license of each patent would warrant a price of $1x, implying a total price for the patents of $10x. Under paragraph (f)(2)(i)(B) of this section, in determining the arm’s length royalty for the license of the bundle of patents, it would not be appropriate to use the uncontrolled licenses as comparables for the license of the bundle of patents, because, unlike the discounted cash flow analysis, the uncontrolled licenses considered separately do not reliably reflect the enhancement to value resulting from the interrelatedness of the 10 patents exploited as a bundle.
§ 1.482-1T(i)(E) Example 5.
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By Internal Revenue Service
Category: US IRC Section 482 on Transfer Pricing, § 1.482-1T Allocation of income and deductions among taxpayers (temporary). | Tag: Actual transaction, Aggregated transactions, Aggregation, Best method rule, Entire arrangement, Example, Form or character of the transaction, Interrelated transactions, Labels, Most appropriate net profit indicator, Patents
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