The stipulation, that Court said, categorically provides that the patents and processes covered in the 1918 contract were transferred to the petitioner before the tax years in question; and there is no reason to believe that when the parties drew their contract they intended to provide for licenses and royalties when they expressly provided for sale and price. Littlefield v. Perry, 21 Wall. 205, 220, 221, 22 L.Ed. 577; United States v. General Elec. Co., 272 U.S. 476-489, 47 S.Ct. 192, 71 L.Ed. 362; Rotorite Corp. v. Commissioner, 7 Cir., 117 F.2d 245; Commissioner v. Hopkinson, 2 Cir., 126 F.2d 406, 409, 410.

Aside from Bloch v. United States, 2 Cir., 200 F.2d 63, which involved a non-resident taxpayer, the weight of authority is clearly against this contention. Myers v. Commissioner, 6 T.C. 258; Kimble Glass Co. v. Commissioner, 9 T.C. 183; Commissioner of Internal Revenue v. Celanese Corp., 78 U.S.App.D.C. 292, 140 F.2d 339; Allen v. Werner, 5 Cir., 190 F.2d 480; Commissioner of Internal Revenue v. Hopkinson, 2 Cir., 126 F.2d 406; Watson v. United States, 10 Cir., 222 F.2d 689; United States v. Carruthers, 9 Cir., 219 F.2d 21; First National Bank of Princeton v. United States, D.C., 136 F. Supp. 818. In Commissioner of Internal Revenue v. Hopkinson, 2 Cir., 126 F.2d 406, it was expressly held that the transfer of full and complete title to patent rights constituted a sale of capital assets although the contract provided for instalment payments of the purchase price based upon a percentage of the manufactured units; and this view was held by the Commissioner until 1950, as will appear from Mimeo, 6490, 1950-1, C.B. 9.

200 F.2d at page 66. It does not appear to be the law even in the Second Circuit that provision for payment in the nature of royalties forbids a conclusion that it was the intent of parties to an instrument transferring patent rights that title should pass. See also Commissioner of Internal Revenue v. Hopkinson, 2 Cir., 1942, 126 F.2d 406. Compare the government's theory of the effect of providing for payment by royalties upon the sale-license issue with § 1235 of the 1954 Internal Revenue Code, 26 U.S.C.A. § 1235(a) which provides that:

The fact that the sales price is based upon production does not prevent the transaction from being a sale. Edward C. Myers, 6 T.C. 258; Vincent A. Marco, 25 T.C. 544 (appeal dismissed C.A. 9); Commissioner v. Hopkinson, (C.A. 2) 126 F.2d 406; and United States v. Carruthers, (C.A. 9) 219 F.2d 21. The respondent in support of his argument cites Block v. United States, (C.A. 2) 200 F.2d 63, certiorari denied 345 U.S. 935, where on facts similar in some respects to those involved in the instant case, it was held that amounts paid to nonresident aliens constituted royalties taxable under section 211(a), I.R.C. 1939.

One not engaged in holding patent rights "`primarily for sale to customers in the ordinary course of his trade or business,'" 6 T.C. 266, as distinguished from a "professional" inventor who is so engaged.See Kronner v. United States, 126 Ct. Cl. 156, 110 F. Supp. 730; Allen v. Werner, 190 F.2d 840 (C.A. 5th Cir.). The Commissioner's position was sustained by the Second Circuit in Bloch v. United States, 200 F.2d 63. Prior to 1946, several courts had taken the same position. Commissioner v. Celanese Corp., 78 U.S.App.D.C. 292, 140 F.2d 339: Commissioner v. Hopkinson, 126 F.2d 406 (C.A. 2d Cir.).The relevant portions of § 1235 are: "A transfer (other than by gift, inheritance, or devise) of property consisting of all substantial rights to a patent, or an undivided interest therein which includes a part of all such rights, by any holder shall be considered the sale or exchange of a capital asset held for more than 6 months, regardless of whether or not payments in consideration of such transfer are — "(1) payable periodically over a period generally coterminous with the transferee's use of the patent, or "(2) contingent on the productivity, use, or disposition of the property transferred."

The assignment represents full divestiture while a mere license bespeaks continued control of the heart of the patent by the owner. See Commissioner v. Hopkinson, 126 F.2d 406, 409-410 (C.A. 2, 1942); E. I. Du Pont de Nemours Co. v. United States, supra, 288 F.2d at 911-912, 153 Ct.Cl. at 287-289. To the same general effect, see Watkins v. United States, 252 F.2d 722, 723, 725 (C.A.2), cert. denied, 357 U.S. 936, 78 S.Ct. 1384, 2 L.Ed.2d 1550 (1958); Rollman v. Commissioner, 244 F.2d 634, 639, 640 (C.A.4, 1957); Watson v. United States, 222 F.2d 689, 691, 692 (C.A.10, 1955); Gershwin v. United States, 153 F. Supp. 477, 478, 480, 139 Ct.Cl. 722, 723, 726 (1957); Kronner v. United States, 110 F. Supp. 730, 733-734, 126 Ct.Cl. 156, 163 (1953); A.E. Hickman, 29 T.C. 864, 872, 874 (1958); Carroll Pressure Roller Corp., 28 T.C. 1288, 1293 (1957); Rose Marie Reid, 26 T.C. 622, 632 (1956); Edward C. Myers, 6 T.C. 258, 263-264 (1946); Parke, Davis Co., 31 B.T.A. 427, 430-432 (1934).

Instead, it argues that prices may validly be indeterminate and measured by a fixed percentage of gross receipts over periods indefinite in time, that a conditional sale of property so fashioned would be valid under state law, and that such transactions have been held to qualify as long-term sales of capital assets under the Federal income tax laws. The indeterminate price or consideration cases are for the most part those involving unlimited use of intangible property, such as patents, United States v. Dresser Industries, Inc., 324 F.2d 56 (5th Cir. 1963); Merck Co. v. Smith, 261 F.2d 162 (3d Cir. 1958); Dairy Queen of Oklahoma, Inc. v. Commissioner of Internal Revenue, 250 F.2d 503 (10th Cir. 1957); Commissioner of Internal Revenue v. Hopkinson, 126 F.2d 406 (2d Cir. 1942); Coplan, 28 T.C. 1189 (1957); Rose Marie Reid, 26 T.C. 622 (1956); Myers, 6 T.C. 258 (1946); copyrights and literary compositions, Stern v. United States, 164 F. Supp. 847 (E.D.La. 1958), aff'd 262 F.2d 957 (5th Cir. 1959), cert. denied, 359 U.S. 969, 79 S.Ct. 880, 3 L.Ed.2d 836, trade names, Rose Marie Reid, supra; and various situations involving stock sales, Burnet v. Logan, 283 U.S. 404, 51 S.Ct. 550, 75 L.Ed. 1143 (1931); Tuttle v. United States, 101 F. Supp. 532, 122 Ct.Cl. 1 (1951); Haynes v. United States, 50 F. Supp. 238, 100 Ct.Cl. 43 (1943); Marshall's Estate, 20 T.C. 979 (1953); Nicholson, 3 T.C. 596 (1944). It is often difficult to determine the value of intangible property, and what, therefore, a fair price would be. It is also true that, when there is a bona fide sale, the mere fact that the purchase price may be payable in installments over a period of time does not necessarily serve to defeat the right to capital gains treatment, Commissioner of Internal Revenue v. Br

Section 1235 is substantially a statement of the case law on the subject at the time of its enactment in 1954, although the Commissioner of Internal Revenue had shown some reluctance to recognize the rulings. Waterman v. Mackenzie, 138 U.S. 252, 256, 11 S.Ct. 334, 34 L.Ed. 923; Kavanagh v. Evans, 188 F.2d 234, C.A. 6th; United States v. Carruthers, 219 F.2d 21, C.A. 9th; Commissioner v. Hopkinson, 126 F.2d 406, C.A. 2nd; Commissioner v. Celanese Corp., 140 F.2d 339, C.A.D.C. The Commissioner, of course, recognizes in the present case, now covered by Section 1235, that the transfer of all substantial rights to a patent by a holder shall be considered the sale or exchange of a capital asset held for more than six months, even though the payment therefor is not made at the time of the transfer, but is made periodically later over a period of time. His contention in this case is that the rights in the patent, which were transferred by the taxpayer and Dr. Cooksey, was not a transfer "of all substantial rights to a patent," as is required by the statute, but that in making the transfer the taxpayer and Dr. Cooksey retained the right to manufacture the filters under the patent.

The question of the royalties qualifying for capital gains treatment cannot now be decided. The cases of Dairy Queen of Oklahoma, supra; Commissioner of Internal Revenue v. Hopkinson, 2 Cir., 1942, 126 F.2d 406; and Jones v. United States, D.Col., 1951, 96 F. Supp. 973, affirmed, 10 Cir., 1952, 194 F.2d 783 make it clear that capital gains treatment is not lost by providing for payments contingent on future sales. However, we are unable to determine from the record, nor apparently did the Tax Court consider the question, whether the royalties were a part of the sales price of the subfranchises.

However, other courts have accorded substantial weight to the parties' own characterization and treatment of the agreement as indicative of what the parties intended. Commissioner of Internal Revenue v. Celanese Corp. of America, 78 U.S.App.D.C. 292, 140 F.2d 339, 340-341; Commissioner of Internal Revenue v. Hopkinson, 2 Cir., 126 F.2d 406, 408-410; Kimble Glass Co. v. Commissioner (1947), 9 T.C. 183, 185-186, 190. A patent is an intangible asset. It is usually transferred by an assignment. If there is a transfer of all the substantial rights in a patent, it is considered an assignment and qualifies the transferor for capital gains treatment.