If on the other hand Sci-Med were merely financing Teva's R D in exchange for royalties, there would be no possible argument for a deduction under section 174(a)(1). The $855,000 would not be an expense of Sci-Med but a capital contribution, equivalent to the purchase price of a share in an oil lease — Elmer South's original business — and of course not deductible. Compare section 1235(a) of the Internal Revenue Code, which treats royalty payments in exchange for the transfer of patent rights as capital gains. See Hofferbert v. Briggs, 178 F.2d 743 (4th Cir. 1949). The only difference between the hypothetical case and our case is that Sci-Med had a prospect of recovering not only royalties but also byproducts, and if that happened and it decided to develop the byproducts rather than sell or license their development to another firm like Teva, it would be in the pharmaceutical business.

This did not, we think, result in the transferor retaining an economic interest in the property sold. It was merely a covenant on behalf of the transferee to pay additional consideration to the transferor. Thomas v. Perkins, 301 U.S. 655, 57 S.Ct. 911, 81 L.Ed. 1324; Helvering v. Elbe Oil Land Co., 303 U.S. 372, 58 S.Ct. 621, 82 L.Ed. 904; Helvering v. O'Donnell, 303 U.S. 370, 58 S.Ct. 619, 82 L.Ed. 903; Hofferbert v. Briggs, 4 Cir., 178 F.2d 743; Vermont Transit Co. v. Commissioner Internal Revenue, 2 Cir., 218 F.2d 468; Maude W. Olinger, 27 T.C. 93. In Helvering v. Elbe Oil Land Co., supra, the facts are very similar to those in the instant case.

The principle is well established that when the owner of a patent assigns it in consideration of royalty payments, the receipt of such payments is properly treated as capital gains realized from the sale of capital assets. Hofferbert v. Briggs, 4 Cir., 178 F.2d 743, 744; Commissioner of Internal Revenue v. Celanese Corporation of America, 78 U.S. App.D.C. 292, 140 F.2d 339, 341; Allen v. Werner, 5 Cir., 190 F.2d 840, 842; United States of America v. Carruthers, 9 Cir., 219 F.2d 21, 25. In Kavanagh v. Evans, 6 Cir., 188 F.2d 234, at page 236, where it was held that gains from the transfer of patent rights were taxable as proceeds from the sale of capital assets, the Court, in referring to the patentee said:

And inasmuch as Watson held the invention for more than six months prior to the transfer, and did not hold it primarily for sale to customers in the ordinary course of his trade or business, the income which the taxpayers received in the form of royalties from the corporation constituted long-term gain as distinguished from ordinary income. Hofferbert v. Briggs, 4 Cir., 178 F.2d 743; Kavanagh v. Evans, 6 Cir., 188 F.2d 234; Allen v. Werner, supra; Kronner v. United States, supra; Edward T. Myers, supra. The judgment is reversed and the cause is remanded with directions to enter judgment for the taxpayers.

' (Emphasis supplied.) In Hofferbert v. Briggs, 178 F.2d 743 (4th Cir. 1949), the Court in discussing whether royalties received by the plaintiff from certain inventions and patents were capital gains and not taxable as income, pointed out:         'Whether the contract be regarded as providing additional payment for inventions to which the corporation was already entitled under the prior contract or as providing for the payment for inventions to which its rights had not as yet been perfected, there can be no question but that the royalties were to be paid in consideration of the transfer of the inventions and the patents covering them, and not for services rendered the corporation which were covered by a separate provision of the contract.

Perhaps a sale which provides for contingent payments of indeterminate sums and reversion does violence to the doctrinaire concepts of what a sale should be. But the tax cases interpreting Section 117 of the Code have so long and so consistently held such contracts to be sales that the Internal Revenue Service itself in a recent ruling is now indicating its acquiescence in this classification. Waterman v. Mackenzie, 138 U.S. 252, 11 S.Ct. 334, 34 L.Ed. 923; Rude v. Westcott, 130 U.S. 152, 9 S.Ct. 463, 32 L. Ed. 888; Lawrence v. United States, 5 Cir., 242 F.2d 542; Massey v. United States, 7 Cir., 226 F.2d 724; Watson v. United States, 10 Cir., 222 F.2d 689; Allen v. Werner, 5 Cir., 190 F.2d 840; Briggs v. Hofferbert, D.C., 85 F. Supp. 941, 944, affirmed 4 Cir., 178 F.2d 743; Commissioner of Internal Revenue v. Celanese Corp., 78 U.S.App.D.C. 292, 140 F.2d 339; Commissioner of Internal Revenue v. Hopkinson, 2 Cir., 126 F.2d 406; First National Bank of Princeton v. United States, D.C., 136 F. Supp. 818; Gershwin v. United States, Ct.Cl., 153 F. Supp. 477, 480; Herman Shumlin, 16 T.C. 407; Carl G. Dreymann, 11 T.C. 153; Edward C. Myers, 6 T.C. 258. I.R.S., TIR-81, 6-27-58.

Roe v. United States, D.C.S.D.Tex., 138 F. Supp. 567, at page 570, and Kronner v. United States, 110 F. Supp. 730, 734, 126 Ct.Cl. 156. An assigning patentee may have an interest in or be employed by a corporate assignee, Hofferbert v. Briggs, 4 Cir., 178 F.2d 743; and the purchase price for the patents may be paid in royalties. Watson v. United States, 10 Cir., 222 P.2d 689; First National Bank of Princeton v. United States, D.C.D.N.J., 136 F. Supp. 818, 822.

As an amateur inventor insofar as the toothbrush patents are concerned, the patents were a capital asset under 26 U.S.C.A. § 117(a)(1). Evans v. Kavanagh, D.C.E.D. Mich. 1949, 86 F. Supp. 535, 538, affirmed sub nom. Kavanagh v. Evans, 6 Cir., 1951, 188 F.2d 234; Hofferbert v. Briggs, 4 Cir., 1949, 178 F.2d 743, 745. The similarity of the properties held by Prof. Cooke in his dual capacities as alleged professional and amateur inventor should not be permitted to blur the distinction between capital gain and ordinary income.

I am content to cite the following cases. Samuel Diescher, 36 B.T.A. 732; Carl G. Dreymann, 11 T.C. 153; Edward C. Myers, 6 T.C. 258; Briggs v. Hofferbert, D.C., 85 F. Supp. 941, affirmed 4 Cir., 178 F.2d 743; Evans v. Kavanagh, D.C., 86 F. Supp. 535, affirmed 6 Cir., 188 F.2d 234.

However, in general so far as patents are concerned, if the income-producing activity in connection with a patent is an isolated or casual affair or a mere hobby or recreation, the patent is a capital asset. John W. Hogg, 1944, 3 T.C.M. 212; Maurice B. Cooke, 1945, 4 T.C.M. 204; Myers v. C.I.R., 1946, 6 T.C. 258; U.S. v. Adamson, 9 Cir., 161 F.2d 942; Hofferbert v. Briggs, 4 Cir., 178 F.2d 743. The record shows that Taxpayer had been engaged over a period of years in design engineering work.