Thus, exclusive geographical transfers automatically qualified as a ‘sale’ because of Waterman. Marco v. Commissioner, 25 T.C. 544 (1955); see Watson v. United States, 222 F.2d 689, 690 (10th Cir. 1955); Reid v. Commissioner, 26 T.C. 622, 632 (1956); cf. Kimble Glass Co. v. Commissioner, 9 T.C. 183 (1947). In Rodgers v. Commissioner, 51 T.C. 927 (1969), this Court first had occasion to pass upon the effect of the enactment of section 1235 on an exclusive transfer of patent rights within a geographical area.

A transfer which is not exclusive, or is limited (other than territorially), becomes a license and not an assignment. Waterman v. Mackenzie, supra; Watson v. United States, 10 Cir., 1955, 222 F.2d 689; Vincent A. Marco, 1955, 25 T.C. 544, 548; Edward C. Myers, 1946, 6 T.C. 258. "Where he [the patentee] transfers less than all three rights to make, use and vend for the term of the patent, or transfers them nonexclusively, the transfer is a mere license and does not convey any title in the patent itself." Kimble Glass Co., 1947, 9 T.C. 183, 190, quoted in William M. Bailey Co., 15 T.C. 468 at page 484.

However, it is well established that petitioners may allege, and try to show, errors in such items which were not so readjusted. Vincent A. Marco, 25 T.C. 544(1955). Accordingly, the petitioner may attempt to show that the actual fair market value of the note at the time of its distribution was less than the amount reported by him in the 1968 letter to the IRS.

Clearly, under such circumstances, petitioner would be entitled to resist respondent's determination on any ground, irrespective of whether it had formed the basis of a claim on their tax return or of the determination of a deficiency by respondent. Vincent A. Marco, 25 T.C. 544, 549 (1955); Estate of Mary E. Jackman, 2 B.T.A. 515 (1925). Prior to 1966, however, the situation with respect to net operating loss carrybacks was more restricted.

Clearly, under such circumstances, petitioner would be entitled to resist respondent's determination on any ground, irrespective of whether it had formed the basis of a claim on their tax return or of the determination of a deficiency by respondent. Vincent A. Marco, 25 T.C. 544, 549 (1955); Estate of Mary E. Jackman, 2 B.T.A. 515 (1925). Prior to 1966, however, the situation with respect to net operating loss carrybacks was more restricted.

Whether the payment is made in a lump sum or over a period of time in amounts based upon the use of the invention by the grantee is immaterial to this determination. Arthur C. Ruge, 26 T.C. 138 (1956); Vincent A. Marco, 25 T.C. 544 (1955). To determine the quantum of interest in the five Kempthorne patents transferred to CAFCAN under the Canadian agreement, we must look first to the legal relationships established by the Kempthorne agreement.

Petitioner points out that an ‘exclusive license to make, use and sell’ has long been considered to constitute a ‘sale’ of a patent. Vincent A. Marco, 25 T.C. 544 (1955). Petitioner states that even though the patents issued pursuant to the applications specifically referred to in the agreement had expired, Falk Corp. was using improvements with respect to which a patent was issued to petitioner in 1953 and that because of use of these improvements was required to pay the amounts specified as royalties under the original license agreement and the supplemental agreements.

This Court decided, under section 117 of the 1939 Code, that the exclusive right to manufacture, use, and sell a patented article, limited to a geographical area within the United States, constitutes a capital asset, the proceeds from the sale of which are taxable as capital gain. Vincent A. Marco, 25 T.C. 544 (1955). The Commissioner contends that Vincent A. Marco, supra, decided under section 117 of the 1939 Code, is without continuing validity under section 1235.

Waterman v. Mackenzie, 138 U.S. 252 (1891); Edward C. Myers, 6 T.C. 258. There is ample authority that the exclusive licensing of a patent within a given industry, United States v. Carruthers, 219 F.2d 21 (C.A. 9, 1955), within a limited geographical location, Vincent A. Marco, 25 T.C. 544, appeal to C.A. 9 dismissed now. pros. July 26, 1956, or within a given field of application, William S. Rouverol, 42 T.C. 186 (1964), results in the sale of the patent rather than a license. The Supreme Court, in Waterman v. Mackenzie, supra, after stating the transfer of the exclusive right to make, use, and vend a patented article for the full term of the patent constituted a sale of the patent, said, ‘Any assignment or transfer, short of one of these, is a mere license, giving the licensee no title in the patent, and no right to sue at law in his own name for an infringement.’

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.