Court Opinion

ID: 6915678
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:40:19.307373+00
Date Added: 2024-06-11T16:06:39.188818
License: Public Domain

LEWIS, Circuit Judge
(dissenting).
It seems to me the agreement here considered falls far short of an instrument of sale of a capital asset and constitutes, as the phraseology of the parties indicated to be their intent, a licensing agreement for the marketing of a trademarked article under the strict supervision of the licensor. A franchise cannot be separated from the subject matter of the franchise and if the control of the subject matter, here a dairy product, is retained from manufacture to sale it seems clear that no sale of the franchise itself has been intended or has occurred. The taxpayer seems to have recognized this by his voluntary assessment of his “royalty income” as ordinary income.
In mentioning the provisions of limitation upon the rights granted under the agreement to the grantee, the main opinion dismisses each as a condition subsequent to a contract of sale. I cannot so interpret the contract as each such provision indicates the desire of the grantor to retain control of the product Dairy Queen for the purpose of protecting his franchise and its value. In the Watson 1 case we held that the power to terminate an agreement for failure to produce and sell did not negative a sale because it did “not detract from the effectiveness of the agreement.” The provision in Watson merely assured payment of intended though deferred consideration but did not control the product. The conditions here do. Title to the Dairy Queen machine is retained by the licensor; control is retained over the physical appearance of the outlet; control is retained over the source of the licensee’s dairy supplies, its mix, its operational standards as to quality and cleanliness. The agreement seems to assign but operational function pertaining to the product Dairy Queen and not to assign a franchise. I would, as did the tax court, interpret the parties’ agreement as a grant of a license. Broderick v. Neale, 10 Cir., 201 F.2d 621; Watson v. United States, supra.

. Watson v. United States, 30 Cir., 222 F.2d 689, 691.