Larry Was the Holder of a Patent on a Video

question 11

Essay

Larry was the holder of a patent on a video game.During 2013,he sold all substantial rights in the patent for $365,000 in cash and a 3% royalty on the purchaser's first $10,200,000 of sales each year related to the product in which the patent is incorporated.Larry had not reduced the patent to practice.He had a $86,000 basis for the patent.During 2013,he received $30,000 in royalties.What is the nature and amount of Larry's gain?

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Definitions:

Securities Exchange Act

The Securities Exchange Act is a U.S. federal law that governs the trading of securities, such as stocks and bonds, to protect investors against fraud and to regulate the securities industry.

Scienter

A legal term referring to the knowledge of wrongdoing, particularly in cases of fraud or deceit.

Fraud

The intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right.

Scienter

Knowledge of the wrongful nature of one's actions, particularly in the context of securities fraud.