Larry Was the Holder of a Patent on a Video

question 1

Essay

Larry was the holder of a patent on a video game. During 2017, 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 2017, he received $30,000 in royalties. What is the nature and amount of Larry's gain?

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Definitions:

Consent Order

Under the Federal Trade Commission Act, an order under which a company agrees to stop a disputed practice without necessarily admitting that the practice violated the law.

Private Cause

A legal action initiated by an individual or entity for personal reasons or grievances.

Unordered Merchandise

Goods sent to a person without their request, where the recipient is generally not legally obligated to pay for or return the items.

Telephone Charge

A fee assessed for the provision of telephone service, including local and long-distance calls.