Retaining too much control over a company costs an inventor a tax benefit.
The Royalties he got from patent transfers do not qualify for capital gains treatment.
Inventors who sell to an unrelated person their entire interest in a patent they created before commercial use of it begins, can treat the proceeds as long-term capital gains.
A sale to a firm in which you own 25% or more does not qualify. An inventor sold patents to a firm in which he had a 24% stake.
An appeals court nixed capital gains treatment because, despite his minority interest and the fact that the patent transfer document transferred all rights in the patents, the seller actually had control of the company.
He alone made all of the firm’s decisions regarding licensing and patent transfers.
The other shareholders were friends who did not participate.
Cooper, 9th Cir.