Question
From: (redacted)
Sent: Friday, December 09, 2005 2:43 PM
To: Verne,B. Michael
Subject: USOperations
Dear Mike:
I have somequestions concerning whether certain license fee payments are to be included inItem 5 of the notification form as revenue derived from US operations. Ithought it would be helpful briefly to describe the client's activities beforespeaking with you.
Our client, a US corporation, develops and markets engineering software. Theclient licenses its software products to customers in the US and outside the US. The intellectual property covering thecore software products ("Core Products") is held by a US subsidiary. The client also has secondary software products("Secondary Products"). The intellectual property covering theSecondary Products are held by a Canadian subsidiary and a UK subsidiary.
The clientlicenses the products in the following ways:
Sales in the US
1. The clientlicenses its Core Products directly to customers in the US, and receives 100% of the license fees. We will include thisrevenue in Item 5.
2. The clientlicenses its Core Products indirectly through third-party distributors tocustomers in the US, and receives 65% of the license fees.We will include the 65% received by the client in Item 5.
3. The clientlicenses its Secondary Products covered by the non-US IP directly to customersin the US, and receives 60% of the license fees(the remaining 40% is paid by the client to its non-US subsidiaries). Am Icorrect that we include only the 60% received by the client in Item 5?
4. The clientlicenses its Secondary Products covered by the non-US IP indirectly throughthird party distributors to customers in the US, andreceives 25% of the license fees (the remaining 75% is split between thedistributor and the non-US subsidiaries). Am I correct that we include only the25% received by the client in Item 5?
Sales Outsidethe US
5. The clientlicenses its Core Products directly to customers outside the US, and receives 100% of the license fees. Am I correct that weinclude this revenue in Item 5?
6. The clientlicenses its Core Products indirectly, either through its non-US subsidiariesand/or third-party distributors, to customers outside the US, and the client receives 65% of the license fees. Am I correctthat we include only the 65% received by the client in Item 5?
7. The clientlicenses the Secondary Products covered by the non-US IP indirectly throughthird party distributors to customers outside the US, and the client receives 25% of the license fees (the remaining75% is split between the third-party distributor and the non-US subsidiaries thathold the non-US subsidiaries). Am I correct that we include only the 25%received by the client in Item 5?
8. The client'snon-US subsidiaries, either directly or through third-party distributors,license the Secondary Products covered by the non-US IP to customers outsidethe US. The client receives no license fee. AmI correct that we exclude all of the license fees derived by the client'snon-US subsidiaries under this scenario from Item 5?
I'll plan to callyou later today, or if it is more convenient for you, will be happy tocorrespond through email.