54 T.C. 1562">*1563 Respondent determined deficiencies in petitioners' income taxes of $ 7,569.94 and $ 8,556.31 for the taxable years 1963 and 1964, respectively.

In Jacques R. Milberg, 52 T.C. 315">52 T.C. 315 (1969), this Court held that, for the taxable year 1962, petitioner had not transferred all substantial rights to a patent pursuant to section 1235, ¹ and therefore that royalties resulting from the transfer must be treated as ordinary income.

The question to be decided here is whether petitioners are bound by the prior decision by the doctrine of collateral estoppel for taxable years 1963 and 1964.

FINDINGS OF FACT

With one exception the facts of this case are as found by the Court in 52 T.C. 315">Jacques R. Milberg, supra at 315 and 316. The parties1970 U.S. Tax Ct. LEXIS 87">*89 have stipulated that the controversy now before the Court involving the taxable years 1963 and 1964 results from the same facts as did the controversy involving 1962. For convenience the facts set forth in the prior case will be repeated.

Jacques R. Milberg (hereinafter referred to as petitioner) and Elaine K. Milberg are husband and wife, who filed joint income tax returns for the years 1963 and 1964 with the district director of internal revenue, Manhattan, New York. At the time the petition was filed in this case their legal residence was New York City, N.Y.

For more than 30 years prior to the trial in this case, petitioner has been associated in various capacities with businesses manufacturing ladies' underwear. In 1953 petitioner obtained a patent for an improvement he had developed in underwear structure. That patent expires in 1970 (35 U.S.C. sec. 154). Prior to 1958 petitioner tried unsuccessfully to develop the patent and make it profitable.

Fitzgerald Underwear Corp. (hereinafter referred to as Fitzgerald) is a corporation organized under the laws of the State of Georgia. At all times relevant to this proceeding. Fitzgerald has issued1970 U.S. Tax Ct. LEXIS 87">*90 an outstanding 100 shares of stock; prior to August 1958, Sidney Greenberg owned 75 shares and Sam Eastman owned 25 shares.

54 T.C. 1562">*1564 On August 22, 1958, petitioner executed an agreement by which he assigned an undivided one-half interest in the patent to Greenberg "in consideration of $ 1.00 and of other good and valuable considerations." The agreement provided that neither petitioner nor Greenberg could assign or transfer the patent or any right therein, or manufacture, use, or sell the patented invention, without the other's prior written consent.

In September 1959, petitioner and Greenberg, as "Licensors," and Fitzgerald, as "Licensee," executed an agreement whereby Fitzgerald was licensed to manufacture and sell throughout the United States ladies' undergarments using the improvement covered by the patent. The agreement granted the license for the period September 1, 1959, to August 31, 1966, and specifically provided that it was to be nonexclusive and nonassignable. It further provided:

2. The Licensee hereby admits and acknowledges the patentability, novelty and utility of the Invention disclosed in the said Letters Patent, and the validity of the said Letters, and the exclusive1970 U.S. Tax Ct. LEXIS 87">*91 right, title and interest of the Licensors in and to said Invention and said Letters Patent.

Under the license, Fitzgerald was to pay petitioner and Greenberg a royalty based on the number of items manufactured and sold under the agreement. There was no provision for a minimum royalty. In the event of Fitzgerald's failure to pay the royalties or other breach of the agreement, or its bankruptcy or insolvency, petitioner and Greenberg had the right to terminate the agreement. The agreement was prepared by an attorney at Greenberg's direction.

The only item before this Court, and not present in the prior case, is an agreement entered into in 1965. This new agreement was for the purpose of extending the term of the license to Fitzgerald to 1970, coinciding with the patent's expiration date. The terms of the agreement, in all other respects, were identical to the original agreement entered into in 1959.

OPINION

The question presented is whether petitioner, having litigated the precise issue with respect to taxable year 1962, is precluded by collateral estoppel from receiving a decision on the merit.

The issue before the Court in 52 T.C. 315">Jacques R. Milberg, supra,1970 U.S. Tax Ct. LEXIS 87">*92 was whether all substantial rights to petitioner's interest in a patent had been transferred, thus entitling him to capital gain treatment under section 1235. In holding that all substantial rights in petitioner's interest in the patent had not been transferred, the Court said:

it is clear that under the license agreement, the petitioner and Mr. Greenberg retained all rights to the patent for the period following the expiration of the license in 1966 and prior to the patent's expiration in 1970. The petitioner argues 54 T.C. 1562">*1565 that if the patent were successful, Mr. Greenberg, who had the power to prevent the granting of a license to anyone else, could and would insist upon an extension of the license to Fitzgerald. However, this argument overlooks the facts that the petitioner also had the power [emphasis ours] to block an extension of the Fitzgerald license and that he could [emphasis ours] use his power to bargain for some different arrangement. [52 T.C. 315">52 T.C. 318.]

It was petitioner's possession of the power to insist on a new agreement and his ability to exercise it to his advantage that was the key to the decision.

The Court's second1970 U.S. Tax Ct. LEXIS 87">*93 and independent ground for its decision was that even during the term of the license, the nonexclusive nature of the assignment was sufficient to make a finding that all substantial rights had not been transferred. The Court, granting that Greenberg may have intended that no other license would be made by him and petitioner, said:

Although the petitioner could not, acting on his own, grant a license to anyone else, he and Mr. Greenberg could do so, acting together, and despite Mr. Greenberg's interest in Fitzgerald and his declared intent as of 1959, we cannot find that there was no substantial possibility of their agreeing to do so. * * * The fact that no other use was made of the patent does not negate the existence of these possibilities. In our view, the right to take advantage of the alternative uses of the patent was of substantial value. [52 T.C. 315">52 T.C. 318, 319.]

A reading of the case makes it quite clear that Greenberg's intent and veto power were not controlling in the decision.

It is petitioners' contention in the present case that additional facts pertaining to taxable years 1963 and 1964 are present and preclude application of collateral estoppel. 1970 U.S. Tax Ct. LEXIS 87">*94 They argue that the agreement entered into in 1965, while not having any direct effect on the tax years in question, carries evidential weight that at the time of the original license agreement, September 1, 1959, it was Greenberg's intention that the patent should and would not be licensed to anyone but Fitzgerald until its expiration in 1970. Petitioners urge that Greenberg would carry out this intent by exercise of the veto power received in the 1958 assignment of the one-half interest on the patent, i.e., by refusing to give his written consent to a license to anyone but Fitzgerald. The intention and ability to prevent license to others during the 4 years between 1966 and 1970, as well as any other time during the period of the license, are said to dilute any power retained by petitioner to such an extent as to render it valueless. On this basis petitioners argue that all substantial rights have been transferred within the meaning of section 1235. Apparently petitioners' argument is that Greenberg signed the 1965 agreement; that this tends to show that his intention in 1959 and thereafter was for the license to run in favor of Fitzgerald until expiration of the patent in 1970 U.S. Tax Ct. LEXIS 87">*95 1970, and to the exclusion of anyone else until then; and that he would have exercised his veto 54 T.C. 1562">*1566 to accomplish this intent. Assuming that the executing of the subsequent agreement is relevant to the parties' intention some 6 years prior, it is at most evidence of Greenberg's intent which, as pointed out above, was not material to the prior decision.

Further, the 1965 agreement now urged on this Court as a new fact to be considered was available when 52 T.C. 315">Jacques R. Milberg, supra, came to trial in January of 1968. We need not speculate as to why the agreement was not offered as evidence in the prior case, but since it was not petitioners cannot now "have a question considered on its merits a second time merely because they failed to produce all the facts the first time." Cory v. Commissioner, 159 F.2d 391">159 F.2d 391 (C.A. 3, 1947), affirming a Memorandum Opinion of this Court; see also Gillespie v. Commissioner, 151 F.2d 903">151 F.2d 903 (C.A. 10, 1945), affirming a Memorandum Opinion of this Court, certiorari denied 328 U.S. 839">328 U.S. 839 (1946).

The guidelines for applying collateral1970 U.S. Tax Ct. LEXIS 87">*96 estoppel in a tax case are clearly laid down in Commissioner v. Sunnen, 333 U.S. 591">333 U.S. 591 (1948). It was there held that the doctrine must only be applied where "the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts and applicable legal rules remain unchanged." (Emphasis added.)

There has been no change in law or legal climate regarding whether all substantial rights have been transferred under section 1235 since May 27, 1969, the date Jacques R. Milberg was filed. See 333 U.S. 591">Commissioner v. Sunnen, supra.

Since the only new fact is the 1965 agreement, which cannot be considered a change in controlling facts, we hold that petitioners are collaterally estopped from receiving a decision on the merits.

Decision will be entered for the respondent.