What is Intellectual Property?

Intellectual property is a concept or idea that has commercial value and can be protected with a copyright, patent, or trademark. A business may go to great lengths to obtain legal protections for its intellectual property, and take legal action to pursue anyone using these assets without permission.

Examples of Intellectual Property

The main types of intellectual property are patents, trademarks, copyrights, and trade secrets. Patents protect inventions from illegal use by others, giving their inventors exclusive use for a period of time. Trademarks protect logos, words, symbols, colors, and sounds that are being used to distinguish a firm’s products or services. Copyrights protect the rights of the creator of an original work, such as a novel, poem, or song. Trade secrets are the intellectual property of a business that are not public knowledge, have economic value, and carry information - such as a recipe or a production process.

How to Value Intellectual Property

The value of intellectual property is probably not stated in a company’s balance sheet, since accounting conventions limit the situations in which these assets can be recorded. Instead, the value of intellectual property is likely to be reflected in the market value of a company’s shares, as long as investors are cognizant of a firm’s intellectual property.

Accounting for Intellectual Property

The cost of intellectual property that is developed internally is charged to expense as incurred. However, the filing cost to obtain a copyright or patent relating to internally-generated intellectual property can be capitalized and then amortized over its useful life. Intellectual property that is obtained as part of an acquisition can be capitalized, and is amortized over its useful life.