What is intellectual property? The easiest way to answer this question is to take a roundabout approach: works of art, designs for new technologies, computer programs, and even catchy advertising slogans are all ideas. Such ideas have economic value. Ownership of them is called intellectual property (IP). Just like physical assets, IP has the potential to generate income for its creators or owners. Some of today’s most valuable companies (e.g. Apple, Microsoft, or Alphabet) generate the majority of their profits from IP.
What is intellectual property?
The question “What is intellectual property?” is primarily a legal question, but it also has financial and accounting aspects. The term “intellectual property” refers to intangible creations of the mind, such as literary and artistic works, netherlands email list designs, circuit diagrams, brand names, and formulas. Intellectual property assets fall into several subcategories, including copyrights, patents, trademarks, and trade secrets.
The legal protection of intellectual property aims to encourage innovation, what is working capital? definition and guide while at the same time allowing creators to benefit exclusively from the commercial use of their own works for a certain period of time without fear of imitators.
What is intellectual property? The accounting aspects
To answer the question “what is intellectual property,” it is also necessary to look into the subject of financial accounting. Although many intellectual property assets do not appear on a company’s balance sheet, they usually fall into a category called “long-term assets.” This category represents a company’s long-term income-generating investments. For example, cyprus business directory a company that owns the publishing rights to a song receives royalties from third parties who want to use the song for promotional purposes. The same is true for a software company that licenses a computer program to third parties.
Because some types of intellectual property, such as patents, have expiration dates, they lose value over time and are depreciated over a period of time. Depreciation is an accounting method that reflects the declining value of an asset, similar to how a computer or truck wears out with use. By depreciating the value of a patent over the length of its exclusivity period (the time before it becomes publicly available), a patent owner can reduce his or her taxable income by deducting a percentage of the declining value of his or her patent.
For example, a company may hold the exclusive right to a patent for only 20 years. A straight-line amortization model would divide the total value of the patent by 20. For each year of exclusivity, the company would deduct 1/20 of the total value from its income for tax purposes. In other cases, usually for tax reasons, some of the amortization might be brought forward at the beginning of the patent’s term. For intellectual property rights that do not have an expiration date, such as trademark rights of slogans, logos and brand names, companies have no way to amortize the value because the rights do not expire.
What is intellectual property? The four most important types briefly explained
Intellectual property can be divided into several categories. Four of the most common forms of intellectual property are:
copyright
Copyright grants the creator of an original work exclusive rights to use and distribute it, usually for a limited time (usually 70 years after the creator’s death), so that he or she and his or her estate can be compensated for their intellectual investment. This protection applies to a wide variety of creative, intellectual, or artistic forms or works. Works include:
- Literary: books, articles, poems, plays and other written content
- Artistic: paintings, drawings, sculptures, photographs, etc.
- Music: compositions, songs, sheet music and performances
- Audiovisual: films, television shows and commercials
- Architectural: building designs and architectural plans
- Software: software programs and computer code