WHAT IS INTELLECTUAL PROPERTY (IP)?
Intellectual property is a general term for the set of intangible assets owned and legally protected by a company from outside use or implementation without consent. Stemming from its ability to provide a firm with competitive advantages, defining IP as an asset aims to provide it the same protective rights as physical property. Obtaining such protective rights is critical as it prevents replication by potential competitors—a serious threat in a web-based environment or the mobile technology sector, for example.
An organization that owns IP can realise value from it in several ways, namely through utilizing it internally—for its own processes or provision of goods and services to customers—or sharing it externally. The latter can be achieved through legal mechanisms such as royalty rights.
4 TYPES OF IP AS AN ASSET CATEGORY
Copyrights, among the most widely used types of IP, are a form of protection granted to the authors of original works of authorship, both published and unpublished. A copyright protects a tangible form of expression (i.e. a book, work of art, or music), rather than the idea or subject matter itself.
Trademarks are another common type of IP.
A trademark is any word, name, symbol, or device, or any combination, used, or intended to be used, in commerce to identify and distinguish the goods of one manufacturer or seller from goods manufactured or sold by others.
A patent is defined as the grant of a property right to the inventor, providing the owner the right to exclude others from making, using, offering for sale, selling, or importing the invention. Patentable items may include objects or processes such as new technology or business methods, but excludes more abstract items such as web sites or ideas.
Any idea or fact that is not disclosed by a business comprises the fourth type of intellectual property: trade secrets. A trade secret is a unique form of IP in that it does not have a defined time horizon. A trade secret, by definition, is proprietary or business-related information that a company or individual uses or to which they possess exclusive rights.
WHY VALUE INTELLECTUAL PROPERTY?
Changes in the global economic environment have influenced the development of business models where IP is a central element establishing value and potential growth. In addition to these systemic changes, U.S. and international accounting practices place pressure on firms to recognize and value all identifiable intangible assets of a firm as part of a transaction (in a merger or acquisition, for example).
As a result of these trends, proper valuation of IP, followed by measures to protect that value, have become a key element of the success and viability of a modern firm.