Debitoor Dictionary

Accounting terms explained in a simple way

Over 150 Articles for Founders and Entrepreneurs

  1. Intangible assets
  2. Copyright
  3. Patent
  4. Trade mark

Intellectual property – What is intellectual property?

Intellectual property, or IP, refers to the ownership of unique intellectual goods such as inventions, logos, brand names, and product desgins.

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IP only refers to something you have created; as such, ideas themselves are not intellectual property. To be considered as intellectual property, they must be realised in a more physical way. For example, an idea for an invention is not intellectual property, but the patent would be.

Intellectual property can:

  • be sold or transferred to another owner
  • have more than one owner
  • belong to individuals or businesses

Intellectual property rights and laws

The main purpose of IP law is to encourage the creation of intellectual goods and prevent ideas or inventions from being copied or stolen. Because individuals and businesses are given rights to their ideas and inventions, they are able to profit from them. This therefore gives economic incentive to create and develop a range of intellectual goods.

Some kinds of protection for IP are given automatically, but you will need to apply for other kinds. For example, any art, photography, music, and web content you create is automatically protected by copyright, whilst you will need to apply for trademarks or patents to protect inventions, products, product names, and logos.

Intellectual property and self-employment

If you create intellectual property whilst you’re self-employed, you usually have the rights to your work, even if it was commissioned by another person. The only exception is if you have a contract which explicitly states that your employer has the rights.

If you are an employee and permanently work for someone else, you normally wouldn’t own the rights to IP you created as part of your job.

Intellectual property in accounting

In accounting, intellectual property is considered an intangible asset, and, when possible, should be recorded as such on the balance sheet.

Copyrights, trademarks, and patents should be recorded on the balance sheet and other financial statements at or below, cost price. These assets should be amotised over their useful life. These assets should be recorded separately from goodwill; although goodwill is also a type of intangible asset, it is not classified as intellectual property.

Internally developed IP (such as trade secrets) should not be recorded on the balance sheet as they do not have direct costs or a clear market value.

Types of intellectual property

Some of the most common types of intellectual property patents, trade marks, trade secrets, industrial designs, and copyrights.

Patents

A patent is a form of intellectual property rights granted to an inventor by a government. If a patent is granted, an inventor can stop others from recreating, using, leasing, or selling the invention without their permission. A patent is only valid for a limited period of time and within a specific territory.

Trade marks

A trade mark identifies products and services; trade marks can take many forms, including logos, colours, words, or designs. If you are granted a trade mark, you can take legal action against anyone who uses or copies your brand without permission.

Copyrights

Copyright is a legal right which gives the owner of certain types of intellectual property control over their work. Copyright covers intellectual property such as artistic or literary works, films, computer programmes.