Definition: A patent is the exclusive, legal right to use a process or create and sell a product for 20 years. The US government has developed patent laws to give inventors and innovators motivation to keep pursuing new ideas and technology.
The idea behind a patent is that if a person develops a new technology, manufacturing process, or device; he can patent it and prevent others from copying him for 20 years. This means the inventor can protect his creation and capitalize on it during the patent period.
What Does Patent Mean?
Many people get patents, trademarks, and copyrights confused. Patents are only issued for a product design, functionality, or production process. Trademarks are issued for branding rights and copyrights are issued for other intangible property rights like music.
A patent is an intangible asset to a company. Patents are similar to goodwill or natural resource rights. They are not expensed when bought; instead they are amortized of the useful life, which is 20 years.
When a company buys a patent from an inventory or another company, the patent or intangible asset account is debited and the cash account is credited for the purchase. At the end of the period, the patent is amortized by debiting amortization expense and crediting accumulated amortization.
Many large companies, like Intel, have technology departments and research facilities that are dedicated to inventing new products. If Intel applies for a patent on a process or product that is creates, it usually does not capitalize the asset. Instead, Intel just expenses the research and development costs as they are incurred.