Techniques to Turn Intellectual Property into More Profitable Assets

Journal of Accountancy, September 2001 | Go to article overview

Techniques to Turn Intellectual Property into More Profitable Assets


Patents, copyrights, trademarks and trade secrets are legally protected rights referred to collectively as intellectual property (IP), a major component of intellectual capital. As decisions about investment in and commercial exploitation of IP become increasingly critical to a business's success, CPAs can contribute to a company's efforts to maximize the value of IP assets. CPAs are trusted business advisers who bring objectivity to the process of quantifying the value of intangible property such as IP.

A thorough understanding of a company's IP portfolio is critical for the development of a strategic IP management system, and CPAs who understand a company's business plan are in a good position to help. There are proven techniques for managing IP that will turn knowledge into profits, and CPAs can offer the following IP management service activities to direct a company's efforts to obtain maximum value of its IP assets:

* Prepare a comprehensive assets inventory identifying each property right in the company's IP portfolio, the remaining term of legal protection and its relative value to the enterprise, such as core vs. noncore technology, use in existing products or services or anticipated future use.

* Consult with a licensing expert to develop a strategy for licensing selected IP to targeted companies. Wasting patented technology simply because a company has no immediate product use for it is unnecessary at best. A strategic IP management system generally includes a licensing policy and a database/tracking system for IP and licensing portfolios.

* Set up an investment holding company (IHC) in appropriate state jurisdictions to create state tax savings. Under this structure the operating units recognize a deduction for royalties paid to the IHC while the IHC does not recognize income for the royalty payment for state tax purposes. Thus an IHC structure allows a company to enjoy state tax deductions in one jurisdiction that are not offset by income for state tax purposes in another jurisdiction, thereby leaving a net savings from the state tax deductions. …

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