When determining the “value” of a patent, some businessmen and attorneys try to ascertain a theoretical numerical value that represents a patent’s “worth”. In other words, if they wanted to sell a particular patent, they are looking to calculate how much they could get for it. However, that isn’t the only patent value worth determining.

Another “value” of a patent is the “associated” value. This is a value accounts often refer to and record with respect to patents.

There are two common scenarios accounts use for financial and tax reporting treatments of patents. Depending on whether a patent was developed within an organization or whether it was purchased as an asset will determine which scenario is appropriate.

If a patent was developed within an organization or company:

1.Reflected As Asset On Financial Statements: Associated costs for developing the patent are deducted as current operating expenses. This is common for companies reporting on the cash basis of accounting or another consistent basis of accounting other than the GAAP (Generally Accepted Accounting Principles). When this cash basis situation occurs, the development cost of the patent is not reflected as an asset on the balance sheet of the company. However, the legal fees and filing costs associated with the patent are carried as an intangible asset on the financial statements of the company.

If legal costs are incurred to defend the patent rights, those costs are capitalized as an asset if the defense of the patent is successful. If defense of the patent is unsuccessful, legal costs of defense are expensed.