Law Department Management Blog
Warning: I am not a CPA, but I try to be accurate, so I invite anyone to correct me on this topic.
A patent is an asset that depreciates. As defined by Fireworks Zone, “Depreciation is writing off a tangible asset as consumed on pro-rata basis, for the estimated pre-defined life of the asset.” As explained more specifically on Investopedia, “For example, a patent on a piece of medical equipment usually has a life of 17 years. The cost involved with creating the medical equipment [patent on it?] is spread out over the life of the patent, with each portion being recorded as an expense on the company’s income statement.”
At least some law departments capitalize some portion of the costs of obtaining a patent. With that accounting treatment, the prosecution and filing fees, as well as annual maintenance fees, are not expensed in the year incurred but they are depreciated over the period of patent protection.
Later, as I understand it, if the company abandons a patent in a country, it must recapture some portion of the amounts previously capitalized and those write-offs go directly to the company’s bottom-line. It’s a pay me now or pay me later proposition.
My tentative points from all this are two. Legal spend of a law department varies according to its accounting treatment of patent costs. Second, when patents are abandoned, does any company charge something back to the legal department (See my post of March 18, 2007: accounting terms with 15 references; Aug. 12, 2008: options expensed; Sept. 5, 2007: compensation over $1 million; and Dec. 3, 2007: cash basis and reserves and P&L.)?