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No Progress on Bio/TK Disclosure for Patents September 30, 2004

Posted by mais in EU, India, IP Systems, Patent, TRIPS, WTO.
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I/P Updates: TRIPS: No Progress on Bio/TK Disclosure for Patents – News and Information for Intellectual Property Practitioners: “TRIPS: No Progress on Bio/TK Disclosure for Patents
According to an article in BRIDGES Trade BioRes, Vol. 4 No. 17 23 September, 2004
, the Council for Trade-related Aspects of Intellectual Property Rights (TRIPS) considered a proposal by Brazil, India, Pakistan, Peru, Thailand, and Venezuela on September 21, 2004 suggesting a checklist of issues to be covered in negotiations on biodiversity, traditional knowledge and folklore. The proposal elaborates on possible disclosure requirements in patent applications relating to the source and country of origin of a biological resource and/or traditional knowledge used in an invention.

The US and Japan again voiced their opposition to using the checklist. No substantive progress was made and the meeting closed after one day rather than the scheduled two. The next TRIPS Council is reportedly scheduled for December 1-2.
posted at 1:58 PM ”

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IP leveraging-A Strategy Article from Mckinsey September 30, 2004

Posted by mais in IP/Patent Valuation, IPM Strategies.
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The McKinsey Quarterly: Intellectual property: Partnering for profit: ”

Intellectual property: Partnering for profit
Patents and proprietary processes represent an untapped source of revenue for many companies. McKinsey research shows that in lots of cases, companies could earn 5 to 10 percent of their operating income from the sale or licensing of intellectual property, yet most earn less than one-tenth that. Too often, they don’t know what they have, what it is worth, or what other industries could do with it. The solution is to build a network of outside specialists who can identify the best market for each asset and use their industry contacts and experience to negotiate a sale. The authors describe the five kinds of specialists needed, their likely terms of engagement, and the keys to managing the network.
The take-away
Most companies’ attempts to make money out of their intellectual property suffer from the mistaken belief that it is an easy source of revenue. But capturing the full value of these assets requires systematic effort, a well-managed network of outside partners, and active senior-management support. ”

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Accounting intangible patent portfolio September 15, 2004

Posted by mais in IP/Patent Valuation, IPM Strategies, Patent.
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Intangible Property is property that has value but cannot be seen or touched. Generally, you can either amortize or depreciate intangible property.You must amortize certain intangible property over 15 years if you meet the following conditions:
You acquired the property after 8/10/93, (after 7/25/91, if elected)
You use the property in connection with a business or for the production of income
If you meet these conditions, amortize the following intangibles:
Patents and copyrights
Customer or subscription lists, location contracts, and insurance expirations
Designs and patterns
Agreements not to compete
If you created any of the intangibles listed in item (1) through (3), you can amortize them only if you created them in connection with the acquisition of assets constituting a trade or business or a substantial part of a trade or business.For more information on amortizing these and other intangibles, refer to Amortization in Publication 535, Business Expenses.
Generally, you can depreciate any of these intangibles acquired before August 11, 1993, or that do not qualify for amortization. However, they must have a determinable useful life.
Agreements not to compete, lists, contracts, and expirations are sometimes confused with goodwill, which is not depreciable. Therefore, you must be able to determine their value separately from the value of any goodwill that goes with the business.
If you can depreciate the cost of a patent or copyright, you can use the straight line method over the useful life. The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life. If it becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis.
Straight Line MethodGenerally, if you can depreciate intangible property, you use the straight line method of depreciation. It lets you deduct the same amount of depreciation each year.
To figure your deduction, first determine the adjustment basis, salvage value, and estimated useful life of your property. Subtract the salvage value, if any, from the adjusted basis. The balance is the total depreciation you can take over the useful life of the property.
Divide the balance by the number of years in the useful life. This gives you your yearly depreciation deduction. Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use.
Example: In April, Frank bought a patent for $5,100. It was not acquired in connection with the acquisition of any part of a trade or business. He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. He divides the $5,100 basis by 17 years ($5,100/17=$300) to get his yearly depreciation deduction. Because he only used the patent for 9 months during the year, he multiplies $300 by 9/12 to get his deduction of $225. Next year, Frank can deduct $300 for the full year.
Intangible Property That Can Never Be DepreciatedThe following are two types of intangible property that you can never depreciate.
Trademark or trade name
Goodwill is the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor.
You can never depreciate goodwill because its useful life cannot be determined. However, if you acquired a business after August 10, 1993 (after July 25, 1991, if elected), and part of the price included goodwill, you may be able to amortize the cost of the goodwill over 15 years. For more information, refer to Amortization in Publication 535, Business Expenses.
Trademark, trade name or franchise is a section 197 intangible. In general, you cannot depreciate the cost of a trademark, trade name or franchise. However, you may be able to amortize over 15 years the cost of a trademark, trade name or franchise you acquired after August 10, 1993 (after July 25, 1991, if elected).
You must amortize its purchase or renewal cost, other than certain contingent payments that you can deduct currently. For more information, refer to Other Expenses in Publication 535, Business Expenses.
If you buy a trademark, trade name, or franchise you can deduct the amount you pay or incur as a business expense only if your payments are part of a series of payments that are:
Contingent on productivity, use, or disposition of the item
Payable at least annually for the entire term of the transfer agreement, and
Substantially equal in amount (or payable under a fixed formula).
When determining the term of the transfer agreement, include all renewal options and any other period for which you and the transferor reasonably expect the agreement to be renewed.
The tax treatment of goodwill, a covenant not to compete and a consulting agreement can be summarized as follows:

Amortize 15 years
Capital asset
Covenant not to compete
Amortize 15 years
Ordinary income
Consulting agreement
Deduct as incurred
Ordinary income
Additional Resources
Publication 535, Business Expenses
Publication 946, How to Depreciate Property
IRS Code Section 197
From: Crouch, Dennis [mailto:crouch@mbhb.com] Sent: Tuesday, September 14, 2004 3:59 PMTo: PatentLawPractice@yahoogroups.comSubject: RE: [PatentLawPractice] Use of patents
I agree, you need more info before he gets the ax. It is likely that the IRS and accounting rules relating to patents do not follow any logic.

In terms of being in use, you should also include inventions that have not even been written up as patent applications — these would be considered trade secrets.

— Dennis

—–Original Message—–From: Pyle, Jeffrey [mailto:jpyle@wmalaw.com] Sent: Tuesday, September 14, 2004 2:53 PMTo: PatentLawPractice@yahoogroups.comSubject: RE: [PatentLawPractice] Use of patents
You never know…I wouldn’t be surprised if the IRS is sufficiently obtuse about patents to realize there’s even an issue. Or, they might not care, and just assume that for accounting purposes only the “in use” patents can get amortized since you can’t value the patent that are not “in use.”

I guess I’d just get a second opinion from another accountant on this narrow issue.

—–Original Message—–From: N. Stephan Kinsella [mailto:kinsella@ao-inc.com] Sent: Tuesday, September 14, 2004 2:49 PMTo: PatentLawPractice@yahoogroups.comSubject: [PatentLawPractice] Use of patents

An accountant who was trying to decide how to amortize the costs of our patent portfolio for tax or auditing purposes wanted to know how many of our patents “were being used”, were “in use”. I told him that patents and apps in our portfolio have a variety of classifications: pending, published, allowed, issued, abandoned. But that I don’t know what it means for a patent to be “in use”. He replied that he assumed “in use” means an issued patent, since “when it issues you start selling product and getting licensing revenue.”

I cannot believe this is correct. Not all patents cover the owner’s products or even competitors’ products. And of course not all of them are licensed. It is not even always objectively clear (or at least, the owners don’t always have an up to date chart showing which patents do, and do not, “cover” the owner’s products; or are generating licensing revenue). I cannot believe IRS or relevant accounting rules require such records to be kept. It seems to me that any issued patent that you own is “in use” since it sits there as potential ammunition or asset, at the ver least. Moreover, it seems to me that at least published apps are also “in use” in a sense given that their claims are published and putting competitors on notice for possible back royalties in the event of a future issuance.

My guess is this guy is an idiot. My question is, should I fire our accounting firm?

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