What is Intangible Property? Unlocking the Invisible Assets

Michael Meyer is a Nebraska-based attorney and certified patent attorney with a unique blend of expertise in law and chemistry. He holds degrees in Political Science and Chemistry from the University of Nebraska at Omaha and a law degree from Creighton University. Licensed in law since 2017 and in patent law since 2019, Meyer's federal certification allows him to serve clients nationwide.

• Updated on: December 20, 2023
• 6:02 am

Contents

Introduction

Intangible property, often lurking in the shadows of its tangible counterpart, plays a pivotal role in today’s dynamic businesses and economies. But what exactly is it? And why does it matter so much?

Definition of Intangible Property

At its core, intangible property refers to non-physical assets that hold significant value for individuals and businesses alike. Unlike tangible personal property, like buildings or vehicles, intangible items lack a physical substance but often carry immense value.

Types and Examples of Intangible Property

There’s a myriad of intangible properties, each unique in its nature and significance. Some of the most notable include:

• Intellectual Property (IP) : This umbrella term encompasses patents, copyrights, trademarks, and trade secrets. For instance, the formula for a popular soft drink or a novel’s copyrighted content are forms of IP.
• Goodwill : When a company is sold for more money than the value of its tangible and intangible assets combined, the excess is often attributed to goodwill. It’s a testament to the company’s reputation and brand recognition.
• Digital Assets : Think of domain names, digital media, software licenses, or even cryptocurrency. These are intangible yet hold significant value in the digital age.
• Customer Lists & Relationships : An established customer base or a strong business relationship can be considered intangible assets, pivotal for a company’s success.

Intangible vs. Tangible Property

The unauthorized use of intangible properties, especially intellectual property, can lead to significant legal disputes. Thus, businesses often seek to protect their intangible assets through legal means such as copyrights, patents, and trademarks.

The value of these assets can be tricky.

For example, how do you put a price on a company’s goodwill or its brand recognition?

Various methods are employed, often involving complex calculations and considerations. However, in estate administration or for capital gains purposes, it becomes crucial to ascertain these values accurately.

Protection and Value of Intangible Property

In my extensive experience with patent documentation, I’ve seen certain errors recur, which can undermine the effectiveness of a patent abstract. Ambiguity and over-generalization are significant hurdles; they cloud the true essence of the invention, leaving too much room for interpretation.

A patent abstract should provide clarity, shining a light on what sets the invention apart, without delving into the granular details better suited for the claims section. It’s about striking the right balance—providing just enough information to engage interest and convey novelty without revealing the full breadth of the invention’s technical specifics. And all of this should be done with between 50 and 150 words.

Challenges with Intangible Property

The world of intangible property, while rich in value and potential, is not without its hurdles. Understanding these challenges can provide insight into the complexities of managing such assets:

• Valuation Difficulties : One of the most significant challenges faced by companies is the valuation of intangible assets. Unlike tangible assets, which often have a clear market price or cost basis, intangible assets’ worth can be nebulous. Factors such as the asset’s expected future economic benefits, its lifespan, and its competitive advantage all come into play. Valuing brand recognition, for example, involves considering brand loyalty, market share, and advertising expenses, among other things. Such complexities can make the valuation process subjective and open to interpretation, leading to potential discrepancies and disputes.
• Amortization : Unlike tangible assets, which can be depreciated over time, intangible assets get amortized. This process involves expensing the cost of the intangible asset over its useful life. The challenge lies in determining the useful life of an intangible asset. While some assets, like patents, have a clear lifespan, others, such as goodwill or brand recognition, don’t. This uncertainty can lead to varied amortization methods and periods, affecting a company’s balance sheet and profit and loss statement in distinct ways.
• Infringement Risks : The non-physical nature of intangible property makes it susceptible to unauthorized use or infringement. For instance, intellectual property, like copyrighted content or patented innovations, can be replicated without the owner’s permission. The digital era exacerbates this risk, with the internet facilitating rapid unauthorized distribution. Such infringements can erode the value of the intangible asset and often lead to legal battles, entailing significant costs and reputational risks.

Economic Impact and Real-world Cases

In our evolving global economy, intangible assets are more influential than ever. Take, for instance, tech giants whose primary assets aren’t their physical items or tangible property but their software, user base, and, importantly, data. Or consider the music industry, where the value isn’t in the physical form of a CD but in the intellectual property rights of the music tracks.

Practical Steps for Safeguarding Intangible Property

Given the challenges posed by intangible property, it becomes imperative for businesses and individuals to safeguard their valuable assets. Here are some actionable steps:

• Legal Protections : Intangible assets, especially those under the intellectual property umbrella, can be protected legally. Patents, trademarks, copyrights, and trade secrets all offer avenues for protection. Businesses should be proactive in seeking these protections, ensuring that their innovations, brand names, artistic works, and more are legally safeguarded against unauthorized use or infringement.
• Documentation : Proper documentation is the bedrock of establishing ownership and rights over intangible property. Whether it’s drafting detailed licensing agreements, maintaining records of asset acquisition, or keeping a well-organized repository of intellectual property filings, effective documentation helps in ascertaining rights, resolving disputes, and demonstrating value to stakeholders, investors, or potential buyers.