Patent vs Copyright vs Trademark: Key Differences and Accounting

A patent protects an invention, usually for 20 years from filing. A copyright protects original creative work, often for the author’s life plus 70 years. A trademark protects a brand name or logo and can renew indefinitely while in use. In accounting, each is an intangible asset amortized over its useful life unless a trademark’s life is indefinite.

So the legal question is what each right protects. The accounting question is different: which costs become an asset, and over how many years do you spread them?

These distinctions help you avoid using a legal protection period as an automatic amortization period. This guide uses U.S. generally accepted accounting principles (GAAP), the accounting rules U.S. companies follow. It’s built for intermediate accounting students and CPA candidates studying intangible assets for the FAR exam, and it matches section 11.2 of our Intermediate Accounting course. Studying for the EA exam? There’s a short tax note near the end.

Patent vs copyright vs trademark: what’s the difference?

The U.S. Patent and Trademark Office (USPTO) comparison explains the legal distinctions. In the intangible-asset categories you’ll see on exams, patents are usually technology-related, trademarks are marketing-related, and copyrights on books, music, films, and art are artistic-related. One exam trap: copyrighted computer software is grouped with technology-related assets, not artistic ones.

Imagine a company selling a new language-learning device. Its patented mechanism, recorded lessons, and brand name may involve three separate rights. A patent does not automatically protect the brand name, and a trademark does not establish ownership of the invention.

A patent is a right to exclude others from specified conduct; it does not itself guarantee permission to market a product. This legal distinction matters when reading descriptions of pharmaceutical or regulated inventions. See the USPTO patent essentials.

Which costs become intangible assets?

Capitalize means record an eligible cost as an asset. Expense means recognize the cost in current income. For a separately purchased right, the purchase price and qualifying costs of securing the right form the starting point for its recorded amount.

Do not treat all spending connected with a brand or invention alike. Costs directly associated with securing legal rights differ from advertising, routine operations, and research and development (R&D). Ordinary R&D costs within ASC 730 are generally expensed as incurred; obtaining a patent later does not retroactively turn those prior expenses into the patent’s cost.

A quick note on legal defense costs: the examples below assume the successful defense costs qualify for capitalization. In practice, assess the facts and supporting evidence, including the likelihood of a successful defense and whether it increases the patent’s value.

Two more costs students often ask about:

• Legal and filing fees to obtain a patent on an invention the company developed itself: capitalize them as the patent’s cost. The research behind the invention stays expensed.
• Advertising and promotion that build a brand’s value: expense them as incurred, even though they make the trademark more valuable.

The Financial Accounting Standards Board’s Accounting Standards Codification (ASC) contains the relevant guidance in Subtopics 350-30 and 730-10. This comparison does not cover specialized software or development-cost exceptions. For a broader walkthrough of purchased versus internally created intangibles, see our intangible assets accounting guide.

How long does each right last, and which life do you use?

Legal life concerns enforceable protection. Useful life concerns expected benefits to the reporting company. Obsolescence, competition, or a plan to discontinue a product may shorten useful life even while legal protection continues.

Utility patents generally run for 20 years from the application filing date, subject to adjustments, and the owner must pay maintenance fees at 3.5, 7.5, and 11.5 years after the grant to keep the patent alive. Design patents, which protect how a product looks, last 15 years from the date they’re granted for applications filed on or after May 13, 2015. Do not start a fresh 20-year period whenever a company buys a patent. For a purchased patent, consider the remaining legal protection and the expected benefit period.

For many modern copyrights, the general U.S. term is the author’s life plus 70 years. Different rules apply to works made for hire, anonymous works, and older works. For example, a work made for hire (something an employee creates as part of the job) is protected for 95 years from publication or 120 years from creation, whichever ends first. The U.S. Copyright Office’s duration guidance explains these differences. An accounting exercise should use its stated remaining legal life and expected useful life.

A federal trademark registration lasts 10 years and can be renewed every 10 years for as long as the mark stays in use, with an extra maintenance filing due between the fifth and sixth years after registration. But a renewable legal right isn’t automatically an indefinite-lived asset. A company planning to retire a brand in six years has a foreseeable limit. For broader classification, review the six types of intangible assets.

Useful life isn’t a one-time decision. Companies reassess it every reporting period. If an indefinite-lived trademark later gets a finite life, test it for impairment first, then amortize its remaining carrying amount over the remaining useful life going forward. Don’t go back and restate prior years.

Hypothetical examples: calculate the accounting

A purchased patent with a shorter useful life

ClearStream buys a patent for $90,000. Nine years of legal protection remain, but expected benefits last five years. It is ready for use on January 1, benefits are even, and residual value is zero.

Record a $90,000 debit to Patents and a $90,000 credit to Cash. Annual amortization is $90,000 ÷ 5 = $18,000, rather than $10,000 using the remaining legal term.

A successful defense after acquisition

At the start of year 3, the patent’s carrying amount is $54,000 ($90,000 minus two years of $18,000 amortization). ClearStream incurs $12,000 of unrecovered costs in a successful defense. Assume the remaining useful life stays at three years.

Debit Patents and credit Cash $12,000. The revised amount to allocate is $66,000. Annual amortization for each remaining year is $66,000 ÷ 3 = $22,000. The new defense cost does not restart the original useful life.

A copyright and a trademark

A publisher buys a copyright for $36,000. Legal protection remains for 18 years, but demand is expected for six years. With even benefits and no residual value, annual amortization is $6,000.

A different company buys a trademark for $80,000 and supports an indefinite useful life. It records the asset and no scheduled amortization while that conclusion remains appropriate. It still tests the trademark for impairment at least once a year, and more often if something like falling sales suggests a problem. No amortization doesn’t mean no review.

Tax note for EA and REG candidates: Section 197

Tax rules don’t follow the book rules above. Under Internal Revenue Code Section 197, intangibles acquired as part of buying a business, including patents, copyrights, and trademarks, are amortized straight-line over 15 years, starting in the later of the acquisition month or the month the business or income-producing activity begins. That’s true even if the asset’s useful life is shorter or longer.

Two details trip up EA and REG candidates:

• Qualifying capitalized trademark costs generally fall under Section 197 whether the trademark is bought separately, acquired with a business, or created in-house.
• A patent or copyright bought by itself, not as part of buying a business, is outside Section 197. Its cost is generally recovered over its remaining useful life instead.

CPA exam tip: a trademark with an indefinite life that’s acquired with a business isn’t amortized on the books but is amortized over 15 years for tax. Assuming the trademark has an amortizable tax basis, tax amortization can create or increase a deferred tax liability as the tax basis falls below the book carrying amount.

Common mistakes

• Using 20 years for every patent, regardless of remaining rights or obsolescence.
• Applying life-plus-70 to every copyright without considering the type of work.
• Assuming every trademark is indefinite-lived.
• Capitalizing unsuccessful legal fees simply because they relate to an asset.
• Capitalizing the research behind a patent once the patent is granted.
• Forgetting that an indefinite-lived trademark still needs an impairment test at least once a year.
• Using the 15-year tax amortization period as the book amortization period.

Use the balance-sheet presentation lesson to see how cost and accumulated amortization become a reported net amount. Under U.S. GAAP, you can’t write patents, copyrights, or trademarks up to fair value when they gain value. They stay at cost minus amortization and any impairment. If you’re curious how a different asset class uses fair value, compare the crypto accounting model.

Key takeaways

• A patent protects an invention, a copyright protects creative expression, and a trademark protects a brand identifier.
• Capitalize the purchase price of a right plus the legal and filing costs to secure it. Expense research and advertising.
• Amortize patents and copyrights over the shorter of their remaining legal life and their useful life.
• A trademark with an indefinite useful life isn’t amortized, but it’s tested for impairment at least once a year.
• Tax has its own rules: most acquired intangibles are amortized over 15 years under Section 197.

Want the full method step by step? See our intangible asset amortization guide.

Practice questions with answers

1. A copyright costs $24,000, with 12 legal years and four useful years remaining. What is annual amortization?

Answer: $6,000 with even benefits and zero residual value. The shorter benefit period governs the allocation.

2. A brand will be discontinued in five years. Is renewability enough to avoid amortization?

Answer: No. The planned discontinuation creates a finite expected benefit period.

3. A patent has a $20,000 carrying amount and two useful years left. A successful defense costs $6,000. What is the new annual expense?

Answer: $13,000, assuming no other changes: ($20,000 + $6,000) ÷ 2.

Want more practice like this? Intangible assets are tested in Area II of the CPA exam’s FAR section, and they show up in intermediate accounting exams too. Try our free sample course to see how the full lessons and practice questions work.

Frequently asked questions

Can one product involve all three rights?

Yes. The invention, creative content, and brand identifier can be separate protected resources.

Is a trade secret a patent?

No. Trade-secret protection depends on secrecy and other conditions. Do not assign it a patent’s legal term.

Can amortization be credited directly to the intangible?

Yes, or a separate accumulated-amortization account may be used. Either approach must produce the appropriate carrying amount and disclosures.

Which lasts longest: a patent, copyright, or trademark?

A trademark can last indefinitely if it stays in use and is renewed every 10 years. A copyright often lasts the author’s life plus 70 years. A utility patent lasts 20 years from filing, and a design patent lasts 15 years from grant.

Are trademarks amortized?

Only if the trademark has a finite useful life. If its useful life is indefinite, you don’t amortize it, but you test it for impairment at least once a year and reassess its useful life every reporting period.

Can you capitalize the research costs behind a patent?

No. Research and development costs are expensed as incurred under ASC 730. For a patent the company develops itself, you capitalize the legal and filing fees to obtain it, which is usually a small amount compared with the research.

How are patents, copyrights, and trademarks amortized for tax purposes?

Patents and copyrights generally qualify for 15-year amortization under Section 197 when acquired with the assets of a business or a substantial portion of one. Qualifying capitalized trademark costs generally follow the same 15-year rule, including costs for separately acquired or self-created trademarks. A separately acquired patent or copyright generally falls outside Section 197 and is typically recovered over its remaining useful life.

About the author

Mansour Farhat, DBA, CPA, CIA, MAcc, is a veteran accounting educator and the founder of Farhat Lectures and its YouTube channel. He teaches accounting students and candidates preparing for the CPA, CMA, and Enrolled Agent exams. Read more about Professor Farhat.

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