Intellectual property, or IP, refers to a legal entitlement which sometimes attaches to the expressed form of an idea, or to some other intangible subject matter. This legal entitlement generally enables its holder to exercise exclusive rights of use in relation to the subject matter of the IP. The term intellectual property reflects the idea that this subject matter is the product of the mind or the intellect, and that IP rights may be protected at law in the same way as any other form of property.
Intellectual property laws are territorial such that the registration or enforcement of IP rights must be pursued separately in each jurisdiction of interest. However, these laws are becoming increasingly harmonised through the effects of international treaties such as the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights, while other treaties may facilitate registration in more than one jurisdiction at a time.
Intellectual property laws confer a bundle of exclusive rights in relation to the particular form or manner in which ideas or information are expressed or manifested, and not in relation to the ideas or concepts themselves. It is therefore important to note that the term "intellectual property" denotes the specific legal rights which authors, inventors and other IP holders may hold and exercise, and not the intellectual work itself.
Intellectual property laws are designed to protect different forms of intangible subject matter, although in some cases there is a degree of overlap.
Patents, trademarks and designs fall into a particular subset of intellectual property known as industrial property.
Like other forms of property, intellectual property (or rather the exclusive rights which subsist in the IP) can be transferred (with or without consideration) or licensed to third parties. In some jurisdictions it may also be possible to use intellectual property as security for a loan.
The basic public policy rationale for the protection of intellectual property is that IP laws facilitate and encourage disclosure of innovation into the public domain for the common good, by granting authors and inventors exclusive rights to exploit their works and invention for a limited period.
However, various schools of thought are critical of the very concept of intellectual property, and some characterise IP as intellectual protectionism. There is ongoing debate as to whether IP laws truly operate to confer the stated public benefits, and whether the protection they are said to provide is appropriate in the context of innovation derived from such things as traditional knowledge and folklore, and patents for software and business methods. Manifestations of this controversy can be seen in the way different jurisdictions decide whether to grant intellectual property protection in relation to subject matter of this kind, and the North-South divide on issues of the role and scope of intellectual property laws.
The exclusive rights granted by intellectual property laws are generally positive in nature, and therefore only grant the holder of IP the exclusive ability to take certain action, rather than the ability to exclude a third party from taking that action. For example, the owner of a registered trademark has an exclusive right to use their mark in relation to certain products or services, but generally no right to exclude others from using that mark in relation to unrelated products or services (sometimes marks which are recognised as "famous" or "well known" are deemed to have developed sufficient goodwill and reputation to be protected across unrelated classes of products and services).
The exclusive rights conferred by intellectual property laws can generally be transferred (with or without consideration), licensed (or rented), or to third parties.
Exclusive rights are generally divided into two categories: those that grant exclusive rights only on copying/reproduction of the item or act protected (eg. copyright) and those that grant a right to prevent others from doing something. The difference between these is that a copyright would prevent someone from copying the material form of expression of an idea, but could not stop them from expressing the same idea in a different form, nor from using the same form of expression if they had no knowledge of the original held by the copyright holder. Patents and trade marks on the other hand, can be used to prevent that second person from making the same design even if they had never heard of or seen the claimed "property". Those rights must be applied for or registered and are more expensive to enforce.
There are also more specialized varieties of "sui generis" exclusive rights, such as circuit design rights (called mask work rights in USA law, protected under the Integrated Circuit Topography Act in Canadian law, and in European Community Law by Directive 87/54/EEC of 16 December 1986 on the legal protection of topographies of semiconductor products), plant breeders' rights, plant variety rights, industrial design rights, supplementary protection certificates for pharmaceutical products and database rights (in European law).
Exclusive rights may be analyzed in terms of their subject matter, the actions they regulate in respect of the subject matter, the duration of particular rights, and the limitations on these rights. Exclusive rights policies are conventionally categorized according to subject matter: inventions, artistic expression, secrets, semiconductor designs, and so on.
Generally, the activity regulated by exclusive rights is unauthorized reproduction or commercial exploitation. However, as indicated above, some rights go beyond this to grant a full suite of exclusive rights on a particular idea or product. Generally, it is true to say that exclusive rights grant the holder the ability to stop others doing something (ie. a negative right.), but not necessarily a right to do it themselves (ie. a positive right). For example, the holder of a patent on a pharmaceutical product may be able to prevent others selling it, but (in most countries) cannot sell it themselves without a separate license from a regulatory authority.
Most exclusive rights are nothing more than the right to sue an infringer, which has the effect that people will approach the rightsholder for permission to perform the acts to which the rightsholder has exclusive right. The granting of this permission is termed licensing, and exclusive rights licenses stipulate the extent of the licensee's ability to perform the acts the rightsholder may control. Other kinds of licenses attempt to establish additional conditions beyond the acts the rightsholder may control, and these licenses are governed by general contract principles. In many jurisdictions the law places limits on what restrictions the licensor (the person granting the licence) can impose. In the European Union, for example, competition law has a strong influence on how licences are granted by large companies.
Copyright licenses grant permission to do something. A patent license is a declaration not to do some things, under certain conditions. Exclusive rights policies in certain countries provide for certain activities which do not require any license, such as reproduction of small amounts of texts, sometimes termed fair use. Many countries' legal systems afford compulsory licenses for particular activities, especially in the area of patent law.
Most exclusive rights are awarded by a government for a limited period of time. Economic theory typically suggests that a free market with no exclusive rights will lead to too little production of intellectual works relative to an efficient outcome. Thus by increasing rewards for authors, inventors and other producers of intellectual works, overall efficiency might be improved. On the other hand, "intellectual property" law could in some circumstances lead to increased transaction costs that outweigh these gains (see Coase's Penguin). Another consideration is that restricting the free reuse of information and ideas will also have costs, where the use of the best available technique for a given task or the creation of a new derived work is prevented.
Development of specific laws
The early history of patents dates from the 15th century in England and Venice.
Copyright was not invented until after the advent of the printing press and wider public literacy. In England the King was concerned by the unfair copying of books and used the royal prerogative to pass the Licensing Act 1662 which established a register of licensed books and required a copy to be deposited with the Stationers Company. The Statute of Anne was the first real act of copyright, and gave the author rights for a fixed period. Internationally, the Berne Convention in the late 1800s set out the scope of copyright protection and is still in force to this day.
Design rights started in England in 1787 with the Designing & Printing of Linen Act and have expanded from there.
History of the term
As the words indicate, intellectual property is an asset product of the creativeness of the human mind, or intellect. The earliest use of the term appears to be from an October, 1845 Massachusetts Circuit Court ruling in the patent case Davoll et. al v. Brown. Justice Charles L. Woodbury wrote in that decision, "only in this way can we protect intellectual property, the labors of the mind, productions and interests as much a man's own...as the wheat he cultivates, or the flocks he rears." (Woodury & Minot, CCD Mass. 7 F. Cas. 197, 1845). The term also appears in Europe during the 19th century. French author A. Nion mentions "propriété intellectuelle" in his Droits civils des auteurs, artistes et inventeurs, published in 1846, and there may well have been earlier uses of the term.
The use of the term to describe these statutorily granted rights has increased markedly in recent times, though it was rarely used without scare quotes until about the time of the passage of the Bayh-Dole Act in 1980 Paper by Mark A. Lemley, "Property, Intellectual Property, and Free Riding"; see Table 1, pp. 4-5.. However, worldwide use of the term was uncommon until actively promulgated by the World Intellectual Property Organization after WIPO's establishment in 1967.
The first codification of intellectual property can be traced to the Jewish laws codified in the Talmud, which declared a prohibition against "Gnevat ha daat", literally the theft of ideas. The type of ideas subject to theft and further explanation may be found in the Shulkhan Arukh. Both texts precede the Statute of Anne by a few hundred years.
With the French Revolution, which followed the American Revolution, there was debate in Europe over the nature of protection for copyright and patents; those who supported unlimited copyrights frequently used the term property to advance that agenda, while others who supported a more limited system sometimes used the term intellectual rights (droits intellectuels).
The system currently used by much of the Western world is more in line with the second view, with limited copyrights that eventually expire. However, the French Civil Code notion of "moral rights" has connotations similar to natural rights that are inconsistent with the U.S. tradition.
The term "intellectual property" does not occur in the United States Copyright Statutes, except in certain footnotes citing the titles of certain Bills. The term used in the statutes and in the Constitution is "exclusive rights".
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The purposes of laws dealing with exclusive rights over intangible subject matter or the product of intellectual or creative endeavour have varied, but they all share in common the appearance of granting the "owner" of the exclusive rights a monopoly on copying or distribution of a protected form of "property".
In common law jurisdictions, this was historically done to grant a boon to a king's favourite in the form of letters patent (with some positive advantages to the public, since often these grants were prerequisites before a merchant would undertake production). Jurisdictions with written constitutions generally vest the executive government with power to grant such monopolies or otherwise provide for the protection of untangible property. For example, the United States Constitution accords Congress the power to promote the progress of science and the useful arts by granting exclusive rights to authors and inventors for limited times.
The use of the term "intellectual property" is often predicated on considerations such as the "free rider problem" or rationalized by problematizing the fact that owners of computers have the ability to produce and distribute perfect copies of digital works. Proponents of the term tend to address exclusive intellecual property rights policy by valorizing the incentives afforded to authors and inventors in granting them a right to exact a fee from those who wish to manufacture their inventions or publish their expressive works. The analyses associated with the term tend to overlook or even to attempt to defeat the fact, noted by Thomas Jefferson when he took part in wording the exclusive rights clause under the USA Constitution, that published information is intrinsically free and that in fact this is the whole point of such exclusive rights -- to publish, to provide information to the public.
By an economic analysis, the incentives granted for patent rights have sometimes served the public benefit purpose (and promoted innovation) by ensuring that someone who devoted, say, ten years of penury while struggling to develop vulcanized rubber or a workable steamship, could recoup her or his investment of time and energy. Using monopoly power, the inventor could exact a fee from those who wanted to make copies of his or her invention. Set it too high, and others would simply try to make a competing invention, but set it low enough and one could make a good living from the fees.
In latter years, the public benefit idea has been downplayed in favor of the idea that the primary purpose of exclusive rights is to benefit the rightsholder, even to the detriment of society at large; and this development has attracted some opponents.
In some fields, patent law has had an unintended consequence: treating abstract rules and mental products like concrete ones has stifled innovation in those fields, rather than aiding it.
Intellectual property rights have limitations, including term limits and other considerations (such as intersections with fundamental rights and the codified or statutory provisions for fair use for copyright works). Some analogize these considerations to public easements, since they grant the public certain rights which are considered essential. It is important to appreciate that different countries may have subtle or dramatic differences in the scope or protection and pernmitted uses of different types of intellecual property. A fair use in one jurisdiction can easily be an infringing use elsewhere.
It is important to understand that authors and inventors exercise specific rights, and the "property" referred to in "intellectual property" is the rights, not the intellectual work. A patent can be bought and sold, but the invention that it covers is not owned at all. This is one of many reasons that some believe the term intellectual property to be misleading. Some use the term "intellectual monopoly" instead, because such so-called "intellectual property" is actually a government-granted monopoly on certain types of action. Others object to this usage, because this still encourages a natural rights notion rather than a recognition that the rights are purely statutory, and it only characterizes the "property" rather than eliminates the property presupposition. Others object to the negative connotation of the term "monopoly" and cite the wide availability of substitute goods. Still others prefer not to use a generic term, because of differences in the nature of copyright, patent and trademark law, and try to be specific about which they are talking about, or the term "exclusive rights", which reflects the U.S. Constitutional language.
Arguments against the term
The term intellectual property has been criticized on the grounds that the rights conferred by exclusive rights laws are in some ways more limited than the legal rights associated with property interests in physical goods (chattels) or land (real property). The inclusion of the word property in the term can be seen as favoring the position of proponents of the expansion of exclusive rights in intellectual products, by helping them draw on concepts associated with those older forms of property in support of their argument for removing limitations on rights when those limitations would be generally seen as inappropriate if applied to physical goods. For example, most nations grant copyrights for only limited terms. Additionally, the term is sometimes misunderstood to imply ownership of the copies themselves, or even the information contained in those copies. By contrast, physical property laws rarely restrict the sale or modification of physical copies of a work (something that many copyright laws do restrict).
A common argument against the term intellectual property is that information is fundamentally different from physical property in that a "stolen" idea or copy does not affect the original possession (see the tragedy of the commons). Another, more specific objection to the term, held by Richard Stallman, is that the term is confusing. Stallman argues that the term implies a non-existent similarity between copyrights, patents, trademarks, and other forms of exclusive rights, which makes clear thinking and discussion about various forms difficult. Furthermore, most legal systems, including that of the , hold that exclusive rights are a government grant, rather than a fundamental right held by citizens.
Though it is convenient for direct incentive beneficiaries to regard exclusive rights as akin to "property", items covered by exclusive rights are, by definition, not physical objects "ownable" in the traditional sense.
Stephan Kinsella, in his Journal of Libertarian Studies article "Against Intellectual Property", details his objection to intellectual property on the grounds that the word "property" implies scarcity, which may not be applicable to ideas.
Others point out that the law itself treats these rights differently than those involving physical property. To give three examples from US law, copyright infringement is not punishable by laws against theft or trespass, but rather by an entirely different set of laws with different penalties. Patent infringement is not a criminal offense although it may subject the infringer to civil liability. Willfully possessing stolen physical goods is a criminal offense while mere possessing of goods which infringe on copyright is not. Furthermore, in the United States physical property laws are generally part of state law, while copyright law is in the main measure federal.
Some proponents of the term argue that the law is simply recognising the reality of a situation. In some jurisdictions a lease of land (e.g. a flat or apartment) is regarded as intangible property in the same way that copyright is. In these cases too the law accepts that the property cannot be stolen - if someone moves into the flat and prevents you from living there they are not regarded as 'thieves of the lease' but as 'squatters' and the law provides different remedies. Identity theft is another example of the adaptation of physical property laws to intangible items, though that term itself is seen as problematic by some.
In civil law jurisdictions, intellectual property has often been referred to as intellectual rights, traditionally a somewhat broader concept that has included moral rights and other personal protections that cannot be bought or sold. Use of the term intellectual rights has declined since the early 1980's, as use of the term intellectual property has increased.
An alternate term monopolies on information has emerged among those who argue against the "property" or "intellect" or "rights" assumptions, notably Richard Stallman - see below. The backronyms intellectual protectionism and intellectual poverty, whose initials are also IP, have found supporters as well, especially among those who have used the backronym digital restrictions management.
Another issue is that if intellectual property exists there must be a parallel concept of intellectual capital - capital (economics) being the property that permits more property to be created. This, and the related term instructional capital that applies to the proper subset of patents and non-fiction copyright, are controversial notions that economists have no clear agreement on, so one refers to the "intellectual capital debate" rather than thinking of it as an actual capital asset. See more in the "Economic view" section below.
The fact that the three most common forms of intellectual property law concern different subject matter with different histories and purposes — copyright concerns original creative or artistic works, patent concerns new and useful inventions, and trademarks concerns signs which uniquely identify the commercial origin of products or services — is seen by some as countering what they consider to be the dogma of the United Nations' World Intellectual Property Organisation on intellectual property as the "creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce". These critics see this assertion as propaganda for a "property view" of the intellectual property laws, and suggest alternative terms such as individual capital, instructional capital and social capital over the term "intellectual capital," which has an ambiguous status, even among believers in neoclassical economics. Indeed, recent historical and econometric research has begun to "challenge the positive description of previous models and the normative conclusion that monopoly through copyright and patent is socially beneficial".
Expansion in nature and scope of IP laws
In recent times there has been a general expansion in intellectual property laws. This can be be seen in the extension of laws to new types of subject matter such as databases, in the regulation of new categories of activity in respect of subject matter already protected, in the increase of terms of protection, in the removal of restrictions and limitations on exclusive rights, and in an expansion of the definition of "author" to include corporations as the legitimate creators and owners of works. The concept of work for hire has also had the effect of treating a corporation or business owner as the legal author of works created by employees.
The increase in terms of protection is particularly seen in relation to copyright, which has recently been the subject of serial extensions in the United States and in Europe, such that it is unclear when subsisting copyright protection will eventually expire.
The nature and scope of what constitutes "intellectual property" has also expanded. In the context of trademarks, this expansion has been driven by international efforts to harmonise the definition of "trademark", as exemplified by the Agreement on Trade-Related Aspects of Intellectual Property Rights. Pursuant to TRIPs, any sign which is "capable of distinguishing" the products or services of one business from the products or services of another business is capable of constituting a trademark. Under this definition, trademarks such as Microsoft's slogan "Where do you want to go today?" are generally considered registrable. Furthermore, as the essential function of a trademark is to exclusively identify the commercial origin of products or services, any sign which fulfills this purpose may be registrable as a trademark. However, as this concept converges with the increasing use of non-conventional trademarks in the marketplace, harmonisation may not amount to a fundamental expansion of the trademark concept.
In the context of patents, the grant of patents in some jurisdictions over certain life forms, software algorithms, and business models has led to ongoing controversy over the appropriate scope of patentable subject matter.
Some consider that the expansion of intellectual property laws upsets the balance between encouraging and facilitating creativity and innovation, and the dissemination of new ideas and creations into the public domain for the common good. They consider that as most new ideas are simply derived from other ideas, intellectual property laws tend to reduce the overall level of creative and scientific advancement in society. They argue that innovation and competition is in effect stifled by expanding IP laws, as litiguous IP rights holders aggressively or frivolously seek to protect their portfolios.
The electronic age has seen an increase in the attempt to use software-based digital rights management tools to restrict the copying and use of digitally based works. This can have the effect of limiting fair use provisions of copyright law and even make the first-sale doctrine (known in EU law as "exhaustion of rights") moot. This would allow, in essence, the creation of a book which would disintegrate after one reading. As individuals have proven adept at circumventing such measures in the past, many copyright holders have also successfully lobbied for laws such as the Digital Millennium Copyright Act, which uses criminal law to prevent any circumvention of software used to enforce digital "rights management" systems. Equivalent provisions, to prevent circumvention of copyright protection have existed in EU for some time, and are being expanded in, for example, Article 6 and 7 the Copyright Directive. Other examples are Article 7 of the Software Directive of 1991 (91/250/EEC), and the Conditional Access Directive of 1998 (98/84/EEC).
At the same time, the growth of the Internet, and particularly distributed search engines like Kazaa and Gnutella, represents a challenge for exclusive rights policy. The Recording Industry Association of America, in particular, has been on the front lines of the fight against what it terms "piracy". The industry has had victories against some services, including a highly publicized case against the file-sharing company Napster, and some people have been prosecuted for sharing files in violation of copyright. However, the increasingly decentralized nature of such networks makes legal action against distributed search engines more problematic.
Exclusive rights such as copyrights and patents secure their holder an exclusive right to sell, or license rights. As such, the holder is the only seller in the market for that particular item, and the holder is often described as having a monopoly for this reason.
However, it may be the case that there are other items of "intellectual property" that are close substitutes. For example, the holder of publishing rights for a book may be competing with various other authors to get a book published. In such cases, economists may find that another market form, such as oligopoly or monopolistic competition better describes the workings of the markets for expressive works and inventions. This is one reason to prefer the term exclusive rights over monopoly rights.
The case for "intellectual property" in economic theory notes certain substantial differences from the case for tangible property. Consumption of tangible property is rivalrous. For example, once one person eats an apple, no one else can eat it; if one person uses a plot of land on which to build a home, that plot is unavailable for use by others. Without the right to exclude others from tangible resources, a tragedy of the commons can result.
The subjects of intellectual property do not share this feature of rivalness. For example, an indefinite number of copies can be made of a book without interfering with the use of the book by owners of other copies. When combined with a lack of exclusive intellectual property rights, this nonrivalrousness and nonexcludability combine to make them public goods and susceptible to the free rider problem. A rationale for "intellectual property" therefore rests on incentive effects to overcome the free rider problem. This case asserts that without a subsidy that is afforded by exclusive rights, there is no direct financial incentive to create new inventions or works of authorship. However, as Wikipedia and Free software demonstrate, works of authorship can be written without direct financial incentives. Moreover, many important works were created before copyright was invented. One might argue that much more invention occurred after patents came into existence; however, one could also argue that patents were brought into law as the power and influence of industrial interests grew.
The status of intellectual property is disputed by various commentators in India, China and other developing nations. The United States and the United Kingdom are the only two nations who consistently receive net balance of payment benefits from intellectual property, and are amongst the chief supporters of intellectual property systems.
A more recent notion, proposing to expand the scope of exclusive rights to include databases, has been introduced by the EU in 1996. This is the idea of protecting the information contained in a database against re-utilisation and extraction of substantial parts. This would be an additional right predicated on a substantial investment, that would exist alongside the copyright in the database structure. This notion was opposed by the United States Supreme Court in 1991 in the Feist Publication finding, which said that exclusive rights cannot cover the factual elements of any copyrighted work, that copyright does not derive from the effort expended in the production of the work, and that in the case of a collection of information, only the originality that may be found in the selection and arrangement of the information is governed by copyright. This case holds that the purpose of exclusive rights policy is to provide information to the public, and this consideration takes priority over concerns such as investment. A study has found that the introduction of exclusive rights to databases in the EU did not do any good to the economy.
The direct incentive beneficiaries of exclusive rights have an interest in expanding their rights and benefits. Many pool their resources to form organizations that attempt this such as the Business Software Alliance (BSA), which purports to represent the interests of the commercial software industry while the Recording Industry Association of America (RIAA) represents the interests of the commercial music publishing industry. As policy expands in accordance with the notion of "intellectual property", in the interests of those who benefit directly from its economic incentives, it tends to reduce the rights of its primary beneficiaries, the general public.
Under the notion of "intellectual property" the public is increasingly prevented by law from benefiting from the use of published information without complying with the conditions set by the rightsholder. The cost for this to the public is not easy to quantify. The cost is distributed widely and unequally based on the need for the product. Ironically the direct incentive beneficiary organizations are a good source for these data. The BSA reports a study that claims "while $80 billion in software was installed on computers worldwide last year, only $51 billion was legally purchased" (Source:BSA). The BSA says "software pirates" avoided a cost of $29 billion while the rest that obey the policy and do not purchase or make use of the work bear a real and substantial opportunity cost that is yet uncounted. However, it is questionable whether Microsoft would lower their price if it would earn $10 billion more on licensing from countries such as Russia, Thailand, India and China where most of the copyright infringement happens.
But Microsoft is dumping its selling price on competition from Linux, for example with government clients. Because of this competition, Microsoft will also be forced to release an update to Internet Explorer to the public for its current product which it originally planned to release with its next operating system.
Alternative systems of protection
Before intellectual property laws existed in their current form, there were socially-enforced systems for protecting intellectual works, such as the ancient scholarly taboo against plagiarism.
Other informal systems of protection include the customary code of non-infringement used by clowns to recognise each performer's exclusive right to their unique style of makeup, costume and persona. The universality of "The Code" supports the belief amongst clowns that this traditional protection is more effective than that provided by trademark and copyright law. Nevertheless, clowns sometimes do seek the protection of "clown material" using intellectual property laws, perhaps against infringement by third parties outside the clown community.
With the advent of valuable domain names, and the practice of domain name squatting, the right to use and register certain domain names are often contested, particularly where a domain name consists of or comprises another party's well known trademark. Domain name registries, which are generally non-governmental organisations, utilise dispute resolution systems which operate in parallel with national laws. ICANN requires that registries for top level domain names (eg. .com and .net) use the Uniform Domain-Name Dispute-Resolution Policy (UDRP), while other registries use systems such as Nominet UK's "Dispute Resolution Service" (for the .uk registry), which often adopt or mirror the provisions of the UDRP.
Valuation of intellectual property
Little argument over intellectual property (IP) would occur if it did not have a value for the owner. The principle of valuing IP is to determine the future income associated with its ownership (Smith&Parr: Valuation of Intellectual Property and Intangible Assets, 3rd Edition, Wiley 2000). Note that the value of IP is independent of its cost. The creation of a musical composition, invention, valuable software may have cost little, and can generate a very high income. Profit margins from IP are typically much higher than profit margins from manufacturing of tangible goods.
Determination of future income requires estimating the income due to the IP in each of all future years over its life; i.e., the amount sold and the net income per unit after routine sales costs are deducted. If the IP is used internally, then the savings due to owning it can be similarly estimated. The risk that intellectual property becomes obsolete is high, and reduces the current value. Without risk, future income is discounted by using a risk-free interest rate. Risks include unexpected competition, unauthorized copying, patent breaches or invalidation, and loss of trade secrets. With such risks, discount rates increase, based on the expected Beta coefficient. With high discount rates, sales that occur far in the future have little effect, simplifying the determination of the net current value of the included IP.
When the items being valued contain multiple IP components, then the proportion and life of each component must be determined. That case exists in the small, as for software that receives updates throughout the future, and in the large, for companies that vend many products. Shareholders of public companies in effect estimate the aggregate IP of a company, providing a market capitalization through the price they are willing to pay for shares, which is in effect the sum of the book value and the IP owned by the company.
U.S. generally accepted accounting principles (GAAP) do not allow the listing on corporate books of IP, making it hard for investors to be rational about share prices. IP is generated mainly through research, development, and advertising (IP generating expenses or IGE), making it hard to assess the effectiveness of IGE. Companies participating in the knowledge economy typically have a market capitalization which is a large factor greater than their book value, the sum of their tangible assets and cash. Only when a company has been purchased will the purchased IP briefly appear on the books as goodwill.
Types of intellectual property
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