One of the most striking results of a new academic study is that in 2012, litigation by patent monetization entities now represents a majority of the patent litigation filed in the United States. Specifically, patent monetization entities filed 58% of the patent lawsuits in 2012. This is a sharp rise from 2007, when patent monetization entities filed only 24% of patent infringement litigations.
1. How should costs of a patent be recognized in the financial statement?
2. Assume that XYZ company successfully defended its technology patent for airbags. The legal costs were $500,000. What journal entry should be made for these legal costs?
3. Assume the same information in #2. The patent was originally recorded at $2,000,000 in 2013 and is amortized over 10 years. The suit to defend the patent was successfully defended in 2015, two years after the patent was initially recorded in XYZ’s books, but prior to year end. Based on this information, how much amortization should XYZ record in 2013 and 2018?
The Institute for Innovation Law. (2013). Patent Trolls Now File Majority of Patent Litigation, Academic Study Shows. University of California – Hastings College of Law, April 9 (Retrievable online at http://www.uchastings.edu/news/articles/2013/04/aia-500-expanded.php)