Related to this problem of patent costs is the effect on manufacturing costs of the rate of depreciation of the patent. It is evident that a too rapid depreciation will result in an inequitable loading of the product made during the early years of the life of the patent as compared with that of its later life. A product made under a patent still valuable after all value has been written off the books, bears none of the burden though enjoying the benefit accruing from its being a patented article. On the other hand, if the rate of depreciation is not rapid enough, the product is then underburdened. It should constantly be borne in mind that depreciation is always an estimate. It should be the best estimate possible and subject to periodic revision where accurate results are desired. Slight inaccuracies and inequities are bound to occur and must be absorbed by the future product; the record of the past is a closed book and cannot usually be reopened.
Sale Price of Patents
The sale price of a patent, as distinguished from the value at which the owner may carry it in his accounts, frequently is based on the estimated savings in royalties which could be made by a purchaser. When a new concern is organized and patents are owned by some of the incorporators, and purchased from them, the value at which they are carried is almost always speculative and arbitrary. A valuation based on the saving in royalties has no place on the books of a concern unless that price were paid in purchase. Similarly, licenses to use patents should not be carried as an asset unless purchased by a lump sum payment even though they grant a virtual monopoly in the product.
Copyrights
Copyrights are similar to patents in that they secure to the author or publisher the exclusive right for a term of years to make and sell copies of literary or artistic productions. They are thus in nature a monopoly grant. The term for a copyright is 28 years, with a renewal privilege of 28 years if application is made within one year prior to expiration of original copyright.
A more rigid application of the principles of valuation enunciated for patents must be made for copyrights. On the books of the original grantee they should be carried at full cost which may be only the fees required in securing the copyright. For a subsequent purchaser they should be set up at full cost to him. A much smaller proportion of copyrights than of patents continue valuable for their granted term. Periodic valuations, then, require a very liberal and rapid depreciation from original value. In the accounts of publishers who make outright purchases of copyrights, extreme care is needed in keeping track of and valuing this asset, else a too optimistic outlook will result in carrying false and misleading values. Oftentimes the only satisfactory and reliable method of valuation will require an examination of each copyright owned and an independent appraisal of its worth.
Trade Secrets
Akin to copyrights are formulas for manufacture, receipts, and other trade secrets. These may constitute very valuable holdings, perhaps the most valuable of all the assets, but they are not usually carried on the books as assets under this title. A baker with a secret economical process of making yeast may have a marked advantage over competitors. An oil refiner with a process which secures a larger return of gasoline has a similar advantage over competitors without such means of refining. If costs are incurred in developing or acquiring these formulas or processes, the same reason exists for treating them as assets as in the case of patents or copyrights. If not protected in any way by the government, greater need of rapid depreciation is apparent as the discovery of the secret by others might greatly reduce its value.
Trade-Marks
A trade-mark is an earmark of ownership for advertising and selling purposes. Thus a firm may adopt a label for their products or a manner of marking or displaying them which wherever used is evidence of the make, brand, and quality of the goods. A concern enjoying a trade built up by educating the public to recognize its trade-marks and what they represent may possess therein a very valuable property. The courts of the country guarantee the rightful owner in the exclusive enjoyment of any benefits arising from the use of his trade-mark. Priority of continuous use is the factor determining rightful ownership. Such priority is most easily established through registration of the trade-mark with the government. Registration is not necessary but is offered by the government as a convenient and certain means of establishing rightful ownership. Continuous use is necessary to retain unquestioned ownership of the right.