Capitalization of patent expenses

Capitalizing the legal and filing fees, as well as defense costs is typical if successful. In my previous role, we had a "patent department", and tracked each application, and subsequent award as if it were an individual project, similar to CIP accounting. We held a small reserve based on our experience that some would be unsuccessful (in our experience, less than 10% of our applications were either not ultimately awarded, or we abandoned the application in process for some reason). We capitalized the fees, the "department manager" (a part time consultant), and any internal time that was specifically allocated to pursuing the patent award (documentation, etc). Note that the early stage idea generation that reulted in the patent application belonged in other budgets, either operating or capital depending on what that person was doing when he or she generated the idea. Once it was awarded, we put the asset on the balance sheet and amortized it. If we abandoned it or it was not awarded, we took the write-off against the reserve account. As a side note, we paid non-executive employees a bonus if the patent was awarded, because the time commitment to get everything documented was sometimes considerable, and we didn't give them a break on their day job to work on patent documents.

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