UK Accounting Glossary
Creative works such as designs, logos, slogans, music, writing, and ideas that have commercial value.
The concept of intellectual property (IP) treats certain intangible products similarly to physical things. In most countries, IP laws grant certain kinds of exclusive rights over these intangibles on the analogy of property rights, some expiring after a set period of time, and others lasting indefinitely. (See also intellectual capital.)
he purposes of these laws has varied, but most grant the “owner” a monopoly on the use or copying of the protected “property”. This was done historically to both to grant a boon to a king’s favourite, as well as “to promote the progress of science and useful arts”. In the latter sense, patents and copyrights serve as an incentive to inventors and authors to produce works which benefit the public. These creators can exact a fee from those who wish to copy their invention or publish their compositions.
Seen as an incentive to benefit the public, patent rights in particular 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 his investment of time and energy. Using monopoly power, the inventor could exact a fee from those who wanted to make copies of his 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 later years, the public benefit idea has been downplayed in favour of the idea that the primary purpose of “property rights” is to benefit the holder. This view places a priority on the benefit of the patent or copyright holder, even to the detriment of society at large, and has attracted some opponents, notably Richard Stallman.
The four main types of non-physical things considered by this point of view are copyrights, patents, trademarks and trade secrets. Common types of intellectual property rights include conflicting areas of law:
These rights, conferred by law, can be given, sold, rented (called “licensing”) and, in some countries, even mortgaged, in much the same way as physical property. However, the rights typically have limitations, sometimes including term limits and other exceptions (such as fair use for copyrighted works.)
It is important to understand that it is the rights that are the property and not the intellectual work they apply to. A patent can be bought and sold, but the invention that it covers is not owned at all. For this and other reasons, some people think that the term intellectual property is 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 of potential confusion with the economic sense of the term “monopoly.” Others still 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.
Intellectual property rights are generally divided into two categories: those that grant exclusive rights only on copying/reproduction of the item or act protected (e.g. copyright) and those that grant not only this but also other exclusive rights. The difference between these is that a copyright would prevent someone from copying the design of something, but could not stop them from making that design if they had no knowledge of the original held by the copyright holder. A patent, 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 original. Patent rights can thus be more powerful, and generally harder to obtain and more expensive to enforce.
There are also more specialized varieties of so-called sui generis intellectual property 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 breeder rights, plant variety rights, industrial design rights, supplementary protection certificates for pharmaceutical products and database rights (in European law).
Intellectual property may be analysed in terms of its subject matter, the actions it regulates in respect of the subject matter, the duration of particular rights, and the limitations on these rights. Intellectual property law is conventionally categorized according to the subject matter: inventions, artistic expression, secrets, semiconductor designs, and so on. Intellectual property law regulates what people may legally do with these inventions, expressions and so on. The regulations regarding each subject matter area tend to form distinct bodies of law; the rules permitting reproduction without a license of patented inventions and copyrighted expression are entirely independent of one another.
Generally, the activities regulated by intellectual property is unauthorized reproduction. 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 intellectual property rights grant the holder the ability to stop others doing something (i.e., a negative right), but not necessarily a right to do it themselves (i.e., 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 intellectual property 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 covered by the rightholder’s exclusive rights. The granting of this permission is termed licensing, and IP licenses may be used to impose conditions on the licensee, generally the payment of a fee or an undertaking not to engage in particular forms of conduct. 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.
A license is ‘permission’ to do something, in contract form. Therefore a license is only required for activities which fall under the exclusive rights in question. The intellectual property laws of certain countries provides 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.
Many intellectual property rights are awarded by a government for a limited period of time. Such rights are justified as a reward for creating intellectual works. Economic theory typically suggests that a free market with no intellectual property 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 capital, 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 new derived work is prevented.
The term intellectual property is problematic because the rights conferred by IP laws are limited, in contrast with the legal rights associated with property interests in physical goods or land. Not entirely coincidentally, the presence of the word property in the term favours the position of proponents of the expansion of intellectual property rights, who may thereby more readily draw on the rhetoric of property itself to remove the many restrictions built into intellectual property law which would be inappropriate if applied to physical goods. For instance, most nations grant copyrights for only limited terms and allow copyright holders to control only the duplication and not the sale or modification of physical copies of a work.
A common argument against the term Intellectual Property is that information is fundamentally different from the physical property in that a “stolen” idea or copy does not affect the original possession. Another, more specific objection to the term, held by Richard Stallman, is that the term is confusing (http://www.gnu.org/philosophy/words-to-avoid.html#IntellectualProperty) . It implies a non-existent similarity between copyrights, patents, trademarks, and other forms of intellectual property which makes clear thinking and discussion about various forms difficult. Furthermore, most legal systems, including that of the United States, implying that intellectual property rights are a government grant, rather than a right held by citizens.
Though it is convenient for beneficiaries to regard intellectual rights as akin to “property”, most items protected by IP law are not physical objects “ownable” in the traditional sense. For example, the holder of the copyright in a book has the legal right to make and sell copies of the book, and the right to forbid others from making and selling copies of the same book. By analogy, then, he can be said to “own” the words in a similar way to which he might own the press on which they were printed because ownership of a physical object also confers the right to forbid others from using the object.
Opponents of the term also point out that the law itself treats these rights differently than those involving physical property. To give three examples, copyright infringement is not punishable by laws against theft, but rather by an entirely different set of laws with different penalities. Patent infringement is not a criminal offence although it may subject the infringer to civil liability. Possessing stolen physical goods is a criminal offence while mere possession of goods which infringe on copyright is not.
Others would 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.
Even if the concept of owning information is valid in a legal sense, some argue that the term intellectual property is an oxymoron as it is not compatible with fundamental laws of nature. One interpretation of quantum theory is that a) everything is information and b) information is ubiquitous. Therefore it is (in theory) physically impossible to exclude third parties from exposure to information. The concept of “right to exclusion”, fundamental to the legal definition of property, therefore becomes invalid. To date this argument it completely academic as there no are examples of technologies capable of accessing information ubiquitously. However, the advent of quantum computing may make necessary a change in the present widespread paradigms on information (see quantum teleportation ).
It is not exactly clear where the concept of intellectual property originated.
The first patent in England was granted by Henry VI in 1449 to a Flemish man a 20-year monopoly (co-incidentally, the current length of UK/EU patents is still 20 years) on the manufacture of stained glass (destined for Eton College). This was the start of a long tradition by the English Crown of the granting of “letters patent” (meaning ‘open letter’, as opposed to a letter under seal) which granted “monopolies” to favoured persons (or people who were prepared to pay for them). This became increasingly open to abuse as the Crown granted patents in respect of all sorts of known goods (salt, for example). After public outcry, James I was forced to revoke all existing monopolies and declare that they were only to be used for ‘projects of new invention’. This was incorporated into the Statute of Monopolies 1623. In the reign of Queen Anne, the rules were changed again so that a written description of the article was given.
Outside of England, patent law was the subject of legislative protection in the Venetian Statute of 1474.
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 Licencing 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.
The term intellectual property appears to have originated 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.
During the period in question, there was some controversy over the nature of copyright and patent protections in Europe; 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. Regardless, the term intellectual property has gained prominence throughout the world, as evidenced by the United Nations World Intellectual Property Organization (WIPO), formed in 1967.
Recently the general trend in intellectual property law has been expansion: to cover new types of subject matter such as databases, to regulate new categories of activity in respect of the subject matter already protected, to increase the duration of individual rights, and to remove restrictions and limitations on these rights.
Another effect of this trend is an increase in the term of the government-granted rights, and 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 had the effect of treating a corporation or business owner as the legal author of works created by people while employed.
Another trend is to increase the number and type of what is claimed as intellectual property. This has resulted in increasingly broad patents and trademarks: for instance, Microsoft attempting to trademark the phrase, “Where do you want to go today?”. Trademarks in EU law can now encompass smells (e.g. of cut grass for tennis balls), shapes (e.g. of a soft drinks bottle), colours (e.g. red for fizzy drinks), words (e.g. COCA-COLA) and sounds (Intel, has registered four notes). The granting of patents for life forms, software algorithms and business models stretches the initial concept of giving the inventor limited rights to exclude the use if his invention.
Some argue that these expansions harm an essential “bargain” driven between public and copyright holders: as most “new” ideas borrow from other ideas, it is thought that too many intellectual property laws will lead to a reduction the overall creative output of a society. The expansion of exclusive rights is also alleged to have led to the emergence of organizations whose business model is to frivolously sue other companies.
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 peer-to-peer file-sharing networks like Kazaa and Gnutella represents a challenge to intellectual property laws. The Recording Industry Association of America, in particular, has been on the front lines of the fight against what it terms “piracy”. Though the industry has had some victories against services, including a highly publicized case against the file-sharing company Napster, the increasingly decentralized nature of these networks is making legal action more difficult.
The notion of protecting intellectual capital is much older than copyright or patent law. There have long existed socially-enforced systems for protecting intellectual capital. These include the ancient scholarly taboo against plagiarism, along with other informal systems such as the one used by clowns to protect their unique style of makeup.
On a more modern topic, intellectual property law has been brought to bear on domain names where trademark holders (in particular) have objected to third parties registering domain names which they believe should be theirs. The domain name registries, many of whom are not governmental organisations, have had to find a solution to this and therefore have dispute resolution systems which operate in parallel with national laws. The majority of the generic top-level domain names (.com, .net etc.) use the ICANN model known as the Uniform Dispute Resolution Policy (UDRP). Other registries, such as the .uk registry Nominet UK have their own different systems. For example, Nominet’s system is called the Dispute Resolution Service.
Intellectual property rights such as copyrights and patents give the holder an exclusive right to sell, or license, the right to use that work. As such, the holder is the only seller in the market for that particular item of intellectual property, 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 market for intellectual property. For this reason, many writers prefer that intellectual property rights are described as exclusive rights rather than monopoly rights.
If the market for the rights to some intellectual property is perfectly competitive, then the rights to that intellectual property will generally be worthless. This is because, in a perfectly competitive market, sellers are price takers and can sell to as many people as they like at the prevailing price in the market. It costs little or nothing to grant someone the right to use a copyrighted work or patent, so the optimal behaviour for the seller is to sell as many licenses as possible, whatever the price is, forcing the price towards zero. Thus intellectual property rights, to be valuable, must give the holder some market power (the ability to influence price) in the market for rights to use that intellectual property. An example may be a patent covering an idea where another idea which is in the public domain provides the same utility and no-one is likely to accidentally stumble on and use the patented idea. If someone were to re-invent the patented idea and use it unaware a patent exists, the patent holder can claim damages.
The case for intellectual property in economic theory is substantially different than the case for tangible property. Consumption of tangible property is rivalrous. For example, if one person uses a plot of land 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. Intellectual property does not share this feature. For example, an indefinite number of copies can be made of a copyrighted book without interfering with the use of the book by owners of other copies. Therefore, the rationale for intellectual property rests on incentive effects. Without intellectual property rights (or subsidies), there would be no direct financial incentive to create new inventions or works of authorship. However, as Wikipedia and Free software demonstrate, works of authorship are written without direct financial incentives. Moreover, many important works and inventions 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.
A more elaborated view of capital suggests that the three most common property instruments applied to provide exclusive rights to use different things: copyright covers creative works and expressions of ideas, patent covers ideas with industrial application and trademark covers means to uniquely identify a producer or other source of reputation. The three types of instruments have different histories, different intent, and protect (in the modern analysis that grants capital status to individual creativity, instructions, and social repute) three different kinds of capital. Even if asserting that any of the three is property is acceptable, asserting that all three deserve it for the same reasons is not. Yet the most common definitions in international law confuse the three rather badly:
Those who contest the idea of IP say that this assertion is propaganda for a property view of these works or marks, and for their confusion with each other. They also prefer the older terms individual capital, instructional capital and social capital to the more modern “intellectual capital” which has an ambiguous status, even among believers in neoclassical economics. It seems no one can say exactly “what” this “IP” or “IC” “is”, other than to say that they are related to each other, and that holding IC gives you the ownership of IP, and that holding IP gives you the right to be paid. This view of political economy does nothing to suggest either is useful to society at large, or why police or court time should go into enforcing rights.
While widely accepted in Western culture, the status of IP is disputed in India, China and other developing nations. Economist Lester Thurow claims that only in nations whose culture derived from practices of Judaism, Christianity and Islam, all of which share a vision of man as “created in God’s image”, is the creative power of the individual assumed to be worthy of property protection. These nations have imposed the intellectual property system and benefit from it – the United States and the United Kingdom are the only two nations who consistently receive net balance of payments benefits from IP. On the other hand, if incentives do increase investments in invention and authorship, then the resulting inventions and creative works may produce net benefits to other nations–as would be suggested by the so-called law of comparative advantage.
A more recent type of IP, the protection of databases, has been introduced by the EU in 1996. This is an important right as it protects the information contained in a database against re-utilisation and extraction of a substantial part. The right, in order to come into existence, requires a substantial investment and subsists alongside copyright in the database structure
That software company has developed a computer program to help companies put an exact dollar value on their intellectual property.
Most authors copyright their work and count it as intellectual property that they own, even if they allow others to quote from their texts.
To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.
Definitions for Intellectual Property are sourced/syndicated and enhanced from:
This glossary post was last updated: 15th February 2020.