How Will The Impairment Of The Patent In The Event Of Losing A Lawsuit Be Reflected On The Financial Statements?


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Connor Sephton answered
In most cases, the impairment of a patent after losing a lawsuit will reflect negatively on a company's financial statements. The patent impairment is recorded as a loss or a decline in income. A patent impairment occurs when a company that has taken out a patent is no longer able to benefit financially from it, so the cost of the patent outweighs the gains it provides.

Companies seek to take out a patent when they come up with an original idea for a service or product, and they wish to make revenue from it. The patent prevents other competing companies imitating their idea. Therefore, due to a lack of direct competition, the company can sell more of their product or service and charge a higher price for it.

Successful patents do not often have long lives; typically, they will last for a maximum of twenty years. This time could be significantly shortened if a competitor company finds a way to avoid the patent, or if the patent severely limits competition. Often, companies which have taken out patents will find that despite their patent, competitors still copy their idea. This typically results in the company attempting to sue its competitors.

If the suing attempt fails, the patent will be impaired, as it no longer provides a benefit; the product has been replicated. This means the company has lost a financial opportunity. A variety of companies have lost patent lawsuits in the past, from a number of industries, including:

• Food and drink companies such as Coca-Cola
• Electrical product companies
• Air travel companies

Inventors now go to great lengths to secure long-lasting, high quality patents in order to avoid potential lawsuits.

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