Defensive intangible asset definition
/What is a Defensive Intangible Asset?
A defensive intangible asset is an intangible asset acquired by an entity which does not intend to actively use the asset, but instead intends to hold it to prevent others from using it. The benefit of preventing other entities from using an intangible asset is the direct and indirect cash flows related to their not being able to use it.
Example of a Defensive Intangible Asset
An example of a defensive intangible asset is when a smartphone manufacturer purchases a patent related to a unique battery-saving technology, even if it does not plan to implement the feature in its own devices. By holding the patent, the company blocks rival firms from incorporating the technology into their products, thereby protecting its market position and competitive advantage. This strategic use of the patent is purely defensive, as the value lies in restricting competitors rather than generating direct revenue.
Accounting for a Defensive Intangible Asset
A defensive intangible asset is accounted for as a separate unit of accounting, and is assigned a useful life that reflects the expected consumption of the asset’s benefits. In nearly all cases, the asset is then depreciated over its useful life. If the asset is an intangible one, then it is amortized over its useful life.
A defensive asset rarely has an indefinite life, because its effect is diminished over time due to various competitive factors.