In a Business Combinations, these –by definition– are intangible assets and are therefore recognised separately from goodwill, provided that their fair values can be measured reliably. These intangible assets meet the definition of an intangible asset because they again –by definition– arise from contractual or other legal rights.
- Patented technology
A patent is an exclusive right granted for an invention. While it is certainly true that not all enterprises develop patentable inventions, it is a wrong to believe that patents only apply to complex physical or chemical processes and products or that they are only useful to large corporations. Patents can be obtained for any area of technology from paper clips to computers. Moreover, when people think of patents, what usually comes to mind are major scientific breakthroughs such as Edison’s first electric lamp, or large corporations investing in research and development. But, in fact, most patents aren’t granted for groundbreaking scientific breakthroughs, but rather for inventions that make improvements to existing inventions. For example the second or third generation of a product or a process, that works in a more cost-effective or efficient manner. Technology-based intangible assets – Legal titles and secret
- Computer software and mask works
If computer software and program formats acquired in a business combination are protected legally, such as by patent or copyright, they meet the contractual-legal criterion for identification as intangible assets. Mask works are software permanently stored on a read-only memory chip as a series of stencils or integrated circuitry. Mask works may have legal protection. Mask works with legal protection that are acquired in a business combination also meet the contractual-legal criterion for identification as intangible assets. Technology-based intangible assets – Legal titles and secret
- Trade secrets such as secret formulas, processes or recipes
If the future economic benefits from a trade secret acquired in a business combination are legally protected, that asset meets the contractual-legal criterion for identification as an intangible asset. Otherwise, trade secrets acquired in a business combination meet the definition of an intangible asset only if the separability criterion is met, which is often likely to be the case. Trade secrets can have a major impact on the economic success of a firm. Two examples from the USA and Germany demonstrate this. The recipe of Coca—Cola is probably one of the most famous formulas in the world. As it is not protected by a patent, this information is not public. While the ingredients have to be documented on the bottle, the formula itself is still a very well protected secret. Not only technical know-how but also economic trade secrets may often be important for successful businesses. Aldi is a privately owned German discount supermarket chain operating over 8,200 stores through 66 regional companies in 18 countries. This group is a significant example of a successful entity with minimum transparency about its management strategy, financial situations and key numbers. The latter have been one of the best-kept secrets of German industry; only recent legal obligations to disclose certain financial data provided some insight into the sales of this group (about $50 billion in 2008). Technology-based intangible assets – Legal titles and secret