Topic 1: THE ESSENCE OF INTELLECTUAL PROPERTY AS AN OBJECT OF

ACCOUNTING
Plan
1. The role of intelligence in the philosophical concepts of civilization
2. The evolution of the theory of intellectual property in scientific schools
3. The formation of an intellectual economy in a post-industrial society
4. History of legal regulation of intellectual property relations
5. Ukraine's place in the intellectual arena of the world
 
1. The role of intelligence in the philosophical concepts of civilization
Civilization combines the nature transformed by a human and the means of this transformation, the
human, who is able to live and act in a cultured environment, as well as a set of social relations as
forms of social organization of culture, ensuring its existence and development. Thus, the basis of
modern theory of civilization is the activity approach, which assigns a decisive role in the civilization
process to the intellect of the human capable of generating ideas, creating and mastering new
things.
The idea that the human mind can be measured appeared in the XIX century. It has been thought for
a long time that there were a few geniuses on the earth and that the intellectual level of the rest of
humanity was about the same. The latter statement applied to Europeans only, yet Africans and
other "savages" were automatically considered less developed.
The technological revolution has forced scientists to think about scientific theories of intelligence.
The advent of genetics, and especially the publication of Darwin's theory in 1859, prompted
researchers to pay attention to the physical and genetic factors that determine the degree of
intelligence.
It is from this direction that science emerged, which proved to be one of the greatest mistakes of the
nineteenth century, namely, phrenology. The idea that human characteristics, including intelligence,
can be literally "measured" by estimating a head size and shape, which has long been very popular.
English scientist F. Golton was one of the most famous supporters of phrenology and believed that
intelligence is influenced by genetics only. He proposed to establish a eugenic program in the British
Empire to breed more "high-quality" people through selection. Later, Golton's ideas were adopted by
the Nazis.
At the beginning of the XX century, one of Golton's students, J. Cotell, decided to use more
systematic methods of the intelligence measuring. It was he, who published the first "intellectual
exams," as he called them, where objective criteria were applied.
At the same time, in France, the government commissioned psychologist A. Binet to develop tests to
determine the mental abilities of children, in order to distinguish between "normal" and "retarded"
children. Binet developed a test that remains popular to this day, called the IQ Test.
IQ - intelligence quotient - intelligence quotient
The test differed by that it did not show the absolute level of intelligence, but gave an assessment of
a child’s mind, in comparison with other children of the same age. The older the child, the less the
age could affect the assessment. The test results were divided into several categories. A score
above 14-150 points meant that the test was passed by a genius, 11-140 points indicated a high
level of intelligence, 9-110 - a medium level, 75 points and below - undeveloped mental abilities.
The test quickly crossed national borders and became popular at SIPA. In 1917, the US armed
forces began using IQ tests to classify soldiers. More than 2 million people passed the similar exam.
IQ tests were soon adopted by universities and private companies, which began to use them to test
applicants and potential employees.
In 1960-1970, the IQ test reputation has been severely damaged. Experiments have shown that
there were different types of intelligence and that it was impossible to measure objectively such a
subjective concept as the human mind. In addition, it turned out that the test result can be
significantly improved by simple training, id est, the test result did not reflect the real state of affairs.
However, the IQ test remains a popular, albeit informal, way to measure intelligence.
 
        2. The evolution of the theory of intellectual property in scientific schools
Modern researches on intellectual property cover it from opposite positions that is manifested in
economic, legal, sociological and other approaches. This diversity reflects the lack of a monolithic
basis in the theory of intellectual property at the stage of its formation. The generalization of the
experience of the process of appropriation of intangible goods on the basis of their empirical
description in the works of the sages of the East, the manuscripts of ancient philosophers
demonstrates the maturing understanding of certain elements of intellectual property and the need to
find its origin.
Using the creative potential of Marxism, the social-democratic thought of the West develops a
number of theories of intellectual property. Thus, following the emergence of the idea of socialization
of fixed assets, the expediency of "public property" is substantiated. Property, including the
intellectual property, is beginning to be interpreted mainly as a legal category.
Deepening research on theories of rational expectations, political order, assimilation with the theory
of institutional rotation and enrichment with sociological methods and integrated approaches to the
analysis of economic systems, helped the new institutional economy (D. North) to consider the
behavior of economic entities in the asymmetry of information, management and acquisition of
knowledge.
Neo-institutional economics, which was founded on the basis of the neoclassical approach, develops
the theory of intellectual property in several directions by methods of marginal analysis, game
theory, the principle of methodological individualism.
The most common area is the theory of property rights (M. Friedman, J. Sitler, G. Becker, R. Coase,
A. Alchyan, G. Demzets).
From the point of view of representatives of this direction:
- property refers only to the right, title, interest;
- it is a relationship between people about the use of rare amenities;
- property relations are sanctioned by society (through laws, administrative orders, traditions,
customs);
- property rights have a behavioral significance;
-objects of property gravitate from material to disembodied objects (inalienable personal freedoms);
- Unauthorized behavior is an act of rational economic choice.
The sources of the economic theory of property rights originate from the Anglo-Saxon legal tradition,
which suggested the possibility of fragmentation of property rights to any object between several
private powers of individuals. The splitting of property rights into legal transactions (according to
Honore - 11 elements) creates a basis for optimizing the set of combinations of rights for the most
effective impact on the processes of resource allocation, share and level of income, pricing,
balancing the volume and conditions of exchange and more.
 In the next neo-institutional flow of transaction costs, O. Williams developed the concept of
determination of property rights, asymmetry of information and so on. From the social and legal point
of view of J. Commons, it is valuable to conclude that the claims of the owners of intangible property
cannot be settled in a way acceptable to all, but only through the legal procedure. In his concept of
collective action, he singled out the duality of intangible property - the title of property and the good
itself.
In the alternative school, representatives of the theory of social choice (E. Downs, D. Buchanan, G.
Tallon, M. Olson, E. de Soto) from the standpoint of the methodology of neoclassicists emphasize
the functioning of "political markets", the political mechanism of macroeconomic decision-making,
the ratio of the concepts of "wealth-power", to obtain political rent.
The works of supporters of evolutionary economics (Nelson, S. Winter, O. Williamson) are based
mainly on a synergetic approach, natural science methods. The research singles out the creation of
an "information society", the emergence of information industry, social relations based on exchange
of the information and more. The integration of knowledge acquisition and selection processes
helped to substantiate the procedure for selecting and making the most rational investment
decisions.
The technological paradigm was formed on the basis of evolutionary and functional methods, its
most prominent representatives (L. Soete, B. Verspagen, K. Perez, K. Friedmei, B. Johnson)
consider the concept of "technology" as a means and form of knowledge, "technological change" - in
terms of their impact on transformation processes. The forecasts of the future development of
intellectual property objects created on the basis of the technological approach are characterized by
exaggeration of the importance of technology and ignoring the institution of property as a system-
forming one.
Comparison of views of scientific schools on the essence of intellectual property
(Table 2.1)
Comparison of views of scientific schools on the essence of intellectual property

Signs Basic economic schools

Marxist                 Neoclassical Institutional

Economic system of objectively determined, conscious volitional sanctioned behavioral

content historically changing relations relations of legal relationships between
between business entities, entities and people regarding the
reflecting the appropriation of the individuals about existence of intellectual
means of production and its goods related to their use
appropriation of
results
intangible assets
enshrined in the
legal system

Legal content fiction that reflects real economic indivisible monolith set of transactions
relations

Sphere of origin sphere of production (spiritual) in sphere of exchange legal system (as a market
the process of creation (intellectual property simulator)
market in voluntary
exchange)

Nature objective, historically variable sacred and flexible, plastic, infinitely

inviolable, unlimited combined and recombined
and indivisible

Place in basis of economic relations legal shell institute of the first order
(system-forming)
economic
system

Form of exploitation of hired workers contractual form state specification and

implementation protection of property
rights

Objects material, the results of spiritual economic benefits rare goods (material
production (tangible, intangible) objects, human rights)
 
   
 Subjects one person, team, state, society individual, family, individual
firm
   

Formalization laws, decrees, orders laws, contracts laws, rules, traditions,

(consolidation) customs, norms

Classification of on the principle of socio- private property is by organizational and legal

forms economic formation the only possible form of implementation

 
The quintessence of neoclassical, Marxist, neo-institutional approaches at the turn of the XX-XXI
centuries formed the basis of modern theory of intellectual property in the new economic conditions.
 
3. The formation of an intellectual economy in a post-industrial society
   The world economy of the XXI century is characterized by radical changes in determining the
directions of economic progress. One of the main features of the "new economy", "knowledge
economy" is the transition from the dominance of material production and development of services
to the emergence of multifunctional information technology and penetration of information amenities
in almost all sectors of the economy.
The basic principle of the knowledge-based economy is that knowledge and information are
considered as commercial assets that can be distributed for profit. Obviously, a knowledge-
based economy is more important for countries with limited natural resources.
Signs of "intellectual economy"
• 1) replacement of work by knowledge;
• 2) replacement of labor activity by a new type of activity based on creativity;
• 3) transformation of social production into innovative;
• 4) pluralistic tendencies of ownership;
• 5) prosumerism (erasing the differences between free and working time);
• 6) formation of a new type of economic power (not in relation to the means of production, but in
access to information);
• 7) assertion of knowledge and information as strategic resources that have no signs of exhaustion
(the only limiting factor - the specific human qualities associated with the ability to intellectual
activity);
• 8) overcoming the limitations of amenities and emergence of new deficits - time and information.
Trends in the development of science, culture, technology and production, especially since the
second half of the XX century, indicate that humanity in its development has reached the point,
where further progress will be determined mainly by human mental activity. That is, it is the results of
intellectual activity that determine the strategy and tactics of socio-economic development of any
country. Technological progress has become the third (along with labor and capital) factor of
economic growth.
Due to emergence of the new models of economic growth with endogenous (generated from the
middle of the system) technological progress, in the production function in one form or another
introduced an additional variable - intellectual capital, i.e. the scope of scientific knowledge and
practical experience gained in intellectual activity.
 Intellectual capital is a term for intangible assets that accumulates scientific and everyday
knowledge of employees, intellectual property and experience, communication and organizational
structure, information networks and company image, without which the company cannot exist,
enhancing its competitive advantages.
The main function of the intellectual capital is to significantly accelerate the growth of profits
through formation and implementation of the necessary systems of knowledge, things and
relationships, which, in their turn, ensure its highly efficient economic activity.
(Table 3.1)
Comparative characteristics of intellectual and physical capital
Common features Disagreements
· - intellectual and physical capital exist
in the form of stock, which can create a
flow of values that affect the economy; · -intellectual capital has an intangible nature;
· - arise as a result of investment of · - physical capital is the result of actions in the past,
resources for production; intellectual capital is mostly future-oriented;
· - intellectual and physical capital bring - the basis for the assessment of physical capital are the
profit to its owner; costs incurred, for the assessment of intellectual capital -
the value that will be created in the process of its future use
· - are subject to moral wear and tear;
- require the cost of their support

 
The intellectual capital constituents are as follows:
• 1) human capital embodied in the company's employees in the form of their experience,
knowledge, skills, creativity, as well as general culture, commitment to the philosophy of the
company, its internal values. This capital is not alienable from staff;
• 2) structural (organizational) capital, including patents, licenses, trademarks, organizational
structure, databases, electronic networks,  - simply put, everything that remains in the company
related to intellectual potential, once the staff goes home from work;
• 3) customer (consumer) capital, which includes a system of proven, reliable, long-term, trusting and
mutually beneficial relations of the enterprise with its customers, buyers, as well as the brand name
and history of relationships with consumers.
The World Bank estimates that the intellectual capital in today's economy accounts for about 60% of
each country's total wealth. In the countries, such as Japan and Germany, the intellectual capital
share of is up to 80% of the national wealth.
In the modern society, the intellectual capital is increasingly the basis for successful business. In
many cases, it determines the competitiveness of organizations and is a key factor in their
development.
The transition to a new society, in which the intellectual capital becomes the leading factor in social
production, marks at the same time the transition to a new structure of the value of things we
consume. In particular, the value structure of the most tangible products is changing. For many types
of products, most of the value is created at the stage not so much of material production as
marketing, marketing and R&D, as well as in the process of planning, transportation, sales and
service. The sources of new added value today are largely design, quality control, marketing and
service. Modern production is largely the activity of the mind, i.e. the influence of engineers,
accountants, designers, designers, personnel, sales and marketing professionals, experts in
information networks.
In modern conditions, there is an objective need to understand the role and place of intellectual
property as an economic object, as well as to analyze the peculiarities of the creation and use of
different types of intellectual property. Intellectual property is used in all forms of economic activity
without exception. Unlike natural resources of land, oil, coal, etc., which reserves have a certain
limit, intellectual property is an inexhaustible resource, so in recent decades it has rapidly replaced
traditional material assets and become a driving force of economic and cultural development of
society.
Among the objects of intellectual property a great influence on scientific, technical and economic
development have inventions.
It is difficult to overestimate the role of such an object, as a trademark in promoting the company in
the market.
The fantastic success of "Harry Potter and the Philosopher's Stone" ($ 93.5 million in revenue for the
first three days of release) prompted Warner Brothers to transfer the rights to use the brand under
license agreements to other companies for use in the business from puppet production to software
that gave a significant profit.
The well-known company "Microsoft", using such a copyright object as a computer program, took the
first place in the world by the capital amount, for a short period of time.
 
4. History of legal regulation of intellectual property relations
Sources of legal regulation of intellectual property protection date back to antiquity. Thus,
simultaneously with conscious activity, the human desired to preserve and retain the benefits and
advantages received as a result of impact on the nature or creating something new. For example,
even within the period of the primitive system, the secrets of obtaining fire, creating weapons, etc.
were carefully preserved and inherited. It should be noted that during this period the regulator of
relations was a formally unconfirmed custom.
 In ancient times, of course, there were no laws on the rights of authors and inventors, but in the
ancient Egypt and ancient Greece there was a concept of literary property, which is confirmed by
numerous examples. Thus, Philostratus of Alexandria accused Sophocles of borrowing from the
tragedies of Aeschylus, and Aeschylus of borrowing from Frinich. Already 2300 years ago, in the
Republic of Athens there was a right to protect the whole work and a ban on making changes to it.
An extensive contractual system was developed in the Roman law. That is why, at that time, the
author's consent was already required for the publication of works, and agreements on the
publication of books were concluded between the publisher and the author.
In the Middle Ages, emergence of laws related to intellectual property was preceded by a long period
of granting privileges relating to the rights to monopoly production of goods, trade. Thus, in the XIV
century-Venice, inventors who improved the windmill, were encouraged by plots of land and loans.
A key moment in the development of copyright was the invention of the printing press by the inventor
Guttenberg in the XV century, which made it possible to copy literature mechanically, rather than
copying by hand. In these circumstances, protection against competition on the part of
manufacturers and sellers of illegal copies was needed. The kings of England and France and the
electors of Germany began to grant entrepreneurs privileges in the form of exclusive rights to
reproduce printed copies and distribute them for a limited period. In the event of a violation of these
rights, coercive measures of protection were imposed through fines, arrests, confiscation of illegal
copies, and claims for potential damages. The exclusive law gave developers advantages in
competition. The kingdom, in its turn, received new production technology, which helped to
strengthen its economic position. Such rights were enshrined in a document called a patent, which
meant "open letter", because it had a seal at the end, not on a folded letter.
The laws protecting the rights of creativity appeared only in the XV-XVII centuries in Europe. The
inventor’s right protection started in the Venetian Republic for the first time. The law was passed
there on the author's monopoly right to use his invention for 10 years on March 19, 1474. In 1546 a
royal decree was issued, according to which any work published in England must have information
about the author and typographer and the date of publication.
In order to put an end to special right gift abuse, King James Stuart adopted the "Charter of
Monopolies" in 1623, which proclaimed the right exclusive and independent of the king's will, held by
everyone, who creates and applies a technical novelty to monopolize benefits for 14 years and the
benefits of it. The right of monopoly use was certified by a patent, which differed from the privilege in
that it was issued in accordance with the law and not by the will of the monarch. This act became
one of the most important achievements of the English bourgeois revolution.
A significant contribution to the formation of intellectual property rights was made by the French.
Thus, Louis XVI issued six ordinances in 1777, which recognized the authors' right to publish and
sell their works. Later, the decrees of 1791 and 1793 established the right to use the work and the
exclusive right of the author to reproduce his literary work. It was in France on January 7, 1791 that
the patent law was adopted, which is determined by a number of authors as the beginning of patent
law. In contrast to the English system, the French copyright is interpreted as copyright, which the
author enjoys all his life. However, in both England and France, the copyright was seen, in essence,
as property rights that have economic value, i.e. as material rights.
The next impetus for the development of the copyright was added by German philosophers, in
particular by Immanuel Kant. They saw in the copyright not just a form of ownership that provides
economic benefits to the author, but something more, a part of its personality. Eventually, this idea
led to the development of a system of non-economic or moral rights.
In the same years, the first federal laws of the United States of America for protection of books,
maps, ordinances and other forms of creativity appeared. For example, the Massachusetts law of
March 17, 1789 states that "there is no property that belongs to a person more than that which is the
result of his mental labor."
Interestingly, the privileges on inventions in the Russian Empire in the first half of the nineteenth
century were granted in the form of royal decrees, which were sent to the provinces for execution at
local levels. Only from the end of the XIX century a document form with decoration and title "Patent
for Privilege" appeared.
Term "trademarks" began to be used only in the XIX century. Since then, they began to play their
current role in the distribution of goods, bringing them to the buyer, expanding trade. However, the
more widely used trademarks, the more cases of illegal copying. Therefore, in the middle of the last
century in England, the courts have developed remedies against such violations. Thus, the famous
ban on conducting business under another name was brought to life, no one had the right to pass
their products for another person’s products. In the 3-4's of XX century, the development of
trademark law was generally completed (Germany, 1936; Britain, 1938; USA, 1946). These laws
have largely not expired today.
The basis of the Ukrainian legislation in the field of intellectual property was established in Russia in
the early XIX century by the Censorship Statute of April 22, 1828, in which the author recognized the
exclusive right to reproduce his works by printing. However, already in the Law of January 8, 1830,
the author's right to a work created by him is recognized as a property right that can be traded.
The October Revolution of 1917 liquidated private publishing houses and monopolized publishing.
The first copyright regulatory act of the new state was issued on January 30, 1925, specifically the
resolution of the CEC and the SNC of the USSR "On the Fundamentals of Copyright". After that, the
Soviet Republics began to adopt copyright laws of their own. At that time, Ukraine adopted
regulations on certain issues of copyright, in particular the resolution of the SNC of the USSR "On
royalties for public performance of dramatic and musical works" of December 8, 1925. In 1961, the
USSR adopted the "Fundamentals of Civil Legislation of the USSR and Soviet Republics", the fourth
section of which is devoted to the copyright. According to this document, each Republic, including
Ukraine, has adopted its own Civil Code, the fourth section of which deals with the copyright. The
copyright in the USSR did not comply with the international legal rules used by authors in European
countries. For this reason, the USSR could not accede to many international conventions.
Term "intellectual property" was first used in 1845 by Charles Woodbury,  judge of the
Massachusetts District Court.
In Europe, the term was first used by Alfred Mon in his treatise "Droits civils des auteurs, artistes et
inventeurs" (Civil Rights of Authors, Artists and Inventors), published in 1846.
5. Ukraine's place in the intellectual arena of the world
In Ukraine, as in other post-Soviet countries, the market infrastructure is still extremely
underdeveloped, the patent and licensing business is insufficient, and there is almost no innovation
audit system to assess the commercial viability of innovations. According to the rating of the World
Economic Forum in 2018, Ukraine took the 71-st place among 144 countries in the field of innovation
development, 81-st place in the area of modern technology, 117-th place in the field of intellectual
property protection, which indicates inefficient use of its own innovative potential, the transformation
of Ukraine into a state that exports raw materials with a small share of value added, and emergence
of threats to economic and national security.
In the current system of international technical and economic relations, Ukraine is mainly a supplier
of raw materials to more developed countries, components and finished products are priorities in
relations with the CIS, and technology, equipment, weapons, consumer goods and personnel are
used in relations with the least developed countries only.
In most international ratings, Ukraine has been falling lower and lower for a long time from year to
year, which minimized its chances of attracting foreign investment.
         The analysis of statistical data shows a tendency to reduce the investment attractiveness of
intangible assets of economic entities in Ukraine, which should combine the components of
scientific, technological and innovative development. Concentration of environmentally hazardous
production within the state is observed; shadowing of a significant part of the national economy;
outflow of funds abroad; reduction of domestic demand for training of scientific and technical
personnel; low level of payment for scientific and technical work, etc.
 At the same time, investors include attempts of economic and political dictates by the world's
leading countries into the main external threats to doing business; migrant intrusion to the country
territory, especially from Asian countries; international terrorism, etc. Inefficiency of the state
innovation policy, innovation stimulation mechanisms; imperfection of mechanisms for protection of
intellectual property rights; lack of own working capital and investments in the production sphere to
upgrade technological equipment constitute internal threats.

Topic 2. OBJECTS OF INTELLECTUAL PROPERTY IN THE SYSTEM

OF ACCOUNTING ACCOUNTS
Plan
1. The concept of intellectual property and intellectual capital
2. 2. The content and structure of intellectual property and the content of intellectual property
rights.
3. The structure of intellectual property. Objects of intellectual property rights.
4. Subjects of intellectual property rights. Co-authorship
 
1. The concept of intellectual property and intellectual capital
For the first time the concept of "intellectual property" was defined in Art. 2 of the Stockholm
Convention in 1967, according to which it includes all rights to the results of creative, scientific,
industrial and artistic spheres.
In the process of studying the essence of the concept of "intellectual property" was identified
economic and legal, socio-economic and ethical - economic approaches (Fig. 1.1).
 
 
Fig. 1.1. Approaches to the interpretation of the concept of "intellectual property"
The versatility of the concept of "intellectual property" leads to the possibility of considering it from
two points of view: on the one hand - as economic resources or factors of production that provide
income from the sale of material objects created by these resources; on the other hand, as end
products, the sale of which directly allows you to generate income, as the results of intellectual
activity at a certain stage of development may be the object of purchase and sale.
Among the distinctive features are:
-immateriality of the intellectual product;
-when using an intangible product, its usefulness does not disappear, as in ordinary goods;
- the value of intellectual goods is based on individual costs, not general costs.
Analyzing the approaches of scientists to the interpretation of the concept of "intellectual property",
we believe that this concept is characterized by the following features:
- lack of physical wear and tear, only moral aging;
- the possibility of simultaneous use by an unlimited number of people;
- the need to consolidate legal rights;
- ability to generate income only in the presence of legal rights; limited legal protection by the
territory to which it applies and the time during which it operates;
- public availability of the object at the end of the legally defined period of time or as a result of
termination of the extension of the security document.
Based on the above, we believe that the most reliable and complete essence of the concept of
"intellectual property" is revealed in the interpretation of the Stockholm Convention, namely: all rights
to the results of creative, scientific, industrial and artistic spheres.
As for the definition of "intellectual capital", today it is not enshrined in any legislative act of the
world, although this economic concept provides an opportunity to describe in more detail the results
of intellectual activity.
Modern economic dictionary characterizes intellectual capital as one that is embodied in the
knowledge, skills, experience, qualifications of people.
Analysis of theoretical research has shown that so far not formed a single interpretation of the
concept of "intellectual capital" and the generally accepted structure of the constituent elements of
this concept.
Based on the research of economists, we found that intellectual capital should be characterized as a
system of elements that allows, taking into account the environment, to create additional value.
Based on the above, we believe that the fullest essence of this concept reveals T. Stewart, defining
intellectual capital as certain information, experience, intellectual property, which are used to obtain
wealth.
Thus, in the process of analyzing the approaches to the interpretation of the studied concept of
"intellectual capital", we distinguish the following areas of interpretation: structural, as an intangible
asset, as human capital and as knowledge (Fig. 1.2).

Fig. 1.2. Directions of

interpretation of the concept of "intellectual capital"
Given the study of approaches to the interpretation of this concept, it is worth noting that the
components of intellectual capital are interrelated elements, namely:
- structural capital (software, patents, copyright, trademarks);
- human capital (experience and knowledge of employees, ability to innovate, corporate culture);
- client capital (consumer trust, business reputation, customer relations).
2. The content and structure of intellectual property and the content of intellectual property
rights.
Intellectual activity is a creative activity, and creativity is a purposeful mental work of a
person, the result of which is something qualitatively new, characterized by originality and
uniqueness. There are two types of creativity for a person - artistic and technical.
The result of artistic creativity are literary and artistic works. The result of technical creativity -
inventions, trademarks, trade secrets and more.
The results of artistic creativity are used in the humanitarian sphere to enrich the inner world of man,
the formation of his worldview. The results of technical creativity are used mainly in the field of
production of goods and services and contribute to improving the technical level of social production.
Intellectual property is a statutory right to the results of intellectual activity in the industrial, scientific,
literary and artistic spheres.
 Under intellectual property is understood not the result of intellectual activity of man as such, and
the right to this result. That is, intellectual property is an intangible object.
 For example, in contrast to material objects, in many cases it is much easier to acquire intellectual
property. Yes, if in the course of a conversation you reveal a trade secret, then this information
moves to the brain of your interlocutor and return it back, unlike the material object, it is impossible.
From now on, both parties own the same object. Differences are also observed during the exchange.
The object of property is the right to the results of human intellectual activity. This right has a dual
nature. On the one hand, the creator (author) of the intangible property and the creator of the
tangible property have similar property rights, because the right to the result of creative activity
provides its owner with an exclusive opportunity to dispose of this result at its discretion and transfer
it to others. to the right of ownership of material objects (property right). On the other hand, along
with property law, there is some spiritual right of the creator to the results of creative work, the so-
called author's right.
       That is, the author has a set of personal non-property (moral) rights that cannot be alienated
from their owner due to their nature, and property rights. In other words, if the property (economic
right) to the result of creative work can be separate from the creator (transferred to another person
for limited or unlimited use), then the moral (non-property) right of the author is inseparable from the
creator and cannot be transferred to another person.
        Thus, the intellectual property right is the sum of the triad of property rights (rights to own, rights
to use, rights to dispose) and non-property rights (right to authorship, right to inviolability of the work)
(Fig.2.1).      

 
Fig. 2.1 Content of intellectual property rights
Intellectual property rights are:
• the right to use the object of intellectual property rights;
• the exclusive right to allow the use of the object of intellectual property rights;
• the exclusive right to prevent the misuse of the object of intellectual property rights, in particular to
prohibit such use;
• other property rights of intellectual property established by law.
Intellectual property rights may, in accordance with the law, be a contribution to the authorized
capital of a legal entity, the subject of a pledge agreement and other obligations, as well as used in
other civil relations.
Personal non-property intellectual property rights are
• the right to recognize a person as the creator (author, performer, inventor, etc.) of the object of
intellectual property rights;
• the right to prevent any encroachment on intellectual property rights that could harm the honor or
reputation of the creator of the object of intellectual property rights;
• other personal intangible intellectual property rights established by law.
Property and non-property rights to the result of creative activity are interdependent and as closely
intertwined as possible, forming an inseparable unity. The dual nature of law is the most important
feature of intellectual property.
Characteristic features of intellectual property law
• 1. Objects of intellectual property are not things as objects of the material world, but those ideas,
symbols, images, thoughts, hypotheses, etc., which are expressed in an objective form - embodied
in material media. That is, intellectual property can be replicated.
• 2. The author of the object of intellectual property owns two types of rights, property rights and
personal non-property rights. Property rights can be transferred to other persons, non-property rights
are not subject to alienation.
• 3. Personal intangible intellectual property rights are valid indefinitely, unless otherwise provided by
law. The property right of intellectual property is term, ie it ceases after a certain period, after which
the object of intellectual property becomes public property.
Public Domain is a collection of works whose copyright has expired or never existed. Also "public
domain" is sometimes called inventions for which the patent has expired. Everyone can distribute
and use public property without restrictions. Works that have passed into the public domain may be
freely used by any person without payment of royalties. At the same time it is necessary to observe
the rights of copyright, the rights to the name and the rights to protection of reputation of the author
(personal intangible rights of the author).
The timing and procedure for the transition of the work to the public domain in different countries
differ slightly. In most European countries, the transition to the public domain is provided after 70
years after the author's death or 70 years after the publication of the work.
• 4. Intellectual property rights arise, as a rule, only after the state registration of the result of creative
activity in the relevant state bodies. For objects of industrial property rights, as well as for means of
individualization, such registration is necessary, for objects of copyright registration is desirable.
• 5. The principle of exhaustion of intellectual property rights applies, ie the author may not prohibit
the use and distribution of goods containing intellectual property, if it was lawfully put into circulation
by the right holder through the first sale.
• 6. With the transfer of ownership of the thing to another person, the intellectual property right does
not pass to the new owner. The transfer of rights to intellectual property is in a special order.
• 7. Expropriation of property rights occurs in full, while intellectual property rights are transferred
under license agreements both in full (exclusive license) and in part with restrictions on the term,
method of use, territory, number of copies, etc. In addition, agreements on the transfer of intellectual
property rights are subject to state registration in the same way as intellectual property rights.
• 8. The protection of intellectual property rights in most cases is limited to the territory of a particular
country where the state registration took place (except for well-known trademarks).
• 9. Objects of intellectual property rights are different in the level of creativity, purpose of creation,
nature of activity and, as a consequence, the legal regime of origin, use and protection.
 
3. The structure of intellectual property. Objects of intellectual property rights.
The objects of intellectual property rights include;
1) Objects of copyright
- works of literature (written works of fiction, collections of works);
- works of art (musical, dramatic, choreographic, audiovisual works; works of fine and applied arts,
architecture, photography; stage arrangements, arrangements, adaptations and translations of
works);
- computer programs (sets of instructions, expressed in a form readable by a computer, which put
them into action to achieve a certain goal);
- databases (if they are the result of the selection or organization of their components are the result
of intellectual activity).
2) Objects of related rights
- performance of works (performance for the first time in the country, recorded on a phonogram or
included in the broadcast of the broadcasting organization);
- phonograms and videograms (recordings on appropriate media (magnetic tape or magnetic disk,
gramophone record, CD) performance or any sounds (images);
- programs (transmissions) of broadcasting organizations (a set of live performance or recording,
consisting of images or sounds embodied in signals, and emitted for further distribution).
3) Objects of scientific and technical information and industrial property
- inventions (products (devices, substances, strains of microorganisms, plant and animal cell
cultures) or methods of using previously known products or methods for a new purpose, if they are
new, have an inventive step and are industrially applicable);
- utility models (design of devices that are new and industrially applicable);
- industrial designs (shapes, patterns or colors or combinations thereof, which determine the
appearance of the industrial product and are designed to meet aesthetic and ergonomic needs, if
they are new and industrially applicable);
- scientific and technical documentation (results of research, research and development, design and
technological, production and public activities, fixed in a form that ensures their reproduction, use
and dissemination);
-systems of organization of production, marketing, product quality management, personnel, finance,
investment policy;
-scientific discoveries (establishment of previously unknown, objectively existing patterns, properties
and phenomena of the material world);
4) Non-traditional objects of intellectual property rights:
- innovation proposals (proposals are new and useful for the enterprise to which they are submitted
and provide for the creation or replacement of product design, production technology and equipment
used, or the composition of the material);
-selection achievements (new varieties of plants and animal breeds);
- topographies of integrated circuits (spatial-geometric arrangements of the set of elements of an
integrated circuit and connections between them recorded on a material carrier);
- trade secrets (information of production, organizational, financial and other nature that constitutes
commercial value, not known to third parties and not available to an unlimited number of persons);
- methods of protection against unfair competition.
   - "Know-how" ("show-how") - knowledge and experience of scientific and technical, production,
management, commercial, financial and other nature, which are used in the process of research,
development, sale and use of competitive products, but have not yet become common property (not
protected by security documents).
    Forms of "know-how":
1) documentation (drawings, diagrams, manuals, instructions, specifications, results of experiments
and their protocols, formulas, recipes);
2) direct experience of specialists who have it and are able to use it in a particular field.
5) Means of individualization:
- signs for goods and services (verbal, pictorial, three-dimensional and other designations or their
combinations, made in any color or combination of colors that meet the conditions of legal
protection);
- geographical indications of origin of goods (definitions that identify a particular product originating
in a particular area or locality of the country, if the quality or other characteristics of the product on
which its reputation is based, due to the geographical place of origin of the goods);
- brand names (names of enterprises registered at the regional level, which is their business card
and part of their image).
4. Subjects of intellectual property rights. Co-authorship.
The subject of intellectual property rights is a person who is a holder of personal non-property and
(or) property rights of intellectual property.
In the domestic legislation, the definition of the subject of intellectual property rights is enshrined in
the Civil Code of Ukraine, according to which this subject is:
 1) creator (creators) of the object of intellectual property rights (author, performer, inventor, etc.) and
2) other persons who own personal non-property and (or) property intellectual property rights by will
or contract.
The first group of subjects includes subjects of intellectual property rights, which acquired their
status as a result of the creation or state registration of rights to the object of intellectual property
rights.
The creator (author) is a natural person, whose creative work creates an object of intellectual
property rights. The result of intellectual, creative activity can be created only by an individual. Legal
entities are not "creators", as they cannot create objects of intellectual property rights, only natural
persons working in them can do so. Thus, the subject of law can be any person (individual),
regardless of citizenship, permanent residence, occupation and other personal factors. It can be a
citizen of Ukraine, a citizen of another state and a stateless person.
Based on the specifics of the grounds for acquisition (emergence) of intellectual property rights,
provided by the legislation of Ukraine in the field of intellectual property, the recognition of a person
as the creator (author) of the object does not depend on the extent of its capacity. Creators (authors)
of intellectual property rights may be limited to able-bodied and incapable persons (it does not matter
the age and mental state of the individual).
Intellectual property rights of incapacitated and minors (under 14 years of age) are exercised on their
behalf by parents, adoptive parents or guardians, ie their legal representatives. Minors aged 14 to 18
may independently exercise their powers in relation to objects of intellectual property rights, for
example, enter into contracts for the publication of their works. By law, authorship is also recognized
for individuals who are recognized as having limited legal capacity due to the abuse of alcohol or
drugs, but they can exercise their intellectual property rights only with the consent of their trustees.
Thus, individuals who do not have full civil capacity are holders of personal non-property intellectual
property rights. The realization of intellectual property rights on behalf of such persons and in their
interests is carried out by their legal representatives (parents, adoptive parents, guardians, trustees).
The result of creative activity can be created not by one author, but by two or more. This type of
complicity in the creation of this result is called co-authorship. It can take place in any kind of
creative activity.
Civil law theory recognizes two types of co-authorship:
• a) when it is impossible to single out the work of each co-author - inseparable co-authorship
(mostly inherent in scientific and technical creativity);
• b) when the constituent parts are clearly defined and it is known which of the co-authors created
this or that part - separate co-authorship.
To recognize co-authorship and, therefore, copyright for persons who participated in the creation of
a creative result, the following conditions are required:
• 1) the creative result created by the joint creative work of the co-authors must be a single whole,
such that it cannot exist without its constituent parts as a whole. For example, if one or more
chapters are removed from a textbook written by co-authors, the textbook as a complete work loses
its meaning;
• 2) the joint work of co-authors should be creative. If one tells the story and the other writes it down,
it is not co-authorship. Therefore, co-authors are not persons who provided the author with any
technical assistance - draftsmen, printers, consultants, persons who made the necessary
calculations, provided financial or other material assistance to the author, etc .;
• 3) an agreement on joint work must be concluded (not necessarily in writing, it can also be oral);
• 4) co-authorship must be voluntary;
• 5) in case of separate co-authorship, each of the co-authors retains the copyright to its part, at the
same time he is a co-author of the result as a whole;
• 6) in the case of inseparable co-authorship, the object of joint work may be used only by joint
agreement of all co-authors. However, the right to publish and otherwise use the work, the right to
apply for an object of industrial property belongs to all co-authors, unless otherwise provided by
agreement between them. The composition of co-authors in scientific and technical work may be
reviewed at the joint request of the persons specified in the application as co-authors;
• 7) remuneration for the use of intellectual property belongs to all co-authors in equal shares, unless
otherwise provided by agreement between them.
From co-authorship should be distinguished cooperation, in which several authors participate in the
creation of a collective result of creative activity on behalf of a particular organization (customer).
Such a collective object belongs to the legal entity for which it was created.
The second group of subjects of intellectual property rights should include individuals and legal
entities (as well as the state represented by its bodies), which have acquired intellectual property
rights by law or contract. Acquisition of intellectual property rights under the contract is carried out by
voluntary agreement of the parties with the execution of the relevant legal document, mainly at the
stage of commercialization of intellectual property. Acquisition of intellectual property rights by law is
carried out on the basis of the right of inheritance.
According to the legislation of Ukraine, the right of inheritance passes to the heirs of the author of
the work (regardless of legal capacity and citizenship) in accordance with the law or will.
 The realization of intellectual property rights can be carried out by these entities personally, through
a patent attorney or through collective management organizations.
A patent attorney acts on behalf of the person he represents. Such a power of attorney shall be
executed in writing by a contract, power of attorney or other document confirming its authority in
accordance with applicable law.
An analysis of the laws on patent attorneys in Japan, Germany, Poland, Hungary, the Czech
Republic, Slovakia, and Russia has shown that their key provisions are the legislative consolidation
of the status of the Chamber of Patent Attorneys;
 In Ukraine, according to the State Register of Intellectual Property Representatives, the interests of
citizens in the relevant field are represented by 346 patent attorneys. Their legal status is ensured by
the Resolution of the Cabinet of Ministers of Ukraine "On Approval of the Regulations on Intellectual
Property Representatives (Patent Attorneys)" №545 of August 10, 1994 (as amended).
Collective management as an activity is a set of actions aimed at concluding agreements for the use
of works with users and the collection and distribution of remuneration, as well as other actions
related to the exercise of the rights of copyright and related rights.
Organizations that manage the property rights of authors on a collective basis (collective
management organizations) are created by the subjects of copyright and related rights and acquire
the status of a legal entity from the date of their registration in the general order established for
registration of public (non-profit) organizations.
By their nature, property rights management organizations are non-profit. The purpose of their
activity cannot be to receive profits from their activity. The powers granted to these organizations are
transferred to them by authors and other persons who have copyright or related rights, in the form of
written agreements only. The restrictions provided by antitrust law do not apply to the activities of
these organizations.
The main tasks and functions of these organizations may be the promotion and advertising of works
of science, literature and art to the general public, entrepreneurs and any other persons for use;
concluding license agreements with users, exercising control over the use of these works;
preparation of model agreements for the use of works or objects of related rights; collection of fees
for the use of works and their distribution; legal advice to authors and other subjects of copyright and
related rights; collection of information on the use or possible use of works or objects of related
rights.
Collective management organizations are obliged to distribute and timely pay the collected amounts
of remuneration in proportion to the actual use of works of science, literature and art and objects of
related rights. Subjects of copyright and related rights have the right to know, and collective
management organizations are obliged to provide them with full reports on the scope, methods of
use of their works or objects of related rights.
After gaining independence, 14 collective management organizations were registered in Ukraine,
including one state-owned enterprise, four organizations created by business entities, one private
organization, and others - associations of citizens. Example:
• 1. State Enterprise "Ukrainian Agency for Copyright and Related Rights".
• 2. All-Ukrainian Association of Copyrights and Related Rights "Oberig".
• 3. Public organization "Association of right holders in the field of fine arts and architectural
activities" Status ".
• 4. Association of Enterprises "Ukrainian Music Alliance".
• 5. Association of enterprises "Ukrainian League of Music Rights".
• 6. Public organization "Agency for the Protection of the Rights of Performers".
• 7. All-Ukrainian public organization Guild of Film Directors "24/1".

Topic 6 : ACCOUNTING EVALUATION OF INTELLECTUAL

PROPERTY ITEMS  
Plan

1. Approaches to valuation of titles to the intellectual property items

2. Accounting valuation of the intellectual property items in acquisition
3. Further assessment of intellectual property  
4. Liquidation and disposal
5. Depreciation
 
                    1. Approaches to valuation of titles to the intellectual
property items
Definition of value (cost) of titles to the intellectual property items is one
of necessary, responsible and difficult stages of commercialization thereof.
When evaluating, you need to determine what valuation item specifically
is: rights invention, technology, trademark, trade secret or all things
together?
It is necessary to make sure that there is a document of title for particular
intellectual property titles, which certifies eligibility of holding proprietary
rights in relation to this item. If proprietary titles to the intellectual
property items was exhausted or terminated prematurely, for example, in
the case of failure to pay  annual fees for support of a patent or a
certificate, then the title to intellectual property and along the item of
evaluation disappear .
Sequence of valuation of the intellectual property items.
The next step is to determine the purpose of the valuation. Valuation of the
cost of titles to the intellectual property items is most often carried out in
order to determine:
- taxable base of a company's property;
- cost of intellectual (industrial) property, which is contributed to the
company’s authorized capital;
- cost of exclusive rights transferred on the basis of an agreement on
transfer of titles to the intellectual property items or a license agreement
on a right to use such item;
- amount of compensation to be paid in accordance with the applicable law
to the owner of intellectual property for violation of its exclusive (property
rights).
Need of valuation of the cost of the intellectual property also appears:
- in the case of its inclusion in innovative, investment projects;        
- in the case of expanding markets;        
- in the case of insurance;        
- transfer of intellectual property as collateral for the purpose of obtaining
loans;        
- determination of damage caused by illegal use of the titles to the
intellectual property items;        
- in the case of the company bankruptcy in the process of its winding up, in
order to satisfy creditors' claims.        
At that, calculations of the cost of the intellectual property item made for
some purposes, are not used for others. Depending on the intellectual
property item title and the purpose of valuation, choose the approach to
the evaluation.
There are three approaches: cost-based; comparative; profitable.
Determining the value of titles to the intellectual property items by using
the cost-based approach is based on calculation of costs for restoration
of the intellectual property items at current prices net of depreciation
(amortization). This approach is the only one suitable, when the
intellectual property item is not intended for profit or when for one reason
or another the value cannot be determined by two other approaches.
The most acceptable in modern conditions is the income approach,
which is based on expectation principle, i.e. the cost of the titles to the
intellectual property items is determined by the amount of future benefits
 that will be received by their owner. Such future cash flows generated are
transferred into current cost.
The essence of the comparative approach is that the cost of titles to the
intellectual property is determined by comparing prices of recent sales of
titles to similar intellectual property items. This is the most reliable
approach to valuation, but in Ukraine due to number of reasons (no
developed market for intellectual property items, inaccessible databases
on results of the intellectual property item sale, etc.) this approach is
practically not used yet.
Within the frame of each approach, there are several methods that allow you
to calculate the cost of titles to the intellectual property items in monetary
units. Calculation of the cost of the titles is rather difficult task, so it is
advisable to perform this work within a contract with a professional valuer of
the titles to the intellectual property items, entitlement certificates of which
are issued by the State Property Fund of Ukraine.
2.     Accounting valuation of the intellectual property items in
acquisition
        In accordance with the International Accounting Regulation (IAS ) 38
Intangible Assets, intellectual property is recognized as intangible asset
and provides for accounting for the following groups of assets:
- rights to marks of goods and services (trademarks, brand names, etc.);
- rights to industrial property (right to inventions, utility models,
industrial designs, plant varieties, animal breeds, know-how, protection
against unfair competition, etc.);
- copyright and related rights (right to literary and musical works,
computer programs, databases, etc.).
Definition of intangible asset must be identified as follows.
          The asset is identified, when:
a ) may be separated, i.e. it may be separated or divide from the entity and
sold, transferred, licensed, leased or exchanged individually or together
with a related contract, identified asset or liability, regardless whether the
entity intends to do so or not,
b ) arises as a result of contractual or other legal rights, regardless whether
they may be transferred or separated from the entity or from other rights
and obligations.
Acquired or obtained free of charge or as a result of development, the item
intellectual property item is shown on the balance sheet, when:
- it is probable that future economic benefits associated with the asset will
flow to the entity;
- its cost can be reliably estimated.
Thus, in order to show the intellectual property items in the balance sheet,
it is necessary to determine the cost thereof.
   Intangible asset should be initially estimated by the cost
value.
   In addition, the cost of separately acquired intangible asset can usually
be estimated reliably. This is especially true, when compensation for
acquisitions is provided in the form of cash or other monetary assets.
Costs of acquisition of the intangible asset separately acquired includes as
follows:
a ) price of its acquisition, including import duties and unreimbursed taxes
on acquisition after deducting trade and other discounts; and
(b ) any costs that are directly attributable to preparing the asset for its
intended use.
The intangible asset that appears as a result of development (or as a result
of an internal project development phase) should be recognized if, and
only if, the entity can demonstrate all of the following:
a ) technical ability to complete the intangible asset, so that it is suitable
for use or sale;             
b ) its intention to complete the intangible asset and use or sell it;             
c ) its ability to use or sell an intangible asset;             
d ) as an intangible asset will generate probable future economic benefits.
Among other things, the entity shall demonstrate existence of the market
for  products of the intangible asset or for the intangible asset itself or (if
used internally) the usefulness of the intangible asset;             
e) availability of appropriate technical, financial and other resources to
complete the development and use or sale of the intangible asset;
f) its ability to reliably estimate the costs attributable to the intangible
asset during its development.             
     In accordance with IFRS 3 Business Combinations, if the intangible
asset is acquired in a business combination, the cost of the intangible asset
is its fair value  as on acquisition date. The intangible asset fair value will
reflect expectations of the market participants as on the acquisition date
concerning  probability that future economic benefits embodied in the
asset will flow to the entity.
        In some cases, the intangible asset can be purchased free of charge or
for a nominal compensation through a government grant. This may occur,
when the government transfers or distributes intangible assets to the
entity, such as airport landing rights, radio or television licenses, import
licenses or quotas, or access rights to other limited resources. In
accordance with IAS 20 Accounting for Government Grants and
Disclosure of Government Assistance, the entity may choose initial
recognition at fair value for both the intangible asset and the grant. If the
entity decides not initially recognize the asset at fair value, it recognizes
the asset initially at a nominal amount (according to another approach
permitted under IAS (IAS) 20) plus any costs directly attributable to
preparing the asset for its intended use.
       One or more intangible assets may be acquired in exchange for a non-
monetary asset (or assets), or for a combination of monetary and non-
monetary assets. The cost of such intangible asset is estimated at fair value
unless (a) the exchange transaction is deficient of commercial essence or
b) it is not possible to estimate reliably the fair value of either the asset
received or the asset transferred. The acquired asset is estimated in this
way even, if the entity cannot immediately stop recognition the asset
transferred. If the acquired asset is not estimated at fair value, its cost
value is determined at the carrying amount of the asset transferred.
Use of the intellectual property as an intangible asset in economic activity
of enterprises and reflection of such item flow in the accounting makes it
possible:
- to document long-term property rights by accounting thereof in the
balance sheet of the enterprise and create appropriate depreciation funds;
- to receive additional income from transfer of rights to use the titles to the
intellectual property items, as well as to provide (depending on scope of
the titles transferred) reasonable regulation of prices for innovative
products of the enterprise;
- to pay royalties to individuals, eluding a salary fund, with attribution of
the cost of royalties to the cost of production "Other costs", i.e. without
limiting the amount of payments and without traditional contributions to
insurance and other funds.
After creation of the intellectual property item and execution of a title
document and the title vesting in, an important stage in its life cycle
comes, namely, - commercialization. It is at this stage that the intellectual
property item brings the title holder a profit or other benefit, exactly what
it was created for. However, as soon as information about the intellectual
property items becomes known to mala fide competitors, they are tempted
to use this intellectual property item in their interests without permission
of the title holder, i.e. illegally. Violation of rights can lead to serious
negative consequences for the title holder. Under critical conditions, it
may even go bankrupt.
       3. Further assessment of intellectual property
Cost-value model
After initial recognition, an intangible asset should be shown at revalued
amount, which constitutes its fair value as on the date of revaluation, less
any accumulated amortization and any accumulated impairment losses.
Revaluation model
 After initial recognition, an intangible asset should be shown at revalued
amount, which is its fair value as on the date of revaluation, less any
subsequent accumulated amortization and any subsequent accumulated
impairment losses. For revaluation in accordance with this Standard, fair
value should be estimated by reference to the active market. Revaluation
should be made on a regular basis, so that at the end of the reporting
period the carrying amount of the asset does not differ materially from its
fair value.
The revaluation model does not allow:
(a ) to revalue intangible assets that were not previously recognized as
assets; or             
b ) initially recognize intangible assets in amounts other than their
cost.             
The revaluation model is applied after the asset has been initially
recognized at its cost-value.
Existence of the active market for intangible assets is uncommon,
although it does occur. For example, in some jurisdictions there may be an
active market for taxi licenses, fishing licenses or freely circulating
production quotas. However, the active market cannot exist for brands,
titles, music and film publishing rights, patents or trademarks, as each
such asset is unique.
If the intangible asset is revalued, any accumulated amortization as on the
date of revaluation:
a ) is recalculated in proportion to change in gross book value of the asset,
so that the book value of the asset after revaluation is equal to its revalued
value,             
or
b ) is removed from the gross book value of the asset, and the net amount
is transferred to the revalued value of the asset.             
4. Liquidation and disposal
The intangible asset should be derecognised:
a ) in the case of its disposal,             
or
b ) if no future economic benefits are expected from its use or
disposal.             
Gain or loss arising on derecognition of the intangible asset should be
defined as the difference between the net disposal proceeds (if any) and
the carrying amount of the asset. They are recognized in profit or loss
when the asset is derecognised. Profits are not classified as income.
The intangible asset may be disposed of in various ways (for example, through
sale, a finance lease or a gratuitous transfer). In determining the date of
disposal of such asset, the entity applies the criteria in IAS 18 Revenue, to
recognize revenue from the sale of goods.
5.   Depreciation
      The intangible asset accounting is based on its useful life. The
intangible assets with defined useful lives are depreciated, while the
intangible assets with indefinite useful life are not. The term "indefinite"
does not mean "infinite".
In determining the useful life of the intangible asset, many factors should
be considered, including:
a ) expected use of the asset by the entity and ability of another group of
management to manage the asset effectively;             
(b ) life cycles of typical products for the asset and open information on
estimates of the useful lives of similar assets that are used in a similar
manner;             
c ) technical, technological, commercial and other types of wear;             
d ) stability of industry, in which the asset operates and changes in market
demand for the volume of products or services from this asset;             
e) expected actions of competitors or potential competitors;
f) level of service costs necessary to obtain the expected future economic
benefits from the asset, and ability and intent of the entity to achieve that
level;             
g) period of control over the asset and legal or similar restrictions on the
asset use, such as the expiration dates of related leases; and             
h) dependence of useful life of the asset on the useful life of other assets of
the entity.
Computer software and many other intangible assets, given the rapid
changes in technology, are sensitive to technical aging. Therefore, it is
likely that their useful life is short.
The intangible asset useful life may be very long and even indefinite.
Uncertainty justifies estimation of the intangible asset useful life on the
basis of prudence, but does not justify choosing an unrealistically short
term.
Amount of the intangible asset with a finite useful life that is depreciated
should be allocated on a systematic basis within its useful life.
Depreciation should begin, when the asset becomes available for use, i.e.
when it is delivered to a location and brought to a condition, in which it is
serviceable in a manner determined by management.
Depreciation shall cease on one of two dates that comes first: the date,
when the asset is classified as held for sale (or included in a disposal
group) in accordance with IFRS ( IAS ) 5 or the date, when recognition of
the asset is terminated.
The depreciation method used for the asset shall reflect the expected form
of consumption of the economic benefits from that asset by the entity. If
this form may not be determined, the straight-line method should be used.
Depreciation for each period should be recognized in profit or loss, if this
or another standard does not allow (or does not require) them to be
included in the carrying amount of another asset.
     Various depreciation methods may be used to allocate the amount of a
depreciable asset on a systematic basis within its useful life. These
methods include :
- straight-line method,
- method of balance reducing and
- method of the sum of units of production.
  The method used is selected on the basis of the expected form of
consumption of the expected future economic benefits embodied in the
asset, and is applied sequentially from period to period, if the expected
form of consumption of the future economic benefits does not change.
Depreciation is generally recognized in profit or loss. In the case, where
depreciation costs are part of another asset, they are included in its
carrying amount. For example, depreciation of the intangible assets used
in the production process is included in inventory carrying amount.

Topic 7. ACCOUNTING SUPPORT OF INTELLECTUAL PROPERTY

PORTFOLIO MANAGEMENT
 Plan
1.Essence, structure and main stages of the intellectual
property development.
 2.Intellectual property item use
3.Information support of intellectual property
management.
 
1.      Essence, structure and main stages of the intellectual
property development.
There are five stages in the intellectual property item life cycle:
1) intellectual property item development;
2) acquisition of title to the intellectual property item;
3) use (commercialization);
4) protection of intellectual property titles;
5) intellectual property item disposal.
The intellectual property development begins with an idea. For
example, it may be the idea of invention or a piece of art. In
business, ideas are usually aimed to increase competitiveness of
technologies or products. Next is the development of this idea. For
example, if it is the invention, you need to do a patent search to
make sure that such inventions have not yet existed. Then test this
idea experimentally. The intellectual property development ends
with its registration on a physical medium (paper, electronic media,
etc.), so that it becomes clear to others. We emphasize that the titles
to intellectual property items are developed by people of creative
work: scientists, engineers, musicians, writers, etc.
Acquisition of the titles to the intellectual property items is an
important stage of its life cycle. The fact is that these items are
exposed to mala fide  competitors. For example, you told another
person about the idea of invention. This person may use your
invention without your permission in their production. Even if
yours and his production start working at the same time, the
competitor wins, because he did not invest in the development of
the idea of the invention and, thus, his goods or services, in which
the invention will be used, will be cheaper and, as a result, more
competitive. To prevent this negative phenomenon, oit is required
to receive legal protection of the intellectual property items or
restrict access to trade secrets used in technology.
For industrial property, the legislation defines a clear procedure for
acquiring such rights. The essence is that you make information
about the intellectual property items public, and in return, receive
from the public authorities guarantee for protection of your rights
by force of law. The scope of these rights is defined in a document of
tile issued to you – patent or certificate. If the intellectual property
item does not meet the conditions prescribed by the law of
registrability, you need to take care of other forms of protection of
these items, say about those that are used to protect secret
information.
Unlike the industrial property items, copyright is protected by law
from the time of creation, or rather from the time of
implementation in a physical form. The law makes it possible to
carry out legal protection of such items at any time during the
period of protection specified by the law, by obtaining the document
of title  - the certificate. To solve the problem of implementation of
the intellectual property successfully, we must identify six main
groups of participants and innovation process:
˗ authors of new technical solutions;
˗ heads of scientific and technical organizations;
˗ managers, who form business proposals and manage projects;
˗ officials, who make decisions about the state support;
˗ strategic partners that include innovation in their technical
development strategy, investors, who risk real finances.
As a rule, inadequacy of the author of new technical solutions is
manifested primarily in the fact that he is ready to offer his
brainchild only for a disproportionately high reward. The world
practice shows that only the transformation of the original
development into a product or technology will give the author a
reason to receive the bulk of reward in the form of dividends from
their sale. Another part of contradictions arises as a result of
inadequate behavior of the heads of scientific and technical
organizations. They seek to support and develop their institutions
through private investment, to finance new developments, but no
private investor will provide enough money for this purpose. The
most constructive way is to promote establishment of small
innovative enterprises, where the project direct participants should
receive most of the profits. Such companies will invest and having
friendly relations with Kyiv National University of Technology and
Design, will spend it mainly on development work, but at that
university laboratories and departments will have orders. In
addition, you can transfer the intellectual property created at the
university to small businesses under a license, which will provide
additional income. A major problem is training of such managers,
who must competently make innovative business proposals,
manage the project effectively and interact with investors
constructively.
Another problem is that many government officials do not always
have a real idea of the state's place in the process of the intellectual
property implementation. The state should support specific
performers and organizations, give them the right to dispose of the
results of their developments, create favorable conditions for
development of innovations, as well as help to create
communication platforms, such as venture fairs, various
conferences and symposia and open access to information to the
maximum extent.
Another important group of the participants in the innovation
process, which plays a fundamental role, are strategic partners.
They can be large commercial and industrial companies, the owners
and managers of which develop strategic plans for release of new
products, development of new markets and development of
innovation and technology business on this basis, to increase
competitiveness.
Finally, the last, but very important group of the participants in the
innovation process are investors. There is a sufficient number of
potentially private investors willing to risk money in real, but many
are afraid to take on venture (risky) investments. It should be noted
that every year investors become more civilized and the hope is that
eventually these participants in the innovation process will play a
significant role across the country.
 2.      Intellectual property item use
In the process of the intellectual property title use, the balance of
interests of the parties must be fully realized, which will allow to
move as much as possible from modern research to full-scale
industrial production and filling the market with new domestic
goods.
Use of the intellectual property titles is the most productive stage of
its life cycle. Up to this stage, the intellectual property items brought
none profit to the developer. Instead, funds were spent to develop
the intellectual property item and acquire legal protection. Only
during use (commercialization), initial costs are compensated and
income received - actually something, for which the intellectual
property item is developed most often.
A lot of ways of the intellectual property item commercialization
exist. Protection of rights is carried out, if these rights are violated
by the mala fide  competitor. The current legislation of Ukraine
gives the holder of a title to the intellectual property items several
ways to protect them. At present, cases related to intellectual
property titles are considered administratively or judicially. The
most effective form of protection is to go to the court. Authors,
performers, producers of phonograms and videograms,
broadcasting organizations may apply to the State Department of
Intellectual Property, State Enterprise "Ukrainian Agency for
Copyright and Related Rights" to protect infringed copyright and
related rights. The latter carries out collective management of
property rights of the authors. Some violations of the industrial
property rights are considered by the  Chamber of Appeals attached
to the State Department of Intellectual Property. Regarding
infringement of the intellectual property titles, you can also apply to
the Antimonopoly Committee, the State Service for Combating
Economic Crimes of the Ministry of Internal Affairs of Ukraine, the
State Customs Service of Ukraine.
Disposal is the last stage of life cycle of the intellectual property
item. So, by definition, the intellectual property item is an
intangible object, it is not necessary to destroy or recycle into
something else. Just after effective term of the intellectual property
item, which was legally prescribed, the intellectual property item
disappers as an item of property and goes into the public domain.
That is, anyone can use it without permission of the copyright
holder.
Management of the intellectual property items at the stage of its
creation. At this stage, you need to answer the question: "Which
product will be competitive and will be in demand in the market in
the future, perhaps in 84 years?" And only then it is necessary to
start its development. It is necessary to develop a strategy of the
firm, to plan investments in intellectual property, to determine
resources needed to develop new technology and ensure
competitiveness of both the technology itself and the goods
produced on its basis. It is also necessary to assess capabilities of
major competitors. In determining the firm's strategy for 
development of the intellectual property titles, their legal protection
and further use, invaluable benefits are provided by patent research
conducted on the basis of patent information.
Patent information is technical and legal information contained in
official periodicals of intellectual property offices, which are
available in all countries, where the law provides for the legal
protection of intellectual property titles. Almost two-thirds of the
technical information disclosed in the patent information is not
published anywhere else. The number of patent documents in the
world now reaches 40 million. As a result, the patent information is
the only comprehensive collection of systematic technical
information. In addition, patent documents are classified by
technical fields in accordance with a single, detailed International
Patent Classification, which greatly facilitates the search for the
necessary information. For small and medium-sized enterprises,
patent information is useful primarily because, due to its efficiency,
it can be successfully used for strategic planning in business. It
provides an opportunity to learn about current research and
innovation before the relevant products appear on the market.
In the field of commercial business strategy, patent information will
help to:
- trace the best achievements in your field;
- find business partners;
- find suppliers and materials;
- monitor activities of real and potential competitors;
- find relevant markets.
The technical information contained in the patent documents will
enable small and medium enterprises to:
- avoid unnecessary costs for duplication of research;
- identify and evaluate technology for licensing and technology
transfer;
- find alternative technologies;
- be at the current level in a certain field;
- find ready-made solutions to technological problems;
- find ideas for further innovation.
The patent information can also be used by small and medium-sized
enterprises to:
- avoid possible problems with violation of rights of the holders of
the documents of title to industrial property;
- assess patentability of their own inventions;
- object to grant the patents in conflict with a patent belonging to
that small or medium-sized enterprise. The most important part of
the patent information consists of official publications of agencies
responsible for legal protection of the industrial property:
inventions, utility models, industrial designs, trademarks in each
state (national patent documentation) and regional and
international organizations for protection of the intellectual
(industrial) property. Such publications are official bulletins of the
industrial property and descriptions of patents for inventions and
utility models. The official bulletins contain bibliographic
information on country-registered industrial property that is
protected in that country, as well as usually abstract and graphic
information. The most complete idea of the invention can be
obtained by studying its description, but to determine the scope of
rights arising from the patent, you need to analyze the claims, which
are part of the published description and are also published in the
official bulletins.
For all developers of new products and technologies, patent
research, defined by these standards, is no less necessary.
Entrepreneurs are enabled to as follows:
- plan their market strategy confidently;
- determine feasibility of taking measures, to obtain legal protection
of  invention, industrial design or trademark;
- help to avoid violation of the industrial property rights of other
economic entities, and thus, significant financial sanctions;
- identify opportunities to evade or revoke the document of title that
prevents  implementation of production plans of the enterprise.
According to these standards, at all stages of the life cycle of the
object of economic activity (research and substantiation of
development, product development, production and operation or
use of products) patent research is conducted, which includes
search, selection and analysis of published patent and scientific and
technical information, registration of the documents defined by the
standards. Scope (list of countries of publication and search depth)
information to be studied, due to the purpose for patent research at
each step of the intellectual property item lifecycle.
3.      Information support of intellectual property
management.
Management of the intellectual property items at the stage of use of
rights. There are several strategies, which a firm adheres to in
utilization of the intellectual property. Firstly, it is the strategy of
protection from competitors, by obtaining a monopoly on
production of new products for the period of its sale on the market.
It is necessary to determine the optimal method and territory of
registration of exclusive rights. It is important to ensure the patent
purity of products, in order to avoid significant costs in the event of
infringement.
Secondly, it is the licensing strategy based on obtaining monopoly
rights to production technology, which forces other manufacturers
to purchase from the rights holder permission to use this
technology under a license agreement. This strategy makes it
possible to control the market and prosecute mala fide competitors.
Thirdly, it is the strategy of a company authorized capital formation
by including in its composition the intellectual property title that
has a certain value. For an entrepreneur, especially a beginner, this
strategy makes it possible to form a large authorized capital with no
funds, and take an active position in the market.
 Fourthly, it is the strategy to create the company's image, aimed at
increasing investment attractiveness of the company through the
intellectual property title management. The intellectual property
title management at the stage of protection of rights. Together with
increase of the intellectual property item number, increased
competition in the markets for goods and services, a number of
violations of the intellectual property title grows as well. To combat
these violations, companies establish security services that prevent
and detect violations and protect the rights to the titles to the
intellectual property items.
The legal process for protection of the rights is the most effective,
but experience shows that only a small percentage with comparative
infringement of the titles to the intellectual property items is
resolved by court. As a rule, parties agree to compromise, to avoid
significant financial costs, as well as the risk of their business costs.
To a large extent, reduction of the number of offenses is contributed
due to the company's policy aimed at offense prevention in the
intellectual property management at the stage of creation,
acquisition of rights, use of rights, disposal. As noted above, after
expiration of the intellectual property title validity period legally
defined, it disappears as the property item and becomes the public
property. That is, it can be used by any user with no permission of
the title holder. Therefore, at this stage, the company must envisage
any consequences of expiration of the titles to the intellectual
property items. On the other hand, there is a possibility of free use
of scientific, technical and technological developments, the titles to
which belong to other title holders prior to their expiration.

Topic 8. Recent intellectual property item accounting issues

 Plan
1. Features of intellectual property item commercialization
2. Typical license agreements.
3. Trade in technical services. Engineering.
1. Features of intellectual property item commercialization
          The purpose of the intellectual property item commercialization is
profit through use of intellectual property in its own production or sale or
transfer of rights to use to other legal entities or individuals.
The intellectual property commercialization is mutually beneficial
(commercial) actions of all participants in the process of transforming the
results of intellectual labor into a marketable product, in order to obtain
profit or other market benefits.
Main ways of intellectual property commercialization rights are as
follows:
- use of intellectual property rights in own production;
- introduction of titles to the intellectual property items to a company’s
authorized capital;
- transfer (sale) of the titles to the intellectual property items.
It is believed that commercial by using the intellectual property items in 
own production is the most advantageous at revenue angle. As all profits
from sale of innovative product obtained using the intellectual property
items remains with a title holder. Since volume of production may be
great, then profit will come from its implementation, may exceed the value
of the title to the intellectual property items multiply in the event of
transfer of rights to their use and for sale of property rights. It is clear that
this way of commercialization is associated with high starting and
completion costs for the intellectual property item development,
production process development etc. But if successful, sale of the products
compensates these costs and, in addition, a significant profit will be
gained.
If the title  holder does not envisage to use the intellectual property items
in its own production or start a new business or a joint venture, it can
completely or partially transfer the title to another individual or entity.
Article 13 of the Ukrainian Company Act (1991) provides the ability to use
intangible assets (including the intellectual property items) in formation
of authorized capitals of new companies. Thus, the intellectual property
may be contributed to the authorized capital instead of property, money
and other material values, this requires only the good faith of all founders.
Use of the intellectual property in the authorized capital makes it
possible to:
- form a significant authorized capital without diversion of funds and
provide access to bank loans and investments, using intellectual property
as collateral along with other types of property;
- depreciate intellectual property in the authorized capital and replace it
with real funds, including depreciation deductions on the cost of
production, i.e. to capitalize the intellectual property;
- for authors and enterprises - owners of intellectual property - to become
founders (owners) in organization of subsidiaries and independent firms
without branching.
Contribution of the intellectual property titles to the authorized capital
instead of cash also gives the right to:
-  receive a share of profits (dividends);
- to participate in the company management through the general meeting
of the board;
- to obtain a liquidation quota, in the case of the company liquidation, etc.
Property rights to the intellectual property items are a set of rights to own,
use and dispose of this item. The sale of rights in full is carried out
mainly through a contract of sale, as an exchange agreement, under
which, the owner as the selling party loses all property rights to it, as a
result of the transfer of the intellectual property title (sale of a document
of entitlement - patent or certificate).
That is, if the patent for invention is sold, it is re-registered in the name of
the new title holder and all property rights to this item are transferred to
it. But more often only the right to use the intellectual property item is
transferred only. The holder of titles to any industrial property (licensor)
may sell licenses (issue permission to use the intellectual property items)
to any person (licensee), if it does not want or is unable to use a respective
item. By selling a license, the goal is to make a profit without losing capital
for production and market development.
The license sale is a way to introduce technology in the market without
marketable product sale. Legal entities or individuals cover their research
costs by revenues from the sale of licenses.
The license purchase or sale is a business agreement. The fact of sale or
purchase of the license is legally formalized by a license agreement, which
differs from other purchase and sale agreements by the fact that an
intangible item is sold or purchased. From the moment of sale of the
license, the holder of the document of entitlement for the industrial
property item, who sold the license, becomes the licensor, and the person,
who has acquired the license, becomes the licensee. The licensee acquires
the tile to use the intellectual property items within the areas covered by
the license agreement only and for a specified period.
Depending on the scope of the transferred rights, according to the current
Civil Code of Ukraine, there are: exclusive, single and non-exclusive
licenses.
An exclusive license is issued to one person only and excludes possibility
of the licensor to use the intellectual property items in this area, which is
covered by this license.
A single license is also issued to one licensee only and excludes possibility
for the licensor to issue licenses to other persons to use the intellectual
property titles in the area limited by this license, but does not exclude the
possibility for the licensor to use this item in the field.
A non-exclusive license does not exclude possibility of the licensor to use
the intellectual property item and issue to others a license to use this item
in this area. The license agreement always provides for the payment of a
certain money consideration to the licensor.
Most often, the license is sold at the estimated contract price with
reference to domestic and foreign market prices. The main types of
royalties are royalties, lump sums and combined payments. Royalty is a
type of payment that the licensee pays to the licensor during the entire
term of the license agreement or as a percentage of the amount of profit or
the amount of turnover from production or differentiated rate per unit of
licensed products. A lump sum payment is a payment to a licensor of a
certain amount fixed in the contract before start of mass production of the
licensed products. Combined payments - the most common and cover the
payment to the licensor by the licensee of the initial fixed payment before
production and sale of the licensed products, to be followed by payment of
the balance of the estimated license price in the form of royalties after
production of the licensed products. Thus, the licensor has the
opportunity to receive deductions from the real income of the licensee
throughout the term of the license agreement.
 
2. Typical license agreements.
        Authorized agencies or creative unions may approve standard license
agreements. The license agreement may contain conditions not provided
for in the standard license agreement. The terms of the license agreement
concluded with the author of the intellectual property items, which worsen
its position compared to the position provided by the law or a model
agreement, are null and void and are replaced by the conditions
established by the model agreement or by the law.
Sublicense and sublicense agreement.
With the consent of the licensor, provided in writing, the licensee may
issue a written authorization to use the intellectual property items by
another person (sublicense). In the cases provided for in the license
agreement, a sublicense agreement may also be concluded, under which
the licensee grants another person (sublicensee) a sublicense to use the
intellectual property items. In this case, the licensee is liable to the
licensor for any actions of the sublicensee, unless otherwise is provided by
the license agreement.
The franchise agreement differs from a common license agreement by that
the rights are transferred on a preferential, privileged basis. The user
receives ready-made technology under a well-known brand. Therefore, its
risks are minimized.
Franchising (translated from English means privilege, right) - is a system
of transfer or sale of licenses for technology and trademark. The essence of
franchising is that the firm (franchisor), which has a strong image in the
market, transfers under certain conditions to a company unknown to
consumers (franchise, franchisee) the right, i.e. a license (franchise,
franchise) to operate its technology and under its trademark, receiving a
certain compensation (profit).
The economic background for franchising development is the need to
expand business activities with minimal material costs on the part of the
franchisor. Representatives of small businesses, creating businesses on a
franchise basis at their own expense and receiving for a fee the right to use
the intellectual property of the franchisor, thereby financing the expansion
of the latter's business in exchange for opportunity to participate in
competitive business under the franchisor’s name. Franchising is
appropriate for areas that have a large number of services with personal
care, such as food trade, hospital running, auto vehicle services etc.
Franchisor’s advantages:
opportunity to increase a number of outlets (productions) that distribute
(or provide) services. No large equity is required to expand the business;
expansion of sources of income (profits) through the franchisee’s efforts;
reduction of production costs per unit of goods, as the franchisee itself
covers the costs of its company maintenance; 
the franchisee's right to use the trademark in accordance with the
franchise is protected by the trademark patent method.
Franchisor’s disadvantages:
the problem of control of franchisees, as they are not employees, and 
impossibility of direct management;
the opportunity to lose its reputation due to unsatisfactory work of the
franchisee;
the franchisor cannot be sure that the franchisees will give him a truthful
report;
in the event of a conflict between the franchisor and the franchisee, the
franchisor may not replace it with another, more disciplined one.
Franchisee’s advantages:
opportunity to become an independent entrepreneur;
promise of doing business under a recognized trademark;
promise of selling the product and providing services in markets that are
not available to the company;
opportunity to receive assistance from the franchisor for improvement of
outlets, training of sales staff to work;
joint advertising.
Franchisee’s disadvantages:
control by the franchisor leaves little room for self-expression;
hazard of suffering in deterioration of the franchisor’s reputation;
high costs of franchisor services;
danger that the franchisor's firm will go bankrupt.
Types of franchising:
1) production – covers supply by the franchisor of basic elements or
components for manufacture of products, which are then sold under the
brand name (trademark) of the main company of the franchisor;
2) trade -  organization of deal, in which the franchisee buys from a well-
known firm the right to sell its goods with its trademark;
3) licensed - the most common type of franchising, the essence of which is
that the franchisor issues a license to the franchisee to open stores, kiosks
or entire groups of stores for sale to customers a set of goods and services
under the name of the franchisor.
Along with the main types, we may note corporate and conversion
franchising.
Corporate franchising is a modern form of franchise business
organization, in which the franchisee operates not as a separate
enterprise, but as a network of franchise enterprises involving hired
managers.
Conversion franchising - a way to expand the franchise network, in which
the existing independent company goes to work under a franchise
agreement and joins the system of franchise companies operating under
the control of one franchisee. In recent years, the classic model of
franchising has changed in the direction of providing the franchisor with
additional opportunities for rapid development with the lowest costs for
regional franchising models; subfranchising and developing franchising.
In each of these cases, the franchisee receives all the benefits usually
associated with the franchise, using trademark, logo franchisor and its
system of business, initial training, choice of location, maintenance and so
on.
The differences between the models are duration of business relationship
of the franchisor and the franchisee and different schemes of addressing
the established payments. In the system of regional franchising, an
intermediary is the main franchisee, who is assigned the role of official
representative of the franchisor in the region. The parent company uses
the services of intermediaries in the case of imperfect study of the region,
as well as limited financial and human resources. This scheme provides
for the transfer of part of the powers of the franchisor to the main
franchisee, namely: selection of new franchisees in their region, initial
training. In this case, the fixed-term contract between the main franchisee
and the franchisor sets the amount of royalties, which depends on the
share of the main franchisee in the income of other franchisees involved in
the system.
In subfranchising, the intermediary is a subfranchiser, whose functions
are identical to the functions of the main franchisee. The only difference is
that the franchisees involved in the system work directly with the
subfranchisor on a long-term basis, almost without coming into contact
with the parent company. They also pay a fee and royalties to the sub-
franchisor, part of which is transferred to the parent company, and the
rest goes to the income of intermediaries and the maintenance of the
system. Under this scheme, the success of the case mainly depends on the
subfranchisor.
In development franchising, the role of intermediary is performed by a
group of investors, to whom the parent company waives the exclusive
right to develop the region. The intermediary's responsibilities include the
obligation to open a certain number of outlets or service points in a certain
area within a certain period of time.
Legal regulation of contractual relations of a commercial concession in
Ukraine is carried out on the basis of the provisions of ch. 76 of the Civil
Code, ch. 36 of the Commercial Code.
A commercial concession agreement provides for the use of the rights
granted to the user, business reputation and commercial experience of the
right holder in a certain amount, with or without indication of the
territory of use in relation to a certain area of business activity. To achieve
the purpose of the commercial concession agreement, the exclusive rights
are transferred to the user as a whole, which allows to distinguish this
agreement from other related types of agreements (agency, lease).
A commercial concession agreement is subject to the state registration by
the body that carried out the state registration of the right holder. If the
right holder is registered in a foreign state, the registration is carried out
by the body that carried out the state registration of the user. The user
may pay a fee (fee) to the right holder in the form of one-time or periodic
payments or in another form provided by the contract (deduction from
revenue, extra charges on the wholesale price of goods, etc.).
The commercial concession agreement may be concluded for a definite
term or without a term. Termination of the contract is subject to the state
registration. The commercial concession agreement is terminated in the
case of:
a)     expiry of the right holder's right to a trademark or other designation
without replacing it with a similar right.
3. Trade in technical services. Engineering.
Along with the trade of patents and licenses, trade in technical services
has recently become more widespread.
The rapid growth of the trade in technical services is due to a number of
factors:
- science development at the present stage of scientific and technical
revolution,
- striving to rapid introduction of new products in the market,
- intensification of competition in world commodity markets, etc.
In modern conditions, operations for the commercial provision of
technical services take the form of leasing and engineering. Under the
lease agreement, technological equipment is transferred, which is made at
the level of inventions and protected by patents. That is, together with the
technological equipment and process, the right to use the intellectual
property item is transferred. The choice of such form of commercialization
as leasing allows start-ups to open and expand their business even with a
very limited start-up capital, quickly using modern advances in scientific
and technological progress.
Engineering - activity of providing a range of services of production,
commercial and scientific and technical nature, carried out by specialized
firms and industrial construction companies. Engineering provides for
delivery by one party (consultant) to another party (the customer) series
or individual types of engineering and technical services related to design,
construction and commissioning, under the contract, with development of
 new technological processes at a customer’s enterprise, with improving
existing production processes until the product release.
Engineering appears as a means of increasing efficiency of capital invested
in the item at the account of:
o

 § systematic approach to project implementation;

 § variety of technical and economic developments, their

financial evaluation and selection of the best option;

 § project development with consideration of possibility to

use advanced construction and production technologies, equipment and
materials;

 § application of modern methods of organization and

management of stages of the project implementation. Specific features of
engineering:

 § engineering is a form of services for industrial purposes,

which is directly embodied not in material form, but in the beneficial effect.

This beneficial effect may:

o

 § have a physical media, such as design and technical

documentation, graphics, drawings, etc. or may not have, as training,
management, etc.;

 § engineering, ultimately, is associated with preparation and

provision of the process of production and sale of intermediate and final
consumption of material goods;

 § engineering is commercial in nature, i.e. becomes the

object of sale;

 § engineering services are reproduced services, the cost of

which is determined by socially necessary time spent on their production;
licenses and "know-how" are connected with realization of new, not
reproduced knowledge of industrial function;

 § engineering services may comprise many sellers to

implement them; licenses and know-how have a limited number of the sellers.

In practice, provision of engineering services is often combined

with know-how sale. In this case, the "know-how" is of concealed nature
and is not defined in an independent agreement. This leads to confusion
between the concepts of "engineering services" and "technology
exchange", as engineering is a way of transferring new technological and
other knowledge. However, engineering services in themselves are
commodity (regardless of whether results will be applied by the customer
in practice), which is different from technology.
For example, engineering firms in the field of management are not
planning, but developing new methods of production planning, based on
marketing research of the foreign market, not accounting and reporting,
and finding new approaches to accounting and reporting, modernization
of management structures, product quality control, etc. 
Engineering services groups:
Ä related to production process preparation (pre-design, design, post-
design and special works);
Ä to ensure normal course of the production process and sale of products
(work related to optimization of the company management processes).
Types of engineering:
1) Consulting engineering - related to intellectual services provided in site
design, development of construction plans and control over the works;
2) Technological engineering - includes provision to the customer of
technologies necessary for construction of industrial facilities and their
operation (agreements on transfer of production experience and
knowledge, development of projects for energy supply, water supply,
transport, etc.);
3) Construction (general) engineering - is supply of equipment, machinery
or installation of equipment, taking into account, if necessary, engineering
work.
4) Complex engineering - providing of the full range of services and
supplies required for a new facility construction, on the basis of the
contract for engineering. Includes all these types of engineering services.
Types of contracts depending on the nature and scope of engineering
services:
- Civil engineering services are provided on the basis of a contract or a
contract for technical assistance in construction.        
- Engineering consulting services are formalized by a contract for
provision of engineering consulting services or an agreement on the
secondment of a specialist to perform a certain type of work.        
 In the international trade practice, various variants of standard contracts
are widely used in engineering operations. Particularly popular are
the "Guide to the International Consultative Engineering
Agreement" developed by the group of experts of the UNECE Trade
Development Committee, which contains a complete list and description
of the conditions required for inclusion in the contract between the
consultant and the client, as well as a list of services provided by a
consulting engineer.
In party definition as for the contract for consulting engineering, it should
be borne in mind that the project may involve many legal entities,
including companies, financial institutions, government agencies and
others. Several contracts related to the same project may be concluded.
Therefore, in each contract it is important to provide who is a party to it,
from a legal point of view. Defining the subject and scope of the contract,
it is necessary to clearly define the nature, scope, place and purpose of the
project, and then the scope of the contract.
The duties of the consultant under the contract include:
o

 § conducting of preliminary feasibility studies and research

related to design;

 § planning and preparation of funding programs;

 § preparation of design documentation, drawings and

specifications;      

 § appointment of tenders;

 § evaluation of proposals for the site construction;

 § customer consulting in relation to all applications for

contracts, bidders, prices and estimates for implementation of works;

 § construction control;

 § control over manufacture of equipment and its

connection;

 § recruitment:

 § coordination of other project participants, etc. Customer’s

responsibilities include as follows:
 § urgent transfer of instructions, provision of
documentation, special knowledge, premises, participants and equipment for
the consultant's use;

 § providing information on local legislation in the field of

industrial and social relations;

 § delivery of  specialized services and cooperation with the

consultant and so on.

An important aspect of the contract is the issue of intellectual property

and patented information. The parties must determine whether the
technical documentation may be used by the other party for other
projects. The parties must agree on the right of one of them to use the
developments, for which the other party is applying for a patent. The
contract must contain a stipulation of secrecy. It is forbidden for both the
customer and the consultant to disclose confidential information.
Payment for the services of the consultant includes coverage of various
expenses and corresponding net income of the consultant. Expenses may
include salaries of technical staff, expenses related to administrative and
clerical staff, additional payments, expenses for equipment, office space,
taxes and other general expenses.
Costs are calculated based on one or a combination of the following
methods:
- time;        
- labor costs multiplied by overhead costs, plus costs;        
- part of the cost of construction projects as a percentage;        
- cost plus interest remuneration or cost plus fixed remuneration;        
- previous fee, etc.        
            In the 90s of the twentieth century, a new type of services has
appeared in the world market of engineering services - reengineering
services provided by foreign engineering firms.
            Reengineering is engineering and consulting services for 
restructuring of systems of organization and management of
production, trade and investment processes of the economic entity, in
order to increase its competitiveness and financial stability.
Types of reengineering:
1) crisis reengineering - aimed at the company’s crisis problem resolution.
It is used, when the result of financial and commercial activity of the
company constantly decreases, its competitiveness sharply falls,
tendencies to bankruptcy appear and series of measures for overcoming of
the crisis situation is required;
2) reengineering of development - is used in the cases, when dynamics of
development is reduced and current structure of organization and
management of the company has already reached the limit in profit
making.