Definition: A trademark is the legal right to exclusively use a symbol, name, phrase, song, or logo. In order to register trademarks or trade names with the US Patent Office, companies must show that they were the first to use the trademark in business and must also be the first to trademark the brand. After a symbol or brand is trademarked, the owner of that trademark has exclusive rights to use it. In other words, a trademark protects a company from imposters trying to imitate its brand.
What Does Trademark Mean?
Every large business has a logo or symbol that is protected by a trademark. Take McDonald’s for example. The golden arches logo is a registered trademark of McDonald’s. No other business can use the McDonald’s logo for their brand because of this.
Many people get trademarks, copyrights, and patents confused. A patent protects the rights to use a production process or mechanical device. A trademark protects branding and images.
Trademarks and patents are accounted for similarly, however. When a trademark is purchased, an intangible asset account is debited and the cash account is credited. After a useful life is estimated, the new intangible asset is amortized over its useful life.
A trademark that is developed inside the company, on the other hand, is not capitalized. The research and development expenses that went into designing the logo or creating the brand are expensed when they are incurred. That is why companies like McDonald’s don’t show an intangible asset on their balance sheet for their logo trademark even though the golden arches is one of the most valuable trademarks in the world.