What is Intellectual Property?

Intellectual property (IP) refers to creations of the mind, such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.

IP is protected in law by, for example, patents, copyright, trademarks, which enable investors and people to earn recognition or financial benefit from what they invent or create. By striking the right balance between the interests of innovators, their ideas and their trade secrets and the wider public interest, the IP system aims to foster an environment in which creativity and innovation can flourish.   Source: World Intellectual Property Organization  (WIPO)

What's an Intellectual Property

 Structured Settlement?

While intellectual property wasn’t a common focus for structured settlements, the growth of IP litigation led to some firms, including 4structures.com , LLC,  adapting structured settlements in this context. The 2017 Tax Cuts and Jobs Act shifted some Intellectual Property assets (e,g, patents) from capital gains treatment  to ordinary income treatment, while increasing tax rates on lump-sum sales from 20% to 37%, increasing the appeal of structured settlement options for tax planning.

See Definition of Capital Asset  IRC 1221(a)(3) 

For purposes of this subtitle, the term "capital asset" means property held by the taxpayer (whether or not connected with his trade or business), but does not include- 

 "(3) a patent, invention, model or design (whether or not patented), a secret formula or process, a copyright, a literary, musical, or artistic composition, a letter or memorandum, or similar property, held by- (A) a taxpayer whose personal efforts created such property, (B) in the case of a letter, memorandum, or similar property, a taxpayer for whom such property was prepared or produced, or (C) a taxpayer in whose hands the basis of such property is determined, for purposes of determining gain from a sale or exchange, in whole or part by reference to the basis of such property in the hands of a taxpayer described in subparagraph (A) or (B)";

Why Structure Intellectual Property Lawsuit Settlements?

Intellectual Property settlements are taxable

What matters is how the proceeds are characterized.

• If the proceeds of such an action are intended to reimburse the plaintiff for lost profits, the award would be taxed as ordinary income.
• If the payment is actually meant to reimburse the company for damages to a capital asset, such as loss of goodwill or diminished value of its capital investment, the proceeds could be treated as a nontaxable return of capital. Any proceeds that exceed the company’s basis in that asset would be taxed as a capital gain.
• You dont have to structure your entire settlement.

Tax authorities will look at the text of the award or settlement agreement, with heavy emphasis on the wording of the lawsuit complaint or claim.

Don't Be Left With the Proverbial "Lousy T-Shirt"

After legal fees and taxes plaintiffs are left with what feels like the short end of the stick. Perhaps you feel like "I invented this, someone stole my idea, I sued, and all I got was this lousy t-shirt". But there is a potential mitigation solution, to maximize net settlement value using intellectual property structured settlements in conjunction with a settlement planning tool such as a Plaintiff Recovery Trust.  Be sure to plan ahead!

For Plaintiffs

Instead of being victimized twice, a plaintiff using a  non qualified structured settlement,  can move forward with a custom designed payment plan as compensation for intellectual property damages that meets their specific needs and defer taxes in the process! A win-win IP settlement solution from 4structures.com LLC. Keep moving forward with stable income to help compensate for your loss.

For Defendants

Using a non-qualified assignment, Defendants can offer a more creative solution that meets the plaintiff's needs and get a complete novation.

Last updated April 2, 2025