Intangible Assets as a Moat (Patents and Licences)

Intangible assets such as patents, regulatory licences and brands can form a moat when they let a company charge more or keep rivals out of the market. They count only if they produce pricing power or exclusion. Licences are often the most durable, patents expire, and brands must be constantly reinvested in.

Intangible assets are the first of Pat Dorsey’s five moat sources, and the most mixed bag. Some, like a scarce regulatory licence, are nearly impregnable. Others, like a patent nearing expiry, are living on borrowed time. The skill is in telling which kind of intangible you are looking at and how long its protection will last.

Where this fits: this is a deep dive on Pat Dorsey’s “intangible assets” moat source for Criterion 2, “Does it have a durable moat?” It pairs with our dedicated guide to brand as a moat and the moat hub, and supports high return on invested capital in the Five Criteria framework.

What Is an Intangible-Asset Moat?

An intangible asset is something a company owns that has no physical form: a patent, a trademark, a regulatory licence, a brand, a long-standing approval. As a moat, these matter only when they do one of two things: let the company charge more than rivals, or keep rivals out of the market altogether.

Dorsey is firm on this point. A patent sitting unused, or a brand that commands no premium, is not a moat. The intangible has to translate into pricing power or exclusion. The test is the same one we apply everywhere: could a competitor with deep pockets match the product at the same price and win customers? If a legal right or a brand stops them, the intangible is a moat.

An important distinction

There are two different things called “intangibles”, and confusing them is a common error.

• An intangible moat is an economic advantage: a patent, licence or brand that produces pricing power or keeps rivals out.
• Accounting intangibles are balance-sheet entries, such as goodwill and acquired brand value, usually created by past acquisitions.

A company can carry large accounting intangibles and have no moat at all, or hold a huge economic moat while showing almost no intangibles on its balance sheet, because an internally built brand is rarely capitalised. Judge the moat by its economic effect, not by the balance-sheet line.

The Three Main Types

Each type of intangible protects returns differently and lasts a different length of time.

Type	How it protects returns	Durability
Regulatory licence	Legally excludes rivals from the market	Often very high
Patent	Legally prevents copying for a set term	High but temporary
Brand	Creates willingness to pay a premium	Durable with reinvestment

Regulatory licences

Regulatory licences are the quiet powerhouses of the intangible moats. A company that needs government approval to operate, and where few such approvals exist, enjoys protection a rival cannot simply buy. Licences to run a stock exchange, operate certain waste or landfill sites, or hold a scarce permit can keep competitors out of the market entirely.

These are often overlooked because they are unglamorous. There is no exciting product story, just a legal barrier that quietly keeps the field small. That is exactly why they can be so durable: a competitor with unlimited money still cannot conjure an approval that the authorities will not grant. Check how the licence was obtained, how long it lasts, and whether the regime could change.

Patents

Patents are the most clearly powerful and the most clearly temporary intangible. They give a legal monopoly on a product or process for a set term, which lets the holder charge high prices with no direct copy allowed. Pharmaceutical companies are the classic case, earning strong returns on a drug for the life of its patent.

The catch is expiry. When a patent lapses, competitors can copy the product, and prices and profits on it can fall sharply. So for a patent-based business you must look past any single patent to the whole pipeline: the company’s ability to keep inventing and patenting new products faster than its old ones expire. A single blockbuster nearing expiry with nothing behind it is a shrinking moat, not a durable one.

Brands

A brand is a moat only when it creates a willingness to pay more or a stronger loyalty than rivals can win. Because this type deserves its own treatment, we cover the test, the examples and the pitfalls in full in brand as a moat: when it works. The short version: fame is not a moat, but a durable price premium is, and that premium shows up in a high, stable gross margin.

Why Intangible Moats Protect Returns

High returns attract competitors. An intangible moat interrupts that in one of two ways. A licence or patent raises a legal wall that rivals cannot climb, so competition simply cannot arrive. A brand raises customers’ willingness to pay, so even where rivals exist, they cannot win on price.

In the accounts, a working intangible moat shows up as a high and stable gross margin and a ROIC held above the 15% bar for years. If a company claims a powerful patent or brand while earning mediocre returns, the intangible is not functioning as a moat, whatever its reputation.

How to Test an Intangible Moat

A legal right or a brand is a claim; the evidence is in the numbers and the fine print.

Test 1: pricing power in the margin

A genuine intangible moat produces pricing power, which appears as a high gross margin that holds through cost inflation. Apply the pricing power tests.

Test 2: the expiry and renewal question

For patents and licences, find out when protection ends and what happens next. For a patent portfolio, assess the pipeline behind the current products. For a licence, assess the risk that the regime changes or new approvals are granted.

Test 3: the exclusion test

For licences especially, confirm that the barrier really keeps rivals out. How many competitors hold the same approval? Is the number fixed, or could the authority expand it? A barrier that keeps the field to one or two players is a strong moat; one that merely slows entry is weaker.

Test 4: the downturn test

As with every moat, check how margins and returns held in the worst recent year for the industry. A legal or brand moat that stayed intact through a downturn is confirmed; one that cracked was weaker than it looked.

Worked Example: Two Intangible Moats

Imagine two hypothetical companies, Company A and Company B. Company A holds one of only two regulatory licences to operate a specialist facility in its region. Company B earns most of its profit from a single patented product with three years left before expiry and a thin pipeline behind it. The figures below are illustrative, not real.

Measure	Company A (licence)	Company B (patent)
Gross margin now	58%	72%
ROIC now	19%	24%
Barrier to entry	Scarce licence, no new approvals expected	Patent, expires in 3 years
Likely margin in 5 years	Similar	Much lower after expiry

Today Company B looks better, with a higher margin and higher returns. But its moat has a clock on it. When the patent expires and copies arrive, its margin and returns on that product are likely to fall sharply, and the thin pipeline offers little to replace them.

Company A’s returns are a little lower but far more durable. Its licence is not going to expire into a crowd of competitors, and no new approvals are expected. For a long-term investor, Company A’s quieter but lasting moat is the more attractive, which is exactly why durability, not just current strength, decides Criterion 2. The point is covered further in our guide to spotting a widening moat.

How Intangible Moats Erode

• Patents expire. The single most predictable erosion in investing. Always know the expiry and the pipeline behind it.
• Regulation changes. A licence regime can be opened up, or a protected activity deregulated, removing the barrier.
• Brands fade. Underinvestment, scandal or changing tastes can spend down a brand, as our brand guide explains.
• Technology routes around the right. A new approach can make a patented product or licensed activity less relevant, bypassing the protection rather than breaking it.

Watch for a slipping gross margin, an approaching patent cliff with nothing behind it, or talk of regulatory review. These sit among the warning signs every investor must know.

How This Fits the Five Criteria

Criterion 2 asks what stops competitors eroding a company’s returns. An intangible-asset moat passes when you can do two things: name the specific intangible and explain whether it creates pricing power or legal exclusion, and show it in the numbers as a high, stable margin and durable ROIC, with a clear view of how long the protection lasts.

A patent with no pipeline behind it, or a famous brand with no premium, fails the test despite appearances. The question is never whether an intangible exists, but whether it produces a real, lasting economic advantage. Having worked in investor relations, I saw how readily companies pointed to patents and brands; the durable ones could also point to the margin and the years of protection that proved them.

Frequently Asked Questions

What counts as an intangible-asset moat?

Patents, regulatory licences, approvals and brands that competitors cannot copy or obtain. They form a moat only when they let the company charge a higher price or legally exclude rivals from the market. An intangible that does neither is not a moat, however valuable it looks on paper.

Why are regulatory licences such strong moats?

Because a rival cannot simply buy or build government approval. Licences to run an exchange, operate certain waste sites, or hold a scarce permit can keep competitors out of the market entirely, often for long periods. They are frequently overlooked precisely because they are quiet and unglamorous.

Are patents a reliable long-term moat?

They are powerful but temporary. A patent protects a product for a set period and then expires, often exposing the company to sharp competition. For a patent-based business, judge the whole pipeline and the company’s ability to keep innovating, not the strength of any single patent.

Are accounting intangibles on the balance sheet the same as an intangible moat?

No. Balance-sheet intangibles like goodwill and acquired brand value are accounting entries, often created by past acquisitions. An intangible moat is an economic advantage that produces pricing power or exclusion. A company can carry large accounting intangibles and have no moat, or a huge moat and almost no intangibles on its balance sheet.

Which intangible moat is the most durable?

Often a scarce regulatory licence, because approval cannot be bought and the field stays small. Patents are strong but expire, and brands endure only with constant reinvestment. The right answer depends on the specifics, which is why you check the expiry, the renewal risk and the margin in every case.

Your Next Step

Pick a company whose moat rests on a patent, licence or brand, and work out exactly what the intangible does and how long its protection lasts. Check the gross margin and ROIC that should prove it. See how intangibles fit the other moat sources in our moat hub, read the companion guide to brand as a moat, and record your findings with the Five Criteria Checklist.

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About the author: Cameron Hayes is a senior investor relations and finance professional who has worked in IR at Nasdaq Copenhagen-listed companies including Nilfisk and Maersk Drilling. He holds an MSc from Copenhagen Business School and a BCom from the University of Ottawa, and founded Gingernomics to teach individual investors the Five Criteria framework. More about Gingernomics.

The content on Gingernomics is for educational and informational purposes only and does not constitute financial advice. Always do your own research and consult a licensed financial advisor before making any investment decisions. Past performance is not indicative of future results.