In the sixth year you lose.
KOSSOVSKY: I have helped you lose it, but I have five years of bonus checks.

What is the solution here?
KOSSOVSKY: Risk, benefit, these are all intangible elements that are enterprise wide, so the senior management has to both buy into the notion of intangibles being critical assets to manage, develop incentive programs to incentivize from the bottom up behaviors and activities that conform to driving, to increasing, protecting, and, if needed, recovering the value of intangible assets.

But ten, fifteen years ago, patents were things that were treated in rather mercantile philosophy. You held them. You just kind of kept them like gold.

How does a company’s green environmental efforts come into play?
KOSSOVSKY: If it’s a part of it, look at an intangible structure, like the Roman arch. Every one of those stones ultimately hold the road up. So you can have ethics and integrity and sustainability — you can be a very green company and a patent rich company with a fabulous brand and still have some major ethical issue lapse, and that’ll kill you. Who’s ethical? Siemens. Fabulous German company, incredibly generic products, very environmentally sensitive, they’ve got all sorts of green engines, I think Siemens produces the entire HVAC system for Phipps Conservatory here, that incredible rain forest, I think it’s all Siemens engineering system. Very forward edge on the green sustainability, great integrity, lots of intellectual property, and a little bribery scandal. Big ethic lapse. Huge cost to the company, because a lot of companies can’t do business with them now. Short term gain, long term cost. Few guys took some bribes, try to get some business into their division, the enterprise took a hit; cost them the CEO, cost them a lot of business.

Tell me about the Intangible Asset Finance Society and your role in it.
KOSSOVSKY: It’s more of an academic organization, focused on advancing, understanding, and promulgating standards as well as perhaps even advocating a series of issues related to best financial practices for intangible assets. So there are individuals from the banking world, from the corporate world, patent world, the brand space, all interested in the degree to which their activities overlap intangibles, develop a common language, and a common understanding. I’ll give you an example, promotions of standards. Ten years ago, patent activity was just beginning to get going. And prior to ten years ago, patents were things you held and that was pretty much it.

The U.S. patent office has an annual revenue of something like one and a half billion dollars…
KOSSOVSKY: I don’t know the numbers. The patent space is obviously a huge space that could partly be the value and the innovation of environment. But ten, fifteen years ago, patents were things that were treated in rather mercantile philosophy. You held them. You just kind of kept them like gold. It was a good thing to have. Instead of looking at it as an asset to make perform, you simply had it as an asset to keep. Just like your building, you certainly wouldn’t want to invite other people into your building, would you? Well, it turns out you actually probably would, if you had extra space, you might lease out some. Well that was new thinking. So if the intellectual property covered things other than the things you were manufacturing, maybe it would start licensing others. That kind of thinking is ten, fifteen years old. This is not — this is relatively new thinking. So now there’s the whole idea of actually selling the patents. That’s a new step. We’re not using it; let’s sell our building. Let’s sell our patents. So one of the biggest accounting challenges that their finding is when you sell someone a patent, the buyer says, Okay. I’ll buy this patent from you because it gives me certain rights. But suppose your title isn’t good. Suppose those rights aren’t valid. Will you refund my purchase price? In effect, I’m buying from you nothing, if this is not a valid patent. So, a contract right now, between a typical patent seller and a patent buyer, will have a clause that says that in the event this is found to be invalid or nonenforceable, we’ll buy it back from you, or we will refund you. So, the accountants are trying to figure out, how do you record that when you have a sale?

Is that an insurable situation?
KOSSOVSKY: It might be. We’re looking into it. There’s a lot of moral hazard issues that are associated with writing patents that might or might not be valid.

So the market sets the market capitalization of a company? If a transaction happens and it’s a hundred billion dollars, it’s worth a hundred billion dollars.
KOSSOVSKY: At that moment that was the right price.

So how does one justify that value at that snapshot?
KOSSOVSKY: Well, the accountants have rules for that, right? They say, okay. Now that you’ve defined the value at that moment, for the next forty years we’re going to etch away at one-fortieth of it. Since then they’ve modified it. That’s the old rule for depreciating Goodwill. The new rules are much more complicated. They have to do with expected life time of the asset and so on. And whether or not you can reset the value, so the Sar-Bucks [Sarbanes-Oxley Act of 2002] related rules on intangible assets accounting, which include FASB-141, 142 [Statements of Financial Accounting Standards], and I’m sure other current standards address the new rules for how to address this value intensive data. Largely that’s still based on transactional motions. That’s what I mean by accounting fiction.