Two points regarding that. If the intangible asset is not involved in the transaction then how are they valued? There’s no snapshot?
KOSSOVSKY: So, the valuation then is based on the collective wisdom of the estimations of what the future holds. Expectations. Which is why a part of superior intangible asset management, financial management, includes superior communications. Companies that do a superior job of communicating the value — and the value is not a number, the value is how we use, what we do with it, how do we maintain it, how do we protect it. Those companies have a much lower volatility in their stock prices, because the markets have a better understanding. And so the range of opinions, which is what a market represents, is much narrower because the market has information. One of the great challenges with getting information around the intangibles is they’re not reported in the financials. So, extra financial, as you had alluded to earlier, either the company can be the source of that the extra financial information or you can let the blogosphere…

You could be the target, yes.
KOSSOVSKY: You could be the target. And you will become the target when the reality is not quite in sync with what you’re all about. You will definitely be a target then.

So, the valuation [of intangible assets] then is based on the collective wisdom of the estimations of what the future holds. Expectations.

When you look at tangible assets within a corporation, you consider cost, including cost of replacement, things of that nature. The accounting rules do not apply.
KOSSOVSKY: Do not apply. That’s why they’re intangible. Is it hard? Yes, it’s so hard that accountants have given up and simply said, it’s intangible. That’s why they got that lovely name. Can’t put a box around it — if they could then they’d be tangible. Curiously, we are having a meeting with the American Institute of CPAs at the end of the month to discuss some of these issues. They are wracking their brains on this thing, now that the Department of Commerce has said this is a huge issue. They’re going to have the chief accountant of the United States, the Deputy Secretary Glassman. This is a huge problem. The national accounts are off.

It seems like it would only get more complex due to globalization…
KOSSOVSKY: Not more. We at Steel City Re believe that the Dutch had the right idea. The Dutch created all of these instruments, derivatives and insurance, because they had no means of accounting for shipments, and ships and all of those other things which have long periods of time and a lot of uncertainty. Well, these intangibles are things that run for long periods of time have a lot on uncertainty. So we believe that, ultimately, the derivatives, the derivates market, and the insurance market will provide the necessary guidance, will provide instruments that will satisfy the gaps that current corporate accounting is lacking. The accounting rules — you can’t change accounting rules because there are the very good reasons why they exist — but you need something to fill in the hole. When you try and change those rules and try to create mark to market type measures, which is more for the European, the international accountant standard practices. You run into another set of problems when you start when the equity falls off. The European model was mark to market. Well that’s just as bogus right now because there is no market. Still making up numbers, in the U.S. you have on the book, cost and you know that number is wrong, whichever number. On the European side you don’t even know what number to put on because you have to mark to market, so you mark to market business on assumptions and you have no uniformity in the wrongness. At least with U.S., you know you’re starting from wrong.

We were talking about the last issue on patents. When companies are looking at filing patents for their ideas is corporate communication more of a priority than it was previously?
KOSSOVSKY: Well, internally, today we would run through the various models. What is the market around this thing? What will it cost to develop it? Then the internal calculations on whether or not it made sense to invest in the intellectual property, through the various patent review boards and things the companies had developed when they realized the patents could be a black hole and suck up all the resource and never produce anything. Your question is, is corporate calm taking that stuff and pushing it out.

Yes.
KOSSOVSKY: And the answer is that it really depends on the company’s size and the degree to which they depend on that intellectual property to drive the value. You look at the young technology companies that have international revenue. Those companies work really hard to communicate the value of all the footnotes, and the blue-sky explosions were built for these companies.