How should digital assets be treated in terms of property? This is what the Law Commission of England and Wales has been considering in its consultation paper paper on the recognition and protection of digital assets which is open for responses until 4 November 2022.
The consultation paper recommends law reform to recognise a third category of personal property – referred to as ‘data objects’ – in addition to things in possession (such as physical objects) and things in action (such as contractual rights). The consultation paper acknowledges the flexibility of English law to accommodate digital assets within existing legal principles (including crypto-tokens and crypto-assets). However, the Law Commission recommends reform to ensure ‘data objects’ are treated consistently under English law so as to promote greater legal certainty.
Three criteria are proposed that a thing must exhibit in order to fall within the proposed third category of personal property. It must:
- be composed of data represented in an electronic medium, including in the form of computer code, electronic, digital or analogue signals;
- exist independently of persons and exist independently of the legal system; and
- be rivalrous (i.e. be incapable of ‘double spend’, or simultaneous use for different purposes).
This consultation paper follows on from a decision of the UK High Court in May 2022, in the case of Osbourne v (1) Persons Unknown and (2) Ozone trading as Opensea  EWHC 1021 (Comm). In the facts of that case, two non-fungible tokens (NFTs) were misappropriated from a digital crypto wallet controlled by Osbourne. Osbourne then sought an urgent interim injunction to freeze any dealings in the NFTs on the marketplace OpenSea. The UK High Court found that there was “at least a realistically arguable case” that NFTs are personal property and, accordingly, could be protected with the usual types of remedies that govern other types of property. This included interim injunctive relief, which was granted in Osbourne’s favour. A similar decision had been reached, years earlier, in relation to Bitcoin.
A more detailed review of the consultation paper can be viewed on our FSR and Corporate Crime Blog, here.