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How to deal with digital assets in terms of ownership? This is what the Law Commission of England and Wales considered in its consultation paper on the recognition and protection of digital assets, which is open for responses until November 4, 2022.
The consultation paper recommends law reform to recognize a third category of personal property – called “data objects” – in addition to things in possession (like physical objects) and things in action (like contractual rights). The consultation paper acknowledges the flexibility of English law to incorporate digital assets into existing legal principles (including crypto-tokens and crypto-assets). However, the Law Commission is recommending reform to ensure that “data objects” are treated consistently under English law to promote greater legal certainty.
Three criteria are proposed that a thing must meet to belong to the proposed third category of moveable property. He must:
- be composed of data represented on an electronic medium, including in the form of computer code, electronic signals, digital or analog;
- to exist independently of people and to exist independently of the legal system; and
- be rivals (i.e., unable to “double spend” or use concurrently for different purposes).
This consultation paper follows a decision by the UK High Court in May 2022, in the case of Osbourne vs. (1) Unknown Persons and (2) Trading in Ozone as Opensea  EWHC 1021 (Comm). In the facts of this case, two non-fungible tokens (NFTs) were hijacked from a digital crypto wallet controlled by Osbourne. Osbourne then requested an urgent interim injunction to freeze all trading in NFTs on the OpenSea marketplace. The UK High Court found that there was “at least one reasonably arguable case“that NFTs are personal property and, therefore, could be protected by the usual types of remedies that govern other types of property. This included an interim injunction, which was granted in favor of Osbourne. A similar decision had been taken, years earlier, in relation to bitcoin.
A more detailed review of the consultation paper can be found on our FSR and Corporate Crime blog, here.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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