Archive for the ‘Technology’ Category

| Newer Entries »

AA v Persons Unknown – recovering Bitcoin ransom payments

10/02/20 – In AA v Persons Unknown [2019], the Commercial Court confirmed that cryptoassets such as Bitcoin can constitute property under English law, and are therefore capable of being subject to a proprietary injunction (i.e. a court order which prevents the defendant from dealing with the relevant property).

The judgment refers extensively, and gives considerable weight, to the UK Jurisdiction Taskforce’s recent Legal Statement on the Status of Cryptoassets and Smart Contracts – see my article on the UKJT Statement here.

Background

In October 2019, one or more hackers encrypted the IT systems of a Canadian insurance company with malware. In order to regain control of its IT systems, the insurance company paid the hacker(s) a ransom of 109.25 Bitcoins (approx. $950,000).

The insurance company’s cybercrime insurer traced the ransom payment to a Bitcoin wallet linked to and controlled by Bitfinex, a crypto exchange operated by two British Virgin Island entities.  The insurer applied for a proprietary injunction to recover the 96 Bitcoins that remained in the wallet.

Judgement 

Because proprietary injunctions can only be granted over property, the Commercial Court first had to consider whether Bitcoin constitutes a form of property.  Although Bitcoin do not fit into either of the two conventional categories of property – ‘choses in possession’ or ‘choses in action’ – the Court reviewed the analysis of the proprietary status of cryptoassets in the UKJT Statement, and in particular the UKJT’s conclusion that, despite their “novel or distinctive features“, cryptoassets may be objects of property rights, and “[i]f it is necessary to classify it at all, then a cryptoasset is best treated as being another, third kind of property” (UKJT Statement, para. 86(a)).  The Court agreed with this approach, adding that “it is fallacious to proceed on the basis that the English law of property recognises no forms of property other than choses in possession and choses in action“.

Having confirmed that Bitcoin constitutes property, the Court granted the proprietary injunction.

Tags: , , , , ,
Posted in Technology, Updates | Comments Off on AA v Persons Unknown – recovering Bitcoin ransom payments

UKJT’s Legal Statement on the Status of Cryptoassets and Smart Contracts

04/12/19 – Prompted by a perceived need to provide legal certainty and market confidence in distributed ledger technology (DLT) and smart contracts, the UK Jurisdiction Taskforce (part of the LawTech Delivery Panel) published a Legal Statement on the Status of Cryptoassets and Smart Contracts on 18 November 2019.  The Statement follows on from a consultation launched on 9 May 2019.

Cryptoassets

In relation to cryptoassets, the UKJT’s main conclusions are:

  1. Cryptoassets should be treated in principle as property under English law because:
    • cryptoassets have all the key characteristics of property – “… definable, identifiable by third parties, capable in its nature of assumption by third parties, and […] some degree of permanence or stability” (para. 39), and
    • none of the distinctive features of cryptoassets – such as intangibility, cryptographic authentication, use of a distributed transaction ledger, decentralisation and rule by consensus – disqualify cryptoassets from being property.
  2. Cryptoassets’ status as property has important consequences in a number of areas, including succession on death, insolvency, fraud, theft and breach of trust.
  3. As with other intangible assets, title to cryptoassets can be vested or transferred by assignment or agreement of its owner. The Statement suggests that an ‘on-chain’ assignment (i.e. a transfer of the cryptoasset itself) is best analysed by way of the creation of a new cryptoasset owned by the transferee, with the ‘old’ cryptoasset ceasing to have any value or function because it is treated by the consensus as having been spent or cancelled (and as a result any further dealings in it would be rejected).
  4. It is also possible to transfer a cryptoasset ‘off-chain’, where the cryptoassets represents or is linked to a conventional asset, such as money, land or a contractual debt. An off-chain transaction would however allow the transferor to retain a copy of the private key, and therefore expose the transferee to the risk of ‘double-spending’ by the transferor.
  5. A distributed ledger (such as a blockchain) operates as a “reliable record in practice of which person, or which address-identifier, has control of a cryptoasset, because only dealings in a cryptoasset that are both consistent with the transaction history recorded in the ledger and signed with the relevant private key will be accepted as valid” (para. 131). But unless and until it is given binding legal effect by statute, the distributed ledger does not constitute a definitive record of legal rights in the way that the records held by the Land Registry or the Intellectual Property Office do.
  6. Although cryptoassets are not documents of title, documentary intangibles or negotiable instruments, some types of security can be granted over them, including mortgages and equitable charges. Because a cryptoasset cannot be physically possessed, you cannot create a lien over it, or sue someone for conversion of it (wrongfully dealing with it).  For the same reason, a cryptoasset cannot be the object of a bailment.

Smart contracts

In relation to smart contracts, the UKJT’s main conclusions are:

  1. Whether the contractual obligations under the smart contract are defined by computer code, or the code is implementing an agreement whose meaning is to be found elsewhere, English law is able to identify, interpret and enforce smart contracts using ordinary and well-established legal principles.
  2. English law is also able to deal with smart contracts formed between anonymous or pseudonymous parties, and can also deal with bilateral smart contracts as well as those structured around Decentralised Autonomous Organisations (DAOs).
  3. A statutory “signature” requirement can, in principle, be met by using a private key which authenticates a document, and a statutory “in writing” requirement can be met in the case of a smart contract whose code element is recorded in source code.

Final comments

In addition to the conclusions mentioned above, the Statement provides a comprehensive, useful description of the key technical and operational characteristics of both cryptoassets and smart contracts.

 

Tags: , , , , , ,
Posted in Technology, Updates | Comments Off on UKJT’s Legal Statement on the Status of Cryptoassets and Smart Contracts

Selling second hand software

It is usual for a perpetual software licence to be sold on the basis that the licence is non-transferable, ie that the purchaser (licensee) cannot resell or otherwise assign the licence to a third party.  And it was previously thought that the EU principle which prevents the owner of an article from controlling the downstream after-market in the article (the “exhaustion of rights” doctrine) did not apply to software licensed in this way.

But in the recent case of UsedSoft GmbH v Oracle International Corp., the European Court of Justice has made it clear that the exhaustion of rights doctrine does apply to perpetual software licences (whether supplied on a package basis or by download, and including any updates and upgrades), and any clause in a licence agreement which states that the licence is non-transferable, or which otherwise restricts the licensee’s right to resell the licence elsewhere in the EU, is unenforceable.

Whilst this judgement potentially has serious implications for software suppliers, it is worth noting the following:

  1. The judgement does not apply to software licensed on a rental or subscription basis, e.g. SaaS (software as a service).  That said, it is likely to apply where a fixed licence term is longer than the expected useful lifetime of the software.
  2. Where the licence allows the software to be used by a number of users, the licensee may not “split” the licence by reselling the licence for some of those users.
  3. When a licensee resells their licence, they must delete the software from their systems or make it unavailable for further use.
  4. The copyright owner may put in place technical measures to make the first licensee’s copy of the software unusable following its resale.

Tags: , ,
Posted in Technology, Updates | Comments Off on Selling second hand software

« Previous Page

Get in touch

"*" indicates required fields

This field is for validation purposes and should be left unchanged.
Your email address will only be used to respond to your message