Posted by Komal Joshi of Legal Futures Associate Planned Departure
The process of digitisation continues to expand, and as a consequence the link between physical geographic location and the ability to adequately set rules that apply to individuals and property is being eradicated.
Facebook’s recent move towards storing passwords and usernames is yet more proof that virtually every aspect of life (both business and personal) is becoming captured and stored in some digital form – which is why the protection of our digital assets is rapidly becoming a major issue. PwC estimates that the value of digital assets in the UK alone is in the region of £25bn. And that figure is set to grow exponentially.
Digital assets are defined as any property that can be found in a digital format. These include, amongst others: registered domain names (whether active or not), websites, e-mail accounts, online bank accounts, passwords, social media accounts, databases, digital contracts and receipts, Frequent Flyer miles, financial spreadsheets, tax statements, fiat currencies such as Linden dollars and Bitcoins. They can also include electronic representations of tangible personal property.
In the vast majority of cases, people pay scant regard to the protection of these assets. In comparison with physical property they are a challenge because they are more dynamic and, in many instances, transitory.
Consider for a moment how many physical things we create in a lifetime in comparison with how many e-mails we write, the number of digital photos we download from our smart phones and the volumes of data we generate both online and offline. And of the latter, how many of these are converted into hard copies? Very little if any. They remain firmly entrenched in cyberspace.
In business, the issue of digital asset protection tends to relate primarily to customer data security. Cyberdefence strategies and tactics have helped address common threats from a cyberattack but they don’t address the issue of digital legacy.
Customer data security is just one aspect of digital asset protection. Whilst we continue to manufacture, sell and control tangible goods, the digital era has created new symbolic forms of economic exchange that have no physical presence. Even the representation of money is no longer required. It is now possible to acquire and exchange digital things without a physical presence of any kind.
It is here that the issue of digital asset protection can become complex. We use passwords and other security tools to protect our most valuable and sensitive property. In many cases, terms and conditions relating to usernames and passwords make it binding on the individual not to share these with anyone else.
Interestingly, in a recent study by private banking organisation US Trust, it was reported that of the wealthiest respondents, 46% regularly change their passwords to protect anything stored electronically.
But what happens to that information when the owner of those usernames and passwords becomes permanently incapacitated or dies? What might the loss to a business be if workers are unable to access vital information required to ensure the ongoing operation of the firm?
Taking adequate measures to protect the company’s digital assets and maintaining control over these assets is actually protecting the business itself.
A good case study comes from solicitors Watson Mann. A close friend of senior partner Isobel Mann lost her husband (also a solicitor) suddenly, leaving in his wake a digital trail that put his work colleagues and his family in considerable difficulty. Even though he had drawn up a will, he had neglected the fact that most of his affairs were locked in a digital world to which only he had access. He had taken adequate protection of his physical assets but not his digital property.
As Ms Mann explains, they were faced with a nightmare situation. With so many hidden trails, what were they to look for and where were they to start?
She had to unravel and pick through her friend’s deceased husband’s digital assets to define those elements that were not only crucial to his business but also those that had sentimental and financial value to his family.
Bank statements, for example, might come in the post: account balance, money received, bills paid – everything was traceable. In this digital era, however, there may be no physical statements. Data are retained on a remote server accessible only by username and password.
When banks become aware that an account holder has died, they may freeze access to all online accounts as a precautionary measure to avoid fraud. This can cause serious issues for the deceased’s business by severely hampering the financial operations of the organisation.
According to Ms Mann, her friend was unable to access her husband’s online account because it had been set up by him using his registered username and password. Both were unknown to her.
Technology is advancing at a faster rate than the formulation of new laws that address the issue of digital assets. Even though they may be offered some protection in law, digital assets may not necessarily comply with the same legal characteristics as physical assets.
With the advent of the Internet new types of property have been created, some with similar characteristics to trade mark rights but without inherent ties to the trade mark law of any individual country. With cyberspace having no physical boundaries, defining rights in this new, valuable property presents a number of questions, including those relating to transferability, conditions for ownership, duration of ownership rights and forfeiture in the event of abandonment.
As Isobel Mann notes, if the owners of digital assets want them adequately protected and to generate maximum financial return for beneficiaries and future generations, it is essential that the digital assets that form part of the creator’s estate are taken into account during the estate planning process.
Even though the owners may have a written will regarding their physical assets, wills can be an awkward vehicle for digital assets. There are a number of reasons for this: the formality attendant to the execution of non-holographic wills, the often rapidly changing nature and ownership of digital assets, these assets may become outdated quickly as the asset disappears or takes a new form and it remains unclear whether service providers will respect the terms of wills to transfer ownership of digital property.
Digital estate planners (or digital asset management services) allow individuals to inventory all of their digital assets, including usernames, passwords and post-mortem instructions.
A digital executor or verifier is named by the asset owner and this person is subsequently provided access to the digital property upon satisfactory provision of proof of death or permanent incapacity. The digital executor can then download, delete or provide to beneficiaries such assets in accordance with the instructions of the decedent.
Working in collaboration with law firms, digital asset management companies can provide a viable and cost-effective service for law firm clients.