Tangibility as Technology

• Publication year: 2021

Tangibility as Technology

Joao Marinotti
Indiana University Maurer School of Law, jmarinot@iu.edu

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TANGIBILITY AS TECHNOLOGY

João Marinotti^*

Abstract

Property law has traditionally relied on tangible boundaries to delineate legal thinghood and to inform the bounds of in rem rights and duties. Unfortunately, property doctrines have fossilized around tangibility, causing fragmentation in the legal treatment of digital assets. In the United States, for example, cryptocurrencies and non-fungible tokens (NFTs) may simultaneously be classified as commodities, securities, currencies, assets, or not property at all, depending on the jurisdiction, domain, or specific asset in question. This fragmented system of overlapping legal treatments increases the information cost of using digital assets, decreases efficiency, and ultimately hinders future innovation.

In this Article, I propose a unified and tech-neutral approach to legal thinghood, providing a theoretically coherent and robust way to increase property law's resilience in adapting to future technologies. Specifically, I deconstruct the conceptual purpose of tangibility in traditional doctrines of legal thinghood, uncovering its role as a technology (i.e., a tool) in property law to delineate rights. From this insight, I derive a coherent doctrinal test for distinguishing between digital assets that fulfill all conceptual requisites to be legal things and assets that do not. By doing so, I conclude that the traditional ontological categories of property law, such as choses in possession, are sufficiently robust to incorporate new and evolving digital assets. This tech-neutral approach paves the way toward an elegant and efficient legal treatment of digital assets and digital resource management in the twenty-first century.

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CONTENTS

Introduction................................................................................673

I. Tech-Neutral Property Rights...........................................681

A. The Rights of Owners and the Duties of Non-Owners........684

1. Hohfeldian Claim-Rights, Liberty-Rights, and Duties.. 687
2. The Right to Use: Owners' Liberty-Right to Use.........690
3. The Right to Exclude: Non-Owners' Duty Not to Interfere .......................................................................................696

B. Tangibility and Obvious Boundaries .................................. 698

1. Tangibility As a Technology ......................................... 699
2. "Obvious" Boundaries: Shared Social Customs and Intuitions ....................................................................... 703

II. Tech-Neutral Property Law in Action..............................711

A. Second Life..........................................................................714

1. Virtual Land Is Not a Rival Asset ................................. 716
2. 'Owners' of Virtual Land Cannot Discern the Boundary of Their Liberty-Right to Use ........................................ 717
3. 'Non-Owners' of Virtual Land Cannot Discern the Boundary of Their Duty Not to Interfere.......................719

B. Bitcoin.................................................................................721

1. Bitcoins Are Rival Assets..............................................722
2. Owners of Bitcoins Can Discern the Boundary of Their Liberty-Right to Use......................................................725
3. Non-Owners of Bitcoins Can Discern the Boundaries of Their Duty Not to Interfere ........................................... 727

C. CryptoKitties.......................................................................728

1. CryptoKitties Are Rival Assets...................................... 730
2. 'Owners' of CryptoKitties Cannot Discern the Boundary of Their Liberty-Right to Use ........................................ 731
3. 'Non-Owners' of CryptoKitties Cannot Discern the Boundaries of Their Duty Not to Interfere.................... 733

Conclusion...................................................................................734

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Introduction

Property is the law of "legal things."¹ It allocates ownership,² facilitates social interaction,³ and as the U.S. Supreme Court has held, "empowers persons to shape and to plan their own destiny."⁴ State courts have even more staunchly highlighted the importance of property rights. For example, the Supreme Court of Texas has held "that strong judicial protection for individual property rights is essential to 'freedom itself,'" noting that property rights are "'fundamental, natural, inherent, inalienable, and not derived from the legislature,' and 'preexist even constitutions.'"⁵ The Supreme Court of Iowa has even held that "property rights are . . . human rights."⁶ Availing oneself of this fundamental right, however, first requires defining the very object of property law: the legal thing

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itself.⁷ When the asset in question is a physical plot of land or a bar of gold, the task of defining the legal thing is comparatively trivial.⁸ What happens, though, when the resource in question is ephemeral information or otherwise purely digital?⁹ Does the fundamental individual right of property no longer apply?¹⁰ This question looms larger and larger as digital assets continue to replace not only "sentimental [items] like letters, scrapbooks, home videos, and shoeboxes full of photos"¹¹ but also financial assets.¹²

The speed of technological innovation has forced judges and regulators to adopt a functional rather than formal analysis of property law to answer this question and to accommodate modern economic realities.¹³ These functional case-by-case analyses have led to fragmentation and confusion in the legal treatment of digital assets, including blockchain-based cryptocurrencies.¹⁴ Just at the federal level, the Securities Exchange Commission (SEC),¹⁵ the Commodity Futures Trading Commission (CFTC),¹⁶ the Internal

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Revenue Service (IRS),¹⁷ the Department of Treasury's Financial Crimes Enforcement Network (FinCEN),¹⁸ and the Financial Industry Regulatory Authority (FinRA)¹⁹ have all had to independently determine the legal nature of Bitcoin before establishing whether and how they fall within each agency's jurisdiction.²⁰

Judges, too, have relied on ad hoc, functional analyses in determining whether each cause of action can be applied to bitcoins. In cases of conversion, for example, courts seem to treat bitcoins as property but frequently note that Bitcoin's legal status is far from determined. At the state level, a California superior court judge explained that "the law is unsettled whether bitcoin should be treated . . . as property for the purposes of various legal issues, [but] for the purpose of a claim for conversion bitcoin is fairly treated as property."²¹ At the federal level, too, a district court judge in Florida stated: "Whether or not bitcoin is 'money' for the purposes of a conversion claim, the Court agrees with the Plaintiffs that they have sufficiently (and with specificity) alleged a claim for conversion."²²

Without intervention, this functional, ad hoc approach to property law will not be limited solely to Bitcoin or cryptocurrencies.²³ The

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growing interest in smart contracts,²⁴ augmented reality,²⁵ and business models built on personally identifiable information,²⁶ for example, has reopened the debate about whether and how property law should be applied to each of these digital innovations. More recently, the sale of digital art and collectibles through non-fungible tokens (NFTs) for upwards of $69 million has also furthered the need to clarify the role of ownership and property law in this digital marketplace.²⁷

Some commentators have continued to propose functional, domain-specific solutions to these questions. For example, in the realm of digital police investigations, one proposal suggested the creation of a sui generis system of property-like law, which would be applicable only to internet service provider-held data.²⁸ Rather than solve problems and reduce information costs, these domain-specific and tech-dependent rules would likely lead to rapidly obsolete policies, exacerbating the fragmentation and confusion surrounding digital assets as a whole²⁹ —just as they did for Bitcoin.³⁰ Separate property regimes for tax law, administrative law, criminal law, and private law will not only increase transaction and information costs but may even undermine the role of private law as a tool for planning.³¹ Therefore, a single, unified, and tech-neutral approach to

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legally recognizing digital property rights is required.³² As Joshua Fairfield summarized, "[i]t doesn't matter whether our environments are physical, virtual, or an augmented reality hybrid. As long as individual self-determination remains a human demand, the idea of property will exert a powerful draw on the human imagination."³³ ultimately, the "extension of property principles to digital assets is . . . inevitable."³⁴

Questions about recognizing intangible personal property through a single, unified, and tech-neutral approach, however, have been circumvented in an attempt to avoid rekindling the older and still open debate: can intangible digital property exist at all?³⁵ The scholarly debate on "virtual" property, which largely focused on the virtual world of Second Life in the early years of the twenty-first century,³⁶ did not reach a conclusion.³⁷ strong end user license agreements (EuLAs) precluded the need for a theoretically robust answer to this question by redefining the ownership of digital assets to actually mean the ownership of intellectual property rights, contract rights, or licensing rights, such as those governing consumer

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e-books and music.³⁸ These license agreements were arguably sufficient to handle the legal disputes arising from digital assets in the context of recreation and entertainment.³⁹ However, contract law has not proven...