Intangible Assets…Prosecuting Theft – Misappropriation!

Michael D. Moberly    December 28, 2012

An intriguing question was posed by Stuart Green, a Rutgers law professor, in a New York Times article (March 28, 2012), in which he frames in a very ‘forward looking’ manner whether the terms theft and/or stealing actually fit today’s business circumstances?  That is, when company’s most valuable assets likely to be stolen, misappropriated, or infringed, are intangible, (non-physical) in the form of intellectual, structural, and relationship capital, will the conventional (prosecutorial) definition and/or application of theft and/or stealing fit?  Or, do (will) prosecutors, to maximize court understanding, find it necessary to portray intangible assets in a tangible context?

This question, in my view, should not be misinterpreted as merely constituting an issue that best belongs in a law school lecture hall espoused as merely legal theory.  Rather, in my view, it actually underlies an important aspect to company’s ‘sustaining control, use, ownership and monitoring the value, materiality, and risk’ to their intangible assets.  In that sense, it should carry considerable relevance to the responsibilities associated with CSO’s (chief security officer), CIPO’s (chief intellectual property officer), CISO’s (chief information security officer), CTO’s (chief technology officer), CRO’s (chief risk officer), and corporate legal counsel alike.

Having developed and taught various asset protection courses in a university criminology department for 20 years, it’s widely recognized that acts of theft and/or stealing of ‘property’ have conventionally been taught and interpreted to mostly involve tangible-physical assets or property, with intangible (non-physical) assets seldom, if ever, being addressed.

I suspect some readers, particularly those in the security – asset protection profession, may find this question unnecessary, or perhaps worse, opening a much unwanted ‘legal can of worms’.

For a significant percentage of prosecutors, and presumably the music and film industries too, I assume they would prefer, and are quite willing to devote the necessary resources to ensure the relevant (criminal justice) institutions continue applying the conventional and time-honored language, i.e., (a.) an individual or entity acquires (takes) property belonging to another, (b.) without their permission, and (c.) with the intent to permanently deprive the rightful owner of its use. Or, what Professor Green and others characterize as a ‘zero sum game’.  That is, one party loses an asset (property) rightfully belonging to them, while another party gains that asset or property.

In other words, there is no significant distinction between tangible and intangible assets when it comes to theft and/or misappropriation.

However, in the current knowledge – intangible asset dominated global (business, transaction) economy in which, conservatively speaking, 65+% of most company’s value and sources of revenue lie in – evolve directly from intangible assets, it does beg the legal question; can those conventional, time-honored definitions regarding theft, misappropriation, and infringement be consistently applied to non-physical (intangible) assets, or will challenges be forthcoming?

To add complexity, but, perhaps reality to this position, Professor Green suggests, when particular types/categories of intangibles are stolen, the rightful owner is likely to retain some  use of those assets, albeit perhaps in a depreciated and/or undermined form insofar as reduced value and fewer sources of revenue.  Had, for example, music, video-based assets not been illegally downloaded, they presumably would have delivered greater sources of revenue to the rightful holder, i.e., artist, copyright holder, producer, etc.

The reality is, as readers know well, companies are producing, acquiring, and, inventing significantly fewer tangible or physical assets today in lieu of assets which are more likely to be intangible and non-physical. So how does this globally universal and irreversible circumstance mesh with the conventional perspective of prosecutorial ‘zero sum gain’ relative to (asset, property) theft and stealing?

As we know, various courts and legislative bodies have adjusted some of the conventional language found in theft and misappropriation statutes to accommodate growth in intangibles. Thus, has the time come, as Green posits, for specialized legal doctrines to be developed to specifically reflect the theft, misappropriation, infringement, and counterfeiting of intangible assets and its subset, intellectual properties, i.e., patents, trademarks, copyrights, etc.

Actually, in the mid-1960’s, some would-be reformers of criminal law became frustrated with how courts and legal practitioners were endeavoring to distinguish tangible and intangible property. One outcome of their frustration was that the American Law Institute developed a ‘model penal code’ which essentially defined property as constituting ‘anything of value.’ Personally, I remain unconvinced this was the most appropriate way to handle this problem. Admittedly though, in 1962, intangible (non-physical) assets were hardly part of mainstream business or legal vocabulary.

On a relevant note, a trust and estate attorney I met recently was asked about how she intended to address intangible assets clients had accumulated when drafting trusts, wills, or estate documents. The attorney expressed virtually no interest, nor seemingly a clue about how to identify, unravel, value, divide, or incorporate intangible assets in a will or trust other than to characterize them merely as issues which were referred to accountants, but only for asset valuation which she would accept without challenge. This perspective prompted me to wonder if this attorney was indeed operating in the 21st century, or perhaps worse, had her clients’ best interests in mind, and worse, understood intangible assets at all.

Today, of course, intangible asset intensive – driven businesses have sprouted globally, brimming with all forms of intellectual, relationship, and structural capital, intellectual properties, brands, and reputation interests, each of which play critical economic and competitive advantage roles relative to a company’s profitability, sustainability, and growth potential.  So, if intangibles are not addressed in wills, estates, and trusts, it’s quite possible there will be many opportunities for same to be contested and challenged, thereby minimizing the significance attached to otherwise well constructed documents.

So, for me, and my colleagues in the information asset protection and insider threat – risk arena, it seems, the more engaged we become in intangible assets and businesses and transactions in which intangibles are routinely in play, the more complex and broader the dilemma becomes.

This post was inspired and adapted by Michael D. Moberly from a piece authored by Stuart P. Green published in the NYT’s on March 28, 2012.

Comments regarding my blog posts are encouraged and respected. Should any reader elect to utilize all or a portion of this post, attribution is expected and always appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance. And, I always welcome your inquiry at 314-440-3593.

 

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