Prosecuting Intangible Asset Losses…

Michael D. Moberly    October 18, 2012

This post represents  an issue every CSO, CIPO, CISO, CTO, CRO, and corporate legal counsel should, if they haven’t already, fully consider.  Having taught in a university criminology department for 20 years, it’s less than rocket science to know that theft – stealing of property have conventionally been taught (interpreted) to involve some manner of misappropriation of ‘things’ i.e., real, tangible, physical property.

However, an intriguing question was posed by Stuart Green, a Rutgers law professor, in a NYT’s (March 28, 2012) piece, one which many of us have thought about. Basically, he asks, at least in my interpretation, whether the terms theft and/or stealing fit today’s circumstances, particularly when the assets stolen or misappropriated, are likely to be intangible, i.e., non-physical in nature?

Respectfully, I presume some readers of this blog and certainly my colleagues in the security – asset protection profession, find such a question unnecessary or perhaps worse, opening an unwanted and ill-timed ‘can of legal worms’.

For most prosecutors, and obviously the music and movie industries, it’s quite easy to assume they prefer, and are quite willing to devote the necessary resources to ensure the relevant institutions continue to apply the terms theft, stealing, and misappropriation using conventional and time-honored language that essentially does not distinguish tangible from intangible assets.

Conventionally (and intuitively) speaking, an act of stealing and/or theft have traditionally been interpreted as when either an individual or entity acquires (takes) property belonging to another, without their permission with the intent to permanently deprive the rightful owner of said property.  Or, what 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. Bottom of Form

However, in the current knowledge – intangible asset-based global (transaction) economy in which, conservatively speaking, 65+% of most company’s value, sources of revenue, ‘building blocks’ for future growth, sustainability, and profitability lie in – evolve directly from intangible assets, it does beg the legal question; are those conventional, time-honored definitions about theft – stealing relevant to intangible (non-physical) assets?

To add complexity, but, perhaps reality, to this position, again, in the context of the permanence of the knowledge – intangible asset based business economy, in some sense, as Professor Green suggests, when particular types/categories of intangibles are stolen, the rightful owner is likely to retain some or perhaps even complete use of those assets, albeit perhaps in a depreciated and/or undermined form insofar as reduced value and sources of revenue had those (music, video-based) assets not been illegally downloaded, because had they remained intact, they presumably could have delivered additional sources of revenue.

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

Various courts and legislative bodies have periodically adjusted some of the conventional theft, stealing, misappropriation laws (language) according to Green.  Presumably that’s done to try to accommodate an economy and more business and personal possessions that are intangible (non-physical) in nature. Thus, has the time come, as Green posits, for specialized (presumably) legal doctrines to be developed to specifically reflec the (theft, stealing) misappropriation of intangible assets?

In the mid-1960’s, some criminal law reformers became frustrated with how courts and legal practitioners were endeavoring to distinguish tangible and intangible property.  One outcome of this 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.  Admittedly however, in 1962, intangible (non-physical) assets were hardly in mainstream business or legal vocabulary.

Presumably then, when-if tangible, intangible, real, or personal property succumbs to theft and/or misappropriation, they would be treated uniformly.

On a relevant note, a trust and estate attorney I met recently was asked about how she intended to address intangible assets her clients had accumulated when she was drafting their respective trusts, wills, or estate documents.  This particular attorney expressed virtually no interest, nor seemingly a clue about how to identify, unravel and value, or incorporate intangible assets in a will or trust other than to characterize it merely as an issue for an accountant to untangle.  Her stated preference was to consult with an accountant only – primarily for asset valuation purposes and accept whatever the accountant reported.  In my view, this perspective prompted me to wonder if this attorney was indeed operating in the 21st century?  She certainly, had not read any of my blog posts!

Today, of course, intangible asset intensive – driven businesses have sprouted globally, brimming full of intellectual, relationship, and structural capital, patents, brand, reputation, and often copyrighted material and patents, each of which play increasingly important economic and competitive advantage roles in profitability, sustainability, and growth potential, and hence should and must be addressed in wills, estates, and trusts.

There is, of course, a range of empirical studies, which, among other things, reveal that a significant moral distinction exists between (illegal) file sharing and theft of presumably tangible – physical property, even when the value of the intangible – tangible property is approximately the same.

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 driven by or have intangible assets routinely in play, the more complex and broader the dilemma becomes.

Illegal downloading is, of course, a real and persistent problem, that in all likelihood, will not be going away anytime soon.  Individuals work hard to produce creative works and are entitled to enjoy legal protection as well as reaping any economic benefits from their efforts.  If others want to enjoy those creative works, it’s reasonable to make them pay for the privilege.

Continuing to frame illegal downloading as a form of stealing, probably warrants some review by companies.  Companies may better position themselves if they consider a range of legal concepts that fit the nature and elements of the problem more appropriately; first one being, fully understanding intangible assets.

The most effective fix does not lie solely in terminology!  Rather, what we collectively come to call a particular type of crime is obviously important as is coming to grips with the notion that treating different forms of property theft, misappropriation, etc., be it tangible or intangible property, while it may seem clumsy for a while, it’s probably what we should be considering.

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 or [email protected]


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