Out-Law News | 20 Mar 2014 | 9:35 am | 3 min. read
The Court of Appeal rejected arguments to the contrary and refused to interpret existing laws in a manner which would, it admitted, "have the beneficial effect of extending the protection of property rights in a way that would take account of recent technological developments".
The judges said that whilst it is possible to exert control over electronic information it is not possible to gain possession of it. The distinction was drawn in a case concerning a dispute between a publisher and an IT supplier.
Magazine publisher Datateam Business Media Limited (DBM) agreed a contract with Your Response Limited (YR) to outsource the management of its database of subscribers. YR was given access to the database so as to perform its management duties.
However, DBM became dissatisfied with YR's services and sought to terminate their contract. A dispute arose when YR asked DBM for payment of fees it owed as DBM refused to pay until YR supplied it with certain unspecified information. In response to non-payment of fees, YR stopped providing services prior to the agreed termination date of the contract and refused to give DBM access to the database in its control.
At issue in the case was whether YR was within its rights to claim possession of DBM's database until the publisher paid it the fees it said it was owed by way of exercising a 'lien' over the information in that database. Lord Justice Moore-Bick, Lord Justice Davis and Lord Justice Floyd rejected YR's arguments to support its case.
"[YR] was not entitled to refuse to provide the publisher on request with a copy of the database in its current form and was in breach of contract in doing so," Lord Justice Moore-Bick said in the judgment.
YR had argued that the database in the case should be said to constitute a "physical object" because it "exists in a physical form on the data manager's servers". It also argued that it should be possible to state someone is in possession of something if they have physical control over that something and intends and is able to exclude others from accessing it. YR further claimed that a database should be treated as a document that is physical in nature and can therefore be possessed.
In addition, YR also said that a distinction should be drawn between property of a physical kind, intangible property and so-called 'choses in action' - a term used to describe intangible property "consisting of rights to benefits obtainable only by action". Drawing a distinction between each category of property would mean existing case law principles around what constitutes 'actual possession' of goods should be set aside, it said.
Each of the four arguments it cited showed that it was possible to hold possession of electronic information, the supplier claimed. However, each of its arguments was dismissed.
"An electronic database consists of structured information," Lord Justice Floyd said. "Although information may give rise to intellectual property rights, such as database right and copyright, the law has been reluctant to treat information itself as property. When information is created and recorded there are sharp distinctions between the information itself, the physical medium on which the information is recorded and the rights to which the information gives rise. Whilst the physical medium and the rights are treated as property, the information itself has never been."
"If [YR] were right that the database could be possessed and could be the subject of a [legal claim to the property owned by another] and that its possession could be withheld until payment and released or transferred upon payment, one would be coming close to treating information as property. That observation further underlines the significance of the step we were invited to take," the judge said.
Lord Justice Davis said that there would have been broad "unintended consequences" of accepting YR's arguments.
"The right to such a possessory [legal claim to the property owned by another], if it exists, could have an impact on other creditors of the company (or individual) concerned and could confer rights in an insolvency which other creditors would not have," the judge said. "Further, the position of lenders could be affected: for they may well have ordered their lending arrangements and drafted their securities on the law as it is currently understood to be."
"Overall, given the number of IT companies and businesses in existence and the number of IT contracts being made the impact of [YR's] arguments – if accepted – could therefore be significant. Moreover, if, ... a database is to be regarded as tangible property, that may have possible implications for other areas of the law altogether – for example, the law of theft (as contrasted with the legislation relating to misuse of computers). These are but illustrations of at least possible implications, going beyond the present case, which may bring about unjust and unanticipated consequences in other contexts," he added.