A recent case in April 2023 before the Netherlands Commercial Court attracted attention from lawyers all over the globe. The topic in simple words: can digital data be owned? Can it be the subject of property rights and, if so, can it be transferred to another party or be the subject of a security right?
From the outset it should be clear that the query only concerned Dutch law. The claimant in the case was DiaMedica Therapeutics (Minneapolis, Minnesota, USA), whereas the defendant was Pharmaceutical Research Associates Group, a company located in Groningen, in the northern part of the Netherlands (PRA). PRA was engaged in the business of providing services related to the design, management and implementation of clinical development programs for the pharmaceutical, biotechnology and medical device industries. DiaMedica wanted to engage PRA to perform such services in connection with a pharmaceutical product that it had under development. In particular, it wished to have the product tested according to a method described in a protocol, to produce a report about, among other things, the product’s safety and tolerability for patients with type 2 diabetes.The agreement between the parties was governed by the laws of the State of New York. Dutch law, however, governed the question of whether a property right can be created over documents and data situated in the Netherlands.
After deciding it had international jurisdiction in this case, the Netherlands Commercial Court determined that there was no dispute that all data generated by PRA in the course of conducting its services as defined by the agreement, and all data related to these services was, with some noted exceptions, the property of DiaMedica. The parties’ opinions only differed on four questions of interpretation, including one which has raised attention in insolvency practice, namely, whether digital data is subject to a property right under Dutch property law. The court found that the claimant (DiaMedica, based in the US) was the owner of the physical documents, but not of the digital data pertaining to the clinical trials regarding the medicine it had developed.
The court followed a rather literary interpretation of the Dutch Civil Code to get to that result: ownership can only be vested in “corporeal objects that are subject to human control” (“zaken” or “things”) in the meaning of articles 5:1 and 3:2 of the Dutch Civil Code) and “digital data” did not qualify as such. In literature it is acknowledged that the air that we breathe, the specific smell of a perfume or a celestial body cannot be the subject of human control and therefore be a “thing” that can be owned. That seems rather logical. But can an analogous application of the legal concept of ownership be applied to digital data?
The court was short: although it may be desirable in this digital day and age to apply the concept of ownership analogously to digital data, it would be contrary to the “closed” system of Dutch property law in which rights are specifically enumerated. As a result, it is not up to the courts to determine the rights in rem that can be vested in digital data – that’s for the national legislator. The court’s conclusion was that DiaMedica’s revendication claim cannot be upheld insofar as it concerns digital documents. The court’s decision also means that, under Dutch law, digital data cannot be transferred, that it cannot be the subject of a security right and cannot be the subject of an attachment.
The Dutch Civil Code as a legislative instrument is rather modern as it came into legal effect in 1992. But the Netherlands has been a civil law country for over 200 years, and civil law – and national insolvency law for that matter – does not change overnight. Fashion changes every year, technology by the day, but for civil law (and insolvency law) it may take a decade. The obvious question has been raised whether the judgment also means that Dutch courts would not recognise cryptocurrencies as property, where for instance the US and most jurisdictions in the common law world have recognised digital assets as property? My response is that one should be cautious (i) to ‘export’ the Dutch decision, and (ii) to identify “data” in the meaning of the courts’ decision (“data” as formulated in a contract of 2013) in combination with rather new concepts of “digital data” or “cryptocurrencies” (in an industry not know in 2013). Can you justifiably compare at all a common law system with a legal system having its roots in many years of civil law?
It should not be forgotten, however, that this digital data was an inherent element of a contractual relationship. The court considered this argument in the context of the Dutch law of obligations, observing that a claim to require cooperation by the transferor of digital documents can in principle be upheld, as there was a valid contractual obligation for the defendant (PSA) to cooperate with DiaMedica to become the owner of the digital data. Under New York State law, PRA did not have a lien on the (non-digital) documents nor a right to suspend its obligation to surrender the documents, as DiaMedica was not in breach of any obligation under the agreement.
The Dutch court set out two conditions for surrendering any physical or digital documents and data to DiaMedica: (i) digital data outside of the scope of DiaMedica’s property rights must be returned by the custodian to PRA, and, (ii) in so far as the related documents contained personal health data of the persons who participated in the clinical trials, they were not to be surrendered to DiaMedica’s office located in the US, but instead to a representative in the European Union, designated by DiaMedica under Article 27 of the General Data Protection Regulation (GDPR).
In the end, the absence of a Dutch property regime for digital data therefore did not affect PRA’s obligation to cooperate with the surrender of any digital data by the judicial custodian to DiaMedica. Under Dutch law, then, proprietary ownership of digital data is not possible – but transferring digital data in the context of an agreement may be possible under specific obligations to which a third party may be bound. This is a feeble solution to a big, modern problem.
The Dutch legislator should move to fix it fast.
Netherlands Commercial Court 21 April 2023, ECLI:NL:RBAMS:2023:2540
This is a slightly adapted version of a regular column Bob Wessels is writing for Global Restructuring Review (GRR) on the topic of cross-border restructuring and insolvency in a European context. GRR is a subscription-only publication and the column appeared in GRR on 11 August 2023. See globalrestructuringreview.com