Friday, April 01, 2005

Transferability of Electronic Assets

The Working Group on Transferability of Electronic Assets meeting on Friday morning. Posted by Hello

Mattias Hallendorff and Prof. Linda Rusch (both here from the Twin Cities, continuing the tradition of making sure that any law that actually makes a difference in Cyberspace actually comes out of Minnesota or passes through it...), are continuing the group's thoughts discussed in Palo Alto -- How can we actually create a working and functional system of Electronic Chattel Paper (ECP) that is contemplated under New Article 9 at Section 9-105?

Continuing a collaboration that initiated in Palo Alto with the technology experts at The Open Group, the WG has worked together with the technologists to try to work towards some recommendations. In particular, Mike Jerbic, Chair of The Open Group's Security Forum, has undertaken to work closely with the Working Group. His beat -- data security -- has particular relevance to ECP and its need for (relatively?) unassailable records.

Mike gave an early version of a slide presentation, where he began the effort to get the two worlds talking together. He noted that the tech world has largely concentrated on a concept they term as "command" -- which is fundamentally at odds with the UCC's requirement of "control." Command presumes that if we tell the system to do something, it's actually going to go ahead and do it. Control is not going to be happy with just assuming -- it needs to know that the machine did what it was ordered to do, a concept that is surprisingly foreign to current technology systems. Today, most technology systems rely more on redundancy and other similar concepts of just throwing the kitchen sink at everything to make sure the 'command' gets followed, which makes good sense where bandwidth and storage are cheap. But, for 'control' in the ECP world, the thought is that it needs to be done only once, and that one shot needs to be on target.

There was a lively debate over how to move the lawyers, the bankers, and the technologists to getting off the ball -- or if they should be moved. Prof. Ken Kettering raised a general theme of how the statute is unwilling to take a stand on HOW to get control. While he noted that there may be any number of technology answers that seemingly meet the requirements of the statute, the thousand bishops who might be willing to swear to its leading to control will not necessarily lead to an unassailable legal conclusion of control. He thinks we are being somewhat over-optimistic that any one of our systems will make the jump from good tech to good law.

Others still feel that the issue is not one of black and white, but trying to decide where the financial markets are going to be comfortable with the final system's degree of greyness. There are clear pressures to move this idea forward coming from the finance industries -- and this might push us to the point where we need to do it anyway. The 'pro' group's opinion could be summarized by John Gregory's thought that we need to compare this to the systems we've used in the past, and how we ultimately need to reach some degree of 'comfort' in whether that paper signature means something. The electronic world needs to figure out when the industry will get comfortable -- either for an agency to rate a deal, or for a law firm to offer an opinion.

Dina Moskowitz, Assistant General Counsel at Standard & Poor's (who will be lecturing -- guess where? -- Minnesota this coming month!), noted that law firms offering these opinions will be expected to have SOME degree of ability to do technical due dilligence. The opinion cannot rely on the raw assurances of the vendors. However, there is not going to be an expectation that law firms will become System Analysts -- the use of a good technology framework of analysis, combined with a level of technology understanding, should probably be an adequate basis for a meaningful opinion of counsel.

And, it is that framework that the Working Group is working to create.

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