Data We Never Knew

16/ 06/ 2019

Artem Taranowski

Partner, Golovan & Partners Law Firm

It is years now that data-driven, data-based, data-intensive activities ceased to be of purely scientific significance and stepped in the business domain. And data now are not what they were before. It is not just another word for information. Not anymore. We cannot ignore further what data have become, how valuable they are and what are the risks. That’s what this article is about.

Data Economy gains momentum, the transformations are underway, and data inevitably obtain entirely new sense. Business activities generate more and more volumes of data. Given the volume, range of values, range of time, and consistence, it all goes beyond information in its traditional meaning, brakes through personal data limitations, and earns independent significance as so-called ‘industrial data’.

In order to keep it simple:

  • it is not an identified payment of a client but total of account transactions within a bank
  • it is not a specific money withdrawal but all such withdrawals for an ATM
  • it is not a particular purchase of a customer but aggregate of transactions within a retail store
  • it is not content a subscriber provided with but all the subscribers activities within a telecommunication network

What we talk about when we talk about industrial data

The big picture is it’s all data that matters—from key business activities to secondary ones to those that were of no significance before. It is not just data related to products or services provided to a client but all and any data generated by a company.

Why in the world does it matter?

While the trend is global and is more or less the same in different jurisdictions, I will try to answer the question from within Ukraine.

Year 2012. The day before Facebook started trading shares on the stock exchange, the company’s valuation was nearly $104 billion. The market capitalisation of Boing, General Motors, Dell Computers together at that moment. Following the audited accounts for 2011 the reported assets were roughly $6 billion. And a little bit less than $100 billion were nearly 2 trillion elements of so-called ‘monetisable content’ that was accumulated by the company between 2009 and 2011. The difference between the book value and the market capitalisation amounting to $100 billion were data covering the company’s key business activity.

Year 2015. The insolvency case of the company controlling casinos in Las Vegas, Reno, Atlantic City. The creditors evaluated data covering the activity of the casinos clients at $1 billion. For the sake of comparison, it was more than value of any property of Caesar Palace in Las Vegas. The data being rather secondary ones amounted to 17% of the total value of the company’s operating assets.

Even before in the United States. One of the largest mobile operators recognised enormous value of its data and was considering to put those on the books as a corporate asset. However, that was not going to happen because of lawyers.

Nowadays in Ukraine:

  • Kyivstar proposes such data-based services as profiling and client analysis, finding new target audience, scoring models, heatmaps and geopositioning for such sectors as banking, retail, e-commerce, insurance, pharmaceuticals, agriculture, and also declares that where new services are needed Kyivstar is open to propositions and ready to come up with customised solutions
  • Vodafone Ukraine proposes such data-based services as geoanalytics, target audience analysis, finding target clients, and scoring—default, fraud, loss occurrence risks evaluation, target and re-target events, demand and churn rate forecasting—for such sectors as finance, insurance and retail
  • Lifecell proposes nothing but definitely involved in data-related services development while its parent company Turkcell is active in this direction at least since 2015—it holds thematic hackathons, trainings for employees, takes part in thematic conferences at the level of Chief Analytics Officer, proposes data-related services under the auspices of standalone R&D facility

It is all about the industrial data.

It’s all about money

Last but not least. As it was cited in the Study on Emerging Issues of Data Ownership, Interoperability, Usability, Reusability and Access to Data, and Liability that was prepared for the European Commission, Europe lost the race for the development of a competitive personal data economy and cannot afford to do the same with respect to the industrial data.

The significance of the industrial data is therefore evident from the practice. Further development of Data Science, Big Data, Data Analytics and intersections thereof will definitely increase importance of the industrial data while widening their range from core activity related to secondary ones and to those that were regarded as nothing before.

It well may be possible that the steep increase is to be triggered by IoT when 5G networks are launched and fully operational. And the industrial data will be obtaining more and more value where new datasets will become available. In its turned it will inevitably provoke appearance of even new kinds of industrial data.

At that time all the range of industrial data will matter. But what does matter even now is the visible part of the spectrum—data related to products or services provided to a client.

What about legal implications?

Figuratively speaking, one day it may appear that, the territory controlled by the company is a huge oil field. It goes without saying that it matters whether or not the company is entitled to.

The current state of affairs is that law is absolutely indifferent to what industrial data is and what its peculiarities are. Mostly because it was impossible to imagine that such a special something can exist at all when the law was made. For that particular reason it was not taken into account in any meaningful way.

That is not just Ukraine-specific feature. The status quo in the European Union and in other jurisdictions is more or less the same.

For historical reasons, the law pays most attention to movable and immovable property, and to objects intellectual property. Civil law outlines wide range of objects that are allowed for circulation and therefore are able to be offered and accepted within contracts. However, the most and only developed object remains to be items of property—movable and immovable property.

From where it stand now, Ukrainian law considers industrial data as follows.

As any other data, industrial data are exactly the information under Ukrainian law. On the one hand, information is directly defined as an object of civil rights being thereby allowed for circulation and able to be offered and accepted within a contract in return to something. On the other hand, information is directly defined as a civil law specific non-material value, and is therefore considered as a variety of again civil law specific personal non-property rights which is a right to information including powers to collect, store, use and distribute information.

In other words, the scope of the right to information is absolutely different from the property right which is of economic nature and provides its holder with powers to possess, use, and dispose of. The right to industrial data is therefore different in the same way.

Moreover, being a variety the personal non-property right means that the right to information is directly deprived of economic nature. Which means that the right to industrial data is also of non-economic nature.

It’d rather be unknown to others

From the protection point of view, just like they accidentally fall in definition of information, industrial data are covered by Ukrainian analogue of trade secret. Which is good. For the same reasons, however, industrial data are at least at the edge of what is regarded as ‘information about goods and services’ and ‘statistical information’. Which is not so good for a company having industrial data under control.

It is therefore evident that status of industrial data under Ukrainian law is far from being certain from the legal point of view. For the sake of fairness, it is worth mentioning that under the laws of many member states of the European Union legal concepts of ownership are also not able to cover data as such and industrial data are also not subject to property rights.

What it all means in practice

To be more specific, what is can mean. No cases yet, just theorising.

Imagine that, just like the American mobile operator mentioned above, a company decides to recognise industrial data as an asset and put it on the books as one. Let’s say, for the purposes of selling the business. Under Ukrainian financial reporting standards, assets regarded as resources a company controls, that are able to increase economic benefits in future. However, as we mentioned earlier, the regime of personal non-property right excludes economic benefits with regard to industrial data by definition. Which makes it impossible to recognise the industrial data even as an intangible asset.

What’s if it all gone?

For the same reasons, it seems to be at least doubtful that industrial data are able to be insured.

Data are to be stored. One day, the storage ceases to work properly. The data evaporate. The damages issue is raised. Contractual liability and liability under the Product Liability Directive and its Ukrainian implementation allow recovering damage to or destruction of an item of property but data is not considered as one. Non-contractual liability allows recovering damage to property and a detriment to non-property rights which is of economic nature; industrial data are covered by non-property rights concept but there’s still no way to solve the issue of their non-economic nature.

A company provides another company with data to be used while the latter provides products or services to third persons. Damages occur at the level of the third persons and the provided data are involved. It is not clear how the connection between the damages occurred and the provided data should be established while defining the cause.

A company provides another company with data used for self-learning, evolutionary, non-deterministically autonomous devices. Again, damages are caused to a third person while the provided data are used. Who exactly is to be responsible where such a data-driven device is involved is legally uncertain.

It is not that rare that not only a company but also third parties are involved where industrial data are generated. What if the company decides to destroy the industrial data? Be it an item of property, the company would then have the property right and define the ultimate state in such a way under the power to dispose of. But again, they are not an item of property. And there is no power to destroy among the powers directly defined for the right to information covering industrial data. The issue to what degree the company is free to decide here on its own remains unresolved.

What are the options

The main direction in order to mitigate the risks that should be relevant for all jurisdictions remains to be contracts. In some jurisdictions, just like in Ukraine, it is also possible to apply usual and customary business practices which means that at least some issues are able to be arranged at the level of business associations and implemented through codes of business conduct.

Besides, pay attention, identify the risks, refine the terms and conditions. Keep calm and do not let legal uncertainties to stop your business.

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