The land of digital currency is no longer finances’ wild west. In March, President Joe Biden announced a new executive order regarding the regulation of cryptocurrencies as virtual assets are seeing explosive growth (with explosive implications). According to The White House, the cryptocurrency market is now worth $3 trillion and around 16% (40 million) of Americans have engaged with cryptocurrency in some form. And with more than 100 countries beginning to explore Central Bank Digital Currencies (CBDCs), a digital form of a country’s sovereign currency, it has become evident that the implementation of industry guidelines is now essential in moving market innovation forward.
The goal of the US government is to position the United States as a leader in technology and finance while also mitigating the risks for consumers, financial stability, national security, and climate change. To do so, this executive order lays out a national policy for digital assets across six key priorities: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation. The EO also calls for the exploration of US-based CBDC to assess the risks and benefits of issuing a digital dollar.
So, what does this mean for litigation?
Our financial technology expert Dr. Peter Vinella feels that this is one of the first signals to the market that the US government has begun to take cryptocurrencies seriously and take a unified and coordinated approach to assessing and regulating them. Though the study presented in the EO may take a year or more to complete, Vinella predicts that financial regulators will begin to issue guidelines (as opposed to regulations) well before the completion of the study addressing each of the concerns raised in the following order:
- Consumer protection
- Financial stability
- Illicit activity
- US competitiveness
- Financial inclusion
- Responsible innovation
Further, Vinella believes that the current war in Ukraine will greatly affect the speed of regulation implementation. He explained, “Russian sanctions are going to significantly speed up both the regulators’ promulgation of cryptocurrency regulation as well as regulatory action itself (since cryptocurrencies are free from most government oversight, it is a channel for Russians to get around the sanctions).”
Because of this, Vinella anticipates an influx of intellectual property, human resources, negligence, and fraud-related cases. In the IP space, disputes will likely be driven by two main factors:
- Lack of knowledge- typically, technologists aren’t finance experts. Vinella states that some often copy property without considering patents, trade secrets and the like
- Disruptive business models – in many cases, new technology-driven businesses replace legacy ones. In doing so, the technologists often must copy existing business practices, which may be protected
In the HR space, litigation will mostly relate to poaching, broken promises, and IP-related problems arising from new employees taking trade secrets from their previous employers.
In terms of negligence litigation, Vinella feels that conflicts in this space will be driven by contract disputes between companies and their agents (e.g., outsourced development) as well as between services providers and customers. He explains, “In the former case, building software that works is not easy. In the latter case, new software often is very buggy, potentially creating big losses for customers. I also think that there will be a number of suits related to the leaking or misuse of customer data and the misuse of their money.”
Negligence can then lead to fraud disputes in terms of money misuse. Vinella predicts that there will be a host of investor lawsuits claiming fraud as the market moves forward.
If your company needs help preparing for these challenges, reach out to WIT for the best experts who can advise you on your strategy. Our expert teams were created to address what we expect to be the key areas of IP litigation in emerging financial technologies and digital currency. For more insights on what is to come in the future of cryptocurrency and the fintech industry, contact us to schedule a partner briefing.