Anonymity and Intellectual Capital

Sat Nov 18 18:01:26 PST 1995

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To pick up on a couple of Professor Post's ideas - limited liability of
untraceable pseudonyms, and choice of rule sets in cyberspace (see Post,
"Anarchy, State, and the Internet: An Essay on Law-Making in Cyberspace"
1995 J Online Law art 3), I suggest that arbitration is well suited to
pseudonymous commerce, and  propose the use of an old device - the 
unincorporated, or deed of settlement, company.

Contract seems likely to be the basic building block of pseudonymous digital
commerce for the forseeable future (barring a mathematical solution to the
non-repudiation problem). But, of course, contracts have to be enforced in
courts, which opens the whole thing to state intervention a la the unenforce-
ability of gambling contracts etc, and, generally requires the nym to front
up with some form of True Name to launch or defend proceedings...

On the other hand, ADR is hot, and arbitration has long been encouraged as a
method of settling commercial disputes without troubling the courts. It seems
to be getting easier to enforce arbitral awards and harder to appeal them, or
to bypass the arbitration in the first place.

And it is becoming easier to specify your own arbitration procedures (for
instance, those suited to pseudonymous parties presenting argument and evidence
untraceably via the net) and even to specify the substantive law of the 
arbitration, which need not be the law of any state (eg the UNCITRAL contract
law, or even "those laws accepted in international commerce").

So it would be possible for arbitral tribunals specially adapted to
pseudonymous digital commerce to somewhat shield transactions from the
procedural and substantive laws of any state that makes enforcement of those
transactions problematic.

Now, as Prof Post points out, the limited liability corporation is an efficient
device for the pooling of capital and the taking of business risks. But the
grant of incorporation is by the State, and the State usually requires certain
information - such as the name and address of the stockholders - as a
condition of that grant.

The last time State granted incorporations were in short supply, the merchants
of Britain developed (or redeveloped) the deed-of-settlement company -
essentially a partnership with a Board of managing partners, the assets of the
partnership vested in trustees, and the shares in the partnership easily
transferrable.

There were two major drawbacks to the deed of settlement company (which didn't
stop them being very popular, or their shares being widely traded):

1. Under the procedural laws of the day it was very difficult to sue or be
sued, because all of the partners (ie shareholders) at the time the cause of
action arose had to be named in the action. This was ameliorated by the use
of arbitration, and, occasionally, courts allowed the trustees to sue for
the company.

2. Lack of limited liability - a partner is personally liable for all the debts
of the partnership. This was ameliorated by providing in contracts entered
into by the company that recourse could only be had to partnersip assets - and,
of course, by the difficulty of suing such companies.

Both these can, at least partially, be overcome in psuedonymous digital
commerce - the first by the use of arbitration, and by more flexible modern
procedural rules (although, depending on the jurisdiction, this may not be a
complete answer); the second by the inherent limited liability of an
untraceable digital pseudonym.

Now, with a corporation in a tax haven jurisdiction acting as trustee (to
more than one company, potentially), someone/something acting as a registry
(attending to the transfer of shares in the company, and potentially many
other companies), an account at Mark Twain (held by the trustee company), and
an appropriate deed of settlement (or partnership agreement)  - oh, and some
object for the company - and now you've got something to do with your digicash!

;-)

As an historical aside, the reason unincorporated companies died out in Britain
was that they were outlawed when the general incorporation acts were
introduced - or, rather, existing companies were encouraged to incorporate
(where their deeds became their articles of association, and the objects of
the trust became the memorandum of association) and new ones were outlawed as
oversize (somewhere between 10 and 25, at various times) partnerships. In
England and Australia, at least, the prohibition on outsize partnerships still
continues, and special exceptions have to be made for Chartered Accountants,
Solicitors and architects.

Unincorporated companies were not so popular in the US (although Alexander
Hamilton (?) originally organized the Bank of New York as one) because, after
the revolution, general incorporation statutes were quick to be passed. (Which,
incidentally, is why the Commonwealth has companies and shares and articles,
and the US has corporations and constitutions and stocks. [Canada is the
exception that proves the influence of geography over history.]) On the other
hand, the Massechusetts (?) Business Trust can be seen as the ultimate devel-
opment of the concept (or, at least, that's what I read somewhere).

Dm.