I love college basketball.  Given that my Missouri Tigers haven’t given me much to talk about, I thought we could discuss the efforts by this upset Duke fan to have her image removed from the Internet captured during the Miami – Duke game that snapped Duke’s incredible 41-home-game winning streak.  You can read about it here.

I am not a Duke basher (nor fan) and I don’t want to pile on this poor fan.  Believe me, after what Kentucky did to Mizzou last night, I felt worse.  This does, however, raise some interesting legal questions.

How do you remove images from the Internet?

 

1. Copyright

The primary way is to use the Digital Millennium Copyright Act.  If you own the copyright to the image, it is usually pretty easy to get images removed from websites operated in the U.S. and to have the search engines de-index them.  You can read more about the DMCA here.  Generally, if you take the picture, you own the copyright.  The copyright to this image belongs to ESPN and probably the ACC or NCAA.  You know that really quick copyright notice for broadcasts – any use of images is prohibited, blah, blah, blah.  Screen shots would be included.  The fan could ask ESPN to get these images removed.  ESPN may be a little busy, however, because I think Tom Brady may have sneezed.

2.  Invasion of Privacy

There is little expectation of privacy in the stands of a nationally televised sporting event.  Do a search for certain NSFW conduct at sporting events to see how people forget this sometimes.  Also, look at the back of your ticket next time you head to a game.  There is a lot of fine print about the lack of privacy you may experience.  Nevertheless, let’s go through the common law claims of intrusion upon seclusion, publicity to private facts, appropriation of likeness and false light.

Intrusion upon seclusion.  The elements of the claim are: (1) intentional intrusion; (2) upon private affairs of another; (3) that is highly offensive to another.  Being upset at a basketball game is not a private affair.  Most states follow the stand in doctrine which provides that if the media stands where the general public could observe the events, then there is no intrusion.

Publicity to private facts.  To prevail on a claim, the information must not be a matter of legitimate public concern and its publication would be highly offense to a reasonable person.  I am not suggesting comments to a blog are true indications of what is offensive, but a quick view of them reveal that using that screenshot is not highly offensive to most.

Commercial appropriation of likeness.  This requires the (1) appropriation of one’s name or likeness; (2) for a commercial purposes.  Although ads are sold on blogs, the use of the name is not for a commercial purpose.  This cause of action usually applies to celebrities when a store tweets about them without permission or makes video games about them.  If a UNC fan used this picture to start selling t-shirts, then she may have a claim, but not for the use of the image on Twitter or blogs.

Portrayal in false light.  It requires: (1) publishing information that creates a false impression; (2) thereby casting the person in a false light; (3) creating emotional (as opposed to commercial) harm; and (4) the act is highly offensive.  I suspect there is nothing false about this fan’s feelings.  Like I said, no one saw me in my living room with a look of disgust last night, but there is nothing false impression about how she is feeling and why she is upset.

3.  Approach the websites

According to the article, the first image appeared on Twitter.  Under the Twitter Rules, posters are not supposed to abuse others, infringe on the rights of others or violate copyrights.  If you ask nicely and point out how posts violate a site’s terms, sometimes the wesbites will take it down although they may not legally have to.  In fact, in the terms of service, Twitter says it may not monitor the tweets and:

You understand that by using the Services, you may be exposed to Content that might be offensive, harmful, inaccurate or otherwise inappropriate, or in some cases, postings that have been mislabeled or are otherwise deceptive.

In addition to being at the mercy of Twitter’s whims that day, the problem is now that the image is on many other sites as well.

The Streisand Effect

We have talked about the Streisand Effect before.   It’s the name given to the phenomena resulting from increased attention to online posts, stories, websites, etc. only after someone complains about them or raises a legal issue about them.  Had the fan not asked to remove the image, I would not have read about it and would not be blogging about it. Sometimes, the wiser move is to let it go (no, I will not sing it).  It’s a bad business development strategy on my part, but is often the best advice I have ever given.

On the bright side, at least the fan was not wrongfully accused of being caught cheating on her boyfriend at the Ohio State v. Alabama game.

http://www.youtube.com/watch?v=-2QQj1n57ok

 

 

 

 

We created this infographic for some of our media clients to give them a one-page cheat sheet on the analysis they need to do when trying to decide whether they can use an image from the internet in a pinch.

The infographic includes all the caveats because rarely can a legal issue be discerned down to one page with so few words.  In fact, I wrote a three-part series on this very topic last year.  

To view this as a pdf, click Use of Images InfoGraphic.

 

There has not been much activity on the blog because we have been engaged in a long copyright and misappropriation of trade secrets trial.  So, we share with you some of the articles we have been reading, but just haven’t had time to write about:

Bloggers entitled to same protections as journalists under the First Amendment.  The Ninth Circuit recently applied libel defense protections normally reserved to the “institutional press” to bloggers reasoning the First Amendment applies to all citizens and there has been a blurring of the lines between who and who is not a journalist.  You can read more about this important decision here.

We have our first Twibel verdict – no defamation in 140 characters.  In three hours, the jury returned a defense verdict saying Courtney Love did not libel her lawyers with a tweet that suggested her prior lawyers had been “bought off.”  The bad news is that during the trial Love stayed off of Twitter, and now, she is apparently back.  More here.

Yelp ordered to disclose identity of reviewers.  A court ordered Yelp to review the identify of seven “anonymous” reviewers who criticized a dry cleaning business in Virginia. The business claimed the reviews are fakes and do not match any of their records.  This is another example of how courts are trying to balance the interests of anonymous speech and a plaintiff’s right to combat defamatory speech.  More here.

Parents take to the court to combat cyberbullying.  Locally, there has been a lot of attention about a lawsuit filed by one set of parents against seven minors and their parents for libel and negligence.   More here.

Will there be more transparency regarding government requests for online data?   The Justice Department is relaxing the rules for technology companies like Google and Microsoft to disclose, in broad terms, the number of requests these companies receive from the government and the amount of data provided.  Tech companies have long reported the number or requests from state and non-national security related requests from the federal government, but this will be the first time they can release general information related to national security letters.  If the numbers are surprising, this could lead to even more push back against the government surveillance programs.  More here.

Supreme Court to consider online re-broadcasting case.  The U.S. Supreme Court will weigh in on the rights to re-transmit broadcast programs via the internet.  Aereo receives over the air broadcasts the old fashion way in a warehouse and then sends them to paid subscribers devices.  The broadcasters are arguing that Aereo is violating the “public performance” copyrights to the programming.   Aereo says what they are no different than the users receiving the digital signals on their own devices.  Both sides wanted guidance from the high court and this is one worth watching.  More here.

With the short Thanksgiving week, I thought we would touch on a few interesting stories developing over the last couple of weeks.

Photographer gets $1 million+ verdict from AFP and Getty for copied Twitpics

In my three part series on using images from the web for your news stories, we talked about the Morel v. Agence France-Press case.  Agence France-Press, the Washington Post and Getty used images of the Haitian earthquake put on Twitter by photographer Daniel Morel.  The Washington Post settled, but the case went to trial last week against AFP and Getty.  AFP thought they had permission from the photographer to use the images, but they did not get permission from the right person.

Previously, a judge rejected AFP’s argument that it could use the images because they were put up on Twitter. The Twitter terms of service did not provide that the photographer gave his rights in the images away or grant anyone else the right to use the images outside of Twitter.  In the trial, it turns out AFP did not follow their internal guidelines on the use of images or take immediate corrective action.  The jury awarded the upper end of the statutory damages.

If you have policies, follow them.  If you make a mistake, you fix it as quick as you can. You can read about the case here and here.

Engineering gift for girls’ video spreads on Facebook – lawsuit follows.

I have a daughter.  I liked this commercial.

http://www.youtube.com/watch?v=UFpe3Up9T_g

I assumed they had the Beastie Boys’ permission.  Apparently, they did not and the Beastie Boys sent a copyright cease and desist letter.  The people at Goldiebox fought back and filed a suit asking the court to declare the parties’ rights.   Is it a parody or do the Beastie Boys have to do this to make sure more people don’t use their songs in commercials?  You can read more about the case here with some legal analysis from the EFF here.  At least Goldiebox will get some more attention with the lawsuit at the beginning of the holiday shopping season.

Want to criticize me, it will cost you!

KlearGear’s terms of service state:

“In an effort to ensure fair and honest public feedback, and to prevent the publishing of libelous content in any form, your acceptance of this sales contract prohibits you from taking any action that negatively impacts KlearGear.com, its reputation, products, services, management or employees.

Should you violate this clause, as determined by KlearGear.com in its sole discretion, you will be provided a seventy-two (72) hour opportunity to retract the content in question. If the content remains, in whole or in part, you will immediately be billed $3,500.00 USD for legal fees and court costs until such complete costs are determined in litigation. Should these charges remain unpaid for 30 calendar days from the billing date, your unpaid invoice will be forwarded to our third party collection firm and will be reported to consumer credit reporting agencies until paid.”

A Utah couple criticized KlearGear on RipOff Report.  Soon thereafter, KlearGear sent the couple a bill for $3,500.  KlearGear never sued, but did report the couple as delinquent to the credit reporting agencies.  We have talked about being proactive, but not too proactive, when it comes to online complaints.  Since the news of this broke, KlearGear has shut down its Facebook page and its Twitter feed to hide from the blow back.  You can read more here, here and here.  This is not the kind of press you want before the shopping season.

Update 11/27/13 –  a lawyer is now representing the couple and has sent a demand to KlearGear to remove the notation with the credit agencies or face a Fair Credit Reporting Act lawsuit.  Read about it here.

Reputable companies line up to support TheDirty.com

Finally, we update you on the Jones v. TheDirty case we have talked about before.  This is the suit by a former Cincinnati Bengals cheerleader against the website TheDirty.   A Kentucky judge allowed the case to proceed against the rumor and trash site despite Section 230 of the Communications Decency Act which normally provides immunity for website operators based on user generated content.  The jury awarded $380,000 and TheDirty.com appealed.

While some may believe the ends justified the means against this particular defendant, the refusal to dismiss this case flies in the face of almost every other Section 230 case.  In this case, the court wrote “the very name of the site, the manner in which it is managed, and the personal comments of defendant Richie” shows that the site “specifically encouraged development of what is offensive about the content.”  TheDirty.com asks people to “submit dirt.” Their submission form has entries for the “dirt,” and provides a link to upload photographs. The court seized on the fact that in response to the post about Jones, the site operator wrote “I love how the Dirty Army has a war mentality.”  Thus, no dismissal by the judge.

Section 230 has its place.  Imagine if Facebook, Google, or YouTube could be sued or had to police all of the user generated content.  I don’t think those services would exist.  That’s why many of them have filed amicus briefs with the Sixth Court of Appeals urging the court to reverse the ruling and dismiss the claims.  You can read more here about how and why the likes of Amazon, Google, LinkedIn, Google and Microsoft are asking for the reversal.

 

In part one, we discussed how fair use may apply to the media’s use of social media images.  In part two, we looked at how the various sites’ terms of service come into play.  Today, we look at the one prominent case in this area and describe some best practices.

 The Agence France-Presse Twitter Case

There is just one well-known case involving the media’s use of social media images.  Agence France-Press and the Washington Post both used images of the Haitian earthquake put on Twitter by photographer Daniel Morel.  A judge rejected AFP’s argument that it could use the images because they were put up on Twitter.  The Twitter terms of service did not provide that the photographer gave his rights in the images away or grant anyone else the right to use the images outside of Twitter.  After denying AFP’s motion for summary judgment, the case, as far as I can tell, is still pending.

Best Practice

1.   Make sure it’s legit

It’s easy to get duped.  Jimmy Kimmel showed us that.  This is more a producer/editorial function rather than legal, but it’s worth noting here.

2.    Get permission

The good news about social media is that it makes it easy for you to reach out to ask permission.  You don’t need any magic language and you don’t need a lawyer to draft anything for you.  Send the person who posted the image – “Hi, I’m the producer, we are considering using this image.  Did you take it and would you mind if we used on the news?” It is not uncommon for there to be a small payment, but most amateurs won’t ask.

3.     Make sure you have permission from the right person

In the AFP case, AFP did reach out and tried to get a license to use the images.  They just did not get them from Morel — the actual photographer.  The AFP staffer saw the images on Twitter and reached to the account where the staffer saw them.  Unfortunately, that person had already lifted them from Morel’s account.  AFP then distributed the images to Getty and Morel was not pleased.   You can read more about the facts of the case here.  For those of you who want some more legal beef on the case, check out Professor Goldman’s post here.

4.     Don’t make promises in your request or box yourself in

Because of fair use, you don’t have to ask for permission.  Even if they say no, you might be able to use it.  Therefore, don’t send a message that implies you are only going to use it if you obtain their permission or suggests that you have to have it.  My example above would be fine.  Sending a message that says: “We have to hear from you soon to know whether we have your permission” implies it’s a requirement and could be used against you if there is a trial later.

5.     Attribution

If you are unable to get permission, then you should at least provide attribution.  Many amateurs would be satisfied with a little notoriety from the attribution.  Attribution won’t get you out of a lawsuit if they get mad, but it may help show you were acting in good faith or alleviate any anger so the person reconsiders whether they really want to file a lawsuit.

The Poynter Institute’s Adam Hochberg wrote an article titled “Twitpic, Flikr Use by Eyewitnesses Raises Questions for News Orgs About Image Rights, Compensation” that includes a good discussion of these issues.  According to the article, the Associated Press requires editors to contact all “citizen photos” and verify each image for both authentication and permission.  The article provides several ideas for an image policy and some of the issues involved.

What is the real harm?

The main point of this series has been to avoid any liability and provide some guidance and good practices.  I am not saying the minimal likely harm should be part of the decision-making process as to whether you violate a copyright.  When dealing with fair use, there is risk, but it is usually not a huge risk.  Assuming it is a close call (and you are not scooping or stealing some paparazzi images of the Royal Baby), you are likely looking at having to pay either actual damages or statutory damages.  The actual damages could be the market rate for the license to use the image.  The statutory damages, on the other hand, are between $750 and $30,000 per work.  If the fair use analysis is a close call and you use best practices, you are likely to be on the lower end of the statutory damages.  In the AFP case, the court ruled he damages would be assessed on each image used by AFP and not on each time it was subsequently downloaded or used after AFP sent it to Getty.  Whether you multiply $5,000 times 8 or 8,000 makes a huge difference.

If you mess it up, your biggest liability is likely going to be the bad P.R. and your legal bill.

Last time, we looked at whether the media can use images from social media sites applying fair use to several typical situations.  Today, we look at the specific terms of service of various popular sites to see if some make it easier than others for the media to use images.

Facebook:

Plain English:  Each user allows Facebook, and only Facebook, to do what it wants with the images subject to the privacy settings.   It gives no others any rights through its terms.  Facebook could sublicense to the image to you, but I have not heard of this being done for the purpose of news reporting.  As we discussed last time, the fact that someone puts up the image for the world to see can help with the fair use argument.

Twitter:

In plain English:  The same as Facebook.  Interestingly, Twitter includes a “Tip” section where it says:  “This license is you authorizing us to make your Tweets available to the rest of the world and to let others do the same.”  There is certainly no issue retweeting images and posts, but the “tip” seems to be more broad because it would allow the media to repost images and posts off of the Twitter platform.  The Twitter terms do not expressly allow that, but this language could help argue it does.

Twitter also reserves the right to sublicense whatever is provided, specifically allowing Twitter to make it available to other media and platforms without any compensation to the user.  The tip says:  “Twitter has an evolving set of rules for how ecosystem partners can interact with your Content. These rules exist to enable an open ecosystem with your rights in mind. But what’s yours is yours – you own your Content (and your photos are part of that Content).”

While this is certainly not a green light to re-use images from Twitter, it could help a media outlet argue fair use.

LinkedIn

Plain English:  The terms contemplate that your images on LinkedIn may be copied, but they do not expressly allow it.  The terms warn “[a]ny information you submit to us is at your own risk of loss.”

Pinterest

Plain English:  The site had its own copyright issues in the past.  It tries to make it clear that anything a user submits is meant to be shared as much as possible.  The terms say: “You grant Pinterest and its users a non-exclusive, royalty-free, transferable, sublicensable, worldwide license to use, store, display, reproduce, re-pin, modify, create derivative works, perform, and distribute your User Content on Pinterest solely for the purposes of operating, developing, providing, and using the Pinterest Products.”  This means they want you to share what you find on Pinterest, but only share it on Pinterest — not the front page or the 5:00 news.  

Pinterest has a section called “More simply put” that says “if you post your content on Pinterest, it still belongs to you but we can show it to people and others can re-pin it.”

Vine

Plain English:  Vine is allowed to sublicense content, but there is nothing that allows the general public to do whatever it wants with the videos.

Instagram

Plain English:  Instagram may sublicense the images, but there is nothing in these terms that would specifically allow the media to use the images.

Up Next

In our conclusion of this series, we will discuss a couple of cases and talk about the best practices.

 

The answer is one that frustrates people the most — it depends.  In most circumstances, you run the risk of violating the copyright of the person who took the picture, so the best practice is to seek permission first (more on that in part 3).  But, let’s assume you can’t get permission — after all, you are on a deadline.  So, let’s look at three different scenarios and the “fair use doctrine.”

The Fair Use Doctrine 

The most common response you hear from the journalist is that I’m a reporter so I can use these pictures as a “fair use.”*  Fair use is an affirmative defense to a copyright violation meaning, it is the media’s burden to prove the use was fair.  The Copyright Act specifically lists “news reporting” as an example of what could be fair use.  The Supreme Court, in the one case where it looked at the news reporting fair use angle, ruled that Congress’s inclusion of “news reporting” gives the media a good argument, but there is no presumption that it will always prevail.

Fair use is a factually-specific inquiry and there is no bright line test.  Courts consider these four factors:

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

For most commercial news gathering sites and stations, the courts find they are engaged in commercial endeavors – you sell advertising.  The media usually loses this argument.

(2) the nature of the copyrighted work;

Was this a professional photographer taking pictures to sell to the public or is this a less “artistic” photo already being freely shared with the public?  Most likely, if the photograph is being used for news and it is a simple Facebook photo, this factor will weigh in favor of the media.  The issue of whether the image, in and of itself, is newsworthy also comes into play.

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

This is more applicable to excerpts of videos, books and music and is usually considered a wash when dealing with images.

(4) the effect of the use upon the potential market for or value of the copyrighted work.

This is why you may have heard that as long as it is an amateur’s photo you can take it. That may help you with this factor, but this fact alone will not give you the green light.

The Picture of the Non-Celebrity

Neither a scandalous teacher nor, alas, a lottery winner

The local schoolteacher is caught in a scandal with a student.  Or, let’s be positive for once, the local man wins the lottery.  You need a picture of the person so you turn to Facebook or LinkedIn.  Why not just grab it? After all, they put it on the site for the world to see.

First, you want to check the terms of service from the social media site where you found the image (that’s #2 in this series).  I am not aware of a case where an average citizen has sued the media (as opposed to the school district for using an image in an what not to do presentation) for using their Facebook picture.  This is good and bad in that no one has ever ruled you should not use the image, but no one has said it is 100% OK either.

Assuming the license from the social media platform’s terms of service do not give the general public the right to do whatever they want with the image, you should go through the fair use analysis.

Fair Use Factor 1:  Media outlets that take advertising are engaged in commercial activities although the primary goal may be to educate the pubic.  Unless, you are a public interest group or non-profit, you are likely going to come out on the wrong side with this factor.

Fair Use Factor 2:   The more the image itself is newsworthy, the more likely the media will be able to use it.  If the image is one of the teacher with the student that is subject of the scandal, then that image is newsworthy and more likely a fair use.  If the picture shows the subject engaged in the activity related to the story, then it is more likely a fair use.  Also, the further away your purpose of using the image is from the original purpose of the image, the more likely you can use it.  For example, in cases where images from a brochure were used in a news story about Oliver North and his new endeavor and nude modeling pictures of a pageant winner distributed prior to her win were both considered fair use because, in part, the media’s use was different from the original purpose and the images were newsworthy.

Fair Use Factor 3:  This issue is usually a wash because still images require, for the most part, use of the whole thing or at least the key part of it.   The media may be able to say they only used one image out of a large portfolio or album from a social media profile, but this argument has not been made in court to my knowledge.

Fair Use Factor 4:  If the image is from a professional or a free lancer, you are going to lose this battle.  For example, a local Los Angeles station used video of a beating shot by an independent journalist without permission destroying that independent journalist’s ability to license the video for money.  Would the same apply to a Facebook image?  If we are talking about the typical profile picture, usually put up by amateurs for as wide dissemination as possible without any thought to the market value, then the media would probably prevail with this part of the argument.  If the scandal-ridden teacher has pictures  of her and the student she is not able to immediately hide, she could make an argument that because of new events, there is a market for the now sought-after pictures that she could provide on an exclusive basis.  On the flip side, someone probably has access to them ruining any “exclusive” commercial value.

As you have probably figured out by now, there are a lot of factors that go into the analysis and you would be foolhardy to have a hard and fast rule.  This analysis is simply to give you an idea of what issues come into play.  The decision should ultimately be made by the editor/news director, and if there is time, legal.

The Breaking News From Twitter

Almost everyone has phones with cameras and almost everyone has access to social media. Therefore, you will see a lot more “breaking news” caught by everyday citizens who post the images.  I even took an image of a fire and posted it to Facebook from my office.  Again, assuming you don’t have permission, we have to look at the fair use factors.

Fair Use Factor One:  Same as above.

Fair Use Factor Two:  By the nature of the hypothetical, this assumes the image is newsworthy which would give the media a slight leg up in the analysis.

Fair Use Factor Three: This is usually going to be a wash.

Fair Use Factor Four:  We are assuming these are truly amateurs and not professional who are posting the pictures.  If there are 50 other people near the fire/stand-off/crash/revolution taking pictures and posting them, the less likely there is commercial value to the images.  If, by some dumb luck, the Average Joe is hiking in the woods and sees the first talking moose, then there may be commercial value to the “exclusive” nature of the images.

A moose I saw on a hike. It did not talk.

As you can see, there is still no bright-line rule.

The Picture, Itself, Is Newsworthy

Unfortunately, the compromising image of the politician (thanks Anthony Weiner) is news in and of itself.  The same goes for the nude images of the beauty pageant winner or a news story about an image.   The mere existence of these images is the story.  You can’t tell the story without them.  While this may be the easiest analisys, in can still be perilous.  You most likely will be able to use it, unless someone has an exclusive or there is commercial value to the copyright holder.

For a legal article on this topic from 2011, check out Professor Daxton R. “Chip” Stewart’s article, “CAN I USE THIS PHOTO I FOUND ON FACEBOOK? APPLYING COPYRIGHT LAW AND FAIR USE ANALYSIS TO PHOTOGRAPHS ON SOCIAL NETWORKING SITES REPUBLISHED FOR NEWS REPORTING PURPOSES” in the Journal of Telecommunications and High Tech Law.

*The other common excuse is that the pictures are in the public domain because they were posted on Facebook for the world to see.  That’s just not legally correct unless the specific social media platform says that is the case.  We will examine that in part two.

[Updated on 4/11/13 at the bottom]

Yes, you can use social media to make material public disclosures.  The SEC did not punish Netflix CEO Reed Hastings.  The reality is, however, the SEC gave a warning to executives: we are not going to do anything this time because our rules weren’t clear, but now you are on notice.

The Netflix CEO Facebook Post

On July 3, 2012, Hastings posted on his personal Facebook page:

Congrats to Ted Sarados, and his amazing content licensing team.  Netflix monthly viewing exceeded 1 billion hours for the first time ever in June . . . Keep going, Ted, we need even more.

The Problem

Generally speaking Reg FD prohibits selective disclosure of material information.  We don’t want a select group to get information ahead of the general investing public.  Therefore, material information must be publicly disclosed.  My original post on the SEC investigatation is here.  Reg FD focuses on the terms “public” and “material.”  To comply, most companies issue press releases or make SEC filings to announce material milestones and financial results.

Public?

Yes, Hastings’ Facebook profile was open to the public and he had more than 200,000 friends, many of whom were the same journalists who would have received a press release.

Material?

Materiality generally means it is reasonably foreseeable a person may make a trade based on the information.  For the 30 hours after the Facebook post, the Netflix stock rose almost 16%.  Earlier in 2012, Netflix had touted the number of streaming hours as an important metric of user engagement and therefore an indication of value.  The news was picked up by the mainstream press and analysts.  There was, however, also a Citigroup research report touting the stock just prior to Hastings’ post that also likely affected the stock price.

The SEC Speaks

So last week, the SEC decided they needed to provide guidance on the use of social media.  You can read the report here.  To summarize, the SEC authorized companies to use social media to announce material information, BUT only if the company has notified investors that the company intends to use specific identified social media channels.

Hastings escaped an enforcement action because the SEC realized the novelty of the issue and the absence of clarity.  The next guy may not be so lucky.  The SEC wrote:

Neither Hastings nor Netflix had previously used Hasting’s personal Facebook page to announce company metrics, and Netflix had not previously informed shareholders that Hastings’s Facebook page would be used to disclose information about Netflix. The page was not accompanied by a press release, a post on Netflix’s own web site or Facebook page, or a Form 8 K.

A Few Lessons

Train.

Obviously, disclose what social media channels you intend to use.

Just because it is possible, it does not mean publicly-traded companies should exclusively rely upon social media channels to make material disclosures.  Should a company supplement the traditional approach with social media, the company needs to disclose what social media platforms it will use.  This announcement needs to be done often and through the more traditional channels giving investors time to find and set up their access to these outlets.  No magic language is required, something like:

We routinely post information that may be material investment information on our Investor Relations tab on our website found at ______, on our Facebook page found at __________ and on our Twitter account at @________.  We encourage you to visit these sites and follow them regularly.

Make sure people know where to go so they can register, subscribe or do whatever is necessary to get the information without forcing them to “like” or “friend” any company or individual.  If your company account has very few readers, then it probably would not qualify as a “broad, non-exclusionary distribution of . . . information to the public.”  Build your profiles before you use them to make disclosures.

Use Official Company Accounts.

Official company channels are preferred over individuals.  Presumably, the people authorized to use the official channels have some training and are more equipped to know the limits.  Your investor relations, compliance and legal teams should be involved and monitor the official social media channels.  During the training for the social media team, the adage that if you have to hesitate and ask yourself whether this is material information that could affect our stock price, it probably is, or at least it should be vetted through the entire team.  When it comes to material information, the same rules would apply to Facebook or 140 characters on Twitter that would apply to the more formal press releases.

By using the official company account rather than the individual CEO account, you also keep it easier to separate what accounts belong to the individual and which belong to the company.

Wouldn’t it be easier to ban the executives from discussing any business on social media?

This is the safe way out.  Let the executives talk about their personal life, but don’t let them say anything about the business.  I am guessing that some of my non-legal readers are pulling their hair out and screaming that you have to have your CEO engaged in social media.  David K. Williams and Mary Michelle Scott opined in this Harvard Business Review blog post “that using social technologies to engage with customers, suppliers, and even with their own employees enables their companies to be more adaptive and agile.”

Regardless of your engagement strategy, even blanket prohibitions against discussing business can create some confusion.  Would commenting that you are on the way to the company Christmas party to celebrate the best year yet violate a blanket ban on business talk?  Would that violate Reg. FD?  Even if you take the more cautious approach, your executives need to be trained on the rules.

Train.

So, does legal have to review every post or Tweet before it goes out?

After all, press releases are closely reviewed before they go out.  This approach goes too far.  The better practice is provide adequate training and implement policies on the front end.  The company policy should allow investor relations/legal/compliance to monitor executive social media accounts.

Do we need to train everyone including the new intern?

Everyone should be trained, or at least aware of the social media policy.  Reg FD really applies only to persons acting on behalf of the issuer or company which includes “any senior officer of the issuer or any other officer, employee, or agent of the issuer who regularly communicates with securities market professionals or with security holders.”  These folks also need to be aware of the company’s Reg FD policy and training.

Train.

Should we just identify all official channels and the social media profiles of the top executives?

To be safe, a company could identify all of the various social media accounts of all the people listed above.  This would not be a good idea because it make proper disclosures meaningless if you make the information difficult to find.

The identified channel needs to be “a recognized channel of distribution.”  The company Facebook page may apply.  Your CFO’s Pinterest page full of recipes probably does not.  If the disclosures are sporadic, the account won’t garner the broad audience for financial information required by the SEC.  Moreover, to qualify, the account must allow for unfettered access and your executives may not want to open their Facebook accounts.

Train.

Fix it.

Monitoring is important because companies can try to fix mistakes that fall through the cracks.  Reg FD allows for a process of “prompt” disclosure for non-public inadvertent disclosures.  When in doubt, call your lawyer.

Train.

Did I say something about training?

UPDATE ON 4/11/13

Netflix decided to jump right into the mix.  It filed paperwork with the SEC identifying the social media channels it plans on using and Reed Hastings announced on his Facebook page that users had streamed more than 4 billion hours over the last three months. Read more at the Wall Street Journal’s Digits blog here.

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Social Media is becoming pervasive in today’s society. This CLE looks at how it intersects with legal issues crossing a broad spectrum of specialty areas to give all practitioners the information they need to be aware of the special risks and issues social media presents. Our speakers will look at how it affects brands, defamation for individuals and businesses, the new area of evidence and investigative tools social media presents and the ethical issues it presents for lawyers. Oh, and we will be having a beer too.


Thursday March 28, 2013
2:00-5:00 p.m.

Buffalo Bayou Brewing Company
5301 Nolda Street
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Topics:

Brand Protection in the Online Space
Aparna Dave, Senior Counsel – Intellectual Property, Wells-Fargo

 

 

 

Evidence and Investigation In an Online World
Jana Woelfel, Strasburger & Price, LLP

 

 

Defamation and Privacy Online
Katie Sunstrom, Lorance & Thompson, PC

 

 

Ethics of Lawyers on Social Media
Travis Crabtree, Member, Looper Reed & McGraw, P.C.

 

 

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In July, Netflix CEO Reed Hastings posted on Facebook that viewing on his company’s site “exceeded 1 billion hours” of videos in June.   The stock rose 6.2% on the day of the post.  Last week, the SEC sent Netflix notice it may investigate.  You can read the Washington Post story here

Reg FD, or Fair Disclosure, is the issue.  In a nutshell, companies must make public disclosures of material information to the general public and cannot selectively provide information to favored shareholders or investors.  That’s loaded for two reasons – “public disclosure” and “material.”

Public Disclosure

Usually companies provide press releases to recognized wires or news services and then make public filings with the SEC to make public disclosures.  The reg also allows for “any other non-exclusionary method.”  

This time, the CEO sent the information to 200,000 of his fans on Facebook–many of whom were part of the business media who would have received the press release.  The CEO also posted on his blog earlier in June that Netflix was almost at 1 billion hours per month.  Neither were followed with press releases or SEC filings.

Reg FD was passed in 2000 — before Facebook and Twitter.  It wasn’t until 2008 that the SEC formally approved making public disclosures via company websites under certain circumstances.  Will this force the SEC to accept other more popular ways and current ways of disseminating information?  Perhaps every CEO of publicly traded company should be required to follow an official SEC account so all of their posts or tweets are re-issued and available in one spot. 

Material

Even if the post was not considered a public disclosure, there is still a question as to whether it was material.   As you can probably guess, “material” is not expressly defined, but the SEC has provided some guidelines.  It may be material if there is a “substantial likelihood that a reasonable shareholder would consider it important” such as earnings, M&A issues, new products, changes in management or serious defaults. 

Although Netflix says the information was not material, the stock did have its biggest one day rise in six weeks. 

So do we ban posts and tweets from the corner office?

The Wall Street Journal ran a story in September about the risk of CEOs being on Twitter. If you can’t stop the CEO, here are some tips to minimize risks for upper level management involved in social media.

 1.   Have a plan.  Review your current process you use to disseminate information to investors analysts and other in light of Reg FD.  After you spot the risks, prepare a policy outlining the consequences and share it with executives, investor relations and anyone else who is responsible for talking to investors.  Use the policy to do periodic Reg FD planning and designate a primary compliance person to review statements before they go out if there is a question.

2.   Have a specific plan regarding earnings or other major announcements and collect all public statements not including social media such as SEC filings, press conferences and and conference call transcripts. 

3.   Track the social media accounts of your major executives.  Unless you want to pre-approve the CEO’s message about the company softball game in advance, at least allow your primary compliance person to track all of the various social media accounts to take swift action.

4.  Plan for the unintentional selective disclosure.  That is a term of art under the Regs and requires corrective action beyond the scope of this post.  Assume it is going to happen and be prepared for it with IR, management and your legal team.

5.  When in doubt, bring a witness.  If you are hosting a conference or call and you are concerned, bring someone along whose sole job is to recognize and note any unintentional disclosures.

6.   Get insurance for your executives and the company.

Will the SEC come around and allow for Twitter and Facebook to be used for public disclosures?  If the speed of their implementation of crowd funding is any indication, it may be some time before there is some brightline guidance.  Until then, we have to watch what happens to others.  Tesla could be next — on December 4, the CEO tweeted “Am happy to report that Tesla was narrowly cash flow positive last week” to his almost 113,000 followers.