As we previously reported, a company’s social media pages and profiles, and the associated followers, friends and other connections, may constitute valuable business assets. In our experience, however, social media assets often receive little attention in M&A transactions. Purchasers in such transactions generally require sellers to make robust representations and warranties regarding the target company’s assets, but a typical purchase agreement may give social media assets only cursory treatment or, in some cases, not explicitly cover social media assets at all. In an attempt to rectify this oversight, this article outlines a set of representations and warranties that a purchaser may consider to address issues relating to a target company’s social media assets in an M&A context.
To begin, it is necessary to define the category of assets at issue. In defining this category—which we will refer to as “Social Media Accounts” for convenience—a purchaser may wish to capture a broad swath of online assets not limited just to a company’s pages and profiles on the major social networks (although those should certainly be addressed), including all accounts, profiles, pages, feeds, registrations and other presences on or in connection with any:
- social media or social networking website or online service;
- blog or microblog;
- mobile application;
- photo, video or other content-sharing website;
- virtual game world or virtual social world;
- rating and review website;
- wiki or similar collaborative content website; or
- message board, bulletin board or similar forum.
Armed with a broad definition of “Social Media Accounts” as described above, a comprehensive set of social media representations and warranties would require the seller to provide a list of all Social Media Accounts that the target company uses, operates or maintains, and to identify, for each such Social Media Account, any account names, user names, nicknames, display names, handles and other identifiers registered, used or held for use by or for the target company (which we will refer to collectively as “Social Media Account Names”).
The purchaser may then ask the seller to make some or all of the following representations and warranties with respect to Social Media Accounts and Social Media Account Names:
- None of the Social Media Account Names infringes or otherwise violates any trademark rights or other intellectual property rights of any third party.
- The target company has implemented and enforces an employee social media policy that:
- provides that the company, and not any company employee or contractor, owns and controls the Social Media Accounts and Social Media Account Names (including all associated information and content, all relationships, interactions and communications with fans, followers, visitors, commenters, users and customers, and all associated good will and opportunities);
- requires all employees and contractors to relinquish to the company all Social Media Account Names, passwords, and other log-in information for the Social Media Accounts upon termination of employment or engagement or at any other time upon company’s request;
- includes appropriate guidelines and restrictions regarding the use of (i) the Social Media Accounts, and (ii) personal social media accounts, including, in each case, with respect to endorsements, attribution, disclosure of proprietary information and violation of intellectual property rights; and
- complies with applicable law and regulation.
- Each of the target company’s employees and contractors has agreed in his or her company employment agreement to comply with such social media policy.
It should be noted that a set of representations and warranties incorporating all of the points above may be more than is practical or necessary for many transactions. Purchasers will need to determine in each case how robust the social media representations and warranties should be based on the particular circumstances of the transaction, including the nature of the target company’s business, the extent of the target company’s use of social media and the relative negotiating positions of each party.
One last caveat: We use the term “assets” in relation to a company’s social media pages and profiles advisedly, given that their legal status as property is tenuous at best (in almost all cases, these “assets” could be taken away by the third-party operators of the relevant social media platforms). But the issues addressed above are issues that we have seen arise repeatedly in reported cases, so we hope that this article will at least be helpful in thinking through some of the points that a purchaser should consider when acquiring a target company that uses social media in its business.