Social media is the current ‘in thing’ for Australian business – all the cool kids are doing it. It is a cutting edge way for businesses to engage with their Australian customers and the bottom line is: if you are not doing it, you are probably being left behind.

However, just like every other “latest craze”, social media brings with it a few legal risks.

To be fair, social media is certainly not the hotbed of dangers that some commentators make it out to be. Those without much social media experience can sometimes get caught up in a fear of the unknown frontier. The real and present risk is, in fact, that those people end up avoiding the use of social media entirely and their businesses do fall behind their competitors as a result.

The core concept that businesses must come to terms with is that social media is no different in the eyes of the law than any other communications channel. If you post something on your company’s Twitter feed, Instagram profile or Facebook page, it is treated no differently than if you were to send out a press release or a marketing brochure, run a television advertisement or put up a billboard. Social media is simply another way to get your message out there and the law applies just as it would for anything else.

Given recent decisions by the courts, industry bodies and regulators, there are three key issues that businesses in Australia should consider when deciding whether, and how, to utilize social media. These are:

  • compliance with the Australian Consumer Law;
  • compliance with Australian advertising standards; and
  • compliance with ASX Listing Rules (where applicable) and the Corporations Act.

While obviously there are many other legal issues that can arise depending on circumstances, these three issues are particularly pertinent for Australian businesses thinking about embarking on the new social media frontier.

Compliance with the Australian Consumer Law

The easiest trap for social media users to fall into with the Australian Consumer Law is a breach of the misleading and deceptive conduct provisions in section 18 of Schedule 2 of the Competition and Consumer Act 2010 (Cth).

What businesses say on social media platforms can be relied upon by consumers. Courts acknowledge and accept that while consumers approach social media a little differently to “official” communications in marketing materials or on billboards, social media allows businesses to link to more detailed information that cannot usually be done in a 30 second television commercial. Ultimately, the courts have found that consumers will place weight and rely on an official Twitter account or Facebook page, and presumably other social media channels, in the same way as they might rely on what is written in traditional marketing materials.

The Seafolly Pty Ltd v Madden1 case is the latest example of how comments on social media can fall foul of the Australian Consumer Law. In that case, a designer, Leah Madden, accused well-known designer brand Seafolly of copying her designs for swimwear.

Ms. Madden posted several photos of Seafolly products on her personal Facebook page, with the title and caption "the most sincere form of flattery?" Her Facebook page had 518 friends.

The comments Ms. Madden posted included:

“Seriously, almost an entire line-line ripoff of my Shipwrecked collection.”

“I know, the buyer from "sunburn" (who, as it turns out, works for seafolly) Came to my suite at RAFW and photographed every one of these styles.”

“Ripping off is always going to happen, but sending in a dummy "buyer" to get photos is super sneaky!”

Naturally, Seafolly contested the allegations, and commenced proceedings in the federal court alleging, amongst other things, that Ms. Madden had engaged in misleading and deceptive conduct. The court found in favor of Seafolly on this point and awarded the company AU$25,000 in damages, plus costs.

The Seafolly case highlights how a business can get into trouble by using social media channels to make comments that they would not ordinarily include in a media release, brochure or on a billboard. The issue with social media is not that

your business is more likely to get into “trouble” for what is said, but rather that it is much easier to make comments that will invite trouble, because many businesses do not have the same structures and review processes in place that they do for more formal or traditional advertising methods. The speed at which a communication can be made and circulated on social media can also lead to hasty decisions that might otherwise not have been made if the author had more time to consider their message.

Compliance with Advertising Standards

The Advertising Standards Board (ASB) recently handed down a well-publicized decision deeming official Facebook pages and other official social media accounts to be advertising. This decision brought social media channels within the scope of the ASB's review, and under the guidance of the advertising standards and codes.

The ASB's decision related to Smirnoff’s Facebook page and a complaint regarding supposedly sexist, racist and obscene content that appeared on that page. The complaint alleged that Smirnoff’s Facebook page breached several advertising codes, rules and regulations by hosting, and encouraging users to post content that: was sexual and obscene, encouraged under-age drinking and overconsumption of alcohol, and vilified ethnic minorities and women.

Fortunately for Smirnoff, the ASB considered that none of the content breached any applicable rules or regulations, finding that many of the photos simply had pictures of people with drinks in their hands and this did not breach any rules. In the words of the ASB: “the people in the images appear to be confident and in control, and no images of people appeared to indicate an excessive consumption of alcohol”. Photographs and videos of young women drinking did not vilify those women, and pictures of empty bottles did not encourage overconsumption of alcohol. None of the content was contrary to prevailing community standards on health and safety.

So if Smirnoff did nothing wrong, why is the decision so important?

The decision is important because the ASB found that Facebook pages are advertisements.

If they are advertisements, they need to comply with certain codes and community standards, the same as if they were on TV, radio or some other medium; this includes comments by users and “fans” of the Facebook page.

Whereas Facebook pages were previously thought of as customer relations tools, they now need to be thought of as advertising media. Where common sense might suggest that users are responsible for their own conduct online, the advertiser is now responsible for moderating and censoring the comments, photos and links posted by users of their official page.

In Smirnoff’s case, almost all of the content was posted by Smirnoff, which gave them a great deal of control. But for many other businesses, this may mean hiring a new team of people just to monitor comments on various social media sites for appropriateness.

The important thing to take away is that a social media page, post or tweet is now an advertisement, not simply another tool in a company’s customer relations toolbox, and companies need to make sure all of the content on their page complies with the usual advertising rules and regulations.

Compliance with the ASX Listing Rules and Corporations Act

Management of companies also needs to consider how conversations in the social media space intersect with ongoing obligations imposed by the Corporations Act and ASX Listing Rules.

Social Media Monitoring

As businesses grow and their operations expand, so too do the risks associated with social media. For businesses that are listed on the ASX, it is not only what they might say on social media that poses risks, it is also what is being said about them.

Recently the ASX released guidelines regarding how listed companies should interact with social media channels. The ASX suggests that certain companies should consider monitoring social media channels for discussions about them, not for the typical reasons a company might monitor social media channels (such as for branding or public relations purposes), but rather, to be aware of what information the market is trading on.

Listed companies would already be aware that ASX Listing Rule 3.1B requires companies to provide information upon request by the ASX where, in the ASX’s opinion, there is or is likely to be a false market in the company’s securities. In its roadshow to discuss its recent changes to the ASX Listing Rules, the ASX emphasized that where it makes a request of a company to provide specific information, the company must provide that specific information, rather than that information the company considers necessary to address any false market.

Therefore, in order to avoid a request under Listing Rule 3.1B, that is, a request that might require a company to release information that it would otherwise choose to withhold under an exception provided by Listing Rule 3.1A, listed companies should monitor those discussions and rumors that can lead to false markets, and be ready to pro-actively respond to any speculation with that information the company considers necessary, rather than waiting for the ASX to require a response providing information that the company would rather not disclose.

As the use of social media grows, the many ways in which a false market might develop grows as well. Companies must therefore be aware of the new communication channels evolving within the social media landscape and, depending on the size and scale of each company, have appropriate processes in place to monitor those channels.

An example of external communications affecting a company’s share price occurred as recently as 2012, when Whitehaven Coal Limited (Whitehaven) was required to respond to fraudulent media releases indicating that Whitehaven had defaulted on its loan facility due to environmental issues associated with its Maules Creek project. The false media release immediately spooked investors, with Whitehaven dropping 6% (wiping out approximately AU$300 million of value) before a trading halt was put in place.

Whitehaven, along with the relevant bank, later confirmed that the media release was a hoax, and trading in Whitehaven shares subsequently recovered. The incident, however, provides

another reminder that the speed and manner in which a listed company responds to media and market information can have very real consequences for its investors.

Cost of Compliance

In its recent guidance, the ASX has clarified that “social media channels” includes the bigger channels such as Twitter, Facebook, LinkedIn, etc. – but also channels that might have a much smaller audience but which relate particularly to certain listed companies, such as investor blogs or even “shareholder action” blogs, which might only have an audience of, say, a small group of 20 very passionate investors.

Obviously not all listed companies have the same resources to devote to monitoring such social media channels. Further, not all listed companies will warrant the same level of interest or discussion, and so clearly the level of risk social media presents will vary from company to company.

While very large listed companies might employ teams of people responsible for managing and monitoring their company’s presence on social media, smaller companies might not be able to sustain that level of ongoing surveillance. The ASX Guidelines implicitly recognize this reality, noting that the most important times for companies to monitor social media channels will be in the lead up to a market announcement being released, or when a market sensitive transaction is withheld from the market due to an exception provided by Listing Rule 3.1A.

Even though monitoring of social media channels during these windows might still result in significant costs for smaller listed companies, the ASX considers that those costs are necessary given the serious effect the social media rumor-mill can have on the market.

Employees’ Posts

Companies should also implement strong internal policies and educational programs to make their employees aware of the powerful impact social media can have on their employer’s performance in the market.

Consider a junior geologist for an ASX-listed exploration company with assets in a Sub- Saharan developing country. A week after posting a status update, grumbling about having to go “overseas for work”, the geologist posts a much happier update, bragging about “some interesting results that might just pay for my next holiday”. The social media rumor-mill may easily put two and two together to churn those updates into something the company might have to respond to.

Scarier still, it is not unimaginable that our young geologist, wanting to brag about her “new office”, might post a picture to Facebook or Instagram (having first applied an artsy filter, of course) of a scenic African landscape with a cup of coffee placed deliberately and delicately – on top of a copy of recent drill results not yet announced to the market.

While these scenarios are both fictional, the rate at which social media is integrating into our everyday lives emphasizes the importance of listed companies having considered and accounted for the risks social media presents.

Anyone who doubts the serious consequences that might flow from a major social media incident need only refer to the recent tweet posted on the official Associated Press Twitter account after it was compromised by hackers. After tweeting that there had been an explosion at the White House, injuring President Obama, US markets crashed and an estimated US$136.5 billion was wiped from the S&P 500 Index. Soon after the tweet was discovered to be a hoax the index recovered, but the incident demonstrates that communications via social media, even communications made in error, can have serious and extreme consequences.

How to Comply

The above demonstrates that an important question for management to consider is “how do we make sure our business' use of social media minimizes any potential legal risks?”

A good starting point is to have a well-drafted social media policy and to make sure that all staff are up to speed with how that policy affects their use of social media channels. Ensuring that staff are trained in how different social media platforms work is also a good way of ensuring that they know what they are doing, and can use their own good judgment to avoid mistakes, as many issues to do with social media seem to come from a lack of understanding of how the different platforms actually work.

Make sure that your business has set and widely understood processes in place to review messages to be distributed via social media before they are sent on behalf of the business. That way any misleading, deceptive or defamatory statements can be identified and amended before they are sent. Due to the speed of social media and its natural immediacy, these procedures need to be quick and efficient. You cannot take a few days to review a tweet, because by the time you send it the moment has passed and it may already be widely circulated by the “Twitterverse”.

Finally, businesses should monitor and moderate their social media platforms, to ensure that third party comments that could offend or breach legal obligations are deleted or amended. Equally important for companies listed on the ASX, social media platforms need to be monitored to see what information related to the company is being circulated and discussed, so that the company can put out official corrective statements wherever necessary. Listed companies should be able to quickly request a trading halt in order to prevent company’s securities trading while false or improper information affects the market.

All in all, it is not that difficult. Social media is an effective communications channel and the reality is that it is here to stay. Commercially savvy businesses will quickly accept that there is a commercially beneficial “sweet spot” to be struck between the two extreme views that social media is a compliance minefield that needs to be avoided, or that it is a lawless cyber-outland where anything goes.

Remembering that Australian law applies to social media just like any other communications channel is always the best place to start. The law will still apply, even with all the smiley faces