The first libel and privacy trial concerning Facebook has some important lessons for Canadian companies about the potential risks posed by social networking websites.

In Applause Store Productions Limited and Firsht v. Raphael, a recent decision of the England High Court of Justice, Matthew Firsht, a successful businessman, and his TV production company, Applause Store Productions Limited, were awarded $40,000 plus indemnity costs for libel and breach of privacy when an old acquaintance of Firsht posted a fabricated profile of him on Facebook.

Firsht learned about the Facebook profile when he was surfing the Internet. The profile included his photograph and some personal information about his sexual orientation that was false. In addition to the profile, a group entitled “Has Matthew Firsht lied to you?” was created on Facebook. It contained false and defamatory statements about Firsht and his company’s ability to pay its debts.

The fabricated profile was on Facebook for 16 days and was theoretically accessible by millions of users during that time. Firsht requested that Facebook remove the profile and obtained a court order requiring it to disclose information concerning the user who had created the profile. That information allowed Firsht to trace the author of the profile through the internet protocol address of the computer used to create the profile on Facebook. Firsht and Applause successfully sued the author of the profile for breach of privacy and libel.

The lesson for Canadian companies is clear. Social networking is everywhere, and whether or not you know it, your employees may be up to their necks in it, possibly posting commentary online about the company, co-workers or the company’s operations.

There are significant legal risks associated with such social networking websites. Those risks include the posting of defamatory statements; disclosure of trade secrets, business information or intellectual property; disclosure of personal information about co-workers; and disclosure of material information about a public company before such information has been made public.

Companies would be well advised to ensure they have a policy in place to manage the ongoing business and legal risks associated with social networking websites before it’s too late.