Network interference - a legal guide to the commercial risks and rewards of the social media phenomenon

US_ADMIN-78068775.31

ReedSmith

The business of relationships.SM

Network Interference:

A Legal Guide to the Commercial Risks and Rewards of

the Social Media Phenomenon

Third Edition

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

— PREFACE —

3rd Edition

In October 2009, we published the first edition of this White Paper, focusing primarily on social media issues in the United States.

The response was overwhelming and far beyond our expectation—clients, friends, press and social-media communities became

engaged with what we had to say. A conversation began that has yet to subside. The second edition added Europe.

This third edition is a major update and covers virtually every aspect of social media and the law on a global basis.

Most importantly, this White Paper remains a living document as we add more chapters and update those we have, making sure

it continues to be the definitive source for legal issues in social media.

We welcome your ideas and comments as well. If you have anything you’d like to share with us—good or bad—please send it to

Paul Matulac at pmatulac@reedsmith.com

Thank you.

Gregor Pryor Douglas J. Wood and Stacy Marcus

Editor, Europe Editors, United States

April 21, 2014

Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

— EDITORS —

Gregor Pryor – gpryor@reedsmith.com

Douglas J. Wood – dwood@reedsmith.com

Stacy K. Marcus – smarcus@reedsmith.com

— TABLE OF CONTENTS —

Introduction .................................................................................... 1

Advertising & Marketing ............................................................... 4

Brand Protection & Reputational Management ........................ 19

Copyright (EU) ............................................................................. 33

Copyright (U.S.) ........................................................................... 36

Data Privacy & Security .............................................................. 39

Employment Practices ................................................................ 50

Food and Drug Administration ................................................... 59

Government Contracts & Investigations ................................... 69

Insurance Recovery ..................................................................... 72

Litigation, Evidence & Privilege ................................................. 77

Product Liability........................................................................... 82

Securities (UK) ............................................................................. 85

Securities (U.S.) ........................................................................... 92

Trademarks ................................................................................ 105

The U.S. Patent Minefield .......................................................... 114

Biographies of Authors and Editors ........................................ 118

Guide to Social Media Terminology and Websites ................ 131

Endnotes .................................................................................... 141

Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

Welcome to the New World

Introduction

Social media is a revolution in the way in which corporations communicate with consumers. This White Paper will help you to

maximise the huge potential benefits of this revolution and protect against the inherent legal risks surrounding social media. In

this document, you will find practical, action-oriented guidelines as to the state of law in the United States and Europe in the

following areas: Advertising & Marketing; Commercial Litigation; Data Privacy & Security; Employment Practices; Food & Drug

Administration, Government Contracts & Investigations; Insurance Recovery; Litigation, Evidence & Privilege; Product Liability;

Securities; Copyright & Trademarks. As we continue to expand the White Paper, we will add additional chapters as well as

updates. So be sure to bookmark http://www.legalbytes.com/ and subscribe to the Legal Bytes blog.

What is Social Media and What Does it Mean to Business?

Everyone has heard of Facebook, LinkedIn, YouTube, and Twitter. These are just the tip of the iceberg. There are thousands of

social media sites with billions of participants. And it’s not just individuals. Multinational companies and their CEOs are

increasingly active in the social media space via blogs, Facebook fan pages, YouTube channels, Twitter handles and much

more. Everyone is a user and, as with every new communication channel—billboards, radio, television, the Internet—there is

huge potential, and huge potential risks.

The speed of development in social media outstrips corporate risk management capability. It took radio 38 years to reach

50 million listeners. Terrestrial TV took 13 years to reach 50 million users. The Internet took four years to reach 50 million people.

In less than nine months, Facebook added 100 million users.1

It’s All About the Conversation

One-way communications with advertising, press releases, labels, annual reports, and traditional print media is going the way of

the dinosaur. We no longer just listen. Audiences are not static. We now engage in a conversation. What was said in the living

room is now published on Facebook. What we do in public and private is now broadcast on YouTube. What employees talked

about at the water cooler now appears as tweets on Twitter. All of it memorialised in discoverable form. All of it available to

millions with the simple press of “post.”

Social media is about “changing the conversation”—getting people to say the right things about your company and its products

and services.2

A Shift in Media Values

Broadcasters have now caught on to the idea that social media fundamentally affects the presentation and even the content of

their product. The music industry now embraces social media, using it as a valuable promotional tool. Even the movie industry

get in on the act, perhaps even earlier than intended, with the phenomenal success of the online marketing program for the “Blair

Witch Project.” At the time of its release, the “Blair Witch” site was in the top 50 most-visited sites on the Internet, creating a

vibrant “word-of-mouth” campaign that ultimately helped a $750,000 film gross revenues of $250 million. Social media represents

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a huge opportunity for media and entertainment companies. They can engage with their audience in ways that were previously

impossible, and can leverage that engagement with commercial opportunity. However, with this opportunity comes a threat—

YouTube allows everyone to be a broadcaster. As our chapter about copyright demonstrates, social media strikes at the very

heart of the proprietorial foundation upon which traditional media campaigns are built.

Managing Reputation – The Asymmetrical Consumer Relationship

Historically, brand owners were able to determine the relationship that consumers had with their brand. Now, thanks to social

media, consumers are the ones who increasingly define how the brand is perceived.

A major retailer asked a simple question on its Facebook page—”What do you think about offering our site in Spanish?”

According to its Senior Director, Interactive Marketing and Emerging Media, the response “…was a landmine. There were

hundreds of negative responses flowing in, people posting racist and rude comments. Our contact center was monitoring this,

and they were crying, waiting for a positive comment to come in.” The racist and negative responses posted by purported “fans”

were so bad that the site was shut down, with a spokesperson noting, “We have to learn how to respond when negative

comments are coming in.”3

United Airlines broke a passenger’s guitar. They handled his complaint through traditional procedures, eventually refusing to pay

for $1,200 in repairs. In response, the passenger posted a humorous music video to draw attention to United’s consumer support

incompetence on YouTube. 4 To date, there have been nearly 6 million views of the video. After two other videos, and after

United donating the cost of the guitar repairs to charity per the musician’s requests, United managed to lose the musician’s bags,

an event that was reported to millions in the blogosphere.5 The story was a lead story on CNN’s Situation Room, reported by

anchor Wolf Blitzer.6 As a result, United’s stock value fell considerably.7 To add insult to injury, the incident is impacting the law.

U.S. Sen. Barbara Boxer (D-Cal.) is championing the Airline Passenger Bill of Rights Act of 20098, citing the United debacle.9

We can’t help but wonder if United would have fared better if it had discarded the old way and instead engaged in the

conversation using the same social media platforms that were used to attack its brand.

For at least one major company, engaging made all the difference. Two employees of Domino’s Pizza posted a disgusting video

on YouTube in which they adulterated the chain’s food. In addition to reporting the video to the police, Domino’s Pizza’s CEO

posted his own video, apologising for what consumers saw and assuring them that such things were neither condoned nor

practiced at Domino’s. It all made the “Today Show” and other media reports.10 Both traditional media and the blogosphere

applauded his open communication and willingness to engage in a conversation about the problem.11 Rather than seeing its

brand value and reputation take a major blow, it survived the negative media.

As social media pioneer Erik Qualman puts it, “A lot of companies say we’re not going to do social because we’re concerned

about letting go of the conversation, and what I argue is that’s like an ostrich putting their head in the sand. You’re not as

powerful as you think. You’re not going to enable social to happen, it’s happening without you so you might as well be part of the

conversation.”12

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The New World

The key lesson is that rather than trying to control, companies must adopt an altered set of rules of engagement. Doing so while

being mindful of the laws that apply in a social media context will help alleviate risk.

What You Need to Do

Every concerned party needs to take some important steps if it is going to be prepared for the new media revolution. Here are a

few:

 Read this White Paper

 Surf the social media sites and read their terms and conditions

 Join Facebook, Twitter, and LinkedIn and perhaps other social media sites

 Audit your company’s social media programs. Find out what your company and your employees are doing. Do they have

any customised pages on platforms like Twitter and Facebook? If so, make sure they’re complying with the site’s terms and

conditions, as well as your corporate communications policies. Are they blogging? Are employees using social media during

work hours?

 Find out what your competitors and your customers are doing

 Consider adopting a social media policy for both internal and external communications. But be careful to keep on strategy,

don’t ban what you cannot stop, and keep in mind the basic rules of engage, participate, influence, and monitor.

 Bookmark websites and blogs that track legal developments in social media, including, AdLaw by Request

(www.adlawbyrequest.com), and Legal Bytes (www.legalbytes.com).

It is no longer business as usual. Social media has forever changed the brand/customer relationship. It challenges brand owners

fundamentally to reappraise the way they market themselves. This White Paper will be an invaluable tool in helping you to do

just that. Welcome to the New World.

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— CHAPTER 1 —

Advertising & Marketing

Chapter Authors13

United States

Stacy K. Marcus, Partner – smarcus@reedsmith.com

Douglas J. Wood, Partner – dwood@reedsmith.com

Frederick Lah, Associate – flah@reedsmith.com

United Kingdom

Huw Morris, Associate – hmorris@reedsmith.com

Germany

Stephan K. Rippert, Partner – srippert@reedsmith.com

Katharina Weimer, Associate – kweimer@reedsmith.com

Alin Seegel, Associate – aseegel@reedsmith.com

Introduction

This chapter looks at the relationship between social media and advertising and marketing practices, and how to protect brands.

As an emerging and constantly-evolving technology with nearly limitless boundaries and possibilities, social media gives

consumers unprecedented engagement with a brand. Consumers are empowered. However, this brings with it risks as well as

gains. Consumers aren’t just buying a product or service online, they are discussing, reviewing, endorsing, lampooning,

comparing and parodying companies and their brands. They aren’t simply being targeted for advertising; in many cases, they are

participants in the creation and distribution of advertising. Companies can better enable, influence, monitor, react to and,

hopefully, monetise the consumer conversations taking place in social media, and can better engage and interact with the

consumer directly with their brands—but it’s critical to understand and navigate the legal minefields that are both dynamic and

evolving as the media evolves.

Why are advertisers and marketing professionals drawn to social media? Because more than 2.4 billion people use the Internet

every day14, and, according to a 2012 study by Nielsen, people are continuing to spend more time on social networks than any

other category of sites—20% of their time spent on PCs and 30% of their mobile time..15 Combine that with the fact that

smartphone ownership is over 64%16 (with the percentage even higher in other parts of the world) and the Internet audience is

larger than any media audience in history, and it is growing every day. It’s those eyeballs that marketers want.

In the UK alone, spending on online advertising grew by almost 5 percent in the first six months of 2009, while television

spending fell by 16 percent (see IAB UK News, “Internet advertising spend grows by 4.6 per cent”). It was also reported that UK

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online advertising spend overtook TV advertising spend for the first time.17 Almost two-thirds of businesses say they intend to

spend more on onsite social media, while 64 percent are looking to boost search engine optimisation efforts and 56 percent want

to invest more in mobile marketing. Looking forward, new global research by Econsultancy and ExactTarget has revealed that

66 percent of company marketers in the UK intend to spend more on Internet advertising this year compared with 2009. Total

Internet advertising spending will surpass £3.5 billion in the UK this year, according to a forecast from eMarketer. Morgan

Stewart, director of research and strategy at ExactTarget, comments: “The shift from offline to online is in full swing as marketers

look to measure direct increases in top line sales, site traffic and improve overall marketing return on investment.”

In the United States, a recent survey shows that 93% of marketers will be increasing or maintaining their spending on social

media ads over the next year.18 According to a 2012 study by eMarketer, social marketing spending already accounted for an

average of about 6.6% of marketer budgets. Over the next five years, marketers expect social marketing spending to jump up to

15.8% of spending.19 Where are companies spending these dollars? The possibilities are numerous.

National authors begin by examining the use of social media and the risks and gains involved. Branded channels, viral videos,

gadgets, widgets, promotions such as sweepstakes and contests within and even across social media platforms, are a few of the

ways companies are using social media to increase brand awareness. Even companies that are not actively using social media

platforms to engage consumers must monitor social media outlets for comments made about the company or its brands. Social

media cannot be ignored, and this section explores the legal implications of marketing in this manner.

Next, we look at the use of social media to foster brand engagement and interaction. Many companies are moving beyond simply

having a presence on Facebook, Tumblr, Twitter, YouTube, or Pinterest, and are encouraging consumers to interact with their

brand. Companies are increasingly using social media to provide customer service and get product reviews. According to a

survey performed by The Connection, 47% of customers have sought customer service using social media, with the usage as

high as 59% among 18-24 year olds. These high usage rates makes sense considering that 57% of customers search for a

solution online first when they have a problem with a product.20 Marketers seeking new ways to engage consumers have turned

to social media as well, for example, to develop user-generated content (“UGC”) around their brands for advertising on platforms

like Instagram and Vine, and actively solicit their social networks to create buzz, viral and word-of-mouth advertising campaigns

using hashtags and share plug-ins. Some, such as foursquare and Yelp, offer small rewards for consumers in exchange for

“checking in” at a business. As newer platforms, like Snapchat, gain popularity, marketers will continue to find ways to transform

consumer trends into new marketing channels. Who controls and retains liability for the statements made and content provided in

the social media universe? Who owns the content? Will brand owners lose control of their brands?

Finally, we explore the impact of social media on talent rights and compensation. As discussed above, increasingly, ad spend is

moving to digital media. Along with this shift, the line between “content” and “advertising” has become blurred. Celluloid is being

replaced by digital files and projectors by flat screens, monitors, tablets and smart phones. What once aired only on television is

now being moved over to the Internet and new media by content owners and advertisers, or is going viral thanks almost entirely

to consumers with a little encouragement from advertisers. We will examine how this shift impacts talent compensation and will

discuss its application to the Screen Actors Guild -American Federation of Television and Radio Artists (“SAG-AFTRA”)

commercials contracts.

In our review, we have covered advertising regulation in the United States, the UK and Germany. Note that the UK has a largely

self-regulatory environment. This self-regulation comes in the form of codes of practice that are designed to protect consumers

and create a level playing field for advertisers. The codes are the responsibility of two industry committees—the Committee of

Advertising Practice (CAP) and the Broadcast Committee of Advertising Practice (BCAP), and are independently administered by

the Advertising Standards Authority (ASA). Online advertising, including via social networking and the techniques referred to in

this chapter, fall under the remit of the CAP Code (which is explained in more detail in Chapter 2).

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Social Media in Action in Advertising and

Marketing

Brand Awareness

The official Starbucks page on Facebook has more than

35.5 million fans and counting. The Starbucks YouTube

channel has more than 22,000 subscribers and nearly

11 million upload views of videos. There are more than

1.7 million Starbucks followers on Instagram, over

1.6 million Starbucks followers on foursquare, and more

than 5.4 million on Twitter. Don’t forget Pinterest and Vine,

with another 110,000 and 134,000 Starbucks followers,

respectively. There’s even a separate Facebook page

dedicated to one of Starbucks’ menu items, the

Frappuccino, with nearly 11 million “Likes”.

In this section, we explore the legal issues involved in the

use of branded pages and promotions and contests, taking

into account the different aspects of U.S., German and UK

laws and regulations.

Branded Pages

United States

Branded social media pages created and hosted using a

third-party service allow companies to quickly and easily

establish a social media presence. In order to do so,

companies, like individuals, must register and agree to

abide by the terms of use and policies, which serve as

binding contracts, that apply to these services and host

companies. As discussed in “Promotions and Contests”

below, this may not only restrict a company’s ability to use

the branded page for promotional and advertising

purposes, but may also grant or restrict rights within the

media with which a brand owner might not otherwise have

to contend. The third party bears much of the responsibility

for regulating the actions of the users who access, use and

interact with the service. The third party, for example, is

responsible for responding to “take down” notices received

pursuant to the Digital Millennium Copyright Act (“DMCA”)

and for establishing age limits for users (See also Chapter

2 Commercial Litigation). The terms of service applicable to

Facebook, Pinterest, Tumblr, Snapchat, and YouTube

specifically prohibit use by children under the age of 13.21

Facebook, YouTube, Twitter, Pinterest, Instagram,

Snapchat, and Tumblr prohibit the repeated uploading or

posting of content that infringes a third-party’s rights,

including intellectual property, privacy and publicity rights,

and they provide instructions for submitting a DMCA takedown

notice.22 Although the third-party’s terms of service

provide a framework for both a company’s and individual

user’s activities, can a company afford not to monitor its

branded page for offensive or inappropriate content,

trademark or copyright infringement, or submissions

obviously made by or containing images of children?

Creating a presence and beginning the conversation is

easy. Controlling the conversation is nearly impossible.

Looking again at Starbuck’s as an example, a search for

“#starbucks” on Instagram currently yields nearly

7,5 million results and there are thousands of unofficial

“Starbucks” pages and groups on Facebook. This is the

current state of affairs. Facebook now requires that

individuals registering a page agree to their Pages Terms,

which says that “[a]ny user may create a Page to express

support for or interest in a brand, entity (place or

organization), or public figure, provided that it is not likely to

be confused with an official Page or violate someone's

rights.”23 Similarly, Tumblr, Pinterest and Twitter all have

“Impersonation Policies” that prohibit “accounts that

mislead or deceive others” and “non-parody

impersonation.”24

Despite these efforts by social media platforms such as

Facebook, Instagram, YouTube, Tumblr, Pinterest, and

Twitter, can these “legal” conditions and requirements

realistically act as a deterrent or a meaningful enforcement

mechanism? More significantly, will a company be forced

to rely upon these third parties to provide remedies or

enforce these terms before acting—or instead of acting?

So what are a company’s options in managing its brand

image? While a company could have a claim for copyright

or trademark infringement (see Chapter 14 – Trademarks)

and could attempt to shut down impersonator and unofficial

sites by contacting the social media platform to demand

that the infringer and infringing material be removed, these

measures could become (and may already be) virtually

impossible to implement because of sheer volume. Further,

depending upon the message being conveyed on an

unofficial page, a company might not want to shut it down.

For example, there are hundreds of “I love Starbucks”

pages and groups. If a consumer cares for a Frappuccino,

they can join one of the more than a dozen groups

dedicated to various flavors. But for every “I love

Starbucks” page or group, there is an “I hate Starbucks”

group or “Starbucks sucks” page. How does a company

respond to these so-called “suck sites”? As previously

mentioned, a company could try to litigate on the basis of

intellectual property infringement, but that could prove to be

an endless battle.

United Kingdom

As in the United States, advertisers in the UK have

embraced viral marketing, advergames, promotions, userNetwork

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generated content, blogs and brand ambassadors online,

as well as exploiting existing social networking sites to

grow brand awareness and promote products and services.

Social networks offer advertisers reach and engagement of

an unprecedented level, combined with clear branding

opportunities. However, with that opportunity comes

inevitable risk. In-house counsel need to keep abreast of

what their businesses are promoting on social media

properties to ensure compliance and minimise risk, while

maximising the opportunities to reach new audiences and

promote the brand.

Later in this chapter, we deal explicitly with the risks

associated with corporate blogging and user-generated

content, and how companies can take action to help

prevent infringement of rights and non-compliance with

regulation. In relation to branded pages, our guide for

advertisers concerning the addition of terms and conditions

for online advertisements (including use and effectiveness

of disclaimers and appropriate warnings) is available on the

Reed Smith website at www.reedsmith.com. The guide

covers issues such as linking to other sites and dealing

with difficult users.

Germany

European companies also make use of the possibilities that

social networks open up for them. Let’s take German car

manufacturers as an example. A popular brand owner,

BMW, has its own branded page on Facebook and

localised pages for several countries, including Germany,

Indonesia, Mexico and South Africa. The discussion board

on the page not only deals with maintenance and repair

issues has moved to showcasing more fashionable topics

such as Louis Vuitton branded tailor-made luggage for

BMW cars. BMW also asks its users to vote on polls and

gives them the opportunity to showcase their loved ones.

All-time competitor Mercedes Benz has changed its

Facebook page to allowing fans to post on the Mercedes’

wall (previously not possible). Like BMW, Mercedes posts

updates relating to new models and to topics related to

Mercedes that enhance the brand’s image in the online

world, such as Formula 1 wins or placements. Mercedes

also hosts an official Facebook page for the popular AMG

cars, while manufacturer Porsche places a much stronger

emphasis still on racing results. It need not be mentioned

that apart from the official pages, there are numerous

unofficial pages, sub-pages and groups relating to the car

manufacturers. Porsche even permits the users to design

their own Porsche and post it to their walls. All of these

gimmicks and interactions allow the user to feel close to

“their brand,” and giving them the opportunity to display

their own designed Porsche on their wall is concurrently

giving Porsche positive endorsement. However, the “legal

awareness” has risen – BMW’s and Mercedes’ pages have

an imprint (a requirement for telemedia services provider

under German law), Porsche even provides website terms

of use.

The legal aspects of these brand interactions do not differ

materially from the issues raised under U.S. and UK law,

as the terms and conditions of the third-party providers like

YouTube, Twitter and Facebook are essentially the same.

What must be taken into account, though, is that while the

European Union has harmonised laws in many areas,

including in the area of misleading or false advertising, of

commerce on the Internet, and on consumer protection,

these laws have been implemented differently in every

country. The scope of socially acceptable content may also

differ widely within the European Union, given the

differences between countries such as Sweden, Bulgaria,

the UK, and Spain. Brands that choose to treat Europe as

one homogenous state in the course of their social media

campaigns run a very real risk of contravening local laws

and, possibly just as importantly, offending local

sensitivities.

A new phenomenon in the advertising world that reaches

the Internet at high speed is so-called “fake advertising.”

Using the automotive industry again, a video shows a

compact car of a German manufacturer driven by a man

wearing a traditional Palestinian scarf. He parks the car in

front of a street café and activates a belt containing

explosives. The guests of the café do not even realise this

as no noise or other effect of the explosion reach the

outside of the car. The spot finishes with a scroll outlining

the model of the car (a Volkswagen) and displaying the

slogan “Small but tough.” The German car manufacturer

had nothing to do with this spot. Virals like this can be very

professional in appearance, which makes the

determination that it is a fake advertisement difficult. This

example triggers various legal questions concerning both

the producer of the viral and the company whose products

are “advertised.” While the advertised company may have

claims for trademark infringement, copyright infringement,

claims based on unfair competition and even based on tort

(passing off and endangering the goodwill of a company)

against the producer of the viral, the same company is also

at risk of being held liable if the viral infringes third-party

rights, and the advertised company had in any way initiated

or agreed to the viral (for instance by way of holding a

contest for the best video spot involving its compact car

and an unsuccessful participant subsequently airs the spot

on his Facebook profile). There are many examples of

established companies seeking to embrace social media

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by running user-generated advertising campaigns, only for

things to go horribly wrong.

Promotions and Contests

United States

Many companies are using their social media presence as

a platform for promotions, offering sweepstakes and

contests within or founded upon social media and user

networks. In fact, Instagram has recently developed a page

solely dedicated for this purpose, “Host a Photo

Campaign,” which provides helpful tips on how to host a

successful photo contest on Instagram and cites numerous

successful examples, including General Electric, Brisk Iced

Tea, Charity Water, and NBC News.25 Twitter has also

become one of the most popular platforms for promotions.

Some often examples include giveaways for the first

10 people to re-Tweet a Tweet to the first to correctly

answer a trivia question to the “most creative” Tweet in

response to a question. As a result of its popularity, Twitter

has posted guidelines for contests and sweepstakes on

Twitter to help make sure the contests and sweepstakes do

not violate Twitter’s other terms, though they are far less

rigorous than Facebook’s and simply serve as guidance,

rather than binding terms.26 Facebook’s terms of service

also set forth a number of requirements for businesses who

use the platform to run a sweepstakes and promotion. The

Pages Terms express state the business is responsible for

the lawful operation of that promotion, including: (a) the

official rules; (b) offer terms and eligibility requirements (ex:

age and residency restrictions); and (c) compliance with

applicable rules and regulations governing the promotion

and all prizes offered (ex: registration and obtaining

necessary regulatory approvals). Facebook further requires

that promotions include a “complete release of Facebook

by each entrant or participant” and “[a]cknowledgement

that the promotion is in no way sponsored, endorsed or

administered by, or associated with Facebook.”27

As the number of promotions on Facebook increased,

Facebook revised its Promotion Guidelines in August 2013

to make it easier for businesses to create and administer

promotions by removing the requirement that promotions

on Facebook only be administered through apps

(previously business were not permitted to administer

promotions on personal timelines). Now, businesses are

able to: (1) collect entries by having users post on the Page

or comment or “Like” a Page post; (2) collect entries by

having users message the Page; and (3) utilize “Likes” as a

voting mechanism. 28 Twitter and Pinterest have also

developed guidelines for businesses administering

promotions on their platforms.29

Other companies have taken their contests off of a

particular social media platform and instead operate a

contest-specific microsite, often in coordination with

companies specializing in social media promotions, such

as Votigo, Wildfire and Strutta,. One such brand is Frito

Lay’s Doritos, who for several years has sponsored a wellknown

Super Bowl contest, encouraging people to submit

their own Doritos commercial on a dedicated URL, while

encouraging users to share their submissions via social

media.30 The winning commercials are then aired during

the Super Bowl. The 2013 version of the contest is

especially interesting as one of the winners also receives

the opportunity to work with Marvel on the next “Avengers”

movie; the other winner receive $1 million. 2013 also

marked the first time people outside of the U.S. were

permitted to participate – in fact, the contest was open to

entrants from 46 countries. Folgers has been administering

a similar social media contest on a dedicated URL which

encourages people to submit their take on the iconic jingle,

“The Best Part of Wakin’ Up” (See “User-Generated

Content” below for issues relating to UGC).31 In addition to

the grand prize awarded for the jingle itself, daily prizes

and a grand prize will be awarded via random drawings to

individuals who submit votes in the jingle contest. It doesn’t

take much imagination to come up with the legal issues

and challenges—consumer, talent union and regulatory —

that might be raised in social media-based promotions like

the ones held by Doritos and Folgers. What if the winner

(or performers featured in the winner) is a member of a

union? Who owns the video submissions? Will the semifinalists,

finalists and/or winners be required to enter into a

separate agreement relating to ownership of the master

recording?

Regardless of the platform or website a contest is featured

on, the same laws apply online as in offline contests, but

they may apply in unique or novel ways, and their

applicability may be subject to challenge. Because social

media is often borderless and global, companies must also

consider the possibility that individuals from across the

globe may find out about the contest and wish to enter.

Unless a company plans to research the promotion and

sweepstakes laws in every country around the globe (and

translate the official rules into every language), eligibility

should be limited to those countries where the company

does business and/or has legal counsel. Some companies

address this issue by developing a geo-fenced microsite

with an API for the applicable social media platform, which

(hopefully) prevents entrants from outside the eligible

territory. This represents both an opportunity and a

challenge—both fraught with legal and regulatory

possibilities.

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In the United States32, a sponsor cannot require entrants to

pay consideration in order to enter a sweepstakes. Unlike

skill-based contests, the golden rule of “no purchase

necessary to enter or to win” applies. In addition,

depending upon how the promotion is conducted and what

the aggregate value of prizes awarded in the promotion

are, New York, Florida and Rhode Island have registration

requirements (New York and Florida also require

bonding33). In New York and Florida, where the aggregate

prize value exceeds $5,000, a sponsor must register the

promotion with the state authorities, and obtain and file with

the state a bond for the total prize amount.34 In Rhode

Island, where the aggregate prize value exceeds $500 and

the promotion involves a retail sales establishment, a

sponsor must register the promotion with the Rhode Island

Secretary of State.35

Germany

As already highlighted earlier in this chapter, companies

that wish to conduct promotions, sweepstakes, raffles and

similar activities in Europe need to be aware that while

there is certainly European harmonised law, the Member

States may have implemented the Directives differently.

Certain jurisdictions like France are known for adding little

tweaks and adopting a very restrictive and consumerprotective

approach to advertising. While the abovementioned

golden rule of “no purchase necessary to enter

or to win” provides minimum guidance for contests in

Europe, companies should nevertheless obtain local

clearance advice. Various provisions in local law make the

running of promotions on a European-wide basis a

challenge. Italy, for instance, requires that if the raffle or

contest is actively promoted in Italy, the organising

company must have someone on the ground in Italy to

conduct it. This gives rise to a flourishing business

segment of promotion agencies. A company that advertises

a promotion via a social network should not fall prey to the

assumption that because the promotion is run from a

“.com” homepage it is subject to U.S. law only, or that it

could adopt the law of a particular country while excluding

all other jurisdictions. As soon as a promotion is aimed at

the citizens of a European country, that country is likely to

assume jurisdiction and deem its laws applicable to the

promotion.

Brand Interaction

Influencers and Native Ads

United States

“People are either going to talk with you or about you.”36

So how do you influence the conversation? Many

companies are turning to amplified word-of-mouth

marketing, by actively engaging in activities designed to

accelerate the conversations consumers are having with

brands (See Chapter 2 – Commercial Litigation). Some

examples include offering small rewards (e.g., discounts)

at businesses for “checking-in”, including customized

hashtags in posts, offering share plug-ins on the

advertiser’s site, using third-party reviewers (e.g.,

influencers) to create product reviews, offering giveaways

on third-party sites or creating a company-sponsored blog

(see “Customer Service and Customer Feedback” below).

Companies often provide products to influencers so that

they can write a (hoped-for favourable) review of the

product. For example, a New York Times blog investigated

a tweet by pop singer Miley Cyrus to her 12 million

followers, thanking a private jet company for a flight.37

Although Ms. Cyrus declined to comment, the company

admitted that she was given some consideration for her

tweet. Nowadays, it is becoming increasingly unclear to

consumers whether celebrities are genuinely plugging a

product they admire or if they are just paid to tweet about it.

While this practice is generally acceptable, provided that

the reviews are legitimate, companies who fail to disclose

the connection between influencer and company may face

regulatory scrutiny and consumer backlash. Part of the

regulatory concern is that unless the company discloses

the material connection, consumers will have no way of

knowing whether the reviews are real or artificial. In

September 2013, the Harvard Business Review released a

study that showed that many businesses that do not have a

good reputation online will in fact try to create one by

submitting fake reviews to web sites, such as Yelp. 38 As a

result, some companies, such as Yelp, have implemented

measures to combat fake reviews, including by utilizing a

filtering algorithm and by posting consumer alerts on

business listings that write fake reviews.39

The desire to have favorable online reviews has driven

some companies to seek out and hire reputationenhancement

firms to write fake positive reviews on sites

like Google and Yelp, a practice often referred to as

“astroturfing.” In September 13, 2013, the New York

Attorney General concluded a year-long investigation into

the manipulation of consumer-review websites, which

resulted in fining 19 firms a total of $350,000 for engaging

in the practice.40 Part of the Attorney General’s operation,

which went by the name of “Operation Clean Turf,”

involved setting up a fake yogurt shop in Brooklyn that was

seeking to combat negative reviews online. The Attorney

General found that the reputation enhancement companies

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who offered to assist the fake yogurt shop violated multiple

state laws against false advertising and engaged in

deceptive business practices.

Federal regulators are paying attention to these issues as

well, particularly with respect to the need to disclose

material connections. In 2009, the Federal Trade

Commission (“FTC”) revised its Guides Concerning the

Use of Endorsements and Testimonials in Advertising (the

“FTC Guides”).41 The FTC Guides provide a general

principle of liability for communications made through

endorsements and testimonials: “Advertisers are subject to

liability for false or unsubstantiated statements made

through endorsements, or for failing to disclose material

connections between themselves and their endorsers.

Endorsers also may be liable for statements made in the

course of their endorsements.”42 Later, in March 2013, the

FTC reminded advertisers again to disclose such material

connections in its revised guidance for Dot com

Disclosures.43

In sum, a company that provides products to a influencer

for purposes of a product review should never instruct the

influencer regarding what to say in the review, or ask to

edit the material substance of review prior to posting. While

companies should provide influencers with up-to-date

company-approved product information sheets, those

information sheets should not reflect the company’s opinion

or include prices. In the event of a negative review, the

company has the option of not providing products to the

influencers for future reviews. The company should also

caution its personnel about engaging in inflammatory

disputes with influencers (“flaming”) on any review or

community-based sites. In addition, since under the FTC

Guides a company could be liable for claims made by an

influencer, the company should monitor product reviews

made by influencers to ensure that the claims made are

truthful and can be substantiated.

Another strategy to help marketers influence the

conversation about their brands is native advertising.

"Native advertising" refers to when an advertiser blends

ads as editorial content to market more seamlessly. The

Huffington Post was one of the first publications to utilize

native advertising, when it teamed up with IBM to create

technology-based content.44 Other sites like BuzzFeed,

TheOnion.com, and College Humor all feature content that

look just like any other post, but are actually paid

advertisements.

While native advertising can result in less intrusive

marketing and brand association with an experience, the

downside is that the blurring of content can, in some

instances, lead to misleading consumers. Advertisers

should disclosure the sponsorship or endorsement

relationship clearly and conspicuously. The FTC has made

the issue of native advertising one of increasing agency

interest, with recent updates to its Search Engine

Advertising guidance, Dot com Disclosures, and

Endorsement guides all addressing potential issues with

native advertising. In addition, sites that employ native

advertising can run into content maintenance issues. Just

ask The Atlantic. After allowing the Church of Scientology

to post sponsored content on The Atlantic website, some

readers criticized the media company for the content.

Some readers called the content “bizarre” and “blatant

propaganda.”45 Two weeks after the incident, The Atlantic

posted new advertising guidelines to address native

advertising.46

United Kingdom

Applying the principles described above in relation to the

United States helps identify, from the perspective of

English law and regulation, the main risks associated with

external corporate blogging and participating in social

networking sites:

 Damage to reputation: This typically arises if a

reviewer says something that may tarnish the

reputation of the company in the eyes of other

readers. It could be an innocent criticism of the

product or company or a more deliberate campaign.

 Breaching advertising regulations: This can cause

damage to brand reputation, particularly where the

breach leads to advertising regulators publishing

adverse adjudications about the owner of the brand

 Liability for infringement of intellectual property rights:

The biggest risk here is that a participant or reviewer

copies content for the post from another source

without permission. Music is particularly risky, but any

image, text or creative material may have been

sourced from a third party without their knowledge.

 Liability for defamation or illegal content: Defamation

is perhaps one of the greatest risks, especially if

participants are given a free reign. See our later

chapter concerning defamation.

 Breaching data protection laws and/or invading

privacy: See our later chapter for more details

concerning these risks.

 Leaking confidential information: Often risks emanate

not from external sources but from employees within

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the company engaging in blogging. Details of a new

product launch or disclosure of poor financial figures

can innocently be disclosed if safeguards are not put

in place. This can cause damage to the business and,

potentially, breach of corporate securities rules.

Germany

Advertisement in blogs is also increasingly happening in

Europe, but the European Commission has not initiated

legislative action yet. A prominent example for using blogs

for advertisement was constituted by the Coty Prestige

Lancaster Group. The company decided to launch a teaser

campaign prior to the traditional campaign for the perfume

ck-IN2U. They created rather attractive and sexy fake

identities in various blogs and used them to tease the

blogosphere about the perfume. And at the end of each

post, they added the sentence “what are you in2?” After

being found out, Coty Prestige Lancaster Group quickly

stopped the campaign. While many reviewers perceived

this behaviour as contravening an unwritten reviewer’s

code of ethics (and indeed review site operators are

looking for ways of prohibiting unwanted advertising

activities on their sites), the more crucial question is

whether the multiple five-digit-claims that the responsible

advertising agency has received will hold up. Under

German law, for example, the agency may be obligated,

pursuant to the legal institute of “agency by necessity,” to

pay to the review site operators the amount saved by

avoiding the traditional booking of advertising space on the

site or surrounding the site. Comparable decisions have

been made with regard to the unauthorised use of

photographs. However, court decisions on advertisement

on review sites have not reached the press…yet.

Customer Service and Customer Feedback

Online reviews also foster customer feedback and

engagement with a brand. General Motors, for example,

has a a blog called the Fast Lane which helps to foster

engagement. 47 According to General Motors, the Fast

Lane is “a forum for GM executives to talk about GM’s

current and future products and services, although nonexecutives

sometimes appear here to discuss the

development and design of important products. On

occasion, Fast Lane is utilised to discuss other important

issues facing the company.”48 Fast Lane, of course, links

to General Motor’s Facebook page, where a consumer can

become a fan. Similarly, Starbucks has its “Ideas In Action”

blog, where consumers share ideas with the company. The

customer feedback received via the blog and social

networks led to the creation of a store-finding and menuinformation

application for the iPhone, and a second

application that will let customers use the iPhone as their

Starbucks card. According to Stephen Gillett, Starbucks’

chief information officer, “We think it’s really talking to our

customers in new ways.”49

Once you’ve started the conversation, you can use social

media to provide nearly instantaneous customer service

and receive customer feedback. Many companies now

provide customer service via Twitter. American Express,

for example, has set up a dedicated Twitter handle to field

customer care questions, to go along with its various other

social media accounts on Facebook, Twitter, and

YouTube.50 GoDaddy, as another example, has a

dedicated social media team and provides live technical

support and best practice tips on Twitter.51 Other

companies like Southwest Airlines, Citi and eHarmony offer

similar support services on their social media accounts.

Many other companies also hold live Q&A sessions and

polls on Twitter and other platforms. Think kids say the

darndest things? Wait until you see what customers say

once they start talking.

A major fast food restaurant launched a Twitter campaign

as a way to promote the brand’s food through goodnatured,

heart-felt stories using a specific hashtag. Instead,

the Twitter-verse used it as an unsolicited opportunity to

bash the restaurant. Oops, now what? While the company

quickly pulled the campaign, such customer feedbackbased

campaigns can be hard to control. The hashtag

continued to trend even after the campaign was pulled. In

another example, a major retailer launched a campaign in

2012 in cooperation with a famous rapper. As part of the

promotion, the rapper agreed to visit whichever retailer

location generated the most Facebook likes. One writer

saw this as an opportunity to pull off a prank on the rapper

by creating a Facebook page dedicated to sending him to

the retailer’s Kodiak, Alaska’s location. Through the power

of social media, 70,000 users ended up liking the Kodiak,

Alaska location’s page, despite the fact the town only

boasts a population of 6,200. Nonetheless, the rapper

graciously showed up and performed at the retailer’s

Kodiak, Alaska location.

Still doubt the power of social media? The past year has

been full of social media horror stories from companies,

and perhaps no social media platform has served as a

reminder about the dangers of social media than Twitter. In

September 2013, fashion designer Kenneth Cole drew

criticism for his controversial Tweet about the Syrian war:

“’Boots on the ground’ or not, let’s not forget about sandals,

pumps and loafers. # Footwear.” The negative reaction the

Tweet drew caused the designer to delete the Tweet,

apologize, and issue a formal statement through a

spokesperson. In another example, in June 2013,

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outspoken, conservative Chick-fil-A president Dan Cathy

spoke out against gay marriage on Twitter, only to delete

the tweet shortly after. By that time, though, it was already

too late as several Twitter users took screenshots and

shared the tweet. Chick-fil-A released a public statement

explaining why the tweet was taken down, however that did

stop public protests resulting at some of franchise’s

restaurants. The restaurant later released a statement

saying it did not intend to engage in political and social

debate. And perhaps the biggest faux pas came in

December 2013 from (of all people) the head of corporate

communications for media company IAC, Justine Sacco.

Prior to her trip to South Africa, Sacco infamously tweeted,

“Going to Africa. Hope I don't get AIDS. Just kidding. I'm

white!” Her attempts to delete the Tweet and her entire

account were futile. Despite having less than 500 followers

at the time, Sacco’s Tweet went viral in no time. Soon

thereafter, she was fired. Who knew 140 characters could

get people and their companies into so much trouble?

A common culprit in a social media debacle is the result of

an employee mistakenly posting from the corporate

account, rather than his or her personal account. Such was

the case back in 2011, when an employee from Chrysler’s

digital agency, New Media Strategies, tweeted from the

@ChryslerAutos account: “I find it ironic that Detroit is

known as the #motorcity and yet no one here knows how to

[expletive] drive.” Although the tweet was quickly deleted,

the tweet had already spread to blogs. Chrysler decided

not to renew its contract with New Media Strategies two

days after the tweet.

So what does a company do if it finds itself or its products

the subject of a negative or false post? First, it depends on

where the post was made. Was it a company-operated

page, or a third-party site? Second, it depends on who

posted the negative comment. Was it a company

employee? (See Chapter 6 – Employment) Was it the

author of the post? Was it a third-party commenter on a

page? Was it a professional reviewer (journalist) or a

consumer? More perniciously, was it a competitor? Finally,

the content of the post should be considered. Is a right of

free speech involved? Was anything in the post false or

defamatory? (See Chapter 2 – Commercial Litigation)

Companies should seek to correct any false or misleading

information posted concerning the company or its products.

This can be done by either seeking removal of the false

post or by responding to the post to provide the public with

accurate information. Where a post is defamatory, litigation

may be an option (See Chapter 2 – Commercial Litigation).

In the case of a negative (but truthful) product review or

other negative opinion posted about the company, if the

comments are made on a company-operated page, the

company, has the right to remove any posting it desires,

subject, of course, to its policies and the terms on which

the page is made available. Where comments are made on

a third-party’s page, a company could attempt to contact

the author of the page and seek removal of the post.

However, depending upon the content of the post, it may

not be in the company’s best interest to take it down.

One of the central tenets of social media is open dialogue.

Where a company avails itself of the benefits of social

media but then inhibits the conversation by selectively

removing posts, it may face a public-relations fiasco. One

approach to responding to negative posts may be to have

an authorised company representative respond to the post

on behalf of the company in order to further engage the

consumer in dialogue. If a company prefers not to have

such a conversation in an open forum, the company could

seek to contact the poster offline to discuss the poster’s

negative opinion of the company or its products.

User-Generated Content

United States

UGC covers a broad spectrum of content, from forum

postings, to photos to audiovisual content such as video,

and may provide the greatest potential for brand

engagement. Companies frequently and increasingly

create promotions around UGC (for example, urging

consumers to submit content-rich descriptions of why they

love a certain product or service).

Crowdsourcing, which refers to the practice of obtaining

services or content from the online community, for

example, has been an increasingly utilized strategy by

marketers. We previously mentioned the Frito Lay’s Doritos

Super Bowl commercial campaign. In addition, in 2013,

Frito Lay also conducted its “Do Us A Flavor” contest which

asked consumers to submit their ideas for a new flavor of

Lay’s potato chips.52 After garnering nearly 3.8 million

consumer-generated flavor submissions, the submissions

were narrowed down to three finalist flavors. With more

than a million votes cast on Facebook, Twitter, and text,

the next flavor— Cheesy Garlic Bread— was selected. The

grand prize winner was awarded $1 million in cash. Not too

bad for a bag of chips. Other marketers like Samuel Adams

and Arizona Iced Tea have also sought public input to

create new product flavors. With the popularity of

crowdsourcing on the rise, companies like Tongal and

Poptent have surfaced, providing content creators with a

platform to share their work and connect with others.

While offering consumers to ability to submit their own

UGC through crowdsourcing, there are also accompanying

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risks with respect to intellectual property and false

advertising. It’s a mistake to think that, “the consumer did

it” is an iron-clad defense against claims of intellectual

property infringement or false advertising. Especially in

contests that are set up as a comparison of one brand to

another, things can get dicey. In 2007, in what was a firstof-

its-kind case, Subway filed a lawsuit against Quiznos53

stemming from the “Quiznos v. Subways Ad Challenge.”

The Challenge solicited videos from users depicting that

Quiznos’ sandwiches have more meat than Subway’s

sandwiches. The lawsuit claimed that by airing the winning

video from the Quiznos contest, Quiznos had engaged in

false and misleading advertising under the Lanham Act. In

denying Quiznos’ motion for summary judgment, the court

found that Quiznos was a provider of an interactive

computer service, but declined to decide whether the UGC

videos at issue were “provided” by Quiznos or by a third

party (a requirement for CDA immunity). The court

determined that it was a question of fact as to whether

Quiznos was actively responsible for the creation of the

UGC.54 Nearly three years later, on February 23, 2010,

following the court’s denial of its motion for summary

judgment, Quiznos agreed to settle the dispute.

In 2013, the proprietor of a hotel brought a defamation suit

against TripAdvisor after his hotel was voted by users on

its annual “Dirtiest Hotels list.”55 The proprietor alleged that

TripAdvisor destroyed the hotel’s business by publishing

the user-generated comments, and that the list was based

on distorted ratings and misleading statements.

Nonetheless, the court found that the proprietor did not

state a plausible claim for defamation against TripAdvisor

because the list was based on the subjective views of its

users, not an objectively verifiable fact. Readers of the list,

according to the court, would understand the list published

by TripAdvisor to be communicating subjective opinions of

travelers who use TripAdvisor, which amounted to nothing

more than hyperbole.

Following the court’s decision in these two cases, the

question that remains is: how much control is too much? At

what point, is a sponsor of a UGC promotion “actively

responsible” for the UGC?

As discussed in the section on “Branded Pages” above, if a

company is accepting UGC submissions through use of a

third-party platform (e.g., Facebook, Instagram, Vine, or

YouTube), odds are that the third-party’s terms of service

already prohibit content that is infringing, defamatory,

libelous, obscene, pornographic or otherwise offensive.

Nonetheless, whenever possible, a company should

establish community requirements for UGC submissions

prohibiting, for example, infringing or offensive content.

Similarly, although the third-party’s terms of service most

likely provide for notice and take-down provisions under the

DMCA, companies should have procedures in place in the

event they receive a notice of copyright infringement.

Another reason to implement your own policy is that the

social media platform providers, may themselves have a

safe harbor defense as Internet service providers under the

DMCA, whereas a company using an infringing work in a

commercial context, whether or not through a third-party

service, would not likely have such a defense available to it

should an infringement claim arise. Although the thirdparty’s

terms of service provide a framework for both a

company’s and an individual user’s activities, it is still

recommended that a company monitor its branded page for

offensive content, blatant copyright infringement, or

submissions obviously made by, or containing, images of

children. In advance of the UGC promotion, companies

should establish policies concerning the amount of

monitoring, if any, they plan to perform concerning content

posted via their branded pages.

In addition to issues relating to content and intellectual

property, companies should take steps to ensure that UGC

displayed on their social media pages does not violate the

rights of publicity of the individuals appearing in the

displayed content. This is especially true in light of the fact

more and more retailers are using photos from every day

consumers from platforms like Instagram, as reported in

the Wall Street Journal in May 2013.56 Despite this

increasingly prevalent practice, though, the legal risk of

using an individual’s content without his or her express

permission is very real. For example, in January 2013, a

U.S. federal court ruled that Getty Images and Agence

France-Presse, a news agency, were liable for

infringement for posting and distributing a photojournalist’s

images he posted on Twitter of the 2010 Haiti earthquake,

without his permission. Months later, the court ordered the

defendants to pay the photojournalist $1.2 million in

statutory penalties.57 A similar lawsuit was brought by

another photographer in June 2013 against BuzzFeed for

the use of an image it found on Flickr.58 The message is

clear that if you seek to use UGC in a commercial context,

whether or not on a social media page, best practice would

be to obtain releases from any individuals depicted in your

work.

In a more recent example, a nationwide class action was

brought against Facebook in connection with one of its

advertising programs called “Sponsored Stories.”

“Sponsored Stories” displayed a user’s “Like” in connection

with the user’s name and profile picture to try to convince

the user’s friends to similarly “Like” the brand. Advertisers

paid Facebook for these “Sponsored Stories”

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advertisements. A class action was brought against

Facebook in California federal court, alleging that

Facebook misappropriated their names, profile photos, and

likenesses in paid advertisements without their consent. In

denying Facebook’s motion to dismiss, the court held that

plaintiffs – even non-celebrities -- could claim economic

injury when their likeness is shared among people without

their consent. The parties eventually reached a settlement,

which was given final approval by the court in August 2013.

Companies should make clear that by submitting UGC to

the company, the submitter is granting the company a

worldwide, royalty-free right and non-exclusive license to

use, distribute, reproduce, modify, adapt, translate, publicly

perform and publicly display the UGC. However, this does

not give a company a license to transform the UGC into a

commercial or print advertisement. In fact, in the event that

a company seeks to transform a UGC video into a

television commercial or made-for-Internet commercial, the

company must obtain a release from any individuals to be

featured in the ad and take into consideration the SAGAFTRA

requirements set forth in the commercials contract.

United Kingdom

A question that arises often where a company includes

social media elements or features on its own properties, or

in advertising or promotional campaigns, is whether those

elements or features should be moderated.

A conservative and perhaps safer approach is for brands to

moderate sites for unwelcome content or comments.

Moderation can take several forms: (i) pre-moderation; (ii)

post-moderation; and (iii) reactive moderation. The fact that

moderation affords control to the brand owner and helps

them limit any potentially risky business means that brand

owners often favour a pro-moderation approach. However,

moderation itself can be a risky business and can

sometimes be one that advertisers and their advertising

agencies or others ought not to do themselves.

By checking all material prior to publication, the operator of

a site could be said to assume responsibility for the

material that appears. This makes pre-moderation a

relatively high-risk and labour-intensive approach.

However, many brand owners feel uncomfortable about not

moderating, and the decision may well come down to the

sort of site in question. For example, we recommend that

any site used by children ought to be properly moderated

by specialists who are also provided with guidelines on

how to carry out their role. Equally, sites that carry less risk

may be better suited to a post-moderation or even reactive

moderation approach, whereby moderation only takes

place in response to feedback from users.

We recommend that moderation, and whether to take

responsibility for moderation, be considered carefully,

taking into account the nature of the product or service in

question and the potential propensity for damage to the

brand. In some circumstances, it may be appropriate to

outsource moderation activity to a specialist company that

can shoulder the administrative burden. In addition, sites

that carry user-generated content should include terms of

use with appropriate warranties. Finally, brands may wish

to seek insurance for liability created by user-generated

content.

Where advertisers are considering using third-party sites

for advertising purposes (for example, Facebook), they

may also consider whether or not to moderate the areas of

the site that are within the control of the advertiser.

The alternative to a moderated environment is for a brand

or agency to allow the site or property to operate without

moderation. There are many downsides to this approach.

For example, when content is unmoderated, the quality of

material posted is difficult to control. There is, on the face

of it, a legal advantage to unmoderated sites, in that a

brand or site operator can more easily seek an exemption

from liability for anything that is defamatory, infringing or

otherwise unlawful. This exemption is afforded by local

laws deriving from the E-Commerce Directive, as

discussed in later chapters, and the only material condition

of the exemption is that the operator of the site provides a

process for removing offending content expeditiously upon

being made aware of it. However, guidance from UK

government agencies counsels against unmoderated

environments generally.

In the case of either moderated or unmoderated sites, it is

essential that the process for the removal of content is

easy, and that concerned individual users can report

inappropriate content to the operator swiftly. The operator

must then be able to deal with the complaint or problem

and have clear guidelines for doing so. It is recommended

that operators provide a link on each page of the website

that clearly directs users to the process for reporting

inappropriate content. Phrases such as “Report Abuse,”

“Complain about this content” or “Flag as inappropriate” are

all commonly used as links. The operator of a site should

also require clarity in a complaint and seek to ensure the

user is required to explain exactly why a complaint is being

made, so as to enable the assessment of the merits of any

objection.

Germany

The laws in Europe concerning liability for UGC are similar

to those in the United States in some respects, but in other

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areas are markedly different. Importantly, the laws in

Europe are developing quickly in this area and are, some

might say, becoming more conservative and in favour of

rights holders than in the United States.

The European Union regulated certain aspects of

electronic commerce in its Directive 2000/31/EC

(“Directive”). The Directive was introduced to clarify and

harmonise the rules of online business throughout Europe,

with the aim of boosting consumer confidence. It also

seeks to contribute to the proper functioning of the internal

market by ensuring the free movement of information

society services between the Member States. The Directive

applies to the Member States of the European Economic

Area (“EEA”), which includes the 25 Member States of the

EU plus Norway, Iceland and Liechtenstein.

The Directive contains specific provisions on liability for

hosting services. The general principle is that a service

provider shall not be liable for the information stored if the

provider does not have actual knowledge of illegal activity

or information, and where a claim for damages is made, is

not aware of facts or circumstances from which it would

have been apparent to the service provider that the activity

or information was unlawful. If the service provider, upon

obtaining such knowledge or awareness, acts expeditiously

to remove or to disable access to the information, there is

no liability. Hence the service provider must act

immediately upon gaining knowledge that the material is

unlawful by either removing or disabling access to the

material.

The Directive further makes clear that a service provider

has no obligation to monitor the content. The Directive

states that Member States must not impose a general

obligation on service providers to monitor the information

that they transmit or store. A service provider can make

use of the aforementioned limitations in liability as long as it

is clear that the content is content from someone else, i.e.

UGC. Hence in case of UGC advertisements or uploads,

the service provider has to avoid assuming such UGC as

its own content to avoid liability in connection with such

content. The critical question for companies using UGC

arises when the company assumes UGC as its own

content. It is likely that UGC will be considered as a

company’s content if it is made as part of the company’s

own offering. A decision of the German Supreme Court59

illustrates the thin line between third-party content and own

content. In the case, the defendant offered free cooking

recipes on its website www.chefkoch.de. Every user can

upload its own recipes with pictures on that website. One

user uploaded a picture from a different cookbook website

– the plaintiff’s. The Supreme Court considered the

defendant liable as publisher of the picture by placing its

logo on each uploaded recipe, among other things. The

Supreme Court established several criteria which could

lead to the assumption that UGC will be considered as a

company’s content: • extensive granting of rights of use

regarding the UGC in favor of the company, • company’s

statement that UGC is checked before activation, • no

indication of UGC as such. The defendant hence should

have checked the legality of each picture that was

uploaded by users. In practice, this may be an impossible

task. Many companies that attempt to “clear” useruploaded

content before publication find that the majority of

submissions are unusable.

Even if a company does not assume responsibility for thirdparty

content, it is crucial that terms and conditions set

forth clear rules regarding UGC, in particular with regard to

rights ownership. To the extent copyrighted materials are

involved in the UGC, it is not possible to exclude monetary

compensation for the use of the copyrighted materials,

even if the user who provided the content agrees to such

exclusion. He/she is permitted to claim “appropriate”

compensation afterwards, e.g. in cases where certain UGC

becomes famous and important for the company who uses

it.

Related to the problem area “liability for UGC” is the

question whether the website provider infringes third party

rights in case of embedding infringing content on his

website by “framing”. Amongst German case law and

literature that question is at issue. The German Supreme

Court decided that framing is not subject to the right of

making works available to the public according to Section

19 a German Copyright Act. However the German

Supreme Court submitted that question at issue to the

European Court of Justice60 due to the construction of the

Directive 2001/29/EC of the European Parliament and of

the Council of 22 May 2001 on the harmonisation of certain

aspects of copyright and related rights in the information

society. In particular the German Supreme Court wants to

know whether framing is subject to the right of

communication to the public of works and right of making

available to the public other subject-matter according to

Section 3 of the aforementioned directive. The decision of

the European Court of Justice is expected in the course of

2014.

The Bottom Line: You need to have specific Terms and

Conditions in place regarding content uploaded by users.

Those terms and conditions should specify that such

content does not violate any third-party rights, including

moral rights and copyrights, and does not contain any

defamatory, libelous, racial, pornographic content. You

should indicate UGC as such. You should not use UGC for

your own offering or otherwise you might assume liability

for its content. You need to observe the notice and takedown

principle. In case specific illegal content will be

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repeatedly uploaded, you need to take measures to

prevent such continuous infringement, i.e., terminate user

access, or install certain filter software. You must not

automatically assume that you will be protected by safe

harbour defences. Those terms and conditions should not

contain an extensive grant of rights of use regarding the

UGC in your favor and furthermore you should not state

that UGC is checked by you.

Talent Compensation

Commercial or Content?

United States

In traditional television and radio media, the 30-second

spot has reigned supreme as the primary advertising

format for decades. Within that format, in order to help

create compelling TV and radio spots, advertisers have

frequently engaged professional on-camera and voiceover

actors pursuant to the terms contained in industry-wide

union contracts with SAG-AFTRA, as well as musicians

under a contract with the American Federation of

Musicians (“AFM”).61 Those contracts dictate specific

minimum compensation amounts for all performers who

appear in commercials, depending upon the exhibition

pattern of those spots.

Now, with companies rapidly shifting advertising dollars

online, the cookie-cutter paradigms of traditional media

have given way to the limitless possibilities of the Internet,

mobile and wireless platforms and other new media—

including social media, such as Instagram videos, Vine

videos, and Flipagram. While 30-second spots remain one

part of the new media landscape, creative teams have

been unleashed to produce myriad forms of branded

content that straddle traditional lines separating

commercials and entertainment. This has understandably

created confusion and uncertainty amongst advertisers,

agencies, talent and studios, to name only a few of the

major players, with respect to the applicability of the SAGAFTRA

and AFM contracts in these unique online and

wireless venues.

As a threshold matter, it is important to note that the SAGAFTRA

Commercials Contract applies only to Internet/New

Media content that falls with the definition of a commercial.

Commercials are defined as “short advertising messages

intended for showing on the Internet (or New Media) which

would be treated as commercials if broadcast on television

and which are capable of being used on television in the

same form as on the Internet.” Put simply, if the content in

question cannot be transported intact from the Internet to

TV or radio for use as a commercial, then it is not covered

by Commercials Contract and the advertiser is not

obligated to compensate performers in accordance

therewith and can negotiate freely for appropriate terms.

“New Media” is defined as “digital, electronic or any other

type of delivery platform including, but not limited to,

commercials delivered to mobile phones and other digital

and electronic media. The term New Media is intended to

be all inclusive of digital, electronic or any other type of

delivery platform whether no known or unknown.”

Increasingly, the lines between television, Internet and New

Media are blurred, as consumers access traditional TV

programming on computers, tablets and smartphones.

What remains clear, however, is that branded

entertainment content and other forms of promotion that

don’t walk and talk like a commercial will not fall within the

coverage of the union contracts.

Made Fors and Move Overs

If the content in question does fall within the definition of a

commercial, the advertiser must determine whether the

content constitutes an original commercial designed for

Internet/New Media exhibition (a so-called “Made For”) or

an existing TV or radio commercial transported to the

Internet/New Media (a “Move Over”).

The Commercials Contract provides for minimum levels of

compensation, depending upon the length of use for the

spot for both Made Fors and Move Overs. For eight weeks

or less, performers must be paid 133 percent of the

applicable session fee for a Made For and 150% of the

applicable session fee for a Move Over. For a one-year

cycle, payment equals 350 percent of such fee for a Made

For and 400% for a Move Over.

New Digital Provisions of the Commercials Contract

In 2013, the JPC negotiated groundbreaking improvements

to the SAG-AFTRA Commercials Codes in the area of

Internet and New Media. Specifically, the JPC negotiated

the carveout of four types of commercials from coverage

under the Commercials Codes: usergenerated/

crowdsourced commercial contests, live events

commercials, hidden camera commercials, and man on the

street commercials. With respect to these areas,

producers no longer have to worry whether the content is

or is not a “commercial”. Instead, they are free to produce

the commercial (subject to the terms set forth below)

without paying for the commercial under the SAG-AFTRA

Commercial Codes and without hiring union performers.

User-Generated/Crowd-Sourced Commercial Contests:

Producers may now solicit, accept and display via the

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Internet user-generated/crowd-sourced commercials as

entries to a contest.

a. Such contest entries may be exhibited via the

Internet during the contest period without triggering

any application of the Commercial Codes including,

without limitation, Ad Lib or Creative Session Call

fees for the entry.

b. If a contest-winning commercial is exhibited on any

media platform after the expiration of the contest

period, such commercial will be subject to the rates,

terms and conditions of the Commercial Codes.

c. Non-winning contest entries must be pulled down

from the Internet or New Media upon declaration of

the winner. Should Producer choose not to cease

exhibition of the non-winning entries, such entries will

be subject to the rates, terms and conditions of the

Commercial Codes.

A Producer may film or record activities of persons in public

without covering such persons under the Contract,

provided such persons are neither scripted to speak any

dialogue nor cast for the commercial(s), as follows:

a. Live Events – “Live Events” are events attended by

at least 20 persons who are neither hired nor cast by

Producer to attend the event. An individual(s)

appearing in such footage will not be a Covered

Person(s) for purposes of the Commercial Codes.

However, such Live Events (1) may not be staged for

the purpose of producing a commercial(s); and (2)

non-covered participants at the live event may not

receive individual direction but may be directed as a

group.

b. Man on the Street Commercial – A “Man on the

Street Commercial” means a commercial(s) where

an interviewer interviews people on the street, at

public venues, or at live events and asks them

questions or makes statements or gestures to elicit a

response or reaction from them. An individual(s)

appearing in such footage will not be a Covered

Person(s) for purposes of the Commercial Codes.

The interviewer is a Covered Person for purposes of

the Commercial Codes whether or not they appear or

perform in the commercial(s).

c. Hidden Camera Commercials – A “Hidden Camera

Commercial” means a commercial(s) comprised of

footage captured by a hidden camera(s) without

direction to the individual(s) being filmed. An

individual(s) appearing in such footage will not be a

Covered Person(s) for purposes of the Commercial

Codes. Any person(s) appearing in the capacity of

an interviewer, however, will be a Covered Person

whether or not they appear in the commercial.

As a condition of the waiver, Producer must notify SAGAFTRA

that it has used the waiver and provide SAGAFTRA

with an electronic or physical copy of the

commercial(s) within 60 days of the first exhibition of the

commercial.

If a commercial produced pursuant to this waiver is

subsequently exhibited other than on the Internet or New

Media where such use is otherwise covered by the

Commercial Codes, anyone qualifying as a principal in the

commercial as subsequently exhibited will be a Covered

Person under the Commercial Codes and compensated

accordingly.

The addition of these provisions provides added flexibility

to signatory producers working in digital media.

Unauthorized Use

As noted above, the union contracts that govern the

payment of performers are generally based upon the

exhibition patterns for commercials. But what happens

when we enter a world where advertisers no longer control

where and when commercials appear (e.g., YouTube)? Is

the advertiser obligated to pay the actors under the

Commercials Contract for use of the commercial that was

not authorized by the advertiser? The answer is “no,” but

the person who posted the materials without permission is

liable for invasion of privacy and publicity. Unfortunately,

the pockets of those posters are generally too shallow to

warrant an action by the actor. This was a fertile area for

disagreement between the advertising industry and the

unions. In 2011, however, SAG-AFTRA have confirmed

that there is no requirement in the Commercials Contract

for a signatory to issue a take down notice in response to a

claim of unauthorized Internet use on, e.g., You Tube.

However, if signatories elect to cooperate and send a take

down notice, such cooperation will not be considered by

the union to be evidence of an accepted industry practice

under the Commercials Contract. Further. the sending of a

take down notice in response to a claim of unauthorized

Internet use will not be used precedent. Meaning, if a

signatory sends a take down notice in response to one

specific request from the unions, this does not mean that a

signatory is then obligated to send a take down notice in

response to any or all future requests.

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Current Legal and Regulatory Framework in

Advertising

United States

Depending on the advertising activity, various federal

and/or state laws may apply including, for example,

section 5 of the FTC Act (See Chapter – 2 Commercial

Litigation), the Lanham Act (See Chapter 2 – Commercial

Litigation and Chapter 14 – Trademarks), the DMCA, the

CDA (See Chapter 2 – Commercial Litigation), CAN-SPAM

and state unfair trade practice acts.

Europe

The Directive 2006/114/EC dated 12 December 2006

regulates misleading and comparative advertising; the

Directive 2005/29/EU dated 11 May 2005 regulates unfair

business-to-consumer commercial practices.

In addition, there are numerous self-regulatory regimes and

organisations dealing with advertising regulation. These

national bodies cannot be ignored. On a European level,

the European Advertising Standards Alliance (“EASA”) acts

as the chief self-regulator. EASA is based in Brussels and

is a European voice of the advertising industry. It acts as

the European coordination point for advertising selfregulatory

bodies and systems across Europe.

Bottom Line—What You Need to Do

Social media implications and applications to advertising

and marketing cannot be ignored. While active or passive

participation can enhance and promote brand presence, a

danger of brand damage also always exists, and risks

should be minimized by prudent planning. All companies,

regardless of whether or not they elect to actively

participate in the social media arena, should have policies

in place to determine how to respond to negative

comments made about the company and/or its brands.

Companies that seek to play a more active role should

have policies in place that govern marketing agency and/or

employee interaction with social media, as well as the

screening of UGC. It is critical, however, that companies

not simply adopt someone else’s form. Each social media

policy should be considered carefully and should address

the goals and strategic initiatives of the company, as well

as take into account industry and business-specific

considerations.

Companies operating campaigns in numerous jurisdictions,

even across Europe, cannot take a one-size-fits-all

approach to compliance with advertising laws and

regulation. By its nature, social media has additional pitfalls

for advertisers. A non-compliant or culturally insensitive

message on a social media destination can cause

significant harm to a brand.

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— CHAPTER 2 —

Brand Protection and Reputation Management

Chapter Authors62

United States

Peter D. Raymond, Partner – praymond@reedsmith.com

David A. Scharfstein, Associate – dscharfstein@reedsmith.com

United Kingdom

Emma Lenthall, Partner – elenthall@reedsmith.com

Louise Berg, Senior Associate – lberg@reedsmith.com

Introduction

This chapter explores emerging exposures associated with misleading advertising and defamation in social media.

The ever-growing number of conversations in social media venues creates new opportunities for advertisers to promote their

brand and corporate reputation. These same conversations, however, create new risks. Online disparagement of a corporation

or its products and/or services through social media can spread virally and very quickly, making damage control difficult.

Accordingly, corporations need to be aware of their rights and remedies should they fall prey to harmful speech on the Internet.

An organization also needs to understand how to minimize its own exposure and liability as it leverages social media to enhance

its brand and reputation.

Within the context of social media, the two greatest risks to brand and reputation are, respectively, misleading advertising and

defamation. Within the realm of misleading advertising, companies need to pay attention to new risks associated with the

growing phenomenon of word-of-mouth marketing.

Social Media in Action in Commercial

Litigation

False Advertising and Word-of-Mouth Marketing:

Understanding the Risks

The US position

The presence of social media increases the risk that your

organization will be touched by false advertising claims–

either as a plaintiff or a defendant. First, more

communication means more opportunity for

miscommunication generally and for a misstatement about

your or your competitor’s brand. Compounding this risk is

the fact that social media marketing and sales channels

(including word-of-mouth marketing programs) are now

highly distributed, making enforcement of centralized

communication standards difficult. Finally, social media

frequently operates as a kind of echo chamber: consumers

hear their likes and dislikes repeated back to them,

amplified, and reinforced by those who share similar

feelings.63 In light of all these factors, the growth of social

media is likely to see false advertising claims skyrocket.

Indeed, it is worth noting that a 2008 Federal Judicial

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Center Report concluded that between 2001 and 2007, the

number of consumer protection class actions filed annually

rose by about 156 percent.64

False Advertising Generally

Generally, the tapestry of laws covering false advertising

consists of Section 5 of the FTC Act65 (the “FTC Act”),

Section 43(a) of the Lanham Act,66 the state deceptive

practices acts, and common law unfair competition. All of

these laws target deception of one form or another, but

they differ in their requirements as to who can bring an

action, the burden of proof required, and the available

relief.

Section 5 of the FTC Act prohibits “unfair and or deceptive

acts or practices.”67 Actions under the FTC Act may only

be asserted by the FTC; there is no private right of action

under this Act. According to the FTC Policy Statement on

Deception (1983),68 deception exists if there is a material

representation, omission or practice that is likely to mislead

an otherwise reasonable consumer. Neither intent nor

actual harm is a required element, and the FTC, in making

a determination, is free to draw upon its experience and

judgment rather from actual evidence in the marketplace.69

The FTC will find an advertiser’s failure to disclose facts

actionable under Section 5 if a reasonable consumer is left

with a false or misleading impression from the

advertisement as a whole.70 The advertiser generally bears

the burden of substantiating the advertising claim.71 The

FTC Act permits monetary and injunctive relief.72

Private Rights of Action

The National Advertising Division

Prior to, or in lieu of, an FTC proceeding, parties may find

themselves before the National Advertising Division

(“NAD”), a self-regulatory body that also focuses on

resolving deceptive and misleading advertising. Parties

generally participate in NAD proceedings willingly so as to

avoid potentially more consequential action at the FTC.

Although claims can be brought by consumers or

competitors at the NAD, there is no private right of action at

the FTC or in federal court under the FTC Act. Consumers

seeking to file claims in court for consumer fraud and false

advertising must resort to applicable state deceptive

practices statutes and common law.

Section 43(a) of The Lanham Act

Competitors are also protected against deceptive practices

under Section 43(a) of the Lanham Act, which provides for

civil actions for injunctive and monetary relief (in state or

federal court) for false or misleading statements made in

commercial advertisements. The Seventh, Ninth and Tenth

Circuit Courts of Appeals have tended to restrict standing

under the Lanham Act to parties who are in direct

competition; the other Circuits have a slightly broader

standing threshold—but relief is not available to

consumers. Under the Lanham Act, it is not necessary to

show actual harm or intent to deceive to obtain an

injunction.73 To obtain damages, however, it is necessary

to show that customers were deceived and that the plaintiff

was harmed. Some courts raise a presumption of harm

where the plaintiff proves the defendant’s intent and bad

faith.

The plaintiff in a Lanham Act action has the burden of

proving that the claim is deceptive.74 The Lanham Act

prohibits false and misleading statements; accordingly, the

mere failure to disclose or omission to state a fact is not

per se actionable. However if the failure to disclose makes

a statement “affirmatively misleading, partially incorrect, or

untrue as a result of failure to disclose a material fact,” then

that statement is actionable.75 In cases of implied

deception, this means the plaintiff will have to introduce

extrinsic consumer survey evidence.

State Court Claims and Class-Action Lawsuits

In addition to FTC, Lanham Act, and NAD claims,

advertisers must be mindful of the threat of claims asserted

under the various state consumer deception laws, and

particularly mindful of the potential for class-action suits

under these statutes. In fact, as a practical matter, a

determination of liability by the FTC, NAD, or a federal

court is often a precursor to a class-action suit, as plaintiffs

(and plaintiffs’ attorneys) utilize the prior finding of liability

to bolster their claims that the allegedly false or misleading

advertisement caused damages to the entire class of

individuals who were exposed to it.76

As noted above, the growth of social media is likely to

result in an increase in enforcement actions and private

civil actions generally in connection with false advertising.

Moreover, as discussed below, the FTC Guides make

bloggers and advertisers using word-of-mouth marketing

particularly vulnerable to deceptive practices and false

advertising claims based on the blogger’s failure to

disclose a material connection to the advertiser.77

“Word of Mouth” Marketing

The Duty to Disclose

Social media has spawned a new advertising industry that

spreads brand messaging in an old-fashioned way: wordof-

mouth. Word-of-mouth marketing involves mobilizing

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users of social media to “spread the word” about the

advertiser’s goods and services. According to the Word of

Mouth Marketing Association, word-of-mouth marketing is

“[g]iving people a reason to talk about your products and

services, and making it easier for that conversation to take

place. It is the art and science of building active, mutually

beneficial consumer-to-consumer and consumer-tomarketer

communications.”78

Word-of-mouth marketing typically refers to endorsement

messaging. Specifically, an endorsement is “an advertising

message” that consumers are likely to believe is a

reflection of the opinions and beliefs of the endorser rather

than the “sponsoring” advertiser.79 When a television ad

depicts “neighbors” talking about the merits of the Toro

lawn mower, we don’t believe that these statements reflect

their personal beliefs; we know that they are actors

speaking for the advertiser. On the other hand, Tiger

Woods touting Nike golf equipment is an endorsement; we

believe that we are listening to his personal views. A thirdparty’s

statement, however, is not an advertisement (and

not an endorsement) unless it is “sponsored.” To determine

whether it is an endorsement, consider whether in

disseminating positive statements about a product or

service, the speaker is: (1) acting solely independently, in

which case there is no endorsement, or (2) acting on behalf

of the advertiser or its agent, such that the speaker’s

statement is an ‘endorsement’ that is part of an overall

marketing campaign?”80

As with all advertising, the bedrock concern of the FTC is

with “unfair or deceptive acts or practices” prohibited under

Section 5 of the FTC Act.81 Deceptive acts or practices,

generally, may include a failure to disclose material facts

relative to a particular advertising claim. Thus, in the

context of an endorsement, the relationship between the

advertiser and the endorser may need to be made

apparent to the consumer in order for the consumer to

properly weigh the endorser’s statement. The FTC Guides

state that advertisers are subject to liability for false or

unsubstantiated statements made through endorsements,

or for failing to disclose material connections between

themselves and their endorsers, and that endorsers also

may be liable for statements made in the course of their

endorsements.82 Section 255.5 of the FTC Guides requires

that where a connection exists between the endorser and

the seller that might materially affect the weight or

credibility of the endorsement, such connection must be

fully disclosed.

The FTC Guides distinguish three features of

endorsements in the context of social media:

(1) dissemination of the advertising message;

(2) advertisers’ lack of control; and (3) material

connections.

First, in traditional print and broadcast media, the

advertiser controlled the messaging. Endorsements were

embedded largely in a message controlled by the

advertiser. This has changed. As the FTC explains

(emphasis added):83

When the Commission adopted the Guides in 1980,

endorsements were disseminated by advertisers—not

by the endorsers themselves—through such

traditional media as television commercials and print

advertisements. With such media, the duty to disclose

material connections between the advertiser and the

endorser naturally fell on the advertiser.

The recent creation of consumer-generated media

means that in many instances, endorsements are now

disseminated by the endorser, rather than by the

sponsoring advertiser. In these contexts, the

Commission believes that the endorser is the party

primarily responsible for disclosing material

connections with the advertiser.

Consistent with this observation, the FTC Guides were

amended to provide that “[e]ndorsers also may be liable for

statements made in the course of their endorsements.”84

Second, advertisers will frequently find themselves in

relationships with apparently remote affiliate marketers,

bloggers and other social media users. However, the

advertiser’s lack of control over these remote social media

users does not relieve the advertiser of responsibility for an

endorser’s failure to disclose material information. “The

Commission recognizes that because the advertiser does

not disseminate the endorsements made using these new

consumer-generated media, it does not have complete

control over the contents of those statements.”85 The

Commission goes on to state, however, that “if the

advertiser initiated the process that led to these

endorsements being made—e.g., by providing products to

well-known bloggers or to endorsers enrolled in word of

mouth marketing programs—it potentially is liable for

misleading statements made by those consumers.”86

Importantly, for advertisers, the determination of liability

hinges on whether the “the advertiser chose to sponsor the

consumer-generated content such that it has established

an endorser sponsor relationship.”87 Again, that

relationship may exist with otherwise remote users. The

FTC points out, however, that “[it], in the exercise of its

prosecutorial discretion, would consider the advertiser’s

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efforts to advise these endorsers of their responsibilities

and to monitor their online behavior in determining what

action, if any, would be warranted.”88 To avoid prosecution,

if not liability, advertisers should heed the Commission’s

admonition:89

[A]dvertisers who sponsor these endorsers (either by

providing free products—directly or through a

middleman—or otherwise) in order to generate

positive word of mouth and spur sales should

establish procedures to advise endorsers that they

should make the necessary disclosures and to monitor

the conduct of those endorsers.

Finally, the FTC Guides indicate that social media

endorsers may have a heightened duty to disclose material

connections to the advertiser. “[A]cknowledg[ing] that

bloggers may be subject to different disclosure

requirements than reviewers in traditional media,” the FTC

states:90

The development of these new media has, however,

highlighted the need for additional revisions to Section

255.5, to clarify that one factor in determining whether

the connection between an advertiser and its

endorsers should be disclosed is the type of vehicle

being used to disseminate that endorsement—

specifically, whether or not the nature of that medium

is such that consumers are likely to recognize the

statement as an advertisement (that is, as sponsored

speech). Thus, although disclosure of compensation

may not be required when a celebrity or expert

appears in a conventional television advertisement,

endorsements by these individuals in other media

might warrant such disclosure.

. . .

The Commission recognises that, as a practical

matter, if a consumer’s review of a product

disseminated via one of these new forms of

consumer-generated media qualifies as an

“endorsement” under the construct articulated above,

that consumer will likely also be deemed to have

material connections with the sponsoring advertiser

that should be disclosed. That outcome is simply a

function of the fact that if the relationship between the

advertiser and the speaker is such that the speaker’s

statement, viewed objectively, can be considered

“sponsored,” there inevitably exists a relationship that

should be disclosed, and would not otherwise be

apparent, because the endorsement is not contained

in a traditional ad bearing the name of the advertiser.

Word of Mouth Marketing: Summary

The FTC’s message is thus clear: (1) bloggers and other

social media users are viewed as primary disseminators of

advertisements; (2) endorsers in social media, along with

the sponsoring advertisers, are subject to liability for failing

to make material disclosures relating to the endorsement

relationship (e.g., gifts, employment and/or other

connections and circumstances); (3) the FTC appears to

take the position that there is a higher threshold of

disclosure in social media than traditional media, and that

the endorsement relationship itself is likely to trigger the

obligation to disclose; (4) advertisers need to take

reasonable steps to assure that material disclosures are in

fact made; (5) advertisers cannot rely on the “remoteness”

of the social media endorsers or on the advertiser’s lack of

control over them to escape liability; (6) advertisers are

technically liable for a remote endorser’s failure to disclose;

(7) an advertiser’s ability to avoid discretionary regulatory

enforcement due to the endorser’s failure to disclose will be

a function of the quality of the advertiser’s policies,

practices and policing efforts. A written policy addressing

these issues is the best protection.

Recent Developments in Social Media Advertising Law

In March, 2013, the FTC released a revised version of its

so-called “.com Disclosures,” which provides “information

that businesses should consider as they develop ads for

online media….”91 and was last published in 2000. The

Disclosures reaffirm the FTC’s position that consumer

protection laws apply equally to all commercial activities

regardless of the medium on which they appear, including

on mobile and other space-constrained platforms like

Twitter. Therefore, advertisements, endorsements, and

other promotional communications that would be

accompanied by disclosures in traditional media must be

accompanied by equivalent disclosures in spaceconstrained

media, and “if a particular platform does not

provide an opportunity to make clear and conspicuous

disclosures, then that platform should not be used to

disseminate advertisements that require disclosures.”92 In

one of the examples provided in the Disclosures, the FTC

suggests that placing the text “Ad:” before an endorsed

tweet promoting a weight-loss product may sufficiently

disclose the promotional nature of the tweet, and placing

the text “Typical loss: 1lb/wk” may sufficiently disclose that

the results described in the tweet (“30lbs in 6 wks”) were

not typical.93

As advertisers continue to integrate their promotional

messages into social media, the issues discussed in the

.com Disclosures are likely to be the subject of a great deal

of litigation. In fact, in August, 2013, the actress Octavia

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Spencer filed suit against the manufacturer of a weight-loss

product named Sensa, after Sensa allegedly terminated

her promotional contract because she insisted upon

placing the hashtag “#spon” after her sponsored tweets.94

As of the time of this writing, the case is currently pending

before the Los Angeles Superior Court.

Another emerging trend associated with the advent of

social media is that false endorsement cases – which arise

under Section 43(a) of the Lanham Act and have

traditionally involved claims that a celebrity or other famous

person’s name or likeness has been used improperly to

promote particular goods or services – are increasingly

being filed by non-celebrity plaintiffs.95

In Doe v. Friendfinder Network, Inc., for example, the

defendant operated a network of web communities where

members could meet each other through online personal

advertisements. Someone other than the plaintiff created a

profile – “petra03755” – in one of defendant’s communities

that contained nude photographs of the plaintiff and

representations that she engaged in a promiscuous

lifestyle. Biographical data, according to the plaintiff,

caused the public to identify her as “petra03755” to the

community. The plaintiff alleged that the defendant did

nothing to verify the accuracy of the information posted,

caused portions of the profile to appear as “teasers” on

Internet search engine results (when users entered search

terms matching information in the profile, including the true

biographical information about the plaintiff,) and

advertisements that in turn directed traffic to defendant’s

site. In denying the motion to dismiss the Lanham Act

claim, the district court stated:

The plaintiff has alleged that the defendants, through

the use of the profile in “teasers” and other

advertisements placed on the Internet, falsely

represented that she was a participant in their on-line

dating services; that these misrepresentations

deceived consumers into registering for the

defendants’ services in the hope of interacting with the

plaintiff; and that she suffered injury to her reputation

as a result….

For purposes of this motion, then, the court rules that

the plaintiff’s claim for false designation under

15 U.S.C. § 1125(a)(1)(A) does not fail simply

because she is not a “celebrity.”

The UK position

While there is at present no specific legislation aimed at

social media, there is a plethora of legislation and selfregulation

that impacts on almost all activities connected to

blogging, social networking or undertaking new forms of

promotions on line. Some of the most important legal

controls are:

The Advertising Standards Authority and the ‘CAP’

Code

The Advertising Standards Authority is an independent

body which regulates all forms of advertising, sales

promotion and direct marketing in the UK. Different

regimes apply to broadcast and non-broadcast advertising.

Online advertisements are covered by the self-regulatory

‘non-broadcast’ Code of Advertising Practice (CAP Code).

96. While this Code only applies at present to

advertisements in ‘paid for’ space, advertisers’ own

marketing communications on their own websites and in

other non-paid-for space online under their control, such as

their Facebook page or YouTube channel, this may change

in the future. There is political pressure to extend the remit

of the ASA and the CAP Code to all promotional messages

on the Internet.

The ASA will not regulate any advertisements published in

foreign media or which originate from outside the UK.

However, the ASA does operate a cross-border complaints

system in conjunction with ‘EASA’, the European

Advertising Standards Alliance.

The CAP Code sets out a number of key principles to

protect consumers against false or misleading advertising

and other harmful advertising practices. For example, it

states that advertising should be legal, decent, honest and

truthful, and should not mislead by inaccuracy, ambiguity,

exaggeration or otherwise), should not cause offence and

should not contain misleading comparisons. It also

contains specific rules relating to particular types of

advertisement and products.

The UK non-broadcast advertising industry is selfregulating

and therefore compliance with the CAP Code is

voluntary. However, sanctions for breaching the Code can

include the following.

 Refusal of further advertising space: The ASA can ask

sellers of ad space in all media to refuse to carry an

ad

 Adverse publicity: ASA adjudications are published

weekly and can be widely reported by the media

 Withdrawal of certain trading privileges (e.g.,

discounts for direct mail advertisers)

 Enforced pre-publication vetting for repeat offenders

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 Ineligibility for industry awards for repeat offenders

 Legal proceedings: In the case of misleading ads or

ads which contain unfair comparisons, the ASA can

refer the matter to the Office of Fair Trading (“OFT”).

The OFT can seek undertakings or an injunction

through the courts or issue an Enforcement Order

under the Enterprise Act 2002 (although it should be

noted that current planned reforms to consumer rights

legislation will abolish the OFT in April 2014 and

merge its enforcement functions into Trading

Standards).

Advertisers also need to be aware that more powerful

sanctions are in the pipeline and that, practically speaking,

the risk of damage to the brand by an adverse adjudication

is a real deterrent to most reputable advertisers and brand

owners.

It should be noted that the ASA does not automatically

intend to stamp out anything which pushes the boundaries.

The Codes are often subject to interpretation and the ASA

often surprises the industry with its decisions. As an

example, the UK Home Office displayed posters on the

side of vans driven through London, featuring a close-up

image of someone holding a pair of handcuffs and wearing

a uniform with a badge which stated "Home Office". The

text stated "In the UK illegally?" and "106 ARRESTS LAST

WEEK IN YOUR AREA*". Underneath, text stated "GO

HOME OR FACE ARREST Text HOME to XXXXX for free

advice, and help with travel documents". Complainants

challenged whether the phrase "GO HOME", was offensive

and distressing, because it was reminiscent of slogans

used by racist groups to attack immigrants in the past. The

ASA stated that it considered that, in context, the claim

would be interpreted as a message regarding the

immigration status of those in the country illegally, which

was not related to their race or ethnicity. The ASA

recognized that some aspects of the poster were likely to

be distasteful to some in the context of an ad addressed to

illegal immigrants but concluded that the poster was

unlikely to cause serious or widespread offence or distress

and it was clearly addressed to illegal immigrants rather

than to non-naturalized immigrants who were in the UK

legally or to UK citizens. Those parts of the investigation

relating to causing serious or widespread offence were not

upheld. Likewise, advertisements for various charities have

been very hard-hitting and have caused distress resulting

in high numbers of complaints from the public, yet the ASA

has chosen not to uphold these complaints. Perhaps the

ASA believes that some issues are so important that it

gives an extra degree of latitude. For example, a harrowing

advertisement for the children’s charity Barnardo’s a few

years ago, received almost 500 complaints from the British

public, yet the ASA said that the imagery was justified

because the purpose of the ad was to raise awareness of

the impact of domestic child abuse. However, the ASA has

recently indicated that its approach to shock-inducing

charity advertising may not be as lenient in the future. In

2013, it published a report asking “Are we being too

charitable?”97 and launched an investigation into the issue.

We will see the results of this investigation, and potentially

some guidance on the issue, during the course of 2014.

False Endorsements

Advertisers who place ‘paid for’ ads containing

endorsements should be aware that, according to the CAP

Code, they should obtain written permission before

referring to/portraying members of the public or their

identifiable possessions, referring to people with a public

profile or implying any personal approval of the advertised

products. They should also hold signed and dated proof

(including a contact address) for any testimonial they use.

Unless they are genuine opinions from a published source,

testimonials should be used only with the written

permission of those giving them. As always, the

endorsement must be true and in no way misleading.

Advertisers should take particular care when falsely

representing that a celebrity has endorsed their products or

services as they could be vulnerable to a claim for passing

off (regardless of whether the endorsement appears in

paid-for space). Unlike most other jurisdictions, it is

possible under English law to use dead and living

celebrities without consent, provided there is no implied

endorsement or a breach of any trade mark. The danger

with the Internet, however, is that material may be

accessible in jurisdictions outside the UK and therefore

using the image of celebrities without permission in the

online environment carries a greater degree of risk than on

more traditional media.

Passing Off

Passing off is a cause of action under English common

law. It occurs where consumers are misled by someone

who is making use of another person’s reputation, and can

take two forms:

 direct passing off, where an individual falsely states

that his goods or services are those of someone else

(for example, if someone were to set up a fake

YouTube site);

 indirect passing off, where someone is promoting or

presenting a product or service as impliedly

associated with, or approved by someone else when

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that is not the case (for example, where an advertiser

produces a fake viral which appears to show a

celebrity using their product. Liability could result even

if lookalikes or soundalikes are used).

Consumer Protection from Unfair Trading Regulations

2008

False advertising and word-of mouth marketing on social

media could also fall foul of the Consumer Protection from

Unfair Trading Regulations 2008 (which implement the EU

Unfair Commercial Practices Directive in the UK). The

regulations include a general prohibition on unfair business

to consumer commercial practices which is so wide that its

application could extend to a variety of commercial

practices on social media. The regulations also legislate

against misleading actions/omissions and aggressive

commercial practices, and set out prohibitions on 31

specific practices that will be deemed unfair in any

circumstances. Several of these could be relevant to

commercial activity on social media. As an example,

prohibition 11 prevents traders from using editorial content

and other forms of “native advertising” in the media to

promote their products or services without making it clear

that the promotion has been paid for. The prohibitions

apply to any ‘trader’, i.e., a natural or legal person acting in

the course of his trade, business, craft or profession.

Contravention can lead to criminal penalties. This does not

bode well for so-called ‘street teams’ as used by some

brands to promote products. Street teams are often young

people who are employed on a part-time basis to eulogise

about a particular brand or product on social media

platforms. Often difficult to spot, street teams can be

hugely effective at driving brand equity because consumers

do not realise that they are being targeted – instead, they

believe that they are truly on the receiving end of genuine

word-of-mouth recommendations. The regulations should

also be adhered to by advertisers using celebrity

endorsements on social media, where it isn’t clear that the

celebrity is being paid to advertise the relevant

products/services. As we will discuss later in this White

Paper, the ASA has recently suggested the use of key

words and hash-tags to indicate beyond a shadow of a

doubt such paid-for endorsement activities.

Advertisers may also find useful the Word of Mouth

Association UK Code of Ethics useful see

http://womuk.net/ethics/. The Word of Mouth Marketing

Association (“WOMMA”) and WOM UK are the official trade

associations that represent the interests of the word of

mouth and social media industry. The Code sets standards

of conduct required for members that include sensible

guidelines on the disclosure of commercial interests behind

on line commercial activities and social network sites.

The Business Protection from Misleading Marketing

Regulations 2008

The Business Protection from Misleading Marketing

Regulations 2008 prohibit misleading advertising and set

out rules for comparative advertising. Advertising is defined

as ‘any form of representation which is made in connection

with a trade, business, craft or profession in order to

promote the supply or transfer of a product’. This broad

definition could clearly cover false advertising and word-of–

mouth marketing (as well as other content) on social

media. A trader who falls foul of the regulations can be

punished by a fine (or imprisonment for engaging in

misleading advertising). A trader is defined as any person

who is acting for purposes relating to his trade, craft,

business or profession and anyone acting on their behalf.

There is a defence for the ‘innocent’ publication of

advertisements.

Social networking: a new form of advertising

regulation?

The most effective means of controlling advertiser activity

in the modern world is the ability for consumers to voice

their discontent.

Sometimes social networking sites may enable consumers

to send a message to advertisers where the regulator can’t.

In January 2010, more than a thousand people joined a

Facebook campaign to ban UK billboard advertising a

website for those looking for “extramarital relations". The

ASA had rejected a complaint about the billboard on the

grounds that the ad would not cause "serious or

widespread offence" and said that its remit was to examine

the ad in isolation, rather than the product it was promoting,

which is a legally available service. At the time of writing,

the group had over 2,700 members

Equally the damage that can occur when a brand

misleads the public can much more easily be

broadcast to a wider audience via social networking

and blogging sites.

Defamation and Harmful Speech: Managing

Corporate Reputations

The U.S. position

In addition to confronting issues involving online brand

management generally and word–of-mouth advertising

specifically, corporations face similar challenges in

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protecting reputation, including risks associated with

disparagement and defamation.

The architectures of the Internet and social media make it

possible to reach an unlimited audience with a flip of the

switch and a push of the send button—and at virtually no

cost. There are few barriers to people speaking their mind

and saying what they want. Furthermore, because of the

anonymity social media allows, users are increasingly

choosing to express themselves with unrestrained, hateful,

and defamatory speech. Words can hurt. Defamation can

destroy reputations. For individuals, false postings can be

extraordinarily painful and embarrassing. For corporations,

who are increasingly finding themselves victims of

defamatory speech, a false statement can mean loss of

shareholder confidence, loss of competitive advantage,

and diversion of resources to solve the problem. While the

traditional laws may have provided remedies, the

challenges to recovering for these actions that occur over

social media are enormous because the operators of the

media that facilitate defamatory postings are frequently

immune from liability. (Of course, if a corporation is the

operator of a blog or other social media, there will be some

comfort in the “immunities” offered to operators of these

media.) The immunity under the applicable federal law, the

Communications Decency Act (the “CDA”), and some other

key issues associated with online defamation are

discussed below.

Defamation Generally

Although the law may vary from jurisdiction to jurisdiction,

to make a case for defamation, a plaintiff must generally

prove: “(a) a false and defamatory statement concerning

another; (b) an unprivileged publication to a third party;

(c) fault amounting at least to negligence on the part of the

publisher; and (d) either actionability of the statement

irrespective of special harm or the existence of special

harm caused by the publication.”98 Defamation cases are

challenging to litigate. It should be noted that in the United

States, the First Amendment sharply restricts the breadth

of the claim. Defamation cases frequently carry heightened

pleading requirements and a shortened statute of

limitations. If the victim is an individual and a public figure,

he or she will have to prove malice on the part of the

defendant to make a successful case. Finally, statements

of opinion are generally not held to be defamatory, but the

lines between opinion and fact are often very difficult to

delineate.

Anonymous Speech

Online defamation presents added complications. Online,

and in social media specifically, the source of the harmful

communication is frequently anonymous. At the first line of

attack, piercing the anonymity of the speaker can be

challenging because of heightened standards under First

Amendment and privacy laws. A plaintiff victim will often file

his case against a Jane or John “Doe” defendant and seek

to discover the identity of the defendant right after filing.

The problem with this approach is that many courts require

plaintiffs to meet heightened pleading and evidentiary

standards before obtaining the identity of the defendant

and, if plaintiffs cannot meet the heightened pleading

standard to obtain the identity of the defendant, they will be

unable to pursue their cases. In one leading case, a New

Jersey Appellate Court established a test that requires

plaintiff “to produce sufficient evidence supporting each

element of its cause of action on a prima facie basis,”

before the court would “balance the defendant’s First

Amendment right to anonymous speech against the

strength of the prima facie case presented and the

necessity for the disclosure.”99

Special Challenges: Service Provider Immunity

As noted above, the challenges to the corporate victim are

compounded by the fact that its remedies against the

carrier or host (the website, blog, search engine, social

media site) are limited. The flipside, of course, is that

corporations may have less exposure in operating these

kinds of sites—at least for content that they don’t develop

or create. (See Chapter 1 – Advertising). A blogger will be

liable for the content that he creates, but not necessarily for

the content that others (if allowed) post on his blog site.

Early case law held that if a site operator takes overt steps

to monitor and control its site and otherwise self-regulate, it

might be strictly liable as a publisher for a third party’s

defamation even if the operator had no knowledge of the

alleged defamatory content. Arguably, this encouraged site

operators not to monitor and self-regulate.100 Other early

case law also held that if the operator knew about the

defamation, it would be liable if it did not do something to

stop the conduct.101 These holdings arguably created an

incentive to take down any potentially dangerous

information to avoid liability—and thus, according to some,

threatened to chill speech and dilute a robust exchange of

ideas.

This early case law was superseded in 1996 by the

CDA.102 Section 230(c) of the CDA provides that: “[n]o

provider or user of an interactive computer service shall be

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treated as the publisher or speaker of any information

provided by another information content provider.”103 The

term “information content provider” means “any person or

entity that is responsible, in whole or in part, for the

creation or development of information provided through

the Internet or any other interactive computer service.”104

Under Section 230(c), the operator, so long as not

participating in the creation or development of the content,

will be “immune” from a defamation claim under the statute.

The CDA makes it challenging to attach liability to a

website, blog, social media platform or other electronic

venue hosting offensive communication. Under U.S. law,

these service providers have a virtual immunity from claims

arising from content posed to their website unless they

participate in the creation or development of that content.

Cases involving social media make the breadth of the

immunity painfully clear. In Doe v. MySpace, Inc.,105 a teen

was the victim of a sexual predator as a result of conduct

occurring on MySpace. The teen’s adult “next of friend”

sued MySpace for not having protective processes in place

to keep young people off the social media site. In effect,

the suit was not for harmful speech, but for negligence in

the operation of MySpace.106 The Texas District Court

rejected the claim, and in doing so highlighted the potential

breadth of the “immunity”:107

The Court, however, finds this artful pleading [i.e., as

a “negligence” claim] to be disingenuous. It is quite

obvious the underlying basis of Plaintiffs’ claims is

that, through postings on MySpace, Pete Solis and

Julie Doe met and exchanged personal information

which eventually led to an in-person meeting and the

sexual assault of Julie Doe…. [T]he Court views

Plaintiffs’ claims as directed toward MySpace in its

publishing, editorial, and/or screening capacities.

Therefore, in accordance with the cases cited above,

Defendants are entitled to immunity under the CDA,

and the Court dismisses Plaintiffs’ negligence and

gross negligence claims….

Recent case law has confirmed the CDA’s broad grant of

immunity to republishers of interactive content. The Ninth

and Tenth Circuits, for instance, recently affirmed the

dismissal of actions against Google stemming from

allegedly “discriminatory” search results and allegedly

defamatory user reviews, respectively, based upon

Google’s immunity from liability for third-party content

under the CDA.108

Nevertheless, Plaintiffs continue to reach for creative

attacks on Section 230. In Finkel v. Facebook, Inc., et

al.,109 the victim of alleged defamatory statements claimed

that Facebook’s ownership of the copyright in the postings

barred its right to assert a Section 230 defense. The

plaintiff urged, in effect, that the defendant could not claim

ownership of the content and simultaneously disclaim

participation in the “creation and development” of that

same content. Rejecting this argument, the New York trial

court stated that “‘[o]wnership’ of content plays no role in

the Act’s statutory scheme.”110 Furthermore, the court

reiterated Congressional policy behind the CDA “by

providing immunity even where the interactive service

provider has an active, even aggressive role in making

available content prepared by others.”111 The Finkle

decision is important Because many sites assume

ownership of content through their terms of use, and a

contrary ruling would materially restrict application of the

CDA in those cases.

Some courts have explored plaintiffs’ assertions of service

provider “culpable assistance” as a way of defeating the

provider’s CDA defense. In Universal Comm’n Sys., Inc. v.

Lycos, Inc.,112 the plaintiff argued that the operator’s

immunity was defeated by the construction and operation

of a website that allowed the poster to make the

defamatory posting. The First Circuit rejected the argument

for a “culpable assistance” exception to the CDA under the

facts as presented, but left open the possibility of such an

exception where there was “a clear expression or other

affirmative steps taken to foster unlawful activity.”113

In Fair Housing Council of San Fernando Valley v.

Roommates.com, LLC,114 the Ninth Circuit held that the

CDA did not provide immunity to Roommates.com for

questions in an online form that encouraged illegal content.

Roommates.com’s services allowed people to find and

select roommates for shared living arrangements. The

forms asked people questions relating to their gender and

sexual orientation. Although Roommates.com clearly did

not provide the content in the answers, the Ninth Circuit

held that it was not entitled to immunity. The majority ruled

that Roommates.com was not immune for the

questionnaire itself or for the assembling of the answers

into subscriber profiles and related search results using the

profile preferences as “tags.” The court noted that the

questions relating to sexual preferences posted by

Roommates.com were inherently illegal and also caused

subscribers to post illegal content themselves by answering

the questions.115 In a case that evoked a sharp dissent

and defense of a strong immunity, the clear take-away from

the Roommates.com decision is a view that the immunity is

far from absolute.116

The New York Court of Appeals, however, recently rejected

a plaintiff’s contention that the CDA should not apply to a

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real estate blog that allegedly “implicitly encouraged users

to post negative comments.”117 In fact, the Court held that

“[c]reating an open forum for third parties to post content—

including negative commentary—is at the core of what [the

CDA] protects.”

Ultimately, companies that operate their own blogs or other

social media platforms, such as a Twitter page can

generally avoid liability for speech torts on their sites if they

stick to traditional editorial functions—and do not allow

those activities to expand into any conduct that could be

interpreted as creation and development of the offensive

conduct.118 Although exercising editorial control is not

penalized, the question confronting the courts is the point

at which a company goes beyond editing or beyond

providing a forum, and into the realm of creation and

development.119 Entities that operate social media sites

therefore need to be especially careful not to allow their

“editing” to turn into content creation or embellishment.

CDA Immunity: Scope of the IP Exception

One important issue dividing the courts is the scope of the

immunity as it relates to intellectual property. Specifically,

although the CDA confers a broad protection on service

providers, it also provides that it “shall [not] be construed to

limit or expand any law pertaining to intellectual

property.”120 In other words, a blog operator, for example,

cannot assert a CDA defense to claims that, although

involving speech, are rooted in harm to the victim’s

intellectual property. If the victim asserts, as against the

operator a claim for copyright infringement based on a

blogger’s uploading of protected material on to the blog

(clearly involving “speech”), the operator has no CDA

defense. The victim and the operator will have to resolve

their claims under the copyright law, and particularly the

Digital Millennium Copyright Act. Likewise, if the victim

asserts a claim under Section 1114 of the Lanham Act that

its federally registered trademark is being wrongfully used

on the blog, the operator arguably cannot rely on the CDA

as a shield against liability.121

The courts differ over the scope of the intellectual property

exception to immunity, and specifically over the definition of

intellectual property for purposes of the statute. In

Perfect 10, Inc. v. CCBill, LLC,122 the court opted for a

narrow reading of “intellectual property” and hence a

broader scope for the immunity. Specifically, the Ninth

Circuit “construe[d] the term ‘intellectual property’ to mean

‘federal intellectual property.’”123 Accordingly, without

determining whether the state law claims truly involved

“intellectual property,” the Ninth Circuit held that the

intellectual property exception does not, as a threshold

matter, apply to state law claims, and therefore affirmed

dismissal of various state law claims on CDA grounds.

On the other hand, some courts have opted for a broader

reading of “intellectual property” that would have the

exception cover relevant state law. For example, the court

in Doe v. Friendfinder Network, Inc. determined that

intellectual property under the CDA exception

encompasses applicable state law and, on that ground,

refused to dismiss the plaintiff’s right of publicity claim

against the website operator.124

Reporter’s Privilege

Application of existing rules to new technologies can raise

yet more hurdles in speech cases. For example, suppose

false or confidential information about your company

appears on a blog. As part of damage control efforts, you

may want to find the source of the information–or compel

the blog to disclose the source. This leads to an interesting

question–to what extent are blogs actually “newspapers.”

The question is one that courts have been forced to

consider, because newspapers traditionally have a

“reporter’s privilege” that allows them to resist revealing

their sources. For example, in 2004, Apple faced such an

issue with respect to someone who allegedly leaked

information about new Apple products to several online

news sites. Apple sought the identity of the site’s sources

and subpoenaed the email service provider for PowerPage,

one of the sites, for email messages that might have

identified the confidential source. In 2006, a California

Court of Appeals provided protection from the discovery of

sources by the constitutional privilege against compulsory

disclosure of confidential sources.125

Although some courts have distinguished between the

constitutional protections afforded to so-called “traditional”

media and their non-traditional counterparts (e.g.,

bloggers),126 the distinction has rapidly evaporated in

recent years. In Citizens United v. Fed. Election

Comm'n,127 the Supreme Court noted that it has

“consistently rejected the proposition that the institutional

press has any constitutional privilege beyond that of other

speakers” and further observed that, “[w]ith the advent of

the Internet and the decline of print and broadcast media . .

. the line between the media and others who wish to

comment on political and social issues becomes far more

blurred.” Most recently, in Obsidian Fin. Group, LLC v.

Cox,128 the Ninth Circuit, in the context of a defamation suit

against a blogger, rejected the notion that “traditional” or

“institutional” members of the press were entitled to a

greater degree of protection under the First Amendment

than their non-traditional counterparts: “The protections of

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the First Amendment do not turn on whether the defendant

was a trained journalist, formally affiliated with traditional

news entities, engaged in conflict-of-interest disclosure,

went beyond just assembling others’ writings, or tried to get

both sides of the story.” The obvious import of this recent

case law is that bloggers, in additional to the “traditional”

press, are entitled to the “reporter’s privilege” and need not

disclose their confidential sources.

Ratings Sites

Social media has given rise to a proliferation of ratings

sites. Many businesses are beginning to feel the effects of

online negative reviews. The ratings sites themselves,

however, need to tread carefully because negatively

affected businesses are jumping at the chance to shift their

losses back to the ratings site.

Traditionally, ratings sites have two primary defenses.

First, to the extent that the site operator itself rates

products, services, or businesses, the site operator’s

system and/or list may be protected under the First

Amendment as its “opinion.” Second to the extent that the

site is carrying the ratings of third parties, the ratings site

operator is protected under Section 230 of the

Communications Decency Act for the tortious speech of the

third parties who post their ratings on the site (e.g.,

defamatory ratings).

The cases supporting an opinion defense reach back to

cases challenging securities and credit ratings, such as

Jefferson County Sch. Dist. No. R-1 v. Moody’s Inv.

Services, Inc.129 In Search King Inc. v. Google, Inc. v.

Google Technology, Inc.,130 which relied on Jefferson

County Sch. Dist., Search King allegedly promoted an

advertising business that identified highly ranked sites and

then worked out deals with those sites to sell advertising on

behalf of other companies. Google allegedly disapproved

of Search King’s business model (which capitalized on

Google’s PageRank ranking system) and responded by

moving Search King itself to a lower page rank—causing it

to move off the first page for certain queries. Rejecting

Search King’s claim for interference with business

advantage on the grounds that Google’s PageRank

algorithm is protected opinion, the court found that

manipulating the results of PageRank were not actionable

because there was “no conceivable way to prove that the

relative significance assigned to a given web site is false.”

Cases involving credit and securities ratings continue to be

worth monitoring as relevant precedent for Internet ratings

cases. In one of the cases growing out of the recent subprime

crisis against Moody’s, Standard and Poor’s and

other securities ratings agencies, a New York federal court

rejected “the arguments that the Ratings Agencies’ ratings

in this case are nonactionable opinions. ‘An opinion may

still be actionable if the speaker does not genuinely and

reasonably believe it or if it is without basis in fact.’”

Rejecting the argument that Jefferson County Sch. Dist.

mandated a different result, the court noted that even

under that case “‘[i]f such an opinion were shown to have

materially false components, the issuer should not be

shielded from liability by raising the word ‘opinion’ as a

shibboleth.’”

Ratings sites that merely publish the reviews of third

parties appear to enjoy broad immunity under the CDA. In

Levitt v. Yelp! Inc.,131 the plaintiffs in a class-action lawsuit

alleged that Yelp extorted money from businesses that did

not pay to advertise on its site by removing certain positive

reviews, re-ordering reviews such that negative reviews

appear at the top of the business listing, and even creating

false negative reviews. The court dismissed plaintiffs’

allegations, finding that plaintiffs had raised no more than a

“possibility” that Yelp employees actually created negative

reviews, and that the other two forms of alleged conduct –

removing certain reviews and changing the order of

appearance of certain reviews – “fall[] within the conduct

immunized by [the CDA].”132 Plaintiffs also argued that

Yelp “creates” its aggregate business rating, which appears

as a “star” rating at the top of each business’s page, and

that the aggregate content is therefore not shielded by the

CDA. The court also rejected this theory, finding that the

aggregate rating was “based on user-generated data”

notwithstanding the fact that Yelp vetted its database to

“filter out false reviews.”133

Importantly, the court noted that Plaintiffs “in effect seek to

import an intent-based exception into [the CDA], whereby

the same conduct that would otherwise be immune under

the statute…would no longer be immune when motivated

by an improper reason, such as to pressure businesses to

advertise.”134 Although “sympathetic to the ethical

underpinning of Plaintiffs’ argument,” the court declined to

give it effect, noting that the relevant section of the CDA

contained no such exception, and that an intent-based

exception would not only “prove problematic,” but would

also undermine the statutory purpose of “avoid[ing] the

chilling effect of imposing liability” on providers of thirdparty

content.135

Defamation Law in England

The UK position

Generally speaking the English courts are less vigorous in

their defence of free speech than their American

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counterparts. There is no equivalent to the First

Amendment in England.

Jurisdiction

As a result of the greater protection given to reputation in

comparison with other jurisdictions (such as the United

States), the courts of England and Wales have in recent

years become the forum of choice for some defamation

claimants, regardless of whether there has been significant

circulation in this jurisdiction. However, since the

Defamation Act 2013 came into force on 1 January 2014, a

new test will apply for actions against persons who are not

domiciled in the UK, an EU member state or a Lugano

Convention state. Under section 9 of the Defamation Act

2013, a court will not have jurisdiction unless it is satisfied

that England and Wales is the most appropriate place in

which to bring an action in respect of the statement. The

court will have to look at the extent of publication globally to

work out where it would be most appropriate for the claim

to be heard.

What is defamation?

To prove defamation under English law, the claimant must

show that a statement:

- is defamatory (i.e. it tends to lower the claimant in the

eyes of a right thinking person);

- identifies or refers to the claimant;

- is published by the defendant to a third party.

Under the Defamation Act 2013 there is a requirement for a

claimant to show that the statement caused “serious harm”

to its reputation in order for a statement to be defamatory.

And a profit-making body must show that the statement

has caused or is likely to cause “serious financial loss”. The

way in which the courts will interpret these provisions

remains to be seen but it seems likely that it may make it

more difficult than previously for companies to bring

successful claims in defamation.

Internet-based defamation

A number of claims have been made under English

defamation law in respect of social networking sites. In

October 2012 the New Zealand cricketer, Chris Cairns,

successfully pursued a libel claim against Lalit Modi (a

senior official in Indian cricketing) over Mr Modi’s tweet

alleging that Mr Cairns was guilty of match fixing. The

tweet was originally published to only around 65 people.

However, the Court of Appeal upheld an award of damages

of £90,000 as it recognised that any comments could reach

a wider audience very quickly, particularly when the original

audience was a specialist audience (here, a cricket loving

audience). 136

And many will be familiar with the case brought by Lord

McAlpine against Sally Bercow (the wife of the Speaker of

the House of Commons).137 The proceedings followed a

report which alleged that an unnamed conservative

politician had been involved in the sexual abuse of boys in

care. A number of tweets falsely linked him to the report,

including one from Ms Bercow which stated “Why is Lord

McAlpine trending? *innocent face*”. It was held that

Ms Bercow’s tweet “joined the dots” and wrongly linked

Lord McAlpine to the allegations, even though all she was

doing was repeating information that was already online.

The decision also illustrates how emoticons could be

interpreted to demonstrate the meaning of a message to its

readers.

Republication

Until the introduction of the Defamation Act 2013 there was

no single publication rule in English law. Previously a

claimant had only one year from the date of publication to

bring a claim for defamation but a fresh cause of action

arose each time a statement was published (which meant

that each hit on a website would constitute a fresh

publication and the clock would start to run again). Under

section 8 of the Defamation Act 2013 a cause of action will

accrue on the first publication to the public or a section of

the public and republication in “substantially the same

form” as the first is not actionable. This will be helpful for

those who hold archived content online.

Anonymous speech

A Norwich Pharmacal order is an order which the English

courts may make requiring a third party to disclose

information to a claimant or potential claimant in a legal

action. Where a third party is involved in the wrongful acts

of others (whether innocently or not), they have a duty to

assist the party injured by those acts and so a court will

order them to reveal relevant information.

Norwich Pharmacal orders can be used to require social

networking sites to disclose the identities of site users.

Internet service provider immunity

A defendant must be the publisher of a defamatory

statement in order to be liable for defamation. At common

law the definition of a publisher is very wide and catches

anyone who participates in the publication of a statement.

That led to complaints being made against ISPs who were

often seen as a easier target, as a poster might often be

difficult to identify and not worth pursuing.

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The Defamation Act 2013 provides that a person who was

not the author, editor or publisher of a statement may not

be sued for defamation unless the court is satisfied that it is

not reasonably practicable to bring an action against a

party who has actually published the statement. That is

likely to offer protection to ISPs and hosts of social media

content where it can be shown that they did not publish and

did not have reason to believe that they were contributing

to the publication of a defamatory statement.

It is likely that there will still continue to be some

uncertainty as to whether an ISP (particularly one who

exercises editorial control over statements) may be

regarded as having published statements.

There is a defence pursuant to section 5 of the Defamation

Act 2013 which is available to an operator of a website who

did not post the statement and has acted without malice.

However, the defence is defeated where a claimant can

show that it was not possible to identify the person who

posted the statement (which will be the case where the

claimant has insufficient information to bring proceedings

against them), the claimant gave the operator notice of the

complaint about the statement and the operator failed to

respond in accordance with provisions contained in

regulations.

The Defamation (Operators of Websites) Regulations 2013

(the Regulations) which also came into effect on 1 January

2014 provide a procedure with which the operator of the

website must have complied in order to benefit from the

section 5 defence.

It is made clear in the new provisions that an operator of

the website will not lose the defence by virtue only of

having moderated the content of the website. However,

exercising editorial control beyond mere “moderation” may

well result in the website operator being unable to rely on

this defence.

It seems likely that there will be litigation over who qualifies

as an “operator of a website” and what is meant by

“posting” a statement, as there are of course many ways in

which a statement can find its way on to a particular site.

The new defence under section 5 is broader than those

that remain available pursuant to regulation 19 of the ECommerce

Regulations and under section 1 of the

Defamation Act 1996. Regulation 19 only protects a party

who has no actual knowledge of illegal activity or

information or knowledge of the facts or circumstances

from which it is apparent that the activity or information is

illegal. An ISP would lose immunity if, on obtaining

knowledge of the illegal activity, it fails to act expeditiously

to remove it or to suspend access to it.

Section 1 of the Defamation Act 1996 provides a similar

defence where a secondary publisher takes reasonable

care in relation to the publication of the statement and did

not know or have reason to believe that what he did

caused or contributed to the publication of a defamatory

statement.

Section 5 will apply even where a website operator

moderates content and/or becomes aware of the

defamatory content by receiving a valid notice of complaint.

However it will be important to comply with the procedure

laid down by the Regulations, which could lead to a

significant administrative burden depending on the number

of complaints received by an operator.

The court has power under Section 13 of the Defamation

Act 2013 to order a website operator (whether or not liable)

to remove or to stop distributing a defamatory statement.

Protection of sources

Like the U.S., the UK has laws which protect journalistic

sources. However, unlike the U.S., protection is not

afforded only to newspapers. The relevant provision

(section 10 of the Contempt of Court Act 1981) states that

‘no court may require a person to disclose, nor is any

person guilty of contempt of court for failing to disclose, the

source of a publication for which he is responsible, unless it

is established to the satisfaction of the court that disclosure

is necessary in the interests of justice or national security,

or for the prevention of disorder or crime”. This wording

clearly extends beyond journalists and could apply to social

media. However, as the public policy reasoning behind the

section may not be there in the case of many publications

on social media, a court may be more ready to find that

disclosure is necessary.

Bottom Line—What You Need to Do

Clients who are victims of speech torts must be prepared to act – but they must use the right tool when the problem arises.

These tools range from a conscious choice to do nothing, responding with a press release; responding on the company’s own

blog, fan page on Facebook and/or Twitter feed; and/or engaging a reputation management company (for example, making use

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of search engine optimisation techniques to reduce visibility of negative comment). The negative publicity associated with

disparaging comments can be greatly exacerbated by “sticky” sites that get high rankings on Google and other search engine

sites causing for example a negative blog to be prominently listed when a customer types your organisation’s name into a search

engine.

Your organisation is well advised to undertake a multi-prong strategy: consider the legal options, but consult with search engine

and reputation management specialists to see if there might be a communications/technical solution. Of course, litigation,

including proceedings to unmask the anonymous speaker, should be considered. But a heavy-handed approach may simply

make a bad situation worse – and at great expense. Litigation – or even a cease-and-desist letter that finds its way to an internet

posting – may give your organisation exactly the kind of publicity it does not want.

Frequently, malicious posters will time their communications to coincide with a key corporate event, such as the company’s

earnings reports, in order to intensify the damage from the comment. The damage can be “done” in literally a matter of hours. A

quick response can make all the difference. Accordingly it is important for companies to understand the risks to brand and

reputation in social media, to have policies in place for managing internal and external communications, and to have contingent

plans for dealing with reputation and brand disparagement, whether as the responsible party or as the victim, before the event

happens – so that the response can be quick and the damage minimal.

Clients who find themselves on the end of a complaint should be prepared to act quickly in order to mitigate any damage done.

And if the relevant websites are accessible in the UK, ISPs and other content hosts should be careful to follow the takedown

procedure laid down by The Defamation (Operators of Websites) Regulations 2013 in order to benefit from the widest defence

available. Content hosts should also require users to register before they are allowed to post so that they can be contacted if a

notice of complaint is served. If the host has no email address, it must remove the post within 48 hours if it wants to rely on the

Regulations to avoid liability. As a general point, It would be advisable to incorporate provisions in subscriber contracts giving

the ISP or content host the right to remove material in certain circumstances (provided the right to remove is linked to reasonable

and objective criteria). .

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— CHAPTER 3 —

Copyright (EU)

Chapter Authors

Stephen Edwards, Partner – sedwards@reedsmith.com

Dr. Alexander R. Klett, Partner – aklett@reedsmith.com

Introduction

We have referred to copyright in several of the earlier chapters: in relation to advertising and marketing, commercial litigation,

and in the chapter on trademarks, principally with reference to U.S. law and in particular the Digital Millennium Copyright Act

(“DMCA”). We thought it would be helpful to pull those threads together and to add specific copyright elements, as well as a

European law perspective, so as to provide an overview on the significance of copyright to social media across the continents.

Copyright is, after all, at the heart of social media. This chapter will highlight some important differences between U.S. and other

countries’ copyright laws that companies engaging with social media must have in mind.

In dealing with the position under U.S. law in previous chapters, we make the following points:

 In relation to branded pages, we ask rhetorically whether a company can afford not to monitor its branded page for, among

other things, copyright infringement, even though the provider of the social media service takes responsibility for responding

to takedown notices received pursuant to the DMCA. We explicitly answer that question when discussing user-generated

content, where we suggest that companies should have procedures in place if they receive a notice of copyright

infringement, not least because (unlike the social media operator) they themselves will not likely have a defence under the

DMCA to an infringement claim if they use an infringing work in a commercial context.

 In discussing defamation risks and the immunity offered by the Communications Decency Act (“CDA”) in the United

States, we noted that a blog operator (but effectively any company using social media) cannot assert a CDA defence to

claims that are rooted in harm to the victim’s intellectual property. In consequence, if the victim asserts, as against the

operator, a claim for copyright infringement based on the blogger’s uploading of protected material onto the blog, the

operator has no CDA defence, and the claim must be resolved under copyright law and in particular the DMCA.

 At the end of the discussion in chapter 12 [10] of the relationship between social media and trademark protection, we

advise that “it is of the utmost importance to have strategies in place in order to best protect your ownership of intellectual

property. By aggressively policing your trademarks, service marks, trade names and copyrights, intellectual property owners

will be in the best position to prevent a claim that they have waived their ability to enforce their ownership rights, while at the

same time discouraging others from any unauthorised use of such marks and works of authorship.”

If we look at these issues from a European perspective, the same concepts hold good, although it is not the DMCA that governs

but rather the E-Commerce Directive138, as applied by national law in the Member States of the European Union and the

European Economic Area. As in the United States, as a general matter, the operator of a social media service is given protection

against copyright infringement claims if it operates an effective notice and takedown procedure but, as in the United States, this

protection available to the operator may not be available to a company that provides a branded marketing page on which users

are able to upload infringing content. Some European courts, such as the German Federal Court of Justice, consistently take the

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view that while in line with the E-Commerce Directive139 constant proactive monitoring of sites cannot be expected, an operator

has an obligation to prevent subsequent evident infringements by the same infringer.140 Only in exceptional cases, according to

this case law, can an operator be sued to obtain injunctive relief as a precautionary measure if infringements of intellectual

property rights on the site of the operator are feared.141 In general, European courts agree that an obligation to monitor and

review content will only exist for operators of services such as social media services with respect to significant, evident

infringements.142 Companies should therefore have procedures in place to ensure that any evidently infringing material or

infringing material they are made aware of by right holders can be removed as swiftly as possible.

Copyright Infringements on Social Media

Services

The question of whether the use of third-party content

protected by copyright by a user on a social media site

constitutes copyright infringement can be answered in a

fairly straightforward way. If there is no consent by the right

holder, such use will inevitably constitute an illegal act of

making the work available to the public under most modern

copyright regimes. Most operators of social media services

provide in their terms of use that the user is responsible for

making sure that material provided by him on the service

does not infringe third-party copyrights. As has been

discussed above, the interesting question then becomes

whether the operator of the service can be held liable and

can be asked to stop the infringement quickly, particularly

in situations in which the identity of the infringer (the user)

is difficult to establish or the infringer is located in a

faraway country.

Conversely, however, one can ask whether content

legitimately created by users of social media services

enjoys copyright protection itself. If this is indeed the case

one may wonder to what extent the operator of the service

or other third parties may be allowed to refer to, cite or

otherwise make use of such content.

Twitter

With respect to tweets, which by definition can be no longer

than 140 characters, one may doubt whether they will be

sufficiently creative and original to enjoy copyright

protection. In many cases, tweets will only consist of short

regular phrases that may not be regarded as an original

work of authorship in the U.S. sense,143 an original work in

the UK sense144, or a personal intellectual creation as

required under German copyright law.145 Consequently, in

many cases, none of the three regimes will provide

copyright protection to tweets.

To the extent Twitter states in its terms of use:

You retain your rights to any Content you submit, post

or display on or through the Services.

this should actually be qualified by indicating that in most

cases, tweets will be in the public domain for lack of

originality or creativeness. It is not impossible, however, to

create short poems or other brief literary works with no

more than 140 characters. If originality and creativity can

be established, the situation would be different. The

analysis would also be different for longer original works

broken down into sequences of tweets and made available

on Twitter one by one—such as a short story published on

Twitter in small bits of no more than 140 characters each,

provided the single tweet enjoys protection on its own.

If a tweet or parts of a tweet can be found to be protected

by copyright, the use of the respective content by third

parties can constitute copyright infringement if fair use

(United States), fair dealing (UK), or a similar exception

under the respective applicable domestic copyright regime

cannot be established. There is no rule, either, under U.S.

or European copyright regimes requiring that in order to

infringe a literary work, passages of a certain length need

to be copied, provided the sequence used enjoys copyright

protection as such.

As a consequence, so-called retweeting, (i.e., repeating

somebody else's tweet under one's own user name) may

constitute copyright infringement as well, provided the

earlier tweet is sufficiently original and creative to be

protected. Citation exceptions provided146 may not help in

this context as mere repeating of an entire text without

incorporating it into one’s own original work does not

constitute citation.

Facebook, MySpace, et al.

The limitations existing with Twitter with regard to the

number of characters do not exist on other social media

services such as Facebook and MySpace, among others.

The further possibility to upload photographs and/or

audiovisual content onto such services leaves no doubt as

to the possibility of copyright infringement if third parties

copy or otherwise make relevant use without permission of

materials taken from somebody’s page on Facebook or a

similar site.

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Terms of Use and Applicable Law for

Copyright Law Purposes

Most social media services have terms of use providing for

comprehensive non-exclusive copyright licences granted

by users to the operator. Typically, such terms of use also

provide for U.S. law in the state in which the service is

based. Twitter, for example, provides the following in its

terms of use:

These terms and any action related thereto will be

governed by the laws of the State of California without

regard to or application of its conflict of law provisions

or your state or country of residence. All claims, legal

proceedings, or litigation arising in connection with the

service will be brought solely in San Francisco

County, California, and you consent to the jurisdiction

of and venue in such courts and waive any objection

as to inconvenient forum.

While such terms, if they have been validly made the object

of the agreement between the user and the operator of the

social media service, may apply for general purposes of

international law of contracts, the question needs to be

asked whether for purposes of copyright law such a choice

of law and venue clause will make all foreign copyright

regimes inapplicable.

From a European perspective the answer is clearly: no.

According to European case law (and the view of leading

European scholars), the posting to social media services of

works by users in Europe is governed by the copyright laws

of the particular European country in which the user

resides, regardless of the contractual regime agreed to in

the terms of use. This may be surprising, but it needs to be

taken into account, particularly in connection with copyright

regimes providing for increased protection for copyright

owners, such as under German copyright law.

Moral rights, compulsory remuneration rights, legal

limitations on the scope of copyright licences and the

prohibition of assignments of copyright provided in the

German Copyright Act, for example, will all continue to

apply for the benefit of a German right holder or with

respect to uses in Germany, even if the operator of the

social media service provides for California law.

Companies are well advised, therefore, not to be misled

into believing that simple choice-of-law clauses, even if

they have been validly agreed, will enable them to avoid

the much stricter and much more pro-author provisions in

certain European copyright regimes, compared with what

the U.S. Copyright Act provides.

Music Licensing Issues

In dealing with the copyright issues faced by U.S.

companies engaging with social media in the U.S. market,

we did not mention an issue that looms large for European

and multi-national companies operating within Europe. If a

company wishes to enliven its web-presence by using

music, the rights-clearance arrangements that will be

needed are very different if the company is operating in

Europe rather than in the United States. A U.S. company

can usually clear rights for the U.S. market by means of

obtaining two or, at most, three licences, from the music

rights societies and from the record company concerned.

To reach the whole of the EU market, a multiplicity of

licences may be needed, depending on which music is to

be used. Some music is clearable through a single licence

covering the whole of the EU, but choose the wrong work

and you could be looking at having to obtain 30 or more

licences.

Bottom Line—What You Need to Do

 Police your own copyrights and be mindful of

copyright protection that may exist for content

provided by others. Be aware of the fact that the

international nature of global social media services

requires that you not only rely on one domestic or one

contractually agreed regime, but that you also keep an

eye on foreign laws involved with users based abroad.

When clearing rights for using content yourself, be aware

of the international scope of the intended use as well, and

make sure that you truly obtain sufficient geographic rights

for the intended use.

If you operate a site enabling users to upload content, put

in place a procedure allowing you to remove, as swiftly as

possible, evidently infringing material or material of which

you have been told that it is infringing.

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

— CHAPTER 4 —

Copyright (U.S.)

Chapter Authors147

United States

Kathyleen A. O’Brien, Partner – kobrien@reedsmith.com

Jennifer M. Westhoff, Associate – jwesthoff@reedsmith.com

Introduction

This chapter explores key challenges which copyright owners face in the ever evolving world of social media.

In the last decade, the use of social media has exploded. For millions, social media is no longer a curiosity. Instead, it is now an

integral part of their daily cultural, political, and social lives. As technology expands and becomes less expensive, more and more

people have access to content online. Not only can they disseminate their own original content through social media, they can

also access and use the content of others. This raises new challenges for copyright owners who seek to protect their valuable

content from infringement and business owners who seek to use the content of others to promote their products and services

through social media.

The following paragraphs discuss your rights with respect to copyrighted content under the following three common scenarios:

(1) use of original content you have posted on a social media site by that site; (2) use of original content you have posted to a

social media site by unauthorized third parties; and (2) your use of original content commenting on your business posted to a

social media site by third parties. In each of these scenarios, your rights with respect to the dissemination of the content differ.

Use of Original Content You Have Posted on a

Social Media Site by That Site

The terms of service for many social media sites like

Twitter148, Facebook149, Instagram150, and YouTube151

give the site a non-exclusive royalty-free license to use the

content you post. On some sites, such as Pinterest, that

license is limited to use on just that site. But on other sites,

such as Facebook, and by extension Instagram152, by

posting any content to your wall, you grant the site broad

rights to use that content, including in advertising which

appears on the site. For this reason, it is important to read

and understand the scope of any license you are granting

to a social media site before posting content there.

Use of Original Content You Have Posted on a

Social Media Site by Unauthorized Third

Parties

Although you may understand and view a social media

site’s use of your content as a quid pro quo for your use of

that site, do you have a different view if another user, or

another website, accesses your copyrighted content and

reposts it for their own purposes? In 2010, a

photojournalist named Daniel Morel was in Haiti when the

earthquake struck. Morel took a now iconic photograph of a

woman peering out of the rubble and posted it to Twitter

using a third-party service called TwitPic. The next day,

Agence France Presse (AFP) and Getty Images picked up

the image and began publishing it with stories about the

earthquake. Morel, who had not authorized the use of his

photograph, sent cease-and-desist letters to both

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companies. AFP responded with a lawsuit claiming

“antagonistic assertion of rights.”153 AFP claimed that

Twitter’s terms of service gave AFP a non-exclusive

license to use, copy and distribute the photograph. In

January of 2013, US District Court Judge Allison Nathan

found that AFP’s unauthorized use of the photograph in

various news stories violated Morel’s copyright. In

November of that same year, a jury found that AFP’s

infringement was willful and awarded Morel $1.2 million,

the highest statutory damages available.154 The Morel

case suggests that although individual social media sites

may use a user’s content for site purposes, third parties

may not mine social media sites for free content.

Unfortunately, at this juncture, the case law on point is very

limited and many questions remain unanswered.

The anonymity of the Internet emboldens users to engage

in conduct that they would never consider otherwise.

When a writer misappropriates a copyrighted work in print

or film, the media backlash can be immediate. But when a

user misappropriates a work on the Internet where pseudonames

and IP addresses can change faster than the latest

Hollywood fashions, how can you protect yourself? If a

third party is using your copyrighted content without your

permission on a major social media site, such as

Facebook, Twitter, or YouTube, whether it is edited without

your consent or posted without proper credit, the quickest

recourse is to seek to have the item removed by sending a

takedown notice under the Digital Millennium Copyright Act

(DMCA) to the user and the owner of the social media site.

The DMCA protects copyrighted works by prohibiting

unauthorized digital duplication through the criminalization

of technology, devices, or services intended to circumvent

the measures meant to control access to the copyrighted

works.155 To facilitate online service provider (OSP)156

compliance with the DMCA, all OSPs are required to

implement a notice and take down procedure that allows

copyright holders to notify the OSP that it is hosting

infringing content.157 If you find an infringing copy of your

work on a social media site, you can fill out a notice form or

send an email notice to a designated contact person at that

site which contains the following: (1) your name and

contact information; (2) information that identifies the

allegedly infringing work; (3) information that identifies the

work that you are claiming has been infringed; (4) a

statement that the you have a good faith belief that

infringement has occurred; (5) a statement that you are

authorized to act on behalf of the copyright owner; and

(6) a statement that the information in the notification is

accurate.158 When large, well-established social media

sites like Facebook159, Twitter160, or YouTube161 receive

notice of a potential copyright infringement, they will first

take down the allegedly infringing content and then alert

the poster of that content of the infringement claim. The

poster can either do nothing, in which case the content will

no longer appear on the site, or send a counter-notice to

the social media site which disputes your copyright

infringement claim, in which case the site will notify you

that the poster disputes your claim. If you fail to file a

lawsuit within 10-14 business days of your receipt of the

counter-notice, the social media site can put the work back

up162.

Even is the infringing content is removed, there may be

circumstances in which litigation is the only means

available avenue to obtain the relief you seek, for example,

in circumstances in which you have suffered serious

economic injury or the infringer posts the infringing content

on a multitude of websites at a rate that would require you

to hire a small army to keep up with the necessary take

down notices and you need to obtain an injunction to stop

that conduct. One benefit to a counter-notice is that the

accused infringer must identify himself by providing his true

name and bona fide contact information. This provides you

with an actionable defendant should you decide to pursue

litigation. However, if the accused infringer fails to file a

counter-notice, determining his true identity may prove to

be a real challenge. Unfortunately, a social media site’s

obligation to assist you often begins and ends with the

DMCA notice and take down procedures. If the infringer

fails to file a counter-notice, it is likely to take either a

subpoena or a court order to compel the social media site

to hand over his contact information and aside from his IP

address, they may not have bona fide identification

information to provide to you. A number of courts have

found that an IP address is not enough to satisfy the court’s

pleading standards for an actionable defendant. For

example, in Elf Man, LLC. v. Cariveau, in January of 2014,

a federal judge in Washington State, relying on the

landmark opinions in Perfect 10 v. Amazon.com, Inc.163,

Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.164,

and Ashcroft v. Iqba,l165 held that an IP address linked to

an individual defendant was not sufficient or specific

enough evidence to create an actionable claim against that

defendant.166 In that case, the judge gave the plaintiffs

more time to gather more specific evidence linking the IP

address owner to the infringement but also voiced his

sincere doubt that such evidence could be found.167 The

problem is that an IP address, particularly one which is

linked to an internet café, public library or some other

public site, does not place a specific individual in the chair

in front of the computer at the time your copyrighted work

was posted. Under these circumstances, having enough

evidence to (1) bring suit against the infringer; and (2)

actually prove infringement can be a daunting task. In a

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world where the only trace of an infringer is his IP address,

you may have little viable recourse against him.

Your Use of User Generated Content

One of the benefits of social media is that it gives you the

ability to collect information about how your customers

perceive your business and the goods or services that you

offer. Social media empowers consumers to heap praise or

air grievances and many businesses can trace success or

failure back to their online reviews. But who owns those

reviews? If a Yelp user reviews your restaurant positively,

can you use their glowing remarks in advertising? If a client

Tweets about the excellent service they received at your

hair salon, can you post that to your Facebook page?

Generally, the review is owned by the author who posts it

and your ability to use it is governed by the terms of use of

the social media site on which the post appears. While you

always should pay close attention to the terms of service of

the specific social media site at issue, there are some

general guidelines that you can follow when you seek to

use such user-generated content (UGC).

Typically, companies seek to use UGC either through

republication on the same social media site, such as a

retweet, or through publication of the comment in a

different way, either in print or at a different online location.

Generally, the reposting of UGC in the same forum in

which it was originally posted, such as retweeting a tweet

or highlighting a Facebook comment, is a lawful practice

which falls within the terms of service to which the original

poster agrees. In contrast, issues arise when a company

seeks to post UGC in a new location, whether it’s a screen

shot posted to the company’s website or a review

republished in print advertising. In most cases, the site’s

terms of service recognize that the author is the owner of

the content. As a result, you should ask the author’s

permission of the author before republishing his UGC

elsewhere. It is important to understand that different

websites have different policies even if you obtain the

author’s permission to use his UGC. For instance,

Facebook prohibits the use of UGC in advertisements even

if the author grants permission,168 while Twitter will allow

such use in most cases as long as the author has granted

permission.169

The safest way to obtain UGC that can be used in

advertising is to directly solicit such content from users.

Any solicitation should be accompanied by a set of rules for

submitting content which protect third party rights. Typical

rules prohibit the submission of content which is not the

original work of the submitting party, including content

which (1) is the subject of any copyright or trademark

owned by a third party; (2) contains the name, image or

likeness of any third party; or (3) is defamatory.

Additionally, your business must follow the Federal Trade

Commission’s Guides Concerning the Use of

Endorsements and Testimonials in Advertising,170 as well

as all state laws and guidelines.

Looking at the Future: Social Media and Your

Copyrights

Social media is no longer the business of plucky Harvard

undergrads and creative friends. It is a billion dollar

industry in which profits are generated by engaging users

and inundating them with ads and the opportunity to make

purchases. The business of social media has become

adept at monetizing its users. Twitter and Facebook are

now publicly traded -companies; Facebook and Google

have made billion dollar purchases of other social media

sites. So what does this mean for your business? You now

must be more vigilant than ever to protect your original

content. If your company uses InstaGram, that content is

now subject to Facebook’s terms of service. If your

company posts on YouTube, your content is now at the

mercy of Google. Social media sites can change their

terms of service at their whim and can claim license or

ownership over your content. Every copyright holder who

uses social media must remember that it is a business

whose goals may be at odds with your own. As the

business of social media continues to evolve rapidly so

must your company’s strategy to both take advantage of its

benefits and safeguard your own rights.

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— CHAPTER 5 —

Data Privacy & Security

Chapter Authors171

United States

Paul Bond, Partner – pbond@reedsmith.com

Mark S. Melodia, Partner –mmelodia@reedsmith.com

Christine Nielsen Czuprynski, Associate – mcczuprynski@reedsmith.com

Lisa Kim, Associate – mlkim@reedsmith.com

Frederick Lah, Associate – mflah@reedsmith.com

United Kingdom

Cynthia O’Donoghue, Partner – codonoghue@reedsmith.com

Introduction

According to statistics published on Facebook,172 over a billion people use Facebook monthly. That’s one out of every seven

people in the world. Nowadays, most major brands have a presence on at least one of the main social media platforms, whether

it be Facebook, Twitter, Pinterest, Tumblr, Instagram, or Foursquare. The social media market is constantly expanding too, with

newer social media offerings like Vine, Snapchat, and Jelly popping up and gaining popularity.

The benefits of social media are clear -- social media helps companies stay connected and interact with their customers about

new promotions, offerings and products. On the other hand, social media poses unique risks, particularly with respect to data

privacy. The effects of a data breach for a social media company can be particularly harmful because of the high number of

users. And as social media companies continue to find new, innovative ways to collect, use, and monetise their data, they will

continue to be scrutinized by regulators and serve as an attractive target to class action lawyers. Since the publication of our last

version of this White Paper, both the Federal Trade Commission (“FTC”) and the United States Department of Commerce have

developed guidance to help companies in their efforts to protect the privacy of consumers and Internet users.173 In addition,

there have been other amendments to federal and state laws to account for new technologies. There have been developments

from an international aspect as well.

Social Media in Action in Data Privacy &

Security

Personal data collected by social media companies is at

risk from all sides. Thieves and hackers want to steal and

resell personal information and data. Employees are

tempted to misuse customer data, for monetary gain or to

satisfy idle curiosity, perhaps with no malicious purpose at

all.174 Even standard business processes pose risks to

personal data. Social media enterprises collect, store, use,

share, and dispose of personal data every day, including

non-public financial information (for example, credit,

banking and payment information). Each of these inflection

points is an opportunity for something to go wrong, for a

law to be broken or a data subject put at risk.

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And let’s not forget the value that this information

possesses. In this age of Big Data, virtually all companies,

not just social media companies, are looking to utilize and

gain commercial leverage from the data collected. It should

come then as no surprise that regulators and plaintiffs’

lawyers are focusing their efforts not just on data breaches,

but also on data practices. Over the past few years, various

regulatory investigations and class action lawsuits have

been brought against social media companies over their

alleged collection, use, and sharing practices, and the

choices consumers have with respect to those practices.

This chapter explains some things social media companies

and companies that use social media should know in this

ever-evolving space.

Company Obligations Set Forth in the User

Agreement

User agreements are private agreements between the

publisher and its users, and they define the rights and

obligations of each party. Typically, user agreements have

at least two components: (1) a privacy policy and (2) a

terms of use. While there is no legal distinction between

putting them into one document rather than splitting them,

in both the US and Europe, best practice is to separate the

privacy policy from the terms of use. In addition, websites

targeting persons in the European Economic Area175 and

Mexico need to include information on the types of storage

or cookie technologies used and the purpose. Users must

consent to the placement of cookies on all devices,

computers, tablets, mobile phones, etc., and be given the

opportunity to opt out of having those items placed on their

devices. Where cookies are used, individual must be

provided with clear and transparent notice about cookie

use. Creating a separate document, page or display makes

these terms conspicuous and creates better “notice and

disclosure” or transparency for consumers.

Cookie policies are statements about what types of cookies

may be set by a website and for what purposes they may

be used and should also give users information on how to

either opt out or change their browser settings. Privacy

policies are statements made by companies about their

practices regarding personal information. Companies on

the Internet, social media or otherwise, post privacy

policies to disclose information practices in accordance

with federal and state statutes.176 Terms of use, on the

other hand, describe the terms and conditions governing

the relationship between the user and the publisher or

operator of the service. Because cookie policies and

privacy policies are effectively part of the terms and

conditions—the rights and obligations—between the

parties, we may simply refer to them as the “agreement” in

these materials.

Because these agreements run between and among

publishers and users (and sometimes a company that is

using a service or website), a company’s obligation with

respect to personal data will change depending upon

whether it is the social media service (e.g., Facebook,

MySpace or Twitter), a company-sponsored fan site (e.g., a

Starbucks sponsored fan site on MySpace) or an unrelated

third-party fan site.

Social Media Companies

Social media companies, as authors of these agreements,

have the primary responsibility to ensure all personally

identifiable information that is collected, used, stored and

shared, is used in accordance with the user agreement

(and, of course, law and regulation). But, this does not

mean that social media companies must be overly

conservative in their user agreements. Most social media

companies do not charge any recurring user fees for use of

their site or service. So, access to and data from users in

the community is a social media company’s primary

commodity to monetise the site.

This ability to commercially exploit data is tempered by

data protection and privacy laws. The need for ‘information

monetisation’ can create in an adversarial relationship

between the site user and the social media company. As a

result, many consumer advocacy organisations are

analysing and notifying consumers of updates to social

media website user agreements, namely terms of use and

privacy policy agreements.177 The increase in focus on

such user agreements has resulted in regulatory and

consumer scrutiny for some social media companies, most

notably Facebook and its one billion users.

Nearly every change Facebook has made to its privacy

policy over the past few years has drawn a lot of attention.

In December 2009, Facebook made changes to its privacy

policy that caught the eye of the Federal Trade

Commission and ultimately lead to a settlement, which was

announced in 2011.178 The FTC’s complaints centered

mostly on Facebook’s alleged misrepresentations in its

privacy policy, which it had unilaterally implemented

without notice to its users.179 Specifically, the FTC alleged

that Facebook shared information with advertisers when it

promised not to, and though it promised to verify the

security of what it called “Verified Apps,” it did not in fact do

so. The FTC, after an open comment period, approved the

settlement in August 2012.180 In November 2012,

Facebook again announced changes to its privacy policy,

which drew the concern of privacy advocacy groups.181 In

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August 2013, Facebook proposed clarifications to its

privacy policy, this time centered around the use of profile

information for advertising purposes. Following complaints

from privacy advocates that the changes may be contrary

to Facebook’s 2011 settlement with the FTC, the FTC

stated that it was monitoring whether the changes complied

with that settlement.182 In November 2013, Facebook

affirmed the changes in a blog post that explained how and

when profile information was used in advertising.183 In

October 2013, Facebook made another privacy change,

this time affecting teenagers. Facebook users age 13-17

had previously not been able to change their privacy

settings to allow for the general public, rather than just their

“friends,” to view their posts, but that rule was relaxed.184

Compared to the United States, Europe has traditionally

taken a more stringent approach to data protection. Article

8 of the Charter of Fundamental Rights of the European

Union and the European Union Lisbon Treaty explicitly

provides that data protection is a fundamental human right.

There is also a greater focus on raising awareness. For

example, Europe even organised a “European data

protection day”, held annually on 28 January.185 As a

result, social networking sites tend to be the subject of far

greater public scrutiny than in the United States. Privacy

groups and thorough press coverage ensure that any

changes to the privacy policies of service providers and

any risks or abuses related to these services are

comprehensively discussed and brought to the attention of

social media users.

Google, for example, has had its fair share of scrutiny. The

European Court of Justice (ECJ) has been embroiled in

numerous disputes involving Google. In 2010 Louis Vuitton

brought a case against Google France for trademark

infringement for the supply of their luxury trademark to

advertisers as keywords as part of Google Adwords.186 In

this case the ECJ found in favour of Google, declaring that

brand owners will not be able to stop Google from selling

their trademarks as keywords to competitors to trigger

advertisements through Google Adwords, provided the

advertiser clearly shows they are not the trademark

proprietor.187 The ECJ also mediated in a case against

Google Inc. and Google Spain S.L referred by Spain’s

highest court the Audiencia Nacional de España. This case

tested the principle of the ‘right to be forgotten’ in the EU

whereby individuals demanded the deletion of their data

from the data host’s search engine results.188 The ECJ

declared Google could not be considered a controller of

personal data appearing on web pages which it processes

and also found in Google’s favour ruling that an internet

search engine provider cannot be required to withdraw

information from its index. In the interests of freedom of

expression the ECJ held a subjective preference does not

amount to a compelling legitimate ground for a person to

restrict or terminate dissemination of their personal data on

internet search engines, even where harmful or contrary to

their interests.189

More recently in 2014, a high court in the UK has

announced190 that Google must face a breach of privacy

claim brought by a group of over 100 claimants known as

the ‘Safari Users Against Google’s Secret Tracking.’191

The group claims that Google misused their private

information, bypassing their privacy settings to unlawfully

monitor their browsing history by placing secret cookies on

Apple Inc.’s Safari browser.

Google has also found itself in hot water with data

protection authorities across Europe following changes to

its privacy policy in March 2012 which triggered

investigations in Germany, Italy, UK, Italy, Netherlands,

Spain and France192 as well as in South Korea.193

Google’s changes to its privacy policy resulted in it

consolidating its 60 privacy policies into one document,

which controversially permits Google, without consent, to

combine data collected from users across all Google

services including Google Search, Google Chrome, Gmail,

Google DoubleClick advertising, Google analytics, Google

maps and You Tube. The privacy policy GPP2012 has

been found to be incompatible with EU and other countries’

data protection laws for failing to provide users with

sufficient information about how their browsing data is

collected and used, or giving them an opt-out. Critics have

called for the policy changes to be reversed;194 however,

Google has failed to take any action to date. As a result

Google is now facing fines of €150,000 in France195 and

€900,000 in Spain.196 Critics have condemned the fines as

an insufficient deterrent, just pocket money for Google

However imminent reform in EU data protection law could

mean Google will be forced to pay attention, given that the

level of possible sanctions proposed under the draft Data

Protection Regulation could result in a fine of up to or 5%

of worldwide annual turnover. 197

Facebook has not escaped the headlines, especially when

in December 2009 it struggled to get the balance right

when it changed its site by making user’s profiles publicly

accessible by default, in turn prompting many users to

switch social networks.198 Facebook was also publicly

criticized following a subject access request by an Austrian

student which exposed that Facebook retains personal

data about users infinitely, even after users had the

information from their account.199 Lobbying by the student

group Facebook v. Europe200 prompted the Irish Data

Protection Commissioner to conduct an audit of

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Facebook’s data processing practices in 2011.201

Facebook largely complied with the audit reports

recommendations, including for example, by simplifying its

privacy policy, adding a tool that allows users to see all

data held about them, changing to the ‘like’ button to

remove the last octet of logged IP addresses, and

suspending its facial-recognition tool. In 2011, however, the

German data protection authority further challenged the

legitimacy of Facebook’s facial recognition feature on the

basis that it required users to actively opt-out if they did not

want their details to be collected and referenced for tagging

purposes.202 In 2012 the German data protection authority

also issued a decree demanding that Facebook change its

controversial real name policy to allow users to adopt

pseudonyms in the interests of privacy.203

Company or Third-Party Sponsored Fan Site or Portal

Many companies, however, do not own or operate a social

media website, and thus, do not author the social media

user agreement. Instead, these companies are monitoring

content regarding their products and services on fan

sites/portals run by another company. For example,

Starbucks does not operate its own social media website,

but operates portals on MySpace, Facebook, Twitter and

YouTube. The key for removing information that may be

detrimental to Starbucks or any brand is to know where the

content lies (on a company or third-party sponsored portal),

and the user agreement of the social media website the

offending information lies upon.

For portals or fan sites that are sponsored by the marketing

company, it is simple for the company to remove offending

information. As discussed below, most of the major social

media networks offer page administration options for

content removal on company-sponsored portals though,

there are variations as to how each of those options work.

In general, though, the company can directly control

content posted to the portal by designating in its

administrative options to pre- or post-screen usergenerated

content.

For portals or fan sites that are not sponsored, it is more

difficult to administer content and remove known privacy

violations. Removal of third-party content involving your

company or brand is governed by the respective social

media site’s user agreement. These will be different

depending on the site or service. Take, for example, if one

of your employees records a confidential session (a health

care visit, tax preparation, loan application meeting, etc.)

between the employee and one of your customers. Could

the company seek removal of the confidential video? The

question of whether a corporation could remove this

content on behalf of its customer is different depending

upon what social media service is used.

 On YouTube the answer is no. On YouTube, the

remedy for removing content is flagging it for removal.

Under the YouTube privacy policy, YouTube will not

permit privacy flagging on behalf of other people.204

Alternatively, companies could issue cease-and-desist

e-mails directly to the employee posting the content

on YouTube.

 On Twitter the answer is probably no, also. The

Twitter Rules prohibit posting “other people’s private

and confidential information, such as credit card

numbers, street address or Social Security/National

Identity numbers, without their express authorization

and permission.”205 The remedy for removing that

content is to report the violation of the Rules, but the

report can only come from the person to whom the

private information belongs.206

 On Facebook the answer is possibly. On Facebook,

the remedy for removing content is reporting abuse of

Facebook’s Statement of Rights and Responsibilities

(the “Terms”).207 In Section 5 of the Terms, Facebook

will not permit posting of “anyone’s identification

documents or sensitive financial information on

Facebook.”208 Depending on the content of the private

information disclosed in the videotaped confidential

meeting, a company could report a violation on behalf

of its customer.

 On Instagram the answer is possibly. On

Instagram, the remedy for removing content is

reporting an abuse of Instagram’s Community

Guidelines.209 Those Community Guidelines have a

general prohibition against “being rude,” which can

involve using the service to “abuse, attack, harass or

impersonate others.”210 If the company could make a

case that the post was made to abuse and attack,

Instagram might be persuaded to remove the video.

 The same is true for Pinterest. The Pinterest

Acceptable Use Policy prohibits posting any content

that “may create a risk of any other loss or damage to

any person or property” and that “contains any

information or content that the poster do not have a

right to make available under any law or under

contractual or fiduciary relationships.211 Pinterest

reserves the right to remove any content that violates

the Terms of Use or the Acceptable Use Policy212,

and allows others to report violations of those

policies.213 If Pinterest believes the content violates its

policies, it will remove the offending content.

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 On MySpace the answer is yes. On MySpace, the

remedy for removing content is submitting a request to

delete inappropriate content that violates the website’s

Terms of Use Agreement.214 Under the Terms of Use

Agreement in Section 8, any postings that would

violate the privacy rights, publicity rights, and/or any

other rights of any person are prohibited.215 In this

scenario, there would be both an individual privacy

right on behalf of the customer and a contractual

confidentiality right of the company (provided a proper

confidentiality provision is in place with the employee).

Notwithstanding the removal of some content by social

network providers from the service, it may still surprise

some users how their data is stored. Snapchat, a photo

sharing app, allows users to edit and share photos with

their friends and to set a time limit for how long the

recipient can view the photos. After the photos are viewed,

the photo is then deleted from the device and Snapchat’s

servers. After a forensic researcher claimed that the

images sent via Snapchat are recoverable and do not in

fact disappear forever,216 the company experienced

negative backlash from the press and its users. In

response, Snapchat released a public statement describing

in detail how the images are stored and deleted, reassuring

users that the images are deleted from its servers and user

devices after viewing. Snapchat did note, though, that it is

possible to access the files by circumventing the app and

“jailbreaking” the phone with the right forensic tools.217

Further concerns may arise from users about how their

data is utilized by social networking sites. Social media

companies employ technological measures that recognise

a user’s computer, and in some cases, the companies may

use the same technological measures to participate in a

behavioral advertising network or assist in the collection of

data for analytics. In a push for more transparency in the

collection of this data, the FTC Privacy Report advocates

for “Do Not Track,” a mechanism meant to give the user

more control over the collection of the data that identifies

his or her computer. While Do Not Track is by no means a

legal requirement, even if the user selects the feature in his

or her browser, some companies have publicly supported

the feature, such as Twitter218 and Pinterest.219

Notwithstanding the contractual user agreement rights and

obligations on social media, a number of national and

international laws also govern this area.

Company Obligations Set Forth in National and

International Law

US position

Today, businesses operate globally with technology that

knows no national boundaries. Nothing comes more

naturally than sharing and sending information halfway

around the world. Social media epitomises that modern,

global ethos.

Every jurisdiction in the world can claim the right to protect

its citizens–and information about them. The United States

has a very different concept of “personal information” and

what qualifies as adequate protection than its counterparts

in the European Union and other parts of the world. A

social media company’s practices can be compliant with

United States law and still run afoul of legal mores

elsewhere. By way of example, in January 2013,

WhatsApp, the instant messaging and media sharing

mobile app, was said to have violated Canadian and Dutch

privacy laws in a report published by those countries data

protection authorities. The report said that the app had

violated privacy laws because users were not given the

choice as to whose contact details they had to share with

WhatsApp and that users were forced to provide their

entire address book – both users and non-users.220 While

the FTC did not bring an action against WhatsApp for these

alleged privacy violations, they did end up entering into a

consent decree with Path, a social networking journal

service, over similar charges. In the complaint, the FTC

alleged that the user interface in Path’s app was

misleading and provided consumers with no meaningful

choice regarding the collection of their personal

information. The FTC alleged that Path automatically

collected and stored personal information, such as name,

address, phone numbers, email, Facebook and Twitter

usernames, from the user’s mobile device address book

even if the user had selected the “Find friends from your

contacts” option.221

Europe position

Social media services accessible in Europe will also have

to comply with the relevant Data Protection Directive

95/46/EC, the implementation of which differs between the

28 EU Member States, and they may also be subject to

any additional national measures. At present the existing

Directive is set to be overhauled and may be replaced by a

more coherent and comprehensive legislative package: a

General Data Protection Regulation222 and a Directive.223

Drafts were first published in January 2012 and there were

high hopes for a swift reform, however, the controversial

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substantive content of the proposals has resulted in

protracted debate.224 As a result, recent comments from

the European Commission indicate that the legislative

package may not be adopted until 2015 at the earliest.

Specific elements of the proposed Regulation could

significantly impact social media companies, Article 20 will

provide individuals with the right to object to a social media

company profiling them on the basis of their social media

account content. The right of data portability under Article

18 will also make it easier for individuals to switch social

media service providers, taking with them a copy of all their

account data in electronic format. Social media sites also

face onerous obligations in relation to Article 17 which

expands the ‘right of erasure’ under the Directive 95/46/EC

which would allow users to request the deletion of all

objectionable data replicated on third party hosting web

pages such as links and posts on social media sites. The

potential burden of this obligation was highlighted in a

recent court case in the High Court of Ireland225 where a

student was wrongly accused of a crime in a Facebook

post that went viral. The court held the distress caused to

the individual justified ‘the right of be forgotten’. As a result,

a mandatory injunction was granted, ordering YouTube,

Google and Facebook to take down the offending material

about the individual within 14 days. This judgment alone

could set a precedent for further cases involving individuals

objecting to offending material about them on social media

sites and has the potential to conflict with the right to

freedom of expression.

The EU’s Article 29 Data Protection Working Party has set

forth an opinion on online social networking.226 This

Opinion, adopted June 12, 2009, opines that “social

networking services” or “SNS” are generally data

controllers, and SNS subscribers are generally data

subjects. In the view of these authors, even those SNS

located outside the EU are bound to respect EU strictures

on data processing and onward transfer as to residents of

EU member countries. Where a subscriber’s information is

only available to a self-selected circle of friends, the

Opinion posits that the exception allowing sharing of

personal information within households applies. However,

when access to the subscriber’s information is shared more

broadly, with or without that subscriber’s consent, “the

same legal regime will then apply as when any person

uses other technology platforms to publish personal data

on the web.”227 The Working Paper goes on to state a

number of other positions regarding marketing by SNS,

complaint procedures, and (advocating) the availability of

pseudonyms.

United Kingdom position

The UK has its own domestic data protection law in place

which implements the EU Data Protection Directive.228 The

Data Protection Act 1998 (‘Act’) requires organisations

processing personal data to comply with eight distinct data

protection principles. The UK also has in place domestic

legislation implementing the EU e-Privacy Directive.229

The ICO published guidance in 2013 on how the Act

applies within the context of social networking and online

forums.230 An exemption from the Act applies in limited

circumstances to individuals who process personal data for

domestic purposes only. Where this exemption does not

apply, any individuals uploading personal data on online

forums and social media sites, and organisations running

those sites, are deemed data controllers under the Act and

must adhere to certain responsibilities. This includes taking

reasonable steps to check the accuracy of any personal

data posted on sites by third parties. To satisfy this

obligation, the ICO recommends having a clear and

prominent policy about acceptable and non-acceptable

posts, as well as implementing a complaints mechanism to

deal with any disputes concerning inaccurate posts and a

procedure to delete such posts.

Privacy Policies/Notices: Guidance and General

Principles

On both sides of the Atlantic surveys have been carried out

to assess whether privacy policies sufficiently and clearly

inform users of how their personal data will be used and for

what purposes. Although in the UK privacy policies are not

a legal requirement under the Act, a privacy policy is a

simple way to satisfy the fair processing requirement,

which is one of the data protection principles under the Act.

Recent regulatory guidance from the ICO231 supports the

use of transparent, clear and simple privacy policies which

adapt a “layered” approach, with the most important

information highlighted in a clear manner. The ICO requires

organisations to take proactive steps to visibly

communicate a privacy policy, preferably via the same

method through data is collected. As a means to an end,

organisations should make sure that their privacy policies

focus primarily on informing the consumer and not on

protecting the entity.232

Privacy policies should be reviewed regularly to make sure

that they continue to comply with any changes in the data

processing activities of a social media company and the

relevant data protection and privacy laws applicable. If not,

they can expose a company to possible regulatory

enforcement. Over the past few years, both Facebook233

and Myspace234 have been hit with deceptive charges by

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the FTC over their allegedly misleading disclosures in their

privacy policies. In both cases, the FTC alleged that the

companies’ information sharing practices were inconsistent

with the promises set forth in their privacy policies.

Aside from the social media companies themselves,

companies who simply offer users the ability to share or

“Like” content from their own pages should also make the

appropriate disclosures in their privacy policies as to the

type of information they share and access from social

media platforms.

In addition to avoiding regulatory scrutiny, there are other

obvious benefits to ensuring privacy policies are

transparent. Not only will consumers be less likely to

complain, it may also provide a competitive advantage from

consumers having more confidence in the organisation and

how their personal data is being processed. This may lead

to consumers entrusting the organisation with further

personal data it would not otherwise have received. This

seems to be one of the most important trends in social

media today – do users trust the site operator?

The Next Direction in Privacy Law 235

Privacy and data protection law will continually be

outpaced by technological developments. As such, the

main challenge for social media companies is that the

privacy “obligations” seem to be developing on-the-fly in

this area. For example, in 2007, Facebook launched its

Beacon advertisement system that sent data from external

websites to Facebook, ostensibly for the purpose of

allowing targeted advertisements. Certain activities on

partner sites were published to a user’s News Feed.

Facebook even provided a pop-up, opt-out mechanism to

help respect subscriber privacy choices. Despite the fact

that there were no US laws clearly prohibiting this practice,

soon after Beacon’s launch, a civic action group created a

Facebook group and online petition demanding that

Facebook not publish their activity from other websites

without explicit permission from the user. In less than ten

days, this group gained 50,000 members. Beacon

amended its Terms of Service as a result. A class action

lawsuit was filed against Facebook as a result of Beacon.

The lawsuit was ultimately settled in September 2009, and

the Beacon advertisement service was shut down.

Facebook also agreed to donate $9.5 million to a non-profit

foundation to promote online safety and security.236

More recently, Facebook fought off litigation in connection

with its Sponsored Stories advertising campaign, where

Facebook delivered users ads featuring the photos and

names of friends that had “liked” the companies sending

the ads. In that case, Facebook faced allegations that it

had failed to adequately disclose to users the extent to

which their likeness and names would be used in

advertisements, and thus, allegedly failed to garner

consent as required by California law. 237 That case

eventually settled, with the judge approving a $20 million

settlement.238 In addition, Facebook announced that it

would be dropping its Sponsored Stories campaign.

Clearly, as important as existing laws are the developing

sensibilities of both consumers and privacy officials. The

predominant theme appears to be a profound antipathy

toward the aggregation and use of information of consumer

behavior, without, at a minimum, adequate disclosures.

Social media companies need to proceed very carefully in

capitalising on the wealth of information that they are

assembling, developing subscriber and policymaker

support for programs in the works, and adequately

disclosing program information to consumers, at a

minimum, in the user agreement. Moreover, companies

need to realise that even where the law has been slow to

catch up, consumer reaction and the threat of regulatory or

legal action has often shaped privacy practices in social

media. Keeping on top of those trends is critical.

Leading industry groups have stepped up to assist in this

area by developing self-regulatory principles to guide

companies in this area. The “Self-Regulatory Principles for

Online Behavioral Advertising,”239 which were created and

released in 2009 as a joint business initiative by the

American Association of Advertising Agencies, Association

of National Advertisers, Interactive Advertising Bureau,

Direct Marketing Association and the Better Business

Bureau, identifies seven principles to guide companies in

this advertising space. The principles, which correspond

with self-regulatory principles proposed by the FTC, are:

education, transparency, consumer control, data security,

material changes, sensitive data and accountability.

These Principles are more than just guidelines. The

Council of Better Business Bureaus, along with the trade

groups, created a corresponding Interest-Based

Advertising Accountability Program to review the practices

of companies in the online advertising space and foster the

widespread adoption of them. To date, the Accountability

Program has issued more than 20 decisions identifying

instances of non-compliance.240

This initiative appears to have now crossed over to Europe.

The Article 29 Working Party has published several

opinions241 on online behavioural advertising including

best practices to comply with the E-Privacy Directive242,

which requires an organisation to obtain a user’s prior

informed consent to collect cookies for the purposes of

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targeting online behavioural advertising. The Article 29

Working Party has also publicly supported industry

initiatives to establish a European wide self-regulatory

standard. For example the European Advertising

Standards Alliance (EASA) and the Internet Advertising

Europe have adopted a ‘Best Practice Code For Online

Behavioural Advertising.”243 The European Interactive

Digital Advertising Alliance244 has also launched an

interactive icon to be displayed on advertisements, to

provide users with information about how and why a

particular advert was targeted and delivered to them,

including the opportunity to opt-out.

In the UK the Committee of Advertising Practise (CAP),

which writes and maintains the UK advertising codes,

specifically introduced rules for organisations conducting

online behavioural advertising.245 These rules require

organisations to provide users with a comprehensive notice

about what web viewing behaviour is being observed and

that the organisations seek explicit consent to use such

data for the purposes of online behavioural advertising.

Another social media phenomenon is the exploitation of

geo-location technology. Many social media networks,

such as Foursquare, have incorporated “check-in”

functions whereby the user can disclose their arrival to a

particular physical place. By “checking-in,” the user opens

themselves up to location-based advertisements, such as

recommendations of places to go, things to do nearby, and

tips from other users for that location, as well as advertises

for that particular “check-in” location. For example, Yelp, an

“online urban guide” and business review site encourages

businesses to offer “Yelp Check-in Offers” so that

customers are incentivized to broadcast to their friends that

they are at the business’ location.246 Although these

features clearly have some benefit to the user, the

collection of geo-location information, especially when not

necessary to the functioning of the mobile application or

adequately disclosed to the user, has caught the attention

of regulators and attorneys generals alike.

In February 2013, the FTC issued a staff report

recommending ways in which critical players in the mobile

market can better inform consumers about their data

practices. These recommendations particularly addressed

the collection of sensitive content, like geo-location

information, and recommended, among other things, that

there be just-in time disclosures to consumers to obtain

their affirmative express consent before allowing collection

of such information.247 Similarly, the CA attorney general

Kamala D. Harris—one of the most active attorney

generals in the privacy space—also issued her own

recommendations to assist those in the mobile

marketplace, which emphasized only collection information

and data necessary for an app’s functionality and special

notices to draw attention to data practices that may be

unexpected.248 Regulatory actions addressing these

mobile privacy concerns have already begun.249

Company Engagement in (or Avoidance of) Thirdparty

Legal Disputes

Increasingly, information gathered by social media sites is

at the center of legal controversies to which social media

companies themselves are strangers.

 Monitoring of individuals on social media sites is

increasingly controversial in the context of Edwards

Snowden’s revelations about mass surveillance

activities in America by the NSA.250 This has triggered

the exposure of further mass surveillance within the

EU by the governments of certain Member States.

This has called into question all transfers of data

operating under Safe Harbor certification and could

result in Europe shutting boundaries to all crossborder

transfers of data.251

 Employer-employee relationships are being

increasingly tested, by disputes concerning social

media accounts operated by employees on behalf of

their employers. For example in the UK courts have

debated whether employees or employers are

deemed to own any client contact information

generated by employees on behalf of their employers

via LinkedIn.252

 Social media sites are routinely used for sting

operations seeking out sexual predators and other

criminals.253

 A New York court admitted evidence from the

plaintiff’s Facebook page offered to disprove claims

that the plaintiff’s injuries resulted in a loss of

enjoyment in life reasoning that a user of social media

does not have a reasonable expectation of privacy in

information shared with others through Facebook,

notwithstanding her privacy settings.254

 The alteration or destruction of posts on social media

sites can lead to sanctions for spoliation.255

 A Canadian court allowed discovery of a Facebook

profile in a motor vehicle accident suit, despite the

document being subscriber-designated as limited

access.256

 An Oklahoma court has evaluated whether invitations

to Twitter and Facebook posts were considered

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violations of an former employee’s non-solicitation

agreement.257

 Employees’ social media posts have formed the basis

for wrongful discharge claims.258

 If an employer terminates an employee for cause,

recommendations that the employers had made

regarding that employee on a site like LinkedIn may

be evidence of pretext.259

 Subscribers’ posts may violate their own company’s

privacy policies, or even reveal their own company’s

trade secrets.260

 Libelous posts on social media sites have been found

to be actionable.261

 Recent court rulings have highlighted that traditional

methods of service are being abandoned in the favour

of substituted service via social media.262 A landmark

decision in Australia263 and a similar ruling in New

Zealand264 first permitted service by Facebook where

the defendants’ whereabouts were unknown save for

their profile on a social media site. Another court case

in Canada265 ruled it was permissible to notify a

defendant of court proceedings by sending a message

to their social media account inbox. Following the

trend, a High Court Judge in the UK allowed an

injunction to be served on a defendant through Twitter

for the first time266 setting the precedent for a High

Court ruling permitting service via Facebook in

2012.267 Evidently courts are increasingly prepared

to deploy modern technology in support of litigants

needing to serve unscrupulous opponents. Service by

social media is now becoming the routine norm, rather

than the exception in today’s technological society

where our presence online is increasingly visible.

Both the social media enterprise and individual companies

on social media can protect themselves. As stated above,

each social media enterprise already has (or should have)

a detailed suite of policies, reflected in the user agreement,

to determine how the company fits in to the substance and

process of third-party legal actions. Likewise, all companies

should put policies in place governing employees’ actions

on social media to avoid company vicarious liability.

Ultimately, subscribers should also take steps to protect

themselves because regulators can do only so much to

protect subscribers’ personal data and privacy.

Children

The popularity of social networking with young people

makes the issue of data protection and privacy more acute.

A central concern is that young people lack the awareness

of the associated risks of these services and the potential

for abuse when revealing personal data. Online risks for

young users include illegal and age-inappropriate content,

improper contact and conduct, including potentially risky

behaviors. In January 2013, the FTC adopted amendments

to COPPA to account for evolving technologies and the

ways in which children are accessing the Internet through

mobile devices and social networking. The final

amendments include expanding the scope of “personal

information” to include geolocation information if precise

enough to identify a name of a street and city, photographs

or videos containing a child’s image, a screen or user

name to the extent that it functions as online contact

information, and persistent identifiers if it can recognize a

user over time and across different websites. Social media

companies may end up collecting one or all of these pieces

of data in the course of their everyday operations. To the

extent that they are collecting this data from children under

13 years of age, they will need to comply with the

requirements of COPPA. 268

Children’s privacy has become a state issue as well

recently, with California having passed an “eraser button”

law, the first of its kind in the U.S. The law, which takes

effect January 1, 2015, applies to operators of websites

and mobile apps, such as social media companies, whose

products and services are directed toward minors (defined

as under age 18), and who have actual knowledge that

their products and services are being used by minors.

Under the law, these operators will be required to notify

minors of their right to remove posted content and provide

instructions on how to do so.

The impact of digital media on privacy issues for young

people has been a key focus in both the UK and

throughout Europe. A central theme of the 35th

International Conference of Data Protection and Privacy

Commissioners269 was the ‘appification of society’ with

children’s privacy rights becoming increasingly vulnerable

as young people become more addicted and dependent on

the internet and social networking.

A central aim of the European Digital Agenda is to address

the dilemma that growing numbers of children are on

social networking sites but do are not taking the necessary

steps to protect themselves, failing to set their profile

settings to private, and therefore placing themselves in

harm’s way. Recent surveys conducted highlight that 77%

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of 13-16 year olds and 38% of 9-12 year old in the EU have

a profile on a social networking site, with 25% setting their

display settings to ‘public’.270 A recent CNIL, the French

data protection authority, study by the Department of

Studies, Innovation and Foresight as part of their reports

for “Privacy 2020” also found children to be the most active

user group for photo sharing and tagging on social network

sites.271

To achieve a safer internet environment for children, the

European Commission and major social networking

companies, including Facebook, Bebo, and MySpace,

agreed the “Safer Social Networking Principles for the

EU”.272 These principles were aimed at giving young

people extra protection from violations of their privacy and

the potential abuse of their personal information. Key

principles include: ensuring services are age-appropriate

for the intended audience273; empowering users through

tools and technology to manage the service274; providing

easy-to-use mechanisms for users to report conduct or

content that violates the Terms of Service of the provider;

encouraging users to employ a safe approach to personal

information and privacy; and assessing the means for

reviewing illegal or prohibited content.

However, a year on, the review of the implementation of

the principles published by the European Commission on 9

February 2010 suggests that whilst the principles have

been a step forward in tackling online risks for young

people, more still needs to be done. According to the

Commission less than half of social networking companies

make profiles of users aged under 18 visible only to friends

by default, and only one-third replied to user reports

requesting assistance.275 Whilst currently the Commission

is in favor of a multi-stakeholder collaboration with

providers and adopting a ‘best practice approach’ to

manage potential risks, if providers do not toe the line, the

consequence may be regulatory intervention.

In 2011 the European Commission supported a further

initiative, the CEO Coalition To Make the Internet A Better

Place For Kids.276 Most recently, the European

Commission announced the launch of ‘Safer Internet Day’

on 11 February 2014 where Vice President and

Commissioner of the Digital Agenda Neelie Kroes, will

grant European Awards for websites with Best Online

Content for Kids.277

In the UK, the Information Commissioner has published

numerous good practice notes for website operators whose

sites are directed at children including the “Personal

Information Online Code of Practice.”278 The Home Office

Task Force on Child Protection on the Internet has also

published good practice guidance for providers of social

networking and other interactive services . There are also

several websites that have been created to increase

education and awareness about online safety for children.

279

Protections To Deter Criminal Activity

Data security class action litigation usually focuses not on

the (often judgment-proof) criminal wrongdoers

themselves, but on the companies those wrongdoers

happened to work for, with, or through. Moreover,

governments around the world have drafted businesses

into the war against identity theft. Hefty fines can result

from a lack of due diligence.

The UK ICO has a broad range of enforcement powers

and can issue severe penalties for breaches of the Data

Protection Act 1998 , including up to two years

imprisonment and a maximum fine of £500,000.280The UK

Government has proposed to put in place tougher

sanctions to act as deterrents, for example, up to two years

imprisonment and maximum fines of £500,000, the latter of

which is expected to take effect in April 2010.281 The UK,

as well as other European countries, is taking data

protection law seriously, and service providers should bear

this in mind. There have, however, been a couple of

successful challenges against the ICO’s monetary penalty

decision.282

In social media enterprises, an even greater risk than

identity theft or financial fraud exists. There are reported

cases of users of social media have been exposed to

emotional abuse and have been sexually assaulted, among

other crimes. Attempts have been made to hold the social

media enterprises themselves liable for not doing more to

stop these abuses.

Precautions to detect likely criminal activity, to the extent

practicable, and having social media policies or other types

of employment agreements establishing company

expectations, are essential for any business’s selfpreservation.

Typically, companies can take actions such

as routine audits and establishing human resources

notification policies for crimes involving employees in the

workplace. Social media policies and other types of

employment agreements are now essential for individuals

doing work for your business. We recommend evaluating

all of the types of individuals employed by your company

and developing a social media agreement that will fit for:

employees, contractors, hired talent (representing the

company in an endorsement/marketing context), and

outsourcing contracts, where applicable (See Chapter 6 –

Employment.).

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Additional complications for social media enterprises can

arise in connection with the data they possess about their

users. Social media companies have often been the

subject of subpoenas in connection with criminal

prosecutions. Some companies, such as Facebook,

Google, and Twitter, have even set up guidelines for

requesting records.283 In some instances, the companies

have refused to comply with subpoenas by invoking the

Stored Communications Act, which in its broadest sense,

limits the type of information that can be disclosed by

electronic communication or remote computing service. For

example, in 2012, Twitter sought to quash a subpoena to

turn over thousands of Tweets from a writer in connection

with his involvement in the Occupy Wall Street

movement.284 The judge ordered Twitter to produce the

records, saying that the writer did not have a reasonable

expectation of privacy in the postings, comparing the

Tweets to screaming out a window.285 Despite Twitter

appealing the order, the records eventually were produced

in court.286

Addressing Traditional Data Security Concerns

Every social media enterprise needs a comprehensive

written information security program. The very open

architecture that allows social media enterprises to thrive

also allows information security threats to multiply, making

them an attractive target to hackers. There have been a

number of hacking attacks made on social media

companies over the past few years. In December 2013, it

was reported that over 2 million usernames and passwords

were stolen in a hack from Facebook, Twitter, and

Gmail.287 Less than a month later, in January 2014, 4.6

million accounts were hacked in a Snapchat hack.288 Both

of these attacks followed the 2012 hack on LinkedIn of 6.5

million passwords.289 It is clear that social media

companies have become a prime target for cybercriminals.

Social media enterprises need to enlist not just their

employees, but also their subscribers, in rapid response to

developing privacy threats based on well-understood

policies and procedures. Failing to do so may result in

dilution of a brand’s value as regulators and consumers

react to lapses in security.

A written policy is necessary, but not sufficient to ensure

compliance. A written policy without implementation and

adherence is a dead letter. Plain language review, easy-tofollow

training materials, employee testing, vendor auditing,

security breach drills, and the like are indispensible to

making sure policy is part of day-to-day procedure. At the

same time, outreach to subscribers to let them know what

to expect (and not expect) from the company will help

subscribers defend themselves from spoofers, phishers,

and similar would-be attackers.

Also, like every company, social media companies should

have plans for: the protection and secure disposal of

personal data (including in hard copy); the implementation

of major litigation holds; and response to the loss or theft of

personal data (including, where required or appropriate,

through notice to data subjects).

Is the Company Properly Insured against Data

Privacy Incidents?

The last risk you need to plan for is the risk that all other

mitigation will, ultimately, not be sufficient. As noted above,

no system is perfect. Data privacy and security lawsuits

can cost millions or tens of millions of dollars to resolve.

The right level of coverage, either under general policies or

specific endorsements, is something that every company

needs to determine on an ongoing basis.

Bottom Line—What You Need to Do

Understand the sensitive nature of information that flows through social media. Recognise the serious compliance and litigation

risks that the collection and distribution of such information entails. Consider contractual tools to mitigate these risks, including

properly drafted privacy policies and terms of use. Know your obligations under all applicable data privacy and security laws, and

have a nuts-and-bolts plan to meet those obligations. Stay ahead of developments in data and privacy security law, so that, to

the extent possible, the compliance program put in motion today will be deemed adequate even under the standards of

tomorrow. Lastly, know your coverage position with respect to data privacy and security incidents, and properly adjust that

coverage in light of known and suspected risks.

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— CHAPTER 6 —

Employment Practices

Chapter Authors290

United States

Sara A. Begley, Partner – sbegley@reedsmith.com

Eugene K. Connors, Partner – econnors@reedsmith.com

Casey S. Ryan, Partner – cryan@reedsmith.com

United Kingdom

Laurence G. Rees, Partner – lrees@reedsmith.com

Carl De Cicco, Associate – cdecicco@reedsmith.com

Ed Hunter, Associate – ehunter@reedsmith.com

Introduction

With apologies to Will Shakespeare, quite the networker himself in Elizabethan times, to net or not to net is NOT the question.

Because networking is virtually pandemic these days, the real question is not whether, but where, when and in what ways,

should we net with each other to achieve networking benefits and avoid its misuses. Because most networkers are employees,

the follow-up question, addressed here, is how far can and should employers go to “guide” and “monitor” employee networking

“choices,” and work to prevent and reduce the broad and ever-growing scope of problems and liability arising from the use of

social media in the employment context.

Recent surveys have found that approximately 60 percent of employees either do not know if their employer has a social media

use policy or believe that their employer does not.291 A Deloitte LLP study found that 74 percent of employees surveyed agree

that it is easy to damage a company’s reputation on social media.292 By June 2009, the number of employers who had

terminated an employee for conduct related to his/her use of a social media site doubled to 8 percent, compared with only

4 percent in 2008.293

While there is currently no specific statute codifying the law regarding use of social media in the employment arena, employers

should look to their current electronic use policies, as well as to the laws and guidance developed over the past several years

regarding best practices for company and employee use of electronic media involving email, Internet, BlackBerry, other PDA,

tablets and cell phones, and confirm that the policies in place are sufficiently broad to prevent, or at least limit, abusive use of

social media by the employees. Relevant policies naturally draw from the established principles of maintaining proper workplace

environment and establishing reasonable restrictions on employee behaviour. Examples include: employee privacy, both on and

off site, as well as consent issues relating to workplace searches; adherence to anti-discrimination and harassment law,

protection of company trade secrets and other intellectual property tenets; and prevention of defamation, tortious interference

with contractual relations or unfair trade practices. The most prudent course to protect against liability in the employment realm is

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to examine each policy that guides the behaviour and conduct of employees, and modify, where required, to create an organic

document that broadly interprets this burgeoning form of communication and publication.

Social media may be utilized by companies in a variety of imaginative ways related to employment. As we know, social media is

a powerful recruitment tool that can be used to create a buzz or intrigue about the employer and connect heavily recruited talent

with the company. It is now de riguer for employers and recruiters to “online” a prospective candidate by scanning his or her

LinkedIn, Plaxo, Facebook, Twitter, or other business or social networking pages. It can also be used to educate employees and

the public about company advances, enhance PR, respond to negative press, and detect theft or misappropriation of trade

secrets, abuse of overtime, sick leave or fraudulent medical claims by employees. As discussed below, these online resources

can provide valuable information and an immediate global connection with the public, but must be used consciously and

appropriately by both employers and employees to avoid legal misuse.

Misuse of social media can be devastating to a company, both legally and from a public relations perspective. Social media

employee banter relating to protected traits such as race or gender may violate an employer’s anti-harassment policy and create

a hostile work environment, just as it does when communicated in person by employees. An employee’s tweets about the

employer’s new R&D project may result in leaking valuable proprietary and trade secret information. An online smear campaign

about a competitor’s product by an employee, without the employer’s knowledge and approval, can subject an employer to an

unfair trade practices or tortious interference claim. A manager’s online gossip about an employee’s purported drinking problem

that proves to be false may result in a defamation claim. Employees griping via social media about their work environment can

not only impact the employer’s reputation, but also potentially provide a window for the employer into employee morale and its

potential negative impact on productivity. Finally, an employer’s “inattention” to online behaviour by employees can make it

legally liable, if it knew, or should have known, of the behaviour, but failed to take adequate measures to correct the situation, or

to notify the appropriate authorities. These concepts should all be familiar to employers. The social media phenomenon merely

adds a new, albeit infinitely expansive, arena in which employment issues can arise. Put simply, online “talk” by employees has

created a hornet’s nest of new challenges for employers. The legal principles and best business practices employers should use

to face these challenges remain the same as those they have used to monitor and control other technology advances that

increase the speed and amount of communication among employees, such as email, texting or any other such medium.

This chapter provides companies with an overview of how social media affects the workplace and the resulting issues to consider

and manage in connection with employee use of social media. We begin by examining the possible uses of social media by

employers and then turn to use by employees, and end with a discussion of how a company can seek the removal of content

posted by employees in social media.

Social Media in Action in Employment

Employer Use of Social Media

Does your company have a company-sponsored page on

one or more social media sites? If so, what do you use it

for? Many large companies create and use social media

sites for everything from marketing promotions (See

Chapter 1 – Advertising & Marketing) to attracting job

applicants. Such uses are arguably the most acceptable

and productive for a company. To minimize legal risk,

companies should reasonably and consistently monitor

sites for derogatory or otherwise harmful content, and,

when it occurs, remove it immediately, block the offending

author, and take curative action. Because the company

controls the site, such action should be simple and quick.

Does or should your CEO have a Facebook or other social

media presence? Sometimes a CEO may create his/her

own social media page to market the company or “counter”

harmful media blasts. At other times, it may be strictly

personal with nothing to do with the company. It is

sometimes difficult to discern whether a CEO’s social

media page reflects his/her role as CEO or is a personal

outlet. (See section below regarding employee use of

social media.) An example of this is the resignation of

former Sun Microsystems CEO Jonathan Schwartz, who

used Twitter.294

Potential issues under U.S. law

Does your Human Resources Department use social

media as a recruiting tool? Do they use it to investigate the

credentials and qualifications of job applicants? Is it used to

track the activities of current employees? If so, be sensitive

and current on possible privacy rights, compliance with the

federal Fair Credit Reporting Act, the National Labor

Relations Act (“NLRA”), the federal Electronic

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Communications Privacy Act, Title VII, and state laws that

outlaw adverse employment action for off-site actions by

employees that are not unlawful, such as smoking.

An employer may also use social media to ferret out

fraudulent medical (including Family Medical Leave Act)

claims. Insurance carriers and employers are increasingly

using social media sites to expose claimants supposedly

too injured to work, but boastful of their physical prowess

on their personal sites.295

Social networking sites have unlocked countless electronic

doors for employers to learn about employees. While

employees can be and are “themselves” on one site and

anonymous or disguised on others, employers act at their

legal peril to pretend to be “someone else” when

monitoring employees and applicants. There are a number

of ways an employer may obtain an employee’s actual or

implied consent to monitor her/his off duty social

networking. But an employer must always act with integrity,

because courts have held “disguised” employers liable for

pretending to gain access to employee-created social

networking groups.

In addition, even with consent to monitor, only seek workrelated

information. An employer must take steps to avoid

obtaining more information than required to make an

employment decision. Information to avoid includes an

employee’s membership in a protected class, a lawful

association such as a union, or in legal political activities.

Even where there is no unionized workforce present,

communications between employees that discuss efforts to

organize, or engage in conduct that is protected under

section 7 of the NLRA, may not impose policies that

unlawfully interfere with the employees’ exercise of those

rights. Employers must also refrain from monitoring what is

lawful communication between employees regarding

unionization or union business to avoid charges of

surveillance, which also violates the NLRA.

Public employers must, as with all practices, observe due

process rights of employees with respect to conducting

searches and any resulting disciplinary action. The mere

fact that the conduct occurs on the Internet does make the

conduct either protected or unprotected; rather, the context

in which the conduct occurs—such as is it a comment

posted by the employee, is it accessible on a public site or

page, what issues the comment addresses—must be

considered.

Finally, and particularly in privacy-type cases, courts and

juries are easily offended and punish employers that use

more intrusive methods over other available, less intrusive

alternatives.

Potential issues under English law

Employers in the UK face similar issues in relation to the

use of social media as part of application and vetting

processes. An employer’s use of a job applicant’s data,

which is available on the Internet through social media, is

governed by the Data Protection Act 1998 (the “DPA”). The

DPA requires an employer to obtain an applicant’s consent

for the collection and use of such data to be used as part of

an application or vetting process.296 In addition to data

protection issues, exploring information relating to a job

applicant that is available on the Internet through social

media may expose the employer to claims of discrimination

if the employer decides not to proceed with that applicant

(regardless of the employer’s actual reasons for choosing

not to do so). For example, there could be such an

exposure where the data available through social media

gives information as to an applicant’s race, colour, religious

beliefs or sexual orientation that might not otherwise be

apparent through the application process. Employers

should therefore consider whether the benefits of obtaining

information through social media outweigh the risks of

potential litigation.

The use of information available through social media to

investigate possible employee misconduct or breaches of

an employment contract also gives rise to potential issues.

It is unlikely that employees or workers would provide

consent for employers to comb through information that is

available through social media. Accordingly, the employer’s

interest in searching for and using such information in the

absence of employee or worker consent must be carefully

balanced against (and be shown to outweigh) any

detriment to the employee or worker in order for the use of

such information not to breach the DPA or any rights of

privacy that the employee or worker may have.297

Employers should therefore consider including, as a

standard contract term, a provision by which the employee

gives consent. Employers should also have a clear and

well-publicised policy that establishes that such information

would be used in the event of an investigation as a step

toward demonstrating that the employer does indeed have

such an interest. Employers should also refrain from

searching and using information available through social

media until a reasonable belief of wrongdoing has been

established through less intrusive means of investigation.

Dismissals of employees that are based on information

obtained in breach of the DPA or that unreasonably infringe

upon an employee’s home or private life may be found by

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an Employment Tribunal to be unfair. Such dismissals may

also be found to constitute an unreasonable breach of the

ACAS Code of Practice on Disciplinary and Grievance

matters, which may result in any award of compensation

made to an employee by an Employment Tribunal being

increased by up to 25 percent.298

Potential issues under French law

In recruiting new employees, employers should proceed

with caution in seeking information available on applicants

through social media, because this could be risky on a

number of counts.

In particular, such a practice could be in breach of the strict

rules laid down in the French Labour Code regarding

recruitment methods, which state, for example, that

information requested of an applicant must have a direct

link with either the job opening in question or the

candidate’s professional capabilities. In addition, the Works

Council is to be kept informed of recruitment methods and

techniques.299

While it may be difficult to establish an employer breach of

these regulations by vetting candidates through the

Internet, the risk of unlawful discrimination (based on union

membership, race, etc.), remains significant. While

relatively few complaints are actually brought before

tribunals concerning the recruitment procedure300, such

actions have multiplied over the past few years through the

work of the HALDE301, the official body acting for equal

opportunities. Arguably more destructive to companies

than actual litigation is the damage to their reputation when

doubtful and discriminatory recruitment practices are

alleged by this organization302.

Another administrative body publishing guidelines and

monitoring the use of social media, especially by

recruitment agencies, is the data protection agency, the

CNIL.303 Its 2009 report included warnings against

excessive and illegal acts by employers when utilising

social media in the recruitment process, particularly by

invasions of privacy and illegal discrimination.

In this context, a number of professional organizations,

recruitment agencies and companies304 composed a

Charter on social media in which the signatories shall not

use social networks to collect personal information on

applicants305.

A central question in employer use of social media in

investigating the behaviour of existing employees concerns

the admissibility of evidence. As in the United States, the

mere fact that employee conduct occurs on the Internet

does not determine whether it is protected. Instead, such

protection should depend rather on the extent to which the

page containing the comment can be accessed by others.

In a pending case before the Labour Court, judges will rule

on whether a comment posted by an employee connected

from home on his personal Facebook page should be

considered as private correspondence.306

Unlike the suggested solution in the UK, however, an

employee’s agreement in advance to permit online

monitoring of his or her activity by the employer is likely to

be held null and void in France because both the Labour

Code and the courts are very protective of employee civil

liberties such as freedom of expression and the respect of

private life.

Moreover, unlike the United States, employees are

generally immune from discipline and other sanctions for

off-duty lawful (nor even unlawful) conduct. But we expect

the omnipresence and ever-increasing use of new

technologies for professional and personal use will

undoubtedly test such “hands off” limits.

Employee Use of Social Media

Potential issues under U.S. law

Do any or many of your employees have or contribute to

social media pages or spaces? If so, do they visit them at

work? During working hours? Using company equipment?

The answer to each question is likely yes. Facebook alone

boasts more than 400 million users. A 2009 Deloitte survey

revealed that 55 percent of all employees visit social

networking sites at least weekly, with 15 percent admitting

access for personal reasons from work.307. In such

situations, an employer can and should lawfully restrict an

employee’s use of social media within reasonable limits at

work, and on break-time if it impacts anyone’s work

adversely. A properly worded notice to employees provides

an employer with a strong right to control the use of its own

property, such as computers, cell phones, and PDAs.

Similarly, again with proper notice, employers may also

monitor the use of the company’s property without

restriction.308

An employee’s “on-the-clock” time belongs to the

employer, and it therefore can and should restrict or limit

an employee’s use of social media while on duty, even if

the employee is using personal equipment. However, if an

employer permits on-duty use of social media when an

employee uses his or her own equipment, the employer

generally may not use electronic means to observe or

monitor that personal use, unless, as stated, it adversely

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impacts the workplace, either by reduced productivity or by

conduct that may expose the employer to liability. At least

one court has held that an employer has a duty to remedy

co-employee harassment to avoid a hostile work

environment, when its male employees used a company

bulletin board to harass a female employee based upon

her sex and in retaliation for her filing a lawsuit.309

Social media sites can be, and are often, used as

communication tools between employees. However, at

times, these employee communications cross the line into

harassing, threatening, or other unlawful conduct, or

divulging trade secrets or other confidential information

about the employer or a competitor. In such a situation,

whether an employer may be held legally liable for

damages resulting from the offending employee’s post,

remains in gestation.310

The next question is whether an employer can or should

use content posted on social media sites as a basis for

disciplining or discharging an employee. Content posted

anonymously is, of course, exceedingly difficult to police,

and several state laws prohibit employers from taking

adverse action against an employee for engaging in lawful,

off-duty conduct, including political activity or affiliations

specifically protected under state law. Moreover, employers

must be cautious about taking adverse action against an

employee whose social media use could be protected

under the NLRA or federal and state whistleblower laws,

such as the Sarbanes-Oxley Act. Finally, “public” (meaning

government) employers have the additional burden of

avoiding any violation of their employees’ First Amendment

and other Bill of Rights protections by disciplining them for

content posted on a social media site.

On the other hand, employers cannot “play ostrich” to

employee abuse of social media sites. Consequences of

doing so include loss of confidential information and/or

trade secrets; irreparable damage to reputation or other

aspects of a business, either through employee misconduct

or apparent company condonation or endorsement by

inaction; or liability for employee content that is defamatory,

threatening or otherwise unlawful. Employers also have a

duty to report illegal activities to the proper authorities and

to take internal action when it becomes aware than an

employee has engaged in unlawful activity.311 Recently, the

FTC revised the Guides Concerning the Use of

Endorsements and Testimonials in Advertising.312 It is

unclear to what extent, if any, an employer may be liable

for an employee’s statements in social media; but the FTC

provides an example in Part 255.5 that indicates that both

employers and employees may be liable in some

circumstances. Under Example 8 of 16 C.F.R. Part 255.5,

an online message board designated for discussions of

new music download technology is frequented by MP3

player enthusiasts. Unknown to the message board

community, an employee of a leading playback device

manufacturer has been posting messages on the

discussion board promoting the manufacturer’s product.

Knowledge of this poster’s employment likely would affect

the weight or credibility of her endorsement. Therefore, the

poster should clearly and conspicuously disclose her

relationship to the manufacturer to members and readers

of the message board. 16 C.F.R. Part 255.1(d) provides

that “[a]dvertisers are subject to liability for…failing to

disclose material connections between themselves and

their endorsers. Endorsers also may be liable for

statements made in the course of their endorsements.”

Therefore, in Example 8, both the employee and the

employer may be liable for the employee’s failure to

disclose his material connection with the employer.

Potential issues under English law

Employers based in the UK may also lawfully restrict

employees from accessing social media through use of the

employer’s equipment. A policy that is properly worded and

well-publicised within the company would be key to

achieving this objective and would ideally be coupled with

the use of technological means to prevent employee

access to social media using employer equipment, either

absolutely or for certain periods of the day.

Where an employer lacks technical means to prevent

access to social media through its equipment, an employer

may consider monitoring to detect any breaches of its

policy (any such policy needs to provide employees with

clear guidance as to the levels of use permitted – if any).

Employers in the UK do not have an absolute general right

to monitor employees’ use of the employer’s electronic

equipment, and the more intrusive and/or secretive any

monitoring is, the more likely it would be that such

monitoring would be unlawful.313 Accordingly, employers

should consider using spot checks rather than ongoing

monitoring, and setting flags so that any monitoring just

returns details as to when social media websites are

accessed, rather than monitoring the actual content viewed

or submitted. If it becomes relevant to consider the content

viewed, it is more likely to be lawful for an employer to do

so as part of an investigation that is triggered by less

intrusive monitoring.

Where employees use their own equipment, such as their

personal mobile phones, to access social media, the

position is the same as applies in the United States.314 The

UK employer cannot monitor electronically, but may

investigate and, if necessary, implement disciplinary

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proceedings if there are productivity or other performance

or conduct issues, or if employees use social media

through their own equipment to act unlawfully – for

example, by behaving inappropriately toward co-workers.

It is now an established principle that an employer can be

liable for an employee’s use of social media that

discriminates against or harasses or threatens a co-worker,

where the act of harassment or other discrimination is

carried out by an employee during the course of their

employment. However, whether such liability arises in a

given situation will depend on the facts of the particular

case. It is more likely that the employer would be

vicariously liable for an employee’s use of social media if

the employee in question is a manager who publishes

something inappropriate concerning one of the persons for

whom that manager is responsible. Whether any such

misuse occurs during or after working hours or includes the

use of the employer’s equipment may also be factors as to

whether the employer would be vicariously liable. As an

illustration of these principles, an employer was recently

held to be vicariously liable for acts of harassment

committed by two employees who posted comments about

a colleague’s sexuality on the colleague’s Facebook

page.315 The conduct was committed in the workplace,

during working hours and involved dealings between

employees and their manager – therefore it was carried out

“in the course of employment”. The case also

demonstrated that the question of whether an employer is

aware that the conduct being complained of is happening

(the employee in this case had reported the matter to the

employer), or even condones or sanctions it, is irrelevant to

the issue of vicarious liability.

Whilst the courts have readily held employers vicariously

liable for acts of discrimination or harassment carried out

during the course of employment, they have demonstrated

a willingness to protect the employer’s right to preserve its

reputation when dealing with employees who post

offensive comments on social networking sites outside of

the workplace. In a number of recent cases, the

Employment Tribunal has upheld the decision of employers

to dismiss employees who expressed offensive views on

social networking sites or through “chain” email

correspondence. 316 In dismissing the employees’ claims in

these cases, the Tribunal has emphasised that, once an

employee publishes offensive content, there can no longer

be any reasonable expectation that the comments will be

kept private, and therefore the employee may not be able

to rely on their right to respect for private life that would

otherwise be available under the Human Rights Act 1998.

Whether content published by or about an employee can

be the basis for disciplinary proceedings will depend largely

upon the circumstances. For example, was the content

published during or after working hours? Did the employee

disclose confidential information of the employer? Was the

employer identifiable as employer of the employee? Did the

employee use the employer’s or the employee’s own

equipment to publish the content? Does the content

constitute inappropriate behaviour toward a co-worker and,

if so, can publishing the content be linked to the

employee’s professional (as opposed to private)

relationship with that co-worker? Does the content, such as

a status update, indicate that the employee has been

untruthful toward their employer (forexample, showing the

employee to be well and active when the employee has

informed the employer that they are unfit to attend for

work)?317

As with monitoring, it is important that the employer collects

uses any such content with due regard to the DPA and any

privacy rights that the employee may have.

Caution should be exercised before taking any adverse

action against an employee who publishes content that

raises a complaint against the employer. Whilst the

inappropriate publishing of any such information needs to

be dealt with, the employer should also investigate the

substance of the complaint made by the employee.

Content might conceivably be published in such a way as

to constitute a written grievance (which a failure to deal

with through the grievance process may expose the

employer to an increase in compensation of up to

25 percent where the employee brings a successful

complaint before the Employment Tribunal). That said this

is unlikely where the employee had not taken any steps to

draw the information to the employer’s attention.

Potential issues under French law

As in the UK, employers may technically impede employee

access to social media sites from their own computers, cell

phones and PDAs.

They may also lawfully restrict employee use of social

media at work by specifying such restrictions in a specific

document related to the use of information technologies, a

“charte informatique.” In this case, employers would need

to monitor employee use of social media (websites visited

and length of the visits)318, given the liability they incur

regarding IT security issues and the behaviour of their

employees on the Internet.

In both cases, the employer must comply with a very formal

procedure, which includes informing the employees,

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consulting staff representatives and completing a

declaration to the CNIL319, given the personal data which

will automatically be collected in this process.

However, in cases of co-employee harassment, the French

employer cannot be too careful. Even such close

monitoring of Internet activity would occur too late to

release the employer from its liability. Indeed, according to

French case law, employers have a duty to prevent coemployee

harassment from occurring in the first place320.

The employer would therefore be liable where co-employee

harassment occurs, even if he had taken measures to

detect the “electronic” harasser and to protect the victim

(by dismissing the perpetrator).

Nevertheless, it could always be put forward as evidence of

the employer’s good faith in case of litigation, that the

employer had included in the aforementioned “charte

informatique” clear prohibition of any harassment or similar

behaviour through social media.

Removing Content Posted by Employees from the

Site

If an employee posts derogatory, defamatory, harassing,

threatening, confidential or other unlawful or inappropriate

content, what can and should the company do to remove

the content from the social media site?

Most social media sites have terms of use that prohibit the

posting of any content that is threatening, harassing,

defamatory or otherwise unlawful. Presumably, then, any

such content would be voluntarily removed by the site after

it is brought to the site’s attention.321 Not all sites, however,

prohibit the posting of content that may constitute

confidential information, but that is not copyrighted or may

not rise to the level of a trade secret or other legally

protected information. For example, Facebook’s terms of

use only prohibit the posting of content that “infringes or

violates someone else’s rights or otherwise violates the

law.”322

If, for instance, an employer complains to Facebook that a

post discloses confidential information pertaining to the

company, but fails to prove that the information is legally

protected, Facebook may not remove the offending post.

Indeed, currently, no laws require Facebook to remove

such a post.

In the UK, a further step that might be considered is to ask

the employee concerned to remove any offending content.

If the employee refuses to do so, it may, depending on the

content, be possible to bring a disciplinary action against

the employee for refusing to follow a reasonable and lawful

order.

Current Legal and Regulatory Framework in

Employment

Little case law exists in the United States or the UK

pertaining to employee use or abuse of social media, and

no statutes or regulations specifically govern such conduct.

Currently, an employer’s management of its and its

employees’ use of social media must be guided by the

basic principles related to employee privacy rights and

protections, anti-discrimination and harassment law,

intellectual property law, free speech concerns, and other

applicable law.

The role of intellectual property law in social media is fairly

straightforward, and an employer should not be inhibited in

any way from policing or enforcing its right to protect its

intellectual property from being exploited on social media

sites. However, anti-discrimination and harassment laws,

laws protecting an employee’s right to engage in lawful offduty

conduct, privacy rights and other concerns such as

free speech rights, play a larger role in shaping how an

employer may use, or control its employees’ use of, social

media.

In the United States

An employer can and should always prohibit employees

from posting anything that amounts to unlawful harassment

or discrimination. Title VII of the Civil Rights Act of 1964

and its amendments323, as well as numerous state laws,

prohibit harassment of employees by other employees

based on certain protected characteristics. What conduct

constitutes harassment based on a protected characteristic

and whether such conduct is sufficiently severe or

pervasive to be unlawful are often difficult to unravel. To

further complicate the issue, and to reiterate, several states

prohibit employers from taking adverse action against an

employee for engaging in lawful, off-duty conduct.324 It is

therefore unclear in some states whether an employer

may, for example, lawfully discipline an employee for

posting, on his or her own time and equipment, sexist or

racist jokes on his or her MySpace page.

By the same token, case law is still unclear on what, if any,

circumstances expose an employer to vicarious liability for

an employee’s alleged harassment of another on a social

media site. One court recently held that an employer was

not liable for an employee who used his company phone

and computer to harass non-employees. Another

dismissed a negative supervision claim because it was not

reasonably foreseeable that unsupervised Internet access

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would result in harm to others. In another decision, the

same court held that an employer is only required to

prevent foreseeable on-the-job misconduct, not to

supervise an employee’s private conduct or persistently

scan the World Wide Web to ferret out potential employee

misconduct. 325 Nevertheless, in the Title IX context (which

prohibits harassment of students on the same bases and

imposes liability for such harassment on schools in certain

circumstances), parents have sought to hold schools liable

for, inter alia, the use of Facebook and other social media

sites to “sexually harass” their children.326 However,

because the cases also included numerous other types of

alleged harassment, such as face-to-face confrontations,

etc., it is difficult to tell what role, if any, the content on

Facebook played in determining whether the school did (as

in one case) or did not (as in the other) have any liability for

the alleged harassment.

Other examples of where an employer must use caution

are whether to prohibit and/or discipline employees for

social media content that could arguably be construed as

“protected, concerted activity” under the National Labor

Relations Act327, or where the disciplinary actions may be

illegal retaliation under a host of federal, state, and local

anti-retaliation statutory provisions. Under the NLRA, for

instance, an employee may be free to express his/her

opinion on working conditions, even if it is derogatory to the

company and/or other employees. Employee privacy rights

may also play a role, depending upon how the employer

became aware of the offending conduct. Finally, to repeat,

government employers must consider their employees’

First Amendment and similar rights if the scope of the

prohibited use of social media arguably affects an

employee’s right to speak on an issue of public concern.

In the UK

Because of anti-discrimination legislation and contractual

and statutory obligations upon employers to protect

employees from harassment, employers can prohibit

employees from posting content that bullies, harasses or

discriminates against their co-workers. Although we are

starting to see cases before the Employment Tribunals

which test the boundaries of these protections, as indicated

above, there are a number of open questions as to the

circumstances in which an employer can take action

against an employee who behaves inappropriately toward

a co-worker through social media.

In France

As in the United States and the UK, there are neither

statutes nor regulations specifically governing employee

use of social media.

The first employment law rulings on questions of social

media in the workplace are eagerly awaited, particularly as

regards the courts’ treatment of the issue of whether

evidence collected through social media is admissible.

However, there is some recent case law in related areas

(dealing with issues such as new technologies, monitoring

of employee behavior and data protection) that may

provide us with clues on the position of the French

Supreme Court328, as regards the importance of the

protection of employee civil liberties when faced with the

interests, rights and obligations of entrepreneurs.

For example, the first Supreme Court decision on the

Sarbanes Oxley whistleblowing obligations was rendered in

December 2009 to a frenzy of media attention. In this case,

involving a leading French software company, the

whistleblowing policy was contained within a Code of

Conduct that also included rules on the use of information

classed both as confidential and also “for internal use.” The

chapter on whistleblowing was held as being in violation of

data-protection laws and as not providing enough

protection to employees, whilst the rules on the treatment

of information “for internal use” were held to be in breach of

freedom of expression and of a separate collective right of

expression enjoyed by employees with regard to their

working conditions329.

Another trial court case on whistleblowing held that the

facility to denounce delinquent conduct through an intranet

site did not sufficiently protect employee rights, as proper

procedure as regards the staff representatives had not

been respected and the examples of targeted behavior

were much wider than those aimed at by the Sarbanes

Oxley legislation330.

Finally, case law surrounding blogging and online

communication by trade unions and staff representatives or

employees in contentious situations with their employer

usually considers the level of public access to the chosen

media, as well as the content and the context of the

publications in order to reconcile the conflicting rights and

interests of the concerned parties.

Social media and its associated advantages and risks are

now inextricably linked with other topical HR subjects, such

as stress and psychosocial risks, harassment,

discrimination and diversity, the growing status of the

CHSCT (Health and Safety at Work Committee), etc. For

these reasons alone, Social Media cannot be ignored.

Employers must consider developments in these other

areas and factor such considerations into the drawing up or

revision of company policies and handbooks, IT charters,

codes of ethics, etc. Finally, when considering the drafting

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and implementation of any such documents, French

employers must pay attention to possible procedural

obligations in terms of staff representatives, as well as

guidelines and regulations set down by organisations such

as the HALDE and the CNIL.

Bottom Line—What You Need To Do

If your company has not developed policies for use of social media by your employees, do it now. A properly drafted and

enforced policy on the use of social media by employees is an employer’s most effective tool in protecting itself against legal

liability and harm to its reputation, and good will from the use of social media.

In most cases, a properly drafted policy pertaining to employee use of social media will assist an employer in protecting its

interests and guiding employees on acceptable and unacceptable online behaviour. However, policies are not one-size-fits-all.

They must be tailored to the culture, needs and realities of your specific workplace.

Some elements to consider in creating and implementing a social media use policy include: (1) stressing the ownership and

ability to monitor the company computer system(s) and related equipment, and explaining that no duty of privacy can be

expected with the usage of these systems; (2) the company’s level of tolerance for personal use of social media; (3) whether

the company should permit or even require use of social media for marketing and business development; (4) how the company

will handle employees who post arguably inappropriate, but not unlawful, posts such as illicit photos, profanity or other

potentially derogatory content; (5) how the company will comply with laws protecting employees’ rights to engage in lawful offduty

conduct, but still ensure nothing damaging is posted online; (6) how the company will train employees, once the policy is in

place, so they understand what is forbidden (for example, one person’s definition of “crude” may vary from another’s); (7) how

the company will monitor compliance with and enforce the policy; (8) what the repercussions will be for violations; and

(9) keeping the policy simple and reactive to ever-morphing social media.

Employees need guidance in their use of social media: every employer should have such a policy in its Employee Handbook,

and should strictly monitor and enforce compliance, or face exposure to currently unknown legal or professional risk.

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— CHAPTER 7 —

Food and Drug Administration

Chapter Authors331

Colleen T. Davies, Partner – cdavies@reedsmith.com

Celeste A. Letourneau, Partner – cletourneau@reedsmith.com

Tisha H.B. Schestopol, Counsel – tschestopol@reedsmith.com

Kevin M. Madagan, Senior Associate – kmadagan@reedsmith.com

Jennifer L. Pike, Associate – jlpike@reedsmith.com

Jillian W. Riley, Associate – jwriley@reedsmith.com

Introduction

Social media, the now-entrenched Internet and smart-phone phenomenon, enables decentralized, real-time communication

among small and large groups of individuals, organizations and businesses. This fast-paced, interactive communication venue

supports quickly evolving content that is available instantaneously and can be retransmitted exponentially to a broad audience.

The amorphous nature of social media, however, renders it unpredictable and elusive – two characteristics that can pose unique

challenges, especially with regard to advertising, for regulatory authorities and the companies they regulate. One of these

authorities, the U.S. Food and Drug Administration (“FDA”), has jurisdiction over manufacturers and distributors of medical

products, including prescription drugs, biologics, medical devices, and emerging biotechnology products.

The following chapter explains why the FDA-regulated prescription drug and medical device industry has been very slow to adopt

social medial, even though other business sectors have fervently embraced social media as a product marketing tool. It also

reviews FDA’s emerging policy on social media activities, and identifies potential risks associated with using social media to

disseminate promotional messages about FDA-regulated prescription products. Suggestions on how to proceed in the current

environment are also provided.

Social Media in Action in FDA-Regulated

Industry

Conversations through online social media communities

among health care professionals and consumers about

FDA-regulated products and disease-states are happening

all the time. Sermo®, for example, one of the largest online

physician social networks spanning 50 states, was

launched in 2006 to provide a venue for physicians to

exchange observations in real-time about drugs, devices,

and clinical issues.

Consumers are equally active on social media. A 2012

report by Pricewaterhouse Coopers LLP indicated that one

third of U.S. consumers use social media sites such as

Facebook, Twitter, and YouTube for health-related matters.

These include forums for seeking information on specific

diseases, about medical treatment, and for communicating

opinions about drugs and devices.332 Forty-five percent of

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consumers said information found via social media would

affect their decisions to seek a second opinion, and roughly

40% of consumers said they have used social media to find

health-related consumer reviews.

It should come as no surprise, then, that manufacturers of

FDA-regulated prescription products want to engage their

customers through social media. Unfortunately, their ability

to do so is hindered significantly by FDA regulations that

were written before the social media phenomenon.

FDA-regulated companies are not avoiding social media

entirely; many have a social media presence through

company blogs, Facebook, YouTube, LinkedIn, and Twitter

accounts. But prescription product marketing through social

media largely has been restricted to create a more

controlled environment. To the extent that these social

media platforms are being used to disseminate promotional

information about prescription products, the very features

that make the media “social” – such as the ability to post a

responding comment – have been disabled, and likely shall

remain disabled, until FDA issues more definitive guidance

about how FDA-promotional regulations will apply to social

media.

Current Regulatory Framework for

Promotional Communications

FDA’s advertising regulations were developed at a time

when advertising largely was limited to print, television, and

radio advertisements, which are, for the most part, static

cohesive swaths of information that are unchanged by

others’ comments, reactions, or discussion. The underlying

principles of these regulations require that promotional

messages be truthful, non-misleading, and fairly balanced

between the benefits and risks associated with a particular

product.333

Promotional Standards for Prescription Drugs

– 21 C.F.R. § 202.1

Promotional pieces:

 Cannot be false or misleading in any particular.

 Must reveal material facts about the product being

promoted, including facts about the consequences

that can result from use of the product as suggested in

the promotional piece.

 Should present information about effectiveness and

information about risk in a balanced manner.

When FDA evaluates a promotional message for

compliance with 21 C.F.R. § 202.1 and other advertising

standards, the agency looks not just at specific product

claims and risk-related statements, but at the net

impression of each message (i.e., the collective message

communicated by all elements of the communication).

Characterization of data, broadening of approved

indications, minimization of risks, and claims of superiority

from improper comparisons to other products are not

permitted.

In practice, this means that every promotional

communication about a prescription product generally

follows a scripted protocol for disclosing benefits and risks

and providing access to all material safety and efficacy

information about the product contained in the product’s

prescribing information.

Protocol for Promotional Communications

(Examples)

 Benefit and risk information must be presented in

clear, understandable, and non-technical language for

the intended audience.

 The quantity and treatment of risk information must be

comparable to the quantity and treatment of benefit

information, including how it is conveyed.

 Except for “reminder” advertisements, every

promotional communications must disclose the

complete product indication and provide access to the

product’s full prescribing information.

 Headlines and subheads should be consistent for both

benefit and risk information.

 The communication must include material information

(i.e., information that is objectively important, relevant,

or substantial to the target audience) about the

product’s risks.

 Risk information should appear as an integral part of

the main communication. (FDA will consider whether

the placement of risk information interferes with

readers’ perceptions of the relative importance or

utility of the information.)

 White space (i.e., background space between and

around letters) must be considered at all times

because it influences the prominence and readability

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of text and will be considered by FDA when the

agency evaluates a promotional communication.

When these, and other, advertising standards are applied

to a new social-media technology (e.g., Twitter, Pinterest,

Flickr, Facebook) – where communications are not static

and there is loss of control over the presentation of

information – applying regulatory standards can be

challenging, to say the least.

How does a company ensure a fair and balanced

presentation of important efficacy and safety information

within a social media environment without interfering

significantly with the discussion or social media stream?

Given these standards, is it even possible for a company to

fully utilize a social media platform as it was intended

without removing the “social” aspect?

FDA’s Emerging Social Media Policy

Since the inception of the Internet, and wide adoption and

acceptance of social media, the FDA-regulated drug and

device industry has been without formal FDA guidance or

standards governing product promotion in these venues –

resulting in confusion about how to interpret and apply

traditional statutory provisions, regulations, and policies

concerning advertising and promotional labeling to Internetand

social-media- based communications.334

In 1996, FDA held public hearings on Internet advertising

and promotion, promising to issue regulations or guidance

about this complicated issue.335 This initiative, however,

lost momentum and FDA went silent on the issues for the

next three years.

In 1999, FDA informed its regulated industry that it would

look at Internet issues on a case-by-case basis, while

reserving the right to reevaluate the need for regulations in

the future.336

Then a decade passed without much from FDA.

In 2009, FDA renewed its interest in addressing Internet

communications and acknowledged the increasingly

unique nature of the Internet and social media as a

marketing tool and venue. Similar to the 1996 approach,

the Agency held a public hearing about how the statutory

provisions, regulations, and policies concerning advertising

and promotional labeling for prescription products should

be applied to product-related information on the Internet

and social media. The hearing was very productive and

triggered FDA’s current initiative to draft multiple guidance

documents about this issue.

We know FDA has not lost interest in this topic and has

been working diligently to issue guidance. But five years

have now passed without much additional guidance.

Indeed, from 2009 to early 2014, the Agency has merely

reiterated a position it has held now for almost twenty years

– that FDA’s advertising and promotion rules apply

“regardless of the medium used.”337 This lack of guidance

creates uncertainty for companies and their promotional

review teams whose responsibility it is to ensure that their

company’s promotional materials comply with applicable

requirements.

To be fair, in early 2014, FDA did issue a draft guidance

instructing industry on how to comply with Form 2253 postmarketing

submission requirements for dynamic materials

and content in social media.338 As explained later in this

chapter, however, the draft guidance does not address

myriad other unsettled issues that prevent many FDAregulated

companies from fully embracing social media as

a promotional tool.

1994 2015

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

1994

200+ Web servers online

Yahoo launched

EarthLink

1997

1 million websites

Blogging begins

AOL Instant Messanger

SixDegrees.com

1998

Google launches

2000

70 million computers connected to Internet

2004

8 billion webpages

YouTube launches

2003

3 billion webpages

AOL has 34 million users

LinkedIn launched

MySpace launches

Friendster launches

2006

25 billion webpages

1+ billion Usenet messages

Twitter launches

Facebook expands membership (to anyone over 13)

2010

400 million Facebook users

1.97 billion Internet users

2009

58 billion web pages

200 million Facebook users

2012

1 billion Facebook users

2 billion use social media

2013

500 million Twitter users

225 million LinkedIn users

156 million blogs

4.87 Pinterest users

Social Media

Evolution

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Current Approach to Manage Risk

Without any formal guidance from FDA about how to apply

FDA’s advertising standards to social media, the drug and

device industry must painstakingly scrutinize individual

enforcement actions against companies that have created

and used websites and social media to promote their

products.

To date, these enforcement actions have clarified many

things about FDA’s policy on the use of websites and social

media:

 FDA will review any social media communication

through existing FDA regulations. The chart of

enforcement actions listed at the end of this chapter a

testament to this fact.

 The “one-click” rule does not exist; every promotional

communication through social media must contain

comprehensive product information, including safety

information. The FDA-regulated drug and device

industry once believed that FDA’s requirement to

provide comprehensive product information, including

safety information, in promotional material could be

satisfied if such information was directly accessible

from a link in the original promotional piece (i.e., no

more than one click away). This rule was commonly

referred to as the “one click” rule. The rule was

dispelled when FDA issued 14 enforcement letters in

2009 to companies for their failure to include sufficient

risk information in Google banner advertisements. 339

These letters revealed FDA’s thought on the “one

click” rule, and sent shock waves throughout the

industry, causing many companies to reassess their

Internet marketing strategies. FDA subsequently

stated that it “never had what some are referring to as

a ‘one-click rule.’”

 Activities on social media pages, including Facebook

and Twitter, are subject to scrutiny by the FDA. In

early 2014, for instance, FDA warned a drug company

about statements the company made on its Facebook

page.340 The alleged violations themselves were

straightforward and similar to more traditional

advertising actions: failure to include risk information

and omission of material facts. What makes this letter

interesting is that the activity occurred on a social

network. FDA has been issuing letters like these

since 2011.

 The need to take corrective action will depend on

whether and to what extent a company controls (or

could control) a social media environment. FDA

issued a Warning Letter to a company in 2011

because, among other things, consumers posted

several disease-related testimonials on the company’s

Facebook page.341

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 Any communication through social media may be

interpreted as a promotional activity. In December

2012, FDA issued a Warning Letter to a dietary

supplement company because the company, among

other things, “liked” a post on its Facebook wall posted

by a customer. FDA stated that the company’s

promotional activities, including “liking” the Facebook

post, suggested that the product was a drug because

it is intended for use in the cure, mitigation, treatment,

or prevention of disease.

These and other enforcement letters are listed in the chart

at the end of this chapter. We will periodically update this

chapter throughout the year.

Regulatory Difficulties Presented by Social

Media Remain Unresolved

Level of Control

The use of social media is growing exponentially, and FDAregulated

industry cannot monitor every social-media

communication related to its products. Industry does not

want to be held liable for content that it does not generate

or encourage. Industry does not want to be held

accountable for social media that is posted or becomes

part of a website without their permission or knowledge.

But industry also understands that it may be liable for some

content depending on its ability to influence or control the

environment through which the content is communicated.

Although FDA’s recent draft guidance about Form 2253

submissions (discussed later in this chapter) allude to

control as a factor considered by FDA when determining

when and how to submit a Form 2253, industry needs

more guidance from FDA about how control and

responsibility relate to promotional activity in the social

media context.

Transparency

FDA and industry need to work together to ensure

consumers have access to accurate and truthful

information about FDA-regulated products by making it

easier to distinguish between third-party and company

controlled website content.

Space Limitations

Industry wants FDA to account for the evolving nature of

social media and space constraints. Stakeholders want

guidelines or regulations regarding dissemination of risk

information that are principle-based and applicable to

multiple formats, social media included.

Despite FDA’s position on the one-click rule, many have

called for FDA to adopt a modified version of the rule by

allowing a company to present a brief introduction of its

product (e.g., an abbreviated reference to the product’s

indication and its most significant risks) based on the space

constraints of the media itself, provided there is also easy

access to full product information through a hyperlink.

Third-Party Social Media

By participating in an online discussion through social

media (e.g., real-time chat room), companies are

concerned that they may be held responsible for any

statements made during the discussion, even by unrelated

third parties. Industry is calling for FDA to permit

companies to engage in online discussions without

becoming responsible for all content, provided that its

communications are truthful, non-misleading, and in

accordance with any FDA standards for providing risk

information. Many want FDA to provide them the freedom

to determine whether and when to participate in or to

correct information on third-party sites.

FDA has provided some guidance about how to respond to

off-label questions on public social-media sites, but further

clarification is needed about how a company may interact

on third-party platforms.

Off-Label Discussions

Given today’s regulatory environment, where

manufacturers are routinely held responsible for anything

involving their products, there is trepidation that any offlabel

discussion or reference on an interactive social media

site, even if it is a professional site for scientific

exchange,342 will impute knowledge and consent of an

unapproved use to the manufacturer.343 If knowledge and

consent are imputed in this way, then the manufacturer

could be held liable for promoting an unapproved use.

On December 27, 2011, FDA took some measures to

address these concerns when it issued a draft guidance

entitled "Responding to Unsolicited Requests for Off-Label

Information About Prescription Drugs and Medical

Devices."344 The draft guidance clarifies FDA's policies on

unsolicited requests for information, and includes some

discussion about how a company should respond to

unsolicited requests made through the Internet and social

media.

Specifically, FDA makes the following recommendations to

a company that chooses to respond to public unsolicited

requests for off-label information about its product(s),

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including those encountered through emerging electronic

media.

 If a firm chooses to respond to the public request, the

firm should respond only when the request pertains

specifically to its own named product (and is not solely

about a competitor’s product).

 Representatives who respond to the request should

clearly disclose their involvement with the company.

 The response should not be promotional in nature or

tone.

 The response should convey that the question

pertains to an unapproved or uncleared use of the

product and state that individuals can contact the

medical/scientific representative or medical affairs

department with the specific unsolicited request to

obtain more information.

 The response should provide specific contact

information for the medical or scientific personnel or

department (e.g., e-mail address, telephone number,

and facsimile) so that individuals can follow up

independently with the firm to obtain specific

information about the off-label use of the product

through a non-public, one-on-one communication.

In sum, a response to an off-label request should be limited

to providing the firm’s contact information for appropriate

dissemination and should not include any discussion of the

off-label information.

If a firm responds in the manner described above, the draft

guidance states that FDA “does not intend to use such

responses as evidence of the firm’s intent that its product

be used for an unapproved or uncleared use.”

Enforcement decisions under the FDCA, however, are not

solely FDA’s province. The Department of Justice (“DOJ”)

represents FDA in formal enforcement actions and does

not always agree with FDA. The DOJ has a history of

scrutinizing conduct that it views as being inconsistent with

FDA guidance.

Form 2253 Submissions

FDA requires all prescription drug labeling and advertising

to be submitted at the time of initial dissemination through

an FDA Form 2253.345 Because some social media

communications (e.g., real-time chat room discussions)

are, in many regards, analogous to live discussions taking

place between company sales representatives and health

care professionals, many in the industry believe the Form

2253 reporting requirement for social media should be

limited to some extent.

FDA addressed some of these concerns in a draft

guidance instructing industry on how to comply with postmarketing

submission requirements associated with

promotion in the social media realm.346 The draft guidance,

issued in early 2014, outlines the types of social media

activity that should be submitted for FDA review and the

format of those submissions.

The critical element in determining whether FDA

submission is required for product promotion on interactive

social media is the degree of control or influence the drug

company can exert over the website. If the company

controls the promotion, regardless of whether it controls the

entire site, the company needs to submit it to FDA for

review. This control or influence standard extends to

conduct of a drug company’s employees and agents.

As to timing, the draft guidance says that submissions

should be provided to FDA at the time of the initial

dissemination and that the companies should provide

monthly updates including a list of all sites where the

company engages in interactive promotion. For password

protected sites, the submissions need to include

screenshots or other media to recreate for FDA what

member-users see. Underscoring the limitations of existing

mechanisms and processes for reviewing social media,

these submissions should contain annotations to highlight

for FDA which parts of the sites are interactive and thus

subject to change.

Next Steps at FDA

FDA has promised repeatedly that it intends to issue

multiple guidance documents on issues specific to the

challenges presented by social media promotion.347 In an

interview published in April 2013 on the now defunct

Pharmalot blog348, the Director of the FDA Office of

Prescription Drug Promotion (“OPDP”), Thomas Abrams,

stated that the development and issuance of guidance for

social media was “among the highest of FDA’s

priorities.”349

In response to the question of why it has taken the FDA so

long to issue guidance documents, Abrams pointed to the

concern that social media technology is constantly

changing making it a moving target.

"It takes time because we follow good guidance

practices and we want guidances that are well vetted

and really address relevant issues, and stay relevant

for a time period. It would be easier to come out with a

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guidance in a shorter time that may not be relevant as

technology changes. One thing we know is that we

can't predict it, but we know technology is going to

keep changing quicker and quicker. So we want this

guidance to be applicable, regardless of which

technology platform comes in the future or changes

that existing platforms may make in the future."

Abrams was less clear when asked specifically for an

actual date when the industry can look forward to formal

guidance from the FDA.

"We are striving to make it as soon as possible. I'll be

honest with you. As soon as we're able to issue these

– we're not waiting for a deadline or we're not waiting

for an event to occur. We are working very, very

thoroughly and very hard – people are putting in extra

hours ... And as soon as we can issue these, we will

issue them. We are as anxious to issue them as

industry is anxious to receive them. So we're not

waiting for a deadline or a timeframe. As soon as they

are ready and we are happy they are good products

that are well vetted and will remain relevant for a good

time period, we will issue guidance."

Regardless, FDA has taken its first few steps in what has

been (and will continue to be) a very long process within

the agency to establish a framework for regulating social

media, provide guidance to the industry, and find a way to

adapt to emerging technologies.

Given that agencies such as the Federal Trade

Commission (FTC) and Securities Exchange Commission

(SEC) issued social media guidance in 2012 and 2013, and

FDA issued the FDA Form 2253 submission guidance in

early 2014, it seems likely that FDA will issue at least one

additional social media guidance document in 2014, but

some skepticism is warranted.

Indeed, the prescription drug and device industry remains

today in the same position it’s been in for the past two

decades: anxiously waiting for formal guidance from FDA.

Bottom Line—What You Need To Do

To Mitigate Risk

Until FDA issues formal guidelines or promulgates new regulations governing the Internet or social media, assume that FDA will

review any social media communication through existing FDA regulations.

Assume that all activity on social media networks, including Facebook and others, will be scrutinized by the FDA.

Develop policies governing employee use of social media.

Closely monitor and enforce these policies.

Closely track FDA warning and untitled letters to identify and avoid the mistakes your peers make when they communicate

through social media.

Participate in FDA meetings open to the public and provide FDA with information when requested.

Pay attention. FDA’s Internet and social media policy may emerge quickly over the next two years. There will likely be an

opportunity to respond to draft guidance documents, FDA/industry hearings, and draft regulations.

Consider following FDA draft guidance documents even though these guidance documents may be revised before they become

final (e.g., FDA’s draft guidance entitled "Responding to Unsolicited Requests for Off-Label Information About Prescription

Drugs and Medical Devices").

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Other Considerations About Social Media – Not Related to Promotional Activity

Adverse Event Reporting

 Adverse event reporting regulations could be interpreted in a way that would require a company to monitor social media

sites, and investigate adverse event information learned from such sites.350

 FDA could encourage the use of data-mining technologies to help identify trends and patterns in patient communications

about adverse events that would trigger further analysis by FDA or the industry. FDA itself has been soliciting contractors to

provide real-time analyses of online consumer messages related to FDA-regulated products.

Mobile Medical Devices

 FDA’s regulation of mobile medical devices is evolving. FDA’s regulation of mobile medical devices might impact your

company’s approach to social media.

FDA SOCIAL-MEDIA ENFORCEMENT ACTIONS

Company Date Key Issue Citation

Institut Biochimique SA

(IBSA)

February 24, 2014 The Facebook webpage was deemed false or misleading

because it made representations about the efficacy of

Tirosint, a black box drug, but failed to communicate the

full product indication or any risk information.

http://www.fda.

gov/downloads/

Drugs/Guidanc

eComplianceR

egulatoryInform

ation/Enforcem

entActivitiesbyF

DA/WarningLet

tersandNoticeof

ViolationLetters

toPharmaceutic

alCompanies/U

CM388800.pdf

Various Companies June 15, 2013 FDA issued a series of Warning Letters to companies

making claims related to the prevention and treatment of

diabetes for unapproved drugs and devices.

FDA advised each company to “review all the information

on your websites, including testimonials, social media

websites (e.g., Facebook and Twitter), product labels, and

other labeling and promotional materials for your products

to ensure the claims you make are not in violation of the

FD&C Act. It is your responsibility to assure compliance

with all requirements of federal law and FDA regulations.”

Example:

http://www.fda

.gov/ICECI/En

forcementActi

ons/WarningL

etters/2013/uc

m361849.htm

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Oasis Consumer

Healthcare

February 11, 2013 FDA issued a Warning Letter to Oasis, stating that Oasis’

claims on its website, as well as claims on its Twitter page

and Facebook page, fell outside the scope of the product’s

OTC monograph.

http://www.fda

.gov/ICECI/En

forcementActi

ons/WarningL

etters/2013/uc

m339773.htm

AMARC Enterprises December 11, 2012 FDA issued a Warning Letter to AMARC Enterprises, a

dietary supplement company, because the company,

among other things, “liked” a post on it Facebook wall

posted by a customer. FDA stated that AMARC’s

promotional activities, including “liking” the Facebook post,

suggested that its dietary supplement Poly-MVA was a

drug because it is intended for use in the cure, mitigation,

treatment, or prevention of disease.

http://www.fda

.gov/ICECI/En

forcementActi

ons/WarningL

etters/2012/uc

m340266.htm

Quincy Bioscience

Manufacturing

October 16, 2012 Quincy received a Warning Letter from the FDA in which

the FDA stated that Quincy was promoting its products as

drugs without an NDA. Therefore Quincy was promoting

an unapproved drug in violation of the Food, Drug, and

Cosmetic Act. FDA pointed to claims made by Quincy on

both Quincy’s website and on Facebook.

http://www.fda

.gov/ICECI/En

forcementActi

ons/WarningL

etters/2012/uc

m324557.htm

Trinity Sports Group August 28, 2012 FDA issued a Warning Letter to Trinity stating that Trinity

was promoting its products as drugs without drug approval

in violation of the Food, Drug, and Cosmetic Act. In

addition to making claims on its website, FDA pointed to

claims made on Trinity’s Facebook page, including

statements made by Trinity in the “About” section of the

Facebook page, and statements made on the Timeline

section of the Facebook page. Additionally, FDA also

observed therapeutic claims made by Trinity on its Twitter

page.

http://www.fda

.gov/ICECI/En

forcementActi

ons/WarningL

etters/2012/uc

m318392.htm

Vitality Distributing, Inc. April 24, 2012 Vitality received a Warning Letter from FDA for promoting

its caffeine product as a drug without FDA approval in

violation of the Food, Drug, and Cosmetic Act. In addition

to statements made on its website, FDA also cited Vitality

for posting on its Facebook and Twitter pages links to a

third party article which made claims about the therapeutic

effects of caffeine.

http://www.fda

.gov/ICECI/En

forcementActi

ons/WarningL

etters/2012/uc

m301669.htm

Fatigued to Fantastic April 18, 2012 FDA issued a Warning Letter to Fatigued to Fantastic

stating that the company was making therapeutic claims

about its products, which were not approved by the FDA.

Fatigued to Fantastic was therefore promoting an

unapproved drug in violation of the Food, Drug and

Cosmetic Act. FDA also cited the company for including

links on its Facebook page to its website, where the

improper claims were made.

http://www.fda

.gov/ICECI/En

forcementActi

ons/WarningL

etters/2012/uc

m301795.htm

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

Nature’s Rite September 19, 2011 Nature’s Rite received a Warning Letter from FDA

because it was promoting its products in such ways as to

cause the products to be drugs. Because FDA did not

approve the products, Nature’s Rite was promoting an

unapproved drug in violation of the Food, Drug, and

Cosmetic Act. In addition to claims made on its website,

FDA also noted a post made by Nature’s Rite on its

Facebook page in which the company made a therapeutic

claim about its product.

http://www.fda

.gov/ICECI/En

forcementActi

ons/WarningL

etters/ucm273

464.htm

Cellular Rx May 25, 2011 Cellular Rx received a Warning Letter from FDA for making

therapeutic claims about its products. The claims

established that the product was a drug, but the products

did not have FDA approval. Therefore, Cellular Rx was

promoting an unapproved drug in violation of the Food,

Drug, and Cosmetic Act. FDA noted several testimonials

posted on Cellular Rx’s Facebook page that made disease

claims.

http://www.fda

.gov/ICECI/En

forcementActi

ons/WarningL

etters/2011/uc

m256922.htm

AloeElite March 30, 2011 FDA issued a Warning Letter to AloeElite stating that the

company was making therapeutic claims about its

products, which were not approved by the FDA. AloeElite

was therefore promoting an unapproved drug in violation

of the Food, Drug and Cosmetic Act. In addition to claims

on its website, FDA also pointed to a therapeutic claim in

the “About” section of AloeElite’s Facebook page.

http://www.fda

.gov/ICECI/En

forcementActi

ons/WarningL

etters/ucm253

987.htm

Various Companies April 2, 2009 FDA issued enforcement letters on April 2, 2009 to 14

companies for their failure to include sufficient risk

information in Google banner advertisements.

http://www.fda

.gov/Drugs/G

uidanceComp

lianceRegulat

oryInformatio

n/Enforcemen

tActivitiesbyF

DA/WarningL

ettersandNoti

ceofViolationL

etterstoPharm

aceuticalCom

panies/UCM0

55773#

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

— CHAPTER 8 —

Government Contracts & Investigations

Chapter Authors

Andrew L Hurst, Partner – ahurst@reedsmith.com

Erin Felix, Associate – efelix@reedsmith.com

Daniel Z. Herbst, Associate – dherbst@reedsmith.com

Joelle E.K. Laszlo, Associate – jlaszlo@reedsmith.com

Introduction

This chapter looks at the relationship between social media, government contractors, and those businesses regulated by the

government or subject to government investigations.

With new and developing social media platforms, government agency Facebook pages, YouTube channels, blogs and Tweeters

have begun to emerge and proliferate. The General Services Administration (“GSA”), Small Business Administration (“SBA”) and

Office of Management and Budget (“OMB”), Health and Human Services (“HHS”), and Centers for Disease Control and

Prevention (“CDC”) have all been early pioneers of social media and micro-sites. Today, a great number of federal and state

agencies utilize at least one form of social media in furtherance of their agency mission. This interaction among government and

the public using social media is what is commonly referred to as “gov 2.0.” Not only are agencies themselves using social media

to interact, but government employees, government contractors and their employees, and companies regulated by the

government and their employees are all exchanging information using social media as well.

These new platforms provide increased ability to access and interact, but also create significant legal risks to those that have

contractual or regulatory interactions with the government.

Social Media in Action in Government

Contracts & Investigations

Government Contracts

State and federal government contractors have a

particularized interest in social media experience because

they often obtain access to sensitive government

information and systems, and as a result will be required to

comply with government regulation of social media. Risks

to information and system security, to privacy, and other

risks associated with the use of social media prompted the

federal Chief Information Officer (“CIO”) Council to issue

Proposed Guidelines on the Use of Social Media by

Federal Departments and Agencies in September 2009,

and to supplement these guidelines over time.351 The

CIO’s proposed guidelines note pervasive risks associated

with social media, suggest that each agency must make

individual cost benefit calculations prior to creating an

agency social media interaction, and recommend a series

of both non-technical/policy and technical security controls

to protect government information and security.

As each government agency adopts policies and guidelines

for the use of social media in order to manage behavior of

government employees and interaction with the public,

government contractors must understand and maintain

compliance with each agency’s internal policies or face

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potential pitfalls associated with non-compliance. In

particular, contractors who have access to government

computers and information systems or sensitive and

classified information will be required to establish robust

compliance programs in place for security. Contractors

whose employees have access to government computers

or computer systems are at the greatest risk, and must

take a proactive approach in ensuring employees are

properly trained to protect sensitive information.

Contractors who fail to address these issues may be

prevented from obtaining government contracts, may find

themselves in breach of their contractual obligations or

government security policies, or may be subject to civil or

criminal liability for disclosure. Moreover, contractors

without internal social media compliance programs subject

themselves to the same privacy, security, and other risks

associated with social media that concern the government.

In addition, companies providing social media platforms to

the government must also be aware of specialized

procurement and contracting regulations, and increased

transparency in providing services to the government. The

government has taken a close look at how procurement

rules relate to companies offering social media tools to

government agencies and their employees.352 Further,

government contractors who provide social media services

to the government are subject to increased transparency,

such as freedom of information act requests regarding their

provision of services to the government. In August 2009,

the Electronic Privacy Information Center (“EPIC”)

compelled disclosure of government contracts with

Facebook, Google (YouTube), Blip.tv, Blist, Yahoo! (Flickr)

and MySpace.353 Some of the agreements allowed

companies to track users of government websites for

advertising purposes. Accordingly, social media providers

who contract with the government must be aware of the

disclosure risks of contracts from legal and public relations

perspectives.

Finally, as a result of gov 2.0, government information and

communications are happening faster and being shared

with a wider audience. Gov 2.0 utilizes social media

technologies to make networking and engagement with the

public simple and powerful, make research faster, identify

influencers in useful micro-niches, provide mechanisms for

combating negative publicity, and measure public

sentiment to help inform public policy. Government

contracts similarly may utilize social media as a strategic

tool to increase access and communication with the

government, and influence policy and perception to better

position itself to receive government contracts and grants.

Government contractors can develop strategies consistent

with applicable laws and policies to take advantage of gov

2.0, and use social media as a tool to their competitive

advantage in interacting with the government.

Government Investigations

Companies and individuals that are subject to civil or

criminal investigations are frequently confronted with

information derived from social media. . Social media

users create a staggering amount of data that government

investigators routinely harvest in investigating civil or

criminal culpability of individuals and their employers and

utilize the resulting evidence in criminal or civil enforcement

.proceedings and prosecutions This vast social media

data pool includes several useful data points for

investigators, including, among other things, the users’

contacts and affiliates, likes, dislikes, and tastes, habits

and preferences, and real time location data. Law

enforcement agencies are highly attuned this wealth of

investigative data, and investigators routinely mine social

media for leads and evidence in investigations. See Role

of Social Media in Law Enforcement Significant and

Growing (7/18/2012) available at

http://www.lexisnexis.com/risk/newsevents/pressrelease.

aspx?id=1342623085481181 (noting that in July

2012, more than 80% of government investigations include

some form of social media and that the number is growing).

Government agencies recognize that significant useful

information may be publicly available on social media

through a click of the mouse. See U.S. Dep’t of Home

Sec., Privacy Impact Assessment for the Office of

Operations Coordination and Planning: Publicly Available

Social Media Monitoring and Situational Awareness

Initiative 3 (April 1, 2013)

https://www.dhs.gov/sites/default/files/publications/privacy/

PIAs/privacy_pia_ops_NOC%20MMC%20Update_April201

3.pdf. A somewhat recent example of government

investigative use of social media involved antivirus

company founder, John McAfee. In December 2012,

McAfee, was under investigation for alleged death of a

neighbor in Central America. Rather than answer the

authorities investigation, McAfee went into hiding. When

an iPhone photo of McAfee containing GPS location

information was posted on a publicly available blog, law

enforcement harnessed the lead, and McAfee found

himself in a Guatemalan prison. See How smartphone led

to John McAfee's capture (Dec. 6, 2012)

http://www.cbsnews.com/news/how-smartphone-led-tojohn-

mcafees-capture/

Courts have held that limited Constitutional and statutory

protections proscribe collection of data publicly

disseminated by a social media user under the

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“reasonable expectation of privacy standard” set forth by

the U.S. Supreme Court in Katz v. U.S. One court recently

held that Twitter must produce user information in

response to a criminal subpoena. See People v. Harris,

Case No. 2011NY080152, 2012 WL 2533640 (N.Y. Crim.

Ct. June 30, 2012). In Harris, the court denied Twitter's

motion to quash a subpoena to obtain a user's information,

email address, and posts for a certain time period.

Although Twitter argued that the user owns his tweets, the

court held that users do not have standing to object to the

criminal subpoena because the user has no proprietary

interest in the information, nor does the user have a

reasonable expectation of privacy in information shared

with third parties. "There can be no reasonable

expectation of privacy in a tweet sent around the world."

Id. at *3. The court concluded that "[s]o long as the third

party is in possession of the materials, the court may issue

an order for the materials from the third party when the

materials are relevant and evidentiary." Id.

Government enforcement agencies often mine social

media data for investigations through investigative

subpoenas or search warrants to social media companies

or internet service providers.. Although the practice has

been challenged, principally under the Communications Act

("SCA") of 1986,354 courts have been loath to limit the tools

available to the government in conducting investigations

when it comes to social media data that is intentionally

disseminated by users.355 The SCA requires government

investigators to obtain a court order upon proof of “specific

and articulable facts showing ... reasonable grounds to

believe that ... the records or other information sought, are

relevant and material to an ongoing criminal investigation.”

See 18 U.S.C. § 2703(d).356 Other basic information such

as user names may be obtained with an “administrative

subpoena authorized by a Federal or State statute or a

Federal or State grand jury or trial subpoena.” 18 U.S.C. §

2703(b)(1)(B)(i).

In all, the government has a robust set of investigative

tools to access the vast amounts of social media data.

Much of the data pools are made publicly available or

publicly disseminated by users themselves, while other

information may require the government to take additional

procedural steps. Companies must understand the

breadth of data available of social media and set

appropriate social media policies and procedures

pertaining to records management and document retention.

(See Volume 1, Chapter 8 – Litigation, Evidence and

Privilege). Moreover, companies also should establish

policies and procedures as to the content and conditions of

social media use related to company business for their

employees and agents to ensure that information flow is

appropriately managed, and to prevent unwarranted

disclosures before, during, and after government

investigations. (See Chapter 6 – Employment). Finally,

executives and all individuals using social media should

remember the cardinal rule, think before you post.

Bottom Line—What You Need to Do

Contractors, companies in regulated industries, and those

subject to government investigations cannot ignore the

significant risks, forthcoming regulations, and new

interactive opportunities associated with the proliferation of

social media. These entities should develop a social media

operating and compliance program and comprehensive

strategy to mitigate risks, protect information and

information systems, and streamline interface with

government social media programs.

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

— CHAPTER 9 —

Insurance Recovery

Chapter Authors

United States:

J. Andrew Moss, Partner – amoss@reedsmith.com

Carolyn H. Rosenberg, Partner – crosenberg@reedsmith.com

United Kingdom:

Peter Hardy, Partner – phardy@reedsmith.com357

Introduction

This chapter looks at the relationship between social media and insurance in two respects: first, when buying or renewing

insurance, what types of policies or enhancements should be considered; and second, if a claim or potential claim arises, what

you or your company should do to maximize potential insurance recovery.

Social Media in Action in Insurance

Considerations When Purchasing Insurance

Social media-related claims or potential claims may arise in

almost any context, from branding and advertising issues

to defamation and privacy claims, and, in the U.S. context,

consumer class actions and securities claims.358

For a number of years the insurance market in both the

United States and the United Kingdom had been

developing policies and coverage extensions to address

the increased risk caused by the emerging use of

technology in business. Initially, the policies tended to be

customized and modular wordings rather than off-the-shelf

products, and tended to reflect an insured’s own perception

of its exposure to this category of risk. So-called

“cyberliability” policies have now evolved to the point where

most insurers both in the U.S. and U.K. now offer off-theshelf

forms and endorsements focused on data protection

and security and privacy liability, which may be tailored for

specific industries and types of insureds. In this respect,

the U.S. and U.K. insurance markets are currently at

somewhat different stages of development although a

number of commentators anticipate that the U.K. will move

closer to the U.S. model within a comparatively short time.

The mandatory notification requirements for data breaches

that exist under the laws of most U.S. states and laws and

regulations that are being considered at the federal level

and anticipated to be adopted in one or other form by U.K.

regulators have crystallized an insurance market response.

(See Chapter 5 – Data Privacy & Security.) The market is

continuing to evolve but is now relatively well-established,

and the identification of appropriate coverage is often a

board of directors-led initiative, most notably in the retail,

health care and financial services sectors. The scope of

protection offered in the market currently tends to focus on

payment for the costs of compliance with mandatory

notification requirements, the costs of providing initial relief

to potential victims (including credit monitoring and

insurance products), forensic investigation costs to

determine the source of a breach or event, defense costs

(including defending or responding to any regulatory

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intervention), the costs of claims resulting from a breach

(including damages and settlement costs), and payments

to consumer redress funds. Although increasingly common

additions to many insurers’ suite of liability policies,

Cyberliability insurance policy forms can vary from carrier

to carrier, and an insured can play an active part in

identifying the risk exposure of its own business and

market sector and negotiating policy wording and coverage

tailored to its needs. As a general observation, businesses

that are particularly exposed to website content

contamination and risks of defamation and copyright

infringement are carefully scrutinized by underwriters.

Notwithstanding the moves made in recent years in the

U.K. and outside of the U.S. in general, the insurance

market remains less established for data protection and

security and privacy insurance, not least because of the

current reduced scope of mandatory reporting. But, as

mentioned above, the U.K. and European landscape is

changing and moving closer to, or perhaps exceeding the

scope of, the U.S. model. Also, many businesses have a

global reach that will require a risk assessment across a

number of jurisdictions, including the U.S. Although it is not

always true that the U.K. and European insurance market

follows the lead of that in the U. S., there are obvious

precedents, particularly in the area of directors’ and

officers’ (“D&O”) liability insurance, which demonstrate how

this risk category might be expected to develop in the U.K.

and Europe in the near future. The U.K. continues to

witness greater regulatory activity, and the retail and

financial institutions sectors in particular are developing the

claims history necessary to fully understand the value and

pricing of cyberliability coverage. In addition, the

telecommunications industry and internet service providers

will have to adapt to being measured by new standards of

reporting.

The U.S. market has established itself over the past

number of years in particular, and international insurance

brokers, who have a presence on both sides of the Atlantic,

are seeing the lessons learned being applied for the benefit

of an emerging U.K. and European market. Data protection

and security and privacy coverage is available from most

established insurers, and a company would be well advised

to discuss with its brokers and insurance coverage counsel

the particular exposures it may have to “cyber” and

technology risks generally, and data protection and privacy

rules specifically, in order to ensure that any coverage

purchased is properly customized to its business. This is

not a sector of the insurance market where the products

are sufficiently commoditized for an insured to consider an

“off the shelf” purchase.

When considering purchasing or renewing insurance

coverage, the steps outlined below may be helpful.

Identify Current Policies That May Provide Coverage

Companies in both the United States and the United

Kingdom traditionally purchase a number of different types

of insurance policies to protect themselves from exposure

to claims made against the company and its management.

These policies would typically include D&O liability,

professional liability (“E&O”), comprehensive or commercial

general liability (“CGL”) (for U.S. insureds), property

damage and business interruption coverage, fidelity bond

or commercial crime policies (which are required by

regulation in some industries) and fiduciary liability policies.

They may also have employment practices liability (“EPL”)

and, as noted above, they may also purchase stand-alone

cyberliability insurance. Because claims may raise a variety

of issues and take different guises—from common law

fraud and misrepresentation claims to invasion of privacy

and cyber extortion—reviewing the inventory of policies

with a “social media” lens can assist in seeing and seeking

potential coverage that may come into play. One thing is

certain: cybercrimes and losses arising from data

protection issues and privacy laws continue to grow both in

frequency and scale.359

For example, a CGL policy issued in the U.S. typically

provides coverage for bodily injury and property damage,

as well as for advertising and personal injury. But the

language should be examined to determine if there are

terms, conditions or exclusions that limit or expand

coverage. Some definitions of “property damage” may

exclude intangible or electronic data, while a coverage

endorsement may specifically provide some coverage.

“Personal injury” typically includes publication or utterances

that violate an individual’s right to privacy, or that are

defamatory or disparaging. Whether and how these

coverages may apply depends on the language of the

policy, the facts and applicable law. An insured company

with business exposure in both the U.S. and the U.K.

should further review the policy language to ensure that

definitions and exclusions do not potentially suggest

different meanings in each jurisdiction, while at the same

time respecting any legal and regulatory differences that

may exist. Insurance policy wording should be negotiated

with an eye toward analyzing potential “buckets” of

coverage should a claim be made. Similarly, security or

privacy breaches may be accompanied by a drop in the

trading value of a company’s stock, potentially giving rise to

securities claims, which may be covered under a D&O

policy or fiduciary liability policy, or a defamation claim may

give rise to an employment-related claim, which may be

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covered under an EPL policy. Accordingly, other policies

should be examined to see if there are any potentially

applicable exclusions or other restrictions that can be

addressed when negotiating the coverage. Being proactive

in negotiating coverage before a claim arises affords

much greater leverage if and when a claim hits.

Consider New Products and Recognize They are Also

Negotiable

As discussed above, cyber liability and internet-related

liability policies were introduced to the market in recent

years, particularly in the United States. The first versions

were difficult to assess given that claims were still

emerging, few companies were purchasing them, and the

policies were not yet tested. The early specialty policies

also contained a number of exclusions that threatened to

engulf the coverage provided. The policies have broadened

in scope and improved, however, as more insurers have

entered the market, as claims have matured, and as

underwriters have become more comfortable with

underwriting the risks. Policyholders willing to invest in

reviewing and comparing choices and policy wording may

be able to tailor the coverage to their needs and potential

exposures. For example, some technology, media, data

privacy and professional liability policies provide coverage

for first-party loss (damage suffered directly by the

company), including internal hacker attacks or business

interruption, or expenses to investigate breaches, secure

legal compliance with a patchwork of laws and regulations,

and to maintain or resurrect data. Coverage for third-party

loss (claims asserted against the company by third parties)

is also available.

Coverage for third-party loss may include reimbursement of

defense costs and indemnification for damages, judgments

and settlements. The claims may include allegations of

violations of privacy rights, unlawful or negligent

disclosures of personal information, breaches of duties to

secure confidential personal information under state and

federal laws and regulations, breaches of duty, disclosures

or fraudulent or criminal conduct by employees or others,

infringement of intellectual property rights, unfair

competition, defamation, violation of consumer protection

statutes, and deceptive trade practices statutes.

The coverage may also include regulatory actions,

lawsuits, and demands, including payments to consumer

redress funds administered by regulatory agencies. Fines

and penalties may also (but not uniformly) be expressly

covered, subject to being insurable under the law of the

relevant jurisdiction. Further, coverage may apply to

“breachless” claims, where a potential problem or

disclosure can be fixed before it becomes a claim.

Key Coverage Enhancements to Seek

A Broad Definition of “Claim.” Coverage should apply to

demands, investigations and requests to toll a statute of

limitations, as well as to complaints, and civil, criminal, and

administrative and regulatory proceedings. Keep in mind

that a broader definition of “claim” also means a

corresponding broader obligation to report what may

constitute a Claim.

A Broad Definition of “Loss.” “Loss” should encompass a

broad array of relief, including statutory fines and penalties

where insurable, payments into consumer redress funds,

as well as defense (including regulatory defense) and

investigative costs.

Narrowed Exclusions. Wherever possible, exclusions

should apply only to that portion of a claim involving the

excluded subject matter. Exclusions should also be

narrowly tailored and contain “exceptions” where coverage

will be provided. Exclusions for bad conduct committed by

insureds or employees should be triggered only by a final

adjudication of the excluded conduct and should be limited

in scope to senior management (so as to not defeat

coverage for the company or other employees in the event

of a “rogue” employee). Further, defense costs should be

covered, and the exclusions should be severable, so that

one “bad apple” doesn’t spoil coverage for others.

Defense and Settlement Flexibility. Consider whether the

insurer provides a defense or the insured seeks control

over the defense. Negotiate “consent to settle” provisions.

Seek Coverage Grants via Endorsement. Specialty or

tailored endorsements may add coverage and should be

requested.

Maximizing Potential Coverage When a Claim

Arises

Maximize the Potential for Insurance Recovery

Gather All Potentially Relevant Insurance Policies or

Indemnity Agreements. As discussed above, key policies

may include commercial crime or fidelity bond policies for

internal theft; cyberliability coverage for claims as a result

of potential breaches of security and access to private

data; CGL (in the U.S.) and property policies for potential

business interruption claims; D&O and fiduciary liability

coverage for potential breaches of fiduciary duty against

directors and officers or securities claims based on alleged

stockdrop or financial disclosure issues. Any

indemnification agreements with vendors or other third

parties who may owe contractual obligations to the

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company should also be reviewed, as well as any

insurance policies where the company may be an

additional insured.

Provide Timely Notice of Breaches, Claims or Potential

Claims to All Primary and Excess Insurers. Insurance

policies include provisions for reporting potential breaches,

claims, occurrences or loss, and should be adhered to

carefully. Failure to comply may result in a coverage

dispute or denial of coverage, depending on the policy

requirements and applicable case law. Although provisions

differ by policy, it is not unusual for certain jurisdictions

(including the U.K. and many U.S. states) to take a strict

view of compliance requirements. For example, a fidelity

bond policy will specify when the initial notice is to be

provided, and a sworn proof of loss must be filed within a

designated time period of reporting the initial loss.

Cyberliability and D&O liability policies generally allow (and

in some cases may require) reporting of potential claims. If

the claim develops, it is “parked” in the policy in which the

initial notice was provided. Even though the claim may still

be only a “potential” claim as opposed to an actual claim,

the policy may still require strict reporting. Claims and

potential claims should be contemporaneously reported to

both primary and excess carriers across all programs to

avoid later challenges of “late notice.”

Obtain Consent to Defense Arrangements. Some

insurance policies have a “duty to defend,” meaning that

the insurer must provide a legal defense for insureds under

the policy. Other types of policies provide for

“reimbursement,” where the insured assumes its own

defense obligations, subject to the insurer’s advancement

or reimbursement of defense expenses. The insured

typically is required to obtain the insurer’s consent to

defense arrangements, which may not be unreasonably

withheld. Communication with insurers at the earliest stage

of a claim is important to address defense arrangements.

For example, if policies with both “duty to defend” and

“reimbursement” obligations apply, the insured can assess

how best to manage the defense arrangements. Similarly,

if the insurer proposes specific counsel but the insured

objects, or if the insurer raises the potential for a coverage

defense, the insurer may be obligated to pay the cost of

“independent” counsel for the insured, or the insured may

have to retain and pay for separate counsel to monitor the

defense, depending on the coverage defenses raised by

the insurer and applicable law.

Adhere to Cooperation Obligations and Respond to

Requests for Information and Coverage Defenses.

Although the language of insurance policies differs, an

insured generally has an obligation to cooperate with all

reasonable requests of insurers. Insurers also typically

have a right to associate—that is, to consult with defense

counsel or, in some cases, participate—in the defense and

settlement of claims involving or potentially involving their

coverage.

These responsibilities of the insured may differ depending

on the type of policy and whether the insurer is defending

the claim. Insureds should recognize, however, that the

policy language, relevant case law, and individual, specific

circumstances will dictate what is required or reasonable in

a given context. For example, insureds typically do not

necessarily have a privileged relationship with an insurer,

especially in a non-duty to defend situation (insureds also

do not have a privileged relationship with their insurance

brokers). Consequently, an insured would need to be very

careful in sharing information with insurers. Confidentiality,

common interest or joint defense agreements may provide

some protection of sensitive disclosures, but

knowledgeable counsel should be consulted to provide

guidance. Insurers may also seek to interview witnesses,

employ investigators, and seek out defense counsel’s

analysis or fee statements. Again, these requests must be

carefully examined with an eye toward insurance coverage

and privilege considerations.

Insureds should also promptly respond to letters or other

communications raising coverage defenses or denying

coverage. Potential exclusions or other terms and

conditions may not apply or may limit coverage only for

part of a claim. Even if it is too early in the process to

discern the full extent of coverage, an insured should make

a record disagreeing with the carrier’s restrictive coverage

positions, and reserve its right to supplement its response.

Moreover, a strong letter replying to coverage-challenges

may result in a reversal of a coverage denial. Obtaining the

positions of the insurer(s), especially early in the process,

may also help expedite a coverage determination through

litigation, mediation or arbitration if informal negotiation is

unsuccessful.

Obtain Consent to Settlement or Payment of Judgment.

Know your rights and obligations. Insureds should check

for any “hammer” provisions, which may limit the insured’s

recovery if the insured refuses to settle where the insurer

proposes to resolve the underlying claim. Conversely,

where the insured desires to settle but the insurer does not

readily agree to pay the claim, the insured should review

the “consent” provisions of the policy. Typically, consent to

a settlement cannot be unreasonably withheld, but policies

may also specify that the insurer has a right to participate

in the negotiation of a settlement, or that an “offer” to settle

requires insurer consent. Managing the insurer-insured

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relationship throughout the claim process in a thoughtful

and diligent way will typically put the insurer and insured in

a better position to reach agreement, than if the insurer is

not promptly brought “into the loop.”

Resolve Coverage Disputes. If informal negotiation does

not resolve a dispute, the policy may dictate the next steps

to follow. Policies may contain provisions requiring that an

insurance dispute be mediated, arbitrated or litigated in a

particular jurisdiction, or that a certain state or country’s law

be applied to the coverage dispute. These provisions

should be identified early in a dispute so that strategy can

be considered. Moreover, excess policies may include

different provisions for resolving disputes than the primary

policy(ies), making resolution of a major claim potentially

challenging. It is not unusual for an insured seeking to

recover a large loss from a “tower” of insurance coverage

to litigate or engage in alternative dispute resolution

(“ADR”) proceedings separately in the U.S. and the UK (or

other jurisdictions), and commence both litigation and ADR

proceedings. Knowing the applicable rules early on will

make navigating the settlement course easier.

Consider Lessons Learned for Renewal. Terms, conditions,

exclusions or other difficulties in resolving claims may be

considered in negotiating coverage with the same or other

insurers for the next year. In addition, insurance

applications may request information about current pending

and/or potential claims. Such applications or requests for

information should be reviewed with both insurance

brokers and coverage counsel, because insurance

applications and the documents attached to them may be

disclosed in litigation discovery. Worse, they may become

the basis for potential actions by insurers to rescind or void

the policy.

Bottom Line—What You Need to Do

As social media claims continue to develop, so, too, will

insurance policies. During this fluid process, companies

can best arm themselves with good risk management,

comprehensive coverage, and sensitivity to managing and

maximizing their relationships with insurers.

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— CHAPTER 10 —

Litigation, Evidence & Privilege

Chapter Authors360

United States:

Alexander “Sandy” Y. Thomas, Partner – athomas@reedsmith.com

Bonnie M. Mangold, Associate – bmangold@reedsmith.com

United Kingdom:

Emma Lenthall, Partner – elenthall@reedsmith.com

Louise Berg, Associate – lberg@reedsmith.com

Introduction

This chapter looks at the relationship between social media and litigation practices.

Millions of employers, employees, and jurors use social media such as LinkedIn, company websites, Facebook, Twitter,

MySpace, and YouTube for business and personal reasons. Users of social media are often very candid and tend to post

messages and photos with little thought, in an informal, spur-of-the-moment manner, from smart phones, tablets, and personal

computers. Social media postings often include details that the user would never disclose directly in a formal correspondence

and certainly not to the boss of their company or to an opposing attorney if litigation were involved. Moreover, many people using

social media do not realize that such postings often become a permanent record, even if the items are removed.361

Lawyers have begun researching social networking sites to gain information about all aspects of a case, including the parties on

the other side, how a particular business is conducted, the witnesses, and the jurors. Social media sites contain valuable

information such as messages, status updates, photos, and times of every posting, all of which can be used to undermine an

opponent’s case in litigation, and which can even negatively affect a company’s business and public image.

This chapter describes various real-life examples of how social media has been used to undermine an opponent’s case in

litigation and to negatively affect the image and business of various individuals or entities. Specifically, this chapter discusses

how social media has been used to impeach witnesses, uncover documents that would ordinarily be protected by the workproduct

or attorney-client privilege, expose juror misconduct, and serve legal documents. As an employer, it is important to

understand and educate all employees and in-house counsel on the risks associated with social media, how it can undermine the

company’s legal positions, and its ultimate effect on business operations and public relations. (See Chapter 6 – Employment)

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r e e d s m i t h . c o m Litigation, Evidence & Privilege 78

Social Media in Action in Litigation

The Use of Social Media To Impeach Witnesses

Social media sites may contain contradictory statements,

character evidence, or other evidence that can be used to

impeach witnesses during litigation. Below are a few

illustrations:

In the US:

 In 2008, a minor accused her father of sexually

assaulting her. On the minor’s MySpace page, she

made several posts alluding to the fact that she was

not a virgin. However, when she filed the report

against her father, she told the police that she was a

virgin before her father began to sexually assault her.

The court found that the MySpace statements could

be used as impeachment evidence because they

contained statements that were inconsistent with her

prior statements, which directly went to the issue

pending in the litigation.362

 In 2009, the defendant in a criminal case was

convicted of second-degree murder and possession of

a firearm during the commission of a felony after

shooting a friend in the head. The defendant admitted

to shooting his friend, but claimed it was an accident.

The principal issue at trial was the defendant’s state of

mind at the time of the shooting. Pursuant to Michigan

Rule of Evidence 404(b)(1) involving prior act

evidence, the trial court allowed the prosecution to

introduce a picture of the defendant from his

MySpace.com website that depicted him holding the

gun that was used to shoot his friend, and displaying a

gang sign with his hands. After the defendant was

convicted, he appealed, arguing that the MySpace

photograph was inadmissible. The Michigan Court of

Appeals affirmed the trial court’s evidentiary ruling,

stating that three witnesses used the photo to identify

the defendant as the person who previously

threatened them with the gun used in the case, and it

was relevant for showing the defendant’s familiarity

with the weapon used in the offense.363

 In 2009, a Starbucks employee was fired for

inappropriate conduct and threatening violence to

fellow employees. The employee then sued Starbucks

for, inter alia, sexual harassment, religious

discrimination, and retaliation. The employee’s

MySpace page was submitted as evidence by

Starbucks, where plaintiff stated: “Starbucks is in deep

s**t with GOD!!! …I will now have 2 to turn 2 my

revenge side (GOD’S REVENGE SIDE) 2 teach da

world a lesson of stepping on GOD. I thank GOD 4 pot

2 calm down my frustrations n worries or else I will go

beserk n shoot everyone….” Based on the evidence

submitted by Starbucks, the court granted summary

judgment in its favor.364

 In 2010, the plaintiff in a personal injury case claimed

that injuries she sustained while performing duties in a

Steelcase chair that collapsed rendered her unable to

work, housebound, and unable to fully enjoy her life.

Defense counsel pointed to plaintiff’s Facebook and

MySpace postings and photos, which showed that she

still had the ability to enjoy her life. The court granted

the defense’s motion to compel production of this

evidence and held that the private information sought

from the social networking websites was material and

necessary for the defendant's defense, that the

plaintiff did not have a reasonable expectation of

privacy in the material published on the social

networking websites, and that the defendant's need

for access to the information outweighed the plaintiff's

privacy concerns.365

 In 2010, the plaintiffs brought a sexual harassment

claim and the defendant sought to produce

photographs from the plaintiffs' Facebook pages to

prove that the plaintiffs did not suffer from severe

emotional distress.366

In the UK:

 In 2010, in a trial involving allegations of sexual

assault and attempted rape, the defence sought to

rely on posts on the victim’s Facebook page to show

that she could not have had as clear a recollection of

the incident as she claimed to have. The posts

included “ATM remembers nothing” and “Filling in my

memory would be very much appreciated there is very

little of it ATM.”367

 In 2011, an insurance company relied heavily on

evidence from Facebook to show links between a

group of people whom they alleged were involved in

staging a series of accidents in order to claim

damages for personal injury. The company submitted

the ‘friends’ lists of various parties involved which

showed a ‘web’ of connections. This, together with

other evidence of dishonesty, helped to convince the

judge that the accidents between people in the same

local area with so many links and common

relationships cannot have been a coincidence.368

 In 2011, a personal injury claimant alleged that a

motor accident had left him wheelchair bound and too

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traumatised to drive a car. The defendants submitted

as evidence a picture of the Claimant on holiday in

Italy which was taken from his Facebook page after

the accident. He was standing next to his own car

which he must have driven all the way there. 369

As the above examples illustrate, users of social media

often fail to consider the consequences of their posted

statements and photos prior to such postings. In the

corporate world, analogous postings could be made by

employees regarding a wide range of work-related issues,

including comments concerning layoffs that implicate the

Age Discrimination and Employment Act, disclosures of

intellectual property and trade secrets in various careeroriented

chat rooms or blogs, and gossip about a sexual

harassment or white collar crime internal investigation. It is

imperative that a company’s managers, supervisors, and

employees are educated on the implications and

discoverability of such postings so that their use of social

media does not undermine legal positions in a future or

pending lawsuit against the company. (See Chapter 6 –

Employment). On the plus side, social media can be a

useful source of evidence against a company’s opponents

in litigation, although care should be taken to ensure that

no evidence is obtained by deception, and that ethical

codes are complied with.

The Waiver of the Work-Product Doctrine and

Attorney-Client Privilege Through Social Media

The use of company websites and other social media also

provide real opportunity for waiver of privilege and the

work-product doctrine protection through public disclosure

of confidential information. Below are a few examples:

 In 2010, the court granted the defendant’s motion

to compel discovery and ordered the plaintiff to

turn over his Facebook and MySpace usernames

and passwords to defendant’s counsel despite

plaintiff’s claim that the abovementioned

information was privileged. The court reasoned

that “When a user communicates through

Facebook or MySpace, however, he or she

understands and tacitly submits to the possibility

that a third-party recipient, i.e., one or more site

operators, will also be receiving his or her

messages and may further disclose them if the

operator deems disclosure to be appropriate.

That fact is wholly incommensurate with a claim

of confidentiality. Accordingly, McMillen cannot

successfully maintain that the element of

confidentiality protects his Facebook and

MySpace accounts from discovery.” 370

 In 2010, the court held that the plaintiff waived

her attorney-client privilege by virtue of her blog

posts, gmail chats, and emails via which she had

communicated with her attorney.371

As the above examples demonstrate, users of social media

must be careful when disclosing personal or business

information online in order to ultimately protect themselves

from waiving the work-product doctrine or attorney-client

privilege (or the equivalents in other jurisdictions) in future

or pending litigation. It is often sound business strategy for

a company to post statements on its website to keep the

public informed on various issues, and to ensure public

confidence in the company’s product and services, bolster

public relations, and increase profitability. However, if a

company discloses too much, there are instances where it

will risk waiving work-product and attorney-client

communication protections. Managers, supervisors or

employees who disclose work-related issues in chat rooms

and blogs run the risk of waiving both privileges as well,

forcing a company to produce documents they ordinarily

would have every right to withhold in litigation. Thus, it is

essential that all managers, supervisors, and employees

understand the implications of discussing work-related

issues online, and realize that certain postings will come

back to haunt the employees and the company for which

they work.

Social Media Use by Jurors

Social media can have a particularly pernicious effect on

jury trials. In several recent instances, jurors have made

inappropriate disclosures concerning corporate and

individual litigants during the pendency of a trial.

Businesses should police social media postings while a

trial is ongoing to protect themselves from the

consequences of such postings. Below are a few examples

where such postings have been made:

In the US:

 In September 2010, a juror was removed from a

jury for posting the following comment on her

Facebook page, during an ongoing trial: “gonna

be fun to tell the defendant they’re GUILTY.”372

 In December 2011, a juror in a criminal case

Tweeted comments such as, “Choices to be

made. Hearts to be broken. We each define the

great line.” The jury returned a guilty verdict, and

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the trial court imposed a death sentence on the

defendant. On appeal, the Arkansas Supreme

Court reversed the trial court, holding that the

defendant deserved a new trial because of the

juror’s unacceptable Tweets during the trial court

proceedings.373

 In February 2012, a juror requested to be

“friends” with the Defendant on Facebook. When

the judge became aware that the juror had sent a

friend request to the Defendant, the juror was

promptly removed from the jury. After his removal

from the jury, the ex-juror proceeded to post

comments on his Facebook page, such as “'Ha,

ha, ha, I got out of jury duty.”374

 In August 2013, a juror in a murder trial was

removed from the jury for posting comments

about the case on Facebook. Her comments

reflected her belief the defendant was “presumed

guilty,” and she posted pictures of the courtroom

hallway.375

 In October 2013, the California Supreme Court

vacated the defendant’s conviction because the

jury foreman blogged about the case online on

his personal blog. 376

In the UK:

 In June 2011, juror Joanne Fraill was sent to

prison for communicating on Facebook with a

defendant who had just been acquitted. At the

time of their online discussions about the case,

the jury deliberations had not been completed

and verdicts on other defendants were still to be

returned. A new trial was ordered on the counts

where verdicts awaited.377

 In July 2013, a fraud and money laundering trial

had to be abandoned when a juror revealed to

other jurors information that he had learned

about the case on the internet. The wasted

prosecution costs were in the region of

£200,000.378

 In July 2013, a juror was held to be in contempt

of court when he posted the following status

update on Facebook during a trial for sex

offences against children: “Woooow I wasn’t

expecting to be in a jury Deciding a paedophile’s

fate, I’ve always wanted to Fuck up a paedophile

& now I’m within the law!”.379

As the above examples indicate, the use of social media by

jurors during a trial may prejudice the outcome of a case if

a juror leaks information about his or her perception of the

case prior to the final verdict being rendered by all jurors,

or reveals information about the case or the defendants

that the juror has discovered online. The use of social

media by a juror may be grounds for a mistrial or an appeal

because the social media postings of the juror may indicate

that the juror was biased and was making a decision prior

to reviewing and considering all evidence. Retrying a case

and/or taking an appeal are both time-consuming and

costly for all parties involved. To prevent the above injuries,

it is essential that explicit instructions are given to the jury

prior to the commencement of trial prohibiting the use of

social media. Furthermore, it is wise for companies and

their legal teams to research the social media sites during

the trial to ensure that no juror is leaking the jurors’ thought

processes about the case to the public and/or being tainted

by other individual’s responses to any postings on the

social media sites.

The Impact of Social Media on Methods of Service

The English courts are beginning to allow lawyers to serve

documents via social media where more traditional

methods are considered to be inappropriate or insufficient.

In October 2009, the English High Court permitted service

of an injunction via Twitter. In this case, which has become

known as the ‘Blaney’s Blarney’ case380, an anonymous

Twitter user created a profile impersonating a right-wing

political commentator and solicitor, Donal Blaney. The

profile posted photographs and linked to Mr Blaney’s blog.

Mr Blaney applied to the courts for injunctive relief against

the unknown user.

The English Civil Procedure Rules allow service by several

traditional methods, but also allow a claimant to request

alternative service by less conventional means. The

claimant must show that there is a good reason for doing

so. In this case, it was permitted on the basis that the

defendant was anonymous and could not be contacted.

The English High Court also permitted service of a claim

via Facebook in February 2012. In AKO Capital LLP and

AKO Master Fund Limited –v- TFS Derivatives Limited381,

the defendant applied to have one of its employees, Mr de

Biase, added as a defendant. It was not clear whether Mr

de Biase was still living at his last known address and so

TFS applied to serve the claim via his Facebook account

as well. Before allowing this method of service, the court

requested assurances from TFS that (i) the Facebook

account in question did in fact belong to Mr de Biase, and

(ii) that he checked it regularly. TFS submitted evidence

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from other employees who were friends with Mr de Biase

on Facebook which showed that Mr de Biase had accepted

a number of friend requests recently. The court accepted

this evidence as providing both of the assurances it had

requested and gave permission for service via Facebook.

The documents were sent as attachments to a message to

Mr de Biase’s Facebook account.

As social media provides increasing scope for defamation

and copyright infringement, more may opt for service via

these websites to overcome the obstacle of identifying the

defendant. The flaw, however, in allowing such alternative

methods of service may be in enforcement. In the Blaney’s

Blarney case, the user complied and removed the profile. If

this had not happened, Mr Blaney would have had to go to

Twitter to obtain the user’s details, and as they are based

in California, there could have been problems enforcing

any order.

Bottom Line—What You Need to Do

What is said on social media sites can and will be used

against you and the company for which you work in a court

of law, in the court of public opinion, and ultimately in the

business world. Accordingly, it is essential that all

managers, supervisors, employees, and in-house counsel

be educated on the pitfalls involved with social media so as

to prevent such postings from undermining your company’s

legal position, business relations, and public image.

Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

r e e d s m i t h . c o m Product Liability 82

— CHAPTER 11 —

Product Liability

Chapter Authors382

Antony B. Klapper, Partner – aklapper@reedsmith.com

Jesse J. Ash, Counsel – jash@reedsmith.com

Introduction

This chapter examines the relationship between social media and product liability.

Companies that develop products utilize social media in a variety of ways, including internal and external company websites and

blogs, pages on third-party sites such as Facebook, and other third-party sites that provide comments concerning the use and

safety of a company’s products. These social media sites and platforms can lead to a wealth of positives for companies. More

readily available information can mean greater knowledge about the products and therefore greater sales. However, this same

accessibility to information may also create problems. For product developers and manufacturers there is always a risk of legal

action regarding the safety of their products. The use of social media may compound this risk by leading to (1) new legal claims

and increased exposure to damages, and (2) weakened defenses overall in the matter.

The Need for a Social Media Marketing

Program

Today, plaintiffs in product liability litigation often attempt to

add allegations to their complaints based on information

found online in an effort to bolster weak claims, defeat

initial motion practice, and provide a backbone for

boundless discovery. These allegations many times

include accusations of improper promotion or misleading

public. In today’s marketplace, on-line advertisements and

marketing campaigns are commonplace, in addition to

editorials, studies, surveys, polls, and focus groups all

found on the internet and related to a company’s product.

One only needs to put in a google search for their product’s

name to see the breadth of information written about the

product—pro and against—and Plaintiffs’ lawyers can

easily do the same search. It is therefore of utmost

importance in this day and age for a company to have an

effective social media monitoring program designed to

identify potential product liability issues. In enacting a

program, companies must keep the following core issues in

mind:

 Ensure that any social media statement complies with

applicable regulatory requirements

Specific rules may govern what information a company can

relay to the public or its customers. For example,

pharmaceutical companies must abide by rules

promulgated by the Food & Drug Administration (“FDA”)

when providing statements to patients or doctors through

warning labels, package inserts, written correspondence,

or visits to a doctor’s office by a company’s sales

department—and this applies equally to promotional

statements made on any online forum.383 Any

communication by a company outside these regulatory

parameters may be used against the company as evidence

that the company acted in violation of government

regulations, leading to a potential causes-of-action under

strict liability and negligence. For example, a company

may have a blog or chat room where patients and/or

doctors correspond with the company, and this direct

communication may include off-the-cuff comments that

contain language outside the parameters of information

that the company is allowed to relay regarding its products

(i.e., off label use).384 Current FDA Guidance suggests

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that such correspondence is now required to be submitted

to the Agency as part of the postmarketing surveillance

regulatory scheme to the extent that it exhibits a

communication related to promotion of the product.385

Companies that fail to adhere to this guidance may start to

see “social media postmarketing surveillance regulatory

violations” as an additional allegation to a plaintiffs’

boilerplate strict liability and/or negligence claim.

 Ensure that your online promotional statements are

consistent with internal statements about the product

A plaintiff’s lawyer is always looking for documents that

show a company “puffing” or over-extolling the efficacy and

safety of its products. Of great assistance to a plaintiff’s

lawyer are documents that show a company making

efficacy and safety claims about its products that are not

entirely consistent with the company’s “confidential”

internal documents or published material. When these

inconsistencies arise—particularly when a company’s

marketing department is not working closely enough with

legal and risk management—the plaintiff lawyer is not only

well-positioned to advance a relevant claim, but is also able

to embarrass the company by asserting that it puts the

company profits over safety and misleads patients and

doctors, or simply its customers.

 Ensure that third-parties controlled by the company

make statements online about your product that are

consistent with your own promotion of the product

Paid speakers or Key Opinion Leaders (“KOLs”), and thirdparty

marketers are common in product-driven industries.

To the extent a company has control or exerts influence on

these third parties, the company must ensure whatever

messages are communicated by these parties online are

consistent with internal statements and company

promotional materials. KOLs are often highly sought after

witnesses in product liability litigation. A plaintiff’s lawyer

can easily create an effective demonstrative showing the

KOL’s puffed statement about a product next to the amount

he was paid by the company to opine about the product.

These statements may be found, for example, in online

power point presentations given at an industry conference

or an online abstract of a study or an editorial—all

publically available and ripe for use at a depositions or

evidence at trial.

 Beware of Ghostwriting

If the company has editorial rights over the content of the

site or exerts some level of control over an online author,

plaintiff lawyers may be able to convince a court that a

company “ghost writes” information. “Ghost writing” articles

or promotion materials takes place when a company pays

an author to write an article that helps the company sell

more product—i.e., the article states that a product does

not cause an adverse event or that a product helps to solve

a medical issue. Even if the research is sound, articles

“paid for” by a company tend to look underhand and less

sound than objective research in the eyes of the public.

Where a company sponsors a site and has the ability to

change content, the plaintiff will advance a “ghost writing”

argument if litigation ensues, in an attempt to persuade the

court that the company did not have the public’s best

interests in mind. Similarly, using editorial rights to silence

views critical of the company’s products—or favoring a

competitor—would provide further arguments for a plaintiff

lawyer. In addition, “ghost writing” can lead to unwanted,

negative media attention for any company that is accused

of using ghostwritten material for its benefit.386

Potential Causes of Action

Although these problems can occur even without social

media, the sheer magnitude of social media outlets and the

relative informality of their content greatly increases the risk

that statements will be made that may be actionable in law.

Similarly, social media exchanges leave a virtual paper trail

that can be reviewed for an improper communication in a

way that oral communications between a sales

representative and a doctor cannot. As such, examples of

causes of action where Plaintiffs may try to use social

media statements by the company to their advantage in

filing a product liability suit in the United States include:

 Negligent misstatement.

 Negligent promotion

 Negligent labeling

 Negligent marketing

 Strict liability

 Consumer fraud

 Breach of warranties

 Proposition 65 (CA) violations

Bottom Line—What You Need To Do

By its very nature, social media often begets informal

dialogue that is broadcast more widely than the traditional

marketing media. The more that is said publicly, the greater

the risk that what is said does not square with regulatory

requirements and with what is said privately in internal,

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confidential company documents. For this reason, a

company that chooses to use social media as a marketing

or information tool must involve legal and risk-management

departments in reviewing marketing’s use of chat rooms,

blogs, and external third-party websites (and the content in

those media) and enacting a social media marketing

program. Failure to do so can result in heightened

exposure to legal claims, larger damages, and weakened

defenses.

Bottom Line—What You Need to Do

Social media implications and applications to advertising

and marketing cannot be ignored; where the consumers

are, and where consumers go, marketing budget ultimately

follows. All companies, regardless of whether or not they

elect to actively participate in the social media arena,

should have policies in place to determine how to respond

to negative comments made about the company and/or its

brands. Companies that seek to play a more active role

should have policies in place that govern marketing agency

and/or employee interaction with social media, as well as

the screening of User-Generated Content. It is critical,

however, that companies do not simply adopt someone

else’s form. Each social media policy should be carefully

considered and should address the goals and strategic

initiatives of the company, and should take into account

industry and business specific considerations.

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r e e d s m i t h . c o m Securities (UK) 85

— CHAPTER 12 —

Securities (UK)

Chapter Authors

Michael J. Young, Partner – myoung@reedsmith.com

James Boulton, Associate – jboulton@reedsmith.com

Alexandra Nelson, Associate – maknelson@reedsmith.com

Introduction

This section examines the law relating to securities and investments, and how that impacts on the use of social media sites on

the Internet. With more than 20 million households (83 percent) in the United Kingdom having access to the Internet and more

than 37.4 million (76 percent) of the adult population in the UK having accessed the Internet (53 percent via a mobile device),

legislation has had to keep pace with the emergence of new technologies and new forms of communication.

Company law has enshrined the use of the electronic communications via the Internet for a decade, and legislation regulating the

promotion of financial products was introduced on a media-neutral basis in order to capture new technologies.

In this Chapter we look at the dissemination of information to the public through electronic means. We also consider the financialpromotion

regime in the United Kingdom and its impact on the use of social media. Finally, we examine the market-abuse regime

in the United Kingdom and its relationship with the use of social media.

Dissemination of Information and Use of

Electronic Communications

The use of electronic means to disseminate information to

investors and the public has been enshrined in English law

ever since 2000. Section 8 of the Electronic

Communications Act 2000 allowed ministers to amend

existing legislation to allow the use of electronic

communications and storage.

The Companies Act 2006 (the “Companies Act”) allows

companies to produce annual reports and annual accounts

electronically and to accept proxy nomination by electronic

communications, provided that the recipient had agreed to

be provided with the documents either electronically or on

a website.

The Companies Act allows shareholders to communicate

with a company by electronic means where the company

has provided an electronic address in a notice to call a

meeting or in an instrument of proxy. Schedule 5 of the

Companies Act also allows companies to send documents

to shareholders in electronic form, thus removing the need

to send paper copies (unless the shareholder requests a

hard copy). A company can also provide information to a

shareholder by the use of a website if that person has

agreed to the use of such website.

The Companies Act generally provides for the sending of

documents in electronic form and by electronic means.

Section 1168 of the Companies Act states that electronic

means includes e-mail or fax, and other means that are in

an electronic form e.g. documents sent on disk. A

document is sent by electronic means if it is sent and

received by electronic equipment or through wire, radio or

optical means. The Companies Act provides in Part 3 of

Schedule 5 that information may be sent or supplied by a

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company if that person has agreed to the provision of

information and such agreement has not been revoked.

The Registrar of Companies (Companies House) for

England and Wales, allows for the incorporation of

companies to be undertaken electronically and for certain

documentation to be filed electronically.

The Companies Act, the Disclosure and

Transparency Rules, and the Listing Rules

The provisions relating to the use of electronic means for

communications between a company and its shareholders

need to be considered in conjunction with the provisions of

the Disclosure and Transparency Rules (“DTRs”). The

DTRs govern the disclosure of information for financial

instruments that have been admitted to trading on a

regulated market, or to which an admission to trading on a

regulated market has been made.

In the event that a company chooses to use electronic

communication, it must comply with certain procedures set

out in the DTRs. For example, the decision to provide

information electronically must be taken in general

meeting.

AIM Companies and the Use of Websites

The Alternative Investment Market (“AIM”) is the secondary

market in the United Kingdom. It has its own set of rules

separate from the Listing Rules that apply to Main Market

companies.

Post-admission, each AIM-listed company is required

under AIM Rule 26 to maintain an up-to-date website to

include the following information: (a) description of the

company’s business (and, if an investing company, its

investment strategy); (b) information on directors (including

biographical details); (c) a description of the responsibilities

of the members of the board of directors and details of any

sub-committees; (d) country of incorporation and main

country of operation; (e) details of any other exchanges or

trading platforms on which the company has applied to

have or agreed to have its securities admitted or traded;

(f) the number of shares traded on AIM, the percentage

that are not in public hands, and the identity and holdings

of significant shareholders with an update every six

months; (g) copies of its current constitutional documents;

(h) if not incorporated in the United Kingdom, a statement

that the rights of shareholders may be different from those

of a UK incorporated company; (i) details of any restrictions

on share transfers; (j) the most recent annual report and

any half yearly reports since the last annual reports; (k) any

notifications made in the past 12 months; (m) any

prospectus, admission, circular or similar shareholder

publication published in the past 12 months; (n) details of

the Nominated Adviser and other key advisers.

Main Market Companies and Use of Websites

Where a company has a website it must: (a) make

available on its site all inside information announced via a

Regulated Information Service (“RIS”) by the close of the

business day following the day of the RIS announcement;

and (b) for a period of one year following publication, retain

on its website all inside information that it is required to

disclose via an RIS.

The Combined Code on Corporate Governance (the

“Combined Code”) issued by the Financial Reporting

Commission also recommends that the results of general

meetings, including the number of valid proxy votes and

the number of votes for, against, and abstaining in respect

of each resolution, is contained on a company’s website.

Additionally, where a Combined Code provision requires a

company to "make information available," this information

may be published on the company’s website.

Finally, both the Prospectus Rules and the DTRs allow

certain documents to be published on a company’s website

as an alternative to or as well as physical publication.

Advertising and Promotion of Investments

The Financial Conduct Authority(the “FCA”) is the

regulatory body of England and Wales in respect of the

trading of securities. In order to advise, arrange or manage

investments of securities, the person undertaking such

regulated activity needs to be authorised by the FCA

pursuant to the Financial Services and Markets Act 2000 (

“FSMA”). The FCA took over the responsibility for financial

regulation from the Financial Services Authority (the “FSA”)

in April 2013.

Social media is an attractive option for companies,

investment advisers and brokers, and indeed third parties,

to provide information on investments and investment

strategies. However, care should be taken that compliance

is made with the relevant financial promotion legislation.

Under section 21 of FSMA, there is a general restriction

that a person must not in the course of business,

communicate an invitation or an inducement to engage in

an investment activity such as the purchase of securities.

However, this does not apply to financial promotions that

have been made by an authorised person or approved by

an authorised person. A communication can be written or

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oral, and would therefore cover information on a social

media website or sent by electronic communications.

Breach of section 21 of FSMA is a criminal offence under

section 25 of FSMA and can lead to two years'

imprisonment and/or a fine. Agreements entered into as a

result of an unlawful financial promotion are potentially

unenforceable under section 30 of FSMA, and the person

engaging in investment activity may be entitled to recover

any money paid or property transferred under the

agreement, and to be compensated for any loss as a result

of having parted with the money or property. Furthermore,

a communication of a misleading or inaccurate financial

promotion could result in a claim for misrepresentation,

criminal liability for misleading statements under insider

dealing legislation, section 397 of FSMA, and/or civil

liability under the market-abuse regime.

The FCA’s financial-promotion regime is intended to be

media-neutral and to accommodate new methods of

communication, such as via the Internet and other

electronic media, as well as traditional methods of

communication, such as newspapers, radio and television.

Individual advertisements on a website may constitute a

financial promotion. However, the entire website may be a

financial promotion if the sole function of the website is to

advertise the services of a company for the purposes of

inviting or inducing viewers to enter into investment activity.

The FCA is of the view that the person who causes the

website to be created, i.e., the person who is the owner of

the website rather than the web designer or the Internet

service provider hosting the website, is the “communicator”

for the purposes of FSMA. The FCA does not itself approve

financial promotions. Instead, the financial promotion must

be made either in reliance on an applicable exemption in

the Financial Services and Markets Act 2000 (Financial

Promotion) Order 2005 (the “FPO”), or it must be approved

by an FCA authorised person. The FCA relies on the fact

that senior management should take responsibility for the

financial promotion pursuant to the Senior Management

Arrangements, Systems and Controls (“SYSC”) in the FCA

Handbook.

A major difference between social media and traditional

media is that the Internet has a far wider geographical

scope than traditional methods of communication as it can

be accessed, and information can be received, globally.

This does raise the issue that it would be difficult to restrict

access to persons in specific jurisdictions, and therefore a

website could be subject to regulations of several

jurisdictions.

The territorial scope of the financial-promotion regime

under FSMA includes any communication directed from the

UK to another person, or a communication originating

outside the United Kingdom where the communication is

capable of having an effect in the United KingdomFSMA.

There are a number of exemptions in the FPO in relation to

geographical scope, the type of communication, the

recipient, (e.g., institutional investors, high net-worth

individuals and overseas investors), the communicator

(e.g., journalists, overseas communicators and

governmental authorities), communications relating to

securities and listing matters (e.g., promotions required or

permitted by market rules, promotions of securities already

admitted to certain markets) and company communications

(e.g., group companies and annual accounts and directors

reports).

The financial promotion regime applies to both written and

oral communications, where a communication is “made to”

or “directed at” another person. A communication is “made

to” another person if it is addressed verbally or in legible

form to a particular person or persons, whereas a

communication is “directed at” one or more persons if it is

addressed to persons generally.

A distinction is made in many exemptions between real

time and non-real time communications, and solicited and

non-solicited real time communications. A “real time”

communication is a communication made in the course of a

personal visit, telephone call or other interactive dialogue.

A “non-real time” communication is a communication that is

not a real time communication. Financial promotions

communicated via a website are deemed to be non-real

time communications directed at one or more persons

generally. As a rule, a greater number of exemptions apply

to non-real time communications or solicited real time

communications, as it is thought that recipients should be

granted greater protection in circumstances where they are

being asked to react immediately, or in "cold-calling"

situations.

Financial promotions that are not subject to an exemption

must be “clear, fair and not misleading” under the FCA’s

financial promotion rules. The rules for the financial

promotion of securities can be found in chapter 4 of the

FCA’s Conduct of Business Sourcebook (“COBS’) for

savings and investments.

In 2007, the FCA undertook a review of 130 websites, of

which only 75 percent were deemed to meet the FCA’s

standards.

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Of the 25 percent of the websites that failed to reach the

“clear, fair and not misleading standards” of the FCA, the

firms had failed to present key information in a clear and

logical manner (including risk warnings not being clearly

presented, details of fees and exclusions being hidden in

FAQ sections). In some instances general website

maintenance was also lacking, resulting in out-of-date or

incorrect information being provided to consumers.

The FCA is keen to ensure compliance with the standards

it has set, and it has stated that it will take direct action

against companies that are not in compliance. This could

include requiring companies to amend the financial

promotion or, in extreme cases, for the company to be

fined or publicly named. In 2013 the FCA issued a total of

£472.3m of fines against over 40 firms representing a 52

percent increase on the £311.6m fines issued in 2012. In

November 2013 the FCA also launched a review of 90% of

all price-comparison websites, the results of which (and

any resulting actions) are expected in 2014.

It is not only the content of the website itself that may be

caught by the financial promotion regime, but also

hyperlinks, banner advertisements and sponsored links.

Hyperlinks may or may not be a financial promotion in

itself. Whether a hyperlink is a financial promotion will

depend on the nature of the hypertext link and the context

in which it is placed. However, taken in isolation, a

hypertext link that is purely the name or logo of the

destination will not be a financial promotion in its own right.

More sophisticated links, such as banners or changeable

text, may be financial promotions. Material on a host

website that contains the hypertext link may in itself also be

a financial promotion if it contains text that seeks to

encourage or incite persons to activate the link with a view

to engaging in investment activity.

Banner advertisements on a website are the Internet

equivalent of an advertisement in a newspaper and are

almost bound to be inducements. So whether they are

inducements to engage in investment activity will depend

upon their contents, as with any other form of advertising.

Sponsored links are text-based advertisements returned

from keyword searches on a search engine or associated

website. Depending on their content, a sponsored link and

search engine results may also be a financial promotion, if

they induce consumers to take out a regulated product or

use a firm's services. Companies must, therefore, ensure

all their communications, including sponsored links, are

fair, clear and not misleading.

Clive Gordon (formerly Head of the Conduct Risk

Department at the FSA) gave a speech in September 2012

where he discussed online financial promotions and

emphasised the need for banner advertisements to be

stand-alone compliant; roll-over risk warnings and risk

warnings requiring a person to ‘click’ the banner would not

be sufficient.

1. Digital media stays in circulation longer than traditional

media;

2. The media channel may not be suitable for all,

certainly complex, products;

3. Risk information must be prominent and clearly

displayed;

4. Must meet stand-alone compliance; and

5. Information must be full and sufficient.

Social Media and the Market-Abuse Regime

Social media allows the dissemination of information to the

public at large, and more and more investors are exploiting

the use of social media, such as bulletin boards and blogs.

There are dedicated forums on the Internet, such as shareforum.

co.uk, Interactive Investors (iii.co.uk) and

trade2win.co.uk, for investors to meet and discuss the

trading of securities. These forums, together with the likes

of Facebook and Twitter, mean that there is a real risk that

price-sensitive or confidential information could be made

public. The result of unauthorised disclosure of this

information could be caught by the market-abuse regime

under FSMA and insider dealing rules under Part V of the

Criminal Justice Act 1993 (“CJA”).

Market Abuse

Market abuse is a civil offence under sections 118 and

118A of FSMA. The FCA has published an on-line

handbook, which in turn contains the Code of Market

Conduct (“MAR”), which provides examples of matters that

constitute market abuse.

FSMA provides for seven different types of behaviour that

constitute market abuse: (a) insider dealing; (b) disclosure

of information; (c) misuse of information; (d) manipulating

transactions; (e) manipulating devices; (f) dissemination;

and (g) marketing distortion. Not all of the seven

behaviours have a social media aspect, but those that do

are considered below.

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Insider Dealing

Insider dealing under s.118(2) of FSMA and MAR 1.3 is

where an insider deals, or attempts to deal, in a qualifying

investment or related investment on the basis of inside

information relating to that qualifying investment.

This runs parallel to the criminal offences for insider

dealing under Part V of the CJA. A person deals as an

insider when: (a) he deals on a regulated market or through

or as a professional intermediary in securities whose price

would be significantly affected if the inside information were

made public; (b) he encourages another person to deal on

a regulated market or through or as a professional

intermediary in such securities; or (c) he discloses the

inside information, except in the proper performance of his

employment, office or profession.

Information is held “as an insider” if the individual knows

that it was acquired from an inside source and that it is

inside information. Information is obtained from an inside

source if the individual has obtained it: (a) because he is a

director, shareholder or employee of an issuer (not

necessarily the company or institution to which the

information relates); (b) by virtue of his employment, office

or profession; or (c) directly or indirectly, from a person

noted in (a) and (b).

Information is “inside information” if: (a) it relates to

particular securities or to a particular issuer or issuers and

not to securities or issuers generally; and (b) it is specific or

precise; and (c) it has not been made public; or (d) if it

were made public it would be likely to have a significant

effect on the price of any securities.

Insider dealing is punishable with imprisonment of up to

seven years, or a fine, or both, under section 61 of the

CJA.

While since March 2009, there have only been 23

convictions, since taking over from the FSA in April 2013,

the FCA has continued to investigate insider dealing and

pushed for prosecutions, resulting in a further seven

individuals being prosecuted.

In R v Neel and Matthew Uberoi (2009). Matthew Uberoi

and his father, Neel Uberoi, were found guilty of 12 counts

of insider dealing under section 52 of the CJA at Southwark

Crown Court. Matthew Uberoi had been an intern at a

corporate broking firm in 2006, working on a number of

price sensitive deals. Uberoi passed inside information

about deals in three companies to his father, who then

purchased shares in those companies and made a profit of

about £110,000 based on this inside information. Matthew

and Neel Uberoi were subsequently sentenced to 12- and

24-months prison sentences, respectively, in December

2009. This information could, of course, have been

obtained through a social media conduit.

Disclosure of Inside Information

Disclosure of inside information under s.118(3) of FSMA is

where an insider discloses inside information to another

person other than in the course of his employment,

profession or duties.

In November 2009, Alexei Krilov-Harrison, a stockbroker,

was fined the sum of £24,000 for disclosing insider

information to a number of clients in order to persuade

them to buy shares in Provexis Plc. Krilov-Harrison had

received inside information that Provexis, an AIM-traded

company, had signed a major contract with an international

food company. An announcement was scheduled to be

released to the market in two days, and the company's

share price was expected to increase as a result. Prior to

the announcement, Krilov-Harrison disclosed the

information by telephone to three clients who then

proceeded to buy shares. Although the disclosure of the

inside information was made by telephone, it could have

been made through a bulletin board or a blog.

Manipulating Devices

Manipulating devices under s.118(6) of FSMA and MAR

1.7 is when transactions or orders to trade, employ

fictitious or any other form of deception or contrivance.

An example of social media would be using a site such as

Twitter or Facebook to voice an opinion about securities (or

the issuer) while having previously taken positions on those

securities subsequently from the impact of the opinions

voiced on the price of that security, without having

simultaneously disclosed that conflict of interest to the

public in a proper and effective way.

Dissemination

Dissemination under s.118(7) of FSMA and MAR 1.8 is

concerned with the dissemination of information by any

means that gives, or is likely to give, a false or misleading

impression as to the value of securities by a person who

knew or could reasonably be expected to know that the

information was false or misleading.

An example of this would be if a person posts information

on an Internet bulletin board or chat room that contains

false or misleading statements about the takeover of a

company, and the person knows that the information is

false or misleading.

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Misleading Statements and Market

Manipulation

Making misleading statements and market manipulation

are criminal offences under section 397 of FSMA.

Misleading Statements

It is a criminal offence under s.397(1) of FSMA for a person

to: (a) make a statement, promise or forecast that he

knows to be misleading, false or deceptive in a material

particular, or dishonestly conceal any material facts; or

(b) recklessly make (dishonestly or otherwise) a statement,

promise or forecast that is misleading, false or deceptive in

a material particular for the purpose of inducing, or being

reckless as to whether it may induce, another person to

enter, or offer to enter into, or refrain from entering or

offering to enter into, a relevant agreement, or to exercise,

or refrain from exercising any rights conferred by a relevant

investment.

This would include, for example: a statement, promise or

forecast that induces or is likely to induce a shareholder to

sell or refrain from selling shares could constitute an

offence if the person making the statement knew or was

reckless as to whether it was misleading, false, or

deceptive, or if it dishonestly concealed any material facts.

It is easy to see how there could be a situation where an

individual could post on a bulletin board or on Facebook or

Twitter, and it would constitute a misleading statement.

The former FSA commenced proceedings against four

former directors of iSoft Group Plc – Patrick Cryne,

Stephen Graham, Timothy Whiston and John Whelan – for

conspiracy to make misleading statements to investors

pursuant to s.397(1) of FSMA, and the directors appeared

before the City of Westminster Magistrates Court in

January 2010. iSoft Group Plc had been under

investigation since 2006 for accounting irregularities. The

company was forced to restate its profits for the financial

years 2004 and 2005 because of a radical change in its

accounting practices, as a consequence of the discovery

that profits had been counted as soon as contracts had

been awarded, as opposed to after the work had been

completed and payment received (iSoft had been engaged

as a software supplier for the new £12.7 billion computer

systems for the National Health Service). . The

restatement of profits meant that operating profit for 2005

was reduced from £72 million to zero, and revenues were

revised from £262 million to £190 million. The revised

figures led to a mass sell-off of shares by investors, leading

to a 90 percent fall in the value of the company before its

eventual sale to IBA Health Group, an Australian

information technology company.

Market Manipulation

The criminal offence of market manipulation under s.397(3)

of FSMA is committed if: (a) any person does any act or

engages in any course of conduct that creates a false or

misleading impression as to the market in, or the price or

value of, any investments; and (b) that person does the act

or engages in that course of action (i) for the purpose of

creating that false or misleading impression and (ii) for the

purpose of thereby inducing that other person to deal or not

to deal in those investments. As with a misleading

statement, it is easy to see how a posting on a social

networking site could lead to a charge of market

manipulation if that statement would lead to a false or

misleading impression as to the market.

In June 2008, following a case at the Financial Services

and Markets Tribunal, the FSA found that Winterflood and

two of its traders had played a pivotal role in an illegal

share ramping scheme relating to Fundamental-E

Investments Plc (“FEI”), an AIM-listed company. It was

noted that the market maker had misused rollovers and

delayed rollovers, thereby creating a distortion in the

market for FEI shares, and misleading the market for

approximately six months in 2004.

The FEI share trades executed by Winterflood had several

features that should have alerted the market maker to the

clear and substantial risks of market manipulation.

However, instead of ensuring that the trades were genuine,

Winterflood continued the highly profitable trading.

Winterflood made about £900,000 from trading in FEI

shares. The FSA decided to impose fines of £4 million on

Winterflood, and £200,000 and £50,000 on the two traders

as a consequence of their respective actions.

More recently the FCA has fined a US trader approximately

£600,000 for manipulative trading known as ‘layering’

which uses an algorithmic programme to manipulate

perceived buyer/seller interest in the market.

Archiving and Social Media

A number of regulations govern data breaches and

archiving, which may well have an impact on social media.

Markets in Financial Instruments Directive (MiFID)

MiFID is a directive of the European Union designed for

investment firms operating in the European Economic

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Area. MiFID contains a number of provisions designed to

protect the integrity of financial transactions, including the

transparency of transactions and types of information that

must be captured when clients place trades. COBS

specifically requires instant messaging conversations to be

retained when trades are referenced. At the moment,

Twitter is not used to transmit and execute trading orders.

However, should it be so used in the future, such posts

would also have to be retained.

FSA Handbook

The FCA Handbook contains a number of requirements

that may have an impact on the use of social media.

Pursuant to section 3.2.20 of the Senior Management

Arrangements, Systems and Controls (SYSC) in the FCA

Handbook, a firm must take reasonable care to make and

retain accurate records of matters and dealing, including

accounting records.

Under SYSC 9.1.1, a firm must arrange for orderly records

to be kept of its business and internal organisation,

including all services and transactions undertaken by it,

which must be sufficient to enable the FCA or any other

relevant competent authority under MiFID to monitor the

firm's compliance with the requirements under the

regulatory system, and in particular to ascertain that the

firm has complied with all obligations to clients.

Under SYSC 9.1.2, a firm must retain all records kept by it

in relation to its MiFID business for a period of at least five

years.

In relation to the retention of records for non-MiFID

business, a firm should have appropriate systems and

controls in place with respect to the adequacy of, access

to, and the security of its records, so that the firm may fulfil

its regulatory and statutory obligations. As for retention

periods, the general principle is that records should be

retained for as long as is relevant for the purposes for

which they are made, and that sensitive information is not

leaked via social media.

The obligation to retain records also applies to information

passing via electronic means. Legislation has previously

passed on information passing via telephone but careful

consideration also needs to be given to social networking

tools, and posts to social networking sites which should be

retained in the same way as instant messages would be.

Conclusion

When considering the appropriateness of the use of social

media, care must be taken to ensure compliance with the

relevant legislation.

Companies should ensure that when undertaking any form

of financial promotion, the financial promotion complies

with the “clear, fair and not misleading” standards of the

FCA and is approved by a person authorised by the FCA,

or that the financial promotion is subject to an exemption

under the FPO.

Companies should ensure that they have adequate

security procedures in place to prevent unauthorised

access to confidential information, and that employees are

aware of their obligations regarding the non-disclosure of

price-sensitive information, and the appropriate use of

electronic communications.

Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

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— CHAPTER 13 —

Securities (U.S.)

Chapter Authors387

Amy J. Greer, Partner – agreer@reedsmith.com

Daniel Z. Herbst, Senior Associate – dherbst@reedsmith.com

Introduction

This chapter looks at the relationship between social media and the securities sector. A 2013 University of Massachusetts Study

of the Fortune 500388 found that 77% of Fortune 500 companies have an active Twitter account, leading all other social media

platforms. This is an increase over 70% in 2012. The study found that in 2013, 171 companies (34%) had corporate blogs,

showing the largest increase in use of this platform since the study began in 2008, and 348 companies (70%) are now on

Facebook, a modest 4% increase since last year. But the largest companies are not alone in the securities sector. Issuers,

brokers, investment advisors, investors, and the industry’s primary regulator, the U.S. Securities and Exchange Commission

(“SEC”), increasingly have embraced social media as a recognized a means of conducting business and engaging the

marketplace. Wall Street financial institutions have Facebook pages, CEOs of Fortune 500 companies share information via

Twitter, Instagram, and Pinterest, and the SEC, the Commodities Futures Trading Commission, and the Financial Industry

Regulatory Authority (“FINRA”) all maintain multiple Twitter feeds. Furthermore, new emerging markets have formed around the

very medium of social media dubbed “crowdfunding.”

With ever pervasive involvement of market participants, using social media requires careful consideration, supervision, and

training to comply with the legal constructs from decades-old securities laws that demand timely, fair, and accurate dissemination

of information. While the rewards of social media have the potential to be lucrative, those participating in the securities sector

must be aware of the risks associated with instant, unfettered, and difficult to supervise conversations in the ever evolving

regulatory landscape, which continues to receive significant regulatory scrutiny.

We begin by examining the use of social media by public companies to disseminate information to the market. Next, we consider

how companies selling or marketing securities can use social media for advertising or promotion. Next, we look at social media

in the context of raising private capital and the implementation of the JOBS Act. We then examine potential liability that may

arise when issuers, their employees, or business partners share information via social media. Finally, we examine how

companies can be victimized when social media is exploited to manipulate the market in a company’s stock, or to disclose

misappropriated (or stolen) material non-public information (e.g., false rumor cases, market manipulation).

Social Media in Action in the Securities

Sector

Regulation FD and Making Information Public

Recognizing that the availability of the Internet has

broadened substantially and that, for example, more than

80 percent of mutual fund owners have Internet access,

regulators have taken steps to permit (and even

encourage) disclosures and other communication

electronically.

While the majority of companies still distribute their

earnings announcements and other investor disclosures

through traditional paid public relations wire services, some

large companies, such as Expedia, Inc. and Google Inc.,

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are taking advantage of the SEC guidance on using

company websites for disclosure under Regulation FD, and

moving toward exclusively providing this information

through their websites and in some cases, through social

media channels such as Twitter and Facebook.

Regulation FD governs the public disclosure of material

information and requires that such information be

disseminated by methods of disclosure “reasonably

designed to provide broad, non-exclusionary distribution of

the information to the public.” The purpose of Regulation

FD is to avoid selective disclosure by promoting full and fair

dissemination of information. The SEC now recognizes

social media channels of distribution for required and other

public information disclosures (either to meet regulatory

obligations or in connection with individual securities

transactions).

In an August 7, 2008 interpretive release followed by a

disclosure interpretation issued on August 14, 2009, the

SEC addressed the use of company websites for

disclosures. This Guidance explains the general contours

of Regulation FD applicable to sharing information through

social media outlets, as well as the potential for issuer

liability for information the company or its employees post

on blogs, networks, or discussion forums. In these

releases, the SEC made it clear that companies can use

their websites for disclosure if their websites are a

“recognized channel” for reaching investors when (1) the

medium is a “recognized channel of distribution; (2) posting

to the site disseminates information in a manner making it

available to the securities marketplace in general; and (3)

there is a reasonable waiting period for investors and the

market to react to posted information. U.S. Securities and

Exchange Commission, Release No. 34-58288,

Commission Guidance on the Use of Company Web Sites

18, 25 (2008).

On April 2, 2013, the SEC updated its guidance in the form

of a Report of Investigation indicating that Twitter,

Facebook, and other social media channels could be used

by public companies to disseminate material information

without running afoul of Regulation FD. U.S. Securities

and Exchange Commission, Release No. 69279, Report of

Investigation (2013). Recognizing that social media is an

extension of website, blogs, and RSS feeds discussed in

the 2008 guidance, the Report of Investigation referred

companies to the 2008 interpretive release and suggested

that Reg FD’s “recognized channel of distribution”

standards apply in the context of social media.

Critically, the guidance focused on the need of issuers to

provide investors with notice of the particular social media

“channel” that the company intends to use to disseminate

non-public information. The SEC noted that without notice,

the investing public would have to keep pace with a

“changing and expanding universe of potential disclosure

channels.” The Report of Investigation noted that in order

to provide such notice to investors of the social media

channel, a company should include references to the

channel in registration statements, periodic reports, or

press releases, and on the corporate website(s).

While the April 2013 Report clarified that social media can

be a “recognized channel,” it also noted that whether notice

and use of the channel complies with Regulation FD and

other securities laws must be evaluated on its own facts.

The SEC’s Report of Investigation explained that

dissemination of information on a corporate officer’s Twitter

feed, absent advance notice to investors that the feed may

be used to disseminate material non-public information

may not qualify as an accepted method of communication

and could run afoul of Regulation FD.

In another example, in January 2013, Zipcar filed a short 8-

K with the SEC noting disclosures made by its CEO on his

Twitter feed following the announcement that Avis would

be buying the company for $500 million. The filing was

likely done because there was no prior identification of the

Twitter feed as a channel of dissemination and because

the transaction was subject to shareholder approval.

Based on this guidance, it is incumbent upon issuers

whose officers or agents participate in social media to

establish internal social media policies for its employees

and officers so that the company speaks with one voice.

Moreover, companies must provide outward facing

materials on websites, press releases, registration filings,

or periodic statements to inform investors where they can

look to receive non-public information about the company

in accordance with SEC guidance. Use of social media to

disseminate information without required public notice

could result in an enforcement investigation or action. As

Regulation FD was designed to ensure fair dissemination

of information and avoid selective disclosure, market

participants that trade on selectively-disclosed information

ahead of more broadly disclosed information potentially

face more severe penalties.

Advertising and Promotion in the Securities

Sector

Social media also offers an opportunity to provide

information in connection with a transaction or to promote a

particular investment or investment strategy. As such, it

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could be a very effective and attractive tool for investment

advisers, investment companies and broker-dealers. If,

however, the promotion or disclosure is held to be

inadequate or otherwise violative of regulatory

requirements, it could result in an investigation or action by

regulatory authorities. Although there are risks, numerous

registered investment advisers (“RIAs”) use social media

platforms such as Facebook, MySpace, LinkedIn,

YouTube, Twitter, and blogs for business purposes,

because social media is an inexpensive and effective way

for them to communicate with clients and prospective

clients.

The SEC and FINRA released an Investor Alert on June

12, 2013 concerning “pump and dump” stock emails.

Financial Industry Regulatory Authority, Inbox Alert—Don’t

Trade on Pump-And-Dump Stock Emails (6/12/2013). The

alert warned investors of similar advertisements made on

“social media such as Facebook and Twitter, as well as on

bulletin boards and chat room pages.” Another recent

Investor Alert warned of advance-fee scams using fake

regulator Facebook websites and false broker identities.

Financial Industry Regulatory Authority, Well-Traveled

Fraud—Advance-Fee Scams Target Non-U.S. Investors

Using Fake Regulator Websites and False Broker Identities

(3/22/2012).

Investment advisers, investment companies, brokerdealers,

and other regulated persons and entities must

take great care to ensure that they obtain the proper

approval before using social media tools to avoid being

lumped in with illegal scammers.

Broker-Dealers and Their Registered Representatives

Registered representatives (“RR”) subject to Financial

Industry Regulatory Authority (“FINRA”) regulations need to

obtain the approval of their broker-dealer compliance

department before posting any business communication on

the Internet. Static postings are considered

advertisements, and FINRA has published guidelines for

use of social media by registered representatives, in a

regulatory notice issued January 25, 2010, clarified and

expanded upon by a second notice issued August 22,

2011. The goal of these notices was to ensure that as the

use of social media increases over time, investors are

protected from false or misleading representations and that

financial firms are able to effectively supervise their

associated persons’ participation in these forms of

communication. The key issues addressed in FINRA’s

regulatory notices include the following:

Recordkeeping responsibilities: Every firm that

communicates through social media sites must retain

records of any communications in order to comply with the

Securities Exchange Act and FINRA rules that require

broker-dealers to retain electronic communications related

to their business.

Suitability responsibilities: If a firm recommends a

security through a social media site, it is required to ensure

that the recommendation is suitable for every investor to

whom it is made under FINRA Rule 2111 (formerly NASD

Rule 2310). FINRA recommends that firms use those

features of social media sites that limit the ability to access

information to a select group of individuals in order to meet

this requirement. Further, communications that recommend

specific investment products may trigger, for example, the

FINRA sustainability rule and other requirements under

federal securities laws, which may create substantive

liability for a firm or a registered representative.

Static versus interactive content: Whether content

posted by a firm or registered representative is “static” or

“interactive” will determine which supervisory rules apply.

Unscripted, real-time communications are considered

interactive, although they may become static if reposted

after they occur. A single social media website, page, or

user account may contain both static and interactive

content. For example, static postings may be made to a

Facebook page, while the same Facebook account is used

for interactive instant messaging. Each of these types of

communication will be subject to different rules.

Approval or supervision of content posted on a social

media site: If the content to be posted on a social media

site is considered to be static, it must be approved by a

registered principal at the firm prior to posting. A material

change to such a posting requires prior approval as well. If

content to be posted is interactive and unscripted, preapproval

is not required, but the firm must still monitor such

posting to ensure that it does not violate applicable content

requirements. Additionally, the firm is required to preapprove

the design of any relevant website created by an

associated person, even if only interactive content will be

posted there.

Supervision of social media sites: FINRA members must

adopt procedures and policies that are reasonably

designed to ensure that communications through social

media do not violate FINRA or Securities Exchange Act

rules or laws. The supervisory system that will be optimal

will be different for each firm, but some consistent themes

are clear. The system should include a combination of prior

review by a principal and retrospective review, with the

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precise mix depending on the nature of the communication.

One investment firm has announced a program to allow its

financial advisors to disseminate pre-approved updates

through private messages using social media and to send

invitations and introductions. The reaction of regulators to

this approach deserves close attention. Above all, a firm

must ensure through its policies and procedures that its

associated persons who participate in social media for

business purposes are appropriately supervised, have the

necessary training and background for such activities, and

do not present undue risks to investors.

In December 2013. the SEC gave final approval to

significant changes to FINRA’s supervisory rules and, in

March 2014, FINRA announced that new supervisory rules

will become effective December 2014. . See Notice

http://www.finra.org/Industry/Regulation/Notices/2014/P465

941 In addition to reaffirming and consolidating prior rules,

the new supervisory rules require “risk-based review” of

additional types of incoming, outgoing, or internal

communications and whether the member should require a

review and update of existing policies and procedures.

Such a risk based review may require members to

reassess how the member uses social media and take

additional steps to implement supervisory policies on use

by its registered reps and other employees.

Third-party posts: When a third party posts content on a

social media site established by a firm or its employees,

FINRA generally does not treat such posts as the firm’s

communication with the public, and thus the responsibilities

described above do not apply to those posts. However,

third-party content will be attributable to the firm if the firm

has either involved itself in the preparation of the content or

endorsed it explicitly or implicitly.

In any event, third-party posts relating to the firm’s

business remain subject to recordkeeping requirements as

communications received by the firm. Like third-party

posts, third-party content linked from a firm’s website will

be attributable to the firm if the firm has been involved in its

preparation or is deemed to have endorsed it.

Additionally, a firm may not link to a third-party site if the

firm knows or has reason to know that it contains false or

misleading content. Having “reason to know” encompasses

red flags that ought to prompt further investigation. More

stringent requirements apply to a firm incorporating a thirdparty

vendor’s data feed directly into its website. The firm is

under an affirmative duty to inform itself of the criteria used

by the vendor to gather the data and must evaluate the

proficiency of the vendor to supply accurate data. The firm

also must periodically review the data for indications of

unreliability.

Use of personal sites and devices by an associated

person: A firm’s compliance responsibilities apply to all

communications of its associated persons that concern the

firm’s business, regardless of whether those

communications are made via the firm’s website, social

media account, or device or the associated person’s

personal website, social media account, or device. If a firm

allows its associated persons to make business-related

communications via their own personal means, it must

supervise those means and follow record-retention

requirements. Conversely, if the firm will not supervise and

preserve records of a communication channel belonging to

an associated person, it must prohibit the use of that

communication channel for business-related

communications. A firm must train its associated persons

on the difference between business and non-business

communications and on their duties with respect to the

former.

FINRA Issues “Sweep Letter” Seeking Social Media

Data from Member Firms: In June 2013, FINRA sent a

targeted examination letter or “sweep letter” to its member

firms inquiring into use of social media and the supervisory

measures in place to oversee its use. FINRA sent the

letter under authority of FINRA Rule 2210(c)(6), which

allows FINRA to periodically “spot check” member firms’

written and electronic communications. FINRA’s sweep

letter requested an explanation of the member’s use of

social media, identification of all media used by each

member and who at each member firm controls the media,

information related to the member’s supervisory policies

and procedures related to social media, member’s

compliance and training efforts related to social media, and

a list with sales data for of the each member’s top 20

producing representatives using social media.

Data from this sweep is likely to reveal that some members

and their representatives failed to comply with applicable

rules and potentially could lead to disciplinary actions. The

sweep may also impact future FINRA rule-making or

guidance in this area. More importantly, brokerage firms

should conduct internal reviews of their social media

policies and procedures to ensure not only that the

procedures reflect current law but that the firm is

implementing and training its registered representatives,

supervisors, and compliance officers to adequately enforce

those policies and procedures.

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Registered Investment Advisers

Statements of Registered Investment Advisors (“RIAs”) and

their representatives amounting to advertisements, which

include most postings about the firm made to publicly

accessible forums, are subject to similar requirements

under the Investment Advisers Act of 1940 and SEC rules.

Those sources also contain record-retention requirements

that apply more broadly, not only to advertisements.

Illustrating its interest in the area of social media, the SEC

issued a broad document request to RIAs in February 2011

concerning employees’ use of the technologies. The SEC’s

Office of Compliance Inspections and Examination

(“OCIE”) published a summary of its findings in a January

2012 Risk Alert, which contains some useful guidance.

RIAs are generally responsible for self-supervision by chief

compliance officers. In light of that, RIAs have perhaps

somewhat greater flexibility than those subject to FINRA

regulations when using social media. Nevertheless, care

should be taken to avoid publishing securities

recommendations or any testimonials, both of which are

explicitly prohibited by the SEC and state regulatory

authorities. Additionally, even though communications with

current clients are not usually viewed as advertisements,

they might fall into that category if circumstances suggest

that the purpose of the communication is to sell additional

advisory services or to attract new clients.

Testimonials: Certain types of social media, expressly or

implicitly, violate the prohibition on testimonials contained

in Rule 206(4)-1(a)(1) under the Investment Advisers Act.

A testimonial is a statement relating to a client’s experience

with, or endorsement of, an RIA or its representative.

The SEC’s January 2012 Risk Alert suggests that tools in

the nature of the “like” button on Facebook may constitute

testimonials, that RIAs should consider measures to

disable their use, and that more robust monitoring might be

required if disabling the tools is not possible, so that

offending content can be removed swiftly. If a mere “like”

on Facebook may constitute a testimonial, then a

professional recommendation on LinkedIn is of even

greater concern.

It should be understood that a “like” or a recommendation

posted with reference to an RIA or its representative may

constitute a testimonial regardless of whether it was

solicited or volunteered. And it may constitute a testimonial

regardless of whether its author is a client or only a friend

or family member of the RIA’s representative.

False or misleading statements: Recommendations are

also likely to be viewed as false or misleading if motivated

by an undisclosed interest by the recommender.

Recommendations also have the inherently misleading

characteristic of excluding criticism. Thus,

recommendations posted on social media might violate

Rule 206(4)-1(a)(5), which bars any advertisement that is

false or misleading in any way.

Twitter and Facebook present additional dangers of false

or misleading statements. RIA representatives may send

messages in haste, thereby increasing the risk of

inaccuracy. A tweet is limited to 140 characters, which

leads to the use of abbreviations, raising the risk of

inadvertently misleading language. Necessary

qualifications and disclosures may be left out.

Profiles on LinkedIn, Facebook, and other social media

platforms should be scrutinized to ensure that they are not

false or misleading and should be consistent with the RIA’s

advisory contract, as well as with its website and other

advertisements. All references to performance may be

subject to the SEC’s guidance in the Clover Capital noaction

letter, which requires that performance results be

presented on a net-of-fees basis and that advisers make

numerous disclosures when providing performance results.

In addition, RIAs must take care not to violate Rule 206(4)-

1(a)(2) under the Investment Advisers Act, which restricts

advertisements referring to specific recommendations

made by an RIA that were, or would have been, profitable

to any person.

Supervision of social media sites: RIAs should ensure

that their compliance manuals incorporate policies and

procedures regarding the use of social media by their

employees. RIAs have four general options: (1) allow

employees to post information about the advisory firm but

require pre-approval by the firm’s compliance department

(a supervisory nightmare); (2) allow posting, but only of

pre-approved content created by the firm and provided to

employees for that purpose; (3) allow posting only to

forums that are not publicly accessible; or (4) categorically

prohibit the posting of any information about the firm, other

than the mere fact of the poster’s employment, whether in

a public or private forum.

The SEC’s January 2012 Risk Alert emphasizes that the

policies a firm adopts should be risk-based, meaning

tailored to the particular risk factors that a firm faces and

selected after evaluating the effectiveness of existing

policies. The Alert states that retrospective review of

posted content, as opposed to prior approval, may not be

adequate under all circumstances. Also, although the

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appropriate level of monitoring may be achievable only with

the help of outside vendors, the firm remains responsible

for the adequacy of those measures.

The Alert also warns of a duty to monitor any changes in

the operation of a social media site that might compromise

client privacy. The SEC seems to be envisioning a scenario

in which an RIA’s or a representative’s privacy settings

initially conceal information regarding its contacts, but then

a design change exposes the information unless new

settings are elected. If the protection of client information

cannot be ensured, the Alert goes on to say, then the use

of the site may not be appropriate.

Training is a critical component of any RIA’s compliance

regime. RIAs should make all employees aware that

posting any information about their advisory firm on a

social media site is considered advertising and, as such, is

subject to SEC rules and firm policies and procedures. An

advisory firm should also require all employees to affirm

that they are in compliance with the firm’s rules regarding

advertising and electronic communications. The firm’s chief

compliance officer should also periodically inspect popular

social media sites for violations of either Rule 206(4)-1 or

the firm’s own policies and procedures.

Security: The Risk Alert warns of the potential for social

media to serve as an entrée to hackers. It advises

maintaining appropriate walls to separate sensitive

information from social media sites.

Recordkeeping responsibilities: The Investment

Adviser’s Act imposes similar recordkeeping requirements

to those applicable broker-dealers. The SEC’s January

2012 Risk Alert emphasizes that the content of a

communication, rather than the medium, determines

whether it is subject to recordkeeping requirements. If a

particular social media channel is not compatible with

recordkeeping requirements, then it should not be used for

communications that are subject to those requirements.

Training, monitoring, and other policies should be designed

to achieve that end.

One recent enforcement action brought by the SEC389

underscores the point. An alleged fraudster operating an

RIA was accused of, among other violations,

communicating with prospective clients via a web-based

email account, LinkedIn, and Trade Key, each of which

automatically deleted messages after six months, while he

did nothing to preserve the communications.

Even the SEC is now using Twitter, underscoring its

attention to social media. One of the SEC’s very first tweets

discussed a recent enforcement action against a RIA. It

stands to reason that if the SEC is on Twitter, then it is

capable of finding compliance violations in social media.

Mutual Funds

Following the OCIE Risk Alert, on March 15, 2013, the

SEC’s Division of Investment Management Division (“IM”)

sought to clarify filing requirements for mutual funds with

respect certain social media interactive content. U.S.

Securities and Exchange Commission, IM Guidance, Filing

Requirements for Certain Electronic Communications, No.

2013-1 (March 2013).

Under Section 24 of the Investment Company Act and Rule

497 of the Securities Exchange Act, mutual funds must

pre-file with FINRA all communications or advertisements

that the fund intends to disseminate to the public. The

applicability of these pre-filing rules with respect to social

media or what IM describes as “interactive content” posted

in real time interactive forums remained unclear. The

industry tended to err on the side of being over inclusive,

extensively filing all forms of potential interactive content

with FINRA.

Prompted by the “flood” of interactive content filings, the

2013 IM guidance instructs mutual funds to use some

discretion based on a set of prudential guideposts. The

guidance suggests that the determination of whether to file

certain interactive content as advertising is dependent

upon “the content, context, and presentation of the

particular communication” and “consideration of the facts

and circumstances, such as whether the interactive

communication is merely a response to a request or inquiry

. . . or is forwarding previously filed content.”

The IM guidance provides several sample illustrations on

when filing is required and when filing is not required.

Broadly speaking, the guidance provides that interactive

content should be filed in the following instances:

 Reference to a fund’s performance or elements of a

fund’s performance (“Our quarter-end returns have

exceeded our expectations!” or “The fund’s

performance rebounded in Q3!”)

 Reference to the merits of investment in the fund

(“Looking for dividends?” or “As you plan for

retirement, consider our new fund”).

Pursuant to the IM Guidance, pre-filing is not required in

the following instances:

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 Incidental mention of an investment company or fund

family not related to the investment merits of the fund

(“Fund X Family invites you to their annual benefit for

XYZ charity.”).

 Incidental use of the word “performance” in connection

without discussion of the elements of a fund’s return in

the communication, including where the issuer refers

a person to previously filed performance results. (“We

update the performance of our funds every month and

publish the results on <filed website link>”)

 A factual introductory statement forwarding or

including a hyperlink to a fund prospectus or other

information that was previously filed pursuant to

Section 24(b) or Rule 497 (“The new ABC ETF

Strategy Report is now available through <filed

website link>”)

 A reference to general financial and investment

information, such as basic investment concepts or

economic, political, or market conditions without

addressing the merits of the fund (“The election is

over. What’s next for our economy? See our report

analyzing the election <filed website link>.”)

 A response to an inquiry by a social media user that

provides discrete factual, information that is not

related to a discussion of the investment merits of the

fund, which may direct the social media user to the

fund prospectus or access to information filed with

FINRA or to contact the issuer through a different

medium. (INQUIRY: “Why are your funds such a

large investor in ABC Manufacturer’s stock?” Fund’s

posted response: “We respect your thoughts. As you

know, ABC Manufacturer is found in many broadmarket

indices that our index funds are obligated to

track so some of our index funds hold those shares as

a result.” OR INQUIRY: “What are the fees and

expenses for ABC Fund?” Fund’s posted response:

“Information on the fund’s fees and expenses is

available at <filed website link>. Feel free to contact

us at 1-800-***-**** for more information about this

fund”)

While IM’s guidance provides useful guideposts for mutual

funds that may curtail unnecessary interactive content

filings, grey areas remain. Critically, funds would be wise

to follow OCIE’s guidance and implement compliance

programs that include social media policies to ensure

principles of advertising rules, as clarified by IM, are

integrated into firm policies. Moreover, due to the factsensitive

nature of the inquiries, funds would be wise to

implement robust training programs to implement and

execute social media policies, remain in compliance, and

avoid enforcement actions.

Insider Trading

Social media’s “stock in trade” is information, and some of

the information that might be conveyed via social media is

material non-public information. The transmission of such

information, if it breaches a duty to the company or person

from which it was obtained, may itself be a violation of the

securities laws, and trading on such information typically

means liability for insider trading. All such conduct is

regulated primarily through the antifraud provisions of the

securities laws, most often Section 10(b) of the Securities

Exchange Act and Rule 10b-5 thereunder.

Underscoring its recent announcements that insider trading

remains a high priority, the SEC has entered into an

agreement with the New York Stock Exchange’s regulatory

arm (NYSE Regulation, Inc.) and FINRA to improve

detection of insider trading across the equities markets by

centralizing surveillance, investigation, and enforcement in

these two entities. In addition, the SEC’s new

organizational structure, announced in 2009 and put into

place in 2010, includes specialized subject-matter units

within the Division of Enforcement, including a Market

Abuse Unit focused on investigations into large-scale

market abuses and complex manipulation schemes by

institutional traders, market professionals, and others. The

Market Abuse Unit relies heavily on computers, crosschecking

trading data with personal information about

individual traders, such as where they went to school or

used to work, to find like trading patterns among possible

associates. Suffice it to say, social media will be a critical

source of information for this specialized team.

These innovations, together with recent pressure on U.S.

regulators in the wake of high-profile enforcement failures,

are likely to result in increased enforcement in the area of

insider trading. This is particularly true because insider

trading cases are comparatively easy for regulators to

identify and investigate. Meanwhile, recent years have

seen an increase in insider trading investigations and

prosecutions worldwide, as well as an unprecedented level

of international cooperation among securities regulators to

pursue violators. In particular, the Financial Services

Authority in the UK has put the identification and

punishment of insider trading at the top of its enforcement

agenda.

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Social media is of particular importance to insider trading

issues because of the volume of information traffic, the

cross-border nature of that traffic, and the opportunity for

regulators to locate the source of the information. Social

media postings—like everything on the Internet—never

really disappear.

Private Capital Raising

Social media presents both opportunities and regulatory

risks to parties raising capital through private offerings of

securities. Although general solicitations or advertising in

connection with unregistered offerings traditionally has

been proscribed, the Jumpstart Our Business Startups Act

of 2012 (“JOBS Act”) provided limited exceptions to the

general solicitation rule to allow the markets flexibility in

raising capital and spark the economy. One key provision

of the JOBS Act permits the use of “crowdfunding” or

“crowdsourcing” in raising capital, subject to certain

conditions. This section explores the applicability of social

media to general solicitation rules and impact of the JOBS

Act.

Unregistered Offerings

Section 5(c) of the Securities Act of 1933 makes it unlawful

to offer a security unless a registration statement has been

filed with the SEC or an exemption from registration

applies. Exemptions include Regulation D, which permits

issuers to sell securities in a private placement to an

unlimited amount of “accredited investors” provided the

issuer complies with the requirements of Regulation D.

Accredited investors include individuals who meet certain

minimum income or net worth levels, or certain institutions

such as trusts, corporations or charitable organizations that

meet certain minimum asset levels. Regulation D Rule

502(c) prohibits “any advertisement, article, notice or other

communication published in any newspaper, magazine, or

similar media or broadcast over television or radio, and any

seminar or meeting whose attendees have been invited by

any general solicitation or general advertising.” Social

media likely would be considered “similar media” but the

Commission has not addressed the issue.

Although this registration requirement is common

knowledge among seasoned participants in the securities

markets, it is not so well known among the general public.

Social media enables novel and spontaneous forms of

collective action that may amount to an offering of

securities without those involved realizing that the

securities laws are implicated at all.

The JOBS Act

(A) Lifting of the Ban on General Solicitation

The Jumpstart Our Business Startups Act or JOBS Act was

enacted with bipartisan support and signed into law in April

2012. The law encourages funding of small businesses by

easing various securities regulations, and directs the SEC

to promulgate rules to implement the regulations including

rules regarding eased general solicitation requirements and

crowdfunding/funding portals.

On July 10, 2013, the SEC voted to adopt final rules under

Title II of the JOBS Act amending Regulation D and lifting

the ban on advertisements and general solicitations in

certain circumstances. U.S. Securities and Exchange

Commission, Release No. 33-9415, Eliminating the

Prohibition Against General Solicitation and General

Advertising in Rule 506 and Rule 144A Offerings (2013).

The final rule expands exceptions in private securities

offerings from a broader category of private placement,

including many offerings of interests in venture capital,

private equity, real estate, hedge and other types of private

investment funds so long as the solicitation is to an

“accredited investor” as defined in Regulation D.

Under the final rule, issuers are required to “take

reasonable steps” to verify that the investors are accredited

investors and all purchasers of the securities must fall

within one of the categories of persons who are accredited

investors under an existing rule (Rule 501 of Regulation D)

or the issuer reasonably believes that the investors fall

within one of the categories at the time of the sale of the

securities.

The SEC also voted to prohibit private placements by

certain "bad actors" and propose for public comment a

variety of rules that would limit opportunities for abuse of

the new rule and enhance the ability of SEC staff to

monitor activities pursuant to, and compliance with, the

new rule.

To the extent issuers use social media in general

solicitation or advertisements of private placements under

the new rule, issuers must “take reasonable steps” to

ensure recipients of social media solicitations and

advertisements are only “accredited investors.” Such

responsibility falls on issuers under the final rule and social

media policies and procedures must be in place to ensure

both the content and audience meet the regulatory

requirements.

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(B) Crowdfunding

“Crowdfunding,” also known as “crowdsourcing,” is

inherently a social media phenomenon and its regulation

and proliferation may be a viable method to raise private

capital in certain market sectors. Crowdfunding arose from

networks of people pooling of small contributions to finance

new enterprises. In response to the emerging

development and with the intent to spur economic growth,

Title III of the JOBS Act sets a framework for the SEC to

develop and implement exemptions to registration

requirements for private fundraising through crowdfunding.

The JOBS Act provides a framework to allow unregistered

capital-raising through crowdfunding by the use of a

registered brokers or, alternatively, through a crowdfunding

intermediary known as a “funding portal.” Funding portals

must register as broker-dealers, but are held to lesser

regulatory requirements. Funding portals would be

prohibited from providing investment advice, soliciting

sales, compensating employees based on sales of the

offered securities, handling investor funds or securities,

and engaging in other proscribed activities.

Title III limits crowdfunding to certain specific conditions

including limits on aggregate capital raised and capital

raised per investor, timing limits on portals and on

transferability of crowdfunded securities, background

checks for officers, directors, and significant shareholders

in the enterprise, and filing, registration, and periodic

reporting requirements.

In addition, the crowdfunding provisions proscribe

advertising beyond directing investors to a registered

broker or funding portal.

On October 23, 2013, the SEC proposed crowdfunding

rules and solicited public comment. The proposed rules

track the JOBS Act provisions and would permit, among

other things, individuals to invest subject to certain

thresholds based on the wealth and sophistication of the

investor, limit the amount of money a company can raise,

require companies to disclose certain information about

their offers, and create a regulatory framework for the

intermediaries that would facilitate the crowdfunding

transactions.

Certain companies would not be eligible to use the

crowdfunding exemption such as non-U.S. companies,

companies that already are SEC reporting companies,

certain investment companies, companies that are

disqualified under the proposed disqualification rules,

companies that have failed to comply with the annual

reporting requirements in the proposed rules, and

companies that have no specific business plan or have

indicated their business plan is to engage in a merger or

acquisition with an unidentified company or companies.

The proposed rules would require companies conducting a

crowdfunding offering to file certain information with the

SEC, provide it to investors and the relevant intermediary

facilitating the crowdfunding offering, and make it available

to potential investors. Under the proposed rules, the

offerings would be conducted exclusively online through a

platform operated by a registered broker or a funding

portal, which is a new type of SEC registrant.

Public comments have been generally critical of the

proposed rules as inflexible and too constrained. The

Commission continues to review comments and work

towards either a finalized rule or an amended proposal,

which many expect to be in spring/summer 2014.

Before the JOBS Act, in June 2011, the SEC entered a

cease-and-desist order390 against two individuals who

attempted to “crowdsource” a purchase of the Pabst

Brewing Company. The private owners of the Pabst

Brewing Company sought to sell the company. The two

defendants, whose backgrounds were in advertising,

created a website, complemented by a Facebook page and

Twitter account, called BuyaBeerCompany.com. The pair

solicited pledges toward a stated goal of raising $300

million. If that goal was met, the pledges were to be

collected. At that point, each investor was to receive a

“crowdsourced certificate of ownership” and, eventually, an

allotment of beer as well.

The website succeeded in garnering more than $200

million in pledges over the course of four months. Only

then did the defendants consult with an attorney. It does

not appear that they considered the possible application of

the securities laws before that time.

The matter was resolved with a cease-and-desist order

after the website was taken down. Had the defendants

actually collected money from investors, however, the legal

consequences might have been much more severe for

them. Had the JOBS Act been in place, it is dubious

whether the purported advertising scheme would have

complied with federal securities laws. However, the Pabst

Brewing enforcement action illustrates the social aspect of

crowdfunding and the need for the SEC to implement

regulations to reflect this emerging market trend. Private

issuers interested in crowdfunding should proceed with

caution in using social media to promote new sites and

consult securities counsel on crowdfunding portals.

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Other Potential Liability—Market

Manipulation, False Rumors

Wrongly used, information posted in social media can

expose companies to regulatory investigations and legal

claims and expose companies’ securities to manipulation

by those who would use the power of social media to

unlawfully influence share price. Companies should

monitor social media outlets to ensure that information is

being properly and lawfully dispersed.

In much the same way that companies protect their

trademarks and trade dress, they should protect their

company names and their information, or risk finding

themselves on the receiving end of an investigative

subpoena, even in circumstances where the company itself

had no involvement whatsoever. The SEC has announced

its intention to pursue “false rumor” cases–just one variety

of market manipulation–and social media is the perfect

place for false rumors to grow and eventually impact stock

prices. Although companies will not be able to prevent all

such manipulation, reporting the activity to regulators (and

to website hosts) in the first instance is just one approach

that should be discussed with counsel.

Current Legal and Regulatory Framework in the

Securities Sector

Several recent actions brought by the SEC and FINRA

offer cautionary tales. Although only one actually involved

the use of social media, each offers lessons of particular

applicability to the compliance risks associated with social

media.

Violation of FINRA Rules

In a release in November 2013,391 a registered

representative and FINRA entered into a settlement

following an investigation of alleged improprieties related to

the broker’s single Facebook post. The Facebook post

responded to a Barron's article cautioning against buying a

certain pharmaceutical stock at its then high price, based

on some of the hurdles the Barron’s author believed the

company faced to bring a weight loss drug to market. The

broker made the post on his Facebook wall with a

comment describing the article as “idiotic” in addition to

defending the drug and stating “there's no safer weight loss

drug.” His Facebook profile identified the broker as a

financial planner at his member firm. At the time of the

post, the broker owned 10,000 shares of the stock, worth

about $60,000, and about 33 of his clients also owned the

stock, but he did not disclose these stakes in the posting,

according to the FINRA settlement.

The settlement provided for a $5,000 civil fine and 10-day

suspension. The FINRA announcement states that “the

broker posted a communication regarding a

pharmaceutical company on a publicly available website

that was exaggerated, not fair and balanced, and omitted

the material fact that he and several customers owned

shares of the company’s stock.” While FINRA's sanctions

were de minimus, the case illustrates the challenges for

brokers and members firms in navigating social media,

even whereas here, the member firm had a written policy

on the use of social media. Thorough training on social

media policies is essential to avoid these pitfalls.

In another a recent disciplinary action,392 FINRA found that

a registered representative created two websites, without

the approval of her employer firm, that misrepresented her

career accomplishments and the firm. Also without

approval, the registered representative made a number of

unduly positive posts to her personal Twitter feed

concerning a security of which she and members of her

family possessed substantial holdings. Although there is no

indication that regulators have taken any disciplinary action

against the employer firm, the incident exemplifies the sort

of employee misuse of personal social media accounts and

websites for which financial firms may be held responsible

if their compliance policies and procedures are found

lacking. As the August 2011 FINRA guidance makes clear,

broker-dealers must affirmatively prohibit their associated

persons from using personal websites and social media

accounts to make business-related communications, or

else they must supervise those accounts and websites.

Adequate training regarding the difference between

business and non-business communications, and the rules

that apply to the former, is also necessary to avoid

imputation of responsibility to a financial firm for the actions

of an unscrupulous associated person.

International Pyramid Scheme Using Social Media

In SEC v. Fleet Mutual Wealth,393 the SEC brought an

emergency enforcement action in the U.S. District Court for

the Central District of California to stop a fraudulent

pyramid scheme by companies posing as a legitimate

international investment firm on social media. The U.S.

district court froze accounts holding money purportedly

invested by U.S. investors with Fleet Mutual Wealth Limited

and MWF Financial – collectively known as “Mutual

Wealth.”

The SEC complaint alleges that Mutual Wealth has been

“exploiting investors through a website and social media

accounts on Facebook and Twitter, falsely promising

extraordinary returns of 2 to 3 percent per week for

investors who open accounts with the firm.” The SEC

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claims that Mutual Wealth does not purchase or sell

securities on behalf of investors, and instead merely diverts

investor money to offshore bank accounts held by shell

companies. Approximately 150 U.S. investors opened

accounts with Mutual Wealth and collectively invested a

total of at least $300,000.

According to a March 2014 SEC press release, Mutual

Wealth utilized social media channels such as Facebook,

Twitter, YouTube, and Skype to make its investment pitch.

In particular, Mutual Wealth maintained a Facebook

account page and Twitter account which regularly posted

status updates, making numerous online pitches and posts.

Fraudulent comments populated Facebook wall posts filled

with solicitations by the accredited advisors. Mutual Wealth

also tweeted offering and announcements and invested in

advertisements on other social media platforms.

According to the SEC, Mutual Wealth’s website falsely

denotes it headquarters in Hong Kong and its purported

“data-centre” in New York – neither of which exist. Mutual

Wealth also lists make-believe “executives” on its website,

and falsely claimed in e-mails to investors that it is

“registered” or “duly registered” with the SEC.

This unique case demonstrates the persuasive power of

social media in reaching potential investors and the great

potential to perpetuate fraud. Moreover, it shows that the

regulators are highly focused on social media and have

made policing its use by those in the securities sector a

high enforcement priority.

Violation of Regulation FD

In SEC v. Black,394 the defendant, the designated investor

relations contact of American Commercial Lines, Inc.

(“ACL”), acting without authority and without informing

anyone at ACL, selectively disclosed material, nonpublic

information regarding ACL’s second quarter 2007 earnings

forecast to a limited number of analysts without

simultaneously making that information available to the

public, in violation of Regulation FD. Specifically, after ACL

issued a press release projecting that second quarter

earnings would be in line with first quarter earnings, the

defendant sent emails from his home to eight analysts who

covered the company, advising that second quarter

earnings would likely fall short of expectations by half. The

resulting analysts’ reports triggered a significant drop in the

company’s stock price, 9.7 percent on unusually heavy

volume. Although this selective disclosure occurred via

email, it could have been accomplished on the defendant’s

Facebook page.

The SEC determined not to bring any action against ACL,

because it acted appropriately, cooperating with the

investigation and taking remedial steps to prevent a

recurrence. In its release announcing the case, the SEC

noted that, even prior to defendant’s violative disclosure,

“ACL cultivated an environment of compliance by providing

training regarding the requirements of Regulation FD and

by adopting policies that implemented controls to prevent

violations.” In addition, the SEC highlighted that the

defendant had acted alone and that ACL, on learning of the

selective disclosure, immediately disclosed the information

on a Form 8-K. Had the unauthorized disclosure occurred

via social media, the existence of policies specific to the

use of social media would likely have carried additional

weight with the SEC.

More recently, the SEC filed a civil injunctive action against

Presstek, Inc., and its former President and CEO, Edward

J. Marino, for violations of Regulation FD and Section 13(a)

of the Securities Exchange Act.395 The SEC charged that

Marino took a call from Michael Barone, the managing

partner of Sidus, an investment adviser whose funds held

substantial positions in Presstek. The call between the two

is documented in Barone’s notes and text messages that

he sent to colleagues at Sidus during and after the call.

According to the SEC’s complaint and Barone’s notes,

Marino revealed during the call that “[s]ummer [was] not as

vibrant as [they] expected in North America and Europe,”

and that while “Europe [had] gotten better since [the

summer]…overall a mixed picture [for Presstek’s

performance that quarter].” During the course of these

disclosures from Marino, Barone sent a text to a Sidus

colleague, saying, “sounds like a disaster.” That colleague

inquired as to whether he should buy Presstek puts, and

Barone confirmed. After the call, Sidus began selling, and

Barone sent a text to the Sidus trader “sell all prst,” which

he did. Coincident with those sales, Presstek’s stock

dropped 19 percent. Presstek accelerated disclosure of its

poor quarterly earnings numbers, issuing the report the

next day, with the result that the stock dropped another 20

percent.

Presstek settled with the SEC without admitting or denying

liability, agreeing to pay a $400,000 civil penalty. The

Commission acknowledged substantial remedial measures

taken by the company, including the replacement of its

management team. Marino continues to fight the charges.

The case is interesting on a number of levels, particularly

since there are probably many who would wonder whether

the statements attributed to Marino rise to the level of

material non-public information, which is likely why the

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matter is charged solely as a Regulation FD violation, with

no insider trading charges. But there is no question that the

comments cited are just the sort of generalities that might

show up in a tweet or a Facebook newsfeed.

False Rumor

In SEC v. Berliner,396 the defendant, a trader himself, was

charged with disseminating a false rumor concerning The

Blackstone Group’s acquisition of Alliance Data Systems

Corp. (“ADS”) via instant messages to other traders at

brokerage firms and hedge funds. In short order, the news

media picked up the story, resulting in heavy trading. Over

a 30-minute period, the price of ADS stock plummeted 17

percent, causing the New York Stock Exchange to

temporarily halt trading in the stock. Later that day, ADS

issued a press release announcing that the rumor was

false, and, by the close of the trading day, the stock price

had recovered. On the day of the rumor, more than 33

million shares of ADS were traded, representing a 20-fold

increase over the previous day’s trading volume. Although

the defendant sent the false rumor by instant message, he

could have disseminated it through social media. One

could easily imagine how a false rumor could spread even

faster via Twitter, wreaking havoc on an issuer’s stock

price.

Insider Trading

Although the misappropriated disclosures in SEC v.

Gangavarapu397 were made during telephone calls

between siblings, the facts disclosed are of exactly the sort

you would find on someone’s Facebook page: “my

husband is working all hours,” “my husband is traveling a

lot for business,” “things are crazy at work for my husband,”

“thank goodness, after tomorrow, things will calm down for

my husband at work!”

According to the SEC’s complaint, the defendant

misappropriated material non-public information from his

sister, whose husband was an executive officer at

Covansys Corporation, and purchased $1.4 million in stock

based on the misappropriated, material non-public

information. Covansys was in discussions with Computer

Sciences Corporation (“CSC”) and another company about

their interest in acquiring Convansys. During that time

period, the defendant often spoke with his sister by

telephone, and they discussed matters such as her

husband’s work activities and whereabouts. The

defendant’s sister revealed when her husband was in

closed-door meetings, that he was working long hours, and

that he had traveled overseas for work. After learning from

her husband that the Covansys board of directors would

vote the next day on which acquisition offer to accept, she

told the defendant, “by tomorrow, it’s a relief, it will be

over.” Based on these details of his brother-in-law’s

working life, the defendant purchased more than 54,000

shares of Covansys stock over eight days. After the public

announcement that CSC would acquire Covansys, the

price of Covansys’ stock rose 24 percent, resulting in

trading profits for the defendant totaling more than

$360,000.

Bottom Line—What You Need To Do

Before you decide to adopt social media as a form of communication and disclosure, you must ensure that the proper controls

are in place. Whether it be material disclosures, advertising, or everyday business disclosures, your communications must meet

regulatory requirements. For material disclosures, you must comply with Regulation FD. For advertising of transactions or

services, you must obtain proper approval before using social media and must be sure you are not in violation of any

regulations, such as the Investment Advisers Act. You should verify that all mandatory disclaimers regarding forward-looking

statements and financial measures are included with any electronic disclosure.

The spontaneity of social media presents a number of risks. A good dose of preventative medicine would mean regularly

monitoring your Internet and social media presence to ensure that the discussion is appropriate, that the dispersal of information

is compliant with the securities laws, and more simply, that these vehicles are being properly and lawfully used. In addition, it is

wise to conduct routine searches for the use of your company’s name and corporate logo or other image, so as to ensure that

false rumors or other manipulations are not occurring.

Insider trading policies, together with good training programs that animate the dry rules and place employees into the types of

real-life situations where information can be inadvertently shared, and strict controls on material non-public information, are

really the only ways that companies can protect themselves. Employees must understand the importance of Regulation FD’s

prohibitions on selective disclosure and know to keep the company’s most important confidential information internal to the

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company. They need to know what information they can and cannot communicate electronically in order to stay within the limits

of compliance. Such programs, together with meaningful and well-circulated corporate policies, will help to prevent violations in

the first instance. If a violation should occur, the fact that your company has undertaken these steps may tip the balance in your

favor when the SEC is deciding whether or not to bring an enforcement action.

Finally, social media is new territory and the rules are constantly evolving. You will have to make a decision whether it is

necessary to use social media at this moment for your company to stay ahead of the curve. If so, then carefully plan, execute,

and periodically revisit a strategy that ensures that your use of social media is compliant with securities laws and that you are

protected against its abuse.

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— CHAPTER 14 —

Trademarks

Chapter Authors398

United States:

Darren B. Cohen, Partner – dcohen@reedsmith.com

Jillian L. Burstein, Associate – jburstein@reedsmith.com

Meredith D. Pikser, Associate – mpikser@reedsmith.com

Germany:

Dr. Alexander R. Klett, Partner – aklett@reedsmith.com

United Kingdom:

Sachin Premnath, Associate – spremnath@reedsmith.com

Introduction

This chapter looks at the relationship between social media and trademark protection.

Social media has provided individuals and businesses alike with the ability to communicate with an infinite number of people

instantly. This great advantage, however, comes with great risks, not the least of which is the appropriation of one’s intellectual

property. The vigilance and policing of an owner’s intellectual property has become of the utmost importance as communication

provided via social networks is both viral and perpetual. A global infringement that once took weeks, months or years to occur,

will now take shape as fast as someone can hit “enter” on his or her keyboard or smartphone. And, once the infringement is out

there in cyberspace, there is no way of knowing if the offending material is ever truly deleted. As more and more individuals and

businesses incorporate social media into the promotion of their products and services to increase brand awareness, they are

also finding that unauthorized use of their trademarks, service marks, and trade names are emerging through these same

channels.

First, we will examine trademark infringement occurring on social media platforms such as Twitter, Facebook, Instagram and

Pinterest and how their respective policies deal with infringers. Next, we will examine the issue of impersonation on Facebook,

Twitter, and Pinterest. Finally, we will discuss virtual worlds and the infringement occurring therein. As this chapter will outline,

protecting and leveraging intellectual property through social media is an ever-increasing demand that is fraught with legal

pitfalls.

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Social Media in Action in Trademarks

Trademark, Service Mark and Trade Name

Infringement

Social networks such as Twitter, Facebook, Instagram, and

Pinterest, to name a few, allow their members to adopt

user names, personalized sub-domain names, and post

pictures and hashtag links to content, all of which have the

potential to create confusion as to source. There is little

resolve to prevent an individual or entity from adopting a

username or sub-domain name that incorporates another’s

trademark or personal name. Nor has the law caught up

with issues involving re-posting or re-tweeting and resulting

viral distribution of content that bears a trademark owned

by another or impersonates a celebrity.

Twitter

Twitter, a social networking service that allows users to

send and read posts of up to 140 characters in length

(“tweets”) has experienced meteoric growth since its

launch in July 2006, with 400 million monthly visitors to

twitter.com, and more than 200 million monthly active users

around the world.399 Think about the marketing

opportunities; now, think about how many people could be

deceived by trademark infringers and impersonators. Upon

joining Twitter, members create a username which is the

“identity” through which their tweets are sent and received.

A recurring issue of third-party “Twitterjacking” occurs

when a member registers a username that is the trademark

of another or a name belonging to a celebrity. When this

occurs, the trademark holder may take action against the

fake social media account if the account uses a trademark

for a commercial purpose and consumer confusion is likely

to occur as a result. For example, in September 2009,

ONEOK, Inc., a natural gas company, sued Twitter for

trademark infringement, alleging that the company

wrongfully allowed a third party to adopt the handle

twitter.com/oneok to post misleading information that

appeared to be official statements from the company from

which the unnamed third party tweeted information about

the natural gas distributor.400 The complaint alleged that

the messages were misleading in that they were made to

appear like official statements from ONEOK when, in fact,

the company had no involvement in sending them. Over

the course of a month, ONEOK unsuccessfully asked that

Twitter terminate or transfer the unauthorized account.

After the complaint was filed, however, the parties resolved

the dispute and the account has since been transferred to

the company.

While the use of corporate trademarks in fake Twitter

accounts may give rise to a legal claim, not all companies

are choosing to exercise their legal remedies. For

example, after the massive 2010 Gulf Coast oil spill, the

fake twitter account @BPGlobalPR emerged to satirize the

company’s public relations attempts.401 With Tweeting

comments like “The ocean looks just a bit slimmer today.

Dressing it in black really did the trick! #bpcares,” the

account brought wide attention to the practice of

“Twitterjacking” and just how devastating it can be to a

company’s global reputation. Rather than take the matter

to court, however, the real BP made a statement through a

spokesman that “People are entitled to their views on what

we’re doing and we have to live with those.”402

A more complex situation arose for music retailer HMV,

whose UK Twitter account was hijacked by employees who

live tweeted the fact that they were being fired en

masse.403 Similarly, in January 2014, the Twitter account

of Microsoft News was hacked by the Syrian Electronic

Army leading to a tweet alleging that the company sells

customer data to governments.404

While the HMV case serves to alert companies to have

more robust internal policies on consumer-facing social

network activity, third-party “Twitterjacking” such as that

suffered by Microsoft is less easily controlled. Twitter does

have a trademark policy in place that provides the

following:

Using a company or business name, logo, or other

trademark-protected materials in a manner that may

mislead or confuse others with regard to its brand or

business affiliation may be considered a trademark

policy violation. When there is a clear intent to

mislead others through the unauthorized use of a

trademark, Twitter will suspend the account and notify

the account holder. When we determine that an

account appears to be confusing users, but is not

purposefully passing itself off as the trademarked

good or service, we give the account holder an

opportunity to clear up any potential confusion. We

may also release a username for the trademark

holder's active use.405

While Twitter provides such a policy and avails the public

with a trademark violation report form, it ultimately remains

the trademark owner’s obligation to be hands-on about

protecting its rights. Strategy in doing do so may include

developing a standard as to what you may deem to be

objectionable use of your trademark, using the privacy

protection put in place by the social network to the best of

your advantage, and, if feasible, proactively adopting any

username variants of the mark you are seeking to protect.

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Facebook

Facebook has over 1.15 billion monthly active users,

allowing its members to connect with others, upload

photos, and share Internet links and videos.406 A recent

eBiz MBA study ranked Facebook as the most-used social

network by global monthly active users.407

Like Twitter, it too, has found itself defending claims of

trademark infringement and has dedicated a large section

of its terms of service to explain its intellectual property

infringement policy as well as provide an intellectual

property infringement report form. In addition to reserving

the right to remove or reclaim a username upon complaint

by a trademark owner,408 Facebook’s trademark policy

provides, in part, that:

Facebook respects the intellectual property rights of others

and is committed to helping third parties protect their rights.

Rights holders will find information below regarding how to

report copyright and other intellectual property

infringements by users posting content on our website, and

answers to some frequently asked questions regarding our

policies.409With respect to enforcement of its policies, it

appears that Facebook considers registered trademarks,

as well as pending trademark applications and common

law trademark ownership as sufficient to bring a claim of

trademark infringement to the administrators of Facebook.

However, the question of jurisdiction remains unclear. If a

Community Trade Mark (CTM) is registered in Europe, to

what extent will a claim citing infringement by a U.S. user

hold water? How will Facebook handle claims by multiple

parties claiming rights in the same mark? Only time will

tell.

What we do know is that there have been relatively few

lawsuits regarding the use of user names on both Twitter

and Facebook. This may be due either to the fact that

trademark infringement is not as pervasive a problem on

social networking as it would appear, or, more likely, the

policies established by Twitter and Facebook are effective

in eliminating continued trademark infringement.410

Both Facebook and Twitter allow users to create

personalized URLs, which allow a user’s name to become

part of the Web address. For example, a user may obtain

the URL twitter.com/username or facebook.com/username.

In the United States, trademark disputes over domain

names are specifically governed by the 1999

Anticybersquatting Consumer Protection Act and the

Uniform Domain-Name Dispute-Resolution Policy, a

system used by the Internet Corporation for Assigned

Names and Numbers, which is the organization that

assigns domain names. However, neither the Act nor the

Policy applies to social media sites which allow users to

create personalized URLs.411 As the law has yet to catch

up with technology, trademark owners, rather than the

network hosting the personalized URL, remain in the

position to police the unauthorized use of their trademarks.

Due to the vast nature of the internet and reach of social

media, however, it remains extremely difficult for owners to

maintain control over the use of their trademarks.

Additionally, Facebook’s policy for creating usernames

does not explicitly warn or caution against the use of

unauthorized trademarks.412 Instead, it only links users to

its administrative contact page. 413 In this context, it

remains uncertain whether Facebook, under U.S. law and

its current trademark infringement policy, will only stop

uses of exact marks used within the Facebook platform, or

whether it will also stop the use of unauthorized

personalized URLs. If so, will use of the mark as only a

username be sufficient to enact the policy, or must there be

infringing content on the Facebook page? In the UK, the

advent of personalized URLs may allow trademark owners

to rely on English case law, which has held that use of a

domain name can infringe a registered trade mark. In

Germany, the courts are at least as generous, and have

not only viewed the use of a domain as infringing

trademark rights, but also as infringing rights to personal

and company names.414

Perhaps Facebook and Twitter should adopt a model

similar to that of the Uniform Domain-Name Dispute-

Resolution Policy (“UDRP”) used to help resolve

cybersquatting and other domain name disputes. The

UDRP offers trademark owners the ability to acquire or

cancel a domain name registration if they can prove that:

(1) the domain name at issue is confusingly similar to the

owner’s trademark; (2) the current owner of the domain

name has no right or legitimate interest in the domain

name; and (3) the current owner has registered and is

using the domain name in bad faith. The decision as to

whether the current domain name holder gets to maintain

his/her registration or whether the domain name is to be

transferred or cancelled, is rendered by a neutral panel.

Certainly providing a uniform set of rules could only serve

to help trademark owners in protecting their marks. Not

only may such policy help to avoid costly litigation, but

decisions can also be rendered fairly quickly.

While privacy protection policies provided by social media

sites may help to alleviate some concerns, trademark

owners can pursue other legal avenues should these

policies fall short. As evidenced by the ONEOK case

discussed above, filing an action for trademark

infringement or unfair competition are options to protect a

valuable trademark.

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Instagram

Founded in 2010, Instagram is a free photo sharing

application that allows users to take photos, apply a filter,

and share it on the service or a variety of other social

networking services, including Facebook, Twitter,

Foursquare, Tumblr, and Flickr. In April 2012, Instagram

was acquired by is then-rival, Facebook, and by June of

2013, it had more than 130 million users, posted over 16

billion photos, and received over 1 billion likes per day.

As a Facebook acquisition, Instagram’s intellectual

property policy is substantially similar to its parent

company, as discussed above.415 Also like Facebook and

Twitter, Instagram utilizes hashtags to tag topics of interest

or discussion forums, as well as connect users with similar

interests. For example, an Instagram user, while eating at

McDonalds, could theoretically take a photo of his Big Mac

and fries and post it onto his Instagram account with the

hashtags: #McDonalds #ImLovinIt #BigMac,

#DietStartsTomorrow, which would then feed in a trending

area of any Instagram user’s homepage. Privacy settings

on Instagram can arrange for the image as well as the

related hashtags appearing in the Instagram post to

automatically feed to other social networking sites, such as

Facebook and Twitter.

It’s clear that for a corporation that works hard to police its

brands, forums utilizing hashtags can be both a blessing

(to promote their product) and a curse (to police from

infringement). In an effort to gain control, some companies

are submitting applications to the U.S. Patent and

Trademark office for federal registration of hashtags which

describe their products. For example, in 2012, Stokely-Van

Camp, Inc. applied for the mark “#WINFROMWITHIN” to

be used by PepsiCo. in connection with its Gatorade

brand.416

The creation of the hashtag as a social media tool has

created a whole host of trademark-related questions from

what types of hashtags may become registered trademarks

to whether an individual or corporation can be liable for

trademark infringement? For example, consider a scenario

in which our Instagram user, above, visited McDonalds and

posted a picture to his account with the above-mentioned

hashtags. Now consider that the user has tens of

thousands of individual followers from Instagram,

Facebook, and Twitter combined. While this behavior

would likely be considered nominative fair use, consider a

further scenario where our user owns his own burger

restaurant and uses the hashtags to generate traffic to his

website or his actual restaurant. As seen here, the use of

McDonalds’ names and products may quickly cross the line

between fair use and infringement.

So what is a mega-corporation like McDonalds to do?

Should it trademark “#MCDONALDS” and other related or

even potential terms that may be hashtagged just for good

measure? While this is clearly one option, time will tell as

more and more companies seek to police their intellectual

property by obtaining trademarks that describe or promote

their goods and services by the use of hashtags.

Pinterest

Pinterest, a social media site that also launched in 2010,

allows users to “pin” and share images onto digital

pinboards that are linked to third-party websites, and has

become one of the fastest growing social media websites

of all time.417 In February of 2012 alone, Pinterest drove

more traffic to websites than Twitter, Google+, LinkedIn

and YouTube combined.418 While the site initially attracted

mostly women to use Pinterest as a tool to plan weddings,

save recipes, and post ideas for home decorating,

corporate brands have taken notice and are finding ways to

enter the Pinterest scene by posting infographics,

educational content as well as product images.419 Some

major brands using Pinterest include General Electric’s

“Badass Machines” board, Adobe System’s “Creative

Workspaces” and Intel’s “Geek Chic.”

Pinterest, like Facebook and Twitter, has an intellectual

property policy and provides a reporting method for

trademark infringement claims:

Pinterest respects the trademark rights of others.

Accounts with usernames, Pin Board names, or any

other content that misleads others or violates

another's trademark may be updated, transferred or

permanently suspended.420

While Pinterest claims that it respects the IP rights of

others, it does not, however, have a means by which an

account can be verified as the “official” account for a

particular brand. For example, a search for the clothing

store “the Gap” does not reveal the official Gap Pinterest

account, but rather a seemingly infinite list of pins,

pinboards, and pinners created by individuals unrelated to

the company. In order to locate the official Gap Pinterest

board, a user would need to first conduct a search on

Google, which would provide a link directly to the official

Gap Pinterest Account. As are result of instances like this,

“brandsquatting” on Pinterest affects 90 percent of top

brands.421

In addition to “brandsquatting,” celebrities and politicians

are targets of fake Pinterest accounts. For example, during

the 2012 United States Presidential campaign, a fake

Pinterest account was made as a parody of former

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presidential candidate Mitt Romney.422 Pinterest complied

with the Romney campaign’s demand to rename the profile

(which used Romney’s full name), however, it did not give

the original Mitt Romney name solely to the former GOP

candidate. Instead, the name “Mitt Romney” links to at

least nine different accounts named after the former

candidate.423 It remains to be seen just how seriously

Pinterest will enforce its intellectual property policy in light

of obvious “brandsquatting” by non-trademark owners.

What Constitutes Infringement?

In the United States, the Lanham Act provides that one is

liable for trademark infringement if he or she “use[s] in

commerce any reproduction, counterfeit, copy, or colorable

imitation of a registered mark in connection with the sale,

offering for sale, distribution, or advertising of any goods or

services on or in connection with which such use is likely to

cause confusion, or to cause mistake, or to deceive…”424

Similar “use in commerce” requirements exist for claims of

unfair competition425 and dilution.426 However, the

success of any such claims depends on the definition of

“use in commerce.” Does a defendant have to use the

social media site to sell goods or services in order to avail

the trademark owner a claim for relief under the Lanham

Act? A December 2013 opinion from the Western District

of Virginia involving the social media site ‘LinkedIn’ goes

some way in clarifying the point. In this case, the Judge

noted that “use in commerce” has been interpreted by the

courts very broadly, and opined that “because the internet

is an ‘instrumentality of interstate commerce,’ courts have

repeatedly held that the unauthorized use of a trademark

on the internet satisfies the ‘in commerce’ requirement.”427

Although the merits of the case are yet to be adjudicated at

the time of writing, this court’s opinion demonstrates that

the creation of fictitious LinkedIn profiles (and perhaps

profiles on Twitter or Facebook) may be actionable under

the Lanham Act.

Under English law, as generally under trademark laws in

the member states of the European Union that are

harmonized under the EU Trademark Directive,428

trademark infringement occurs where a registered

trademark is used without the owner’s consent, and:

 The sign used by the infringer is identical to the

registered trademark and is used in relation to

identical goods or service;

 The sign is identical to the registered trademark and is

used in relation to similar goods and services and

there is a likelihood of confusion by the public;

 The sign is similar to the registered trademark and is

used in relation to identical or similar goods or

services, and there is a likelihood of confusion by the

public; or

 The sign is identical or similar to the registered

trademark, the trademark has a reputation

domestically, and the use of the sign takes unfair

advantage of, or is detrimental to the distinctive

character of, the trademark.429

Under European Community trademark law, the CTM

Regulation430 provides the proprietor of a CTM with the

right to prevent third parties from using:

 A sign that is identical to the CTM in relation to

identical goods or services,

 A sign identical or similar to the CTM in relation to

identical or similar goods or services if there exists a

likelihood of confusion by the public, or

 A sign is identical or similar to the CTM, the CTM has

a reputation in the Community, and the use of the sign

without due cause takes unfair advantage of, or is

detrimental to the distinctive character of, the CTM

The European Court of Justice (ECJ) has held431 that mere

adoption of a company name does not constitute

trademark infringement. The test used by the ECJ was

that the use of the sign must affect the mark’s essential

function of guaranteeing source. It is likely that the

adoption by a third party of a name in a social media

context will pass this test, though each case will depend on

its facts. If use of the company name in a social media

context is made in a way that clearly indicates that the use

does not originate from the company itself (e.g., a

username such as “BMWcritic), infringement will likely not

be found. In fact, Twitter suggests in its intellectual

property policy that users distinguish the account from that

of the real company or business entity with a qualifier such

as ‘not’, ‘fake’ or ‘fan account’.432

The English courts have also addressed the question of

jurisdiction.433 In the 1-800 Flowers case, it was held that

for trademark law purposes, website-use did not constitute

use everywhere in the world merely because the site is

globally accessible. Key factors to determining

infringement were held to be the intention of the website

operator and what local users understand upon accessing

the site. Applying this test to sites such as Facebook,

Twitter, or LinkedIn, could result in different decisions

depending on geographical coverage and demographic

reach. Decisions in other European countries, such as

Germany,434 have used the same approach and asked

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whether the website-use is directed at the respective

domestic customers or audience.

Unfair Competition/Passing Off

In English law, companies can use the tort of passing off to

protect their brands. A company looking to protect its

name, mark or get-up must establish goodwill,

misrepresentation and damage to successfully argue

passing off.

While an action for trademark infringement can only be

brought in relation to a registered trademark, the cause of

action in passing off is wider and protects all elements by

which a claimant’s business can be identified. That said,

passing off is narrower in scope and harder to prove than

the law of “unfair competition” in the United States. While

the tort of passing off has not yet been tested in a social

media context, there is no reason for it not to apply, albeit

that it might be difficult to prove damage in this context. If

this is the case, a claimant can instead rely on an argument

based around erosion of goodwill, which has previously

been successful in the English courts, if the claimant’s

brand exclusivity has been reduced, blurred or

diminished.435

While unfair competition law is not harmonized within the

European Union to the same degree as trademark law,

other countries offer similar (albeit not identical) remedies

to passing off. In Germany, for example, the imitation of

goods or services of a company leading to an avoidable

confusion among consumers as to commercial origin, or

unjustly exploiting or impairing the goodwill connected to

the imitated goods or services, constitutes unfair

competition.436 The one case decided by German Courts

in this context did not concern an individual use within a

social media context, but rather an alleged imitation of the

look and feel of Facebook by the German site StudiVZ.437

Impersonation

Social media websites such as Twitter and Facebook have

also encountered problems with impersonation, an issue

particularly prevalent with respect to celebrities. Twitter has

even adopted an impersonation policy that states:

Impersonation is a violation of the Twitter Rules. Twitter

accounts portraying another person in a confusing or

deceptive manner may be permanently suspended under

the Twitter Impersonation Policy.438

However, not all identical accounts will be removed. Twitter

maintains that an account will not be removed if the users

merely share a name but lack any other commonalities, or

the profile clearly states it is not affiliated with or connected

to any similarly-named individuals. As for accounts intended

to impersonate another, not all accounts with similar

usernames or that bear a similarity in appearance (e.g. the

same background or avatar image) are automatically in

violation of the impersonation policy. In order to be deemed

impersonation, according to Twitter, the account must also

portray another person in a misleading or deceptive

manner.439

Twitter will allow a parody impersonation to exist if the

following criteria are met:

 Avatar: The avatar should not be the exact trademark

or logo of the account subject.

 Account Name: The name should not be the exact

name of the account subject without some other

distinguishing word, such as "not," "fake," or "fan."

 Bio: The bio should include a statement to distinguish

it from the account subject, such as "This is a parody,"

"This is a fan page," "Parody Account," "Fan Account,"

"Role-playing Account," or "This is not affiliated

with…".440

Nevertheless, countless celebrities have fallen victim to

imposters who have acquired usernames of well-known

personalities, including Tina Fey, Christopher Walken, and

Kanye West.441 The landmark case that brought this issue

to light involved St. Louis Cardinals Manager Tony La

Russa, who sued Twitter for trademark infringement for

allowing an impersonator to send unauthorized and

offensive messages under his name.442 Specifically, he

claimed that the unauthorized user made light of the deaths

of two Cardinals pitchers, and the public was duped into

believing that these statements were made by La Russa.

The case settled in June 2009. Cases like this beg the

question as to how well trademark owners can rely on

social media websites to shut down imposters, even in light

of such matters being brought to their direct attention.

Following the La Russa case, Twitter has created verified

accounts, which is a tool developed to help establish

authenticity of identities of key individuals and brands on

Twitter.443 An account that is deemed verified if a blue

badge appears on the user’s profile indicating that Twitter

has been in contact with the person or entity the account is

representing, and has verified that it is approved. Thus far,

Twitter has awarded the ‘verified’ seal to more than 54,000

accounts.444

While acknowledging that it will not be verifying all

accounts and will not accept requests for verification from

the general public, Twitter states that it concentrates on

verifying highly sought users in music, acting, fashion,

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government, politics, religion, journalism, media, sports,

business, and other key interest areas.445 Ironically,

however, while the drafter of the tweets sent from an

account is not necessarily confirmed, many famous

celebrities delegate the use of their Twitter account to their

publicist or manager.

With respect to publically traded companies, transparency

over the true number of authentic accounts on both

Facebook and Twitter is likely to be ever more important as

more and more corporations use their social network

services to build their brand online.

Virtual Worlds

Virtual worlds are another emerging area of unease.

Developed through the application of user-generated

content, members create avatars that exist in an online

world. Second Life, one such 3-D virtual world where

users can socialize, connect and create using voice and

text chat, also allows users to create virtual products for

sale online, using online currency to complete the

transaction that is purchased with real world currency.

Habbo is another example, only with a broader reach and

targeted to a teen and pre-teen audience.

Trademark Infringement

Too often the virtual products offered for sale on virtual

worlds bear the trademarks of third parties without

permission to do so. By way of example, in a case from

2009 in the United States, Taser International, Inc. filed a

trademark infringement claim against Second Life over the

sale of unauthorized virtual versions of its electronic stun

guns.446 The lawsuit was later dropped, but the liability of

Linden Lab, creator of Second Life, was debated in the

media.447 One question raised was why Linden Lab could

not have been protected under the safe harbor provisions

of the DMCA (See Chapter 1 – Advertising) or the CDA

(See Chapter 2 – Commercial Litigation). After all, Linden

Lab does not manufacture or sell stun guns, but merely

provides the platform through which these “products” are

offered for sale. The reason is because trademark

infringement claims, unlike copyright claims, for example,

are not covered by the DMCA or the CDA. Still, if one were

to follow the logic of these statutes, it would seem that the

creator of the product bearing the unauthorized trademark

should be held liable, not the party who merely provided

the platform. In Europe, the E-Commerce Directive makes

no such distinction. Thus, virtual world operators might

seek to rely on the argument that they are mere conduits,

expeditiously removing infringing content when put on

notice. Equally, brands that are struggling to find recourse

in the United States may find solace in Europe.

A further question is whether such use of another’s

trademark, in fact, amounts to trademark infringement.

After all, these unauthorized products are not actually

offered for sale in the real world, only online. However,

several trademark owners have actively promoted the use

of their products on Second Life, including International

Business Machines Corp. and Xerox Inc.448 In the case of

Herman Miller, the company allowed Linden Labs to

continue using the Aeron name, provided that the virtual

customers were charged a virtual premium price for their

virtual premium chairs.449 Therefore, there is reason to

believe that a stun gun bearing the Taser trademark, was,

in fact, endorsed by Taser International Inc. As such, it

would seem that it is in the trademark owner’s best interest

to police its mark to the best of its ability in order to avoid

any possible confusion with respect to source or

association. Further, you want to avoid a slippery slope,

wherein allowing wrongful use of one’s intellectual property

in the virtual world leads to even greater harm in the real

world.

In the European Union, the ECJ found that use of a

trademark protected for toys on a toy replica of a car will

constitute trademark infringement only if that use affects or

is liable to affect the functions of the trademark, or if,

without due cause, use of that sign takes unfair advantage

of, or is detrimental to, the distinctive character or the

repute of the trademark.450 In the Adam Opel case, which

followed a preliminary ruling from a German court, the

German courts ultimately found no such harm to the

trademark, and therefore no infringement.451

As intellectual property lawyers know, infringement arises

when there is a likelihood of consumer confusion among

the relevant purchasing public. On this basis, a plaintiff

suing for trademark infringement may claim damages

based on lost or diverted sales, which, on its face, may not

seem to clearly apply to the unauthorized use of

trademarks in the virtual world. However, real profits are,

in fact, generated on such sites. Moreover, as noted by the

Intangible Asset Finance Society:

It is undeniable that the virtual world population and

the “real” life population overlap, and behavior in one

medium can surely have an effect, adverse perhaps in

this case, on the other. This type of activity may

further prevent one from being able to fully exploit IP

rights and build IP equity, in particular brand equity, by

weakening, diluting and tarnishing trade mark rights or

serving as a barrier to potential licensing opportunities

and avenues.452

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Other examples of virtual world trademark infringement

include two cases involving the company Eros LLC. In one

instance, Eros sued Leatherwood for the making and

selling of unauthorized copies of its virtual adult-themed

animated bed, using Eros’ “SexGen” mark.453 Eros sought

an injunction and Leatherwood defaulted. In another case,

Eros, along with other Second Life merchants, sued a party

for duplication of its products and selling them at virtual

yard sales, using its marks to identify the products.454 Eros

had owned a pending application with the U.S. Patent and

Trademark Office for the mark “SexGen” (which has since

matured to registration)455, and a second plaintiff, DE

Designs, owned a federal registration for the mark “DE

Designs.”456 The plaintiffs were granted a judgment by

consent, wherein it was ordered that the defendant:

 Pay plaintiffs $524 as restitution for profits derived

from the unauthorized copying and distribution of the

plaintiffs’ products

 Represent to the court under penalty of perjury that

any remaining unauthorized copies were destroyed

 Permanently cease copying, displaying, distributing or

selling any of the plaintiffs’ merchandise

 Disclose the names of any alternative accounts or

future accounts to plaintiffs

 Allow plaintiffs, through their attorneys, access to copy

and inspect the complete transactional records

maintained by PayPal, Inc. that were owned or

operated by the defendant

As is evidenced by the above, businesses that operate

entirely within a virtual world nevertheless receive

recognition of their marks, at least in the United States

(though maybe not in Europe, depending on the facts at

issue), implying that the mark is “used in commerce” within

the definition of the Lanham Act. In fact, Alyssa LaRoche

sought and was granted registration of a design mark of an

avatar by the U.S. Patent and Trademark Office in

connection with virtual content creation services.457 This

can certainly be seen as a step ahead for trademark rights

within virtual media. Why do companies bother with these

lawsuits? Because the virtual economy is growing at a

massive rate (witness Bitcoin, for example), with the global

market for virtual goods expected to pass $20 billion in

2015, and because increasingly younger generations are

learning their first consumer experiences online.458

In an EU law analysis, it is difficult to see how a sale of

virtual goods will constitute a sale of goods for legislative

purposes. As discussed, harmonized trademark law in the

European Union turns on whether the goods and services

related to the alleged infringer are identical or similar to the

trademark owner’s goods and services (unless, under

some domestic laws, use in commerce is made of a

famous brand). To what extent will the courts decide that

virtual Louis Vuitton wallpaper is similar to the real thing?

This issue has not been decided (yet) in the English courts.

In the UK, brand owners might opt to rely on passing off,

which, as discussed above, does not turn on similarity but

instead requires goodwill, misrepresentation and damage

to be established. In other EU countries, similar remedies

under unfair competition law may be available.

So, how do brand owners protect themselves? One option

concerns registration for different classifications, such as

for online interactive games (Class 41). EU member states

adopt different approaches in this regard. Under UK law,

an applicant must honestly intend to make goods and

services available in the classes for which it registers a

mark. This differs from the Office of Harmonization for the

Internal Market (“OHIM”) practice, which permits broad

registrations, and regulates undue scope through the

provisions on revocation for non-use. This seems like a

simple change to make in return for extending the

protection of your brand. Some EU member states adopt a

similar approach. In Germany, for example, applications

need to be made in good faith in the sense that bad faith

applications can be challenged. However, in practice the

application is regarded as neutral so long as there is no

actual indication of bad faith on the part of the applicant

(which would have to be demonstrated by the party

challenging the application). EU member states (along

with the CTM regime) also employ a revocation procedure

for non-use once five consecutive years of non-use after

registration have passed. Furthermore, the hurdles set by

the ECJ will still apply even if trademark protection exists

for relevant services in Class 41.

Second Life, like Twitter and Facebook, has a policy in

place to help avoid infringement and impersonation:459

Your account name cannot be the name of another

individual to the extent that it could cause deception or

confusion; a name that violates any trademark right,

copyright, or other proprietary right or mislead other

users regarding your identity or affiliation; or any name

that Linden Lab determines in its sole discretion to be

vulgar, offensive, or otherwise inappropriate.460

The policy adds that Linden Lab reserves the right to delete

or change any account name that violates the above. In

addition, an account cannot be transferred without the prior

written consent of Linden Lab.

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The policy further provides that:

In connection with Content you upload, publish, or

submit to any part of the Service, you affirm,

represent, and warrant that you own or have all

necessary Intellectual Property Rights, licenses,

consents, and permissions to use and authorize

Linden Lab and users of Second Life to use the

Content in the manner contemplated by the Service

and these Terms of Service.

And that the user will not:

Impersonate any person or entity without their

consent, or otherwise misrepresent your affiliation, or

if you are an adult, impersonate a minor for the

purpose of interacting with a minor using the Service.

461

Linden Lab is generally known to remove any content from

its site that incorporates another’s trademark without the

trademark owner’s authorization, or features the

unauthorized use of celebrity material, as evidenced by the

case wherein the Trump organization put Linden Lab on

notice that a user was incorporating its “Miss Universe”

trademark in its “Miss SL Universe” pageant. Linden Lab

put the infringers on notice of the complaint by the Trump

organization and proceeded to remove all references to

Miss Universe and Miss SL Universe from Second Life.

While this is certainly encouraging, the trademark owner or

celebrity would be wise to proceed with caution in leaving

the determination of what amounts to infringing or

unauthorized use to Linden Lab.

Celebrity Name and Likeness

As noted above, virtual world users create avatars. Many

users will fashion an avatar bearing a celebrity’s name or

likeness. This action results in a separate category of

trademark infringement and, in the United States at least,

generates rights of publicity issues; but the results may

surprise you. The lead singer of the band Deee-Lite sued

Sega of America, Inc. for common law infringement of her

right to publicity, misappropriation of her likeness, and false

endorsement under the Lanham Act (among others), based

on the alleged use of her likeness as the basis for a

character in one of its video games. Despite the fact that

the character bore similar facial features, hairstyle and

clothing style, and recited the singer’s catchphrase, the

court held that there was “sufficient expressive content to

constitute a ‘transformative work,’” protected under the

First Amendment.462 In a separate avatar-related case,

Marvel sued NCSoft for copyright and trademark

infringement on the basis that the avatars created in its

“City of Heroes” game were “identical in name, appearance

and characteristics belonging to Marvel.”463 The case

settled.

As these cases evidence, trademark owners and providers

of virtual world platforms remain ever vigilant of the

growing concern regarding the unauthorized use of

trademarks and likenesses. It is in the best interests of

both parties to work together in protecting the trademark

owners’ rights in order to avoid costly and preventable

litigation.

Bottom Line—What You Need To Do

It is of the utmost importance to have a strategy in place in

order to best protect your ownership of intellectual

property. By aggressively policing your trademarks, service

marks, trade names and copyrights, intellectual property

owners will be in the best position to prevent claims that

they have waived their ability to enforce their ownership

rights, while at the same time discouraging others from any

unauthorised use of such marks and works of authorship.

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— CHAPTER 15 —

The U.S. Patent Minefield

Managing Risk Resulting from Assertions by Patent assertion Entities (PAEs)464

Chapter Author

Marc S. Kaufman, Partner – mkaufman@reedsmith.com

Introduction

Risk resulting from patent infringement allegations has always been high in the United States. The emergence of the Patent

assertion Entity (PAE) model has served to increase this risk. PAEs are sometimes referred to as “patent trolls” because of their

attempt to assess a fee on the activities of alleged infringers (referred to as “targets” herein). The typical business model of an

PAE is to assert patents and generate revenue from licensing fees or damage awards assessed by courts. PAEs, as the name

suggests, do not compete in the marketplace that they claim is covered by their patents. Therefore, traditional mechanisms of

leverage used against competitor patent assertion, such as counterclaims for patent infringement, a partnering deal, a cross

license for patents or other intellectual property, and the like, are not effective to assert leverage against PAEs. This, combined

with the aggressiveness of PAEs because of their revenue model, has led to a significant increase in risk because of patent

infringement in the United States. Companies operating in the areas of digital media, advertising, and financial services are

particularly vulnerable as a result of the large amount of relevant patents that were originally owned by start-ups that did not

succeed. Often, these patents end up in the hands of PAEs. Recent patent assertions have targeted common internet marketing

practices:

 The use of QR codes to direct a user of a mobile device to web content

 Putting a store locator on a web site

 Superimposing a facial image on an animated body image

 Placing static ads in a video stream

 Embedding a URL in a text message to direct a mobile device to web content

To be clear, the typical PAE revenue model is perfectly legal. PAEs can be venture capitalists purchasing patents on the open

market for a return on investment, “privateers” who provide the resources to sue for patent infringement on behalf of the owner,

innovators who have developed significant technology only to see it misappropriated by large companies without remuneration,

or large IP aggregators, for example. However, the frustration and uncertainty caused by this business model has led to various

changes in the common law and statutes.465 Additionally, several states Attorneys General have addressed the issue by

launching investigations into the practice of specific PAEs believed to be practicing anticompetitive tactics.

Notwithstanding the efforts noted above, the PAE business model, though, will likely remain legal and perfectly viable in the

foreseeable future. Therefore, a good strategy for managing the risk presented by PAEs is necessary when doing business in the

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United States. This article will avoid the discussion of visceral and emotional reactions to the PAE model in favor of articulating

constructive approaches to managing risk and uncertainty.

It is important to understand the typical PAE value proposition. Most PAEs will offer a license that, while expensive, will likely be

less than the costs of taking the PAE to trial and less than the cost of evaluating the patent in some cases. The proposition

presented by the typical PAE is, “for X dollars, we (the PAE) will provide a guaranteed result (license to the patents) as opposed

to paying a multiple of X dollars to your lawyers and experts with no guarantee.” Sometimes this value proposition is not

unreasonable. However, there are ways to apply leverage and present risk to the PAE that will, at the very least, reduce “X”

significantly. Of course, there are situations where a license is the best approach and others where a license is not appropriate.

The PAE revenue model leverages the uncertainty and inefficiencies that are inherent in patent defenses. Patents are often

complex legal and technical documents, and the patent laws in the United States are far from simple. In order to truly understand

the scope of a patent, it is often necessary to review and interpret thousands of pages of technical documents, and the history of

the proceeding before the U.S. Patent and Trademark Office that resulted in the patent. On the other hand, PAEs often utilize

contingent fee attorneys and thus have little out-of-pocket expense. This imbalance is the foundation of the PAE revenue model.

However, the target of the PAE assertion can present risk to the PAE. A successful defense against an PAE assertion requires

demonstrating to the PAE that:

 The PAE is at risk of having the patent assets declared invalid or otherwise unenforceable

 The assertion will take a great deal of time and will be expensive to the PAE

 The target has the resolve to go to trial if necessary

 The industry players will cooperate to reduce costs for the targets

By demonstrating that it is sophisticated and has resolve, the target of the PAE assertion becomes a less desirable opponent

and thus eliminates some of the leverage of the PAE. The five key components to a successful resolution of an PAE assertion

are:

 Risk assessment

 Aggressive license negotiation tactics

 Aggressive litigation (when necessary)

 Creative legal fee models

 Industry collaboration

Risk Assessment

It is critical to understand the risk presented by the PAE

assertion before beginning negotiation in earnest. PAE

assertions range along a spectrum from “nuisance,” in

which the PAE does not have a strong legal position and is

looking merely for a modest payment, to high risk, in which

the PAE has a strong legal position against a significant

product or service being offered by the target. It is helpful

to place the assertion on this spectrum. While the target

and the PAE will likely disagree on the relative legal

strength of the PAE assertion, each party, in most cases,

will understand the position of the assertion on this

spectrum, plus/minus a “point of view” (POV) value. While

some PAEs are completely unreasonable, most are quite

sophisticated these days and understand the strengths and

weaknesses of their legal position. Accordingly, if the target

has evaluated its own legal position, the parties are, for the

most part, on the same page (even if the parties do not

admit to this).

It may be difficult to admit, however, that some PAE

assertions have solid legal and factual bases and are best

treated as such. Therefore, it important to asses risk. The

best approach is a step-by-step approach. While there is

no single recipe for evaluating risk, the following will

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provide some guidelines. Of course, some of the activities

can be conducted in parallel and the order prescribed

below is not optimum in all cases.

First, a title search on the asserted patents should be

conducted. It is not unheard of for a party to try to assert

patents that it does not have a right to assert. Also, in some

instances the target has the benefit of a license to the

asserted patents granted to a supplier or the like. A title

search is not difficult to conduct. At this time, it is also

worthwhile to investigate any potential indemnity, through

supplier contracts or the like, and to comply with any notice

provisions thereof.

Next, it is important to gather as much information as

possible on the PAE, its targets, its business model, and

settlement terms. For example, has the PAE filed suit

before? If so, what was the outcome and did the outcome

affect the value of the asserted patents? What tactics has

the PAE used for licensing/settlement? Who is counsel for

the PAE and what is counsel’s reputation? The answers to

these questions will help ascertain what you are up against

and will help you begin to place the assertion along the

spectrum noted above. In many cases, the outcome of your

research on the PAE may indicate that there is an

opportunity for settlement at a very low dollar amount.

While settlement may seem “distasteful,” it may be the best

business choice if the matter can be disposed of for a

relatively small amount.

If the steps above do not lead to a resolution, it is important

to determine the likelihood that the alleged conduct actually

infringes the asserted patents. This is accomplished by

having counsel review the patent(s), the record of

prosecution of the patent before the Patent Office, and

technical details of the accused activity. Counsel can then

make a determination of the strength of the infringement

allegation. If the non-infringement position is extremely

strong, it can often be used to negotiate a favorable

settlement, or even to convince the PAE to drop the

assertion.

If the infringement position is subject to doubt because of

possible claim construction issues, a validity analysis of the

asserted patent(s) should be conducted. Such an analysis

includes a thorough search of the relevant prior art and an

analysis thereof by patent counsel to determine if the

patents are not novel and non-obvious, and thus are likely

to be invalidated by a court. A strong position of invalidity

will, of course, provide settlement leverage. Finally, a highlevel

damages analysis should be conducted to ascertain

the amount of revenue and profit as a result of the alleged

infringing activity.

License Negotiation

Once the requisite-level risk analysis has been

accomplished, the target can begin to negotiate a

license/settlement with the PAE. As noted above, license

negotiation can occur in tandem with risk analysis and

thus, depending on the situation, the “requisite level” of risk

analysis varies based on specific circumstances. At the

outset, the target should press the PAE for details, such as

how the asserted patent claims map to accused activities

and the amount of any initial settlement demand. Also,

based on the risk analysis, the target should soon present

information to the PAE demonstrating that the PAE has risk

as a result of potential invalidity and/or non-infringement.

Also, if the damages analysis shows that the PAE is not

likely to achieve a large reward, such evidence possibly

should be presented at this time.

Regardless of the circumstances, the target should

demonstrate the ability and resolve to make the assertion

difficult for the PAE. Counsel with a strong patent litigation

reputation should be retained and mitigating evidence from

the risk analysis should be presented. Notwithstanding the

above, the target should define “success” in the matter and

be open to a settlement that is within the range of this

definition.

Litigation

If license negotiations are not productive, embarking upon

some level of litigation may be necessary. Of course, the

target can let the natural course of litigation unfold by

waiting for the PAE to file suit in a venue of the PAE’s

choice. Alternatively, it may be desirable to be proactive

and put pressure on the PAE. One tactic is to file for a

review of the patent through one of the administrative

review proceedings in the U.S. Patent Office. Another way

to reduce leverage of the PAE is to file a Declaratory

Judgment action in a venue of the target’s choice prior to

any suit being filed by the PAE. Whether litigation is filed by

the PAE or the target, the target might want to push for

early claim construction and/or quick Summary Judgment.

Of course, any use of the tactics above depend on the

forum and specific facts of each case. Finally,

nontraditional counterclaims, such as false advertising,

unfair competition and other antitrust claims, should be

considered. While such claims are not always available,

they are becoming more acceptable by some courts.

Legal Fee Models

As noted above, the typical PAE model leverages the

traditional legal fee models, typically hourly rates or fixed

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fees per matter, in which there is a high incremental cost

for each litigation matter. However, to the extent that a

legal fee model can be negotiated that reduces the

incremental costs per litigation matter, the PAE has

reduced leverage and the target is empowered. One

example is a legal fee model in which a fixed monthly or

yearly fee is paid to a law firm in exchange for a specified

package of legal services throughout the year. The

package of legal services and the fee can vary, of course.

The concept is that the target has purchased a sort of

“insurance policy” at a predictable rate and removed the

incremental cost, and related budgeting issues, of

individual matters that arise throughout the year.

Industry Collaboration

Since PAEs often assert against multiple players in a single

industry, it is axiomatic that the various players in an

industry can benefit from collaboration. Since the players

are often competitors, this can require a careful balancing

of how much information can be shared. However, the

benefits far outweigh the balancing efforts. Collaboration

can be at one or more levels. For example, collaboration

may be limited to permissible sharing of information about

the PAE’s tactics and demands, sharing information about

prior art, and sharing legal analysis (when approved by

counsel).

Collaboration may be in the form of a joint defense

agreement among targets or may be elevated to a broader

collaboration of all industry players through a trade

association or other entity. More creative opportunities for

collaboration include the organized challenge of patents

that are perceived to be an industry threat, or even a

purchase of patents to “take them off the street.” Further

collaboration can include accepted shared indemnities

within an industry. Of course, antitrust counsel should be

consulted before embarking on any collaborative activity

among competitors.

Bottom Line—What You Need to Do

While the threat of PAEs cannot be eliminated—at least not

in the short term—many tactics can be used to reduce

uncertainty and thus reduce PAE leverage. Reduced PAE

leverage means reduced risk for the target. Potential

targets of an PAE should investigate all of the tactics

outlined above, and any others presented by the specific

facts, in order to reduce the uncertainty presented by the

various PAE patent assertion models.

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— Biographies of Authors and Editors —

Sara A. Begley, Partner – Philadelphia · +1 215 851 8214 · sbegley@reedsmith.com

In addition to counseling employers on the scope of employment issues, Sara is a trial attorney with

background in litigating cases involving race, age, disability, and gender discrimination, sexual harassment

and retaliation. She has also tried other employment-related and breach-of-contract cases in the federal and

state courts and before administrative and arbitration tribunals. Her most recent jury trials involved claims of

race, age and disability discrimination which resulted in defense verdicts for our clients. A significant portion

of her practice involves trade secret and restrictive covenant litigation which includes litigating preliminary

and permanent injunctions in state and federal court. She also drafts and negotiates executive agreements,

arbitration agreements, restrictive covenant and confidentiality agreements, severance packages, other

employment-related agreements and contracts, employee handbooks, Affirmative Action Plans, and

employer policies and procedures.

Paul Bond, Partner – Princeton · 1 609 520 6393 · pbond@reedsmith.com

Paul is a member of the Global Regulatory Enforcement Group, practicing in the areas of data privacy,

security, and management. Paul helps our clients comply with legal requirements for the protection of

personal data, whether those requirements arise from contract, state, national, or international law. In that

vein, Paul counsels clients on how to meet their obligations under, e.g., the Gramm-Leach-Bliley Act, HIPAA,

the Fair Credit Reporting Act and its Identity Theft Red Flags regulations, and the dozens of other federal

and state privacy law and regulations. Paul has also been actively involved in the successful defense of

several dozen putative class actions concerning consumer privacy. Paul is a member of the International

Association of Privacy Professionals.

Darren B. Cohen, Partner – New York · +1 212 549 0346 · dcohen@reedsmith.com

Darren provides counsel to advertising agencies and brand owners on all matters of trademark and copyright

law, including clearance, prosecution, licenses, assignments, settlement agreements, and domain name

disputes, as well as Customs issues. In addition, Darren has overseen the establishment and maintenance

of programs designed to secure and protect thousands of domestic and international trademarks. Darren is

recommended for his experience on the brand strategy front and for advising advertising clients on

trademark matters by The Legal 500 directory since 2007. According to The Legal 500 – United States (2009

Edition), Darren is the driving force behind the trademark group, offering counselling to a multitude of

advertising agencies and brand owners on all matters of trademark law.

Eugene K. Connors, Partner – Pittsburgh +1 412 288 3375 econnors@reedsmith.com

Gene guides small and not-so-small local, national and international companies on how to best balance

employer-employee needs to eliminate employment concerns while maximizing management options.

Examples include acquiring, consolidating, relocating, automating, "right sizing," or closing businesses;

retaining or regaining union-free status; and negotiating hundreds of agreements with affordable, flexible

working conditions critical to global success. Beyond strategic planning and problem avoidance, Gene

represents employers before federal and state courts; federal, state and local administrative agencies;

arbitrators; and mediators.

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Colleen T. Davies, Partner – San Francisco · +1 415 659 4769 · cdavies@reedsmith.com

Colleen is a member of the Life Sciences Health Industry Group, practicing in the area of product liability

litigation. Colleen first joined Reed Smith in January 2003 when the firm combined with Crosby, Heafey,

Roach & May. Her legal career has focused her civil litigation practice in the area of complex product liability

defense. Her litigation and trial experience include national counsel responsibility for cases at the state and

federal trial court levels, including multi-district litigation and class actions. Colleen's client base primarily

consists of major pharmaceutical, medical device, software, hardware, electronic and consumer product

manufacturers. While her experience extends into various product manufacturing arenas, her specialty areas

remain in pharmaceutical, medical device and consumer product liability defense. She also counsels product

manufacturers on all phases of product development. Here, her work addresses manufacturing and

marketing issues such as product warnings, design development, document retention policies, claims

management, media relations and crisis management. She also has experience establishing in-house

systems for compliance with Consumer Product Safety Commission reporting obligations.

Stephen Edwards, Partner – London · +44 (0)20 3116 2910 · sedwards@reedsmith.com

Stephen is an expert in copyright and broadcasting law, handling both rights-related and other commercial

transactions and regulatory work for clients ranging from start-up ventures to some of the media industries’

household names. In the past year, for instance, he has worked on matters for the BBC, Channel Four, MTV,

RTÉ and the European Broadcasting Union. He also has experience in dealing with EU legislation in the

copyright and regulatory fields, most recently the EU Audiovisual Media Services Directive. In addition to

television, radio and digital media work, Stephen’s experience also covers music rights, sports agreements

and all forms of print and online publishing.

Amy J. Greer, Partner – Philadelphia/New York · +1 215 851 8211 · agreer@reedsmith.com

Amy joined Reed Smith in 2008 and is a partner who divides time between the firm’s Philadelphia and New

York offices. She serves as co-leader of the Securities Litigation and Enforcement practice, a component of

the Global Regulatory and Enforcement group. Before joining Reed Smith, Amy served as Regional Trial

Counsel in the Philadelphia Regional Office of the United States Securities and Exchange Commission. In

that role, Amy served as the chief litigation counsel in the Philadelphia office and managed a staff of lawyers

responsible for a wide variety of enforcement matters. Amy, an experienced trial lawyer, joined the Agency in

July 2003, from private practice, where as a Partner in a large regional law firm, she specialized in complex

commercial and corporate litigation.

Peter Hardy, Partner – London · +44 (0)20 3116 2958 · phardy@reedsmith.com

Peter is a partner in the European Litigation Group and is an insurance recovery and reinsurance expert. He

specialises in insurance recovery and reinsurance litigation and is recognised as a leading insurance

recovery and reinsurance litigator in London. His practice covers a diverse range of insurance recovery and

reinsurance disputes but reflects his particular experience in commercial crime and financial institutions'

fidelity policies and other key commercial liability covers such as E&O, D&O and Pensions Trustee Liability.

He is experienced in matters concerning the crossover between life insurance and pensions and the liability

insurance market and has advised extensively on policy wordings and policy programme structures and

reinsurance arrangements as well as in connection with issues arising upon the insolvency of an insurance

company.

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Andrew L Hurst, Partner – Falls Church/Washington, D.C. · +1 202 414 9275 · ahurst@reedsmith.com

Andrew is a member of Reed Smith’s Global Regulatory Enforcement Group. His practice can be described

as having three aspects. First, Andrew represents corporations in civil fraud litigation, with a focus on health

care providers and other government contractors being sued under the civil False Claims Act. Second,

Andrew represents corporations and individuals in connection with criminal investigations and prosecutions

by the Department of Justice and other federal and state entities. Third, Andrew serves as outside general

counsel for several small and mid-size emerging corporations. He provides general legal advice and

facilitates representation of the clients by the appropriate Reed Smith departments, providing these clients

with tools to grow to the next level of their business.

Marc S. Kaufman, Partner – Washington, D.C. · +1 202 414 9249 · mkaufman@reedsmith.com

Marc specializes in assisting his clients in managing and monetizing their intellectual property assets. He has

developed structured procedures for defining and executing intellectual property strategies that are aligned

with overall business objectives, for a wide variety of business entities. From procuring and enforcing rights

both in the United States and abroad to structuring and negotiating intellectual property transactions, Marc

uses his skills and experience to help his clients achieve all of their objectives, Marc possesses a unique

ability to understand the needs of his clients and to deliver relevant, timely and practical intellectual property

related business and legal advice. Specifically in the area of patents, Marc has developed and managed

patent portfolios that have been widely licensed by major corporations. Often times, he guides his clients in

the sale of patents, that are no longer relevant to core objectives.

Antony B. Klapper, Partner – Washington, D.C. · +1 202 414 9302 · aklapper@reedsmith.com

Tony’s practice focuses on products liability, toxic tort and consumer fraud claims, but his litigation

experience also includes government contracts, complex business, defamation, and employment litigation.

Tony is an experienced litigator with first-chair experience, and has taught for several years trial advocacy

courses, including those sponsored by the National Institute of Trial Advocacy and Equal Justice Works.

Dr. Alexander R. Klett, Partner – Munich · +49 (0)89 20304 145 · aklett@reedsmith.com

Alexander is a partner in the German Intellectual Property (IP) group, responsible for all “soft” IP matters,

and a commercial lawyer with international experience in a wide range of IP law matters, both contentious

and non-contentious. Alexander advises regularly on prosecution, portfolio management, licensing, and

infringement matters, particularly in the areas of trademarks, designs, copyrights and unfair competition. He

advises on IP issues involving corporate transactions, and has advised on several high-profile disputes

before the German and European Community authorities and courts involving trademark and copyright law

matters. His clients include high-tech companies, financial investors, clients from such industries as clothing,

watches and household goods, as well as film studios, entertainment companies and publishers.

Emma Lenthall, Partner – London · +44 (0)20 3116 3432 · elenthall@reedsmith.com

Emma is a commercial litigator and she jointly heads Reed Smith's Intellectual Property, Media, Advertising

and Technology disputes group. She has acted on high profile defamation matters involving well known

celebrities, newspapers and other individuals and organisations. She has also worked on copyright, trade

mark and passing off matters for clients with famous brands. She regularly advises on clearance issues in

relation to advertising and promotions and in the areas of privacy and confidence. Emma assists in the

protection of a very well known intellectual property portfolio and has also worked on international

arbitrations and professional negligence matters. She is a full member of Equity.

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Celeste A. Letourneau, Partner – Washington, D.C. · +1 202 414 9260 · mcletourneau@reedsmith.com

Celeste advises clients on FDA and health care regulatory, compliance and enforcement matters. Celeste

specializes in advising clients on FDA regulatory and transactional issues related to pre-clinical and clinical

trials; marketing approval; product labeling; manufacturing and distribution; advertising and promotion;

pharmacovigilence, biospecimens, and FDA inspections and enforcement actions. Celeste also advises

clients on a broad range of health care regulatory matters, including: Medicare coverage of routine costs and

medical devices in clinical trials, HIPAA, and state regulation of manufacturers, distributors and health care

providers.

Stacy K. Marcus, Partner – New York · +1 212 549 0446 · smarcus@reedsmith.com

Stacy concentrates her practice in e-commerce, advertising and technology law. Stacy advises clients on

social media guidelines, branding, trademark and copyright-related issues, celebrity endorsement and talent

agreements, software licensing and development, sweepstakes and promotions, mobile marketing, email

marketing and telemarketing. She has counseled clients in a wide variety of services available through the

Internet and mobile platforms, including issues related to social media, user-generated content and premium

SMS promotions. Her clients include advertisers, advertising agencies, financial institutions and website

owners.

Mark S. Melodia, Partner – Princeton · +1 609 520 6015 · mmelodia@reedsmith.com

Mark leads the Global Data Security, Privacy & Management practice as a partner within the Global

Regulatory Enforcement Group. He has recognized experience in litigating putative class actions and other

"bet-the-company" suits. He works on behalf of clients in a variety of industries, including, but not limited to,

financial services, media, and retail. He has succeeded in getting complaints dismissed, class certifications

denied and/or favorable settlements negotiated on behalf of these clients. He has organized, led and

participated in successful mass defense efforts involving claims of data breach, securities fraud, predatory

lending, multi-state attorneys general and other government investigations, as well as allegations of antitrust

conspiracy and deceptive sales practices.

J. Andrew Moss, Partner – Chicago · +1 312 207 3869 · amoss@reedsmith.com

Andy is a member of Reed Smith’s Insurance Recovery Group in the Litigation Department. Andy joined

Reed Smith when the firm combined with Sachnoff & Weaver, Ltd. in March 2007. Andy concentrates his

practice on the representation of companies and management as policyholders in insurance disputes

involving directors’ and officers’ liability (D&O), professional and errors and omissions liability (E&O), data

and network security and privacy liability (cyberliability), fiduciary liability, employment practices liability (EPL)

and fidelity bond and commercial crime insurance. In addition, Andy counsels companies and management

in the negotiation, evlauation, placement and renewal of D&O, E&O, fiduciary liability, employment practices

liability, fidelity bond and commercial crime insurance.

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Kathyleen A. O’Brien, Partner – Century City · +1 310 734 5268 · kobrien@reedsmith.com

Kathyleen is a partner in Reed Smith’s Advertising, Technology and MediaGroup. She represents consumer

products and media and entertainment companies in federal and state litigation and enforcement actions,

including false advertising and antitrust litigation, consumer class actions involving unfair and deceptive

advertising and trade practice claims and trademark and copyright infringement actions. She also regularly

counsels clients on advertising, marketing, branding, privacy and data collection and use issues, oversees

an active trademark and copyright prosecution practice, and conducts compliance programs, internet and

employee training in these areas.

Cynthia O’Donoghue, Partner – London · +44 (0)20 3116 3494 · codonoghue@reedsmith.com

Cynthia is a partner in the European Corporate Group and a core member of the firm’s multi-disciplinary

Outsourcing Group. Cynthia specialises in large, complex IT and business process outsourcing transactions

and advises on all aspects of sourcing and procurement-related transactions for both customers and service

providers in the health care/life sciences, financial services, technology and telecommunications sectors.

Cynthia also regularly advises on data privacy and cloud computing issues.

Gregor J. Pryor, Partner – London · +44 (0)20 3116 3536 · gpryor@reedsmith.com

Gregor is a partner in the Advertising, Technology and Media team. He has broad experience of advising

clients concerning the acquisition, production, licensing and distribution of content on digital media networks

and platforms. He regularly advises content owners such as film and television production companies, record

labels, music publishers and advertisers regarding the protection and exploitation of their intellectual property

rights. He also advises companies that are involved in the distribution and sale of digital content, such as

social networks, online retailers, aggregators, network operators, platform owners and search engines,

regarding their arrangements with content owners and consumers. Gregor also advises clients concerning

data protection and privacy matters, particularly in relation to online operations and targeted advertising.

Peter D. Raymond, Partner – New York · +1 212 549 0364 · praymond@reedsmith.com

Peter specializes in intellectual property and commercial litigation. He has tried bench and jury cases and

argued appeals in the state and federal courts in New York and has appeared in courts and in administrative

tribunals throughout the country. In particular, Peter represents clients in disputes involving false advertising,

unfair competition, copyright and trademark infringement, trademark dilution, product disparagement, and

invasion of rights of privacy and publicity. Peter has also lectured and acted as an expert witness in

intellectual property and comparative advertising matters.

Laurence G. Rees, Partner – London · +44 (0)20 3116 3545 · lrees@reedsmith.com

Laurence has specialised in employment law work since 1980 and advises clients drawn from a wide range

of industrial and commercial sectors, on all aspects of employment law. Laurence has extensive experience

of service agreements and other contracts of employment, and of consultancy arrangements, employment

aspects of transactions, and executive compensation. He is regularly instructed on redundancy and

workforce restructuring exercises, and the employment aspects of outsourcing. Laurence frequently advises

on terminations of employment, often at boardroom level and the negotiation and documentation of

settlement terms. Laurence also has significant expertise in the commercial aspects of UK immigration law.

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Stephan Rippert, Partner – Munich · +49 (0)89 20304 160 · srippert@reedsmith.com

Stephan is a partner in the European Corporate Group and also responsible for the German Advertising,

Technology & Media (ATM) practice. He is a commercial lawyer with international experience in a wide range

of sophisticated and complex transactions. Stephan regularly advises on all contractual, commercial and

regulatory ATM transactions including content distribution, digital and wireless media, licensing, syndication

and production agreements, IT-Outsourcing and BPO, advertising and sponsoring, media concentration

rules, software, e-commerce, intellectual property, data protection, privacy issues, unfair competition, and

litigation. His practice also encompasses joint ventures, mergers & acquisitions and strategic alliances.

Stephan has advised on several major transactions in Germany with respect to the acquisition of the German

broadband systems and digital platform operations. His clients include international broadcasters, U.S. film

studios, new media companies, software and technology companies, food and steel companies, and

financial investors. Stephan also advises clients in the life sciences sectors medical devices, biotechnology

and pharmaceuticals on a wide range of transactional and regulatory matters.

Carolyn H. Rosenberg, Partner – Chicago · +1 312 207 6472 · crosenberg@reedsmith.com

Carolyn joined Reed Smith when the firm combined with Sachnoff & Weaver. She is a member of the firm’s

Executive Committee, as well as the firm’s Audit Committee, and heads the firm’s Talent Committee. She

frequently advises corporations, directors and officers, risk managers, insurance brokers, lawyers and other

professionals on insurance coverage, corporate indemnification, and litigation matters nationwide and

internationally. Carolyn also assists clients in evaluating insurance coverage and other protections when

negotiating transactions and represents them in resolving coverage disputes. She has addressed coverage

issues ranging from directors’ and officers’ liability and fidelity bond insurance to data privacy and

cyberliability policies. Carolyn is also a frequent speaker and commentator.

Casey S. Ryan, Partner – Pittsburgh · +1 412 288 4226 · cryan@reedsmith.com

Casey is a partner in the Labor and Employment group. She represents employers in a wide variety of

employment-related litigation, including harassment, retaliation, discrimination, wrongful discharge and

breach of contract litigation in federal courts throughout the country, and routinely appears before both

federal and state agencies, including the Equal Employment Opportunity Commission and various state

human relations commissions. Casey has prevailed in numerous arbitration proceedings, involving matters

such as breach of employment contracts, wage claims and bonus and incentive pay disputes. As part of

counseling employers on day-to-day issues, Casey routinely advises on issues of hiring, disciplining and

firing in both unionized and non-unionized workplaces. She also routinely advises employers, drafts policies

and conducts workforce training on topics such as computer and Internet usage, employee use of social

media, employment agreements and handbooks, drug testing and workplace violence.

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Alexander “Sandy” Y. Thomas, Partner – Falls Church/Washington, D.C. · +1 703 641 4276 ·

athomas@reedsmith.com

Sandy focuses his practice on commercial litigation, with particular experience in antitrust counseling and

litigation. He has successfully defended clients accused of monopolization and attempted monopolization,

trade secrets misappropriation, and violations of state and federal unfair competition laws. He has also

represented clients in investigations and enforcement actions brought by U.S. competition agencies. Sandy

regularly counsels businesses in claims arising out of breach of contract, including breaches of restrictive

covenants and proprietary information agreements. He has litigated such cases to successful bench and jury

verdicts. Sandy also has considerable experience advising corporate counsel on issues relating to the

attorney-client privilege and the work product doctrine, and has written and spoken extensively on the

subjects. He has counseled numerous large corporate law departments on privilege and work-product

challenges in internal investigations.

Douglas J. Wood, Partner – New York · +1 212 549 0377 · dwood@reedsmith.com

Douglas Wood. Doug is Chair of Reed Smith’s Media & Entertainment Law Group and is resident in the

firm’s New York office. Doug has more than 30 years’ experience representing the entertainment and media

industries, including individuals and multinational companies in motion picture, publishing, advertising,

marketing, promotions, unfair competition, intellectual property, and e-commerce matters. He is the author of

the book, Please Be ADvised, the Legal Guide for the Advertising Executive, published by the Association of

National Advertisers (www.ana.net) and is the Chairman and founder of the Global Advertising Lawyers

Alliance (www.gala-marketlaw.com).

Michael J. Young, Partner – London · +44 (0)20 31163655 · myoung@reedsmith.com

Michael specialises in advising clients in respect of a broad range of corporate finance and

company/commercial transactions, including cross-border and domestic takeovers, mergers and

acquisitions, joint ventures and equity issues by public and private companies. Michael has extensive

experience in acting for companies on their admission to the markets of the London Stock Exchange and

subsequent fundraisings. Michael has particular experience of acting for clients in the media and technology

and financial services sectors.

Jesse J. Ash, Counsel – Washington, D.C. · +1 202 414 9449 · jash@reedsmith.com

Jesse is a member of the Life Sciences Health Industry Group. His practice focuses on products liability

litigation and he has extensive experience handling matters for an array of multinational companies in the

pharmaceutical, medical device, health care and alcoholic beverage industries in both state and federal

courts. Jesse has a strong background in electronic discovery, organizing and supervising numerous largescale

document productions for clients around the country, including all facets of the process from hold

letters, to initial preservation and organization of discovery parameters, to the review and assessment for

production, privilege and fact development. As a member of the Sedona Conference on Electronic

Discovery, Jesse combines the unique experience gained while working at his prior discovery counsel

boutique law firm, where he also had responsibility for the day to day management of the firm, with his longtime

experience at Reed Smith, which puts him on the cutting edge of the electronic discovery industry.

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Tisha Schestopol, Counsel – Washington, D.C. · +1 202 414 9237 · tschestopol@reedsmith.com

Tisha joined Reed Smith in 2013 as counsel for the Life Sciences Health Industry Group. Previous to joining

the firm, she was Senior Regulatory Counsel at Human Genome Sciences, where she provided health care

and FDA regulatory and compliance guidance as the company pursued commercialization of its first product

under a co-commercialization agreement with a large pharmaceutical manufacturer. She assisted in the

development and monitoring of the corporate compliance program, including establishment of policies and

processes related to health care professional interactions, compliance with transparency reporting,

investigations, advisory boards, field exhibit and display requests, charitable contribution and grant review.

She also advised on compliance with FDA requirements and guidance related to advertising and promotion.

Louise Berg, Associate – London · +44 (0)20 3116 2831 · lberg@reedsmith.com

Louise focuses on intellectual property and media law and has advised on disputes involving trade mark

issues, copyright law, design right, defamation, privacy and breach of confidence. She also advises on noncontentious

intellectual property matters, assisting clients with clearance work and issues relating to trade

mark registrations and licences. She has experience in digital distribution and e-commerce issues and her

work in this area includes advice on user generated content, Internet piracy, domain name disputes and

liability under IT services contracts. Louise also advises on general commercial disputes and was engaged

on a large multiparty case involving insurance, film finance, allegations of fraud, professional negligence and

breach of contract.

James Boulton, Associate – London · +44 (0)20 3116 2844 · jboulton@reedsmith.com

James joined Reed Smith in 2007 having joined from a boutique corporate practice in Birmingham. He is an

associate in the European and Middle Eastern Corporate Group, advising clients on company/commercial

and transactional matters.

Jillian L. Burstein, Associate – Chicago · +1 312 207 2779 · jburstein@reedsmith.com

Jillian is a member of the firm's Commercial Litigation Group.

Carl De Cicco, Associate – London · +44 (0)20 3116 2892 · cdecicco@reedsmith.com

Carl trained at Reed Smith and joined the Employment Group upon qualification in September 2005. He

undertakes a broad spectrum of employment work and has advised clients in relation to matters involving

unfair dismissal, discrimination on grounds of race, sex, disability and age, whistleblowing and breach of

contract. Carl has also been involved in the employment aspects of a large number of corporate

transactions, both business sales (involving the application of TUPE) and share sales. Carl also advises

clients with matters involving contracts of employment, redundancy situations and the enforcement of garden

leave provisions and restrictive covenants.

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Christine Nielsen Czuprynski, Associate – Chicago · +1 312 207 6459 · cczuprynski@reedsmith.com

Christine focuses her practice specifically in the area of data privacy and security, as well as

telecommunications and marketing, as part of the firm’s Global Regulatory Enforcement Group. Christine

counsels clients on topics ranging from security breach preparedness and response, to SMS and email

marketing campaigns.She provides regulatory advice on the Telephone Consumer Protection Act (TCPA)

and the Fair Credit Reporting Act (FCRA). In addition to TCPA and FCRA compliance advice, Christine

offers guidance on CAN-SPAM, COPPA, and U.S./EU Safe Harbor certification. She also has extensive

litigation experience, defending her clients against privacy-related class actions, such as those involving the

TCPA and data security breaches.

Erin Felix, Associate – Washington, D.C. · +1 202 414 9273 · efelix@reedsmith.com

Erin is a member of the Global Regulatory Enforcement Group and focuses her practice on government

contracts and grants. Erin’s practice includes representing prime and subcontractor clients in negotiations;

disputes, claims, and bid protests; government audits and investigations; and the application of the Federal

Acquisition Regulation ("FAR") and individual agency supplement procurement regulations. Erin has also

assisted with a variety of issues relating to internal investigations and other compliance matters associated

with doing business with the federal government.

Daniel Z. Herbst, Associate – Washington, D.C. · +1 202 414 9232 · dherbst@reedsmith.com

Dan is an associate in the firm’s Global Regulatory Enforcement Group. His experience involves

representing clients in a variety of multi-jurisdictional commercial and regulatory litigation. Dan’s practice

focuses on two practice areas: first, financial services litigation, where he defends banks and other financial

institutions in a disputes ranging from large class action litigation to arbitrations before financial regulatory

bodies; second, media and defamation law, where he advises clients and litigates disputes relating to

broadcast, print, and Internet speech and trade libel and business defamation.

Ed Hunter, Associate – London · +44 (0)20 3116 2997 · ehunter@reedsmith.com

Ed joined Reed Smith as a trainee in February 2011 and joined the Employment Group on qualification in

February 2013. Ed undertakes a wide range of contentious and non-contentious work, including advising on

general employment matters such as terminations, bonus and restrictive covenant disputes and working time

rights, as well as drafting contracts of employment and HR policies and procedures. Ed regularly advises on

the employment aspects of corporate transactions, including business sales, share sales, private equity

transactions and outsourcing matters. He also has experience working on large-scale projects such as global

restructures and redundancy exercises.

Lisa B. Kim, Associate – Los Angeles · +1 213 457 8043 · lkim@reedsmith.com

Lisa is a senior associate in the firm's Commercial Litigation Group. Lisa's practice focuses primarily on data

privacy, security, and management, professional liability, and financial services. Lisa also has significant

experience with landlord-tenant disputes, toxic tort matters, and general business disputes. Lisa defends

businesses in data privacy class action litigation involving the Song-Beverly Credit Card Act, the Telephone

Consumer Protection Act (TCPA), and other related statutes. Lisa also advises companies on compliance

with various data privacy and security laws, including the TCPA, CAN-SPAM, the Video Privacy Protection

Act (VPPA), California’s Shine-the-Light law, and California’s Do Not Track Disclosures. She writes and

speaks regularly on new developments in California and federal law related to data privacy.

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Frederick H. Lah, Associate – New York · +1 212 549 0324 · flah@reedsmith.com

Fred focuses his practice on data privacy, advertising, technology, and media. As a member of the Data

Privacy, Security, and Management Group, Fred counsels clients on regulatory issues relating to data

privacy such as data breach notification, telemarketing, e-mail marketing, mobile privacy, and children’s

privacy. He regularly advises companies on website privacy policies, terms of use, end user agreements,

and data transfer and processing agreements. He has also assisted in the successful defense of a number of

consumer privacy class actions. Fred is a Certified Information Privacy Professional (“CIPP”). He authored

the note, “Are IP Addresses Personally Identifiable” for A Journal of Law and Policy for the Information

Society. For the Advertising, Technology & Media Group, Fred represents clients on a wide range of legal

issues surrounding advertising and marketing, including contests and sweepstakes, celebrity endorsement

and talent agreements, social media marketing, sponsorship agreements, as well as trademark and

copyright issues. His clients include advertising agencies, individual brands, financial institutions,

professional sports teams, online service providers, and trade associations.

Joelle E.K. Laszlo, Associate – Washington, D.C. · +1 202 414 9212 · jlaszlo@reedsmith.com

Joelle is a member of the Global Regulatory Enforcement. Joelle's practice primarily involves assisting

clients with issues related to federal and state contracts and grants, including the interpretation and

applicability of: Federal Acquisition Regulation provisions and clauses, administrative and record-keeping

requirements for contractors and grantees, and procurement and funding processes and procedures. Joelle

has represented large and small business clients in bid protest actions before the Government Accountability

Office, the U.S. Court of Federal Claims, the District of Columbia Contract Appeals Board, and other

adjudicating bodies. She has also assisted with internal investigations related to government contract

compliance, and responses to show cause letters and other notices of potential suspension and debarment..

Kevin M. Madagan, Associate – Washington, D.C. · +1 202 414 9236 · kmadagan@reedsmith.com

Kevin is a member of the Life Sciences Health Industry Group, practicing in the area of health care

regulatory law. His practice encompasses a wide range of regulatory, litigation, corporate and contractual

matters. Kevin works with numerous health care entities, including, pharmaceutical companies, medical

device manufacturers, pharmacies, and health care providers—hospitals, skilled nursing facilities,

rehabilitation facilities. In addition, Kevin has experience with FDA and USDA regulated food entities. Kevin

assists clients with marketing issues, product development, product launches, clinical trials, contract

negotiation, importation issues, seizures, regulatory due diligence, regulatory filings, internal fraud and abuse

investigations, corporate transactions, regulatory appeals (e.g., PRRB, DAB), and government inspections

and investigations.

Bonnie M. Mangold, Associate – Pittsburgh · +1 412 288 5264 · bmangold@reedsmith.com

Bonnie is an associate in Reed Smith's Financial Industry Group, practicing in the area of Financial Services

Litigation. During law school, Bonnie worked as a summer associate at the firm and as a law clerk at

Scottsdale Healthcare in the areas of Compliance and Risk Management.

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Huw Morris, Associate – London · +44 (0)20 3116 2816 · hmorris@reedsmith.com

Huw is an Associate in the Advertising, Technology and Media Group and a founding member of the Reed

Smith Advertising Compliance Team (ReACTS). He has extensive experience in Intellectual Property, digital,

contractual and regulatory matters, advising some of Reed Smith's major clients in the advertising, media,

gaming and FMCG sectors. He joined Reed Smith from the Institute of Practitioners in Advertising, where he

advised an impressive client list of the major UK advertising agencies on a wide variety of legal issues

relevant to the advertising industry. Since joining Reed Smith, he has undertaken a number of successful

secondments to high-profile clients, providing a wide range of advertising/media compliance and general

commercial advice. He is a regular speaker at events hosted by the Advertising, Technology and Media

Group, and recently spoke on the subject of social media marketing at a conference in Belgrade, Serbia,

hosted by one of the world's largest independent advertising agency networks.

Alexandra A. Nelson, Associate – London · +44 (0)20 3116 3485 · anelson@reedsmith.com

Alexandra joined Reed Smith in 2007 when Richards Butler combined with the firm. She is a member of the

Corporate Group.

Jennifer Pike, Associate – Washington, D.C. · +1 202 414 9218 · jpike@reedsmith.com

Jennifer is a member of the Life Sciences Health Industry Group, practicing in the area of health care law.

Her practice focuses on health care regulatory, compliance and enforcement matters, with a specific focus

on entities regulated by the FDA. She counsels clients on regulatory and transactional issues related to

biologic, pharmaceutical and medical device products in a variety of areas, including product marketing and

clinical testing. In addition, she counsels clients on health information privacy and security compliance

(HIPAA and state law), fraud and abuse compliance, Medicare reimbursement, and health care licensing

issues..

Meredith D. Pikser, Associate – New York · +1 212 521 5432 · mpikser@reedsmith.com

Meredith concentrates her practice on intellectual property issues. Her experience includes advising clients

in matters relating to trademark, unfair competition, infringement, anti-counterfeiting and domain name

disputes. She assists clients in developing and maintaining their intellectual property rights, both foreign and

domestic, with special emphasis on trademark clearance and availability, filing and prosecution of trademark

applications, opposition and cancellation proceedings, and trademark infringement. Meredith has

successfully prosecuted Uniform Domain Name Dispute Resolution Policy actions and advises clients on

matters pertaining policing trademarks on social media networks.

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Sachin Premnath, Associate – London · +44 (0)20 3116 3531 · spremnath@reedsmith.com

Sachin is a senior associate in the Media & Technology Group. He specializes in advising clients on digital

content licensing and distribution issues, software licensing, data protection, and related matters regarding

the protection and exploitation of intellectual property rights on digital media networks and platforms. In

particular, he has experience and expertise in digital music licensing, and structuring and negotiating

commercial arrangements involving online music services, record labels, music publishers, collection

societies and users.

Jillian W. Riley, Associate – Pittsburgh · +1 412 288 3521 · jwriley@reedsmith.com

Jillian joined Reed Smith as an associate in the Life Sciences Health Industry Group in 2013. She brought

with her more than two years of experience with the U.S. Food and Drug Administration, Office of the Chief

Counsel, where she served as Assistant Chief Counsel for Enforcement. Jillian's background includes

pursuing enforcement actions from initiation through settlement or judgment against manufacturers of

adulterated and misbranded drugs, medical devices, dietary supplements, tobacco, and various kinds of

foods. This included personally negotiating many consent decrees on behalf of the agency.

David A. Scharfstein, Associate – New York · +1 212 549 0296 · dscharfstein@reedsmith.com

David is an associate in the complex commercial litigation group at Reed Smith LLP. He is an experienced

litigator who handles a wide variety of commercial disputes, with a particular interest in trademark litigation

and false advertising claims.

Dr. Alin Seegel, Associate – Munich · +49 (0)89 20304 158 · aseegel@reedsmith.com

Alin is an associate in the European Corporate Group in Munich and part of the Media & Technology Team.

Alin has broad expertise covering contentious and non-contentious matters of IT law, in particular in the field

of IT-outsourcing, negotiating and drafting of IT-agreements, data protection as well as in matters regarding

IT-litigation and e-commerce. She also advises clients in cases relating to insolvency law issues.

Katharina A. Weimer, Associate – Munich · +49 (0)89 20304 160 · kweimer@reedsmith.com

Katharina is a member of the European Corporate Group and focuses in the area of Advertising,

Technology & Media (ATM). She is a commercial lawyer with a strong focus on all media and entertainment

related matters. Among her clients are international broadcasters as well as new and old media enterprises.

She also has substantial experience in copyright-related contentious and non-contentious matters,

international and national data protection matters and all aspects of doing business on the Internet.

Katharina’s main focus is supplemented by continuous advice in life sciences and clinical trial projects,

involvement in various international transactions and litigation and extensive experience in agreements for

the virtual world.

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Jennifer M. Westhoff, Associate – Century City · +1 310 734 5261 · jwesthoff@reedsmith.com

Jennifer is a member of Reed Smith's Corporate and Securities Group where she specializes in representing

Entertainment clients. Jennifer has participated in multi-million dollar financing deals for production

companies and individual television and film productions, film and television development and production

agreements, purchases of record companies and groups of compositions, video game production

agreements, and the purchase of films for distribution.

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— Guide to Social Media Terminology and Websites —

Please note that websites are provided in parentheses.

Site Guide

Unless otherwise indicated, the definition provided below has been taken from the website of the social media tool described.

Tools

Bebo – A social networking site that combines community, self-expression and entertainment. The acronym stands for Blog

Early, Blog Often. (www.bebo.com)

Facebook – A social utility that connects people with friends and others who work, study and live around them. The site is used

by people and businesses to connect with friends, share photos, and create personalized profiles. (www.facebook.com)

Fast Pitch! – A social network for business networking professionals to market their business, press, blogs, events and

networks. (www.fastpitchnetworking.com)

Friendster – A global social network emphasizing genuine friendships and the discovery of new people through friends. Online

adults, 18-and-up, choose Friendster to connect with friends, family, school, social groups, activities and interests.

(www.friendster.com)

Gather – A social networking site that brings people together through the things they love to do and want to talk about.

(www.gather.com)

Kickapps – A site that provides brands, enterprises and web publishers with solutions that enable them to create and manage

next generation web experiences that are social, interactive, dynamic, distributed, and data-informed. (www.kickapps.com)

LinkedIn – An interconnected network of experienced professionals from around the world. Users can find, be introduced to, and

collaborate with qualified professionals who they need to work with to accomplish their goals. (www.linkedin.com)

MOLI – A mall of online stores, where buyers of goods and services can interact directly with the sellers in an environment built

exclusively for them. (www.moli.com)

MySpace – An online community that lets users meet their friends’ friends. It is used for friends who want to talk online, singles

who want to meet other singles, families who want to keep in touch, business people interested in networking, and anyone

looking for long-lost friends. (www.myspace.com)

Ning – A social media site built to allow users to explore interests, discover new passions, and meet new people around a

shared pursuit. Allows users to create and join new social networks for their interests and passions. (www.ning.com)

Orkut – An online community designed to make the user’s social life more active and stimulating. Its social network can help

users maintain existing relationships with pictures and messages, and establish new ones by reaching out to people they’ve

never met before. (www.orkut.com)

Plaxo – A social media site that keeps its users connected to the people they know and care about, by using “Pulse,” which is a

way for the users to see what their friends are posting to other sites, such as their blog, Flickr, Twitter and Yelp. It is also used to

securely host address books. (www.plaxo.com)

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Publishing

Blogger – A site that provides an easy way for users to share their thoughts about current events, what’s going on in their lives,

or anything else they’d care to discuss with the world. (www.blogger.com)

Constant Contact – A site that helps all types of small businesses and organizations create professional-looking email

newsletters and online surveys. (www.constantcontact.com)

Joomla – A content management system (CMS) that enables the user to build websites and powerful online applications. A

content management system is software that keeps track of every piece of content on a user’s website, much like a local public

library keeps track of books and stores them. (www.joomla.org)

Knol – A user-generated site that makes it easy for anyone to write and share his or her knowledge with the world. Each knol

(unit of knowledge) is searchable through popular search engines and is owned by each individual author.

(http://knol.google.com/k)

SlideShow – A social entertainment company that offers people the ability to communicate, engage and have fun with one

another within the context of relationships they built on social networks such as Facebook and MySpace. (www.slide.com)

TypePad – A blogging service for professionals and small businesses. TypePad hosts many popular blogs and small business

websites. (www.typepad.com)

Wikia – A consumer publishing platform where users go to discover, create and share information on thousands of topics. Wikia

content is released under a free content license and operates on the Open Source MediaWiki software. (www.wikia.com)

Wikipedia – A multilingual, web-based, free-content encyclopedia project based mostly on anonymous contributions. The name

“Wikipedia” is a portmanteau of the words wiki (a type of collaborative website) and encyclopedia. (www.wikipedia.org)

WordPress – A semantic personal publishing platform with a focus on aesthetics, web standards, and usability. It is used as a

blog publishing application and content management system. (www.wordpress.org)

Photos

Flickr – An online photo management and sharing application. It has two main goals, which are to help people make their

content available to the people who matter to them, and to enable new ways of organizing photos and video. (www.flickr.com)

Photobasket – An online storage site for users’ photos. (photobasket.co.cc)

Photobucket – A site that offers image hosting, free photo-sharing and video-sharing. Allows users to upload photos, host their

videos, and share them with friends and family. (photobucket.com)

Picasa – A free software download from Google that helps users organize, edit, and share photos. (picasa.google.com)

Radar – A way to instantly share camera phone pictures, videos and conversations between friends. Radar is free and works on

any mobile phone. (radar.net)

SmugMug – A photo- and video-sharing site, which allows users to easily create online photo albums, and share, store,

organize and print. (www.smugmug.com)

Twixtr – A site that allows users to share pictures from their mobile phone and automatically publish them on social networks

and photo-sharing sites. (www.twitxr.com)

Zooomr – A social utility for friends, family and co-workers who want to communicate securely through both photos and text

messages in real-time. (www.zooomr.com)

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Audio

iTunes – A free application for Mac or PC users, which organizes and plays their digital music and video on their computer. It

syncs all media with their iPod, iPhone, and Apple TV. They can also purchase entertainment for their iPod touch, iPhone, and

Apple TV. (www.apple.com/itunes)

Podbean – A website to host and socially subscribe to podcasts on. Podcast Social Subscribing lets the user collect his or her

favorite podcast in one place and find everyone else’s favorites. (www.podbean.com)

Podcast.com – A podcast destination that provides access to a growing list of more than 60,000 constantly updated podcast

feeds representing more than 1 million episodes of audio and video content. (www.podcast.com)

Rhapsody – A digital music service that lets users listen to a variety of music by paying for a membership rather than per track.

(www.rhapsody.com)

Video

Brightcove – An online video platform used by media companies, businesses and organizations worldwide to publish and

distribute video on the web. Its on-demand platform is used by hundreds of professional publishers to power online video

initiatives that reach more than 100 million Internet users every month. (www.brightcove.com)

Digital Video Recorder (DVR) – A device that records video in a digital format to a memory medium, such as a disk drive, within

a device. Source: Wikipedia

Google Video – A website for video posting and sharing. It is provided by Google, so it also offers a video search engine.

Source: Wikipedia (video.google.com)

Hulu – A free online video service that offers hit TV shows including “Family Guy,,” “30 Rock,” and the “Daily Show with Jon

Stewart.” (www.hulu.com)

Metacafe – A video site attracting more than 40 million unique viewers each month. It specializes in short-form original content–

from new, emerging talents and established Hollywood heavyweights alike. (www.metacafe.com)

Viddler – A service that allows a user to upload videos, record videos directly to the site via webcam, post comments and tags at

specific points in the video, and share videos with RSS and iTunes. (www.viddler.com)

YouTube – A website for users to upload and share video. It uses Adobe Flash Video technology to display content that is

uploaded by users, such as movie clips, TV clips, music videos and video blogging. Source: Wikipedia (www.youtube.com)

Microblogging

Plurk – A way to chronicle and share the things users do, the way they feel, and all the other things in between that make up

their life. (www.plurk.com)

Twitter – A social networking and micro-blogging site that allows users to send and read messages from others they follow. A

tweet is an individual post to Twitter of up to 140 characters, which is then displayed in the writer’s profile page and delivered to

their subscribers, also known as followers. Source: Wikipedia (www.twitter.com)

Twitxr – A site that allows users to share pictures from their mobile phone and automatically publish them on social networks

and photo-sharing sites. (www.twitxr.com)

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Livecasting

BlogTalkRadio – A site that allows users to create free talk radio podcasts and listen to thousands of original talk radio shows.

(www.blogtalkradio.com)

Live365 – A site that offers a depth of streaming music, talk, and audio, and that features 260+ genres of music produced by

5,000+ broadcasters and music tastemakers from more than 150 countries. Through easy-to-use tools and services, as well as

royalty coverage, anyone with a computer and Internet connection can create his or her own Internet radio station and reach a

global audience. (www.live365.com)

Justin.tv – An online community for people to broadcast, watch and interact around live video. (www.justin.tv)

SHOUTcast – An Internet radio service that offers free MP3 & AAC radio stations from DJs and broadcasters around the world.

(www.shoutcast.com)

TalkShoe – A service that enables anyone to easily create, join, or listen to live interactive discussions, conversations, podcasts

and audioblogs. (www.talkshoe.com)

Virtual Worlds

Active Worlds – A site that offers a comprehensive platform for delivering real-time interactive 3-D content over the web.

Businesses can use it to sell products, perform interactive product demos, and conduct online corporate training.

(www.activeworlds.com)

Kaneva – A site that combines social network with a virtual world. Members create the digital version of themselves, known as

avatars, and then meet up in a 3-D world based on the modern day, where they can listen to music, shop and invite friends to

their virtual loft. (www.kaneva.com)

Second Life – A free 3-D virtual world where users can socialize, connect and create using voice and text chat.

(www.secondlife.com)

There – An online getaway where members can hang out with their friends and meet new ones in a 3-D environment.

(www.there.com)

ViOS (Visual Internet Operating System) – A way of organizing all Internet resources, including web pages, into multiuser 3-D

environments. These environments include customizable avatars for the users. Source: Wikipedia

Gaming

Entropia Universe – A multiplayer virtual world that has no subscription fees, but members buy in-game currency with real

money to buy virtual items. Source: Wikipedia (www.entropiauniverse.com)

EverQuest – A multiplayer online game in which members create a character, such as an elf or a dwarf, select their occupation,

and fight monsters and enemies for treasure and experience points. They can also interact with other players through roleplaying.

Source: Wikipedia (everquest.station.sony.com)

Halo3 – A first-person shooter online and console (Xbox) game for 1-16 players. It represents the third chapter in the Halo

trilogy, in which players engage in combat in a mysterious alien ring-world. (www.halo.xbox.com/halo3)

World of Warcraft – A multiplayer online role-playing game, which is often referred to as WoW. Members create a character,

explore, fight monsters, complete quests and interact with other members. Source: Wikipedia (www.worldofwarcraft.com)

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Productivity

Acteva – An event-registration service-provider for event organizers. It automates the entire event-registration process and

brings it online where it can be easily accessed any time. (www.acteva.com)

AOL – A global web services company with an extensive suite of brands and offerings. The business spans online content,

products, and services that the company offers to consumers, publishers and advertisers. (www.aol.com)

Avvo – A website that rates and profiles lawyers. It also allows users to review attorneys based on their experience with them.

(www.avvo.com)

BitTorrent – An open source file-sharing application effective for distributing very large software and media files.

(www.bittorrent.com)

Concep – An interactive email marketing platform. It allows users to create digital email campaigns and view statistics on

readership. (www.concepglobal.com)

Constant Contact – A site that helps organizations create professional-looking email newsletters and online surveys.

(www.constantcontact.com)

Eventful – An events website that enables its community of users to discover, promote, share and create events.

(www.eventful.com)

Google Alerts – A service that provides email updates of the latest relevant Google results (web, news, etc.) based on the

user’s choice of query or topic. (www.google.com/alerts)

Google Docs – A web-based word processor and spreadsheet, which allows users to share and collaborate online.

(docs.google.com)

Google Gmail – An email provider that is built on the idea that email can be more intuitive, efficient and useful.

(mail.google.com)

MSGTAG (Message Tag) – An email-tracking program that tracks whether or not a user’s sent email has been read.

(www.msgtag.com)

ReadNotify – A program in which users get free return email notifications, and/or SMS/ICQ instant messages when email they

have sent gets opened, and they can track their emails’ reading history. (www.readnotify.com)

Sensidea – A digital media consultancy and products company that helps clients deliver innovative digital strategies, products,

and solutions. (www.sensidea.com)

SurveyMonkey – A tool to create and publish custom surveys, and then view results graphically and in real time.

(www.surveymonkey.com)

TiddlyWiki – A reusable, non-linear personal notebook. It is the place to find documentation and resources from TiddlyWiki

users and developers. (www.tiddlywiki.org)

Yahoo! – An online network of integrated services that allows users to communicate with each other, conduct transactions, and

access, share and create information. (www.yahoo.com)

Zoho – A comprehensive suite of online business applications. Customers use Zoho to run their business processes, manage

their information, and be more productive while at the office or on the go. (www.zoho.com)

Zoomerang – An online survey software tool that allows users to create online surveys while providing reporting and advanced

survey logic. (www.zoomerang.com)

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Aggregators

Delicious – A social bookmarking service that allows users to tag, save, manage and share web pages from a centralized

source. (www.delicious.com)

Digg – A place for people to discover and share content from anywhere on the web. From the biggest online destinations to the

most obscure blog, Digg surfaces the best stuff as voted on by its users. (www.digg.com)

FriendFeed – A service that allows users to invite friends, and get an instant, customized feed made up of the content that their

friends share, from photos to interesting links and videos, to messages just for them. (www.friendfeed.com)

Google Reader – A site that constantly checks a user’s favorite news sites and blogs for new content. It shows the user all of his

or her favorite sites in one place. (www.google.com/reader)

iGoogle – A service that allows users to add news, photos, weather, and other items from across the web to their page.

(www.google.com/ig)

Mixx – A user-driven social media website that serves to help users submit or find content by peers based on interest and

location. Source: Wikipedia (www.mixx.com)

My Yahoo! – A customizable web page with news, stock quotes, weather, and many other features. (my.yahoo.com)

Reddit – A source for what’s new and popular online. The users vote on links that they like or dislike and help decide what’s

popular, or submit their own links. (www.reddit.com)

SocialSeek – A product of Sensidea, which lets users search for a topic, item, brand or company across news sites, blogs,

Twitter, YouTube, Flickr, and events. The user can also track mentions of a particular search query by city and receive charts

that show trends on popularity of a topic across websites, or Twitter. (www.sensidea.com/socialseek/download.html)

StumbleUpon – A service that helps the user discover and share websites with others who have similar interests. It allows users

to rate websites and recommend sites to friends. (www.stumbleupon.com)

Yelp – An online urban city guide that helps people find places to eat, shop, drink, relax and play, based on the informed

opinions of a vibrant and active community of locals in-the-know. (www.yelp.com)

RSS (Rich Site Summary)

Atom – A way to read and write information on the web, allowing users to keep track of more sites in less time, and to share their

words and ideas by publishing to the web. (www.atomenabled.org)

FeedBurner – Gives weblog owners and podcasters the ability to manage their RSS feeds and to track usage of their

subscribers. (www.feedburner.com)

PingShot – A feature of FeedBurner that alerts users that new content is on a particular feed. Source: Google.com

(www.feedburner.com/fb/a/publishers/pingshot)

RSS 2.0 – A web-feed format that publishes content, such as blog entries, news, audio and video. It includes full and

summarized text and published dates and authors. Source: Wikipedia

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Search

Bing – A search engine that finds and organizes the answers users are looking for so they can make faster, better-informed

decisions. (www.bing.com)

EveryZing – A digital media merchandising platform, in which media companies leverage EveryZing’s ability to drive the volume

of online content consumption and create new revenue streams. (www.everyzing.com)

Google Search – A search engine that allows users to seek out content on the web. (www.google.com)

IceRocket – A search engine that specifically searches blogs and other sources, such as Twitter and MySpace. Source:

Wikipedia (www.icerocket.com)

MetaTube – A website to browse the top 100 of the most popular video-sharing sites around the world related to any topic. The

user only needs to enter his or her specific search term once for all 100 sites to appear. (www.metatube.net)

Redlasso – A site that enables users to search nearly live TV and radio. Users can search for clips, create clips of the stories,

and share them with friends. (www.redlasso.com)

Technorati – A blog search engine that also provides services to the blogs and social media sites, and connects them to

advertisers who want to join the conversation. (www.technoratimedia.com)

Yahoo! Search – A web search engine that assists users in finding what they are looking for. (search.yahoo.com)

Mobile

airG – A service that powers mobile communities and wireless social networking. It has a worldwide mobile community and

interconnects with mobile operators, such as Sprint Nextel, AT&T and Vodafone. (www.airg.com)

AOL Mobile – A service that allows users to receive news, email, and instant messages via their mobile phone.

(http://mobile.aol.com/)

Brightkite – A social networking site that connects people based on the places they visit in the real world. With Brightkite, users

can see where their friends are, what they’re up to, see what’s going on around them, and meet real-world friends.

(www.brightkite.com)

CallWave – A provider of Internet and mobile-based unified communications solutions. These solutions allow mobile

professionals to communicate and collaborate from anywhere and from any device. (www.callwave.com)

Jott – A site that allows individuals and businesses to easily capture thoughts, send emails and text messages, set reminders,

organize lists, and post to web services and business applications–all with their voice, using any phone. (www.jott.com)

Jumbuck – A provider of community messaging applications to wireless carriers. (www.jumbuck.com)

SMS.ac – A mobile data and Internet communications company that distributes and bills people purchasing and selling content,

such as video, music and applications, through mobile devices. Source: Wikipedia (www.sms.ac)

Interpersonal

Acrobat Connect – A web conferencing software that allows users to communicate and collaborate instantly through interactive

online personal meetings. (www.adobe.com/products/acrobatconnect)

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AOL Instant Messenger – A program where users can send messages to friends instantly and keep track of friends’ status and

presence updates. (www.aim.com)

Go To Meeting – A web conferencing software that allows users to work with anyone, anywhere, in online meetings.

(www.gotomeeting.com)

iChat – An instant messaging application that works with AIM (AOL Instant Messenger) and helps users stay in touch with

friends using text and video. (www.apple.com/support/ichat/)

Jott – A site that allows individuals and businesses to easily capture thoughts, send emails and text messages, set reminders,

organize lists, and post to web services and business applications–all with their voice, using any phone. (www.jott.com)

Meebo – A web platform for IM (Instant Messaging) on any network or site. It connects the user to MSN, Yahoo, AOL/AIM,

MySpace, Facebook, Google Talk, and others. (www.meebo.com)

Skype – A program that allows users to make free calls over the Internet to other people for an unlimited time period, to

anywhere. It is free to download. (www.skype.com)

Webex – A program that provides users with online meetings, desktop sharing, web conferencing, video conference, net

meeting, and web conference. It combines real-time desktop sharing with phone conferencing. (www.webex.com)

Terminology

Advercasting – A term to describe advertising on a podcast or video podcast. Source: Wikipedia

Advergaming – A term to describe the act of playing an advergame, which is a computer game published by an advertiser to

promote a product or service. Source: Wikipedia

Astroturfing – A term used to describe an advertising, public relations or political campaign that is planned by an organization,

but designed to mask the origin and create the impression of being spontaneous, or to mask statements by third parties. Fake

reviews posted on product sites would be examples of astroturfing. Source: Wikipedia

Blog – A type of website in which entries are usually made regularly by one person, containing commentary, descriptions of

events, or other materials such as graphics or video. The term blog can also be used as a verb, meaning to uphold or add

substance to a blog. Source: Wikipedia

Bookmark – Also known as a favorite, it is a term to describe a record of the address of a file or webpage serving as a shortcut

to it, or the act of creating a bookmark to easily access it at a later time. Source: Wikipedia

Buzz Marketing – A term used to describe word-of-mouth marketing. The interaction of users of a product or service amplifies

the original marketing message, creating a form of hype. Source: Wikipedia

Computer-Generated Imagery (CGI) – The application of the field of computer graphics, such as 3-D computer graphics to

special effects in films, television programs, commercials, simulators and simulation generally, and printed media. Source:

Wikipedia

Cybersmearing – A term describing the insulting of an individual or company online. Source: www.goliath.com

Digital Download – A method of retrieving web content, such as games, music, videos, etc., via downloading from a particular

source.

Embedded Players, Widgets and Gadgets – Tools that are added and set in to a webpage. For example, a blog can have an

embedded widget allowing users to follow Twitter events on their webpage. Source: Wikipedia

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Interactive Gaming – An electronic game that involves interaction with a user interface and usually other users via instant

messages or voice chat, such as World of Warcraft or Webkins. Source: Wikipedia

Interstitial Advertisement – A webpage of advertising that displays before the user’s expected content page. Source: Wikipedia

Keyword – A term used to locate material in a search engine or catalog. Source: Wikipedia

Meta Tag – A tool used by content-owners to communicate information about their webpage to search engines, such as a

description tag with text, that is to appear in major search engine directories that describes the site or the use of a keyword tag to

help push information to end-users via search engine results when they are seeking material related to those words. Source:

Wikipedia

Microsode – A relatively short video of content to be viewed, usually over the Internet.

Mobisode – An episode of content that has been condensed to be viewed with a cellular phone. Source: Wiktionary

On-Demand Programming – A term to describe the systems, Video on Demand or Audio Video on Demand, which allow users

to select and watch and/or listen to video or audio content at their request. Source: Wikipedia

Opt In – A term to describe when someone is given the option to receive “bulk” email. Obtaining permission before sending

email is critical because without it, the email is Unsolicited Bulk Email, known as spam. Source: Wikipedia

Opt Out – A term to describe the method by which an individual can avoid receiving unsolicited product or service information.

Source: Wikipedia

Podcast – A series of digital media files (either audio or video) that are released regularly and downloaded through web

syndication. Special client software applications that are used to deliver the podcasts (i.e., iTunes, Zune, Juice and Winamp) are

what differentiates podcasts from other ways of accessing media files over the Internet. Source: Wikipedia

Promercial – A term to describe on-air promotion spots, with brands increasingly being incorporated into these tune-in spots on

many networks. Source: www.allbusiness.com

Satellite Dish – A type of antenna designed to receive microwaves from communications satellites that transmit data or

broadcasts, such as satellite television or radio. Source: Wikipedia

Search Engine – A tool to search for information on the World Wide Web. Source: Wikipedia

SMS (Short Message Service) – A service for sending text messages by way of a cellular telephone, usually mobile-to-mobile.

Source: Wiktionary

Social Networking – A term to describe the act of making connections and socializing with people who share interests and/or

activities, or who are interested in exploring the interests and activities of others. Most social networking is done through webbased

programs, which provide a multitude of ways for users to interact. Source: Wikipedia

Streaming – A method of delivering a medium, such as audio or video content, over telecommunications networks. Source:

Wikipedia

Twitter-Jacking – A term describing the act of one person taking control of another person’s Twitter account, usually to post

untrue or harmful material. Source: www.mashable.com

Typosquatting – Also known as URL hijacking, is a type of cybersquatting when a user accidentally enters an incorrect website

address, then is led to an alternative website, usually displaying undesired materials, owned by a cybersquatter. Source:

Wikipedia

Unwired or Wireless – A term to describe an electronic device being equipped with Internet or electricity, without the use of

electrical conductors or wires. Source: Wikipedia

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User-Generated Content – A term that refers to various kinds of publicly available media content, produced by end-users. Also

known as consumer-generated media or user-created content. Source: Wikipedia

Viral Marketing – A term that describes marketing techniques that use pre-existing social networks to produce an increase in

brand awareness or to achieve other marketing objectives. Source: Wikipedia

Virtual Community – A group of people who primarily interact via electronic media such as newsletter, telephone, email,

Internet social network service or instant messages rather than face-to-face, for social, professional, educational or other

purposes. Also known as an e-community or online community. Source: Wikipedia

Virtual Reality – A technology that allows a user to interact with a computer-simulated environment, either simulating real world

or an imaginary world. Source: Wikipedia

Vlog – The shortened term for video blogging, it’s a form of blogging utilizing the video medium. Source: Wikipedia

WAP (Wireless Application Protocol) – An open international standard for network communications in a wireless-communication

environment. Most of its use involves the ability to access the mobile web from a mobile phone or PDA. Source: Wikipedia

Webcast – A media file broadcasted over the Internet using streaming media technology. Source: Wikipedia

Wi-Fi – A trademark of the Wi-Fi Alliance, a global, nonprofit association of companies that promotes WLAN technology and

certifies products as Wi-Fi-Certified, to ensure compatibility among products that communicate data wirelessly via the IEEE

802.11 specification. Source: Wikipedia

Wired – A term to describe an electronic device being equipped with wires, so as to connect to a power source or to other

electric or electronic wires. Source: Wiktionary

Word-of-Mouth Advertising – Promotion of a product or service through oral statements by independent users or individuals

authorized by a marketer.

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— Endnotes —



1 E-consultancy.com Limited, http://econsultancy.com/blog/4402-20+-more-mind-blowing-social-media-statistics

2 See, “Changing the Conversation,” http://www.publicis.com/#en-GB/approach

3 http://experiencematters.wordpress.com/2009/09/26/best-buy-learns-social-media-lesson/

4 http://www.youtube.com/watch?v=5YGc4zOqozo

5 New York Times, Oct. 29, 2009, “With Video, a Traveler Fights Back,” http://www.nytimes.com/2009/10/29/business/29air.html

6 http://www.youtube.com/watch?v=-QDkR-Z-69Y&feature=PlayList&p=7EDD98D1C5CD57F6&playnext=1&playnext_from=PL&index=5

7 http://www.dailymail.co.uk/news/worldnews/article-1201671/Singer-Dave-Carroll-pens-YouTube-hit-United-Airlines-breaks-guitar--shares-plunge-10.html

8 http://www.govtrack.us/congress/bill.xpd?bill=s111-213

9 http://static.uspirg.org/consumer/archives/airline_passenger_rights/index.html; see also http://www.examiner.com/x-10533-Seattle-Travel-Industry-

Examiner~y2009m9d23-Power-to-the-people--airline-passengers-that-is-if-the-Passenger-Bill-of-Rights-gets-passed

10 http://www.youtube.com/watch?v=6cOb7fWG0A0

11 http://www.prweekus.com/Dominos-changes-up-online-strategy-following-video-prank/article/130751/

12 Erik Qualman, http://socialnomics.net/

13 The authors wish to acknowledge the contributions of Marina Palomba to the content of this chapter.

14 World Internet Usage Statistics, http://www.internetworldstats.com/stats.htm, as of June 30, 2012.

15 State of the Media: The Social Media Report 2012, Neilsen, (2012)

16 Ring the Bells: More Smartphone in Students’ Hands Ahead of Back-to-School Season, http://www.nielsen.com/us/en/newswire/2013/ring-the-bells-moresmartphones-

in-students-hands-ahead-of-back.html (Oct. 29, 2013).

17 See, “Web Ad Spend Outstrips TV for First Time,” The Times, Sept. 30, 2009.

18 “Social, Video Sites Will See Big Boosts in US Advertiser Spending,” eMarketers (Oct. 15, 2013) (http://www.emarketer.com/Article/Social-Video-Sites-Will-

See-Big-Boosts-US-Advertiser-Spending/1010300).

19 “B2Cs, B2Bs See Digital, Social Ad Spend Rising, as Traditional Stalls,” eMarketers (Oct. 3, 2013) (http://www.emarketer.com/Article/B2Cs-B2Bs-See-

Digital-Social-Ad-Spend-Rising-Traditional-Stalls/1010270 ).

20 http://www.the-connection.com/social-media-reshaping-customer-care/

21 https://www.facebook.com/legal/terms; http://about.pinterest.com/terms/; http://www.tumblr.com/policy/en/terms_of_service;

http://www.youtube.com/t/terms, and https://twitter.com/tos.

22 Id.

23 https://www.facebook.com/page_guidelines.php

24 https://support.twitter.com/articles/18366-impersonation-policy# ; https://en.help.pinterest.com/entries/21134891-Pinterest-s-impersonation-policy.

25 http://help.instagram.com/464700830247492

26 http://support.twitter.com/articles/68877-guidelines-for-contests-on-twitter#

27 https://www.facebook.com/page_guidelines.php

28 https://fbcdn-dragon-a.akamaihd.net/hphotos-ak-ash3/851577_158705844322839_2031667568_n.pdf

29 https://support.twitter.com/articles/68877-guidelines-for-contests-on-twitter#; http://business.pinterest.com/brand-guidelines/

30 https://doritoscrashthesuperbowl.thismoment.com/

31 http://www.folgerscoffee.com/folgers-jingle/

32 With regard to eligibility, in order to avoid Children’s Online Privacy Protection Act (“COPPA”) issues, a sponsor should limit eligibility to individuals who are

at least the age of majority in the jurisdiction in which they reside (18 in most states). If individuals under the age of 18 are permitted to enter, they should

do so only with parental permission. If individuals under the age of 13 are permitted to enter, a company must comply with both the COPPA requirements

concerning collection of personal information from children, and Children’s Advertising Review Unit (“CARU”) requirements for advertising directed toward

children. Remember, however, that if a promotion is being offered via a third-party’s website or platform (e.g., Facebook, YouTube or Twitter), a company

must comply with such third-party’s terms of use, which typically prohibit use by children under 13.

33 N.Y. G.B.L. § 369-e and F.L. Stat. § 849.094.

34 Id.

35 R.I. Stat. Ch. 11-50, et seq.

36 Mark Adams, Director of Communications for the International Olympic Committee, quoted in “Social media bringing down the walled garden of the

Olympic Games,” TMC.net, Sept. 24, 2009.

37 Nick Bilton, “Disruptions: Celebrities’ Product Plugs on Social Media Draw Scrutiny.” http://bits.blogs.nytimes.com/2013/06/09/disruptions-celebritiesproduct-

plugs-on-social-media-draw-scrutiny/?_r=0, June 9, 2013.

38 Michael Luca and Georgios Zervas, “Fake It Til You Make It: Reputation, Competition, and Yelp Review Fraud,” (Sept. 24, 2013).

39 http://officialblog.yelp.com/2013/05/how-yelp-protects-consumers-from-fake-reviews.html

40 “A.G. Schneiderman Announces Agreement With 19 Companies To Stop Writing Fake Online Reviews And Pay More Than $350,000 In Fines,”

http://www.ag.ny.gov/press-release/ag-schneiderman-announces-agreement-19-companies-stop-writing-fake-online-reviews-and

41 16 CFR Part 255.

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

42 16 CFR § 255.l(d).

43 .com Disclosures: How to Make Effective Disclosures in Digital Advertising, Federal Trade Commission (Mar. 2013).

44 Paige Cooperstein, “Native Advertising: How It Works at the Huffington Post,” http://www.pbs.org/mediashift/2013/10/native-advertising-how-it-works-atthe-

huffington-post/, October 8, 2013.

45 Charlie Warzel, “The Real Problem With The Atlantic's Sponsored Post: Debacle proves that above all else, native ads need to feel native,”

http://www.adweek.com/news/technology/real-problem-atlantics-sponsored-post-146553, January 15, 2013.

46 http://advertising.theatlantic.com/

47 http://fastlane.gmblogs.com

48 http://fastlane.gmblogs.com/about.html

49 Andrew LaVallee, “Starbucks Unveils Its First iPhone Apps,” http://blogs.wsj.com/digits/2009/09/23/starbucks-unveils-its-first-iphone-apps/, Sept. 23, 2009.

50 http://about.americanexpress.com/sm/

51 http://www.godaddy.com/socialmedia/social-media.aspx

52 http://www.fritolay.com/about-us/press-release-20130507a.html

53 Doctor’s Associates Inc. v. QIP Holders LLC, 82 U.S.P.Q.2d (BNA) 1603 (D. Conn. April 18, 2007).

54 Joseph Lewczak, “Quiznos/Subway Settlement Poses Threat to Future UGC Promos,” PROMO Magazine, March 23, 2010.

55 Seaton v. TripAdvisor LLC, Opinion, No. 12-6122 (6th Cir. Aug. 28, 2013), available at http://www.courthousenews.com/2013/09/03/tripad.pdf

56 Christina Brinkley, “More Brands Want You to Model Their Clothes,” Wall Street Journal (May 15, 2013)

(http://online.wsj.com/news/articles/SB10001424127887324216004578483094260521704 ).

57 Agence France Presse v. Morel, Judgment, No. 10-cv-02730 (S.D.N.Y. Dec. 10, 2013).

58 Eiselein v. Buzzfeed, Inc., Complaint, No. 1:13-cv-03910 (S.D.N.Y. Jun. 7, 2013).

59 Bundesgerichtshofentscheidung dated Nov. 12, 2009 (AZ I ZR 166/07, www.marions.kuchbuch.de ).

60 BGH order for reference dated Mai 16, 2013 (AZ I ZR 46/12 – framing..

61 This discussion presumes that either the advertiser or advertising agency is a signatory to the union contracts. Of course, if there is no signatory

relationship, no contractual obligations will exist, although professional talent may insist upon such contractual coverage.

62 The authors wish to acknowledge the contributions of John L. Hines and Janice D. Kubow to the content of this chapter.

63 See, Cass R. Sunstein, “On Rumors: How Falsehoods Spread, Why We Believe Them, What Can Be Done,” (Farrar, Straus, and Giroux 2009).

64 The Impact of the Class Action Fairness Act of 2005 on the Federal Courts.

65 15 U.S.C. § 45.

66 15 U.S.C. § 1125(a).

67 15 U.S.C. § 45.

68 Available at http://www.ftc.gov/bcp/policystmt/ad-decept.htm

69 Kraft, Inc. v. Federal Trade Commission, 970 F.2d 311, 314 (7th Cir. 1992); FTC v. Brown & Williamson Tobacco Corp., 776 F.2d 35, 40 (D.C. Cir. 1985).

70 Int’l Harvester Co., 104 FTC 949 1058 (1984).

71 Sandoz Pharmaceuticals v. Richardson-Vicks, 902 F.2d 222, 228 (3d Cir. 1990).

72 15 U.S.C. § 45 (m)(1)(A) (civil penalty of $10,000 per violation where violator has actual knowledge, or knowledge fairly implied). 15 U.S.C. § 53(b).

73 U.S. Healthcare v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 921 (3d Cir. 1990); Johnson & Johnson v. Carter-Wallace, Inc., 631 F.2d 186, 190-91

(2d Cir. 1980).

74 Sandoz Pharmaceuticals v. Richardson-Vicks, 902 F.2d 222, 228 (3d Cir. 1990) (“The key distinctions between the FTC and a Lanham Act plaintiff turns

on the burdens of proof and the deference accorded these respective litigants. The FTC, as a plaintiff, can rely on its own determination of deceptiveness.

In contrast, a Lanham Act plaintiff must prove deceptiveness in court.”).

75 U.S. Healthcare, 898 F.2d at 921 (3d Cir. 1990) (quoting 2 J. McCarthy, Trademarks and Unfair Competition § 27:713 (2d Ed. 1984)).

76 See, e.g., Bruno v. Quten Research Inst., LLC, 280 F.R.D. 524 (C.D. Cal. 2011) (class-action lawsuit instituted after NAD finding that advertiser possessed

insufficient support for its claim that its liquid dietary supplement was absorbed six times “better” than competing products).

77 See, Guides Concerning the Use of Endorsements and Testimonials in Advertising, available at http://www.ftc.gov/opa/2009/10/endortest.shtm (“FTC

Guides”) (issued Oct. 5, 2009 and effective Dec. 1, 2009).

78 FTC Guides, at 53125, n.11.

79 FTC Guides, § 255.0.

80 FTC Guides, at 8.

81 15 U.S.C. § 45.

82 FTC Guides, § 255.1(d).

83 FTC Guides, at 38-39.

84 FTC Guides, § 255.1(d).

85 FTC Guides, at 42.

86 Id.

87 FTC Guides, at 15.

88 Id.

89 FTC Guides, at 39.

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90 FTC Guides, at 40, 42.

91 Federal Trade Commission, .com Disclosures, available at http://www.business.ftc.gov/documents/bus41-dot-com-disclosures-information-about-onlineadvertising.

92 Id. at p. iii

93 Id. at A-18.

94 See Spencer v. Sensa Products, LLC, Index No. BC519632 (Cal. Super. Ct. 2013).

95 See, 1 McCarthy, Rights of Publicity, § 5:22 (“under the proper circumstances, any person, celebrity or non-celebrity, has standing to sue under § 43(a) for

false or misleading endorsements.”), quoted in Doe v. Friendfinder Network, Inc., 540 F.Supp.2d 288, 301 (D.N.H. 2008).

96 The CAP Code can be found on CAP’s website at http://www.cap.org.uk.

97 See: http://www.asa.org.uk/News-resources/Hot-Topics/~/media/Files/ASA/Hot%20Topics/Charity%20advertising%20-%20Hot%20topic.ashx

98 Restatement, Second, Torts § 558.

99 Dendrite v. Doe, 775 A.2d 756, 760 (N.J. App. 2001); but see, Solers, Inc. v. Doe, 977 A.2d 941, 954 (D.C. 2004) (requiring a prima facie showing but

rejecting a balancing test at the end of the analysis); see also, Cohen v. Google, Inc., No. 100012/09 (Unpublished) (New York Supreme Court orders

Google’s Blooger.com to disclose identity of anonymous blogger, where plaintiff established the merits of her cause of action for defamation and the

information sought was material and necessary to identify potential defendants).

100 E.g., Stratton Oakmont v. Prodigy, 1995 WL 323710, at *3 (N.Y. Sup. Ct., May 24, 1995) (Unreported).

101 E.g., Cubby v. Compuserve, 776 F.Supp. 135 (S.D.N.Y. 1991).

102 47 U.S.C. § 230 (“CDA”).

103 47 U.S.C. § 230(c)(1).

104 47 U.S.C. § 230(f)(3).

105 474 F.Supp. 2d 843 (W.D. Tex. 2007).

106 In Barnes v. Yahoo!, Inc., 570 F.3d 1096 (9th Cir. 2009), for example, the Ninth Circuit dismissed a claim for negligence where the claim was more clearly

tied to a failure to take down offensive speech.

107 474 F.Supp.2d at 849.

108 Black v. Google, Inc., 457 F. App'x 622, 623 (9th Cir. 2011) (“The district court properly dismissed plaintiffs' action as precluded by [the CDA] because

plaintiffs seek to impose liability on Google for content created by a third party.”); Getachew v. Google, Inc., 491 F. App'x 923, 925 (10th Cir. 2012) (“Under

[the CDA], Google cannot be held liable for search results that yield content created by a third party”).

109 2009 WL 3240365, No. 102578/09 (N.Y. Sup. Sept. 15, 2009).

110 2009 WL 3240325, at *1.

111 2009 WL 3240365, at *1 (citing Blumenthal v. Drudge, 992 F.Supp. 44, 52 (D.D.C. 1998)).

112 478 F.3d 413 (1st Cir. 2007).

113 Id. at 421.

114 521 F.3d 1157 (9th Cir. 2008) (en banc).

115 See Nemet v. Chevrolet Ltd. v. Consumeraffairs.com, 591 F.3d 250, 256-257 (4th Cir. 2009) (distinguishing Roommates.com, the Fourth Circuit holds,

among other things, that defendant is not encouraging illegal conduct).

116 See also, Chicago Lawyers’ Committee for Civil Rights Under Law, Inc. v. Craigslist, Inc, 519 F.3d 666, 669-70 (7th Cir. 2008) (rejecting that Section 230

confers an absolute immunity).

117 Shiamili v. Real Estate Grp. of New York, Inc., 17 N.Y.3d 281, 290, 952 N.E.2d 1011, 1018 (2011).

118 See Batzel v. Smith, 333 F.3d 1018 (9th Cir. 2003) (provider’s “minor alterations” to defamatory material not actionable); 318 F.3d 465, 470-71 (3d Cir.

2003); Ben Ezra, Weinstein & Co. v. Am. Online, Inc., 206 F.3d 980, 985-86 (10th Cir. 2000) (rejecting argument that service provider’s deletion of some,

but not all, inaccurate data about plaintiff from another source “transforms Defendant into an ‘information content provider’ “); Blumenthal v. Drudge, 992

F.Supp. 44, 52 (D.D.C.1998) (exercise of “editorial control” over defamatory third-party content fell within § 230 immunity); Doe v. Friendfinder Network,

Inc., 540 F.Supp.2d 288, 297 and n. 10 (D.N.H. 2008) (slight editorial modifications to defamatory profile does not defeat immunity).

119 See, Anthony v. Yahoo! Inc., 421 F.Supp.2d 1257, 1262-1263 (N.D. Cal. 2006) (service’s alleged creation of false profiles inducing plaintiff to maintain his

membership not barred by Section 230); Hy Cite Corp. v. badbusinessbureau.com, L.L.C., 418 F.Supp.2d 1142, 1149 (D. Ariz. 2005) (service provider’s

creation of its own comments and other defamatory content associated with third-party postings defeats Section 230 defense).

120 47 U.S.C. § 230(e)(2).

121 See, Doe v. Friendfinder Network, 540 F.Supp.2d at 303 n. 13 (notion that trademark claims are not intellectual property claims, while not before the court,

strikes it as “dubious”).

122 488 F.3d 1102 (9th Cir.), cert. denied, 128 S.Ct. 709 (2007).

123 Id. at 1118-19.

124 540 F.Supp.2d 299-304. Accord, Atlantic Recording Corporation v. Project Playlist, 603 F.Supp.2d 690 (S.D.N.Y. 2009) (“if Congress wanted the phrase

‘any law pertaining to intellectual property’ to actually mean ‘any federal law pertaining to intellectual property,’ it knew how to make that clear, but chose

not to”); Universal Commc’n Sys., Inc. v. Lycos, 478 F.3d 413, 422–23 (1st Cir. 2007) (stating in dicta that “[c]laims based on intellectual property laws are

not subject to Section 230 immunity.”); Parisi v. Sinclair, 774 F. Supp. 2d 310, 317-18 (D.D.C. 2011) (stating in dicta that the court is “not inclined to extend

the scope of the CDA immunity as far as the Ninth Circuit”).

125 O’Grady v. Superior Court (Apple Computer, Inc.), 39 Cal.App.4th 1423 (Sixth Dist. 2006).

126 See, e.g., Too Much Media, LLC v. Hale, 2010 WL 1609274, A-0964-09 (N.J. Super. A.D., April 22, 2010) (rejecting defendant’s assertion of the reporter’s

privilege with respect to his pornography blog because, among other reasons, the defendant “produced no credentials or proof of affiliation with any

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

recognized news entity, nor has she demonstrated adherence to any standard of professional responsibility regulating institutional journalism, such as

editing, fact-checking or disclosure of conflicts of interest.”).

127 558 U.S. 310, 352, 130 S. Ct. 876, 905-06, 175 L. Ed. 2d 753 (2010).

128 2014 WL 185376 (Jan. 17, 2014).

129 175 F.3d 848 (10th Cir. 1999) (affirming dismissal of claims directed to credit ratings based on First Amendment).

130 2003 WL 21464568, No. CIV-02-1457-M (W.D. Ok., May 27, 2003).

131 2011 WL 5079526 (N.D. Cal. Oct. 26, 2011)

132 Id. at *6.

133 Id. at *7.

134 Id.

135 Id. at *8.

136 Cairns v Modi ([2012] EWCA Civ 1382).

137 McAlpine v Bercow ([2013] EWHC 1342 (QB))

138 Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal aspects of information society services, in

particular electronic commerce, in the Internal Market.

139 Art. 15 (1) of the Directive: Member States shall not impose a general obligation on providers, when providing the services covered by Articles 12, 13 and

14, to monitor the information which they transmit or store, nor a general obligation actively to seek facts or circumstances indicating illegal activity.

140 Bundesgerichtshof [German Federal Court of Justice], GRUR 2004, p. 860 – Internet auction I.

141 Bundesgerichtshof [German Federal Court of Justice], GRUR 2007, p. 708 – Internet auction II.

142 See, for example, Bundesgerichtshof [German Federal Court of Justice], GRUR 1999, p. 418.

143 17 U.S.C. § 102 (a).

144 S. 1 (1) UK Copyright Designs and Patents Act.

145 § 2 (2) German Copyright Act.

146 Such as in § 51 German Copyright Act.

147 The author wishes to acknowledge the contributions of Rachel A. Rubin to the content of this chapter.

148 Twitter Terms of Service (effective June 25, 2012), https://twitter.com/tos?PHPSESSID=57a411f70b1964a2bc78b82638ba1843

149 Facebook Statement of Rights and Responsibilities (last revised Nov. 15, 2013), https://www.facebook.com/legal/terms

150 Instagram Terms of Use (effective January 19, 2013), http://instagram.com/legal/terms/#

151 YouTube Terms of Service (June 9, 2010), https://www.youtube.com/static?template=terms

152 Evelyn M. Rusli, Facebook Buys Instagram for $1 Billion, N.Y. TIMES DEALBOOK BLOG (Apr. 9, 2012),

http://dealbook.nytimes.com/2012/04/09/facebook-buys-instagram-for-1-billion/?_php=true&_type=blogs&_r=0

153 Erin Geiger Smith, News outlets improperly used photos posted to Twitter: judge, REUTERS (Jan. 15, 2013), http://www.reuters.com/article/2013/01/15/ussocialmedia-

copyright-ruling-idUSBRE90E11P20130115

154 Joseph Ax, Photographer wins $1.2 million from companies that took pictures off Twitter, REUTERS (Nov. 22, 2013),

http://www.reuters.com/article/2013/11/22/us-media-copyright-twitter-idUSBRE9AL16F20131122

155 17 U.S.C. § 1201 (2013)

156 Online service providers include any company, organization or group that provides on online service, including social media sites.

157 17 U.S.C. § 512(c)(3)(A)(i-vi) (2013)

158 Id.

159 https://www.facebook.com/help/contact/208282075858952

160 https://support.twitter.com/forms/dmca

161 http://www.youtube.com/yt/copyright/copyright-complaint.html

162 17 U.S.C. § 512(c)(3)(A)(i-vi) (2013)

163 Perfect 10, Inc. v. Amazon.com, Inc., 487 F.3d 701 (9th Cir. 2007)

164 Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005)

165 Ashcroft v. Iqbal, 556 U.S. 662 (2009)

166 Elf Man, LLC. v. Cariveau, No. C13-0507 RSL, (W.D. Wash. Jan. 17, 2014)

167 Id.

168 Facebook Platform Policy (last revised Aug. 20, 2013), https://developers.facebook.com/policy/

169 Twitter Developer Rules of the Road (last updated Jul. 2, 2013), https://dev.twitter.com/terms/api-terms

170 Federal Trade Commission, 16 CFR Part 255—Guides Concerning the Use of Endorsements and Testimonials in Advertising, available at

http://ftc.gov/os/2009/10/091005revisedendorsementguides.pdf

171 The authors wish to acknowledge the contributions of Amy S. Mushahwar and Gregory J. Payor to the content of this chapter.

172 “Press Room,” available at: https://newsroom.fb.com/Key-Facts

173 Federal Trade Commission, “Protecting Consumer Privacy in an Era of Rapid Change: Recommendations For Businesses and Policymakers,” available at:

http://www.ftc.gov/sites/default/files/documents/reports/federal-trade-commission-report-protecting-consumer-privacy-era-rapid-changerecommendations/

120326privacyreport.pdf (Mar. 26, 2012) (hereinafter “FTC Final Report”); Department of Commerce, “Consumer Data in a Networked

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

World” available at:

http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=1&ved=0CCcQFjAA&url=http%3A%2F%2Fwww.commerce.gov%2Fsites%2Fd

efault%2Ffiles%2Fdocuments%2F2012%2Ffebruary%2Fprivacy-final.pdf

&ei=juHiUrrGIMrNsQSV_oCQBA&usg=AFQjCNGST_wR3Vz0bETcA2ZcsOOIW5JruQ&sig2=UTGI6r2EUIir9astubNj-g&bvm=bv.59930103,d.cWc (Feb.

23, 2012)

174 John Lister, “Most Departing Employees Steal Company Data,” Tech.Blorge (Feb. 23, 2009) available at:

http://tech.blorge.com/Structure:%20/2009/02/23/most-departing-employees-steal-company-data/ (stating almost six in 10 people who left a job in the

United States in 2008 took confidential data with them, according to a survey by data protection firm Ponemon), and “Many Users Say They’d Sell

Company Data for the Right Price,” by Tim Wilson, DarkReading (Apr. 24, 2009) available at:

http://www.darkreading.com/insiderthreat/security/client/showArticle.jhtml?articleID=217100330 (stating 37 percent of workers would sell data for $1.5

million, according to a survey of commuters in London’s railway stations by InfoSecurity Europe).

175“Working Document 02/2013 providing guidance on obtaining consent for cookies- WP 208 (02.10.2013)” available at: http://ec.europa.eu/justice/dataprotection/

article-29/documentation/opinion recommendation/files/2013/wp208_en.pdf

176 For example, the Gramm-Leach-Bliley Act requires certain types of companies (financial institutions, insurance companies and brokerage companies) to

maintain privacy policies. In addition, the California Online Privacy Protection Act requires a website or online service operator to conspicuously post its

privacy policy on the website or make it available through the online service. See Cal. Bus. & Prof. Code § 22575. Effective January 1, 2015, website and

online service providers will have to allow minors erase their own posts on social media. See Cal. Bus. & Prof. Code § 22580.

177 Some common privacy-oriented consumer monitoring groups are: the Electronic Privacy Information Center, Privacy Rights Clearinghouse, World Privacy

Forum and the Electronic Frontier Foundation, amongst others.

178 Catharine Smith, “Facebook, FTC Reach Settlement Over Alleged Privacy Violations,” Huffington Post (Nov. 29, 2011) available at:

http://www.huffingtonpost.com/2011/11/29/facebook-ftc-reach-settle_n_1118996.html

179 Federal Trade Commission, “Facebook Settles FTC Charges That It Deceived Consumers By Failing To Keep Privacy Promises,” Press Release (Nov. 29,

2011) available at: http://www.ftc.gov/news-events/press-releases/2011/11/facebook-settles-ftc-charges-it-deceived-consumers-failing-keep

180 Federal Trade Commission, “FTC Approves Final Settlement With Facebook,” Press Release (Aug. 10, 2012) available at: http://www.ftc.gov/newsevents/

press-releases/2012/08/ftc-approves-final-settlement-facebook

181 Center for Digital Democracy, “EPIC & CDD ask Facebook's Mark Zuckerberg to withdraw proposed changes weakening user rights and expanding data

collection,” (Nov. 26, 2012), available at: http://www.centerfordigitaldemocracy.org/epic-cdd-ask-facebooks-mark-zuckerberg-withdraw-proposed-changesweakening-

user-rights-and-expanding

182 “FTC Looking Into Facebook’s Proposed Privacy Policy Changes,” Huffington Post (Sept. 12, 2013), available at:

http://www.huffingtonpost.com/2013/09/12/ftc-looking-into-proposed_n_3915645.html

183 Facebook, Inc., “Thanks For Your Feedback,” (Nov. 15, 2013), available at: https://www.facebook.com/notes/facebook-site-governance/thanks-for-yourfeedback/

10153503594325301

184 Heather Kelly, “Facebook changes privacy settings for teens,” CNN (Oct. 31, 2013), available at: http://www.cnn.com/2013/10/16/tech/socialmedia/

facebook-teens-privacy/

185 http://ec.europa.eu/justice_home/fsj/privacy/news/docs/pr_28_01_10_en.pdf .

186 “Google Wins Louis Vuitton Trademark Case” 23.03.2010 available at: : http://www.theguardian.com/media/2010/mar/23/google-louis-vuitton-search-ads

187 “Opinion of Advocate General Poaires Maduro in the Joined Cases C-236/08-C-238/08” available at:

http://curia.europa.eu/juris/document/document.jsf?text=&docid=73281&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=288109 ; also

See “Judgment of the Court (Grand Chamber) of 23 March 2010 (reference for a preliminary ruling from the Cour de cassation - France) - Google France,

Google, Inc. v Louis Vuitton Malletier (C-236/08), Viaticum SA, Luteciel SARL (C-237/08), Centre national de recherche en relations humaines (CNRRH)

SARL, Pierre-Alexis Thonet, Bruno Raboin, Tiger SARL (C-238/08),” available at :

http://curia.europa.eu/juris/document/document.jsf?text=&docid=83961&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=288109 .

188 “Opinion of Advocate General Jaaskinen delivered on 25 July 2013 in the Case of C-131/12 Google Spain SL, Google Inc. v Agencia Española de

Protección de Datos (AEPD),”available at:

http://curia.europa.eu/juris/document/document.jsf?text=&docid=138782&pageIndex=0&doclang=en&mode=lst&dir=&occ=first&part=1&cid=292528 ; also

See: “ECJ Press Release on Advocate General’s Opinion in Case C-131/12 dated 25 June 2013,”available at :

http://curia.europa.eu/jcms/upload/docs/application/pdf/2013-06/cp130077en.pdf

189 “Google not obliged to delete data, rules EU lawyer” 25.06.2013 available at: http://www.bbc.co.uk/news/technology-23044809

190 “Judgement of the Honourable Mr Justice Tugendhat of Vidal -Hall & Ors v Google Inc [2014] EWHC 13 (QB) (16 January 2014)” available at:

http://www.bailii.org/ew/cases/EWHC/QB/2014/13.html

191 “Google must face UK courts over claims of privacy breach of iPhone users” 16.01.02014 available at:

http://www.theguardian.com/technology/2014/jan/16/google-uk-courts-privacy-breach-iphone-safari

192 “Google privacy policy slammed by EU data protection chiefs” available at: http://www.theguardian.com/technology/2012/oct/16/google-privacy-policies-eudata-

protection

193 “Google Fined for Illegally Collecting Personal Data” available at: http://english.chosun.com/site/data/html_dir/2014/01/29/2014012901599.html

194 “Google to be told by EU to unravel privacy policy” available at: http://www.theguardian.com/technology/2012/oct/15/google-privacy-policy

195 “The CNIL's Sanctions Committee issues a 150 000 € monetary penalty to GOOGLE Inc.” 08.01.2014 available at: http://www.cnil.fr/english/news-andevents/

news/article/the-cnils-sanctions-committee-issues-a-150-000-EUR-monetary-penalty-to-google-inc/

196 See Press Release “The AEPD sanctions Google for serious violation of the rights of the citizens” 19.12.2013 available at:

http://www.agpd.es/portalwebAGPD/revista_prensa/revista_prensa/2013/notas_prensa/common/diciembre/131219_PR_AEPD_PRI_POL_GOOGLE.pdf ;

also see “Spain levies maximum fine over Google privacy policy” 20.12.2013 available at: http://www.bbc.co.uk/news/technology-25461353

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197 See Press Release of European Parliament 21.10.2013 “Civil Liberties MEPs pave the way for stronger data protection in the EU” available at:

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-%2f%2fEP%2f%2fTEXT%2bIMPRESS%

2b20131021IPR22706%2b0%2bDOC%2bXML%2bV0%2f%2fEN&language=EN

198 “Facebook loses friends as privacy campaign grows” 14.05.2010 available at: http://www.theguardian.com/technology/2010/may/14/facebook-privacycampaign-

delete-account

199 “Facebook could face €100,000 fine for holding data that users have deleted” 20.10.2011 available at:

http://www.theguardian.com/technology/2011/oct/20/facebook-fine-holding-data-deleted

200 “Student group to take Facebook to task in Irish court “ 04.12.2012 available at: http://www.bbc.co.uk/news/technology-20592799

201 “Facebook Ireland Audit Report- December 2011” available at: http://dataprotection.ie/viewdoc.asp?m=&fn=/documents/Facebook Report/final

report/report.pdf ; also see “Irish privacy watchdog calls for Facebook changes” 21.12.2011 available at: http://www.bbc.co.uk/news/technology-16289426

202 “Facebook facial recognition software violates privacy laws, says Germany “ 03.08.2011 available at:

http://www.theguardian.com/technology/2011/aug/03/facebook-facial-recognition-privacy-germany

203 “German state fights Facebook over alleged privacy violations “ 04.01.2013 available at: http://www.theguardian.com/world/2013/jan/04/facebookgermany-

data-protection

204 YouTube Website, Privacy Issues: Privacy Complaints for Other People, available at:

http://www.google.com/support/youtube/bin/answer.py?answer=84753 (“In order to process privacy claims, we must receive notification directly from the

individual in the video…. Any attempt to report a privacy violation for someone other than yourself will not be investigated.”)

205 Twitter, The Twitter Rules, https://support.twitter.com/articles/18311#

206 Twitter, How to report violations, https://support.twitter.com/articles/15789-how-to-report-violations#

207 Facebook Statement of Rights and Responsibilities, available at: https://www.facebook.com/legal/terms (last visited, Jan. 28, 2014).

208 Id. at § 5.8.

209 Instagram, Learn How to Address Abuse, available at: http://help.instagram.com/527320407282978/ (last visited, Jan. 28, 2014).

210 Instagram, Community Guidelines, available at: http://help.instagram.com/477434105621119 (last visited, Jan. 28, 2014).

211 Pinterest, Acceptable Use Policy, available at: http://about.pinterest.com/use/ (last visited, Jan. 28, 2014).

212 Id.

213 Pinterest, Report objectionable or spammy content, comments or people, available at: https://help.pinterest.com/entries/22163668-Report-objectionable-orspammy-

content-comments-or-people (last visited, Jan. 28, 2014).

214 MySpace.com Terms of Use Agreement, last updated June 10, 2013, available at: https://www.myspace.com//pages/terms (last visited, Jan. 28, 2014).

215 Id. at §§ 8.2.

216 “Snapchat’s expired snaps are not deleted, just hidden,” The Guardian, available at: http://www.theguardian.com/media-network/partner-zoneinfosecurity/

snapchat-photos-not-deleted-hidden

217 Snapchat, How Snaps Are Stored and Deleted, available at: http://blog.snapchat.com/post/50060403002/how-snaps-are-stored-and-deleted (May 9,

2014).

218 Twitter, Twitter supports Do Not Track, available at: https://support.twitter.com/articles/20169453-twitter-supports-do-not-track# (“When you turn on DNT in

your browser, we stop collecting the information that allows us to tailor suggestions based on your recent visits to websites that have integrated our buttons

or widgets. We also stop collecting the information that allows us to tailor ads based on your visits to our ad partners’ websites. Specifically, we stop

collecting the unique browser cookie that links your browser to visits to these websites for tailoring suggestions or ads.”) (last visited, Jan. 28, 2014).

219 Pinterest, What’s this “Do Not Track” thing?, available at: https://help.pinterest.com/entries/24996501-What-s-this-Do-Not-Track-thing- (last visited, Jan. 28,

2014).

220 Office of the Privacy Commissioner of Canada, “WhatApp’s violation of privacy law partly resolved after investigation by data protection authorities,”

available at: http://www.priv.gc.ca/media/nr-c/2013/nr-c_130128_e.asp (Jan. 28, 2013).

221 Federal Trade Commission, “Path Social Networking App Settles FTC Charges it Deceived Consumers and Improperly Collected Personal Information

from Users' Mobile Address Books,” http://www.ftc.gov/news-events/press-releases/2013/02/path-social-networking-app-settles-ftc-charges-it-deceived

(Feb. 1, 2013).

222 See “Proposal for General Data Protection Regulation (the Regulation)” available at: http://register.consilium.europa.eu/pdf/en/12/st05/st05853.en12.pdf .

223 See “ Proposal for Data Protection Directive (the Directive) covering law enforcement” available at:

http://register.consilium.europa.eu/pdf/en/12/st05/st05833.en12.pdf .

224 “EU Panel Data Protection Regulation Vote Delayed Until Fall by Amendments” available at:

http://privacylaw.bna.com/pvrc/7060/split_display.adp?fedfid=32440623&vname=prabulallissues&jd=a0d9p0q1u4&split=0

225 McKeogh v John Doe 1 & Ors [2012] available at http://www.bailii.org/ie/cases/IEHC/2012/H95.html

226 http://ec.europa.eu/justice_home/fsj/privacy/workinggroup/wpdocs/2009_en.htm

227 Opinion 5/2009 on online social networking, p. 6.

228 Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of

personal data and on the free movement of such data implemented in the UK by the Data Protection Act 1998.

229 Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of

privacy in the electronic communications sector (Directive on privacy and electronic communications) implemented in the UK by the Privacy and Electronic

Communications (EC Directive) Regulations 2003 (SI 2003/2426).

230 See “Social networking and online forums- when does the DPA apply?” available at:

http://www.ico.org.uk/for_organisations/data_protection/topic_guides/~/media/documents/library/Data_Protection/Detailed_specialist_guides/socialnetworking-

and-online-forums-dpa-guidance.ashx

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231 See” ICO Privacy Notices Code of Practice” available at:

http://ico.org.uk/for_organisations/guidance_index/~/media/documents/library/Data_Protection/Detailed_specialist_guides/PRIVACY_NOTICES_COP_FIN

AL.ashx

232 “Making privacy notices meaningful” The Reporter (Calleja Consulting) July 2009.

233 Federal Trade Commission, “Facebook Settles FTC Charges That It Deceived Consumers By Failing To Keep Privacy Promises,” available at:

http://www.ftc.gov/news-events/press-releases/2011/11/facebook-settles-ftc-charges-it-deceived-consumers-failing-keep (Nov. 29, 2011).

234 Federal Trade Commission, “Myspace Settles FTC Charges That It Misled Millions of Users About Sharing Personal Information with Advertisers,”

http://www.ftc.gov/news-events/press-releases/2012/05/myspace-settles-ftc-charges-it-misled-millions-users-about (May 8, 2012).

235 Portions of this chapter first appeared in, and are reprinted with permission of, the Privacy & Security Law Journal.

236 “Facebook Shuts Down Beacon to Settle Class-Action Lawsuit,” 27 No. 9 Andrews Computer & Internet Litig. Rep. 8 (Sept. 30, 2009), citing Lane, et al. v.

Facebook Inc., et al., No. 08-CV-03845-RS (N.D. Cal.).

237 Drew Hendricks, “Facebook To Drop Sponsored Stories: What Does This Mean For Advertisers?,” available at

http://www.forbes.com/sites/drewhendricks/2014/01/16/facebook-to-drop-sponsored-stories-what-does-this-mean-for-advertisers/ (Jan. 16, 2014).

238 David Kravets, “Judge Approves $20M Facebook ‘Sponsored Stories’ Settlement,” Wired (Aug. 26, 2013) available at:

http://www.wired.com/threatlevel/2013/08/judge-approves-20-million-facebook-sponsored-stories-settlement/

239 iab, Self-Regulatory Principles for Online Behavioral Advertising, available at http://www.iab.net/insights_research/public_policy/behavioraladvertisingprinciples

240 Council of Better Business Bureaus, The National Partner Program, available at: http://www.bbb.org/council/the-national-partner-program/nationaladvertising-

review-services/accountability-program/case-decisions/ (last visited, Jan. 28, 2014).

241 See Article 29 Working Party “Opinion 2/2010 on online behavioural advertising” available at:

http://ec.europa.eu/justice/policies/privacy/docs/wpdocs/2010/wp171_en.pdf ; also see Article 29 Working Party “Opinion 16/2011 on EASA/IAB Best

Practice Recommendation on Online Behavioural Advertising” available at: http://ec.europa.eu/justice/data-protection/article-29/documentation/opinionrecommendation/

files/2011/wp188_en.pdf .

242 Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of personal data and the protection of

privacy in the electronic communications sector (Directive on privacy and electronic communications) implemented in the UK by the Privacy and Electronic

Communications (EC Directive) Regulations 2003 (SI 2003/2426).

243 See “EASA Best Practice Recommendations For Online Behavioural Advertising” available at:

http://www.easaalliance.org/binarydata.aspx?type=doc/EASA_BPR_OBA_12_APRIL_2011_CLEAN.pdf /downlo

245 See CAP “Rules For Organisations Conducting Online Behavioural Advertising” available at: http://www.cap.org.uk/News-reports/Media

Centre/2012/~/media/Files/CAP/Misc/New%20Online%20Behavioural%20Advertising%20rules.ashx

246 Yelp, “Deals, Gift Certificates, and Check-in Offers,” http://www.yelp.com/advertise/national/offer

247 Federal Trade Commission, “FTC Staff Report Recommends Ways to Improve Mobile Privacy Disclosures,” Press Release, available at:

http://www.ftc.gov/news-events/press-releases/2013/02/ftc-staff-report-recommends-ways-improve-mobile-privacy (Feb. 1, 2013).

248 State of California Department of Justice, “Attorney General Kamala D. Harris Issues Guidance on How Mobile Apps Can Better Protect Consumer

Privacy,” available at http://oag.ca.gov/news/press-releases/attorney-general-kamala-d-harris-issues-guidance-how-mobile-apps-can-better (Jan. 10,

2013).

249 Federal Trade Commission, “Android Flashlight App Developer Settles FTC Charges It Deceived Consumers,” available at: http://www.ftc.gov/newsevents/

press-releases/2013/12/android-flashlight-app-developer-settles-ftc-charges-it-deceived (Dec. 5, 2013).

250 “The NSA Files” available at http://www.theguardian.com/world/the-nsa-files

251 “LIBE Draft Report on the US NSA surveillance programme, surveillance bodies in various Member States and their impact on EU citizens’ fundamental

rights and on transatlantic cooperation in Justice and Home Affairs (2013/2188(INI)” available at: http://www.statewatch.org/news/2014/jan/ep-draft-nsasurveillance-

report.pdf

252 Hays v. Ions, EWHC (Ch), No. 745, 4/16/2008. available at http://www.bailii.org/ew/cases/EWHC/Ch/2008/745.html ; also see Whitmar Publications Ltd. v.

Gamage, EWHC (Ch), No. 1881, 7/4/2013 available at: http://www.bailii.org/ew/cases/EWHC/Ch/2013/1881.html

253 See Joseph Menn, “Social networks scan for sexual predators, with uneven results,” Chicago Tribune, dated July 12, 2012, available at

http://articles.chicagotribune.com/2012-07-12/business/sns-rt-usa-internetpredatorsl2e8iadyl-20120711_1_predators-smartphone-app-facebook ; see also

Justin P. Murphy and Adrian Fontecilla, “Social Media Evidence in Government Investigations and Criminal Proceedings: A Frontier of New Legal Issues,”

19 Rich. J.L. & Tech. 11, 7 (2013).

254 Emma W. Sholl, “Exhibit Facebook: The Discoverability and Admissibility of Social Media Evidence” ,” 16 Tul. J. Tech. & Intell. Prop. 207, 223 (Fall 2013),

citing Romano v. Steelcase Inc., 30 Misc.3d. 426, 432-33 (2010).

255 John Browning, “It’s Complicated: How to Walk the Fine Ethical Line in the Age of Social Media,” 76 Tex. Bar Journal 959, 961 (2013).

256 Tariq Remtulla, “Facebook Not So Private? Ontario Court Finds Facebook Profile Discoverable,” 14 No. 4 Cyberspace Law. 17 (May 2009).

257 Pre-paid Legal Services, Inc. v. Cahill, 924 F.Supp.2d 1281, 1292-93 (E.D. Okla. 2013).

258 IT-Lex Technology Law, “NLRB Looks At Retaliatory Firings Based On Facebook Posts,” http://it-lex.org/nlrb-looks-at-retaliatory-firings-based-on-facebookposts/

(Apr. 30, 2013).

259 Margaret DiBianca, “Warnings Against LinkedIn Recommendations: Justified or Propaganda?” 14 No. 9 Del. Emp. L. Letter 2 (Sept. 2009).

260 See Harry Haydon The Sun dated 05 Jul 2009, available at http://www.thesun.co.uk/sol/homepage/news/2517719/MI6-spy-chief-has-cover-blown-on-

Facebook-by-wife.html ; Allegra Lawrence-Hardy, Esq., and Jessica Sawyer Wang, Esq., “Are Your Company’s Secrets Threatened By Your Employee’s

MySpace Page?” 28 No. 14 Andrews Automotive Litig. Rep. 7 (Jan. 6, 2009).

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261 See generally Leser v. Penido, 96 A.D.3d 578 (2012); Internet Solutions Corp. v. Marshall, 611 F.3d 1368 (11th Cir. 2010); Doe I, et al. v. Individuals, 561

F.Supp.2d 249 (D. Conn. 2008).

262 “Service of Process Through Facebook” 03.10.2011 available at:

http://www.lexisnexis.com/legalnewsroom/international-law/b/international-law-blog/archive/2011/03/10/service-of-process-through-facebook.aspx

263 MKM Capital Property Limited v Corbo and Poyser, No. SC 608 of 2008

264 Axe Market Gardens v Craig Axe CIV: 2008-485-2676

265 Knott v. Sutherland (Feb. 5, 2009) Edmonton 0803 002267 (Alta.Q.B.M.)

266 “Service via Twitter – the UK courts embrace technology” The Reporter (Calleja Consulting) November 2009; also see “Court order served over twitter”

available at http://news.bbc.co.uk/1/hi/8285954.stm

267 AKO Capital and AKO Master Fund against former broker TFS Derivatives; also see “Legal claims can be served via Facebook, High Court judge rules “

21.02.2012 available at: http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/9095489/Legal-claims-can-be-served-via-

Facebook-High-Court-judge-rules.html

268 Federal Trade Commission, “FTC Strengthens Kids' Privacy, Gives Parents Greater Control Over Their Information By Amending Childrens Online Privacy

Protection Rule,” available at: http://www.ftc.gov/news-events/press-releases/2012/12/ftc-strengthens-kids-privacy-gives-parents-greater-control-over

(Dec. 19, 2012).

269 “Warsaw Declaration on the appification of society” available at: https://privacyconference2013.org/web/pageFiles/kcfinder/files/ATT29312.pdf .

270 “Digital Agenda: children using social networks at a younger age; many unaware of basic privacy risks, says survey” 18.04.2011 available at:

http://europa.eu/rapid/press-release_IP-11-479_en.htm?locale=en

271 “Digital pictures and facial recognition in our digital life: trends and challenges for tomorrow” 03.2013 available at:

http://www.cnil.fr/fileadmin/documents/en/LettreIP4_en_def.pdf ; also see “First Issue of CNIL IP Reports – Privacy Towards 2020” available at

http://www.cnil.fr/english/news-and-events/news/article/first-issue-of-cnil-ip-reports-privacy-towards-2020-42-experts-share-their-visions-of-the/

272 http://ec.europa.eu/information_society/activities/social_networking/eu_action/selfreg/index_en.htm

273 Whilst this may be based on a range of factors, there is an implication in the notes to the principles that a minimum age of 13 could be imposed in line with

the U.S. approach and the Children’s Online Privacy Protection Act which in the UK only allows providers to collect data without parental consent from

users over 13 years old. Suggested measures to ensure age-appropriateness could include providing means for content providers, partners or users to

label, rate or age restrict content when appropriate, using for example the Broadband Stakeholder Group’s good practice principles on audiovisual content

information.

274 For example, taking steps to ensure that private profiles of users registered as under 18 are not searchable.

275 http://ec.europa.eu/cyprus/news/20100209_safer_internet_en.htm

276 See “Self-regulation for a Better Internet for Kids” available at: http://ec.europa.eu/digital-agenda/self-regulation-better-internet-kids

277 See “Safer Internet Day events in Brussels: Neelie Kroes to hand out prizes for Best Online Content for Kids “ 12.05.2013 available at:

http://ec.europa.eu/digital-agenda/en/news/safer-internet-day-events-brussels-neelie-kroes-hand-out-prizes-best-online-content-kids

278 See “ICO- Personal Information Online- Code of Practice” available at:

http://ico.org.uk/for_organisations/data_protection/topic_guides/online/personal_information_online

279 See http://www.getsafeonline.org/businesses/data-protection-act/ ; http://www.thinkuknow.co.uk/

280 See “Information Commissioner’s guidance about the issue of monetary penalties prepared and issued under section 55C (1) of the Data Protection Act

1998” available at:

http://ico.org.uk/enforcement/~/media/documents/library/Data_Protection/Detailed_specialist_guides/ico_guidance_on_monetary_penalties.pdf

281 See sections 4, 55, 55A and 55B of the Data Protection Act 1998 (as amended).

282 Christopher Niebel v The Information Commissioner (EA/2012/2060)available at:

http://www.informationtribunal.gov.uk/DBFiles/Decision/i1106/Niebel,%20Christopher%20EA.2012.0260.pdf ; also see Scottish Borders Council v The

Information Commissioner (EA/2012/0212) available at:

http://www.informationtribunal.gov.uk/DBFiles/Decision/i1068/Scottish%20Borders%20Council%20EA.2012.0212%20(210813)%20Preliminary%20Decision.pdf

283 Facebook, “Information for Law Enforcement Authorities”; Google, “Transparency Report,” available:

http://www.google.com/transparencyreport/userdatarequests/legalprocess/ ; Twitter, “Guidelines for Law Enforcement,” available at:

http://support.twitter.com/articles/41949-guidelines-for-law-enforcement#

284 Russ Buettner, “Judge Orders Twitter to Release Protester’s Messages,” available at: https://www.facebook.com/safety/groups/law/guidelines/ ; New York

Times: City Room (Jul. 2, 2012), available at: http://cityroom.blogs.nytimes.com/2012/07/02/judge-orders-twitter-to-release-protesters-messages/

285 Somini Sengupta, “Twitter Appeals to Protect Protestor’s Tweets,” New York Times: Bits (Jul. 19, 2012), available at:

http://bits.blogs.nytimes.com/2012/07/19/twitter-appeals-to-protect-protesters-tweets/?_php=true&_type=blogs&_r=0

286 Russ Buettner, “A Brooklyn Protester Pleads Guilty After His Twitter Posts Sink His Case,” New York Times (Dec. 12, 2012), available at:

http://www.nytimes.com/2012/12/13/nyregion/malcolm-harris-pleads-guilty-over-2011-march.html

287 Jose Pagliery, “2 million Facebook, Gmail and Twitter passwords stolen in massive hack ,” CNN Money (Dec. 4, 2013), available at:

http://money.cnn.com/2013/12/04/technology/security/passwords-stolen/

288 Doug Gross, “Millions of accounts compromised in Snapchat hack,” CNN (Jan. 2, 2014), available at: http://www.cnn.com/2014/01/01/tech/socialmedia/

snapchat-hack/

289 Joel Schectman, “UPDATE: LinkeIn Confirms Security Breach,” Wall Street Journal: Digits (Jun. 6, 2012), available at:

http://blogs.wsj.com/digits/2012/06/06/two-security-firms-say-they-verified-linkedin-breach/

290 The authors wish to note the contributions of the following individuals to the content of this chapter: Samantha Clancy, Kimberly Craver, Nathalie

Marchand, Michaela A. McCormack, Nicolas Sauvage and Amber Spataro.

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291 http://www.marketwire.com/press-release/Proofpoint-Inc-1027877.html; “Social networking and reputational risk in the workplace,” Deloitte LLP 2009 Ethics

& Workplace Survey results.

292 “Social networking and reputational risk in the workplace,” Deloitte LLP 2009 Ethics & Workplace Survey results.

293 http://www.marketwire.com/press-release/Proofpoint-Inc-1027877.html.

294 http://www.independent.co.uk/news/media/current-twitter-trends-sun-ceo-tweets-his-resignation-modern-haikus-1889534.html.

295 http://www.workforce.com/section/02/feature/26/66/08/#.

296 Schedule 1(1) and Schedule 2(1) Data Protection Act 1998

htttp://www.statutelaw.gov.uk/legResults.aspx?LegType=All%20Primary&PageNumber=1&BrowseLetter=D&NavFrom=1&activeTextDocId=3190610.

297 Information Commissioner’s Office (ICO) Employment Practice Code

http://www.ico.gov.uk/upload/documents/library/data_protection/detailed_specialist_guides/employment_practices_code.pdf .

298 ACAS Code of Practice http://www.acas.org.uk/index.aspx?articleid=2175.

299 French Labor Code, articles L. 1221-6, L. 1221-8, L. 1221-9, L. 2323-32.

300 This may be partly because of the inexistence of punitive damages in the French judicial system, which generally leads to a different approach to

employment litigation than in some other jurisdictions.

301 The HALDE (“Haute Autorité de Lutte contre les Discriminations et pour l’Egalité”) is the administrative body that, among other things, assists employees in

obtaining damages, or bringing actions before the relevant court regarding discrimination issues. Claims before the HALDE increased by 21 percent, to a

total of 10,545 for 2009, compared with 2008. http://www.halde.fr.

302 This was the case when in 2008 the HALDE controversially carried out “testing” of major French companies, sending a number of fake CVs in response to

job advertisements, and proceeded with a campaign of Naming and Shaming of those companies who statistically invited significantly less numbers of

candidates from certain minority groups for interview.

303 La Commission nationale de l’informatique et des libertés, an independent French administrative authority whose mission is to ensure data privacy law is

applied to the collection, storage, and use of personal data.

304 Such as the MEDEF (The Mouvement des Entreprises de France), employers' organization representing the French business leaders.

305 “Charte réseaux sociaux, Internet, Vie Privée et Recrutement”.

306 An employee connected from home posted a comment on his personal Facebook page, criticizing his hierarchy. Two of his colleagues added other

negative comments on to the post. All three were dismissed for gross misconduct. French judges will have to rule on whether such correspondence should

be considered as private or not (and therefore, on whether or not it could be used, as grounds for dismissal).

307 Deloitte survey: http://www.marketwire.com/press-release/Proofpoint-Inc-1027877.html; “Social networking and reputational risk in the workplace,” Deloitte

LLP 2009 Ethics & Workplace Survey results.

308 Employers must be careful, however, to apply their computer policy consistently to avoid claims of discriminatory discipline and/or monitoring based on any

protected category. For example, if the employer allows its employees to use social media sites, and in monitoring their usage discovers that certain

employees are seeking to form a union, the employer may not focus its monitoring efforts on only the employees advocating for the union.

309 See Blakley v. Continental Airlines, Inc. 751 A.2d 538 (N.J. 2000)

310 Under the recently revised FTC Guides, it is unclear to what extent, if any, an employer may be liable for an employee’s statements in social media. Under

Example 8 of 16 CFR Part 255.5, an online message board designated for discussions of new music download technology is frequented by MP3 player

enthusiasts…. Unbeknownst to the message board community, an employee of a leading playback device manufacturer has been posting messages on

the discussion board promoting the manufacturer’s product. Knowledge of this poster’s employment likely would affect the weight or credibility of her

endorsement. Therefore, the poster should clearly and conspicuously disclose her relationship to the manufacturer to members and readers of the

message board. 16 CFR Part 255.1(d) provides that “[a]dvertisers are subject to liability for…failing to disclose material connections between themselves

and their endorsers. Endorsers also may be liable for statements made in the course of their endorsements.” Therefore, in Example 8, both the employee

and the employer may be liable for the employee’s failure to disclose his material connection with the employer.

311 See Doe v. XYZ Corp., 887 A.2d. 1156 (N.J. Super. 2005).

312 16 CFR Part 255.

313 Information Commissioner’s Office (ICO) Employment Practice Code, page 54 onwards

http://www.ico.gov.uk/upload/documents/library/data_protection/detailed_specialist_guides/employment_practices_code.pdf .

314 The relevant legislation in the UK is the Regulation of Investigatory Powers Act 2000

http://www.statutelaw.gov.uk/legResults.aspx?LegType=All%20Primary&PageNumber=3&BrowseLetter=R&NavFrom=1&activeTextDocId=1757378.

315 Otomewo v Carphone Warehouse Ltd ET/2330554/2011.

316 See for example, Teggart v TeleTech UK Ltd [2012] NIIT 00704_11IT; Gosden v Lifeline Project Ltd ET/2802731/2009.

317 http://www.theregister.co.uk/2008/10/23/sickie_woo.

318 Case No 06-45800 (Cass. soc., July 9, 2008): the employer is entitled to monitor its employees’ Internet connections in the absence of the latter, given that

connections during working hours, on the computer made available by the employer for the performance of the employee’s work, are presumed to have a

professional nature.

319 La Commission nationale de l’informatique et des libertés, an independent French administrative authority whose mission is to ensure data privacy law is

applied to the collection, storage, and use of personal data.

320 Cases No 08-40.144 and 08-44.019 (Cass. soc., Feb. 3, 2010) An employer was held to be liable for the harassment that had occurred in the workplace

despite having taken measures on becoming aware of the situation; in one case the perpetrator resigned and in another the victim of the harassment was

moved to another site. Indeed, in such areas, employers are bound by an obligation to achieve a particular result “obligation de resultat” which is distinct in

French contract and tort law from an “obligation de moyens,” an obligation to act or a “best efforts obligation.”

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321 “Facebook, Inc. v. Power Ventures, Inc.,” No. C 08-5780, 2009 WL 1299698, at *4 (N.D. Cal. May 11, 2009) (“Access for purposes that explicitly are

prohibited by the terms of use is clearly unauthorized”).

322 http://www.facebook.com/terms.php.

323 Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e, et seq.

324 See, e.g., Cal. Lab. Code § 96k; see also N.Y. Labor Code § 201-d.

325 See Sigler v. Kobinsky, 762 N.W.2d. 706 (Wisc. Appt. Ct. 2008); Maypark v. Securitas Security Services USA, Inc, 2009 WL 2750994 (Wisc. Appt. Ct.

2009).

326 Laningham v. Carrollton-Farmers Branch Independent School District, 2009 WL 2998518 (N.D. Tex., Sept. 17, 2009); Wolfe v. Fayetteville, Arkansas

School District, 600 F.Supp.2d 1011 (W.D. Ark. 2009).

327 National Labor Relations Act, 29 U.S.C. §§ 151-169.

Deloitte survey: http://www.marketwire.com/press-release/Proofpoint-Inc-1027877.html; “Social networking and reputational risk in the workplace,” Deloitte

LLP 2009 Ethics & Workplace Survey results.

328 la Cour de Cassation

329 Case n° 08-17.191 Cass. Soc., (Déc. 08, 2009). The information for internal use was not well enough defined to judge whether it was necessary and

proportionate given the obvious breach of individual and collective rights and liberties, in this case freedom of expression (based on article L. 1121-1 of the

French labor code). Moreover, besides the consideration of civil liberties, the Labour Code contains specific articles (L. 2281-1 et seq.) pertaining to the

employees’ collective right to express themselves on issues such as working conditions and the content and organization of their work. The vague

definition of information to be considered as confidential did include information on which employees may need to communicate. With regard to the

whistleblowing disposition, employees were invited to denounce behavior thought to be in breach, not only of regulations pertaining to finance and fraud,

etc., but basically of other regulations of the code of conduct as well. This was not strictly in line with the application of Sarbanes Oxley regulations and

therefore infringed on employee rights. Moreover, the company did not comply with the proper CNIL procedure and was held as not providing enough

protection to employees using the facility.

330 TGI Caen, (Nov. 5, 2009)

331 The authors wish to acknowledge the contributions of Areta L. Kupchyk and Colleen T. Davies to the content of this chapter.

332 Pricewaterhouse Coopers LLP, "Social media likes healthcare: From marketing to social business," available at http://www.pwc.com/us/en/healthindustries/

publications/health-care-social-media.jhtml.

333 See, e.g., 21 C.F.R. § 202.1.

334 For example, in November 2009, FDA’s Office of Criminal Investigations (OCI), in conjunction with the Center for Drug Evaluation and Research, and the

Office of Regulatory Affairs, Office of Enforcement, targeted 136 websites that appeared to be engaged in the illegal sale of unapproved or misbranded

drugs to U.S. consumers. As part of this investigation, FDA issued 22 warning letters to the operators of these websites and notified Internet service

providers and domain name registrars that the websites were selling products in violation of U.S. law. FDA, FDA Issues 22 Warning Letters to Website

Operators—Part of International Internet Week of Action, at http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm191330.htm.

335 See FDA, Promotion of FDA-Regulated Medical Products on the Internet, Notice of Public Meeting, 61 Fed. Reg. 48,707 (Sept. 16, 1996).

336 See The Pink Sheet (Nov. 8, 1999) pg. 22 (Statement of Melissa Moncavage, DDMAC Public Health Advisor, at Drug Information Association conference

Oct. 23, 1999); see also DDMAC, Center for Drug Evaluation and Research presentation by Melissa Moncavage Nov. 3, 1999, at

http://www.fda.gov/cder/ddmac/diammm1999/tsld003.htm.

337 FDA Response to Ignite Health FDA Social Media, Questions for the FDA Regarding ‘Next Steps’ for Guidance Related to the Promotion of FDARegulated

Medical Products Using the Internet and Social Media Tools, Dec. 11, 2009,

http://www.fdasm.com/docs/FINAL%20DDMAC%20Responses%20to%20FDASM_Questions.pdf .

338 http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM381352.pdf .

339 See, e.g.,

http://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmace

uticalCompanies/UCM055773#

340 See, e.g.,

http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterst

oPharmaceuticalCompanies/UCM388800.pdf .

341 See http://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2011/ucm256922.htm.

342 So long as the dissemination of off-label information is a scientific exchange between medical or science professionals, FDA will not consider it

promotional; but if the dissemination is within a promotional context, FDA will regulate it as violative off-label advertising. Although the Internet, and social

media specifically, may facilitate scientific discussions through interactive, immediate, and spontaneous exchanges in professional venues such as Sermo,

FDA may consider discussions with multiple parties about off-label issues to be promotional in nature and not scientific exchange.

343 Promotional messages may not “recommend or suggest” the drug for unapproved uses. 21 C.F.R. § 202.1(e)(4)(i)(a). The only other thing more difficult

than ensuring adequate advertising content is determining when a statement or activity is in fact promotional as opposed to scientific exchange. This is

more important than it may appear at first blush. Technically, any statement or activity, from anyone – not just the company, its employees, vendors, or

agents, but, anyone, so long as the company “knows, or has knowledge of the facts that would give [the company] notice – that suggests a use other than

the specific use explicitly approved on the product label may be considered promotion of an unapproved or “off-label” use. 21 C.F.R. §§ 201.128 and

801.4. In other words, a company need not have any relationship with the person making the statement or conducting the activity; it need only have reason

to know that the product is being used for an off-label purpose.

344 http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM285145.pdf .

345 21 C.F.R. § 314.81 (b)(3)(i).

346 See http://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM381352.pdf .

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347 FDA has issued guidance regarding responding to unsolicited requests for information.

348 The Pharmalot blog is now a twitter feed available at https://twitter.com/pharmalot.

349 Published by Pharmalot, available at http://www.pharmalive.com/fdas-abrams-long-awaited-social-media-guidance-coming.

350 As background, the holder of an approved marketing application is required to “review all adverse drug experience information obtained or otherwise

received by the applicant from any source, foreign or domestic, including information derived from commercial marketing experience, postmarketing clinical

investigations, postmarketing epidemiological/surveillance studies, reports in the scientific literature, and unpublished scientific papers.” 21 C.F.R. §

314.80(b) (emphasis added). By participating in social media interactions, a company may be required to investigate every adverse event claim it comes

across, regardless of its credibility. Such claims would also have to be reported if the company is able to determine at least four data elements: (1) an

identifiable patient; (2) an identifiable reporter; (3) a specific drug or biologic involved in the event; and (4) an adverse event or fatal outcome. Id. FDA’s

current adverse event reporting guideline states that a company is relieved from the adverse event reporting obligation only if one or more of the four

elements remain unknown “after being actively sought” by the company. Id. To what extent (if any) would this same standard apply to the Internet and

social media communications is the question.

351 See e.g., #TrendingTopic: Privacy Best Practices for #SocialMedia, July 24, 2013, available at https://cio.gov/trendingtopic-privacy-best-practices-forsocialmedia/.

352 Social Media and the Federal Government: Perceived and Real Barriers and Potential Solutions, Dec. 23, 2008, available at

http://www.howto.gov/sites/default/files/documents/SocialMediaFed%20Govt_BarriersPotentialSolutions.pdf .

353 Privacy and Government Contracts with Social Media Companies, available at http://epic.org/privacy/socialnet/gsa/.

354 See 18 U.S.C. § 2701 et seq. (1986).

355 See, e.g., United States v. Anderson, 664 F.3d 758, 762 (8th Cir. 2012) (noting hundreds of Facebook private chats obtained through a search warrant);

United States v. Kearney, 672 F.3d 81, 84 (1st Cir. 2012) (noting that law enforcement used account and IP address information obtained from MySpace

via an administrative subpoena to subpoena defendant’s Internet provider for his name and address); In re Grand Jury Subpoena No. 11116275, 846 F.

Supp. 2d 1, 2 (D.D.C. 2012) (denying anonymous intervenor’s motion to quash a subpoena issued to Twitter by a federal grand jury for records pertaining

to the intervenor’s identity); United States v. Sayer, Criminal No. 2:11 cr 113 DBH, 2012 WL 2180577, at *3 (D. Me. June 13, 2012) (using subpoenas to

obtain evidence from Facebook and MySpace); United States v. Meregildo, No. 11 Cr. 576(WHP), 2012 WL 3264501, at *2 (S.D.N.Y. Aug. 10, 2012)

(obtaining evidence through warrant issued to Facebook).

356 The particularized showing required under the SCA only applies to certain substantive data including (1) contents of wire or electronic communications in

electronic storage; (2) contents of wire or electronic communications in a remote computing service; (3) subscriber records concerning electronic

communication service or remote computing service; and (4) basic subscriber information. See 18 U.S.C. § 2703(d); see also In re United States for an

Order Pursuant to 18 U.S.C. 2703(d), 36 F. Supp. 2d 430 (D. Mass. 1999).

357 Carolyn and Peter appreciate the helpful comments of their Insurance Recovery Group colleagues Mark Hersh and Andrew Moss in the United States and

Gregor Pryor in the UK in preparing this chapter.

358 According to a co-national managing director for Professional Risk Solutions at AON, the case of Heartland Payment Systems, a purported breach

involving up to 100 million records, led to three sets of claims: consumer class actions for alleged invasion of privacy and potential identity theft; class

actions involving financial institutions that had to cancel and re-issue credit cards; and securities class actions alleging that directors and officers did not

have adequate oversight measures in place. Phil Gusman, Data Explosion Expands Breach Exposure, But Insureds More Open to Handling Risks, NAT’L

UNDERWRITER, July 20, 2009.

359 See J. Andrew Moss, Enhancing the Brave New World of Cyberliabilities and Insurance Coverage, THE BRIEF, Spring 2013.

360 The authors wish to acknowledge the contributions of Maureen C. Cain, Bonnie M. Mangold and Maria Dogaru to the content of this chapter.

361 See Chris Wheelock, A Growing Trend: Social Media As Legal Evidence, West Michigan Business (July 29, 2009, 12:30 p.m.),

http://www.mlive.com/business/west-michigan/index.ssf/2009/07/a_growing_trend_social_media_a.html.

362 In re K.W., 666 S.E.2d 490, 494 (N.C. Ct. App. 2008); see Sandra Hornberger, Social Networking Websites: Impact on Litigation and the Legal Profession

in Ethics, Discovery, and Evidence, 27 Touro L. Rev. 279, 302 (2011).

363 People v. Liceaga, No. 280726, 2009 WL 186229, at *3-4 (Mich. App. Jan. 27, 2009).

364 Mai-Trang Thi Nguyen v. Starbucks Coffee Corp., Nos. CV 08-3354 CRB, CV 09-0047, 2009 WL 4730899, at *2, 5 (N.D. Cal. Dec. 7, 2009).

365 Romano v. Steelcase Inc., 907 N.Y.S.2d 650, 654 (Sup. Ct. 2010).

366 EEOC v. Simply Storage Mgmt. LLC, 270 F.R.D. 430, 434 (S.D. Ind. 2010); see Emma W. Sholl, Exhibit Facebook: The Discoverability and Admissibility of

Social Media Evidence, 16 Tul. J. Tech. & Intell. Prop. 207, 225 (2013).

367 R v. Grewal, [2010] EWCA Crim 2448

368 Locke v Stuart [2011] EWHC 399 (QB)

369 Nield v. Loveday [2011] EWHC 2324 (Admin)

370 McMillen v. Hummingbird Speedway, Inc., No. 113-2010 CD, 2010 Pa. Dist. & Cnty. Dec. LEXIS 270, at *9 (Pa. D. & C. 2010); see Lisa McManus, Waiver

of Attorney-Client Privilege or Work Product Doctrine through Social Media, LexisNexis® Legal Newsroom (Feb. 18, 2011, 9:52 a.m.),

http://www.lexisnexis.com/legalnewsroom/technology/b/legal-technology-blog/archive/2011/02/18/waiver-of-attorney-client-privilege-or-work-productdoctrine-

through-social-media.aspx.

371 Lenz v. Universal Music Corp., No. C 07-03783 JF (PVT) 2010 U.S. Dist. LEXIS 119271, at *7-13 (N.D. Cal. Oct. 22, 2010); see Lisa McManus, Waiver of

Attorney-Client Privilege or Work Product Doctrine through Social Media, LexisNexis® Legal Newsroom (Feb. 18, 2011, 9:52 a.m.),

http://www.lexisnexis.com/legalnewsroom/technology/b/legal-technology-blog/archive/2011/02/18/waiver-of-attorney-client-privilege-or-work-productdoctrine-

through-social-media.aspx.

372 Juror Declares Defendant “GUILTY” on Facebook, CBSNEWS (Sept. 2, 2010, 10:49 a.m.), http://www.cbsnews.com/news/juror-declares-defendant-guiltyon-

facebook/.

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ReedSmith Network Interference: A Legal Guide to the Commercial Risks and Rewards of the Social Media Phenomenon

373 Dimas-Martinez v. State, No. CR 11-5, 385 S.W.3d 238, 246, 249 (Ark. Dec. 8, 2011); Suzi Parker, Arkansas Death Row Inmate Gets New Trial Because

of Tweets, Reuters (Dec. 8, 2011, 3:36 p.m.), http://www.reuters.com/article/2011/12/08/us-crime-twitter-arkansas-idUSTRE7B72C220111208.

374 Ben Zimmer, Juror Could Face Jail Time for ‘Friending’ Defendant, USA Today (Feb. 7, 2012, 2:34 p.m.),

http://usatoday30.usatoday.com/news/nation/story/2012-02-07/juror-facebook-friend-defendant/53000186/1.

375 Larry Welborn, Facebooking Juror Kicked Off Murder Trial, OC Register (Aug. 21, 2013, 1:17 p.m.), http://www.ocregister.com/news/juror-329708-trialjudge.

html

376 Matt Reynolds, Blogging Juror Requires Retrial, Burglar Says, Courthouse News Service (Oct. 10, 2013, 12:47 p.m.),

http://www.courthousenews.com/2013/10/10/61919.htm.

377 HM Attorney General v. Fraill and Sewart [2011] EWHC 1629 (Admin)

378 HM Attorney General v. Beard [2013] EWHC 2317 (Admin)

379 HM Attorney General v. Davey [2013] EWHC 2317 (Admin)

380 Blaney v. Persons Unknown (2009)

381 Order of Mr Justice Teare in the High Court of Justice, February 2012

382 The authors wish to acknowledge the contributions of Jesse J. Ash and Paul Llewellyn to the content of this chapter.

383 See,e.g., Fulfilling Regulatory Requirements for Postmarketing Submissions of Interactive Promotional Media for Prescription Human and Animal Drugs

and Biologics, Guidance for Industry, Center for Drug Evaluation and Research, Food & Drug Administration, January 2014, at 2 (hereinafter “FDA

Guidance”) (“a firm may promote its products through product websites, discussion boards, chat rooms, or other public electronic forums that it maintains

and over which it has full control”)

384 Examples of how a blog may be used to disseminate information about safety issues related to products are the Consumer Product Safety Commission

(“CPSC”) blog “on safety,” as well as its Twitter page. See, http://www.cpsc.gov/onsafety/category/safety-blogs/; http://twitter.com/OnSafety

385 FDA Guidance at 3.

386 For example, the New England Journal of Medicine recently had to issue a statement defending its practices after a survey showed its publication

contained more ghostwritten articles than other prominent medical journals. See “NEJM responds to survey on ghost-writing,” (Sept. 21, 2009);

http://www.boston.com/news/health/blog/2009/09/the_new_england.html

387 The authors wish to acknowledge the contributions of William M. Krogh to the content of this chapter.

388 2013 Fortune 500 Are Bullish on Social Media: Big Companies Get Excited About Google+, Instagram, Foursquare and Pinterest, By:Nora Ganim Barnes,

Ph.D., Ava M. Lescault, MBA and Stephanie Wright, Charlton College of Business Center for Marketing Research, University of Massachusetts Dartmouth

available at http://www.umassd.edu/cmr/socialmedia/2013fortune500/

389 Anthony Fields, Securities Act Release No. 9291 (2012).

390 Michael Migliozzi II, Securities Act Release No. 9216 (2011).

391 See Disciplinary and Other FINRA Actions Reported November 2013 (Charles Michael Matisi (CRD #2650170, Registered Representative, Hauppauge, New

York)) available at http://www.finra.org/web/groups/industry/@ip/@enf/@da/documents/disciplinaryactions/p385575.pdf

392 See Financial Industry Regulatory Authority, Misrepresentative and Unbalanced “Tweets” and Other Misconduct, Quarterly Disciplinary Review, July 2011.

393 No. 14-cv-1409 (C.D. Cal. Feb. 25, 2014).

394 See SEC v. Christopher A. Black, Case No. 09-CV-0128 (S.D. Ind., Sept. 24, 2009).

395 SEC v. Presstek, Inc. and Edward J. Marino, 1:10-CV-10406 (D. Mass. March 9, 2010).

396 SEC v. Berliner, No. 08-CV-3859 (JES) (S.D.N.Y. April 24, 2008).

397 SEC v. Sarath B. Gangavarapu, No. CV09-231 (E.D. Tenn. Aug. 31, 2009).

398 The authors wish to acknowledge the contributions of Sachin Premnath to the content of this chapter.

399 http://crunchbase.com/company/twitter

400 Oneok, Inc. v. Twitter, Inc., Case Number 4:09-cv-00597 (N.D. Okl. Sept. 15, 2009).

401 Stewart, Daxton. Social Media and the Law, 2013 Taylor & Francis.

402 Id.

403 Sam Jones, HMV workers take over official Twitter feed to vent fury over sacking, 31 January 2013, available at

http://www.theguardian.com/business/2013/jan/31/hmv-workers-twitter-feed-sacking

404 http://www.telegraph.co.uk/technology/internet-security/10568019/Syrian-Electronic-Army-hacks-Microsoft-Twitter-accounts.html

405 See generally: https://support.twitter.com/groups/56-policies-violations/topics/236-twitter-rules-policies/articles/18367-trademark-policy#

406 http://crunchbase.com/company/facebook

407 http://www.ebizmba.com/articles/social-networking-websites

408 http://www.facebook.com/terms.php?ref=pf

409 https://www.facebook.com/help/www/223752991080711

410 See Ryan Davis, Twitter Helps Usher in New Set of Trademark Perils, available at http://www.law360.com/articles/165012/twitter-helps-usher-in-new-setof-

trademark-perils

411 Id.

412 https://www.facebook.com/help/329992603752372

413 https://www.facebook.com/help/208017472571983

414 Bundesgerichtshof [German Federal Court of Justice], NJW 2002, p. 2031 – shell.de; Hamm Court of Appeals, NJW-RR 1998, 909 – krupp.de.

415 http://instagram.com/about/legal/terms/#

416 See more at: http://davisudoka.com/blog/view/can-i-trademark-my-awesome-hashtag#sthash.GeE6Ujf5.dpuf

417 Pinterest Spurs Online Sales – and Trademark Risks, available at www.law360.com/articles/402364/print?section=hospitality

418 Id.

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419 Id.

420 http://about.pinterest.com/trademark/

421 http://www.dailydot.com/business/pinterest-trademark-microsoft/

422 http://www.dailydot.com/business/pinterest-trademark-microsoft/

423 http://www.pinterest.com/search/people/?q=Mitt%20Romney

424 15 U.S.C. §1114(1)(a).

425 15 U.S.C. §1125(a) liability based on use in commerce of “any word, term, name, symbol, or device, or any combination thereof, or any false designation of

origin, false or misleading description of fact, or false or misleading representation of fact that is likely to cause confusion.”

426 15 U.S.C. § 1125(c) liability against party who “at any time after the owner’s mark has become famous, commences use of a mark or trade name in

commerce that is likely to cause dilution by blurring or dilution by tarnishment of the famous mark.”

427 Stan Hammer, WDVA Court Denies Motion to Dismiss Trademark Infringement Claim Based on Alleged Fictitious LinkedIn Profile, available at

http://virginiaiplaw.com/2013/11/wdva-court-denies-motion-to-dismiss-trademark-infringement-claim-based-on-alleged-fictitious-linkedin-profile/

428 Directive 2008/95/EC of the European Parliament and of the Council of 22 October 2008 to approximate the laws of the Member States relating to

trademarks.

429 s10, Trade Mark Act 1994

430 Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trademark.

431 Céline Sarl v. Céline SA (Case C-17/06)

432 https://support.twitter.com/articles/18367-trademark-policy#

433 1-800 Flowers Inc. v. Phonenames Ltd [2000] FSR 697

434 Bundesgerichtshof [German Federal Court of Justice], NJW 2005, p. 1435 – Hotel Maritime.

435 Irvine v. Talksport [2003] EWCA Civ 423

436 Sec. 4 no. 9 German Act Against Unfair Competition.

437 Cologne Civil Court, decision of September 16, 2009, file no. 33 O 374/08.

438 http://support.twitter.com/articles/18366-impersonation-policy#

439 https://support.twitter.com/articles/18366

440 https://support.twitter.com/groups/56-policies-violations/topics/236-twitter-rules-policies/articles/106373-parody-commentary-and-fan-account-policy

441 Jung, Andrew M. (2011) “Twittering Away the Right of Publicity: Personality Rights and Celebrity Impersonation on Social Networking Websites,” Chicago-

Kent Law Review: Vol. 86: Iss. 1, Article 16. Available at: http://scholarship.kentlaw.iit.edu/cklawreview/vol86/iss1/16

442 Anthony La Russa v. Twitter, Inc., Case Number CGC-09-488101 (Cal. Super. Ct., San Fran. Co., May 6, 2009).

443 https://support.twitter.com/articles/119135-faqs-about-verified-accounts#

444 Eli Langer, Respect me—I'm verified on Twitter (18 November 2013), available at http://www.cnbc.com/id/101200388

445 https://support.twitter.com/articles/119135-faqs-about-verified-accounts#

446 Taser International Inc. v. Linden Research Inc., 2:09-cv-00811 (U.S.D.C., D. Ariz., April 17, 2009).

447 http://www.techdirt.com/articles/20090421/1310304599.shtml

448 http://www.bloomberg.com/apps/news?pid=20601103&sid=aR6xHcnBMn9M

449 Richard Acello, Virtual Worlds, Real Battles: Trademark Holders Take on Use in Games (1 January 2011), available at

http://www.abajournal.com/magazine/article/virtual_worlds_real_battles/

450 Adam Opel AG v. Autec AG (Case C-48/05).

451 Bundesgerichtshof [German Federal Court of Justice], decision of January 14, 2010, file no. I ZR 88/08 (not yet published).

452 Nir Kossovsky, MISSION INTANGIBLE, Blog of the Intangible Asset Finance Society, September 21, 2009 (quoting Darren Cohen).

453 Eros LLC v. Leatherwood, No. 8:2007cv01158 (M.D. Fla. 2007).

454 Eros LLC v. Simon, Case No. 1:2007cv04447 (E.D.N.Y. 2007).

455 Registration No. 3,483,253 covering “providing temporary use of non-downloadable software for animating three-dimensional virtual characters.”

456 Registration No. 3,222,158 covering “computer graphics services; graphic art design; graphic design services, graphic illustration serves for others.”

457 Registration No. 3,531,683.

458 Helen Lewis, Digital money talks, even when it trades in hats and hamburgers (14 April 2013), available at

http://www.theguardian.com/commentisfree/2013/apr/14/virtual-economies-digital-money-talks

459 http://lindenlab.com/tos

460 Id.

461 Id.

462 Kierin Kirby v. Sega of America, Inc., 144 Cal App. 4th 47 (2006).

463 Marvel v. NCSoft, No. CV 04-9253 (C.D. Cal. Mar. 9, 2005).

464 This article is intended as a summary of the legal landscape and potential strategies for dealing with that landscape. However, nothing herein should be

construed as a legal opinion or specific legal advice for a particular matter or situation.

465 For example, recent changes to 35 U.S.C. have made it more difficult to sue multiple defendants in a single case, and have provided alternative agency

proceedings for challenging patents outside of civil litigation. Further, the “Innovation Act” which passed in the House of Representatives in December of

2013 increases the burden on patent asserters in several aspects. The Innovation Act is not yet law and the Senate has taken up a corresponding bill.