Last week, Netflix was hit with the news that a Facebook update might cause the company to face legal action from the Securities and Exchange Commission. In July, CEO Reed Hastings updated his Facebook page, in a public post, touting that Netflix subscribers streamed one billion hours of content in June, a company milestone, and congratulating his team. That post, says the SEC, might violate the Regulation Fair Disclosure rule, which requires information to be disclosed to publicly to investors at the same time. According to the Chicago Tribune, the SEC’s case will fall down to whether that milestone was substantive to investors and, if so, whether investors knew Hastings planned to disclose important company news on his Facebook page. If the SEC finds Netflix violated the rule, the company can face civil action.
Increasingly brands expect social media to be part of any media company’s offerings. According to the 2012 Social Media Marketing Industry Report, 94 percent of businesses with a marketing department use social media as part of their marketing efforts. There are plenty of benefits — exposure, lead generation, establishing customer loyalty — but this recent case shows there are some pitfalls as well, and legal ones at that. Here are four other legal cases involving social media, and tactics you can take to avoid legal trouble.
Securities: SEC Investigates Whole Foods
In a similar case to Netflix, in 2006, Whole Foods Co-Founder John P. Mackey posted on a Yahoo! Finance bulletin board, under a pseudonym, that rival Wild Oats Markets lacked “a viable business model” and that they had “lost their way.” The following year, Whole Foods acquired its rival and the SEC investigated whether the posting was an attempt to affect Wild Oats’ stock price, or whether it violated the Fair Disclosure Rule. Mackey was cleared of charges in 2008.
Endorsements: Ann Taylor Blogger Event
In 2009 and earlier this year, the FTC revised its endorsement guidelines to include social media. In short, rules state that if someone endorses a product or service in return for pay or something of value, it must be clearly marked as an ad or the connection must be clear.
In 2012, the FTC investigated Ann Taylor for having bloggers attend a conference then write about their experience and the clothes in exchange for a gift card. The bloggers had 24 hours to write their stories to qualify for the up-to-$500 gift cards. Ultimately, FTC decided not to take action.
In publishing, blatant advertisements disguised as editorial will be uncovered quickly by readers, and most publishers won’t take the risk of tarnishing their reputation. But in a blog post, Jeff Hurt warns that the guidelines might affect conference producers. Many conference speakers get free flights, meals and hotel stays in return for their time at the event, which can qualify as “something of value.” Businesses should be careful when asking speakers to promote their events on social media sites. To be safe, speakers should clearly disclose their connection.
Intellectual Property: Proctor & Gamble and Twitter
A few years ago, Proctor & Gamble found itself in trouble when launching a new campaign for Ivory soap. The campaign featured content and people originally shot years before, and when they couldn’t find all the disclosure agreements or the people they took a proactive approach.
“We couldn’t go back and find everyone, so we set aside some money” Steve Caldwell, senior counsel at P&G, said in an article. “When people showed up, they were told ‘Here’s your money. We tried to find you.'”
Photo- and video-sharing websites such as Facebook, Twitter, Pinterest and YouTube can also bring up copyright issues. If the content is the original work of someone else and you haven’t sought permission to distribute it, you could be bringing trouble on yourself. Links may be excluded from copyright laws because in most cases they give instant attribution, which may appease copyright owners.
In a September case, one photographer sued Twitter for failing to take down infringing images that went viral.
“If somebody puts a couple of my pictures on a Tumblr page, that’s totally fine,” Christopher Boffoli told Ars Technica. But since the images went viral, he became concerned that he was losing his rights. Also, Twitter’s Terms of Service states they can use anything uploaded to their website in any way they wish (similar to other social sites’ TOS agreements). In October, Boffoli dismissed his case, perhaps settling with Twitter.
Certain legal language can help businesses avoid trouble when using social media sites. In Securities cases, Facebook’s privacy policies state that “information sent to ‘everyone’ is publicly available information.” Twitter recently decided that it will remove content that is under investigation for copyright infringement. Also, the Digital Millennium Copyright Act allows publishers to avoid liabilities if they immediately take down infringing material and can prove they did not know the content infringed (more on DMCA can be found here).
Social media is important, but it’s equally important to be knowledgeable about potential legal threats. Being informed and proactive can help businesses avoid cases like the ones above.
By Elizabeth A. Reid